8-K
WEST PHARMACEUTICAL SERVICES INC (WST)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) – February 13, 2020
| WEST PHARMACEUTICAL SERVICES, INC. |
|---|
(Exact name of registrant as specified in its charter)
| Pennsylvania | 1-8036 | 23-1210010 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission File Number) | (IRS Employer<br><br>Identification No.) |
| 530 Herman O. West Drive, Exton, PA | 19341-0645 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 610-594-2900
| Not Applicable |
|---|
| (Former name or address, if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.25 per share | WST | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On February 13, 2020, West Pharmaceutical Services, Inc. (the “Company”) issued a press release announcing its fourth-quarter and full-year 2019 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
The information set forth in “Item 2.02 Results of Operations and Financial Condition,” including the exhibit referred to therein, is incorporated herein by reference.
A copy of the Company’s presentation materials used during the call will be available through the Investors link at the Company’s website, http://www.westpharma.com, and is also attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information in this report (including the exhibits attached hereto) is being furnished pursuant to Item 2.02 and Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section, nor will it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific referencing in such filing.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibit No. | Description |
|---|---|---|
| 99.1 | West Pharmaceutical Services, Inc. Press Release, dated February 13, 2020. | |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, dated February 13, 2020. | |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated February 13, 2020, formatted in Inline XBRL. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WEST PHARMACEUTICAL SERVICES, INC. | |
|---|---|
| /s/ Bernard J. Birkett | |
| Bernard J. Birkett | |
| Senior Vice President and Chief Financial Officer | |
| February 13, 2020 |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | West Pharmaceutical Services, Inc. Press Release, datedFebruaryexh991q42019earningsre.htm13, 2020. |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, datedFebruarywstq42019presentation.htm13, 2020. |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated February 13, 2020, formatted in Inline XBRL. |
4
Document
Exhibit 99.1
West Announces Fourth-Quarter and Full-Year 2019 Results
- Conference Call Scheduled for 9 a.m. EST Today -
Exton, PA, February 13, 2020 – West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the fourth-quarter and full-year 2019 and introduced full-year 2020 financial guidance.
Fourth-Quarter and Full-Year 2019 Summary (comparisons to prior-year period)
•Fourth-quarter 2019 net sales of $470.6 million grew 11.4%; organic sales growth was 12.7%; sales from a recent acquisition contributed an additional 30 basis points of growth; currency translation reduced sales by 160 basis points.
•Full-year 2019 net sales of $1.840 billion grew 7.1%; organic sales growth was 10.0%; sales from a recent acquisition contributed an additional 10 basis points of growth; currency translation reduced sales by 300 basis points.
•Fourth-quarter 2019 reported-diluted EPS of $0.84 increased 22%. Full-year 2019 reported-diluted EPS of $3.21 increased 17%.
•Fourth-quarter 2019 adjusted-diluted EPS of $0.82 increased 12%. Full-year 2019 adjusted-diluted EPS of $3.24 increased 15%.
•Company is introducing full-year 2020 financial guidance of net sales in a range of $1.95 billion to $1.97 billion and reported-diluted EPS in a range of $3.45 to $3.55.
“Adjusted-diluted EPS” and “organic sales growth” are Non-U.S. GAAP measurements. See discussion under the heading “Non-U.S. GAAP Financial Measures” in this release.
“I am pleased to report strong fourth-quarter 2019 sales and EPS growth, which continues a trend seen throughout the year,” said Eric M. Green, President and Chief Executive Officer. “We had double-digit organic sales growth in all three market units of our Proprietary Products segment. High-value products (HVPs) once again fueled sales growth and gross margin expansion, led by Daikyo^®^ and Westar^®^ components.”
Mr. Green continued, “We are introducing full-year 2020 financial guidance that is in line with our long-term financial construct of organic sales growth and operating margin expansion. Our end markets are stable and growing, and we are off to a good start to 2020 with a strong book of committed orders for our high value products, such as NovaPure^®^ and Envision^®^components, as well as Daikyo Crystal Zenith^®^ containers and our portfolio of self-injection delivery platforms. Our teams across the globe have demonstrated their passion for customers throughout 2019, with new product and services offerings, and are poised to deliver another strong year of sales and profit growth for our business in 2020.”
Proprietary Products Segment
In the fourth-quarter 2019, net sales grew 13.3% to $352.7 million. Organic sales growth was 14.7%, with incremental sales from a recent acquisition contributing 40 basis points of Proprietary Products growth and currency translation decreasing sales by 180 basis points. HVPs represented over 60% of segment sales and generated double-digit organic sales growth.
In the fourth-quarter 2019, the Biologics market unit had strong double-digit organic sales growth, led by customer purchases of Daikyo, Westar and Flurotec^®^ components. The Generics market unit posted double-digit organic sales growth, led by sales of Westar components and self-injection delivery platforms. The Pharma market unit had double-digit organic sales growth, led by HVPs and a favorable year-over-year comparison due to the fourth-quarter 2018 financial impact from the previously reported voluntary recall of the Vial2Bag^®^ product.
In the full-year 2019, net sales grew 6.9% to $1.399 billion. Organic sales growth was 9.9% with incremental sales from a 2019 acquisition contributing 30 basis points of growth and currency translation decreasing sales by 330 basis points. HVPs represented over 60% of segment sales and generated double-digit organic sales growth.
Contract-Manufactured Products Segment
In the fourth-quarter 2019, net sales grew 5.9% to $117.9 million. Organic sales growth was 7.2% with currency translation decreasing sales by 130 basis points. Segment performance was led by sales of healthcare-related injection and diagnostic devices.
For the full-year 2019, net sales grew 7.9% to $441.5 million. Organic sales growth was 10.2% with currency translation decreasing sales by 230 basis points.
Full-Year 2019 Financial Highlights
Operating cash flow was $367.2 million, an increase of 27%. Capital expenditures were $126.4 million, compared to $104.7 million over the same period last year, and represented 6.9% of full-year 2019 net sales. Free cash flow (operating cash flow minus capital expenditures) was $240.8 million, an increase of over 30%.
The Company recorded $4.9 million of restructuring and related charges in 2019 from previously announced actions that have streamlined its manufacturing network. This restructuring plan is now considered complete. Implemented in first-quarter 2018, cumulative expenses over the plan period were approximately $14.0 million. The Company anticipates that the plan will provide annualized savings of approximately $14.0 million.
Full-Year 2020 Financial Guidance
•The Company expects full-year 2020 net sales guidance to be in a range of $1.95 billion to $1.97 billion.
◦Organic sales growth is expected to be in the range of 7% to 8%.
◦Net sales guidance includes an estimated headwind of $15 million for the full-year 2020 based on current foreign exchange rates.
•The Company expects full-year 2020 reported-diluted EPS to be in the range of $3.45 to $3.55.
◦This includes an estimated headwind of approximately $0.04 based on current foreign currency exchange rates.
◦This reported-diluted EPS guidance range assumes a full-year 2020 tax rate of 24%, which does not include potential tax benefits from stock-based compensation. As in prior years, we are not including potential 2020 tax benefits from stock-based compensation, as they are out of the Company's control. Any tax benefits associated with stock-based compensation that we receive in 2020 would provide a positive adjustment to our full-year EPS guidance.
•Full-year 2020 capital spending is expected to be approximately 7% of expected full-year 2020 net sales.
Fourth-Quarter and Full-Year 2019 Conference Call
The Company will host a conference call to discuss the results and business expectations at 9:00 a.m. Eastern Time today. To participate on the call, please dial 877-930-8295 (U.S.) or 253-336-8738 (International). The conference ID is 5587337.
A live broadcast of the conference call will be available at the Company’s website, www.westpharma.com, in the “Investors” section. Management will refer to a slide presentation during the call, which will be made available on the day of the call. To view the presentation, select “Presentations” in the “Investors” section of the Company’s website.
An online archive of the broadcast will be available at the website three hours after the live call and will be available through Thursday, February 20, 2020, by dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and entering conference ID 5587337.
| Investor Contact: | Media Contact: |
|---|---|
| Quintin Lai | Emily Denney |
| Vice President, Investor Relations | Vice President, Global Communications |
| (610) 594-3318 | (610) 594-3035 |
| Quintin.Lai@westpharma.com | Emily.Denney@westpharma.com |
Forward-Looking Statements
Certain forward-looking statements are included in this release. They use such words as “including,” “poised to deliver,” “strong book,” “assumes,” “would provide,” “growing,” “continue,” “expected,” “expects,” “anticipates,” “includes,” “estimated,” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this release. There is no certainty that actual results will be achieved in-line with current expectations. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause our actual results to differ materially from those expressed in or underlying our forward-looking statements: customers’ changing inventory requirements and manufacturing plans; customer decisions to move forward with our new products and product categories; average profitability, or mix, of the products we sell; dependence on third-party suppliers and partners; interruptions or weaknesses in our supply chain; increased raw material costs; fluctuations in currency exchange; and the ability to meet development milestones with key customers. This list of important factors is not all inclusive. For a description of certain
additional factors that could cause the Company’s future results to differ from those expressed in any such forward-looking statements, see Item 1A, entitled “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Non-U.S. GAAP Financial Measures
For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. We may also refer to financial results excluding the effects of unallocated items. The re-measured results excluding effects from currency translation, the impact from acquisitions and/or divestitures, and the effects of unallocated items are not in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users a valuable insight into our overall performance and financial position. A reconciliation of these adjusted Non-U.S. GAAP financial measures to the comparable U.S. GAAP financial measures is included in the accompanying tables.
WEST PHARMACEUTICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions, except per share data)
| Three Months Ended<br>December 31, | Twelve Months Ended<br>December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| Net sales | $ | 470.6 | 100% | $ | 422.5 | 100% | $ | 1,839.9 | 100% | $ | 1,717.4 | 100% | |
| Cost of goods and services sold | 317.4 | 67 | 289.3 | 69 | 1,234.2 | 67 | 1,172.0 | 68 | |||||
| Gross profit | 153.2 | 33 | 133.2 | 31 | 605.7 | 33 | 545.4 | 32 | |||||
| Research and development | 10.2 | 2 | 9.8 | 2 | 38.9 | 2 | 40.3 | 3 | |||||
| Selling, general and administrative expenses | 69.0 | 14 | 59.7 | 14 | 272.7 | 15 | 262.9 | 15 | |||||
| Other (income) expense, net | (4.1) | — | (2.1) | — | (2.5) | — | 1.9 | — | |||||
| Operating profit | 78.1 | 17 | 65.8 | 15 | 296.6 | 16 | 240.3 | 14 | |||||
| Interest expense, net | 0.8 | — | 1.6 | — | 4.7 | — | 6.3 | — | |||||
| Other nonoperating (income) expense | (0.1) | — | (1.6) | — | 0.1 | — | (6.7) | — | |||||
| Income before income taxes | 77.4 | 17 | 65.8 | 15 | 291.8 | 16 | 240.7 | 14 | |||||
| Income tax expense | 16.5 | 3 | 14.9 | 3 | 59.0 | 3 | 41.4 | 2 | |||||
| Equity in net income of affiliated companies | (3.0) | — | (1.1) | — | (8.9) | — | (7.6) | — | |||||
| Net income | $ | 63.9 | 14% | $ | 52.0 | 12% | $ | 241.7 | 13% | $ | 206.9 | 12% | |
| Net income per share: | |||||||||||||
| Basic | $ | 0.86 | $ | 0.70 | $ | 3.27 | $ | 2.80 | |||||
| Diluted | $ | 0.84 | $ | 0.69 | $ | 3.21 | $ | 2.74 | |||||
| Average common shares outstanding | 74.1 | 73.9 | 74.0 | 73.9 | |||||||||
| Average shares assuming dilution | 75.7 | 75.5 | 75.4 | 75.4 |
WEST PHARMACEUTICAL SERVICES
REPORTING SEGMENT INFORMATION
(UNAUDITED)
(in millions)
| Three Months Ended<br>December 31, | Twelve Months Ended<br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales: | 2019 | 2018 | 2019 | 2018 | ||||||||
| Proprietary Products | $ | 352.7 | $ | 311.2 | $ | 1,398.6 | $ | 1,308.6 | ||||
| Contract-Manufactured Products | 117.9 | 111.4 | 441.5 | 409.1 | ||||||||
| Eliminations | — | (0.1) | (0.2) | (0.3) | ||||||||
| Consolidated Total | $ | 470.6 | $ | 422.5 | $ | 1,839.9 | $ | 1,717.4 | ||||
| Gross Profit: | ||||||||||||
| Proprietary Products | $ | 134.1 | $ | 115.0 | $ | 540.4 | $ | 485.4 | ||||
| Contract-Manufactured Products | 19.3 | 18.2 | 65.5 | 60.0 | ||||||||
| Unallocated items | (0.2) | — | (0.2) | — | ||||||||
| Gross Profit | $ | 153.2 | $ | 133.2 | $ | 605.7 | $ | 545.4 | ||||
| Gross Profit Margin | 32.5 | % | 31.5 | % | 32.9 | % | 31.8 | % | ||||
| Operating Profit (Loss): | ||||||||||||
| Proprietary Products | $ | 74.9 | $ | 63.7 | $ | 313.6 | $ | 266.4 | ||||
| Contract-Manufactured Products | 15.6 | 14.6 | 49.1 | 44.3 | ||||||||
| U.S. pension expense | — | (2.3) | — | (9.3) | ||||||||
| Stock-based compensation expense | (5.6) | (0.4) | (24.4) | (15.1) | ||||||||
| General corporate costs | (11.8) | (8.5) | (41.9) | (36.9) | ||||||||
| Adjusted Operating Profit | $ | 73.1 | $ | 67.1 | $ | 296.4 | $ | 249.4 | ||||
| Adjusted Operating Profit Margin | 15.5 | % | 15.9 | % | 16.1 | % | 14.5 | % | ||||
| Unallocated items | 5.0 | (1.3) | 0.2 | (9.1) | ||||||||
| Reported Operating Profit | $ | 78.1 | $ | 65.8 | $ | 296.6 | $ | 240.3 | ||||
| Reported Operating Profit Margin | 16.6 | % | 15.6 | % | 16.1 | % | 14.0 | % |
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-U.S. GAAP MEASURES (UNAUDITED)
Please refer to “Non-U.S. GAAP Financial Measures” for more information
(in millions, except per share data)
Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS
| Three Months Ended December 31, 2019 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
|---|---|---|---|---|---|---|---|---|
| Reported (U.S. GAAP) | $ | 78.1 | $ | 16.5 | $ | 63.9 | $ | 0.84 |
| Restructuring and related charges ^(1)^ | 1.1 | 0.3 | 0.8 | 0.02 | ||||
| Gain on restructuring-related sale of assets^(2)^ | (1.7) | (0.4) | (1.3) | (0.02) | ||||
| Pension settlement ^(3)^ | — | 0.2 | 0.6 | 0.01 | ||||
| Argentina currency devaluation ^(4)^ | — | (0.3) | 0.3 | — | ||||
| Tax recovery^(5)^ | (4.4) | (1.5) | (2.9) | (0.04) | ||||
| Tax law changes ^(6)^ | — | (0.7) | 0.7 | 0.01 | ||||
| Adjusted (Non-U.S. GAAP) | $ | 73.1 | $ | 14.1 | $ | 62.1 | $ | 0.82 |
| Twelve Months Ended December 31, 2019 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 296.6 | $ | 59.0 | $ | 241.7 | $ | 3.21 |
| Restructuring and related charges ^(1)^ | 4.9 | 1.2 | 3.7 | 0.04 | ||||
| Gain on restructuring-related sale of assets ^(2)^ | (1.7) | (0.4) | (1.3) | (0.02) | ||||
| Pension settlement ^(3)^ | — | 0.8 | 2.7 | 0.04 | ||||
| Argentina currency devaluation ^(4)^ | 1.0 | — | 1.0 | 0.01 | ||||
| Tax recovery^(5)^ | (4.4) | (1.5) | (2.9) | (0.04) | ||||
| Tax law changes ^(6)^ | — | 0.3 | (0.3) | — | ||||
| Adjusted (Non-U.S. GAAP) | $ | 296.4 | $ | 59.4 | $ | 244.6 | $ | 3.24 |
| Three Months Ended December 31, 2018 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 65.8 | $ | 14.9 | $ | 52.0 | $ | 0.69 |
| Restructuring and related charges ^(1)^ | 2.4 | 0.3 | 2.1 | 0.02 | ||||
| Gain on restructuring-related sale of assets^(2)^ | (1.1) | (0.2) | (0.9) | (0.01) | ||||
| Tax law changes ^(6)^ | — | (1.6) | 1.6 | 0.03 | ||||
| Adjusted (Non-U.S. GAAP) | $ | 67.1 | $ | 13.4 | $ | 54.8 | $ | 0.73 |
| Twelve Months Ended December 31, 2018 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 240.3 | $ | 41.4 | $ | 206.9 | $ | 2.74 |
| Restructuring and related charges ^(1)^ | 9.1 | 1.9 | 7.2 | 0.09 | ||||
| Gain on restructuring-related sale of assets ^(2)^ | (1.1) | (0.2) | (0.9) | (0.01) | ||||
| Argentina currency devaluation ^(4)^ | 1.1 | — | 1.1 | 0.02 | ||||
| Tax law changes ^(6)^ | — | 2.5 | (2.5) | (0.03) | ||||
| Adjusted (Non-U.S. GAAP) | $ | 249.4 | $ | 45.6 | $ | 211.8 | $ | 2.81 |
(1)During the three and twelve months ended December 31, 2019, the Company recorded $1.1 million and $4.9 million, respectively, in restructuring and related charges. During the three and twelve months ended December 31, 2018, the Company recorded $2.4 million and $9.1 million, respectively, in restructuring and related charges. The Company expects that the plan will provide annualized savings of approximately $14.0 million.
(2)During the three and twelve months ended December 31, 2019, the Company recorded a net gain on the sale of fixed assets as a result of its restructuring plan of $1.7 million. During the three and twelve months ended December 31, 2018, the Company recorded a gain on the sale of fixed assets as a result of its restructuring plans of $1.1 million.
(3)During the three and twelve months ended December 31, 2019, the Company recorded a pension settlement charge of $0.8 million and $3.5 million, respectively, within other nonoperating (income) expense, as it determined that normal-course lump-sum payments for each of its U.S. qualified and non-qualified defined benefit pension plans exceeded the threshold for settlement accounting under U.S. GAAP for the year.
(4)During the twelve months ended December 31, 2019, the Company recorded a charge of $1.0 million related to the continued devaluation of Argentina’s currency. During the twelve months ended December 31, 2018, the Company recorded a charge of $1.1 million related to the classification of Argentina’s economy as highly inflationary under U.S. GAAP as of July 1, 2018.
(5)During the three and twelve months ended December 31, 2019, the Company recorded a net tax recovery of $4.4 million related to previously-paid international excise taxes, following a favorable court ruling.
(6)During the three and twelve months ended December 31, 2019, the Company recorded a tax charge of $0.7 million and a net tax benefit of $0.3 million due to the impact of federal law changes enacted during the quarter and year. During the three and twelve months ended December 31, 2018, the Company recorded a net tax charge of $1.6 million and a net tax benefit of $2.5 million, respectively, for the estimated impact of the Tax Cuts and Jobs Act.
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED)
Please refer to “Non-U.S. GAAP Financial Measures” for more information
(in millions, except per share data)
Reconciliation of Net Sales to Organic Net Sales ^(7)^
| Three Months Ended December 31, 2019 | Proprietary | CM | Eliminations | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Reported net sales (U.S. GAAP) | $ | 352.7 | $ | 117.9 | $ | — | $ | 470.6 |
| Effect of acquisitions and/or divestitures | (1.3) | — | — | (1.3) | ||||
| Effect of changes in currency translation rates | 5.5 | 1.4 | — | 6.9 | ||||
| Organic net sales (Non-U.S. GAAP) ^(7)^ | $ | 356.9 | $ | 119.3 | $ | — | $ | 476.2 |
| Twelve Months Ended December 31, 2019 | Proprietary | CM | Eliminations | Total | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported net sales (U.S. GAAP) | $ | 1,398.6 | $ | 441.5 | $ | (0.2) | $ | 1,839.9 |
| Effect of acquisitions and/or divestitures | (3.3) | — | — | (3.3) | ||||
| Effect of changes in currency translation rates | 43.1 | 9.1 | — | 52.2 | ||||
| Organic net sales (Non-U.S. GAAP)^(7)^ | $ | 1,438.4 | $ | 450.6 | $ | (0.2) | $ | 1,888.8 |
(7)Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period.
WEST PHARMACEUTICAL SERVICES
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| 2019 | 2018 | |||
| Depreciation and amortization | $ | 103.4 | $ | 104.4 |
| Operating cash flow | $ | 367.2 | $ | 288.6 |
| Capital expenditures | $ | 126.4 | $ | 104.7 |
WEST PHARMACEUTICAL SERVICES
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
| As of<br>December 31, 2019 | As of<br>December 31, 2018 | |||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 439.1 | $ | 337.4 |
| Accounts receivable, net | $ | 319.3 | $ | 288.2 |
| Inventories | $ | 235.7 | $ | 214.5 |
| Accounts payable | $ | 156.8 | $ | 130.4 |
| Debt | $ | 257.3 | $ | 196.1 |
| Equity | $ | 1,573.2 | $ | 1,396.3 |
| Working capital | $ | 717.1 | $ | 610.7 |
Trademark Notices
Trademarks and registered trademarks are the property of West Pharmaceutical Services, Inc., in the United States and other jurisdictions, unless noted otherwise.
Daikyo Crystal Zenith^®^ and Daikyo CZ^®^ are registered trademarks of Daikyo Seiko, Ltd. Daikyo Crystal Zenith technologies are licensed from Daikyo Seiko, Ltd.
wstq42019presentation
West Pharmaceutical Services, Inc. Fourth Quarter 2019 Analyst Conference Call 9 a.m. Eastern Time, February 13, 2020 ▪ A webcast of today’s call can be accessed in the “Investors” section of the Company’s website: www.westpharma.com Speakers: ▪ To participate on the call, please dial: Eric M. Green − 877-930-8295 (U.S.) President and Chief Executive Officer − 253-336-8738 (International) − The conference ID is 5587337 Bernard J. Birkett Senior Vice President and Chief Financial Officer ▪ An online archive of the broadcast will be available at the website three hours after the live call and will be available through Thursday, February 20, 2020, by dialing: − 855-859-2056 (U.S.) − 404-537-3406 (International) − The conference ID is 5587337 These presentation materials are intended to accompany today’s press release announcing the Company’s results for the fourth- quarter and full-year 2019 and management’s discussion of those results during today’s conference call. 1 WST Q4 2019 Earnings
Safe Harbor Statement Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 This presentation and any accompanying management commentary contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about product development and operational performance. Each of these statements is based on preliminary information, and actual results could differ from any preliminary estimates. We caution investors that the risk factors listed under “Cautionary Statement” in our press releases, as well as those set forth under the caption "Risk Factors" in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and as revised or supplemented by our quarterly reports on Form 10-Q, could cause our actual results to differ materially from those estimated or predicted in the forward-looking statements. You should evaluate any statement in light of these important factors. Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Non-U.S. GAAP Financial Measures Certain financial measures included in these presentation materials, or which may be referred to in management’s discussion of the Company’s results and outlook, have not been calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and therefore are referred to as non-U.S. GAAP financial measures. Non-U.S. GAAP financial measures should not be considered in isolation or as an alternative to such measures determined in accordance with U.S. GAAP. Please refer to “Reconciliation of Non-U.S. GAAP Financial Measures” at the end of these materials for more information. Trademarks Registered trademarks used in this report are the property of West Pharmaceutical Services, Inc. or its subsidiaries, in the United States and other jurisdictions, unless noted otherwise. Daikyo® is a registered trademark of Daikyo Seiko, Ltd. 2 WST Q4 2019 Earnings
2019 Fourth-Quarter and Full-Year Results and 2020 Guidance • Q4 2019 net sales of $470.6 million grew 11.4%, organic sales growth was 12.7% • Full-year 2019 net sales of $1.840 billion grew 7.1%; organic sales growth was 10.0% • Q4 2019 reported-diluted EPS of $0.84 increased 22%; Full-year 2019 reported- diluted EPS of $3.21 increased 17% • Q4 2019 adjusted-diluted EPS of $0.82 increased 12%; Full-year 2019 adjusted- diluted EPS of $3.24 increased 15% (1) • Company introducing full-year 2020 net sales guidance in a range of $1.95 billion to $1.97 billion. Full-year 2020 reported-diluted EPS guidance is in a range of $3.45 to $3.55 (1) (1) Please refer to “Notes to Non-U.S. GAAP Financial Measures” on slides 15-20 and “Non-U.S. GAAP Financial Measures” in today’s press release, for additional information regarding adjusted-diluted EPS. 3 WST Q4 2019 Earnings
Organic Sales Growth Q4 2019 FY 2019 Overall Organic Proprietary Products Q4 2019 organic sales growth of 14.7%, 13% 10% Sales Growth led by sales of high-value products, which grew double digits Q4 2019 sales led by high-value products, including Daikyo®, Biologics DD DD BIOLOGICS Westar® and Flurotec® components Q4 2019 sales led by sales of Westar components and self- Generics DD HSD GENERICS injection delivery platforms Q4 2019 sales led by high-value products and services and Pharma DD LSD favorable year-over-year comparison due to the impact of a PHARMA previously-reported voluntary recall of our Vial2Bag® product Contract Q4 2019 organic sales growth of 7.2%, led by sales of CONTRACT HSD DD MFG Manufacturing healthcare-related injection and diagnostic devices Abbreviations: LSD – low-single digit; MSD – mid-single digit; HSD – high-single digit; DD – double digit 4 WST Q4 2019 Earnings
High-Value Products Fueling Growth in Support of Market Trends Biologic Drug Increased Regulations Injectable Drug Generics Growing in Molecules Increasing for Combination Drugs Market Growing Key Emerging Regions Advanced Elastomer 4040/40 5 WST Q4 2019 Earnings
“One West” Global Management System Driving Improved Performance One Global Approach Across All Sites Manufacturing 0.7 Strategy RIR One 25 RECORDABLE MANUFACTURING INJURY RATE West Supply Chain Global FACILITIES Decreased by Management AROUND THE 66% Since Process Excellence System WORLD 2015 >100 Advanced <0.07 Million PARTS PER Manufacturing COMPONENTS MILLION OF Engineering MANUFACTURED OUT-OF-SPEC DAILY PARTS Digital Transformation 6 WST Q4 2019 Earnings
Significant Presence in Asia Pacific Region Established West’s Acquisition of GIS Increased Equity stake in Digital Technology Korea Ltd. Daikyo partnership Center in India 7 WST Q4 2019 Earnings
West is Driving Sustainable Business Practices Investor’s Business Daily Six Pillars 2019 Best ESG Companies 9.7% waste to landfill REDUCTION Employer of the Year Environmental Kearney, NE Sustainability energy efficiency improvement CSR Initiative Award, 1.5% Compliance Dublin, IE & Ethics of West’s C-suite executive team comprised Quality 44% of women and/or U.S. minorities Gold Standard Health & Safety in recordable injury rate 15% Decrease (RIR) over 2018 Diversity & Talent Newsweek America’s Most Responsible Companies 2020 $2.1M in corporate CHARITABLE GIVING in 2019 Philanthropy Corporate President’s Award 8 WST Q4 2019 Earnings
Fourth-Quarter 2019 Summary Results ($ millions, except earnings-per-share (EPS) data) Three Months Ended December 31, 2019 2018 Reported Net Sales $470.6 $422.5 Gross Profit Margin 32.5% 31.5% Reported Operating Profit $78.1 $65.8 Adjusted Operating Profit (1) $73.1 $67.1 Reported Operating Profit Margin 16.6% 15.6% Adjusted Operating Profit Margin (1) 15.5% 15.9% Reported-Diluted EPS $0.84 $0.69 Adjusted-Diluted EPS(1) $0.82 $0.73 (1) “Adjusted Operating Profit”, “Adjusted Operating Profit Margin” and “Adjusted-Diluted EPS” are Non-U.S. GAAP financial measures. See slides 15-20 and the discussion under the heading “Non-U.S. GAAP Financial Measures” in today’s press release for an explanation and reconciliation of these items. 9 WST Q4 2019 Earnings
Change in Consolidated Net Sales Fourth-quarter 2018 to 2019 ($ millions) 10 WST Q4 2019 Earnings
Gross Profit Update ($ millions) Three Months Ended December 31, 2019 2018 Proprietary Products Gross Profit $134.1 $115.0 Proprietary Products Gross Profit Margin 38.0% 37.0% Contract-Manufactured Products Gross Profit $19.3 $18.2 Contract-Manufactured Products Gross Profit Margin 16.4% 16.4% Consolidated Gross Profit $153.2 $133.2 Consolidated Gross Profit Margin 32.5% 31.5% 11 WST Q4 2019 Earnings
Cash Flow and Balance Sheet Metrics ($ millions) Cash Flow Items Financial Condition YTD YTD December 31, December 31, Q419 Q418 2019 2018 Depreciation and Amortization $103.4 $104.4 Cash and Cash Equivalents $439.1 $337.4 Operating Cash Flow $367.2 $288.6 Debt $257.3 $196.1 Capital Expenditures $126.4 $104.7 Equity $1,573.2 $1,396.3 Working Capital $717.1 $610.7 12 WST Q4 2019 Earnings
2020 Full-Year Guidance 2020 Full-Year Guidance(1,2) Consolidated Net Sales $1.95 - $1.97 billion Reported-Diluted EPS $3.45 - $3.55 Capital Spending Approximately 7% of Consolidated Net Sales (1) Please refer to “Notes to Non-U.S. GAAP Financial Measures” on slides 15-20 and “Non-U.S. GAAP Financial Measures” in today’s press release, for additional information regarding adjusted-diluted EPS. (2) The reported-diluted EPS guidance range does not include potential tax benefits from stock-based compensation. Any tax benefits associated with stock-based compensation received in 2020 would provide a positive adjustment to this guidance range. 13 WST Q4 2019 Earnings
SHARED West OUR innovation INDUSTRY MAINTAINED A delivered THOUGHT GOLD STANDARD 4 NEW PRODUCT LEADERSHIP FROM ECOVADIS, SOLUTIONS at key meetings, in A leader in supplier scientific publications sustainability ratings, and through 90+ placing us in the top published blogs in 2019 5% of reporting companies 2019Slide 12 INDUSTRY 154 InnovatingTitle for AWARDS PATENTS Our Purpose to acknowledge ISSUED our impact on to fuel future innovation customers, & patients and the Our People community WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures For additional details, please see today’s press release & Safe Harbor Statement ▪ For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. ▪ Organic net sales exclude the impact from acquisitions and/or divestitures and translates the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. ▪ We may also refer to financial results excluding the effects of unallocated items. ▪ The re-measured results excluding effects from currency translation, the impact from acquisitions and/or divestitures, and the effects of unallocated items are not in conformity with U.S. GAAP and should not be used as a substitute for the comparable U.S. GAAP financial measures. ▪ The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users a valuable insight into our overall performance and financial position. ▪ A reconciliation of these adjusted Non-U.S. GAAP financial measures to the comparable U.S. GAAP financial measures is included in the accompanying tables. 15 WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures” (Slides 15-20), “Cautionary Statement” (Slide 2) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Operating Income tax Net Diluted Three months ended December 31, 2019 profit expense income EPS Reported (U.S. GAAP) $78.1 $16.5 $63.9 $0.84 Restructuring and related charges 1.1 0.3 0.8 0.02 Gain on restructuring-related sale of assets (1.7) (0.4) (1.3) (0.02) Pension settlement - 0.2 0.6 0.01 Argentina currency devaluation - (0.3) 0.3 - Tax recovery (4.4) (1.5) (2.9) (0.04) Tax law changes - (0.7) 0.7 0.01 Adjusted (Non-U.S. GAAP) $73.1 $14.1 $62.1 $0.82 16 WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures” (Slides 15-20), “Cautionary Statement” (Slide 2) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Operating Income tax Net Diluted Twelve months ended December 31, 2019 profit expense income EPS Reported (U.S. GAAP) $296.6 $59.0 $241.7 $3.21 Restructuring and related charges 4.9 1.2 3.7 0.04 Gain on restructuring-related sale of assets (1.7) (0.4) (1.3) (0.02) Pension settlement - 0.8 2.7 0.04 Argentina currency devaluation 1.0 - 1.0 0.01 Tax recovery (4.4) (1.5) (2.9) (0.04) Tax law changes - 0.3 (0.3) - Adjusted (Non-U.S. GAAP) $296.4 $59.4 $244.6 $3.24 17 WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures” (Slides 15-20), “Cautionary Statement” (Slide 2) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Operating Income tax Net Diluted Three months ended December 31, 2018 profit expense income EPS Reported (U.S. GAAP) $65.8 $14.9 $52.0 $0.69 Restructuring and related charges 2.4 0.3 2.1 0.02 Gain on restructuring-related sale of assets (1.1) (0.2) (0.9) (0.01) Tax law changes - (1.6) 1.6 0.03 Adjusted (Non-U.S. GAAP) $67.1 $13.4 $54.8 $0.73 18 WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures” (Slides 15-20), “Cautionary Statement” (Slide 2) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Operating Income tax Net Diluted Twelve months ended December 31, 2018 profit expense income EPS Reported (U.S. GAAP) $240.3 $41.4 $206.9 $2.74 Restructuring and related charges 9.1 1.9 7.2 0.09 Gain on restructuring-related sale of assets (1.1) (0.2) (0.9) (0.01) Argentina currency devaluation 1.1 - 1.1 0.02 Tax law changes - 2.5 (2.5) (0.03) Adjusted (Non-U.S. GAAP) $249.4 $45.6 $211.8 $2.81 19 WST Q4 2019 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures” (Slides 15-20), “Cautionary Statement” (Slide 2) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Net Sales to Organic Net Sales (1) ($ millions) Three months ended December 31, 2019 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $352.7 $117.9 $ - $470.6 Effect of acquisitions and/or divestitures (1.3) - - (1.3) Effect of changes in currency translation rates 5.5 1.4 - 6.9 Organic net sales (Non-U.S. GAAP) (1) $356.9 $119.3 $ - $476.2 Twelve months ended December 31, 2019 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $1,398.6 $441.5 $(0.2) $1,839.9 Effect of acquisitions and/or divestitures (3.3) - - (3.3) Effect of changes in currency translation rates 43.1 9.1 - 52.2 Organic net sales (Non-U.S. GAAP) (1) $1,438.4 $450.6 $(0.2) $1,888.8 (1) Organic net sales exclude the impact from acquisitions and/or divestitures and translates the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. 20 WST Q4 2019 Earnings