Good day, ladies and gentlemen, and welcome to the West Pharmaceutical Services Q4, 2016 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session, and instruction will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference Quintin Lai, Vice President of Investor Relations. Please go ahead.

Thank you, Candice. Good morning and welcome to West's fourth quarter and full year 2016 conference call. We issued our financial results this morning and the release has been posted in the investor section on the Company's Web site located at www.westpharma.com. This morning, CEO, Eric Green and CFO, Bill Federici will review our results, give you an update on our business, and provide a financial outlook for the full year 2017. There is a slide presentation that accompanies today's conference call, and the copy of that presentation is also available on the investor section of our Web site. On Slide 2 the Safe Harbor statement. Statements made by management on this call and in presentation contain forward-looking statements within the meaning of U.S. federal securities laws. These statements are based on management's beliefs and assumptions, current expectations, estimates and forecasts. There are many factors that can influence a Company's future results that are beyond the ability of the Company to control or predict. Because of these known or unknown risk or uncertainties, actual results could differ materially from past results and those expressed or implied in any forward-looking statements. For a nonexclusive list of factors which could cause actual results to differ from our expectations, please refer to today’s press release, as well as any further disclosures that company makes regarding the risks to which it is subject in the Company’s 10-K, 10-Q and 8-K reports. In addition, during today's call, management will make reference to non-GAAP financial measures, including sales at constant currency, organic sales growth, adjusted operating profit, adjusted operating profit margin and adjusted diluted EPS. Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release. I now turn the call over to West's CEO and President, Eric Green. Eric?

Great. Thank you, Quinton. And good morning everyone and thank you for joining us today. A little more than one year ago, we announced a realigned organizational structure to better support our market led strategy. We did this to heighten our focus on becoming the leader in the integrated containment and delivery of injectable medicines. We shared with you that this looks to be a long-term journey to feel growth and profits for West. And I'm pleased to say we are well on our way. We delivered a strong set of results in 2016 and we are poised to continue this growth in 2017. To recap for you we've reorganized our company into three major groups. Commercial, global operations, and innovation and technology. Within the commercial team, we created two segments proprietary products and contract manufactured products. To ensure alignment with our customers in addressing the specific needs of each, we created the pharma, generic and biologics market units. We transitioned away from a regionally focused operation to a globally managed network, expanding capacity and significantly reducing delivery lead times of critical high value products. At the same time, we raise the bar on our already industry leading quality metrics and increased our focus on operational efficiencies which has allowed us to better address the demand of our worldwide customer base. Under our newly formed innovation and technology team, we continue to build momentum by adding new high-value products to our components business, while achieving milestones successes with customer FDA approvals of drug using Crystal Zenith and SmartDose technologies. And through all of this transition, we continue to meet our long-term financial objectives. We ended the year with over 9% organic sales growth, which is above our long-term target of 6% to 8%. We expanded both growth and adjusted operating…

Thank you, Eric, and good morning everyone. We issued our fourth quarter results this morning, excluding the effects of special items from both periods, fourth quarter 2016 earnings was $0.54 per diluted share which is the $0.47 we earned in Q4 of '15. A reconciliation of these non-GAAP measures is provided on Slide 16 through 19. Turning to sales, Slide 11 shows the components of our consolidated sales increase. All references to sales amounts are to constant currency. Consolidated fourth quarter sales were $382.3 million, an increase of 7.7% over fourth quarters 2015 sales. Proprietary product sales were $290 million, a 6.5% increase over the same quarter of '15. A favorable sales mix and volume growth accounted for 6% percentage points of the increase modestly higher selling prices contributed to the remainder of the increase. High value product sales increased 14% versus the prior year quarter. For the full-year 2016 high value product sales increased approximately 20% versus 2015. Combined CZ and SmartDose sales and development activity were $27 million for full-year 2016, a 10% increases versus the prior year. Contract manufacturing product sales were 92.4 million, an 11.6% increase over the sales in the prior year quarter due to higher drug delivery and diagnostic product sales including increase in lower margin tooling revenues. As provided on Slide 12, our Q4 2016 consolidated gross profit margin was 32.3% versus the 33.3% margin we achieved in the first quarter of '15. Proprietary products fourth quarter gross margin of 36.9% is 0.4 margin points lower than the 37.3% achieved in the fourth quarter of '15. A favorable mix of products sold, modest sales price increases and continuing savings and plant efficiencies were more than offset by the impact of higher general inflationary cost, yen denominated material purchases which had an unfavorable impact…

Great, thank you Bill. In conclusion, we delivered a strong set of results and made significant progress in executing the first year of our long-term market led strategy. Our commercial team continues to make deeper in-roads with the discreet customer groups we have targeted. Our global operations team has a roadmap to improve quality, safety, service and cost. And our innovation and technology team is building a strong pipeline of integrated containment and delivering products to meet customer needs. For this reasons we believe the future looks bright, and we will continue to deliver long-term value for our customers and shareholders. Candice, we are ready to take questions. Thank you.

[Operator Instructions] And our first question comes from Paul Knight of Janney Montgomery. Your line is now open.

Can you go over the exact organic growth, excuse me, starting with FX could you give me the impact for FY '16 total and kind of where your thoughts again are on the potential impact on '17?

So for '16 Paul, for the full-year the FX was a $0.04 negative hit to us. For 2017 we expect we'll seeing continued headwinds from currencies. The euro has declined as dollar strengthens against that and against Asian and South American currency. So we expect to see a $0.05 to $0.07 reduction adverse headwinds from currency in 2017.

And then your Op margin the guidance for Q1 was what Bill?

14.8% to 15% and that's consolidated operating profit margin.

And then lastly regarding Ireland, when -- will we see any revenue contribution from net of capacity expansion here in 2017?

Yes, in regards to Waterford, in the Phase I of the insulin sheeting we are in process towards the end of 2017 to validate with our customers and the commercial revenues will be observed in the first part of 2018. On the Dublin contract manufacturing facilities, we have started up and we’ll start seeing commercial revenues ramp up throughout the year for our industry customers.

And then Eric, can you talk about what you’re seeing with projects in Phase III or projects Crystal Zenith, tone of market for your proprietary product line?

Yeah. Paul, there is really two ways of looking at it, one is start with the high value products portfolio, on our last commercial sales. We continue to see very healthy conversion going from standard packaging up to high value products and addition too we’re seeing new molecules which is exhibited in 2016 injectable drugs that were approved were around 90% of those. And so we’re seeing a very nice uptake continuing in our high value products. That said, the innovation team is continued to expand the portfolio and raising the capabilities to new formulas, new processing technology to raise the quality standards, which obviously bodes well with our customers today. When we look at on the CZ and SmartDose, or in self-injection devices, we’ve seen in bulk situations of both of those product lines, an increase of number of developments. So in SmartDose there is a slight increase on the number of developments with customers and there is more conversations going on today than we’ve had over a year ago. And then on the CZ there is an increase on formal stability. So, we’re still very pleased with the progress, although its timing with our customers, we still see those two platforms very strong viable growth long-term.

Thank you. And our next question comes from Tim Evans of Wells Fargo. Your line is now open.

Hi, this is Sarah Silverman on for Tim. Just a couple of for you guys. I want the follow-up on the FX guidance. We have tried to model the FX impact on EPS pretty carefully for 2017, but it still looks like we kind of under called the headwind. Can you help us understand the FX mix in your cost base, particularly a little more details on the yen, euro, and then any of those other currencies that are pretty impactful?

Sure. So, Sarah the euro versus dollar, everybody knows that one. When we talked to you last year at the end of October, it was hovering right around above $1.10 per Euro. Now, we’ve guided here for the full year our view of it is that at leading at $1.05. Now obviously, that will change, but we had to put a stake in the ground somewhat, so we put it at $1.05 per Euro. On the other pieces of the puzzle, certainly in Asia, where we sell at our Singapore facility in both dollars and euros we’re seeing the impact of the strengthening dollar there as well. And in South America we're seeing the volatility of those currencies continue and that will continue to provide a headwind for us. In addition to the fact that we still have an investment in Venezuela and we noted the situation there, should there be another official devaluation, we have an exposure of somewhere between $5 million and $7 million depending on what they devalue the business too. So, those are the primary drivers there, I mean there is a lot involved in this obviously, as we are very global business with operations all over the place, but that is for the primary drivers.

Okay. In terms of like percent of your cost base, do you have an idea of like how much is Euros how much is Yen?

I could give you on the sales and then you can convert that, but it's not perfect. So on the sales for 2016 we were 40% basically Euro based and Asian and Latin and South American businesses we're [technical difficulty] magnitude 10%.

Okay. And then just another one on guidance. You guys took up your constant currency revenue growth guidance. Can you elaborate on the factors that give you confidence around that to raise the guidance this early in the year, kind of considering it's a bit second half loaded?

Sarah, we take a look at what we have accomplished in 2016, looking at the pending order list that we have with our customers and also the investments we made in certain parts of our business we feel really strong with the 7% to 9%, to dimension that's a little bit, our pharma business we believe that we'll continue with mid-single growth as in -- obviously, we delivered that in '16. In the generics business, while there is some lumpiness with their top customers and I mentioned earlier that smaller customers on generics are lower than 50%, but really about third of our business are five large generics and we have clear visibility on their stocking and they are actually moving up to high value product curve and the strength of our operations reducing lead times by 2x has given the top and continues to stay high single low double in that business. Biologics, we have seen continued strength around double-digit consistently. And then contract manufacturing is one that in 2016, we are about mid-single, but with the investments we made we are ramping up to the high-single throughout 2017. And if you add all that up, it's between that, we're very comfortable with the 7% to 9% organic.

Okay, and just to clarify, if you had to pin point what kind of pushed the needle from October to say now, like would you pin point one thing or is it generally broader growth than you had previously anticipated?

Yes, I would say one is the uptake on the conversations we're having with the generic, and as we talk about our innovation platform, we're already looking at potentially new formulas for them that will allow us to compete more on the high value products and do the switching. So it's a little bit a type of comp, that's the difference between I'd say in October then what we are today.

Okay, thanks so much.

Thank you. And our next question comes from Larry Solow of CJS Securities. Your line is now open.

Just a couple quick follow-ups. Which is on the backend loaded outlook, obviously backlog was down 8% I guess year-over-year and that's obviously, with regards to your motivation what you want to do. So clearly that was a little bit higher. You mentioned some customer change in order patterns, inventory patterns. Is that sort of part of the reason for the back ended loaded outlook? Maybe you expect some adjustment, I know you has of adjusted in your generics customers this quarter. It looks like you expect some of that to happen on the biologics side as well?

Yes, when we look back in Q4 we knew -- talking with our generic customers, we knew that because of the success we have with reduced lead times, that there was going to be a reduction on their safety stock in their own manufacturing facility. And therefore, we have that anticipated and really first half of 2017. But was brought forward a little bit earlier than we anticipated in the later part of Q4. So that is one of the drivers that we see as a reason why you're seeing stronger growth in the second half of 2017 than the first half. The other is, as we mentioned early about the contract manufacturing, some of the investments we made in the tooling and getting our sites up and running are in the ramp up phase at this point. And that’s what bring in in the mid-single to the high-single and again a lot of that's borne in the back half of the year.

Got it. And then just -- and you mentioned tooling and the investments in that side of the business. Just in terms of gross margin, obviously, your outlook is for pretty nice improvement 120 to 160. So, it looks like '16 was little more impact than we though, particularly in Q4 from some of the startup costs. The improvement going forward, it sounds like -- and you continue to get the expansion from the better mix and then I guess your conversion to more of a commercial from the tooling and lower I guess startup costs. So those are sort of the factors that will draw the expansion this year?

Yeah. Larry, absolutely two things. One is, since they're on contract manufacturing, is that, we anticipate lower levels of tooling revenues in '17 than we did in '16, that was a little bit unusually higher for us, though mostly in the Q4 timeframe. I think also with the ramp up we have with our generics and moving more towards the high value products, as you know our high value products or almost 2x on the gross margin than our standard projects. And we still see very strong double-digit growth in high value products and that’s a major drive of this shift. Bill, you want to add some color to that?

Yeah. On the contract manufacturing side Larry, the tooling revenues are very, very low margin as you suggested. So that mix shift from -- but the good news is, it’s a poor shadowing of commercial business coming through on contract manufacturing. Those customers are ready, we’re starting to provide them product. So Q1, starting in Q1 and going through 2017, we'll be replacing tooling revenues with good margin revenues in contract manufacturing. So, yes it did absolutely hurt us, that tooling piece was about 6.5 million of extra tooling revenues in the fourth quarter of 2016, which hurt us to a tune of 1.2 margin point in contract manufacturing. So, we expect it to be the mix shift and as it starts to come with those new customers to really bring us up on the margin scale for contract manufacturing throughout the 2017.

Got you. And it looks like price helped you benefit, you guys benefited a little bit on the quarter about 0.5% or so. What was the benefit for the full year and going forward, do you expect maybe the benefits to increase on pricing front?

Larry, we historically in the last several years have been roughly around 1% price contribution in our business. I would say '16 it was slightly less than that, and at this point and as we looked into '17, we believe we’ll still continue to be around that 1% plus or minus slightly. But, not a significant deviation from what we’ve seen over the last two years or three years.

Got you. The CZ, SmartDose total numbers did you say that was 27 million?

27 million Larry, yes. About 10% increase on a constant currency basis over 2016.

Got it. It was sort of closer to flat I guess on a reported basis or?

On a reported basis it's flat, but when you take out currency it's about 10% up.

Okay, and then the so I guess sort of -- I know we have expected some significant decent amount more growth, obviously it's a small number, so the percentages get a little skewed, but was that slower on the SmartDose side, CZ side, both any color there would be great.

So it's two elements, one is the development agreements that we were working on and later prior to 2016 are looking to implement more in the early 2017 timeframe. The second is around commercial ramp up working with our customers and we have pretty clear line of sight. But that is some push more into early '17 than late '16. So those are the two elements that really drove that 10% growth versus a little bit higher than we anticipated.

So it sounds like more timing than anything else?

Yes, Larry it's a timing factor.

Great. And then just lastly on the tax rate. Obviously, hovering slowly creeping up towards 29%. Sort of a high-class problem. But as you look out going forward, excluding any potential corporate tax overhaul in the U.S. nothings [ph] happen there, but as you shift more into Ireland and whatnot do you expect this rate to maybe at least stop going up and then over time hopefully coming down a little bit?

Absolutely, Larry. But you got to be patient with these things. As you know our business, we are not expecting any real growth coming out Waterford in 2017, really doesn’t start commercial until early part [technical difficulty]. We'll get some benefit out of contract manufacturing in Dublin, more activity there, more sales there. But it's at 20% margins as oppose to the high 55% high value product margins we expect out of Waterford. So, yes the answer is -- the long-term answer is, absolutely we believe if we can drive our effective tax rate south, but to be honest, in the interim as we continue to sell more and more high value products in the U.S. and other high tax jurisdiction countries there is going to be upward pressure on that rate. I don’t expect it to move a lot during 2017, but I wouldn’t be expecting a significant decline in 2017.

Got it, great. Okay, thanks a lot guys. Appreciate it.

Thank you. [Operator Instructions] And our next question comes from Derek Brown of Bank of America. Your line is now open.

This is Juan Avendano on behalf of Derek. I wanted to start out, you used to provide gross margin guidance by segments, just curious as to why you stopped doing that this quarter?

Honestly, what we're trying to do is just to provide -- be transparent and we believe this is a business, the way to business is evolving these entities, market units, it's more effective to talk about it the way we are.

And the adjusted operating margins what should we expect for 2017? Just curious what the contribution maybe from any SG&A or R&D leverage?

So I'm not clear on the question Juan, do you mean for the whole year or are you just talking regarding the we talked about Q1 and we also gave some guidance that it relates to the full-year on consolidated gross margin.

I'm talking about the operating margin full-year.

So from the leverage perspective, yes, absolutely we expect leverage to come from both SG&A and R&D. So our operating profit margin will be, expansion will be greater than our gross profit margin expansion.

Okay. And my next question is on the contract sales segment. And so you’re guiding for high single-digit organic growth this year. But this above your long-term outlook for the segment which is mid-single digit. Is this a 2017 only phenomenon or are you changing -- or do you still expect mid-single digit in the long-term for contract manufacturing?

Yes, Juan. At this point, when we take a look at the business, this 2017 is really a ramp up of the investments made in '16 and just to be a little more granularity, this is really the focus on the diabetes market on delivery devices, whether it’s insulin pens or even continues glucose monitoring devices. And as the ramp up phases, we’ll see a higher impact on the percent growth rate in '17. We anticipate that to kind of level back to mid-single long-term as we see the markets today are slightly better than the market. So that’s what we’re looking at, it's more of a '17 ramp up.

Okay. Good. And one of your -- just recently at the end of last year, one of your competitors and also customers had their Analyst Day and it seems like they’re focusing a lot more in the self-injection market, they plan to launch a product every year with one particular product being launched this year in the diabetes market. What opportunities or challenges does this present to West?

Yeah. I think when we look at the diabetes market, you’re right, when we look at the primary container of where we sit with our [indiscernible] business, we're basically on all the formats for the delivered devices. When it comes to the device itself, for contract manufacturing there are a number of players. Especially when you start talking about wearables, it's a very early stage at this point. But we feel good about where we are, we are a critical supplier partner with the large insulin manufactures. We also have connectivity to other firms that are looking at this space from a device perspective. So, you’re right, there is a number of competitors are looking at it because of the attractive growth, but we’re already in the market, we’re expanding the market, we’re adding new products to build support, the growth of our customers.

Okay. And lastly, similar to the pricing question before based on my calculations, you got about 70 basis points of pricing of 2016 is slightly below the usual 1% typically year-over-year. Are you seeing any pressure at all given the cascading down from the biopharma direct pricing scrutiny?

No, I would say that at this point it's pretty consistent to what we have been seeing. Obviously with products that have been in the drug market for a number of years maybe over a decade, may have more pressure on the standard packaging components. But, when we look at the high value products and the devices we obviously have continued runway to capture 1% per annum. So, we’re pretty comfortable with that.

Okay. Thank you.

Thank you. And that concludes our question-and-answer session. And now I’d like to turn conference over to Quintin Lai for closing remarks.

Thank you, Candice and thank you for joining us on today's conference call. An online archive of the broadcast will be available on our Web site at westpharma.com in the investor section. Additionally, you can get a telephone replay through Thursday, February 23rd, by dialing the numbers and conference ID provided at the end of today's earning release. That concludes today's call have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day everyone.