Q2 2021 West Pharmaceutical Services Inc Earnings Call
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to.
Vice President of Investor Relations. Thank you. Please go ahead.
Thank you Erica.
Good morning, and welcome to West second quarter 2021 conference call.
We issued our financial results. This morning, and the release has been posted in the investors section on the company's website located at west.
Quint Bill Com.
This morning, CEO, Eric Green and CFO, Bernard Briquette will review our financial results.
To provide an update on our business and presented an update on our full year 2021 financial guidance.
There's a slide presentation that accompanies today's call and a copy of that presentation is available on the investor.
Section of our website.
On slide 4 is our safe Harbor statement statements made by management on this call and in the accompanying presentation contain forward looking statements within the meaning of U S Federal Securities law.
These statements are based on our beliefs and assumptions current expectations estimates and then.
With that in our forecast.
The company's future results are influenced by many factors beyond the control of the company actual results could differ materially from past results as well as those expressed or implied in any forward looking statement made here.
Please refer to today's press release as well as any other disclosures made by the company regarding the risks to which.
Including our 10-K 10-Q and 8-K reports.
During today's call management will make reference to non-GAAP financial measures, including organic sales growth adjusted operating profit adjusted operating profit margin and adjusted diluted EPS.
Reconciliations and limitations of the non.
Non-GAAP financial measures to the most comparable financial results from.
Buried in conformity to GAAP are provided in this morning's earnings release.
I'll now turn the call over to West CEO and President Eric Green.
Thank you Quintin and good morning, everyone. Thank you for joining us today.
Starting on slide 5 I am pleased to report.
We delivered another solid quarter of growth.
This was driven by strong organic sales in both our base business and the accelerating demand for products associated with COVID-19 are.
Our high value products, coupled with productivity gains continued to feel expanded growth and operating margins.
Together. This has resulted in significant EPS growth for the second quarter.
The strong performance demonstrates the criticality of our business as the market leader in primary packaging of injectable drugs and is a testament to the foundation, we have built over time with our market.
That strategy globalization of our manufacturing network and our 1 west team approach, which is bringing meaningful benefits to our customers to support patient health.
We continue to manage through the challenges of the pandemic with focus on our key priorities of team member safety and ensuring uninsured.
Interrupted supply of high quality containment and delivery devices.
I am proud of our team across the globe for their dedication to customers patients and most importantly to each other as we have met the demands of our business.
Another highlight this quarter is the release of R 20.
'twenty corporate responsibility report the core values of west are well aligned with our environmental social and governance goals with a great year of achievement and accolades.
And in the future, we expect to even more progress as we continue to raise our ESG expectations.
I encourage you to get the report which is on our corporate website.
And as for guidance, we are well positioned with the right strategy strong core business and the incremental pandemic opportunities with this momentum and a strong execution by the team, we're raising our sales and.
And EPS guidance for the full year of 2021.
Bernard will go into greater detail shortly.
Turning to slide 6.
We continue to deliver the key drivers of growth in Q2 was strong customer demand of HCP components, including Westar, Florida Tech envision.
And novo peer offerings as well as <unk> Crystal Zenith.
It is clear that our unique value propositions and technical expertise resonate with our customers as quality requirements continue to rise we are seeing growing demand each year for our <unk> products.
Our industry leading.
Portfolio of film coated components day.
Bill, Florida Tech and over peer are sought by our biologic and pharma customers as an effective barrier against organic and inorganic extractable and minimizing the interaction between the drug and closure, while maintaining container closure integrity.
Through the first half of 2021, our participation rate in recently approved new molecular entities in the U S and Europe remains strong our components by west or our partner day keel are specced on almost all of the biologics and Biosimilars approved so far in 2021 and a large majority.
<unk> a small molecules approved.
For the most part these new drugs are using our highest level of <unk>, including Nova peer, Florida, Texas and West Star.
This has translated into robust double digit growth for our biologics and pharma segments, both including.
And excluding COVID-19 related sales.
Altogether, we continue to see sustainable consistent growth and momentum in revenue growth and margin expansion.
And we have increased visibility into customer demand as our book of committed orders continue to significantly expand in.
Grow not only for the second half of this year, but also for sales into 2022 and beyond.
Moving to slide 7 and speaking of visibility into future demand. We continue to increase the capacity of our global manufacturing network to support our growth trajectory to keep pace with the.
<unk> increase at the outset of the pandemic crisis, we responded by accelerating our plans to expand <unk> capacity, especially from Florida Tech and Nova peer components. This is above our typical annual capex spend of approximately 7% of sales.
The first tranche of capacity expansion.
Demand began in may of last year, our teams did a fantastic job of procuring installing and validating the equipment and all of it is now producing commercial product at our sites in the U S, Ireland, Germany and Singapore in.
In December we began another tranche of investment based on any increased visibility.
A vaccine development success and our growing base business. We expect this portion to be completed and in production during the second half of this year.
Of note. These capacity expansions are within existing <unk> sites, and coupled with higher margins of HP VP components.
<unk> provides shorter paybacks and higher returns on invested capital than Greenfield investments.
This was made possible through the multiyear strategic transformation that our operations as currently executing moving from a site a regional model to a global operating and supply chain network.
As we.
First on the last earnings call, we have been contemplating an additional tranche as we are working with our customers to evaluate the need for even more volume production and to stay ahead of both base and pandemic demand today, we are announcing that we have begun to execute that part which is approximately $80 million.
It's got to support future demand of Nova peer and sales as well as other HP, finishing capabilities we.
We expect to start in the second half of this year and be online towards the back half of 2022.
Now I'll turn it over to our CFO, Bernard Birkett, who will provide more detail on our financial performance.
Thank you Eric and good morning, Let's review the numbers in more detail. We'll first look at Q2.2021 revenues and profits, where we saw continued strong sales and EPS growth led by strong revenue performance, primarily in our biologics and pharma market units.
I will take you through the margin growth.
<unk> burned on the quarter as well as some balance sheet takeaways.
Finally, we will provide an update to our 2021 guidance.
First up Q2.
Our financial results are summarized on slide 8 and the reconciliation of non U S. GAAP measures are described on slide 16 to 20.
We recorded net.
We sold $723.6 million representing.
<unk> organic sales growth of 36%.
Covid net related revenues are estimated to have been approximately $117 million in the quarter.
These net revenues include our assessment of components associated with vaccines.
Net sales in diagnosis of COVID-19 patients offset by lower sales to customers affected by lower volumes due to the pandemic.
Looking at slide 9 proprietary products sales grew organically by 39, 3% in the quarter.
Value products, which made up more than 70% of proprietary.
Product sales in the quarter grew double digits and had solid momentum across biologics and pharma market unit throughout Q2.
Looking at the performance of the market units the biologics market unit delivered strong double digit growth. We continue to work with many biotech and biopharma customers who are using west.
Treatment <unk> high value product offerings.
The generics market unit experienced low single digit growth led by sales of Thoratec component.
Our pharma market unit saw strong double digit growth with sales led by high value products, including Westar Novo pure components.
On contract.
First on your factoring had low single digit organic sales growth for the second quarter net once again by sales of diagnostic and health care related injection device.
We continue to see improvements in gross profit, we recorded $315.1 million in gross profit $120 million or 61.
5% above Q2 of last year.
And our gross profit margin of 43, 5 percentage was a 650 basis point expansion from the same period last year.
We saw improvement in adjusted operating profit was $211.2 million recorded this quarter compared to.
$106 million in the same period last year, we're at 99, 2% increase.
Our adjusted operating profit margin of 29, 2% with a 910 basis point increase from the same period last year.
Finally, adjusted diluted EPS grew 97%.
<unk> for Q2 <unk>.
Excluding stock based compensation tax benefit of 9 sales in Q2, 2021, and 2020 EPS grew by approximately 104%.
Let's review the growth drivers in both revenue and profit on.
On slide 10, we show the contributions.
The sales growth in the quarter Volte.
Volume and mix contributed $152.2 million or 28.9 percentage points of growth.
Including approximately $117 million of volume driven by COVID-19 related net demand.
Sales price increases contributed <unk>.
$9 million or 1.7 percentage points of growth.
And changes in foreign currency exchange rates increased sales by $35.2 million or an increase of 6.7 percentage points.
Looking at margin performance Slide 11 shows our consolidated gross profit margin of 43.5.
Sales for Q2.2021 up from 37% in Q2.2020.
Proprietary products second quarter gross profit margin of 49, 8% 700 basis points above the margin achieved in the second quarter of 2020.
The key drivers for.
For the continued improvement in proprietary products gross profit margin were favorable mix of products sold driven by growth in high value products production efficiencies and sales price increases.
Partially offset by increased overhead costs inclusive of compensation.
Contract manufacturing second quarter gross.
5% margin of 16, 7% was 230 basis points below the margin achieved in the second quarter of 2020.
The 2020 margin included approximately 180 to 200 basis points of positive impact from onetime benefits.
Yeah.
Now let's look.
At our balance sheet and review, how we've done in terms of generating more cash.
On slide 12, we have listed some key cash flow metrics.
Operating cash flow was $233.1 billion year to date.
An increase of $27.9 million compared to the same period last year at $13.
6% increase.
Operating cash flow in the period was adversely impacted by a working capital increase as well as timing of tax payments.
Our 2021 year to date capital spending was $111.6 million.
$2.4 million higher than the same period last year.
Working capital of approximately $1 billion at June 32021 increased by $134.1 million from December 31, 2020, primarily due to higher accounts receivable from increased sales.
Our cash balance at June 30 to $576.2 million.
With $39.3 million less than our December 2020 balance.
The decrease in cash is primarily due to our share per share repurchase program on higher capex in the period offset by our positive operating results.
Turning to guidance Slide 13 provides a high level summary.
Full year 2021, net sales are expected to be in a range of $2.76 billion and $2.75 billion.
Compared to prior guidance range of $2.63 billion to $2.6 by $5 billion.
This guidance includes estimated net COVID-19 incremental revenues of approximately.
$430 million.
There is an estimate of an estimated benefit of $80 million based on current foreign exchange rates, we expect organic sales growth to be approximately 24% to 25%.
We expect our full year 2021 reported diluted EPS guidance.
<unk> be in a range of $8 from 5 to $8.20, compared to a range of $6.95 to $7.10.
As we continue to expand our <unk> manufacturing capacity at our existing sites to meet anticipated core growth and Covid vaccine demand, we are raising our capex.
On <unk> guidance to $265 million to $275 million.
Compared to our prior guidance of $230 million to $240 million of Capex.
There are some key elements I want to bring your attention to as you review our guidance.
Estimated FX benefit on EPS as an impact of approximately.
Capex <unk>.
Based on current foreign currency exchange rates compared to our prior estimated benefit of <unk> 23.
And our guidance excludes future tax benefits from stock based compensation.
So to summarize the key takeaways for the second quarter.
'twenty strong topline growth in proprietary.
<unk> profit margin improvement growth in operating profit margin growth in adjusted diluted EPS and growth in operating cash flow delivery.
Delivering in line with our pillars of execute innovate and grow.
I would like to turn the call back over to Eric.
Thank you Bernard.
Summarized on slide 14, our mission to improve patient lives drives our passion to provide leading edge primary containment and delivery technology for our customers. Our market led strategy is delivering as evident in our leading participation rate in new approvals and our role in support of COVID-19.
<unk>, our global operations team is executing with the efficiencies and improvements in service and quality to meet increased demand.
And we're continuing to accelerate capital spending across our operations to meet current and anticipated future growth in summary.
The first half of the year has been exceptional.
<unk>, we remain well positioned with the strength of our core business and are confident in the long term horizon of continued organic sales growth and margin expansion. We are proud to be the trusted partner for our customers across the globe and ensure the safe delivery of treatments to patients Erica we're.
Ill take questions. Thank you.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
And by while we compile the Q&A roster.
Your first question comes from the line of Paul Knight.
With Keybanc.
Hi, Eric Congrats on the quarter.
<unk>.
What's your what's your view on Covid vaccine demand in the year 2022.
Is the technical requirements on containment as high as other.
We're really high value products.
Paul Good morning, and thanks for joining yes, we have good visibility into 2022.
Some of the recent comments regard capital expansion is driven a portion of that is driven by future demand.
What youre seeing.
With our portfolio the debt.
Chosen configuration for a lot of these filed configuration, sorry, as our novo peer or Florida Tech solutions. So it tends to be mid to the higher end of our <unk>.
There is there is obviously we are in discussion with customers as they are deter.
Determined.
If theres going to be less dose per vial or move towards a pre filled syringe and also the conversation on all potential boosters. So there's many still moving parts, but when you think about the next 12 to 18.24 months, we have a clear clear visibility what we needed to deliver to support the demand on hand.
And.
Secondly.
You look if you look in the you obviously with your stability trials have a look into other biologics.
Would it be fair to say, we continue to see acceleration in potential biologic approvals.
Yes.
Exciting.
Getting there is that not only the pipeline is rich.
If you think about the more recent.
Approvals that have been granted around the biologics biosimilars on participation.
Participation remains extremely high.
And the other indicators that gives us great confidence.
Sort of thinking about our confirmed order book.
If you think about the incremental which is significantly up it's really broken in in different areas from biologics, leading the charge from the majority of that and it's around H V. P. So we're quite quite confident.
The future growth of the pipeline.
Thank you.
Thanks, Paul.
Your next question is from Juan Avendano with Bank of America.
Hi, good morning, and congratulations on the quarter. Thank you Juan.
My first question is.
As we've given the COVID-19.
Revenue that is embedded in your guidance.
And we know we've got a powder.
More than $3.5 billion doses have been administered vaccine doses year to date.
It seems.
Also knowing what the Asp's are for.
The packaging components.
It might seem like the novo pure mix.
Perhaps.
It was higher than.
Or is greater than a majority by floor attack would you agree with that notion or not and also on the on the cover.
Therapeutics.
Are you seeing more novo pure than floor attack.
Yes, so what we're seeing so on thanks for the question. So if you think about the Covid solutions that we're providing from a from a unit perspective, Florida tag.
Is actually much higher than the novo peer.
But we're seeing good growth in that area, but if you think about the new therapeutics that have been approved or in process through the approval process.
Approval it tends to be more towards the buildup here.
But when you translate.
Covered revenue.
Perspective, yes, Novo appears becoming.
1 of our 1 of our top drivers of growth.
In our proprietary business.
Thank you yes.
The weighted a massive strength 2 points. Okay. My second question is.
Sure.
From when you talked about the ordering patterns that you're seeing from customers from bio processing tools company such a sartorius have noted that they were seeing customers place orders further in advance and so are you seeing the same dynamic and are you concerned at all that debt.
Mike create demand GAAP some.
The future 1 business trends normalize.
So on 1 of the major pushes that we've had in the last couple of years is really the visibility into our customers' supply chain and we've done a really good job leveraging some of our digital tools we employ.
<unk> here within West.
On payment gives us confidence that the the demand that we are seeing is.
More in line with the demand of the poll within the marketplace. So said differently is yes, we're seeing more confirm orders that are further out.
But then also we're also seeing.
The increase.
On the number of orders more near term is also increasing so.
Confirm order book has grown significantly.
But the combination of more longer term visibility.
But also peer or organic growth more near term.
Thanks.
And my last 1 before I get back in the queue.
You alluded to this from the previous question, but I mean would you feel at this point.
As customers on sponsors are evaluating the potential migration to COVID-19 packaging configuration that is smaller.
On fewer dose vials or even pre fill syringe or do you think.
That that changes more imminent now than <unk> been.
In the last quarter.
Those talks going on and how feasible is that to happen.
Yes.
Bill, it's still pending but we're having these discussions with the customers and it does require us to prepare in advance.
In the event that.
These transitions do occur.
As you as you rightly said it remains.
It remains within the vial configuration, we're very well positioned in that.
To bill support the growth of novel appear on Florida Tech if it transfers into a prefilled syringe run on our plunger solutions.
That's where we're also investing to make sure that we are ahead of the curve. So it is it's ongoing discussions 1 and that will be yet to be determined.
At this time.
Thank you I'll leave it there for now I appreciate it congrats thanks a lot.
Your next question comes from the line of Larry.
With that with a K Js securities.
Good morning, guys that suggest good morning, gentlemen.
Congrats on a great quarter actually.
A couple of questions can you just help us sort of.
Parse out on the on the gross margin really impressive on the on the proprietary side close to 50%.
And.
As you mentioned I think drove 650 basis point improvement year over year, a totally but if if you just look sequentially I'm just trying to sort of.
On a bridge that you did 46% in Q1, and I think that had like a 12 million benefit from some canceled orders. So just sequentially. If we adjust for that your gross margin.
Was up like 500, Bips on a little bit on just on proprietary side and I know sales were a little bit higher Covid sales wrote back related sales were a little bit higher but I think my math is right and is there anything.
Sort of unusual in there that drove that 500 basis points sequential increase.
Okay.
It's not that it's unusual what we're seeing is green.
Product mix, we're seeing a strong pickup in gross margin. So it's just obviously the profile of the products that are being sold around Florida Tech and Nova pure on what were also seeing is improved levels of productivity.
And as you can tell that last year, we started to move to a 24.7.
Mode of operation within certain of our plants to increase production and we have been able to generate a lot of.
Efficiencies and increased levels of productivity.
Wins with guarantee part.
Part of the year, but particularly into Q2 as we got more streamlined and some of the products that we were reducing to support COVID-19. So it was really working on a couple of different elements. It. So it's not just 1 driver it's a non bridal.
It's the mix plus the increased levels of productivity.
And I fully gathering.
Matt maybe there was some like 1 little 1 time item or something that helped on the last quarter your debt totaling.
<unk> green credits, but it sounds like it sounds like no right. It sounds like this is maybe not only sustainable but theres nothing really irregular it's a lot of just the drivers of your growth for the last several years right.
Alex.
Once.
Do you start running.
Larger levels of volume through is whether youre going to get efficiencies and that's what we did see in Q2.
And there was a small small little increased levels of production towards the back end of Q2 as we were preparing for Q3, because we do have a level of seasonality on our business.
When we get into Q2 Q3, we have.
Plant shutdowns end.
Scheduled maintenance that needs to take place and particularly in our European plants. So we wanted to get a little bit ahead of that so we did build up a small amount of inventory, but nothing overly material.
And so.
As we move into Q.
Q3.
People that have to take that into account when you're looking at the margin for the next quarter that we do have that level of seasonality didn't really appear as much last year, but in previous years, we do see a little bit of drop there, but again it's planned.
Right right, Okay, and not to split hairs, but a.
You know and this is basically it really gets lost on the shelf full but on the contract manufacturing side, a little bit of a step back in margin anything there unusual I think we had thought that was going to sort of go the other way.
Yeah.
<unk> seen it improve as we've gone through 2020.1.
A little bit, but there were some 1 time.
Benefits that we did pick up in Q2.2020, Matt.
Much of it around.
Engineering revenues that we were able to recognize last year and I think at that time, we called it out as well. So that's the only kind of anomaly there.
Okay, how about on that.
Max out like it sounds like you're you certainly you know continue to pull things forward.
Which I think is a high class problem on and going to spend about it sounds like close to $250 million. This year as we look out over the next couple of years on that and I'm sure. You saw further expansion opportunities and plans do you expect the capex the absolute dollar.
Capex sort of continue to grow or since you've pulled forward. Some do you think this could sort of level off of lease.
As a percentage of revenues I would expect to see it level off and come back to close to that 6% to 7 percentage of revenues.
It may not be next year, but I think after that we will start.
Number to use and normalize.
Okay. Just last question on on the on the Tycho Tycho I'm. Obviously, you guys made a strategic investment you know increased your investment a couple years ago on that that's certainly seems like the timing as it turns out really well and I think you put up like a $9 million number this quarter.
And obviously that reflects the strength of <unk> business as well Oh.
I know this number as you know a little bit volatile from quarter to quarter, but is that you know I think run rate year to date were over $20 million anyway any color on that or are you on the outlook there.
So that number just isn't dykey over there.
There's another element too, but they did happen very strong performance in Q2.
And I think in the first quarter, we were probably 5 or $6 million on income from affiliates.
Uh huh.
I would expect it over time to come down to that level I don't I don't think it's going to run that what we experienced in Q2.
I think.
It'll step back a little bit.
Fair enough great I appreciate the color, thanks, guys and congrats again.
Sure.
Your next question comes from the line of Jacobs.
Johnson with Stephens, Inc.
Hey, thanks.
Maybe.
Just a follow up on.
Eric.
Last question.
2.
Thanks, Dan.
Eric.
Is there any downtime associated with switching over.
That's a pretty seamless process.
It sounds like you're already preparing for it.
Yes, it's a seamless process, we're just obviously.
And some of the manufacturing.
Equipment.
The molds and so forth, but the process and facilities and in all of our team members are involved make these products are all consistent so it's a pretty quick transition.
Got it thanks for that Eric and then just on high value products, obviously a lot.
It's true.
But I guess, if we look at.
That portfolio ex ex Covid.
<unk>.
Mix.
It sounds like there's a lot of reasons.
So just curious on that yeah, you got my excitement Jacob absolutely. So if you think about or.
You can go back to that confirm order book, that's 1 indicator for us is the.
The mix of incremental within that portfolio.
Is evenly distributed what do you think about between Covid.
New dry drug.
Drug launches, David kind of mentioned that we're continuing to have a very high participation.
On rate of new approvals and then the growth of the core business and we would even cut it a little bit further.
Over half from majority call it over half of it is in the biologics space.
And the portfolio itself is all towards the high end of HCP.
So you can see the.
And from that is gaining.
And what do you think about the capital investments, we're making because of the biologics growth in some of the small molecule new.
New entrants.
These these tranches that we spoke of a referenced it is really it is all around age VP. When you think about Florida Tech Nov up here in.
Existing facilities. So it's it's.
It's a very high growth I guess in the AWP and we expect that to continue on I just wanted a preference the number of units that we are producing in <unk> still is a let's call. It the below 25 per cent of our proprietary portfolio.
Moment long runway ahead of us to continue this momentum with our <unk> portfolio.
Got it I'll leave it there thanks for taking my questions great. Thank you.
Thank you. Our next question comes from the line of John Kreger with William.
Hi, Thanks very much.
Eric You said, you've got a great order book and it's getting longer did you have a decent picture yet about whether COVID-19 related work well will be larger for you or smaller in 2003 compared to 22.
It's a little too far out.
We.
We haven't we have good conversations are ongoing and as you know investments we need to make or 612, maybe sometimes 18 months in advance. So we do have some visibility, but it's too premature to 2 dimension as we speak.
Okay sounds good.
And then on non Covid demand question.
<unk> for you have you been able to satisfy all that demand at this point or have you had to defer any of those orders as you prioritize prioritize work relating to the pandemic.
Yeah, we're meeting our customers' demands so that we may have to work with a few customers here and there to make sure that were scheduled.
Bill scheduling their orders.
Based on the commitments, but we're meeting all our customer commitments as we speak and we will continue to do so what 1 of the release valves that we've been able to observe in the last several couple of quarters as the installed validated capacity that's going on line.
So if you think about some of the constraints that we may have had a historically around AWP and those are being released as we speak so but the bottom line is that we are meeting our customer commitments.
Sounds good and then 1 last 1 can you give us an update on Crystal Zenith I think last quarter, you talked about some new.
New commercial lines coming online in Arizona, and just give us a sense of where that stands now.
What are the type of products that are driving demand for that newer newer category.
Yeah really it's all around the biologics space. So it's from the pre filled syringes. We had as you mentioned we had a line that went on.
Running this.
This quarter.
C C.
1 <unk>.
Insert needles peripheral trends line, we have another line that is.
Starting on installation later this year with with the with the focus haven't delivered before the end of the year. So it's.
It is it's a significant step up.
For us are on the <unk> portfolio, particularly around pre filled syringes.
In addition to that we are working with our partner day keel as they are continuously expanding their capacity capabilities around <unk> out of Japan to support with us.
Other configurations like lira lock.
As such as vials configuration, so I'm pleased with the progress, we're making but theres more to come.
It sounds good thank you.
Your next question comes from Dave Windley with Jefferies.
Hi, good morning, very nice quarter, and thanks for the updates and thanks for taking my questions I wanted to start around productivity you've touched on this a time or 2 Eric.
D and it seems intuitive to me and you confirm that.
As your volumes in some of these higher you know call it higher.
To your high value products have gotten into some level of critical mass that.
That you would get some scale on that I guess I'm I'm wondering if you'd be willing to put you know sales.
Say, some rough percentage numbers on like how have margins on a like for like basis.
Improved by.
A you know a material amount.
Would you be willing to put numbers on that.
Well, let me let me qualify then I'll look to Bernard to quantify that but you're right David.
David you're right.
What's happening is that we're gaining meaningful volumes on.
Over the last few quarters on the higher end of the H.
<unk> VP and there's there's a.
And it's been driven by the biologics and a few small molecules.
So it is a lot easier for our plants to run longer.
Lot units in there in our facilities and we're seeing that translate into better margins with that bill.
Those parts of the portfolio and that we believe that will continue.
Because we're leveraging existing footprint.
We are installing additional capacity that's correct, but the payback is much shorter and all of this has translated in better better outcomes.
Of Novo peer and also.
Parts of Florida.
So I don't burn if you want to add any comments on that yes, I'd say its still.
The vast majority of the margin expansion that we're seeing is coming from mix.
It is being supported.
Bye.
Improvements in productivity inefficiencies now we did see a bill.
Spike in Q.
A big lift there, but as I said.
When we move into Q3, because there are fewer production days.
That's the level of absorption in Q3 will be a little bit less so I don't believe youre going to see as much margin expansion in Q3 than we typically see the most margin expansion in Q2 as we're running.
Q2, <unk> levels and the <unk>.
Quarters actually longer for us.
But it's still primarily driven by mix.
And I would probably think 10% to 20%.
Benefit is probably coming from efficiencies and productivity.
Helpful and specifically on that Bill.
Beyond.
Our pan the crush of the pandemic.
Would you expect to continue to run plants.
3 shifts a day.
Now 7 days a week.
Into the foreseeable future or is that a is that a treadmill.
It's kind of running unsustainably fast.
Well based on the current demand we have outside of Covid, which is.
Is higher than our typical run rates.
We are we are going to need to continue to run our plants.
Accordingly, so we can level load.
So I would say in many cases, we will be continuing to run the 24.7.
And and the demand of new molecules being approved.
And also our current base business split.
We would expect that.
Think about the growth of our of our business today.
Today, Yes, Covid has been a major impact to that but the core is still growing around the double digit range. So it's a very strong robust foundation that we're working off of.
Got it and.
And the Capex that you've mentioned and you've talked about within existing plants.
I think you named a few relative to projects that are either on flight or already completed.
Is.
Waterford when the company built it.
Was highlighted for its kind of flexibility and modularity is is that a target of a lot of this expansion.
Or is it or is it not exclusively water or is it more balance across the world on that.
It's it's balanced across the world, but I would tell you that Waterford. If you visited Waterford 2 years ago, you would not recognize it.
It has significantly.
Increased throughput.
<unk>.
Additional capital has been put into Waterford, we increased the number of team members on that site significantly so.
Yes.
These investments, we're making because we really created this network.
Around AWP.
Multiple sites, so we're not dependent on a site.
But we've raised.
We raise the volume level quite significant Waterford and we intend to continue to do so because it's been designed exactly what you've articulated its a modular approach we can keep on adding to it.
The infrastructure and continues put more volume through that but I want to be clear, though we still have that capability.
And at Kinston were expanding.
Singapore, we have additional capabilities in other locations like Kobe and Thats why they are so it's not just 1 site of investment it's multiple sites, but heavily weighted towards Waterford got it okay.
We visit at Waterford and couple of weeks ago on those.
This is my first time there in.
2 years ago.
And the level of activity in that plant compared to where it was 2 years ago.
It's just transformational as to what's happening there on how we've been able to leverage that and that's really helped us and our response to Covid and also the core growth.
It's.
It does kind of highlight to us that we have to have some of this infrastructure in place before we actually believe we need us so but I think as you said that it is on a modular basis that allows us to expand much faster in the future than we would've done in the past and I think as Eric said, that's the same for our Kinston in Singapore.
Singapore sites as well.
Got it last 1 from me I'm, hoping to draw on.
Specific number again.
Last couple of quarters on your high value products, you've used the phrase of the terminology over 70% and I'm wondering.
Does that mean 70 and a half over <unk> 75 per cent over.
80% over like.
It seems like the growth is so strong that it could be moving percentage points above 70% on just wanted to get a more specific number if you'll give it. Thanks.
No I won't give us.
No.
I think.
Enough color and also you can see the trend is the important thing. There is we can see significant improvement in that number quarter over quarter.
It's forecast to continue to improve based on the demand that we're seeing particularly around the biologics segment.
Got it okay. Thank you.
It gives you the.
And there are no further questions at this time I will turn the call back over to you Mr. Lai for closing remarks.
Thanks, Eric and thank you for joining us on today's conference call an online archive of the broadcast will be available on our website at west pharma Dot com and the.
Thanks Resection. Additionally, you may access a replay through Thursday August 5, but using the dial in numbers and the conference I'd provided at the end of today's earnings release that concludes the call for today. Thank you.
This concludes today's conference call. Thank you for parties.
You may now disconnect.
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Okay.
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John.
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