Welcome to the West Pharmaceutical Services Third Quarter 2014 Results Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). This call is being recorded on behalf of West and is copyrighted material. It cannot be rerecorded or rebroadcast without the company's expressed permission. Your participation in this call implies your consent to our taping. If you have any objection, you may disconnect at this time. And now I'd like to turn today's meeting over to Mr. John Woolford from Westwicke Partners. Sir, you may begin.

Thank you, operator. Good morning everyone and welcome to West's third quarter 2014 results conference call. We issued our financial results this morning and the release has been posted in the Investors section on the company's web site located at www.westpharma.com. If you've not received a copy of this announcement, please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately. Posted on the company's web site under Investors on the Presentation Materials tab is a slide presentation that management will refer to in their remarks today. The presentation is in PDF format. Should you require a link to a free download of software that will enable users to view the presentation, it's also available on the web site. I will remind you that statements made by management on this call and in the presentation will contain forward-looking statements within the meaning of U.S. federal securities laws and that are based on management's beliefs and assumptions, current expectations, estimates and forecasts. Many of the factors that will determine the company's future results are beyond the ability of the company to control or predict. These statements are subject to known or unknown risks or uncertainties, and therefore 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 expectations, please refer to today's press release as well as any further disclosures the company makes on related subjects in the Company's 10-K, 10-Q, and 8-K reports. In addition, during today's call management may make reference to non-GAAP financial measures, including adjusted operating profit 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 materials accompanying this morning's earnings release. At this time I'd like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thank you very much John and good morning everyone. Welcome to West's third quarter 2014 earnings call. Joining me on the call today are West's Chief Financial Officer, Bill Federici; and Mike Anderson our President and Primary Investor Relations Contact. During our commentary today, Bill and I will briefly review our results for the third quarter, discus our expectations for the remainder of 2014, provide a snapshot of our revenue outlook for 2015, and highlights from our updated five year business plan. The PowerPoint slides we will use to support our remarks can be accessed through our web site at www.westpharma.com under Investors. If for some reason you cannot access the presentation, our discussion will cover the information both in this morning's release, and the slides. As you know on October 15th, we provided an early look at our Q3 earnings. Slide number 3 provides the high level summary of our financial performance during the quarter. Sales increased just over 4% from $341.8 million to $355.9 million. Our gross margin was up slightly to 30.9% and our adjusted operating profit was $45.2 million, an increase of just under 14% resulting in a 1.1 percentage point increase in our operating margin versus the prior year period. The improvement in our operating margin yielded adjusted fully diluted earnings per share of $0.44 versus $0.39 in the third quarter of 2013, an improvement of 12.8%. Slide number 4 summarizes some operating highlights in the two business segments; Packaging Systems sales increased modestly as a result of higher sales of Westar and Daikyo RS and RU components. From a geographic perspective, sales grew in North and South America; were essentially flat in Europe and down slightly in Asia. However, I should note that comparisons of our Q3 2013 results to Q3 2014 for the…

Thank you, Don, and good morning everyone. We issued our third quarter results this morning, reporting net income of $31 million or $0.43 per diluted share versus the $0.37 per diluted share we reported in the third quarter of 2013. Excluding the effect of non-recurring items in both periods, Q3 2014 adjusted diluted earnings per share were $0.44 compared to the $0.39 in the prior year quarter. A reconciliation of those non-GAAP measures is provided on slides 14 through 16. Turning to sales; slide 8 shows the components of our consolidated sales increase. Consolidated third quarter sales were $355.9 million, an increase of 4.2% over third quarter of 2013 sales, excluding exchange. Packaging System sales were $252 million, essentially equal to those recorded in the third quarter of 2013. As a reminder, last year's third quarter sales grew 14.7% and high value products grew 23%, driven by customer inventory management. It is a notable accomplishment to equal those sales in the current quarter, including high value packaging sales, which were about 1% higher than the prior year's quarter. Delivery Systems sales were $104 million this quarter, an increase of $13.5 million or 14.8% over the prior year quarter excluding exchange. [Indiscernible] driven by gains in both proprietary products and contract manufacturing revenues. Proprietary product improvements include $4.2 million more of administration systems products, and $3.4 million more of SmartDose sales to customer's preclinical and clinical trials. Sales of proprietary products comprised 27.4% of the segment sales in the quarter, compared to 23.6% in the prior year quarter. Contract manufacturing revenues grew $5.7 million excluding exchange, plus around higher volumes to existing programs. As provided on slide 9, our consolidated 2013 gross profit margin of 30.9% was just slightly ahead of the 30.8% achieved in the third quarter of 2013. Packaging…

Thank you very much, Bill. This concludes our prepared remarks for this morning, and we now look forward to answering your questions. Operator?

Thank you sir. (Operator Instructions). Please standby for your first question, which comes from Arnie Ursaner at CJS Securities. Go ahead please.

Hi. Good morning.

Good morning Arnie.

My first question is, regarding your Q4 on high end packaging being relatively flat, should we assume it's primarily due to the fact that you're up against another extremely difficult comp and not signaling any change in the underlying business?

No. I think what you are going to see is the usual end of the year stuff with our customers, in terms of ordering and delivery patterns. We are being a little bit conservative. Q4 really was a slightly weaker quarter in 2013 for HVPs in the third quarter. So we started to see the down trend at that point, and as a reminder, that's when the orders started to decline as a result of a detergent change in our process in Europe.

Arnie, actually to correct you a little bit;, the Q4 growth we expect for high value products will be greater than what it was in 2013. 2013, as Don mentioned, we started to see the effect of customers working down their inventory balances. So actually, the comp to last year's fourth quarter is not nearly as tough for high value products. We expect about a 4.7% increase over that. And as we said, the backlog, if you look at it as of September, the composition of high value products in the backlog has actually increased by two percentage points over September 2013 to 45%.

Next question is in your pharma Packaging Systems margin in the quarter was lower than we have modeled. And in your prepared remarks, you highlighted increased sales of the disposable medical device components. When you presented your slide with various balls or areas showing margin? That's the piece that's in the very lower left, that's the high volume but lowest margin business, is that correct?

It’s a combination of two, it’s the standard product and the lower profit disposable medical device components. Those two are actually up in the quarter.

Okay. And going back to this capital spending increase relative to let's say your five year plan, can you kind of walk us through the thought process on why the spending -- the incremental spending is going to be pretty significant for the next few years, but yet your views really don't accelerate till kind of 2017, 2018, 2019. Is that much of a leadtime you need to have to build this out, and maybe be more specific, what is leading you to decide you need to increase it?

There is really two answers to the question Arnie. So the first one on the pharmaceutical packaging side is that, as you know, we produce this specialized sheeting for insulin cartridges, and we only have a single facility that produces that material. So this is simultaneously a risk mitigation step for the major customers we serve, but also, to support growth we see in that marketplace through that five year period. So the first part of the facility in Ireland will be a sheeting facility. We expect to build that out in the latter years, as we see there is cleanliness requirement increasing and the focus on the very high margin, high valued products going into the biologics segment. Ireland was an ideal location for us, because of increasing investment by our customer base. When you look at the biologics production capability within that area, it has increased substantially and will increase in the future, as we see more compounds come out. So much of it is aimed at high margin, high growth areas, diabetes and biologics. The second is that, we are currently producing commercially the SmartDose system in Israel, and part of that capital is to begin to fit our commercial production in Arizona, as we see requirements not only for CZ, but for the SmartDose devices ramp up. We would like to have dual source of supply there for risk mitigation. So the reasons are all good, they are growth, and yes, we have to invest that far ahead of the curve, with validation, equipment delivery and all the reasons we have talked about in the past.

Okay. And I am violating my only ask two question rules, but I want to ask one more real quick, you are tied to the price of Brent crude more than most companies which are West Texas [ph]. We have obviously seen a very dramatic lowering of oil prices. How should we think about that, as you go to your year end negotiations with your customers, and maybe remind everyone of the lag before you have it impacting your costs, or your contract pricing?

That is exactly right Arnie. We have -- to answer the last part first, we have about a three month lag between when the actual price of Brent declines and when we start to see it come through in our purchases, and then approximately a two month delay between when we get it into our inventory, and when we actually end up selling it, and therefore it ends up in our income statement. So it's about somewhere between four and six months of a delay. The sharp decline that you're talking about, its really not as dramatic as some of the ones that we have seen in the past. If we go back to 2011, you will remember that Brent went from about $65, $70 a barrel, up to over $130 if I remember correctly, during that first half of the year, and then came down in the back half of the year. So with the decline, you should expect to see lower and you saw it in the third quarter, you saw it that our raw material costs were essentially flat to the prior year, you will see a little bit lower costs coming through, starting some time in 2015, probably the latter part of the first quarter. But as you're suggesting, about half of our Packaging Systems sales are under contract with our customers, and those contracts generally carry a CPI or PPI accelerator in them. So obviously, we would see lower ability to increase prices. All that said, when we look at 2015 and to come to the guidance that we gave you on the sales, we have not included a large increase for pricing. I believe we are about 0.5%, which will be below the five year average and certainly way below the 2.5% or so that we received in the 2012-2013 timeframes.

Thank you very much.

You're welcome.

Thanks Arnie.

Thank you. Your next question comes from Rafael Tejada at Bank of America Merrill Lynch. Please go ahead.

Hi, good morning and thank you for the questions.

Good morning Rafael.

Good morning. Just on the 2015 outlook on a constant currency growth, how should we think about the growth in packaging versus delivery?

Basically, its going to be in the Packaging Systems side. High value products driving the bulk of the growth, so we expect high value products will grow nicely in that 8% to 10% range as Don described. We will see less growth coming from the standard and disposable medical device side of that business. For the Delivery Systems side, we see very solid growth in the proprietary delivery systems. That should be up solid double digits, similar to the 15% to 20% range, and as you can imagine for contract manufacturing, we'd expect something in the order of mid-singles, as a growth rate.

Okay. So if I were to net that out, I mean packaging probably as a whole in the mid-single digits and delivery systems, somewhere lower -- low double digits?

On the Delivery Systems, you are going to be less than a little bit double digits, because you had -- remember it's only -- the Proprietary Systems at only about 27% of the total.

And we covered one of the trends in terms of the fluctuating raw material prices, but also wanted to talk about infectious diseases and just wondering what -- whether you're already -- there is some data out there suggesting potential stronger flu season this year, so just wondering if there is any -- if you're seeing any orders coming in? And secondly, just anything on -- in terms of potential tailwinds from travel activity as it relates to Ebola?

Yeah on the first question, I think the answer is no. Much of the flu stocks of course are produced in advance of the season. So those numbers have already been reflected in our sales. With regard to Ebola specifically, remember the trials often are relatively small volumes, and people are I think in many respects, playing catch-up. So even if you have a 5,000 patient trial, its not going to drive the needle, those are very-very small volumes. The answer is that yes, we are on some of the vaccines that are in development, but you are not going to see that drive the numbers.

Okay. And just a couple other housekeeping items; we have seen the fluctuations in currency, just wondering what's baked in, in terms of headwind for sales in MEPS for Q4, and if you can talk about potential expectations for 2015?

Well I will start with the end first; as we said, the number we recorded, the 5% to 8% for 2015 is an ex-currency number. So that hopefully will help you, and you can draw whatever conclusions you want. On the fourth quarter, we view as the $1.27 to the euro, which is not what it is this morning of course, things bounce around, and that's pretty close to what we believe the market is for the quarter.

Okay. But to think of a potential 2% headwind on the top line for Q4, that would be a prudent number to use, just to make sure that --

I don't think that that's an unreasonable expectation; especially versus our prior guidance. And Rafael, just let me finish; with the full year guidance that we took down narrowing the range, $0.04 of that is due to currency. Some of that is in the third quarter, some of it is in the fourth, so that gives you a gauge to put on in the fourth quarter.

Great. And with the share repurchase being planned, how should we think about the deployment of that plan and I guess what has been the expectations for share comp for 2014 and then just finally -- just tax rate, we saw that pick up, just wondering if we should be using that sort of similar rate for 2015?

The tax rate is -- what we are believing is somewhere in that blended year, somewhere in that 27% range, maybe although higher if we don't get beyond the extendable cash, that you know, has an impact on all manufacturers. And going forward, if you are using -- again, if they have the extendable cash, 27% would not be an unreasonable expectation going forward. On the share count, we do have an increase planned, about 0.5 million shares in the count. But the exact way that the share buyback program will hit, is really depending on -- from time to time, we will go into the market when we see the opportunity to go in and buy.

Okay. That's helpful. Thank you very much.

Thanks Rafael.

Thank you. Sir you have no further questions at this time. (Operator Instructions). And we do have another question, this comes from Dana Walker at Kalmar Investments. Please go ahead.

Hello there. Good morning.

Good morning Dana.

Don, talk about zero defect? How is that a step function above what your customers have been focusing on, on the HVP fronts, and how does that change the product and/or service life that you're in a position to provide?

We and all of our customers are seeing a great deal of, what I would call, incentives from the regulatory bodies to look into the entire production process, in terms of continuous improvement. And as detection capabilities get better and better, when you inspect at the end of the line, you're seeing more and more things. So we look at it purely as an opportunity, and for us, it is a differentiator, and again, its driving a lot of the investments that will happen in Ireland in the second phase of that building. But as a service offering, it really comes back to the attributes that we would try to put into the closures from Westar, evolving all the way to the current version of [indiscernible]. Each one of those attribute gives us the opportunity to capture some value from what our customers ordinarily would have provided in their own production processes in prior years. So we don't think those pressures are going to relent. Indeed, its going to put pressure on the industry, to meet what is a rapidly increasing quality standard. So its an opportunity and a challenge all in the same nut.

Understood. Bill, as you update your revenue guidance, how much of that would you attribute to currency, and how much of that would you attribute to something else?

Yeah absolutely, ignore currency in the growth that we gave you. The 5% to 8%, Dana, is a currency neutral number.

I am talking about Q4.

Okay. Q4 we had between somewhere around $0.02 is what we are expecting versus what we had previously guided you to. And its $0.04 for the back half of the year between when we gave you guidance on July 30th or whenever it was, versus the $1.27 we are giving you now. So roughly half of that would be what's impacting the fourth quarter.

I am sorry, I should have been much more specific. I was focused solely on the top line.

Top line; the amount that impacts it?

Well you brought your revenue guidance down moderately for PPS, how much of that is currency, how much of that would be something else?

Okay. In terms of -- almost all of it is currency, and there is some -- obviously, there is some impacts from the business from looking at the backlog and where we ended the third quarter. But a good chunk of that is due to currency.

The committed backlog number that you provided, can you just quickly update us as to what the comparable numbers might have been earlier than a year ago at this time?

Absolutely. If you look at the backlog at this year and at the end of September, it was $349 million. Now, you have currency impacts, impacting the comparisons, but I will give you the currency neutral numbers. Q3 2013 was $325 million rough numbers, and December 2013 was $315 million rough numbers. Now in those numbers or disclosure, there is a blanket order from one of our major customers, that impacts the comparability. So that's why, when we gave you the $349 million, we don't know exactly, we can't pull out exactly how much of that is in excess of what we had at end of September of 2013 or December of 2013, but it does impact comparability. So instead of being, for instance, up 14% versus December, we know its something less than that, its probably on the order of mid to high singles.

One last question, Don, you mentioned three new biologic categories that are appearing in the rearview mirror, or for that matter in the windshield, can you describe, timing-wise, when you would expect to see product flows from there and thus demand for your products?

Yeah, I categorize it really as two new, one existing. So the GLP ones have been in the market for a while, but we are seeing some new molecules coming down in that diabetes category and some new indication, several of them, I believe, have gotten approval of the weight loss indication, in addition to share level reduction. The PD1 is the new molecules for cancer. I believe it goes -- will roll out probably over the next two to three years. We know that several of our customers -- we know one customer that has an approval already in the market for lung cancer. But you will see sequentially approval for different types of cancer, as they complete the clinical trials and do rolling submissions for each one of those. There are several other PD-1s that are in the application phase have not received approval yet, but we think that's going to be a very-very strong category, because of the uniqueness of these molecules; and again, we are virtually on all of the packaging, that goes both in vial and syringe format. The final category, the PCSK9 molecules are completely new in terms of cholesterol reduction. Again, we are on the primary packaging for that. We will have to see how the device equation evolves, but each one of the categories, we believe presents not only primary packaging, but potentially downstream device opportunities.

As you have seen the GLP-1s roll out, has that proven to be incremental demand or higher value demand for you? Or does it displace something?

Its really hard to say. For us, it has been incremental up demand, especially in the vices where we contract manufacturer. It is difficult to call out the impact on the primary packaging side. We are not sure what goes to GLP-1s versus the insulins.

Okay. I had one last question, it has evaded me for the moment, so I will let go. Thanks.

Thank you so much Dana.

Gentlemen, there are no further questions for you at the moment.

Thank you very much for your time everyone. We look forward to speaking with you again in February with our year end call.