In the second quarter of the financial year 2017 (1 March 2017 to 31 May 2017), Gerresheimer generated revenues of EUR 339.5m, 2.2% lower than the EUR 347.3m recorded in the prior-year quarter. On an organic basis – meaning at constant exchange rates and adjusted for acquisitions and divestments – revenues decreased by 3.7%. In line with expectations, there was lower demand for medical plastic systems from a number of pharma customers where Gerresheimer is the sole supplier. This effect was amplified by postponements of customer orders in the inhalation business from the first to the second half-year. Engineering and tooling for medical plastic systems also generated lower revenues in the second quarter than in the prior-year quarter. Temporary intra-year fluctuations are normal and essentially track the billing of large-scale customer projects. Sales of plastic packaging for solid and liquid drugs, on the other hand, grew positively. Second-quarter revenues with primary packaging glass virtually matched the prior-year figure. Revenues here were down in North America, where the current uncertainty led to reticence among a number of pharma customers to place orders. Outside of North America, revenues with primary packaging glass increased slightly as expected.
As a consequence of the revenue performance, adjusted EBITDA decreased from EUR 80.7m in the prior-year quarter to EUR 75.8m in the second quarter of 2017. Adjusted EBITDA on a constant exchange rate basis similarly stood at EUR 75.8m. The adjusted EBITDA margin was 22.3% in the second quarter, down on the 23.2% margin in the comparative prior-year period. The margin in Plastics & Devices mirrored the prior-year level of 27%, despite significantly lower revenues. In primary packaging glass, the margin came down to 20.4%, 2.3 percentage points lower than the strong margin a year earlier on account of the deliberately reduced production capacity utilization due to lower revenues in the USA. Gerresheimer reported net income from continuing operations of EUR 25.1m in the second quarter, compared with EUR 28.9m a year earlier. Adjusted net income from continuing operations after non-controlling interests was EUR 30.4m, compared with EUR 34.2m in the prior-year quarter. Adjusted earnings per share from continuing operations after non-controlling interests consequently came to EUR 0.97 in the second quarter of 2017, as against EUR 1.08 in the prior-year quarter.
Gerresheimer incurred EUR 35.4m in capital expenditure in the first half of 2017, compared with EUR 35.0m in the first half of the prior year. Capital expenditure focused on additional production capacity for plastic packaging in the USA, a furnace repair at the Belgian cosmetic glass plant, and new vial and cartridge machinery as part of global standardization.
Measured as net financial debt to adjusted EBITDA, the Adjusted EBITDA leverage was 2.7 as of May 31, 2017. As at this time every year, the increase relative to the 2016 year-end primarily reflected the dividend payout and the bond interest payment.
Gerresheimer’s expectations for financial year 2017, in each case at constant exchange rates and without acquisitions or divestments, are as follows: For the US dollar – which is expected to have the largest currency impact on the Group currency, accounting for about a third of Group revenues in 2017 – Gerresheimer has assumed an exchange rate of approximately USD 1.10 to EUR 1.00.
Based on the current visibility and demand-side indications from customers, Gerresheimer confirms its expectation of attaining the lower end of the communicated revenue range (range: EUR 1.405bn to EUR 1.455bn). The Company has given more specific revenue guidance of approximately EUR 1.4bn for the financial year 2017, compared with revenues of EUR 1,375.5m in 2016. For adjusted EBITDA, Gerresheimer has confirmed its previous expectation of an increase to approximately EUR 320m, compared with EUR 308m in 2016 (previously: EUR 320m plus or minus EUR 10m). The changes made to the cost structure in previous years make it possible here for the Company to respond to temporary changes in customer ordering patterns. Furthermore, the Company has given more specific guidance for adjusted earnings per share after non-controlling interests, at approximately EUR 4.25 (previously: a range of EUR 4.20 to EUR 4.55 per share), compared with a prior-year figure of EUR 4.07 per share adjusted for the Life Science Research Division as a discontinued operation.
Largely due to the favorable long-term growth prospects and driven by initiatives to boost productivity and quality, the Company continues to anticipate that capital expenditure will likely amount to around 8% of revenues at constant exchange rates in the financial year 2017.
The Company’s expectations through to the end of 2018 are as follows:
Gerresheimer aims for average organic revenue growth of between 4% and 5%.
For the adjusted EBITDA margin, the Group has set a target of around 23% for financial year 2018.
In order to meet these targets, Gerresheimer will in all probability have to incur annual capital expenditure amounting to around 8% of revenues at constant exchange rates.
Going forward, the Company therefore continues to anticipate that average net working capital as a percentage of revenues will be approximately 16%.
The operating cash flow margin is expected to be around 13%.
The Group’s long-term target is as follows:
As before, attainment of at least 12% ROCE.
Gerresheimer considers a net financial debt to adjusted EBITDA ratio of around 2.5 to be appropriate, with temporary variation above or below this tolerated because expedient M&A activity cannot be planned in detail.