Q4 2021 Aptargroup Inc Earnings Call
Imputation screen and clicking on the arrows on the right and left.
As always we will post a replay of this call on our website.
Today's call includes some forward looking statements. Please refer to our SEC filings for the factors that could cause actual results to differ materially from what we are discussing today.
I would now like to turn the conference call over to Stephane.
Thanks, Matt and good morning, everyone. We appreciate you joining us today and I hope Youre doing well.
Before we close in 2021, I would like to take a moment to recognize our team for overcoming all of the challenges presented through yet another year for pandemic.
Yeah, everything and are delivering on our promise to patients consumers and our customers across the many markets we serve.
Spike pandemic uncertainty rising inflation supply chain issues and labor shortages.
We have kept our manufacturing sites operating in via successfully passing on cost increases as we navigate this extraordinary inflationary period.
Turning now to slide three the commitment of our teams was instrumental in enabling us to deliver topline growth across all of our segments for the full year.
Total reported sales increased 10% and on a comparative basis core sales increased 7%.
Our pharma segment finished the year with positive core top line growth.
Despite the decline in sales to the prescription drug market that has been temporarily impacted by pandemic related destocking in the industry.
The steady strong demand for our <unk> components are injected medicine.
And active in the field solutions as well as a Ric.
Coverage in the latter part of the year in the consumer health care market.
<unk> and the topline improvement for the year and margins within our long term target range.
During the past 12 months, we took important steps to further strengthen the competitive position of our pharma segment.
And support our long term growth.
First we began investing to expand our capacity to produce premium coated elastomer components NBS being awarded a $13 million Euro brand from the French government to support our component of expansion plans in Europe .
Second we acquired 80% of why high hanging medical product and leading Chinese manufacturer of a lesser merit and plastic components, serving the fast growing and second largest pharmaceutical market in the world.
Given the ongoing pandemic developments and our growing pipeline since our last capital market day.
Adding another $60 million to our capital investment plan to increase capacity in the U S and Europe . The components were injectable medication, bringing the total for this accelerated expansion plan to $180 million.
Third we have been gaining solid traction with our active materials solutions, which has proved very successful for example in protecting the integrity of certain at home COVID-19 tests.
In addition to growing that business nicely, we were awarded a contract from the U S government with $19 million in funding to expand our capacity in the U S for our active film technology.
Fourth we are laying the foundation for our future digital health solutions.
The completion of our acquisition of Olympias at pioneer and digital therapeutics.
And lastly, we have begun to expand our pharma capacity in Asia. In 2021, we broke ground on a new facility in Suzhou, China to optimize our footprint and bring all of our existing operations in the <unk> area under one roof.
This investment include state of the art machinery and automation for all three of our segments with more than half of investment dedicated to the pharma segment.
Earlier this year, we broke ground on a new pharma production facility in Mumbai to further increase our local manufacturing capacity, including the addition of molding capability to offer more innovative product solutions to pharma customers in southeast Asia.
We remain optimistic about current and future growth in the beauty personal care and home care market and we've made an investment in <unk> a.
Chinese online Influencer in skincare company to collaborate on solutions for the growing and attractive skincare market.
We continue to develop more integrated local supply chain to lower lead times and faster market launches leveraging the insights from our fusion PPG acquisition.
Beauty volume still lagging behind 2019 levels due to successive COVID-19 variance and the dramatic global supply chain disruption and labor issues, especially in the U S.
The profitability of this business is not yet achieved our target margin range. Despite the restructuring completed debate.
We remain confident in reaching the target margin range in due course and are increasing our focus on SG&A and cost containment footprint optimization and product innovation.
Our food and beverage segment continued to grow with strong demand from the food market and recovering demand towards the end of the year and the beverage market.
Margins are compressed this year by the impact of the significant resin cost pass through we have been diligently managing.
On the sustainability front, we are recognized in many countries for our efforts towards becoming an ever more sustainable inclusive and diverse company. We're number one on Forbes 2021, green growth $50 and a top 10 company on both for 'twenty, one global female friendly company and Newsweek.
America, most responsible companies for 2022.
Activators has just awarded us that cover the top 1% platinum rating process. The inability achievement in the areas of environment labor and human rights.
And sustainable free program and FTR has also recently been named the supplier engagement leader by CVP.
And global leader in environmental impacts disclosure.
To complete our 2021 highlights our balance sheet remains in excellent condition, we are well positioned to continue to invest in growth opportunities, including strategic M&A opportunities, while we deploy capital to enhance shareholder returns.
Happy to report that in 2021 were turned around $100 million in cash dividends to shareholders.
And this was our 28th consecutive year of being increased annual dividend.
We were also active in our share repurchase program deploying $78 million to repurchase over 600000 shares and we expect to be in the market.
The repurchases over time.
Now I will briefly comment on our quarter four results as shown on slide four before turning it over to Bob who will go into a bit more detail.
As you saw in our press release, we reported strong top line growth of 9% with core sales growth of 10%.
This increase was particularly notable as it reflects strong contributions from each of our segments.
Our pharma segment continued to see strong demand for our solutions for vaccines and other injected medicines and they returned to a more normal conference call season resulted in increased demand for our nasal drug delivery devices and other dispensing solutions in the consumer health care market.
We have been very pleased with the performance of our active materials group across a variety of applications, including protective biopharma diagnostic diabetes strips and probiotic.
And we are applying our <unk> technology for at home COVID-19 antigen test kit and.
And collectively this has resulted in a 50% increase in core <unk> over year for our active deal flow in the fourth quarter we.
We are also pleased to see demand for our nasal system used to treat allergic rhinitis and pulmonary system for estimate in COPD conditions have returned to levels on par with the prior year's Q4. However, as previously mentioned the comparisons to the prior year fourth quarter included a significant and outside.
Order influx of devices eastern central nervous system treatments.
Pharma margin remained within our targeted range in both comparable to the prior year fourth quarter.
Median home segment generated strong sales growth with the rebounding demand for fragrance and skincare solutions for the beauty market and increased demand for defenses for hair care and body care products.
Pricing contributed to the majority of the core sales growth in the quarter.
Turning to food and beverage segments reported double digit core sales growth with approximately 60% of the growth coming from price adjustments to pass through rather than other cost increases.
The remaining growth was driven by strong demand for dispensing closures in both the food and beverage markets.
Our beauty <unk> home and food and beverage margins continue to reflect the extra ordinary inflationary environment and related pass through effect as well as supply chain challenges.
Now I would like to highlight a few recent launches by testing and using our technology in the next few slides starting with our pharma segment on slide five.
<unk>, formerly <unk> generic prescription pharmaceutical business has announced the launch of a generic version of a leading nasal spray for the treatment of migraine headache, with our unit dose nasal device.
Teva announced the launch of the first U S generic version of Naloxone hydrochloride nasal spray form using our unit dose nasal device and sandals is also using our immunotherapy with bluebird generic naloxone hydrochloride nasal spray.
Glenmark rail recently received new drug application approval by the U S. FDA for the treatment of allergic rhinitis within our multi dose nasal device.
We recently announced a new digital solution called <unk>.
Transform standard metered dose inhaler.
It's smart connected device, allowing patients to track usage and promote adherence to their prescribed therapy and ultimately improve the outcome.
Finally, our XD film technologies also enhancing the diagnostic capability of <unk> ethylene antigen COVID-19 test kit.
On slide six in beauty <unk> home, we were selected to be accustomed and verdict closure with ourselves dealing flow control valve for the global launch of a new inverted dish soap package.
Leading CPG company. This is a perfect example of how <unk> creates value by helping our clients drive the conversion of a major retail category.
Breakthrough innovation that enhances the consumer experience and through disciplined execution in key markets around the world.
And we are very pleased to announce that are fully recyclable mono material pump was chosen by union lever for their leading skincare brand dermatological facial cleansers.
Our fusion P&G beauty lab is providing a line of <unk> <unk> product for the brand cosmetology.
In food and beverage and the Chinese nutrition market Junior Laval is featuring our buy injected closures for two of the children powdered milk planning and a new launch for sauces and condiments in Latin America are audible chef features our new lightweight closure with flow control dispensing system.
With that I will now turn it over to Bob who will provide additional comments on our fourth quarter results Bob.
Thank you Stefan and good morning, everyone.
Just to summarize the quarter on slide seven you can see our reported results and when we neutralize currencies and acquisitions, we grew core sales solidly by 10%.
About 4% is coming from price and the remainder of the growth from strong broad based demand across the majority of our markets, which I will detail in a minute.
As shown on slide eight we achieved adjusted earnings per share of <unk> 93, and.
And adjusted EBITDA of 100 inflation rates and the net negative inflation impact of approximately $5 million.
Our consolidated adjusted.
Excluding the margin compression impact from passing on the higher costs.
Turning to some of the details by segment.
Pharma segment's core sales increased 8% with approximately 2% coming from price.
Farmers adjusted EBITDA margin, including about 100 basis points of headwind due to the price pass through effect on margins was approximately 33%, which was even with the prior year's fourth quarter margin.
Looking at sales in each pharma market.
Core sales to the prescription market decreased 7%.
Although we saw some positive order trends for nasal and pulmonary devices for allergy and asthma treatments, we had a difficult comparison to the prior year fourth quarter, when we experienced a significant level of demand for devices used with central nervous system treatments.
Thanks, Dave.
Net was a decline in quarterly sales to the prescription market.
Core sales to the consumer healthcare market increased 14% and this growth was across a variety of categories led by solutions for nasal decongestants used to treat cough and cold symptoms.
It was again, a solid quarter for solutions for vaccines and other injectable medicines with core sales, increasing 19% primarily due to continued strong demand for our components used with vaccines for Covid market had a very strong quarter with core sales increasing 50% on strong demand across.
It's a variety of applications led by our active film technology that enhances the integrity of in home COVID-19 test kits.
Turning to our beauty and home segments core sales increased 7% over the prior year fourth quarter with the majority or 6% of the growth coming from price initiatives.
This segment's adjusted EBITDA margin.
And was 11% in the quarter and even with the prior year and included the net negative inflation effect of approximately $1 million and approximately $5 million from the significant labor shortage and supply chain disruptions in the U S.
Had we not had these net negative including the margin compression effect that the passing through higher costs EBITDA margins would have been approximately 250 basis points higher.
Looking at each beauty and home market core sales to the beauty market increased 11% due to price adjustments and increased demand for dispensing solutions for prestige fragrance and facial skincare.
Core sales to the personal care market increased 6% due to price adjustments and increased demand for hair care and Sun care solutions.
Core sales to the home care market decreased 10%.
Turning into our food and beverage segment, which grew strongly in the quarter with core sales right between 28%.
In addition to strong double digit volume growth pricing adjustments also contributed and accounted for approximately.
60% of the segment's core sales growth in the quarter.
This segment's adjusted EBITDA margin was 14% in the quarter and below last year's margin $3 million.
Had we not had this net price cost negative impact we did not have the margin compression effect of passing through higher cost EBITDA margins would have been over 500 basis points higher.
Looking at each market core sales to the food market increased 25% due to price adjustments and growth of our discipline.
Across a variety of applications led by closure solutions for condiments, and dairy food products.
Core sales to the beverage market increased 41% due to price adjustments easier comparison, and a continued rebound in sale of closures for bottled water and functional drinks.
Slide nine and 10 highlight our annual performance and we achieved 7% core sales growth and our adjusted earnings per share were $3 88.
Up 4% compared to $3 74, a year ago, including comparable exchange rates.
Cash flow from operations totaled $363 million for the year down approximately $200 million in the prior year, primarily due to an increase in working capital that was the result of our sales growth, including the effects of price increases on our accounts receivable and higher inventory costs.
Moving to slide 11, which summarizes our outlook for the first quarter as defined covered we are expecting some of the momentum we saw in quarter four to continue.
While we will likely face ongoing supply chain and inflation pressures in the near term. Some raw materials are expected to trend lower from today's levels such as resin.
Others are expected to remind everyone that we have approximately.
<unk> per share per quarter headwind from our recent acquisition of <unk>.
We are also anticipating.
The euro rate for the prior year.
First quarter was $1 21, and our guidance for the coming quarter first quarter is assumable.
114 euro rates.
We have said that roughly for every one cent move in the euro rate that equates to roughly <unk> <unk> per share for the full year.
So for the coming quarter, we are looking at approximately a <unk> <unk> currency drag on earnings compared to the prior year.
All things considered we expect our first quarter adjusted earnings per share, excluding any restructuring expenses acquisition costs and changes in the unrealized fair value of equity investments to be in the range of <unk> 92 to $1 per share.
The estimated tax rate range for the first quarter was 27% to 29%.
As shown on slide 12, our depreciation and amortization estimate for 2022 is $245 million to $255 million.
Our 2022 capital expenditures net of government grants will be in the range of $300 million to $330 million, which includes $109 million net for our three important growth projects that we have shared previously.
These growth projects include $55 million net of our government grants to increase our capacity for components for injectable medications in France, and the U S $31 million for our new facility in Suzhou, China that will optimize our footprint and brings all of our existing operations in Suzhou area under one roof.
And $23 million to optimize our footprint and create a center of excellence in France for our highly valued decorative capabilities for the beauty market.
In closing we continue to have a strong balance.
Business.
Pursue strategic options.
For <unk> and continued to return value.
Shareholders in the form of dividends and repurchases.
In addition to our cash dividend payments to shareholders, which totaled $25 million in the quarter, we repurchased approximately 395000 shares of common stock in the fourth quarter for $49 $7 million.
During the 12 months of 2021, we repurchased approximately 650000 shares of common stock for $78 1 million, leaving approximately $200 million authorized for common stock repurchases at the end of the fourth quarter.
At this time Stefan will be providing a few closing comments before we move to Q&A.
Thank you Bob in closing on slide 13.
Pleased with our ability to deliver solid results, while navigating the impact to our operations and end markets from the surge of COVID-19 revenue.
Considerable supply chain and labor challenges and significant inflationary pressures.
<unk> is well positioned for continued growth and improved margins beyond the current pandemic and an economic environment.
We will continue to seek our market opportunities and strategic partnerships that will contribute to our success in the new era.
Looking ahead to the first quarter, we anticipate solid growth in our pharma segment with growth in each division. The prescription division is expected to report growth in the allergy category as the Destocking appears to be ending across most accounts, where we may still faced a tough comparison in the central nervous system category.
Other areas of our pharma segment are expected to continue to do well, especially active material solutions, where demand for at home COVID-19 antigen test should remain strong in the near term have not yet returned to 2019 volumes.
Beverage vehicles is also seeing signs of recovery.
The COVID-19 variance may impact the pace of these recoveries and supply chain disruptions are expected to continue in the near term impacting our business.
Primarily in the U S and in some cases impacting certain customers in both beauty and home and food and beverage.
In parallel we will continue to contain costs improve efficiencies and plan to increase prices to offset the effects of rising input costs.
Our product and millions and millions of people every single day, and we have built a strong reputation in high growth areas.
We will continue to build upon for the future.
Our customers recognize us as a true innovation leader, who has shaped the drug delivery and consumer product has been seeing industry.
And at the same time, we continued to advance our mission of becoming a proactive leading sustainability.
Our businesses have a very clear competitive advantage.
I'm very proud of all that our people have accomplished in the fourth quarter and full year of 2021 with that I would like to open the call up for your questions.
If you would like to ask a question that will be staff were led by one Amit. Thank you Pat.
You change your mind I'll be staff fully by Andy.
In the interest of time and fairness to all participants please limit yourself to two questions and then come back into the queue. If you have more questions as time allows.
We will be taking our first question today from.
George Staphos of bank.
OCA Merrill Lynch George Please go ahead.
Thanks, very much good morning, everybody good day and thanks for all the details guys.
My two questions first starting George towards beverage and then.
Good day, and then the second on beauty and home.
For food and beverage it.
It was great to see.
Core growth that you posted recognizing a lot of that was pass through.
The operating leverage.
So the growth.
EBIT relative to that core growth was not where we would have expected I think earnings were down quarter on quarter can you talk a bit about what was going on there was the operation and the leverage where you had expected it.
For beauty and home could you talk about some additional focus points in terms of SG&A and cost reduction.
And we appreciate the point can you give us a bit more detail there and.
Recognizing there are no guarantees in life. If we do have a reopening if we do have growth. That's on trend line. When do you expect the beauty and home could be back to the 15% margin that you've targeted thank you.
Sure.
Good morning, Tim.
Yes, Brian I'll take that.
Jump in on the first one.
Okay. So I'll take the first one went to fund.
<unk> done them on the food and beverage growth.
Yes, so we have about 40% of the increase of the 28% increase coming from volume.
No.
It's really if you take that.
With 60% of that growth being purely just a one for one pass through.
Thanks.
Big impact on it plus we estimate that we have we're behind the curve on the food and beverage side by about $3 million on the net pass through versus cost increase so those two items. The one for one pass through as well as the net negative $3 million, we're estimating about five.
500 basis points, so neutralizing for that we would be closer to that $18, 519% margin range.
Then on beauty and home.
The clearly.
Delta and omicron the volume recovery.
As.
Certainly delayed.
Bill below 2019.
Volume levels and we take.
Turning it into three approaches initially that this would be like any other recession.
We would.
Continuous things in low idle mode and wait for the volume recovery.
And I think what we're trying to signal here.
Maybe leaning more.
On the cost side, given that volume recoveries are still uneven.
No.
From a geographic point of view that shifts around we actually quite encouraged with the volume recovers in Europe .
And in China.
While Latin America is clearly.
Not in a good place at the moment.
In Brazil, which is very important for our Masstige fragrance.
Business is declining and the net net means that the volumes are not where we want them to be.
The other big factor and that's why we called it out is of course the <unk>.
North America labor and the supply chain.
Train wreck for electric a better word.
That.
Outsized outsized manner.
The Midwest implants of beauty and home.
So we need to have those things behind us. So I cannot give you a date certain but we want to see and we remain committed to the target range.
<unk>.
<unk> worked through these issues.
We get through the North America.
Labor and supply chain issues, which are significant and will remain with us at least for the next one to two quarters.
It is not only us with our customers and our suppliers.
And.
It requires significant work to work through on the other hand, we see the demand picture brightening.
The reopening as he mentioned travel.
Expect travel to resume at least between Europe and the U S.
So working through those issues, we remain committed to the.
Target range.
Stefan Thank you for that and Bob just point of clarification I'll turn it over.
So operations and food and beverage were as expected no hiccups there its just being behind on that on the curve and Stephane.
Can you.
Give us a little pencil on paper in terms of what additional cost reduction efforts you had mentioned as part of my question.
Thank you might be able to get out of beauty home. This year and next year. Thank you guys I'll turn it over.
Note that the point, where we.
Jim discussed this Rick.
And how is that Europe will be focused on that in there.
Clearly, our other parties and as it needs to be part of the discussion.
Yes.
Okay.
Thank you.
Thank you George we'll be taking our next question from Ghansham Panjabi of Baird. Please go ahead.
Hi, Good morning, this is actually Matt Krueger sitting in for Ghansham. Thanks for thanks for taking my questions.
I guess I just wanted to start with maybe if you could provide some added details the budgeted volume outlook for each of your segments.
If a particular emphasis on maybe the sequential progression in the pharma business given prescription recovery and then also maybe some details on what beauty and home could look like given the kind of sequential recovery that we're expecting or hoping for there.
We don't really guide to for the <unk>.
Full year or disclose our budget, John having said that we enter 'twenty two with a lot of optimism.
Clearly.
There is a prescription division has regained its footing.
And we expect growth for them not only for this quarter, but for the year.
And the growth dynamics in the other units.
Of.
Farmer look very good.
Obviously, we expect growth in the other two units as well, but we don't guide beyond the current quarter and what we said is for quarter. One is that all three segments. We expect all three segments.
To grow.
The even more within pharma that's only.
Units in pharma, we expect to grow.
Great. That's helpful. I guess I'll follow up with one there maybe if you could.
Touch on any unusual comp related items that we should keep in mind for 2022 modeling from a volume perspective, and then my second question is can you just provide an update.
What level of new product introductions.
Or likely to see in 2022 versus the prior couple of years at the customer level and if youre concerned at all about any demand degradation.
The significant price increases that you and your customers are thus passing through.
To the to the end consumer just any thoughts there would be great.
Sure so in terms of.
Comps I mean, the one I've already mentioned.
Is the CNS business.
Notably margin is tends to be lumpy.
And.
Whenever you compare quarter was a quarter a year ago.
Jumping as can move around.
<unk>.
All I can say is unfortunately, the demand continues to grow because the epidemic continues to worsen.
Every narcan nasal spray that is in the market is sold by us.
So but that will continue to be lumpy.
The other one that we called out is that clearly the at home Covid testing business depends.
It depends very much on.
How dependent mix evolves, how testing discipline enrolls. So we don't really look at that beyond quarter. One at this stage.
The rest of the business, we see continuing to grow very nicely, we called out the recovery in.
LNG and pulmonary as the consumer health care business continues to grow nicely as the injectable business on your question.
In general we see good engagement by customers really see good engagement.
On the tooling side, where customers are more willing to invest in their own custom tooling if you want.
And certainly from a win rate point of view and we are.
And for the year very optimistic.
We called out some of the launches earlier.
And I just would reiterate that new.
Dish soap by a major CPG players is just a classic example of a category conversion that we have done many times before.
From condiments to infant nutrition and tier you see additional category moving so those are.
Good science and also in the rest of beauty and home, we see good pickup in optimism with customers with the regional color I gave you earlier of Brazil, and Latin America kind of being a bit behind in North America really just.
Going through the supply chain situations or in North America, it's not a demand issue there is plenty of demand.
The whole supply chain being able to fulfill that demand.
Including also the food and beverage of units for the quarter, one because of you who've been to retail outlets.
We regularly.
We have noticed goods show.
Those are empty opens you will have the stores empty so the north American supply chain.
<unk>.
Issues need to be overcome there'll be overcome and thankfully our front end business is pulling very strongly too.
Allow us to give you the guidance that we gave.
Great. Thank you.
Thank you. Our next question will be coming from Mark <unk> of BMO capital markets Mark.
Yes.
Thanks, Good morning, Steph and good morning, Bob.
In my remarks.
Stefan I Wonder if you could just help us a little more with the beauty business.
You are not back to 19 levels, if we can.
COVID-19, 100, where would we be at right now and what does the trajectory look like in recent months.
So we're probably around 90% and certainly the trajectory is going up.
With significant regional differences again very.
Positive about the progress in Europe .
Positive about the growth in China.
Declining in Latin America.
The recent quarter, and North America, and dealing with the issues that we've laid out.
Okay, and then Bob just on the sort of price cost can you give us a sense of.
Where you are at across the portfolio right now in terms of the price cost and what you anticipate there as we move through 'twenty two.
Sure. So we are we are catching up and again I think.
Looking forward into the first quarter, we are anticipating us could be slightly positive.
Net price cost now again.
I would caution you that there is a lot of assumptions.
Does that go into that right and we are starting to see some relevant abatement in North America.
Europe is still relatively relative.
Relatively stable there are there are some.
Some people would think it should be trending lower in the next couple of quarters, but we haven't really seen that yet the big unknown for us looking forward.
It's going to be the increase in the metal pricing, we've seen some pretty significant increases.
Recently in Tin plate aluminum in particular, so we're keeping an eye on that so I would say.
Our assumption is that we should be catching up going into the first quarter and flipping to a slight positive.
But we'll have to see what happens.
As we weather through this this metal price increase.
Okay. That's helpful I'll turn it over bank group.
Yes.
Thank you Mark our next question will be coming from <unk>.
Which bank Kyle Please go ahead.
Hey, good morning, Thanks for taking the question.
The active material solution quite a large increase there I think I assume youre seeing a decent sized increase here in the first quarter as well is this just a two quarter event of outsized volume just given the government supplying out of Covid test or do you expect continued strength throughout the year in that business.
It's really.
All of the above their business.
Is developing very well.
And.
Test strips for diabetes.
<unk> for those test strips are doing very well probiotics is doing well, but clearly and that's why we called it out.
Home Covid test.
<unk> contributes significantly linked quarter for quarter, four and quarter, one and beyond that it is hard to say now having said that.
There is also a significant halo effect is this technology has been proven out.
<unk> and <unk>.
The.
Grant from the U S government.
The remaining group of $19 million. So the pipeline is filling.
With <unk>.
Projects that.
Are derived from the recognition that this is a technology that can be useful in many areas to protect sensitive protect test kits.
As well as to protect food items so.
We certainly see this as a growth business to strong growth business.
Where the wonderful acquisition and we will continue to drive growth.
Your point on the <unk> test kit that certainly will not go on forever.
With respect to Covid, but we see good pipeline with other test kits and so on.
Got it and then Bob can you just talk about your M&A pipeline and how.
Trackman is from evaluation and technology standpoint.
How do those returns look relative to just buying back your stock given current levels.
It looks like you purchased $50 million this quarter, how should we think about the level of activity of your repurchases going forward.
Sure.
Don't typically comment Kyle specific them.
M&A in the pipeline I would say.
It still is fairly active.
Pricing is still fairly robust, but in general I would say that.
We're going to we're going to look at potential targets, but we are going to be remaining disciplined in the approach and what we do.
So there is there's really not much to speak of there as far as share repurchases. Yes, we were active in the market in the fourth quarter.
We expect to be active in the first quarter, but we have a little bit smaller open window.
To do that in but nothing unusual nothing extraordinary I mean, we're really coming out from when we had kind of.
Put a hiatus early on in the pandemic from not buying back our shares now a little bit more confident in the future and where things are going.
No.
We'll be active.
Got it sounds good I'll turn it over.
Thank you Kyle our next question will be coming from John Kreger of William Blair <unk> Company, John Your line is yours.
Alright, thanks, very much Stephane could you give us your latest thoughts on Destocking that has held back growth in the pharma segment are we are we done with that and have you guys made any changes.
Maybe you have more clarity on where that where those stocking levels are headed.
Yes, so the way we see it we are largely done with the destocking in the prescription business.
The vast majority of customers are back to normal order patterns now of course.
New variants in messaging and so on.
Print that.
Each successive year and seems to have less of an impact so.
We see that has run its course.
Of course.
Continue to remind everybody of the lumpiness of the.
CNS business.
In consumer healthcare.
I think it's well behind US you saw strong growth in quarter four.
With a normal or a strong cough and cold season.
Of course, the this episode.
Sharpen dose.
To track very carefully all the statistics.
That are available to us as well as other trade information.
To be sure that we can identify significant dislocations.
Yes.
Instead of a perfect.
As you know E Commerce club stores are not being tracked statistics outside of Western Europe , and North America are hard to come by.
But despite those caviar caveats I think our ability to gauge things improve towards his episode no doubt about it.
Great. Thanks, that's helpful a follow up.
Can you just talk a little bit about the digital health investments you guys have made by far and test how does that fit into the broader pharma strategy.
What bucket will those revenues from those type of deals are falling within pharma.
Yes.
Along with.
Our acquisition and buildup of our service businesses.
Digital health.
And you can look at in two areas. One is those are attractive businesses.
In their own right services, obviously contributing digital houses.
<unk> a startup type business.
In addition to that they are of course, very synergistic and deepen the moat around our device business because.
They allow us to engage with customers in more sophisticated ways early on in the pipeline.
Drug development.
And then the devices being basically locked.
The locked in for life.
Digital health itself as you know our companion therapies for actual drugs.
With the algorithm approved by regulatory bodies or the FDA EMEA EMA or in the nonregulated markets more of a direct to consumer type setup.
And.
We see this as a very interesting business.
Creates a lot of customer interest.
<unk>.
Beth will also is deepening our relationships on the device side now.
Now digital health itself, we of course had some legacy activities.
Built up over the years.
Now in addition to Lumpiness.
Create revenues this year that combined.
Business was about $15 million to $20 million, but it is an investment to be clear about that.
We will take about two to three pennies.
Per quarter.
While it is in the startup and growth space.
But we see this as a significant add on and with dedicated leadership.
That will drive that business.
Sounds good thank you.
Okay.
Thank you John could now moving over to Adam Josephson of Keybanc capital markets.
P.
Thanks, and good morning, everyone hope you're well.
Stefan or Bob just one follow up to Johns question about pharma, so the margins fell quite.
Quite a bit in the first three quarters, just with the Destocking and the lower prescription sales.
Perhaps Bob can you just talk about now that the situation is seems back to normal.
If I the expectation should be that you can.
Get some margins in that segment more comparable to what you experienced from 2018 to 2020 or is there anything else going on that we ought to be aware of.
Sure. So structurally I would say that we've seen no no degradation in the pharma various.
Divisions. The one thing that does change and we had called this out before with our investments in digital health.
We've made those those are expected to be two to three cents dilutive.
Per quarter, so that is having a little bit of a drag on <unk>.
Going forward, that's the one difference that I would say looking forward, but but generally everything else looks fine no degradation.
Other areas in fact, because we as.
As we continue to grow and become more efficient.
We do see some slight increases in some of the divisions, but that's really the only thing I would point out or highlight.
I appreciate that Bob and also on the margin topic I think George asked this question.
Stefan about getting back to 50% EBITDA margins and beating it sounds like from what from your comments get given the situation in Latin America, given the supply chain and labor situation in North America.
Theres still constraints on your ability to get to those 15% margins at least this year. So.
When do you think is a reasonable expectation for when you might be able to reach that target if not this year.
Yes.
On your on the way I would say is that.
With the supply chain issues that are significantly even quantify them for you.
In quarter, four and we expect.
The same kind of magnitude of quarter one.
<unk> will be fully out of the.
By quarter two so.
So do you expect to resume.
Significant progress on the margin side.
Second half of the year assuming.
<unk>.
And.
Then the cost.
Focus that.
I referred to at the beginning of the call.
We'll also have more impact.
I'm not going to be.
Yes.
Giving you a date certain but clearly also was around the wheel to get US there and you should see significant progress in the second half and once we get North America behind us.
Into next year.
Stefan Thank you and Bob just one on working cap. If you don't mind can you help forgive me if you've talked about it earlier, but what was the drag.
Last year was it more severe than what you were expecting just given the supply chain inflation.
Et cetera, and then what is your expectation this year in other words, how much better do you think your free cash flow performance could be as a result of working capital.
Yes, so I'm working capital and this is primarily driven by a couple of things. One is obviously the increase in revenue that we've seen right the 10% core core growth.
And that's added to the receivables so theres, obviously some pricing that's in there that's influencing of receivables. So first one on receivables.
Not really seeing a degradation at all in <unk> sales or anything or any issues around flexibility. So I really don't have any concerns there.
Inventory side I guess.
Maybe surprising a little bit but looking back.
There is probably about half of that increase in inventory that's coming from.
Purely the inflationary costs and I think you probably heard that from some of our peers as well.
We've also been probably a little bit more prudent on.
With all the supply chain disruption.
The volume recovery, making sure that we've got adequate stock on hand to be able to deliver customers and then don't forget too we closed down earlier this year some of our east coast facilities and anytime you do that you do build inventory in advance.
As your consolidated most operations so it's a little bit of combination so looking forward.
I think our focus needs to be around inventory and hopefully as the raw materials are Dave a little bit and it did highlight metal we got to keep an eye on as well I'm, hoping that we can make some good strides there.
But hopefully the growth that we're going to see in 2022.
You need to keep an eye on collections and everything else, which I said earlier is not an issue at this time.
Thanks, so much Bob.
Yes.
Thank you Adam will be taking our next question from Gabe <unk> of Wells Fargo Securities.
Yes.
Gentlemen, good morning, and thanks for taking the question.
Just.
If you can talk a little bit I think you said expanding the injectable investment from 120 to 160, but kind of a 2022 kind of stayed the same at $55 million I'm, assuming most of that hits in 2023.
And then question number two relatedly.
Can you give us a sense for whether it's in terms of payback or kind of returns.
What you expect out of that project and maybe timing of when we could see contribution.
Sure so.
Yes, the numbers that we gave at Syncrude closer to one.
So once as having grown $1 80.
But we do have a grant and they are the reason why the number didn't change in terms of the the cash number for next year, partially because of that grant that we received.
From the French government that was about about $15 million.
So yes, there will be some that will.
Rollover into 2023 in terms of payback I mean, clearly it's going to be a profitable project.
We typically don't comment specifically on on various expansion projects, but remember here, we're not just expanding capacity for capacity sake. We're also expanding capacity around our higher value added coated offerings. So.
We see the growth is defined as mentioned in the past continuing in the future for injectable components.
Then throw on top of that.
We'll now have a higher value added offering as well.
<unk>.
<unk> moved through.
Very good return on that now when will it come some of it will start coming online.
Later in 2023, and then we'll see the ramp up from there.
And then I'm sorry the.
What was the second question then.
Yes.
I'm asking about.
Sorry, let me just add to book of course.
During 2022 and then.
More to come in 'twenty, three and it is really one single projects at several projects several phases, maybe it's good to recall that.
This process is the basic material forming stages, we often referred to as mixing then comes the formation of the product are molding.
And then comes the finishing.
And coding.
We do not all of these steps at our locations and we add capacity that various.
Part of those.
<unk> both in the U S and in Europe , and as Bob said significantly expanding the premium product capability.
And this is really a result of what we've talked before we've seen.
The recognition of what we can deliver our growth.
Amongst our customers in the pipeline.
It keeps filling up so thats why we accelerate.
The overall investment program.
The number to the $180 million number.
Sorry go ahead.
Okay, great. Thank you.
Thank you Dave will be taking our next question from Andrew Kristina <unk> of Morgan Stanley Andrew. Please go ahead.
Alright, thanks, and good morning.
Just wanted to follow up on inventory and Destocking, maybe on the flip side of everything are you seeing your customers across segment for DRAM pharma in terms of their behavior going forward and where inventory levels are today, and where do you see them.
Moving as you kind of go into 'twenty, two and 'twenty.
Are people holding on to more safety stock or do we need to do a little bit of restocking. After this.
I think we have more normal weather its quota for the season.
This further next year.
Just more color as to how you're seeing kind of the underlying dynamic there would be helpful.
Yes.
In general I think.
At this stage.
It very much depends on the region maybe answer this question I think.
In Europe of course, we also have issues, but it is much more muted and we see normal order patterns.
And the decent supply chain.
Performance.
The caveat of course is there anything that comes in or goes to Asia.
<unk> delayed multiple exit what it used to be both in time and of course also in cost but.
Pretty much on track.
In the U S primary is doing reasonably well.
From a supply chain point of view.
I think what we see as a normal stocking levels return.
We do not see pipeline builds or anything like that.
And then in the consumer facing businesses to attempt to.
Combat.
To meet the matter for us.
To get things.
To us from us to customers customers factories have this exact same issues that seem to be some regional differences the Midwest is more.
Affected then.
Got it.
The U S is really a difficult periods and this will take some time for that to unwind.
I could not begin to give your inventory effects here.
Clearly, we are having safety stocks and sometimes we are waiting for one part to be able to make a customer assembly run.
Yes.
I think thats.
Asia.
Mainly in region for region is running well anything we ship to Asia same issue with the supply lines and costs.
And thankfully our overall operation strategy has always been in region for region. So the U S. Malaise is contained to the us for the most part.
Understood. Thank you and then in terms of the metals aluminum.
Aluminum and kind of what you mentioned can you just talk a little bit.
Just about a pricing dynamic or maybe on the availability of supply.
How.
Comfortable you IRA.
Just thought side of the equation.
Yes.
There are really two factors to that one is European energy cost is increasing rapidly. So if you want for us in terms of pricing pass through.
Patients in passing through the following their cost to not having to pass through energy cost and aluminum of course is by far the most energy intensive metal that we used to see significant increases in aluminum.
Availability is also an issue but.
It fails to in terms of versus the pricing. So the teams are very active in passing onto it higher aluminum cost, especially for prestige. There is really no alternative.
For aluminum.
They also use it in pharma as you know.
So it's important that we pass it on but the availability so far has been more or less okay.
Very helpful. Thank you Tony.
Thank you Angel will be taking our final question from George Staphos of Bank of America Merrill Lynch Sure go ahead.
Thanks very much.
I guess the first question I had related to I guess the cadence question can you talk at all about how the incremental investment.
In Injectables will affect what Youre doing with Congress and then on pharma.
Bigger picture I guess question now slide five talk to some of your customers recent approvals and launches.
Generic versions.
Alexander Hydrochloride and Thats helpful.
The way to help us understand how.
That pipeline of new products in pharma compares.
Versus average versus two years ago.
Of what's coming out now that you should get a benefit from.
And.
Relatedly the pipeline that we can't see.
The products that your customers have and the approval process that hasn't been approved yet in pharma.
Way to say, okay that is 10% above average versus prior years, 5% below any way to size, what that opportunity looks like and the stuff that we can't see just yet. Thank you guys and good luck in the quarter.
Thanks George.
In general we are.
Very.
Satisfied and bullish about the pharma pipeline. So let me let me say that we have a policy of not disclosing what's in the pipeline for competitive reasons and confidentiality reasons.
Until it's launched or if a customer chooses to disclose what they are working on the routes where they're working in the development process and obviously.
We share that as well.
The.
Pipeline is tracked from all the stages to face transfers.
As it progresses across all different businesses.
And that gives us the confidence one.
To reconfirm, our long term targets at the capital markets day, as we have done as well as put to put money.
Where are my office.
Our shareholders' money and invest like we do for them.
The Injectables division, but also active materials.
And.
And as I said pharma in China and in India just mentioned.
I mentioned those that we call out.
In terms of your other question, Yes, clearly Congress will be expanded significantly again for competitive reasons.
Getting to what exactly but it is part of that overall investment program in <unk>.
Hopefully when we have the next.
Capital markets day, we can pick some of you there.
As this facility has expanded significantly in cylinders.
Sure.
I think thats about all I can say George.
Alright understood Stefan Thank you have a good day.
Good day and good luck in the quarter.
Thank you.
That concludes the call.
Thanks for joining us today, and we look forward to talk to you.
On the road reopened virtually.
Yes.
This concludes today's call. Thank you all for joining and have a great rest of the day you may now disconnect from the curve.
[noise].
Sure.