Q4 2022 Aptargroup Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to <unk> fourth 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 Mrs. Mary Scafidi.
Senior Vice President Investor Relations and communications.
Go ahead.
Thank you Hello, everyone and thanks for being with US today, joining me on the call are Stephane tender, President and CEO and Bob Kim Executive Vice President and CFO .
Our press release and accompanying slide deck had been posted on our website.
If you are following along on our website you can advance the slides by hovering over other presentation screen and clicking on the arrows on the right and left as always we will also post a replay of this call on our website. Today's call includes some forward looking statements. Please refer to our SEC filings to review factor.
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.
Thank you Mary and good morning, everyone. We appreciate you joining us on the call today.
I am going to begin my remarks by highlighting our results for the fourth quarter and the full year later on in the call.
<unk>, our CFO , who will provide additional details on the quarter and year end results and we'll also spend some time talking about the strategic realignment that we announced in early December and the benefits we expect to achieve.
Starting on slide three for the fourth quarter I am pleased to report that after achieved core sales growth of 4% and delivered adjusted EPS of <unk> 92 per share we.
We guided our adjusted earnings per share for the fourth quarter to be in the range of 73 to 83.
The results were driven by strong volume growth in our pharma segment, which continued to benefit from demand for nasal decongestants and ceiling lenses as well as allergic rhinitis and emergency medications.
Solid volume growth for beauty dispensing solutions, especially in prestige fragrance and skincare also drove positive results in the quarter.
We also ended the quarter with a more favorable exchange rate and the lower tax rate than we previously anticipated as we identified during our third quarter call.
Our dispensing solutions for food personal and home care areas that had benefited from the pandemic.
We're experiencing a decline in sales as certain customers, especially in North America.
Working through the safety stock they had built up over the pandemic.
We're seeing signs that sales for food dispensing solutions, which were impacted first are starting to stabilize while beverage personal and home care is still being affected although we see a few green shoots.
We received a number of recognitions during the fourth quarter. We ranked number 15 on Newsweek's America's most responsible companies and number 70 on the World Cup female friendly companies by Forbes in China.
Crow recognizes with one of the best companies for female executives awards.
And in France, the country, where we have the single largest footprint.
<unk>, a leading French news magazine named US as one of the most responsible companies.
More recently, we again achieved the platinum level rating in recognition of our sustainability efforts from Echo babies. This places after among the top 1% of the more than 90000 companies that are rated by activated across all industries.
For the year after achieved strong core sales growth of 9% with farmer, delivering 13% core sales growth, while beauty <unk> home's core sales were up 7% and food and beverage grew 5% for the year.
Growth in core sales for the year was driven almost evenly between volume and pricing.
I am very proud of our Africa team members around the world, who have worked tirelessly to create and deliver solutions that make the lives of people better every single day.
We ended the year, achieving the highest full year sales and adjusted EBITDA, hopefully, leaving the pandemic behind us.
We do recognize there is more work needed to achieve our long term profit margin ranges.
Some of that work is well underway, including our investments in new state of the art sites in France in China that will enable us to capture growth and on the cost side. We continue our work to reduce our fixed costs and drive profitable growth and margin improvement while spending capital wisely.
In 2022, we started to leverage our fixed cost base and reduce our SG&A as a percentage of sales.
We will continue to focus on increasing efficiencies in 2023 and beyond.
Turning to slides four through six as of January .
Three reporting segments are after farmer after beauty and after closures in December we announced the strategic realignment of our closures and non pharma complex multi component dispensing solutions, which is expected to benefit us in four key areas.
It strengthens our market position in both closures and beauty.
Aligning us more closely to the way our customers are structured and purchase our products secondly, better positions us to enter new end use markets for a closure technologies thirdly, it enables bottomline improvements by capturing efficiencies and streamlining operations.
And fourth increases capital efficiencies by leveraging common assets.
In addition, the realignment builds on the work done as part of the transformation and enhances our ability to achieve our long term targets.
A key learning from that work what the closures in our complex multi component products each require a different focus.
Over the last 10 years, we have grown our food and beverage business, which is predominantly our closures business and has more than doubled its revenue.
Our focus was on capturing and driving conversions from a simple closure like a flat cap to value added solutions like a hinge closure.
We also use our Latin America flow control valve.
The BZ squeeze sour cream in the pouch.
Since then and markets have evolved considerably and today, the food and beverage closures market share much more incumbent with the personal and home care closures markets we serve.
Aligning ourselves to directly serve all these end markets in one segment will enable us to enhance our operational and capital efficiencies. So after beauty the simplification and focus of this segment allows us to better leverage our complex spray and dispensing solutions for prestige and premium brands in the beauty and personal care markets.
The realignment will help us to focus on what is most important to our beauty customers.
Reinforcing their brand equity and providing consumers with exceptional user experiences.
After beauty will continue to supply homecare food and beverage customers that use <unk> technologies, which is a small part of our business today as we implement this realignment we are fortunate to be guided by proven leaders in our businesses heavy clearly is leading after closures and mark for Euro leading app the beauty each of whom has broad experience across.
Gross after including deep knowledge of their respective markets. We have shared on past calls about the operational and supply chain challenges, we have experienced in North America.
It is very much impacted our ability to deliver the benefits of our transformation work to the global bottom line in Europe , where we did not have these challenges there has been significant improvement in operations and profitability.
<unk> home in Europe delivered adjusted EBITDA of 14% for the full year showing consistent improvement in overcoming strong inflationary pressures.
As part of our continued focus on cost.
Internally the closing of our beauty and home plant in North America in December of 2022, as well as a reduction in regional staffing levels, which will be completed by the end of quarter. One 2023 and earlier. This week, we initiated the formal consultation process, which is quite detailed image sensors with the European works.
The.
<unk> National works Counsels and Union Representatives regarding a potential reorganization of our European beauty segment.
The processes will take time and will be subject to both pan European and national bargaining obligations and timelines in each affected country.
We are in the early stages of this process and we will keep you updated.
We will also accelerate the streamlining of shared business functions across the company by expanding in house business service centers in the Czech Republic, Brazil, and the United States, We expect to record one time costs in the second half of 2023 and into 2024 associated with these efforts.
While we cannot.
The labor consultations and bargaining processes.
<unk> is to improve our margins by executing on our growth plans as well as managing and leveraging our fixed cost base on.
On slide seven I want to comment on the strength of our balance sheet and our capital allocation approach.
<unk> has historically maintained a strong and relatively conservative balance sheet, which has served our customers and shareholders during challenging economic times.
In recent years, we have been focusing the majority of our capital allocation toward our higher margin faster growing pharma segment.
$180 million Injectables expansion program began in 2020 and is ongoing.
The first phase of our premium product capacity expansion in <unk>, France.
France has been completed.
A new additional large state of the art factory also in automobile.
As well as expansion of our U S based manufacturing facility in Congress in New York will be operational in 2024 and.
In 2023, we expect our capital expenditures to be in the range of $260 million to $280 million as two of our large projects are nearing completion.
Suzhou, China, and new plant that will.
Serve all three segments is scheduled to progressively come online starting in the first half of 2023.
Our state of the art sites for prestige custom beauty or Youre not friends in the heart of the French manufacturing beauty industry is scheduled to open in the second quarter of 2023.
The new lead us in L. E. D certified sites brings together operations from five older inefficient manufacturing plants into one modern site in both service a growing part of the market for us.
Dividends and share repurchases are also part of our balanced capital allocation strategy in 2022, we returned over $190 million to shareholders through dividends and the repurchase of over 860000 shares for $92 1 million.
We completed a 29th year of paying and increasing annual dividend before I turn the call over to Bob to share further details on Q4, I want to speak about innovation and highlight recent technologies and product launches as shown on slide eight.
In pharma, we recently announced.
First metal free nasal spray pump.
<unk> made possible by the sustainability expertise well honed in our consumer facing businesses.
When used in combination with our high density polyethylene polypropylene container. This pump can be conveniently recycled as one piece without needing to separate or dismantle any parts. This pump strengthened to circle approach for nasal delivery devices and serve the growing needs for simple to recycled packaging.
Also in pharma, we launched our first ever active bottle featuring post consumer recycled content, which is not part of after CSP technologies active while solutions incorporating PCR content in our active polymer solutions is yet another step towards material circularity.
For beauty <unk> home, we are providing refillable packaging made with recycled plastic bottles, Julie Luce Lipstick and our award winning fully recyclable mono material pump is the dispensing system for rent pure new hair care line.
And the body shop's shower awash both in Europe .
Several fragrance launches in Europe feature a prestige fragrance spray pumps, including perfume brands by Dr L'oreal and Cody.
Turning to food and beverage Kraft heinz's, featuring our custom closures on several ketchup flavors, along with our pour spout closure for their wild style condiment line in the U S. In addition, our <unk>.
Closure and flow control valve technologies featured on hybrid reasonable <unk> spread in the U S and premium brand condiments in Spain.
As seen on slide nine this past year also marks the first full year of operation of our envision lab <unk> state of the Art Innovation Center in France.
We envision lab showcases the latest in design engineering and material Science adapter has to offer enterprise wide in 2022, we hosted ideation sessions with about 150, primarily beauty customers.
During these sessions, we were able to engage and collaborate with our customers at a high level.
Between our landmark investments in <unk> and the envision lab outside of Paris, our customer engagement has continuously increased.
Beauty pipeline has been significantly strengthened and grown.
Now I would like to turn the call over to Bob Bob.
Thank you Stefan and good morning, everyone.
Starting on slide 10, I would like to summarize the quarter.
Our reported sales decreased 2%. This included currency translation headwinds of approximately 6%.
Therefore core sales grew 4% primarily due to strong volume growth in pharma in beauty as well as price increases in beauty and home.
As shown on slide 11, we reported fourth quarter adjusted earnings per share of <unk> 92.
Which is a 5% increase over the prior year adjusted EPS when we neutralize the currency headwinds we are facing.
The original EPS range. We gave included the tax range of 28% to 30% and assumed a euro to U S. Dollar FX rate of <unk> 98.
Had these assumptions materialize, our adjusted EPS would have been approximately 81.
Which is at the upper end of the range, we gave in Q3.
We achieved adjusted EBITDA of $147 million, which decreased from the prior year's fourth quarter and includes foreign currency headwinds of approximately $4 million.
About half of the decrease in adjusted EBITDA was due to these foreign currency headwinds.
Our team has done a good job of obtaining price increases, especially as we face continued cost pressures.
At the end of 2022, we have caught up on a cumulative inflation impact. However margins continued to be compressed because we have been passing through costs on a one for one basis.
The two year cumulative impact on our margins is about one five percentage points.
Our reported tax rate for the fourth quarter was 19%, including the reversal of a portion of the tax charge related to legal entity reorganization adjusting for this our tax rate would have been 21%.
The mid range of our guidance was 29%.
Turning to some of the details by segment for the quarter, our pharma segments core sales increased 8%.
Approximately 5% of the growth came from increased volumes, especially in the prescription and consumer health care divisions.
Looking at sales in the pharma segment by Division.
Ascription core sales increased 9%, primarily due to strength in demand for allergic rhinitis and emergency medicine devices.
Consumer healthcare core sales increased 11% on strong demand for nasal decongestants, and saline wrenches as greater consumer mobility contributed to more common ailments, including colds and influenza.
Consumers also turn to some of the same treatments to alleviate symptoms of COVID-19.
Our elastomer solutions for the Injectables market grew core sales, 6%, primarily due to higher volumes for biologics and anti thrombotic applications.
Turning to our active materials science solutions core sales decreased 3%.
<unk> materials faced a difficult comparison to the prior year quarter due to slower sales of active film used for at home COVID-19 test kits.
Excluding those sales active materials core sales grew 6%.
As a reminder, these challenging comparisons will persist next quarter.
<unk> adjusted EBITDA margin was 32%, which included startup cost for the Injectables division capacity expansion and enterprise resource planning system implementation of approximately $4 million.
Our beauty and home segments core sales increased 2% based primarily on price adjustments with volume growth in our prestige fragrance and skin care solutions.
Regionally, both Europe , and Latin America had solid growth for the quarter.
This positive was offset by volume declines in other regions, especially in North America, primarily due to a customers working off current inventory levels.
Sales were also negatively affected in China due to its reopening in the resurgence of COVID-19 infections.
Looking at the beauty and home segment by market Beauty core sales increased 13%, primarily due to increased sales in prestige fragrance and skincare.
Personal care core sales decreased 7%, primarily due to decreased sales in the hair care and body care categories, while Sun care continued to increase.
Home care core sales decreased 13% due to lower sales in the surface disinfectant cleaner and laundry care categories.
This segment's adjusted EBITDA margin for the quarter was 12%.
The food and beverage segments core sales declined 4% compared to the prior year's quarter as product pricing was affected by lower resin prices.
The segment also faced difficult comparisons to strong fourth quarter of 2021 sales.
Volumes in the food and beverage markets decreased as our customers continue to work through their inventory levels.
Demand in North America, and Latin America was the most impacted but we are seeing some of the signs of orders stabilizing primarily for our food dispensing solutions.
Looking at the food and beverage segment by market.
<unk> core sales were flat as we were able to offset resin price decreases with higher tooling sales and volume increases in our foodservice products.
Beverage core sales decreased 16%, primarily due to the challenging market conditions in North America, and Latin America.
The segment's adjusted EBITDA margin was 13%, which was affected by lower volumes and related lower factory production levels, primarily in North America and Latin America.
Reflecting for a moment on 2022 after finished the year with strong topline growth and adjusted EBITDA.
We also took steps to reduce our fixed costs, our focus that will continue in 2023.
Slides 12, and 13 cover our annual performance with core sales growth of 9% and adjusted earnings per share growth of 5%, including comparable exchange rates.
In 2022 cash flow from operations was $479 million.
Free cash flow was $196 million for the year up from the $58 million in 2021.
Due to improvements in working capital management and lower restructuring costs.
For our three large capital projects are injectables capacity expansion projects, our state of the art beauty site in France, and our new site in China that will service all three of our segments. We spent about $24 million in the quarter and approximately $108 million in the year.
As Stefan mentioned.
Two of our three large capital projects will come online this year.
Reported depreciation and amortization expense decreased less than 1% or $1 million to approximately $234 million in 2022.
Depreciation and amortization as a percentage of net sales decreased to 7% in 2022 compared to seven 3% in the prior year.
Moving now to slide 14, which summarizes our outlook for the first quarter as defined covered we had a strong year and a solid finish even with the industry destocking in food personal care and home care experienced in the North American market.
We anticipate a strong momentum to continue and expect 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 85 to <unk> 93 per share.
The estimated tax rate range for the first quarter is 25, 5% to 27, 5%.
In the first quarter, we will have about <unk> <unk> impact and startup costs from our Injectables expansion program and the rollout of a new ERP system.
The startup costs stepped down in Q2, but we anticipate about a 2% to <unk> impact per share per quarter for the year.
Additionally, we are expecting some currency headwinds compared to the prior year for.
For example, the euro rate for the prior year Q1 was $1 12, and our guidance for the coming first quarter is assuming a 108 euro rate.
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.
We currently estimate depreciation and amortization for 2023 to be between $240 million to $250 million.
As Stefan mentioned, we expect our capital expenditures in 2023 net of any government grants to be between 260 and $280 million.
In closing we continue to have a strong balance sheet with a leverage ratio of one seven which allows us to continue to invest in the business pursue strategic opportunities and continue to return value to 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 191000 shares for approximately $20 million.
Before I turn it over to Stephane I want to remind you that in advance of our first quarter earnings call. We will issue recast financials for our new segments.
At this time Stefan will provide a few closing comments before we move to Q&A.
Thanks, Bob in closing as Bob mentioned on Slide 14, looking ahead to the first quarter. We expect the momentum to continue in our pharma end markets, especially in prescription and consumer health care as well as in our beauty market such as fragrance and skincare.
The year is off to a good start and we're excited about the opportunities ahead of us.
We anticipate that the food personal care and home care markets in North America.
We will continue to be challenged due to destocking.
While we are starting to see orders to come back in food, it's too early to say when these markets will fully recover.
We believe our segment realignment, both strengthen the market position of our beauty and our closure segments, allowing us to better serve customers and deliver long term value for shareholders. The.
The realignment reinforces our commitment to optimizing our portfolio and increase in capital efficiencies by leveraging common assets as I mentioned earlier, we will continue to work to reduce our fixed costs and drive profitable growth and margin improvements while spending capital wisely. This will be a key focus for 2023 and beyond.
Over the last few years, we have concentrated our investments on our higher growth and higher margin businesses and have built robust pharma opportunities that have grown in both number and value over the last five years.
We have also invested in digital health capabilities through our acquisition of <unk>, which offers patient support algorithms and connected devices. However.
However, the digital health market is still evolving and results may be lumpy. We believe this investment will give us a distinct advantage in the future. Our products are used by millions of people every single day, our customers recognize us as an innovation leader in the drug delivery active material science and consume.
<unk> product dispensing industries.
Additionally, we continue to advance our mission of becoming a proactive leader in sustainability.
Businesses have a very clear competitive advantage in growing markets with unmatched solutions I am very proud of all that we have accomplished in the fourth quarter and full year of 2022.
With that I would like to open up the call for your questions.
Thank you.
Ladies and gentlemen.
A question. Please press star followed by one on tackling key patent now.
Ask your question potentially a phone is on mute.
Cody.
And in the interest of time and fairness to all participants.
I guess two questions and then come back into the queue. If you have more questions as time allows.
Good.
With our first question comes from Ghansham Panjabi compared Cushing Eni's now.
Okay.
Hi, good morning, it's actually sitting.
Sitting in for Ghansham. Thanks for thanks, a lot for taking my questions.
I guess I'd like to dig a little deeper into that into the inventory situation across the supply chain. So can you provide an update on how you are seeing inventory levels across the supply chain right now, including on a segment basis across your own portfolio, but that also.
Some added detail on what Youre hearing from the customer base I think.
We have seen in the market.
Mixed timeline for when this destocking effort can be complete whether it be kind of in the first quarter may be a lingering into the later part of the first half of the year any any thought China.
On that topic would be helpful.
Yes.
Sure.
Yeah.
Maybe we start off with pharma.
We have very robust order books.
For prescription and consumer health care see good growth in the injectable enacted materials with the exception of the pet home Colby.
Sure.
Comparison.
Clearly.
<unk>.
Allergic rhinitis is growing well above trend.
Part of that is just catching up from the low points.
Covid, which is to reach about.
2019.
Volume levels in the allergic rhinitis anecdotally, we see that.
Usage of nasal because electrical heritage product, it's picking up further.
More products coming out more combination products come out.
So we are quite.
Positive from an allergic rhinitis and on the consumer healthcare clearly.
Nasal hygiene.
Become a very different place and personal hygiene regimes.
We just see a very good order book, the one area where for sure and some inventory build as an emergency medicine as we expect.
And Alex on.
Narcan to go over the calendar sometime as early as next month or into the second quarter.
<unk>.
Customers are building inventory for that effect.
When it comes to the consumer product side, as we mentioned to be sea food.
Starting to normalize the big question Mark.
In personal care home care beverage.
And.
We were maybe a bit early and indicating that.
Net inventory correction with quarter.
Quarter three announcements since then.
A lot of people observe to same.
What we've heard from customers.
It's pretty much a.
Your service levels were in great during Covid so.
Orders from multiple suppliers.
Our safety stock within failure, because then you wouldn't have told us anything.
We got 90 day safety stock.
Really on the <unk>, So we got to work that down over the coming quarters.
We are proactively working with customers.
Two.
Smoothing those Rick lashes, a little bit by.
Producing at a certain level. So that we don't have to lay off a ton of people.
But clearly it will take well into.
Cohort three quarter, one there may be into quarter two for some of these end users I think that's the best we can say it is primarily though situation for North America I want to be clear about that and as a reminder, North America is about 20% of our business.
And.
About 30% of our business.
<unk>.
Europe doesn't have the issues because it dealt very differently with Covid and of course, China is.
The different dynamics, but.
The impact from us from the U S. Nevertheless, a significant.
Great.
That's very helpful.
Then.
Maybe just touching on from the raw material situation can you talk about any sort of raw material benefit that you saw during the quarter.
<unk>.
What sort of potential impact or benefit there could be from.
Lower raw material costs in the first quarter of 2023 and guidance and then maybe.
Some detail on what Youre thinking about for the full year.
As to how that develops we've seen some fluctuations with oil and gas and actually taking up recently after after headed heading lower for quite some time. So just how that would flow through the portfolio would be helpful.
Sure I can I can take that question.
So for the fourth quarter it had a rather immaterial impact on the top line approximately 1%.
On a consolidated basis and had a slight positive in each of the segments, but nothing significant.
In Q1, we're actually seeing sequentially.
In North America, and Europe , increasing slightly from Q4 levels.
But they are still.
On year on year comparison going to be much lower than where they were in Q1 of 2022. So it really depends it's difficult for us in our projections to forecast what the what the impact is going to be because there are different pass through.
Delays, depending on the customers and obviously, it's going to depend a lot on the volumes. So I couldnt, even begin to lean out for the year.
What we would expect but again resin is our largest purchase but we're still seeing increased cost in other areas, such as metal and aluminum and things like that.
Got it got it makes sense.
I'll turn it back over thank you very much.
Okay.
Thank you.
We have our next question comes from George Staphos from Bank of America. John Your line is now.
Thanks, so much.
Hi, everyone. Good morning, Hope Youre doing well thanks for the details.
My question. The first one is on on beauty and the overall realignment to the extent that you can comment.
Is there any way to bracket, what the margin or cost benefits might be over.
A one year or two year basis, recognizing you have a lot of discussions to go through with employees works Council et cetera, which may prevent you from talking to that.
Assuming that you might not be able to get some color. There just can you talk a bit about how much non beauty will be within the beauty segment as a percentage of revenues and talk about what youre seeing in terms of launch activity in beauty and I had a quick follow on on Capex.
Sure.
Kick it off Georgia as a follow up.
First I want to make it clear.
The segment realignment and the cost work that I referred to re engage the European works Council.
Or a separate almost independent so the segment realignment is really moving about $200 million of closures revenues from beauty.
Two food and beverage.
Most exclusively a closures business and the benefits are really one.
It allows.
Allows the closure business to go after any and all end uses.
As an example.
Health care closures are very attracted closures, so far but people are not.
Rather to go off the health care closures, both the closures people willing while it's just food and beverage.
One is really positioning us to be more go after all closures business. The second one is really.
Reflecting.
<unk> debt, reflecting how customers buy we already get good feedback from the automotive national customers because even in shared account multinational customers.
Different people buying closures then they won't have buying high in fragrances or skincare products.
And then of course as you pool common assets incumbent operations.
You have increased efficiencies and the both on the cost side and on the capital side.
With that said.
On beauty.
And.
Shared costs.
We really look at it.
Emerge from the pandemic with good top line momentum.
And I'm not happy with our margins.
With that we are committed to our long term targets.
And we feel that especially on the fixed cost side, we have some work to do SG&A as well as operation fixed cost and of course, the bulk of that fits in Europe .
That's not that easy to get it that's why we need these.
Consultation processes.
When you look at.
Where our EBIT margin is versus our long term targets.
This debt.
We're looking for.
Several tens of millions of.
Improvement of the fixed cost side across SG&A and operations and maybe Bob you can comment on the breakdown.
So.
How we define personal care and how our customers define personal care are two different things there are things that we call personal care that they consider beauty.
But the way, we look at personal care and home care prior to the breakup.
They are a realignment of the segments rather it was about 43% to 45% of the total beauty and home segments. So then you take out the closures piece of the personal care and home care with Stefan mentioned about $200 million. So we're probably somewhere between 35 and roughly 40% I would think as we would defer.
<unk> personal care and home care.
Thanks, Bob.
Should we assume if you can't quantify at this juncture other than Directionally that you will give us at some point.
The benefits you expect to get from both initiatives to margin shifts.
Sure.
Oh go ahead.
Okay, and then my related question or by separate my second question is.
How long can you keep that these capex levels.
Okay.
A nice step down from where we've been thanks guys.
Yes, so sure once we have reached agreement with the Labor Representatives.
And Ken kind of embarked in both the one time costs and the implementation timeline.
We will share with you.
The related savings but.
Debt towards the.
The second half.
Of the year. These processes are like nothing was alone.
Yes.
And on the on the Capex as well we have.
Concurrently executed in three large projects two of which are coming to fruition.
We opened.
Really state of the art custom beauty facility in France.
The China facility comes on stream so as that comes out I'm, not saying that we will never have big project anymore, but.
Clearly.
<unk>.
We want to live within our means.
These capex levels.
Make it a lot more sense at the moment once you take those large project out and I would just add that.
<unk>.
The plant consolidations that we've gone through over the last several years should lead to a little bit less on the maintenance side, but.
As a company.
I think a good use of our balance sheet is going to be to continue to automate and the factories right to get more efficient.
To automate where we can these new state of the air facilities are one example of that so we always have a run out of activities over the years. So we've got some some new technologies that are coming on stream and I would hope that.
We continue to invest in new innovative products like some of the sustainable pumps.
The fund was mentioning that his site certainly in the pharma said all of that requires capex to keep going.
Thank you very much.
Thank you George.
Our next question comes from <unk> <unk> from Morgan Stanley and Jones. Your line is now open.
Hello, Thanks for taking my question. This is actually Stefan sitting in for Haynesville.
Real quickly on the European works Council.
Would you be able to give any more details on your strategy and any potential timeline.
Initiatives.
Sure Thanks for the questions.
For those who are.
Interested in this so if you operate across multiple countries.
And if it is requested by more than one country you have to have legally what's called the European works Council, we have that since a few years.
So any restructuring that you do that spans.
The country's first has to do a consultation with the European works Council, but in our case, we have big operations in France, Germany and Italy.
He already has three countries that are affected.
And then this is.
Very well regulated looking to cover and how you need to cover it.
With.
Hundreds and hundreds of pages in.
And then you add to it.
Parallel.
<unk> negotiated with the National works Council and Union so unlike the U S.
Union has been up and that's it in Europe Youll ever works Council and the National.
Local minion and of course, those dynamics are different and things are different by country. So.
Thats why it takes.
Quite some time to get all this done before you actually can implement and then of course the different stages of implementation.
You need to give employees.
<unk> two.
Voluntarily take a package and then you look for re deployment and then you look for.
Reductions.
This is a very thoroughly prescribed process and it takes time, but.
Once you get to the end to get to execute.
Okay.
Great. Thanks for the color and then so the realignment change the way, we think about capital allocation going forward and would you be able to quantify some of the cost that youre going to incur tinted in airlines.
The realignment does not create a lot of cost by itself and the capital allocation.
It's not really changed that much clearly we expect some capital savings by pooling assets that do the same thing.
But we have ramped up.
Our capital deployment towards farmer from.
Five years ago, it was mid twenties being over 50%.
It will not change.
Yes, we've taken into account any more capital efficiencies.
Also see.
And overall.
Capex guidance.
Great. Thanks for taking my question and good luck complaint.
Thanks.
Thank you.
We have our next question comes from Daniel Rizzo from Jefferies.
Your line is now.
Yeah.
Good morning, everyone. Thank you for taking my question you talked a lot about margins I think in beauty and home.
I was just wondering in the pharma segment.
The EBITDA or EBIT margin target.
And over this year and over the next couple of years, where we expect to get to.
Yeah, our external targets for pharma, 6% to 10% topline growth, 32% to 36%.
EBITDA margin.
Nothing to guarantee that every single quarter, but overtime.
What we look forward clearly here.
Growing quite nicely at the moment, we are putting in a lot of new capacity in our injectable business.
Which has.
It creates a drag of <unk> 8 million in quarter one.
Turning them down to $2 million to $3 million a quarter.
For the balance of the year and we are also investing in digital health, which is a lumpy business, but on average. It's also about two cents a quarter drag so even with that.
We look at the 32% to 36% EBITDA margin.
Those investments are most of this year or will it be over the next several years I assume it would continue.
The injectable investment is in multiple phases, so maybe let's just step back.
Injectables.
You basically have three manufacturing step one is what we call. The mixing you prepare the polymer juniors the molding way to create the software or the plunger or the needle shields and then three is the washing and finishing.
That then creates the finished product.
We have three locations towards brands one in the U S. A.
Those investments are made.
And all three locations at different steps of the value chain.
With that I described we've concluded.
The first one.
In France.
Making a.
A third one which is a big building extra the existing facility.
And Congress in New York also.
So these increments come on stream at different times.
We'll be done with everything about in 'twenty four.
Alright, Thank you very much.
Okay.
Thank you Dan.
Yeah.
We have our next question comes from Thailand Light from Deutsche Bank. Your line is now open.
Hey, good morning, Thanks, taking the question I actually wanted to follow up on that.
<unk> question earlier regarding pharma, there's a lot of puts and takes in pharma on the volume side. The top line side you have.
Pretty challenging comp year over year, but theres a lot of positive things Bema development right you'd mentioned the noncore moving to over the counter is there any way to quantify the benefit of volume you're expecting from this and then even longer term. It seems like there's a lot of developments being made for nasal delivery solutions drug molecules.
And then you also have the injectables capacity expansion. So I'm just trying to understand kind of your line of sight to hitting that 6% to 10% target for 2023, and then even longer term is that the right target given all of the deposits that seem to be in the development.
Yes.
Thanks Scott.
We discussed that I think when we had the Investor day in Congress.
You always have moving pieces and.
This is a pipeline business so everything that we start developing today.
Really comes out of the pipeline five to seven years from now.
So it's really.
Our confidence in the pipeline.
A bit underpins, the 6% to 10% growth.
Clearly right now we are growing above that.
This will be allergic rhinitis will revert back to mean no question.
To keep growing at double digits.
And consumer healthcare is very strong at the moment.
So we are quite comfortable with the 6% to 10%.
Not only this year, but for years to come.
But building integrated to raise it.
But is there any way I mean, just a follow up is there any way to size the narcan potential what that means for you and then my second question was going to be on farm and the cost side can you just remind us the costs are incurred this past year related to startup costs from the ERP ERP implementation.
And then when do those costs go away, but we're just trying to get a better understanding of kind of the more run rate normalized earnings power.
That's one of those onetime costs are behind you.
Sure.
So I think Bob mentioned the quarter four in the quarter one numbers.
Again quarter, one it was eight or $8 million.
Which will then go down to two to three for the balance in the year and it will also continue in 'twenty four 'twenty four.
It comes on stream, but then it will go away.
As far as you can see.
I mean, it's.
For this business.
To some other company.
It's a small business and we're putting in substantial capital and so the ramp is all up and.
Fixed price a metric we bought this.
10 years ago.
And now we're putting in.
Our standard.
S&P system.
It is also a major effort.
I mean on relating to 2022, we had roughly two to three cents.
As we began the validation and the expansion that was done in 2022 and then in Q4 of this year, we had about a total of three to four.
Related to the <unk>.
Startup and the ERP implementation and then Stephane gave you that the forward looking.
Sounds good good luck in the year.
Thank you.
Yes.
Thank you Paul.
Our next question comes from Gabe <unk> from Wells Fargo Securities Gabe Your line is now.
Stefan Bob Good morning.
Hey, guys I have one quick one.
And cover just one quick one on on corporate it was a little bit higher than.
Maybe what we were looking for.
And it sounds like the ERP and startup costs that were distributed to the segments. So I'm just curious if theres anything in there and then maybe a little bit of a view for what youre expecting for 'twenty three.
But gave youre always good to dragging down the rabbit hole, So bear with me I missed one of the biggest the biggest increase in corporate expense.
Comes from some of our supplemental pension in the U S. And this is a kind of a quirk of the accounting rules right. So we may have annuity.
Contracts on the books, which sit on the asset side, so any fluctuations in those asset contracts have to go through P&L, while any fluctuations in the liability for the pension go through OCI. So what you had last year is you had a $2 million positive right as is.
<unk>.
Go run it through corporate expense and now it's flipped to $2 million negative as the interest rates are increasing so there is a traditional cost in theory on the <unk>.
Annuity contracts, even though that they are covered so that accounts for about $3 five $4 million of its output.
Okay.
At least we didn't get into organic chemistry or something crazy.
Wondered gets up in my mind.
As you are talking about this.
Did I hear you correctly that you were saying.
You expect 23, net leverage to and sort of where youre at today.
Are you, saying we are at one seven.
See some opportunities perhaps on the M&A side, but we'll remain active.
In the absence of that for share repurchase I, just maybe clarify those comments.
Yes, I mean, I think Gabe we were comfortable in.
The 1% to three times leverage where we're at so one seven is a nice spot to be in.
We have follow what's going on with the interest rate environment and we've got some debt repayments that are coming due in 2024, we still have about $108 million left on our existing authorization for share repurchases will continue to look at M&A.
So again, we're going to we're going to stay in that comfortable range for now and we'll see what opportunities it brings.
And we're going to track where the interest rate environment goes for additional borrowings if if it was necessary.
Usually don't guide the leverage ratio for other than the corridor of 1% to three times.
One seven is where we added.
Understood them offer them a backward looking comment alright. Thank you guys. Good luck.
Okay.
Thank you Kate.
We have a follow up question from John Stifles from Bank of America, Josh Your line is now open.
Hi, Thanks for taking the follow on.
Asked earlier about the launch activity that you might be seeing in beauty and fragrance can you talk to that and then somewhat relatedly can you give us assurances on what additional information will be providing to us as we get on the call.
<unk> been getting on the calls underlying the segment data will you be giving us kind of the end market data and the new reclassified segments.
So launch activity, yes, let me it will be getting post. Please go ahead.
Let me take the first one and then.
So on the launches look.
Certainly as pent up.
Eagerness eagerness on behalf of our customers to launch new fragrances, that's the business model, but they will not launch into a market that we had during COVID-19.
The uncertainties of.
Past year no.
As we exit that.
Period of tremendous uncertainty.
Certainly you will see a lot of launches and Thats what makes US also comfortable with the continue.
Continued strength in fragrance.
As for the.
The coming quarters.
Even if you see it back off.
At some stage in Europe , and the Americas.
We certainly hear from customers that China re emerges.
The consumer comes back.
Certainly the second half also looks very good so overall.
Good good momentum in launches.
Give you the insurance assurance question offshore sure so George consistent consistent with requirements and what we've done in past segment realignment prior to our Q1 earnings we'll probably file an 8-K with.
The previous two years, so 2022, and 2021 restated under the realignment as well as the quarterly split for 2022 and that should give you. The information you will need them not only for the upcoming 10-Qs, but then the 10-K at the end of the year.
Right, Bob I guess, what I was saying will you also give us beauty core growth.
<unk> core growth et cetera.
Within the reclassified segments.
Okay, Yes, and that will definitely will definitely give you a color by market.
Okay last one just on sustainability can you give us across the entity in total and then within pharma specifically.
What percentage of your products are recyclable reasonable.
Or can postpone which I'd imagine, it's very little but.
Any metrics around that for the company and for pharma would be great. Thanks, guys. Good luck in the quarter and congrats on the performance of share.
In the quarter and the year.
Thanks.
So.
I think the best place, where you'd see that it is a sustainability report.
Clearly.
The ratio is much higher in the consumer facing products, where it might be as much as 15%.
In the pharma product its just starting starting with consumer healthcare.
While we are talking about sustainability.
You have seen.
The.
Growing recognition around everything sustainability ESG.
One is of course that is very.
Very important to future proof the company and future proof the business, but I also wanted to highlight it is extremely important to our customers.
It is extremely important to talent, whether recruit for the board or senior positions of frontline positions. The first thing people.
Really love, what you're doing around sustainability.
Therefore, we can compete above our weight class in recruiting and clearly for customers it's important.
EMEA and <unk>.
<unk> preference when it comes to who to buy from.
Thanks Stefan.
Thank you Josh.
There are no further questions from the line I'll now hand, the floor back to Mr. <unk> for closing remarks.
Great. Thank you all.
Really appreciate it.
Well everything the team has done.
With a solid quarter four despite.
North American weakness in some of the consumer end users.
We clearly are off to a strong year.
In quarter one.
<unk>.
We will overcome the consumer weakness here as well as relative tough farmer combs.
The onetime cost, especially the ERP cost and injectable will be transitory.
We see good demand patterns in pharma and beauty.
Continuing clearly first half will be strong and second half China should add to the momentum.
I wanted to come back to the innovation pipeline, we showcased that in Congress for pharma, but also the beauty pipeline is building nicely as customers.
Our commitment with the innovation center and the new.
The state of the art facilities in Europe and in China.
As our major investments come online our capital expenditures will come down somewhat and I just talked about the sustainability of recognition. So really looking ahead to a solid year. You may have also noticed that we are narrowing our range a bit hopefully that some of this major uncertainty is behind us and with that.
And we look forward to talk to you on the road.
Thank you.
<unk> and gentlemen, this concludes today's call. Thank you for joining you may now disconnect your lines.
[music].
Okay.