West Pharmaceutical Services Inc (WST) — Q3 2017 Transcript

Thanks, Jonathan. Good morning, and welcome to West’s third quarter 2017 conference call. We issued our financial results this morning and the release has been posted in the Investor section on the company’s website located at www.westpharma.com. This morning, CEO Eric Green and CFO Bill Federici will review our results, provide an update on our business and financial outlook for the full year 2017, a preliminary look at 2018 sales guidance and our long-term financial construct. There is a slide presentation that accompanies today’s conference call, and a copy of that presentation is also available on the Investor section of our website. On Slide 2 is the safe harbor statement. Statements made by management on this call and in the presentation contain forward-looking statements within the meaning of U.S. federal securities law. These statements are based on management’s beliefs and assumptions, current expectations, estimates and forecasts. There are many factors that can influence the company’s future results that are beyond the ability of the company to control or predict. Because of these known or unknown risks or uncertainties, actual results could differ materially from past results and those expressed or implied in any forward-looking statement. For a non-exclusive 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 by the company 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 in constant currency, organic sales, 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.

Thank you, Quintin, and good morning to everyone. Our team had a solid performance during the third quarter, which was in line with our expectations and consistent with prior quarterly performance. Importantly, we saw improved to positive growth in our Generics market unit and continued strength in our Contract Manufacturing business. We believe we are on track to finish 2017 with strong organic growth led by high-value product sales in the Biologics and Generics market units. I want to start this quarterly review by addressing the impact from the hurricanes during Q3. Our highest priority is always the safety of our employees, and I’m pleased to report that all our employees and their families made it through the storms unharmed. Our team did an excellent job of pre-storm preparations and post-storm cleanups and restarts. Puerto Rico continues to be a challenge. Damage to the regional infrastructure is extensive and is affecting our employees and customers on the island. Our facility saw minimal damage, and we are now partially operational due to the use of backup on-site generators. I’m proud of our employees on how they rose to meet the challenges of these storms, and we at West are committed to helping them with ongoing relief efforts. In the third quarter, we estimate that the weather shutdowns caused a negative sales impact of $2 million, over half to Biologic customers located on the island and the balance to Contract Manufacturing customers. In the fourth quarter, we could see another $5 million of sales impact, mostly due to delays in shipments to biologic customers in Puerto Rico. This risk is reflected in our revised 2017 guidance. Bill Federici will go over the Q3 financial details in a few minutes. So let’s move to Slide 4 for a discussion on the trends we saw in our specific market units and businesses. We generated 4% organic sales growth in the quarter and remain on track to generate approximately 6% for the full year 2017. Contract Manufacturing had another double-digit organic sales growth quarter. Our enhanced focus on serving customers in the drug delivery and diagnostics market is yielding strong performance, and we are encouraged with the expanding pipeline of new projects that is offsetting slower growth from our consumer products customers. We expect some moderation as we anniversary a strong Q4 from last year, and we expect to generate high single-digit growth for the full year. In our Pharma market unit, we had a slowdown from a few large customers after a strong first half of the year. We remain on track for a full-year organic sales performance, mid-single-digit growth. In Biologics, we had low single-digit sales growth. If we add back delayed sales from the hurricane, growth would have been mid-single digits and in line with our expectations. We remain on track for double-digit growth in Q4 and high single digits for the full year. Finally, I’m pleased to report that Generics returned to organic sales growth in the third quarter. We are seeing more typical demand trends from our larger customers as our inventory management has stabilized. The Generics unit is on track to deliver double-digit sales growth in Q4, and we expect the full year to be flat compared to the prior year. Turning to Slide 5, we often talk about our high-value component strategy that encourages our customers to move up the quality chain from standard packaging components to higher value offerings, such as Westar RS, RU, Envision, and NovaPure. This mix shift has been fueling our organic sales growth, and we expect it to continue to drive growth in margin expansion for the foreseeable future. On this slide, we highlight new products that have been featured in recent press releases and will be featured at upcoming trade shows. Our industry is known for long customer adoption curves, which is why we constantly strive to build a diverse portfolio of innovative products that will fuel our future growth. In Q3, we had another strong quarter for our recently launched Envision and NovaPure components. These offerings address the highest quality requirements in the industry, and we are expanding our high-value product portfolio with the new elastomer portfolio offering called AccelTRA. AccelTRA packaging components help Generics manufacturers meet increasing quality standards, ensure fast response to market volatility, and move their product to market quickly. We are pleased with the initial reception to AccelTRA; more than 30 customers have requested samples and a number of these have started formal stability trials. This slide also mentions the Westar ID Adapter. We have a growing portfolio of administration devices used in hospital, healthcare, and home settings. The ID Adapter is used by healthcare providers to enable successful intradermal injections. We recently highlighted a WHO study that used the ID Adapter in a trial for dose-sparing polio vaccinations. Our Wearables portfolio is also expanding. At the November PDA conference in Vienna, we will feature extensions of our SmartDose drug delivery platform with enhanced usability and performance capabilities, such as Bluetooth connectivity to drive patient adherence. The expanded portfolio will now include dosing options as large as 10 ml. As you can see from this small example of new products, we focus our R&D investments to broaden our product portfolio that includes high-value product components, wearable injectors, and administration systems our customers seek. On Slide 6, we have updated our full-year 2017 guidance. We continue to expect approximately 6% organic sales growth for the full year. We are raising the sales guidance range based on our Q3 performance and a slight tailwind in FX offset by hurricane-related impacts in Puerto Rico. We are also raising our adjusted EPS range from $2.74 to $2.79. Turning to Slide 7, 2017 has been a transition year as we continue to work through our customers’ inventory management activities that started in 2016. We expect the return of a more typical growth pattern in Q4 of this year. Looking forward to 2018, we expect organic sales growth in the range of 6% to 8% due to market volume growth and continued high-value product conversions. Our long-term outlook remains consistent with 6% to 8% annual constant currency organic sales growth. As we have stated in the past, we expect, on average, about 1 point to come from price, 2 to 3 points from market volume, and 3 to 4 points from market shift. A significant portion of our component volume sales is still in standard format, and with the increasing quality focus of our customers, we feel that we have significant opportunity to convert standard products to high-value products. Anticipating increased volumes over the next few years, we are also expanding our manufacturing capacity, including the completion of our Waterford site, which should commence commercial production in mid-2018. And as you saw in the prior slide, we have a portfolio of proprietary devices that will accelerate our growth as they gain traction in the marketplace. We expect gross margins to expand as product mix continues its trend towards high-value products. This, combined with the numerous initiatives to improve manufacturing efficiencies that our global operations team has put in place, will further improve our cost structure. We expect to benefit from operating profit margin expansion, on average, 100 basis points per year for the next several years as a result of these activities. CapEx is expected to be in the range of between $150 million to $175 million. A preferred capital allocation is to invest in our high-value growth products. We believe these investments will fuel the development and launch of the next generation of integrated containment and delivery solutions that we know our customers are counting on us to deliver. I’ll now turn it over to our CFO, Bill Federici, who will take you through our detailed financial results for the quarter.

Thank you, Eric, and good morning, everyone. We issued our third quarter results this morning, reporting net income of $51 million or $0.67 per diluted share. As a reminder, 2017 earnings per share include tax benefits on stock compensation due to an accounting change effective at the beginning of 2017. Our third quarter 2017 results include a $0.06 per share tax benefit due to this change. Our Q3 results also include a $0.09 per share reimbursement of prior costs incurred in the development of a safety technology we licensed to a third party. That amount is included as other operating income in our Q3 results. Our adjusted diluted earnings in the third quarter of 2016 were $0.53 per share. A reconciliation of non-GAAP measures is included on Slides 14 through 17 in the presentation that accompanies this call. Turning to sales. Slide 9 shows the components of our consolidated sales increase. Our consolidated third quarter sales of $398.2 million increased by 5.7% versus our third quarter 2016 sales. Excluding the $7.7 million favorable foreign exchange effect, our Q3 2017 sales increased 3.7%. Proprietary net sales increased by 1.5% versus the same quarter in 2016, excluding exchange. Envision and its respective components and SmartDose devices saw the highest sales increases. Sales of our high-value product offerings rose 1.1% versus the prior-year third quarter. Current quarter high-value products sales as a percentage of total proprietary product sales were flat versus a year ago. Both Q3 2016 and the first nine months of 2016 saw significant growth in high-value products, up 24% and 21% respectively versus their prior year comparators due to strong customer demand, especially in our Generics and Biologics market segments, as customers ramped up their product launches and were reacting to our lengthened order lead times in our facility. Our combined Q3 revenues from CZ and SmartDose of approximately $9.5 million were $1.7 million or 22% more than the combined Q2 2016 Q3 sales. Contract-Manufactured net sales increased by 11.5% versus the prior-year quarter, ex-currency, driven by the ramp-up of customer activity in our newly completed Dublin contract facility. As provided on Slide 10, our consolidated Q3 2017 gross profit margin of 31.4% was seven-tenths of a margin point lower than the margin we achieved in the third quarter of 2016. Proprietary third-quarter margin of 35.8% was six-tenths of a margin lower than the margin achieved in the third quarter of 2016. The decrease in gross margin is due to higher production overhead and depreciation, partially due to preproduction activities at our new Waterford site, with a negative product mix and modest price increases. HVP sales growth slowed as certain Biologics and Generic customers continued to work off high levels of inventory acquired as part of product launches and in response to our previous long order lead times. Contract-Manufactured third-quarter gross margin increased by three-tenths of a margin point to 16.3%, due to the favorable mix of products sold and volume increases, which were partially offset by higher labor and increased overhead costs associated with new capabilities supporting Contract Manufacturing customer programs, especially in our expanded Dublin facility. As reflected on Slide 11, Q3 2017 consolidated SG&A expense increased by $3.2 million versus the prior-year quarter. Higher compensation costs and outside services expenses were partially offset by lower pension expenses. As a percentage of sales, the third quarter 2017 SG&A expense was 15.4% versus 15.5% in the third quarter of 2016. The third-quarter 2017 other income was $9.5 million, and the majority of this is due to the $9.1 million reimbursement of prior costs incurred in the development of a safety technology we licensed to a third party. Slide 12 shows our key cash flow and balance sheet metrics. Our year-to-date operating cash flow of $181.8 million is $34.2 million above what we generated in the first nine months of 2016, due to higher net income, lower income tax payments, and the inclusion of the tax benefit on share-based payments offset by higher pension contributions. Our capital spending was $101.3 million for the first nine months of 2017, approximately $21 million less than at this time in 2016. We expect to spend up to $150 million in capital in 2017. Approximately 60% of our planned capital spending is dedicated to new products and expansion activities, including approximately $25 million for the construction of the new Waterford facility. Our balance sheet continues to be strong, and we’re confident that our business will provide necessary future liquidity. Our cash balance at September 30 of $269 million was $66 million more than our December 2016 balance. The increase reflects the operating cash flow generated so far this year, net of our capital expenditures and $26.9 million in share repurchases. Our cash balance also increased due to the positive currency effect. Debt at September 30, 2017, of $229.8 million was $1.2 million more than year-end. Our cash balance exceeds our debt balances, so we are deleveraged on a net debt to total invested capital basis. In the fourth quarter of 2017, we paid off the $33.1 million remaining mortgage balance on our headquarters building that was scheduled to mature in January of 2018, which will generate a small Q4 benefit from lower interest expense. Working capital of approximately $477 million at September 30 was $76 million higher than year-end. The majority of the increase is due to increases in our cash balances, accounts receivables, and inventory balances, partially offset by higher accounts payable and accrued expenses as well as the reclassification of our headquarters building mortgage to current. The accounts receivable increase was due to higher sales and currency effects on our international receivables as well as extended payment terms by certain customers. Looking ahead, our committed proprietary product orders were $375 million at September 2017, 6% lower than September 2016, excluding exchange. As expected, due to the operational gains resulting in lower lead times in our plants, customers do not need to place orders as far in advance, which has had the effect of lowering committed orders on hand. Based on our year-to-date 2017 results and our analysis of the orders on hand, we have revised our full-year 2017 guidance in this morning’s release. That guidance is summarized on Slide 13. We anticipate Q4 sales in our proprietary business to return to more normal growth rates. Additionally, we expect a return to mid-single-digit growth in our Contract Manufacturing business. Our Q4 results may be adversely affected by up to $5 million of sales and $0.03 of EPS by the recent hurricanes that have affected our facility and our customers’ facilities in Puerto Rico. Our Contract Manufacturing facility in Puerto Rico has restarted partial production. We now expect full-year adjusted diluted EPS to be in the range of $2.74 to $2.79. We have based our guidance on an exchange rate of $1.18 per euro for the remainder of 2017 versus the $1.14 per euro rate used in our prior guidance.

Thank you, Bill. In conclusion, we’re seeing good progress with our market-led strategy. With quality, scientific, and technical expertise that is unmatched in our industry, we are developing deep insights into what our customers need and are creating unique solutions for them. We have a strong pipeline of innovative, high-value products and delivery devices that will address future market needs, and our operations team is working to apply manufacturing excellence and best practices across a global network to deliver better service to our customers and reduce costs. With strong market fundamentals driving our business, our team is focused on delivering the year-end for our customers and laying the groundwork for future success in 2018 and beyond. Jonathan, we’re ready to take questions.

This is Jared Meggison on for Dave Windley. I just want to dive a little deeper into the backlog being down 6%. I know you talked about longer lead times, but I just wanted to touch on the efficiencies you guys are getting in your proprietary products. I know you previously discussed some increased efficiencies in your manufacturing processes. So I guess what I’m curious about is, are you guys continuing to get efficiencies, or was that more of a one-time gain, and now you’re just operating more efficiently and seeing lower orders? Can you just expand on that?

That's a great question. Over the past year and a half to two years, we've significantly reduced lead times that were previously stretched at the end of 2015 and into 2016 due to a spike in demand for our high-value products in the Generics sector. Thanks to the enhancements made at our Jersey Shore facility in Pennsylvania and the investments in Kinston, North Carolina, we've been able to increase our capacity and notably cut down on cycle times. However, I believe we still need to improve further. As we've discussed, the AccelTRA program aims to reduce lead times from 10 to 15 weeks to less than half of that. We're consistently striving for greater efficiency with this continuous improvement approach. Consequently, our customers are relying less on placing orders two to three quarters in advance and are shifting to a more just-in-time ordering mindset. While we're making solid strides, there's still more to accomplish, and we're witnessing the advantages through more responsive orders from our customers.

Great. And then regarding the hurricane impact in 4Q, I know you quantified that revenue as potentially $5 million. Can you maybe quantify what that does to margin? Is that kind of a flow-through there, or what are the expectations around that?

Yes, the margin impact, Jared, will be an adverse impact of about $0.03 on the EPS line. So about $3 million of operating profit.

And then last one from me. I think you guys have mentioned Generics was expected to grow double digits in 4Q. If you could just expand on that expectation? Is that a normalization of the regulatory issues we had seen in 2Q and 3Q? Or have you guys had some larger orders come in?

Yes, the improvements in inventory management by our generic customers have been significant. Over a year ago, they built up their inventories due to long lead times, but by the end of 2016, they became more comfortable with their levels, leading to continuous improvement. This trend has continued into the third quarter of this year. As we operate in a make-to-order model, we can see the orders we are currently processing and expect positive results in the fourth quarter with Generics. This success stems from the effective inventory management strategies implemented by our customers.

I have a couple of follow-up questions regarding the lead time. Does this indicate that, given your success, there will eventually be a point where lead times improve? Or is the situation currently so favorable for customers that lead times will always remain minimal? Are you seeing any advantages from this? Clearly, customers are able to maintain lower inventory levels, which allows you to keep less raw material. Is this actually contributing to better profits for your company?

Yes, Larry, it’s a benefit for both our customers and for ourselves. I think we’ve normalized in the last couple of quarters or three quarters. As we look at it, our global operations team is putting in place continuous improvements with more automation and enhanced process flow designs. It gives us the ability to continuously drive lead times down further to continue to be the best-in-class in the industry, frankly. But you’re right, we’re able to create more efficiencies, which drive the cost of our customers' working capital lower, improve quality, and delivery faster to our customers, which will translate into better margins for West.

With the improved throughput and increased capacity, it seems like we have additional capacity that enables growth and the exploration of opportunities that might not have been possible recently.

Yes, Larry, that’s a very good point. We had some constraints on moving customers from standard packaging components to high-value products about one and a half years ago, due to the constraints of our operations. With the lower lead times, the conversations with customers to move more of their portfolio towards high-value products is a lot easier. And that, as you know, comes with higher revenues and margins per transaction. This will be a benefit as we move forward, and we know the global operations team is focused on maintaining and improving on those metrics so our commercial organization has that confidence in conversations with our customers.

Great. A couple of questions on the specific end markets. On the Biologics side, obviously, it’s been held back by the aforementioned inventory issues. It sounds like you guys are pretty confident with the high single-digit growth for the year. You’ll obviously get into the double digits in Q4. As you look out, more importantly, into 2018, does that double-digit growth rate sort of incorporate into that sort of 6% to 8% overall growth next year?

Yes, on the Biologics...

Yes. You’re right on the Biologics. We’re starting to see that more normalized in Q4, actually outsized, I would say, with strong double-digits. As you look into 2018, what we’re seeing with our customers and conversations with our customers, we’ll be back to more normal levels. That could oscillate between quarter-to-quarter between high-single to low double, but it’s in that corridor.

Got it. Lastly, regarding the Generic area, I understand there have been several timing issues affecting you, but it also appears there has been a slowdown in production across the industry. This seems to be due to stricter regulations or an increase in warning letters and FDA audits. Has there been any change in this regard or any feedback from customers?

Yes, Larry, while there’s been not a lot of change on that regard specifically around India, we are continuously working with our customers as they work through these issues. I would say, however, we had a pretty strong performance not just in India but throughout Asia in Q3. We think it’s coming back to more normal performance levels. I just want to remind you that our business in India, where it’s mostly impacted by these regulatory hurdles, is a very small piece of our Generics business; in fact, it’s less than 5% of our entire Generics business.

First question, maybe just talk about the adoption curve you’re seeing for NovaPure and Westar Envision? And maybe how does that compare to some of the legacy HVP products like Westar and RS and RU, and kind of just a long-term dynamic of that shift and then the shift of standard to high-value products?

Yes. Bill, when you look at NovaPure and Envision, and if you can just think about the product portfolio moving up the high-value quality curve, these are the services and product solutions we offer our customers that are more recently launched. What we’re seeing is a lot of interest because Envision obviously gets into the subvisible detection of defects, and we get into NovaPure, which is really quality by design. Both of them, however, are very small as an overall percentage of our high-value product portfolio, but the migration from either standard to that part of the portfolio or even from typically Westar RU, RS, FluroTec all the way up to NovaPure has continued to be very attractive for our customers. To give you an example: NovaPure manufacturing capability came online about almost a year ago in Kinston, North Carolina, and it’s been validated. We have worked with our customers on stability, so we can move their highest-level Biologics on NovaPure. The economics are quite attractive; obviously, for our customers, this saves cost, reduces defects, and improves their quality. For us, that helps us with our gross margins. So we’re excited about it, but it is a small number, and I have to be careful when we talk about very strong growth, but it’s a long migration. But it’s exciting to see the traction we’re getting from our customers.

Got it. Regarding the Pharma segment, in the last call, you mentioned a major customer that will start transitioning from standard to high-value products in 2018. Are you having discussions with other Pharma customers about this? Additionally, will this create some challenges in the third and fourth quarters as that customer reduces their standard inventory during the transition?

No, I think the answer to your question is yes, we’re continuing to have conversations. That particular customer's migration is starting in 2018. We’re quite excited about it as it supports one of their major initiatives to achieve zero defects within their organization, while also allowing us to provide our highest-quality product. However, we might see a bit of a transition which could be considered a headwind, but we’re managing that with our customer, and we don’t anticipate much volatility. In Q3, the volatility we experienced is really a result of a very strong first half, which was driven by sales of packaging components for insulin delivery. Just to remind you, we have a strong position in the diabetes market, and we’re also seeing growth in the Envision administration system products. So, we don’t view Q3 as a typical concern since this is the usual quarterly fluctuation, and we continue to expect mid-single-digit growth in Pharma.

Sure, thanks, Bill. As Eric mentioned in his prepared remarks, our priority is to reinvest in the core of our business, specifically our high-value product programs. This will remain our primary approach to capital allocation. We have a board-approved share buyback program that extends through the end of the year. We have utilized part of that program and there is still a portion available to us. We have executed about $26.9 million in buybacks during the first nine months of the year. Regarding our balance sheet, we feel very comfortable with its current state. We believe it still provides us the necessary liquidity to continue growing our high-value product programs and proprietary delivery systems. Therefore, there will be no fundamental changes in that regard in the near term.

This is actually Robert on for Tim. So we’ve seen this one situation where biosimilars are taking more than expected share from innovators. Do you guys see this dynamic as disruptive to West in the short term? Possibly some of these customers might adjust their inventory?

Biosimilars are a relatively new area in the U.S. market, and they are very attractive in the long run, especially when considering large molecules. We believe our position within this market is quite strong. For instance, in the third quarter, there were 14 new molecular entities approved, of which seven were biologics, around four were biosimilars, and three were small molecules. We were involved in all those presentations. This illustrates that we are not limited to just biologics or small molecules; we have a solid standing in the biosimilar market. The team has done an excellent job in Contract Manufacturing. This area has seen strong focus from the leadership team, particularly in diagnostics and medical devices. Three years ago, a significant portion of our portfolio was centered on consumer products, which is still important, but we have shifted our focus more towards healthcare. Currently, less than 20% of our sales in this sector come from consumer products. Our growth is driven by new product launches from our customers involving new molecules and delivery devices. For instance, we recently built a facility in Dublin specifically for delivery devices, and we are struggling to keep up with the demand. This situation highlights how our focus has opened up more opportunities, and our pipeline is looking very promising. While Q4 will be challenging to compare against, the team is well positioned to continue growing this business successfully.

I have a couple of questions. Bill, I'm curious about the reimbursement. You initially guided to a $0.53 flat EPS number for the quarter with the reimbursement being either $9.1 million or $9.5 million. There was a conversation about this amount potentially being smaller in Q4, around $8 million. What changed in terms of timing since the call on July 27?

Nothing changed in terms of timing. I mean, these are deals that happen when they happen. We were very clear on what we expected. The number was a little different than what we had originally said, but the $9.1 million is running through other operating income, and we did say that it was going to be in Q3, not Q4, Derik, just to correct you there. The $8 million versus $9.1 million, the $8 million was in Euros. So that $9.1 million is accurate.

I’m curious about the stock-based accounting changes. I believe it created a $0.40 tailwind for you this year. How do you view that in terms of next year’s comparisons? Additionally, what kind of headwind might that present from a timeline perspective?

It’s a great question. This area where the new accounting used to run through the equity section is now processed through the income statement. We had very high levels of activity. The excess tax benefit is based on various factors, the first being the existing stock option strike price and the time they were granted. There are several variables involved, making it very hard to predict when individuals, whether retired or still with the company, will exercise their options. We’ve been transparent about the actual results. Historically, the amounts have not been nearly as high as we have seen this year, which was about $19 million in 2016 and smaller amounts before that. While there are still options available for exercise, predicting future outcomes is challenging due to these variables, including the potential impact of future tax reform. We believe the best approach is to maintain transparency, but I wouldn’t rely on the $0.30 or $0.40 figures we’ve seen so far. I would consider more the range of what we’ve observed in the past, which has been between $10 million and $18 million. We will continue to keep you updated, but making predictions in this area is very difficult.

I have one final question. When you consider the long-term growth projection of 6% to 8% and the 100 basis points with built-in margin expansion, that aligns with our modeling. However, when comparing the operating margin number for 2020 to your earlier guidance, it appears to be at the lower end of the expected range. What do you see as the main factors that could lead to an increase from the current estimate of $19 million to the previously mentioned $23 million? It seems like foreign exchange, proprietary factors, and the introduction of new product lines could significantly impact that margin number.

Yes, look, what we’re saying is that construct of the 6% to 8% growth organically driven by the mix shift to high-value products and the increased optionality in terms of growth coming from our proprietary devices is going to drive, along with operational efficiencies, approximately 100 basis points on average each year to our operating margin. We still feel very, very comfortable making those claims. We’ve seen this result when high-value product growth is high; in high-singles to low-doubles that we expected to grow over long periods of time, and that generates very, very good margin. There’s a great correlation between that and generating good margin expansion. This construct, along with our operational efficiencies, gives us a lot of comfort that we’re going to continue to grow approximately 100 basis points on average per year.

Thanks, Jonathan. Thank you for joining us on today’s conference call. An online archive of the broadcast will be available on our website at www.westpharma.com in the investors section. Additionally, you can access a telephone replay through Thursday, November 2, by dialing the numbers and conference ID provided at the end of today’s earnings release. So that concludes today’s call. Thanks, and have a nice day.