Welcome to the West Pharmaceutical Services fourth quarter Earnings Call. At this time, all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Ms. Theresa Kelleher from FD. Ma'am, you may begin.

Thank you. Good morning everyone and welcome to the West Pharmaceutical Services' fourth quarter 2007 results conference call. As you know, we issued our results this morning. The release has been posted on the company's website located at www.westpharma.com. If you have not received a copy of this announcement, please call FD at 212-850-5600 and a copy will be sent to you immediately. Before we begin, I would like to remind you that certain statements that may be made by management of the company may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements set forth anticipated results based on management's plans and assumptions. Such statements give our current expectations or forecasts of future events. They do not relate strictly to historical or current facts. In particular, these include statements concerning future actions, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results. We have tried, wherever possible, to identify such statements by using words such as "estimate", "expect", "intend", "believe", "plan", "anticipate", and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or conditions. We cannot guarantee that any forward-looking statement will be realized. If unknown or known risks or uncertainties materialize, or if underlying assumptions are inaccurate, actual results could differ materially from past results and those expressed or implied in any forward-looking statements. For a nonexclusive list of those factors, which could cause actual results to differ from expectations, please refer to the factors listed in today's press release. Investors are advised, however, to consult any further disclosures the company makes on related subjects in the company's 10-K, 10-Q and 8-K reports. The company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This call is being recorded on behalf of West Pharmaceutical Services' and is copyrighted material. It cannot be re-recorded or rebroadcast without the company's expressed permission. Your participation on this call implies your consent to our taping. Once management has concluded their remarks, we will open the floor for questions. At this time, I would now like to turn the call over to Dr. Don Morel, Chairman and CEO.

Thank you, Theresa, and good morning, everyone. Thank you for taking time to join our call today. As Theresa mentioned, I am joined by our Chief Financial Officer, Bill Federici and also by Mike Anderson, our Treasurer and primary Investor Relations contact. As you will note from the level of detail in this morning's release, 2007 was simultaneously a challenging and a record setting year for the company. Before I comment on the year and our outlook for 2008, I would like to extend a note of thanks to West employees around the globe for achieving a major company milestone, surpassing the $1 billion sales mark for the first time in the company's 85 year history. Starting with that $1 billion top line 2007 was a very good year, especially on the heels of the tremendous 2006 where earnings increased over 35% compared with 2005. In 2007, we started the year with a record first quarter; where we earned $0.77 per share and landed with a very good fourth quarter earning $0.51 per share, excluding one time charges. Surpassing a very strong 2006 fourth quarter. Overall fourth quarter 2008 earnings grew just under 20% compared with the fourth quarter of 2007. We delivered record net income of $70.7 million and excluding the Tech's restructuring and some unusual tax items, posted earnings of $2.37 per fully diluted share, a number just over the high end of our original guidance for the year. As I indicated previously these accomplishments would not have been possible without the collective efforts of a lot of people in our various operations around the world. This morning's release provides a detailed discussion of our financial results, which Bill will review in just a few minutes. However in a nutshell, the last twelve months reaffirm several characteristics of…

Thank you, Don, and good morning, everyone. As indicated in this mornings press release West, reported fourth quarter 2007 income from continuing operations of $6.1 million or $0.19 per diluted share. Reported results in the quarter include the affect of $17.8 million of restructuring, asset impairments, and tax charges that were partially offset by several discreet tax benefits. Most of the charges relate to the Nektar asset impairment of $12.9 million and the implementation of the restructuring plan for the Tech Group of $3.4 million that we announced in December. Cumulatively the net charge served to reduce reported earnings in the quarter by $0.32 per diluted share. Excluding the net negative effect of these special charges, fourth quarter 2007 earnings per share from continuing operations were $0.51 per diluted share $0.08 better than 2006 fourth quarter earnings of $0.43 per diluted share. There were no charges or benefits outside our normal operating results, including in our fourth quarter 2006 results. The company's consolidated sales in the quarter were $256.1 million a 10.5% increase over fourth quarter 2006 sales with 5.9 percentage points due to foreign exchange. Fourth quarter sales in the Pharm System segment of $187.3 million were 14.2% above 2006 fourth quarter sales with 7.4 percentage points of the increase due to currency effects. Much of pharm systems growth in the quarter was in Europe, and was largely due to increased demand for our coated and Westar treated pharmaceutical packaging products and increased demand for our patented IV plastic cap TrimTec. Pharm systems domestic sales grew modestly with growth also driven by continuing increased demand for packaging components using our advance quoted treatments and our Westar process, and demand for pre-filled injection system components. Sales of component using customer's anemia drugs were $1.3 million less in Q4 2007 than…

Thanks very much, Bill. This concludes our commentary for this morning and we will now be pleased to answer any questions that you might have. Operator?

(Operators instructions) And our first question comes from Arnie Ursaner of CJS Securities.

Good morning. This is actually Larry Solow calling in for Arnie Ursaner.

Good morning, Larry.

Good morning

Good morning. Just a couple of quick questions, first in regards to the gross margin, can I assume that Grand Rapids was will still be impacting, I assume the first half of the year, you probably make up that $6 million year-over-year number from '07 to '06 sorry -- we made up in '08 I assume?

The $6 million will be made up in '08.

Okay.

You believe that, but it will impact heavier in this -- the negative impact will be heavier in the first half than the second half. Say in another way the positives will be more heavily in the second half of the year.

Okay. So, then looking at '09 you should have a net-net positive, I assume?

Absolutely.

Great and then can you just talk a little bit about current renegotiations or contracts that are -- and is there are you getting -- are you seeing price increases that was sufficient to cover rising material costs especially with oil getting a second leg up?

We are getting pricing and the agreements that we've negotiated for the most part. We are getting pricing on orders that are not troubled by long-term contracts. There are contracts in the device sector, where in exchange for longer-term commitments, we have given some price concessions, but those have been moderate. Pricing on its own probably will not be enough to offset raw material price increases, but through efficiencies in the plant through our lien program and through other costs saving initiatives. We believe that energy, raw materials and labor are going to be offset for the full year for the most part. In terms of the contracts themselves, we finalized I believe its five contracts over the course of 2007, two in Europe, three in United States. We've recently concluded our major contracts with Becton Dickinson, which will cover supply for the next five years.

Okay, great. And then just last question you mentioned that about 25% increase in R&D costs and then $5 million higher IT costs. First of all those IT costs that you've mentioned the $5 million is that an operating expense?

It is, yes. That is an operating expense.

Okay, great. And then I assume…

Associated with the SAP adoption and shop floor systems upgrades in the US.

Okay. And then you kind of have an expected return on these investments?

For IT you don't normally get the returns in terms of a traditional ROIC. What you do is you have, you have systems that are old legacy systems that require huge amount of maintenance and require huge amount of time and effort just to keep them up, up to speed. No less then at some point in time that the vendors stop supporting them. So it is the absolute right thing for us to do to be upgrading these systems and we do expect that we'll have efficiencies going forward from the fact that we will be getting better data in a more timely manner.

That's (inaudible).

Okay. Thank you very much.

Thank you.

You are welcome.

Okay our next question comes from Robert Gilliam of UBS. You may ask your question.

Hi. Good morning.

Good morning, Rob.

Good morning, Rob.

So a couple of questions, I guess first just sort of you said in the press release I think your FX assumptions was 1.4?

Yes.

For 2008, so that obviously is a little below where the current rates are. So I guess one how do you come up with that and is it safe to assume that especially your guidance is baking in a little bit of a currency drag?

Well, in terms our guidance you're absolutely right. The 140 is what we baked in. I certainly don’t know where currencies are going to go long-term. We are trying to predict what this is going to have an impact over the entire year. We do know you are absolutely right Rob that the dollar is a little weaker then that right now. We anticipate that and we are getting input from professionals that suggested it will strengthen, the dollar will strengthen as the year goes on. So we believe that $40 represents our best guess at this point in time.

Okay. But just to make sure I am thinking about it correctly, if it does remain at current levels then that actually would imply that there is upside to your guidance?

Yes it does Rob.

Okay, great. And then, as far as the Tech Group and I know you talked about it a little bit, but the margin expansion there, are you looking for some year-over-year margin expansion. Can you just walk us through how you get from, 11.7% in 4Q '07, increasing throughout the year, and I understand that Michigan obviously as that comes through the year, going to see a positive impact, but that's going to be offset by some pretty high margins in Exubera, which aren't going to be there. So I was wondering if you could just give some more details on that?

Yeah, it's a combination of things, Rob. The major impact is going to come from the fact that Grand Rapids by the end of the year is going to be basically up and running with the major programs there. It is a big pick-up not having to run two facilities at once when we were transferring the existing molds in Grand Rapids into the new facilities. Simultaneously we were trying to ramp up the new production lines. The second area is that we have taken a significant amount of cost out of the system as it relates to engineering and tooling support, which was there for anticipated programs which didn’t materialize. So, we have taken quite a bit out on the cost side, when you combine that with Grand Rapids, we think it's probably going to give us a percentage point over the full year.

Okay, and then as far as the Grand Rapids, does that all hit the gross margin line or would some of that split between the SG&A line also?

Most of it, it was in the gross profit line. But you are right there is a slight amount that would hit in SG&A, very little. And just one other point about this, the other thing you remember about Tech is we are projecting that the top line will go down slightly. So that will help the margin as well.

Got you, okay. And you mentioned for the anemia drugs that your backlog does not include any orders but does your revenue forecast, what is it assumed for; one, anemia drugs and then two if anything for Exubera?

We have zero in there for Exubera and for anemia drugs we are assuming approximately half of what we had last year which is about $7 million in sales.

Okay. And could you just repeat the numbers I think Bill, right at the end of your prepared remarks?

The affect on the quarter is from the three, the Exubera, anemia drugs, and the device components?

Yes.

Yeah. For the first quarter it was and these are '07 gross profit numbers.

Okay.

Q1 they were $6.5 million, Q2 $5.5 million, Q3 $4 million, and Q4 $3 million.

Okay. And then as far as the IT costs, is that going to be pretty spread throughout the year or is that also going to be kind of front end weighted?

They are pretty well ratable over the year Rob.

Okay. All right, I'll hop out, and let somebody else take a chance. Thanks, guys.

Thanks, Rob.

Thanks, Rob.

(Operator Instructions) And our next question comes from Steven Postal of Lehman Brothers. You may ask your question.

Thanks, and good morning, Don, Bill, and Mike.

Hey, good morning, Steven.

Good morning, Steven.

To just start out Don, I think you made a comment about France delaying some of the capacity expansion there. Did you say that, that was one of your rubber facilities, and could you just go into maybe the decision why you delayed the expansion?

Yeah, there actually are a couple of things there, Steven. It is a rubber facility; it's one of our major rubber facilities that focus on pharmaceutical products with regards to Westar capability and as high end products. There we re two reasons for the delay, actually a couple of reasons. One, we decided that we needed a little bit more D2 capacity so we decided to modify the design a little bit and make room for an additional line, which kind of resulted in an extension of getting the permits that we needed from the local authorities, so that delayed us a little bit. We've got a little bit of a delay just associated with the ordering of the machine itself, which is fairly complicated and actually originates in Japan. The other factor is kind of an odd one, Le Nouvion is somewhat of an agricultural region of France towards the Belgium border and one of our major customers has decided to build an enormous production facility about half an hour way from where we are located, which has taken in a great deal of the regional resources as it relates to construction. So between what we're going to do with the UK facility, pushing as hard as we can to get the expansion done in Germany and Eschweiler, which is a sister plant to the France plant, we think we are going to be fine and it prudent just to make sure we got the resources to do France in the right timeframe so that's fundamentally the picture.

Okay. And then I believe you said CapEx guidance for '08 was $140 million is that correct?

That's correct.

And you've previously commented on kind of the capital expansion plan the next couple of years. I am sure I don't own a copy mentioned in your prepared remarks, but would it be fair to straight line that for another year or two?

It's going to be up and down a little bit part of the issue is simply timing. The number that we gave for 2007 was roughly about $130 million which included getting the China plastic facility of the ground in January of last year that obviously didn’t happen, so the capital in effect was just being carried over in to 2008. So you are going to see a situation were timing is going to affect us on a couple of things, but on a constant exchange rate basis a number in the 130 range is probably going to be pretty good for the next couple of years.

Through 2010 is right.

That's what we've previously discussed, yeah.

Okay. And Bill did you mention the growth rate

Okay. And Bill did you mention the growth rate in pharm systems domestic versus international?

I did not mention them. They were slightly higher in Europe than they were domestically. So, not appreciably different, but slightly higher in Europe.

Okay. I guess in the context of raw material cost, I know this is been now a discussion for few years now, I thought that you all had these automatic adjusters in both components of the business, that have exposure to plastic and rubber. Is it that as you are renewing the contract, there is a little bit more sensitivity there, so you are not able to pass it through as you are renewing the contracts or is something else going on there?

You are absolutely right. On the plastic side of the business, it's easier to handle because most of those contracts are price at spot or have a quarterly lag. So, on the plastic side when commodity resins pickup, it is fairly quick. To my recollection all of the contracts that have recently been renewed do include a PPI or CPI adjusters because it is typically done on a 12 month lag-in basis. So, we do have the ability to recoup but timing has a great deal to do with what we can recover.

And Steven, when we look at again there are multiple factors, we look at that the strong favorable mix shift that's going on, we look at lean as Don said, we look at the efficiencies in the plant in general, some volume in that price to offset the raw material and other inputs into our production systems.

Okay. So, it's sound to me like there is really no change there in terms of your ability to pass through these costs?

There are -- the customers are very sensitive to price increases as they always have been and still about 50% of the business is under contract but they are still very, very sensitive to price increases.

Okay. All right, thanks a lot.

Thank you.

You are welcome, Steve.

Okay, and our next question comes from Jonathan Reichek of Friedberg Investment Management.

Hi, can you guys elaborate on the two new proprietary products in the Tech group?

We'd loved to but we are typically bound by confidentiality because we are a basically an OEM manufacturer for those customers and unfortunately our manufacturer agreements traditionally don’t allow us to disclose who, what, and volumes.

Okay, what about -- I guess beyond those, I think in the past you guys have talked about how you wanted to bring in more of the proprietary products. So can you kind of elaborate on that?

Yeah, that's absolutely right. One of the major goals for the business is to shift their mix to a greater percentage of proprietary products that include West IP. It's underway. We have a range of products that are based on a novel resin CZ. It was developed by our Japanese partners Daikyo, called Daikyo Crystal Zenith. A large part of our new product pipeline is based on primary containers and delivery platforms that utilize that resin and our plants currently call for the bulk of that production to go within our Tech facilities and those will be rolled out from the middle part of 2008 going forward.

Okay, and then I have got a question on the pharma segment. It sounds like the higher margin products are growing faster and it sounds like you guys have said a lot of the expansion CapEx has gone for the higher margin products. So, I guess at some point -- I know how big it is like -- at some point should we really see gross margins start to expand in that segment?

Yes.

Then actually they have been, is that likely -- I am talking of 2009?

We will see it 2008.

We will see it in 2008 more towards the second half of the year. And as the bulk of the capacity comes on line, which will through the early part, mid-part of 2009, you should see an uptick in margins.

Okay. Thanks a lot.

Thank you. You're welcome.

At this time we have no further questions, then I would now like to turn the call back over to Dr. Don Morel.

Thank you very much operator. While 2008 will clearly present a number of challenges, I firmly believe that we are in a strong position to deliver another record year of sales and earnings. Furthermore, timely execution of our expansion programs, coupled with the strength of our new product pipeline, will position West for accelerated growth in 2009 and beyond. I would like to close by again inviting you to attend our second Investor Day, which will be held in New York City on Thursday, March 13th. Details can be obtained by contacting Mike Anderson here in West or surely on our website at www.westpharama.com. Thank you very much for time today.

Thank you and have a good day.