Gerresheimer AG

XETRA:GXI

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to the conference call regarding the publication of Gerresheimer AG's Q1 results 2018. [Operator Instructions]Now I hand over to Mrs. Severine Camp, Corporate Senior Director Investor Relations at Gerresheimer AG.

[Severine Camp, Corporate Senior Director of Investor Relations]

Hello, everyone. Thank you very much for joining us to review our first quarter results 2018. With me today is Rainer Beaujean, our Speaker of the Management Board and CFO. And as usual, as we did in the past, we are presenting a set of slides to accompany our remarks on this conference call. The interim report, the slide presentation and the press release are posted on the Investor Relation page of our website at gerresheimer.com/investorrelations. Please note that this call is being webcast live and will also be archived on our website. Before we start, I would like to remind you that the presentations and the discussions are conducted subject to the disclaimer. We will not read the disclaimer but propose we take it as read into the records for the purpose of this conference call. Our agenda for today starts with a presentation by Rainer, and after that, we will enter into a Q&A session. So I'm now turning the call over to Rainer.

[Rainer Beaujean, Speaker of the Management Board]

Thank you, Severine. Good morning, and good afternoon to all of you joining us on this Q1 2018 earnings call. We're starting with Slide #4 to provide you with an update of what we have delivered in the first quarter of the year. To most of you, none of the facts outlined on the slide should come as a surprise, as they echo what we have said on February 22, when we commented upon our expectation for Q1 and which we have subsequently reiterated on our road shows in the past weeks as well as in several investor and analyst calls. Regarding the financials for the quarter, our revenues and profitability numbers have come in as planned. In essence, on a currency neutral basis, revenues were flat at a plus 0.4%. Adjusted EBITDA was down by a bit more than EUR 4 million. Comparing Q1 2017, where the Euro to U.S. dollar conversion rate was 1.06, whereas the Q1 2018, where it stood at 1.21, led to a significant currency headwind. Reflect this consistently, it is important to remember that these are, in majority, translation impacts only. We have recorded a one-off tax income gain linked to the re-evaluation of the deferred tax assets and liabilities in the wake of the changes triggered by the U.S. tax reform passed at the end of last year. This is not adjusted and, therefore, explains the increase in our adjusted earnings per share. More about that in the financial section. Our balance sheet and cash flow items reflect the operational performance in Q1. In particular, our operating cash flow has been impacted by a temporary increase in working capital, a seasonal pattern in Q1, expected to unwind later in the year. Regarding the market backdrop, here again, a confirmation of the trends outlined early in the year. I've just mentioned the currency headwinds, in particular coming from the weakening of the U.S. dollar. We'd also talked about the increase in resin prices in particular for the polypropylene, which has increased our raw material cost for Plastic Packaging in Q1. As most of you know, we have pass-through clauses in the -- in place in our contracts, but these are often implemented with a 3 months' time lag, hence a temporary impact on the quarter. And with regards to the latest market trends, we remain cautiously optimistic with regards to 2018 as a whole, bearing in mind that decisions affecting our customers in the U.S. have stood for, in particular, NAFTA. We see some encouraging signs for the second half of the year, but we want to wait until Q2 is behind us to see how these trends will ultimately unfold. You can call us more conservative than some of our customers and our competitors, but the healthcare industry as a whole had, in 2017, a year which came for all of us as a surprise. So from this perspective, we think it is appropriate to remain cautious and on the conservative side of things at the beginning of the year. In the meantime, we are conducting systematic reviews of opportunities and challenges linked to the deployment of our growth levers.On April 9, we have decided to exercise our call option on the remaining 25% of our stake in Triveni, India as a view to further strengthen and expand our presence in India, in this case, for Plastic Packaging. Additionally, we are beefing up our [ Gx ] Solutions sales and marketing teams with a view to continue hitting the ground towards the biotech and biosimilar ventures, in particular in the U.S. So let us review the revenues development in the first quarter, turning to Slide #5. So here, we are comparing the revenues in Q1 2018 versus Q1 2017 on a currency-neutral basis. We're also detailing the drivers behind revenues development and comparing these against the trends that we flaked in a couple of weeks ago when we outlined our trading expectations for Q1 2018. We're also doing this on the next slide, by the way, this time comparing the adjusted EBITDA on a currency-neutral basis year-on-year. Let me start with Plastics & Devices. As a whole, revenues increased by EUR 0.8 million or 0.5% year-on-year. As anticipated, we recorded, in this division, a noticeable decrease in our tooling revenues this quarter. As you know, temporary fluctuations throughout the year are normal in the tooling business and essentially, reflect the invoicing of large-scale projects. So we do expect the same level of tooling revenues on a whole-year basis compared to full year 2017 but lumpiness in the quarterly phasing of these revenues. On the plus side, however, Peachtree continues to perform well and could help compensate lower demand stemming from a selected number of Device customers where we are single-source suppliers. Revenues increase in primarily Plastics Packaging was spread across all geographies. In particular, in Brazil and India, we could see a nice pickup in revenues year-on-year, which further supports our decision to have exercised our call option in Triveni. Additionally, our U.S. prescription business that is Centor did also perform satisfactory during the quarter on the back of a strong widespread flu season. Moving on to Primary Packaging Glass, here again, reviewing revenues on a currency-neutral basis. Revenues here remained flat on a currency-neutral basis, as we continued to record a decrease in revenues coming from our U.S. Primary Packaging Glass business in Q1. For the U.S, we see that improving on the back of current order patterns. However, this decrease could be contemplated by positive revenues development elsewhere. In particular, we recorded a strong growth in China as well as in the Cosmetics business in Europe.Please move with me to Slide #6 to review the main drivers behind the decrease in our adjusted EBITDA. On a currency-neutral basis, the adjusted EBITDA decreased as anticipated by EUR 4.1 million year-on-year. Let us start with the profitability review of Plastics & Devices on a currency-neutral basis. In the quarter, the adjusted EBITDA remains more or less flat at EUR 39.6 million compared to EUR 39.5 million in Q1 2017. In absolute terms, almost no change. Several drivers to bear in mind here, although, it is important to realize that we are really talking about several effects, none of them are substantial but in some that can explain the positive or negative developments we are commenting here. So it is important to keep a sense of proportion here. So with regards to Plastics & Devices on the negative side weighting to the adjusted EBITDA, we have the negative temporary impact due to the higher resin prices, we've also to take into account that in Devices, the capacity utilization in some of our plans is also negatively impacted by the lower demand stemming from a few of these customers, where we are single-source suppliers. At the same time, the margin in the plans like Peachtree is not at its optimum, as we are still in the ramp-up phase. To balance things out, we have the positive contributions stemming from the Primary Packaging Plastic business, in particular from Centor. With regards to Primary Packaging Glass, the adjusted EBITDA amounted to EUR 20.6 million in Q1 2018 compared to EUR 24.2 million in Q1 2017 on a currency-neutral basis. The reduced revenues in the U.S. operations and hence the low utilization rate of the installed capacity are the main drivers for this negative development. It should be noted that contrary to the same period last year, we have not optimized our people and workforce by, for example, extending plant closures around the holiday period, as we want to be ready to deliver on an expected increase in orders later in the year. So overall, the utilization of our plants in this segment was not optimal. Additionally, we also have a furnace repair with similar impacts on earnings in this quarter, as we had last year. As mentioned previously, we are investing in our sales and marketing operations in the first half of the year, in particular, within [ Gx ] solutions. We are not talking about a lot of hires and operation expenses, but these are additional cost compared to last in both divisions. By the way, this is true for OpEx in general as well. We're also continuously investing in training people, ramping up operations in Peachtree, Brazil, Poland, India, you name it, which is, of course, affecting our margin but is necessary to prepare for future expansion and growth. So to make the review complete, please move with me to the next slide, where we can see the currency effect in margin developments. In terms of revenues, between the reported Q1 2017 and reported Q1 2018, we have alone a total of EUR 13.6 million of currency effects, which explains the reported revenues decreased by 4.1%, as revenues remained more or less stable year-on-year on a currency-neutral basis. We have, by the way, provided a revenue bridge in the Appendix section of this presentation. So on a reported basis, only based on currency headwinds from the U.S. dollar as the main driver, revenues in Plastics & Devices decreased by 4.5%, revenues in Primary Packaging Glass decreased by 3.9%, again, here due to our strong U.S. exposure in molded as well as tubular glass. With regard to adjusted EBITDA, we can calculate that in total, we had EUR 3.2 million of currency effect between the adjusted EBITDA as reported in Q1 2017 and as reported in Q1 2018. As mentioned in my introduction, we are indeed comparing two periods, where for Q1 2017, the average Euro to U.S. dollar rate was 1.06 against the Q1 2018, where the rate was 1.21. This falls, by the way, more or less into the rule of thumbs we have provided, for example, that is USD 0.01 variation translate into EUR 4 million variation on the revenue side and EUR 1 million on the adjusted EBITDA side.This is why we have chosen the average of last year in terms of currency assumptions for our budget and hence guidance for the full year 2018. Short on the margins here, overall, the reported adjusted EBITDA margin decreased from 19.8% in Q1 2017 to 18.1% in Q1 2018. On a reported basis, the adjusted EBITDA in Plastics & Devices amounted to EUR 37.6 million in Q1 2018 compared to EUR 40.3 million in Q1 2017. The margin decreased correspondingly to 23.9% compared to 24.5%. This is more or less essentially attributable to currencies, given what we have reviewed early on, where we had stable revenues and adjusted EBITDA on a currency-neutral basis. Within Primary Packaging Glass, on a reported basis, the adjusted EBITDA amounted to EUR 20.3 million in Q1 2018 compared to EUR 24.3 million in Q1 2017. The margin decreased correspondingly to 15.3% compared to 17.5%. Here, this is basically due to the fact as I outlined earlier, for example, the lower utilization in the U.S. Primary Packaging Glass business and once again, currency. Turning on to Slide #8 to review the operational progress during the quarter. We are systematically reviewing the opportunities identified with the groundwork we have done in identifying the 4 growth levers to drive the business forward. Some of them might not materialize because of financial or operational hurdles. Many others are still being reviewed both organically and inorganically. Regarding product and innovation, the construction relating to the expansion of the Technical Competence Center in Wackersdorf to include glass products has begun recently, and the project should be completed by the end of the year. We are creating there 3000 square meters of additional space to improve our capabilities in the development of injectable glass products and in engineering. Similar as for Plastics & Devices, we are establishing a small batch production for innovative glass product, thus reducing time-to-market for biotech products like prefillable syringes. In addition to providing more space to cope with the expected growth in the construction of assembly lines for our System & Device customers, we're also building up glass competence for the development of innovative technology for glass forming and automation for syringes and cartridges. Regarding moving up the value proposition towards our customers, I've already mentioned that we ordered our RTF-5 line in Windham, whilst we are expecting around 5% market growth on average for the RTF syringes, the higher value RTF syringes for asthenic as well as biotech and biosimilar solutions are expected to grow above average. The line will start operations in 2020 and will be an enhanced version of the RTF-4 line, where capacity continues to stack up nicely with high-value product. Not on this chart, but worth mentioning again, is commercialization of Elite Glass Vials for few customers, with first deliveries expected in the second half of 2018. A last example for the -- from the quarter here, regarding regional expansion, after a rather sluggish year in 2017, we are now seeing a rapid comeback of the markets in India, which going forward, would make the acquisition of Triveni more expenses quite rapidly. Therefore, we have exercised our call option regarding the remaining 25% outstanding shares in Triveni Polymer Private Limited on April 9 of this year. We expect the price conservation to be in the low single-digit million Euros category. We continue to see Triveni as a valuable asset, geared to enhance our footprint in the emerging markets. This is indeed, one of the avenues of regional expansion. We fall in emerging markets, where it is important to retain part of the local management and expertise in the early years in order to see at the right commercial and operational ties with the market. As said before, regional expansion can be organic developments, where we follow our clients and partners, partnerships or trade M&As. Let's now move to the next section to review the financials more in detail. A quick technical update on the deferred tax benefits recorded this quarter in conjunction with the U.S. tax reform passed in December last year, we've outlined our expectations in our annual report and slide deck from February, and they are also repeated on this slide for your reference. So all in all, in Q1, we have recorded USD 52.9 million as a onetime deferred tax benefit. As previously mentioned, this is a noncash item, and it is included in our adjusted earnings per share after noncontrolling interest. And this will thus be taken into account for the calculation of our proposed dividend in 2019 for the financial year 2018. To help you reconcile the tax income numbers you would see on the next slide, including this onetime effect, the income tax expense item for the reporting period shows tax income of EUR 41.3 million. Excluding this onetime effect, the total income tax expenses for the quarter would have amounted to EUR 2.3 million, implying a tax rate of 28.7% rather the 32.6% in Q1 2017. With that in mind, let's move to a review of the P&L items on the next slide, Slide #11. Adjusted EBITDA was down by EUR 7.3 million year-on-year as a consequence of the decrease in adjusted EBITDA and a higher level of depreciation, reflecting the nature of CapEx investments we've made in the past. The one-off item in the amount of EUR 4.4 million have to be seen for a large part, in conjunction with the unplanned departure in February 2018 of Christian Fischer. Regarding the amount of EUR 7.7 million in amortization of fair value adjustment, the bulk of it comes from the acquisition of Centor. Lower than the last year only due to the change of the U.S. dollar year-on-year, because the amount in U.S. dollar is in both years the same with U.S. dollars of approximately EUR 7.8 million -- USD 7.8 million.Net finance expense were approximately EUR 1 million higher year-on-year at EUR 9.4 million mainly due to the currency effect on the intercompany loan from Germany to our U.S. holding. I've just explained the tax-related items. As a whole, the adjusted net income after noncontrolling interest amounted to EUR 58.1 million, which per share, amounted to EUR 1.85 after EUR 0.60 in Q1 2017. Moving on to the balance sheet and cash flow items for the quarter of the -- on the next slide. The decrease in total assets since November 30, 2017, is for part driven by a decrease of the intangible assets on the back of currency changes and the amortization of fair value adjustments. In the same logic, tangible assets have decreased due to currency effect as well as planned depreciation. As a whole, total equity increased from EUR 789.5 million as of November 7, 2017, to EUR 823.9 million as of February 2018. The main driver is the positive net income in the reporting period, which more than compensated currency variations. Regarding the increase in net working capital, it might look noticeable to some of you, but as I've mentioned earlier, this is quite a normal seasonal pattern at the beginning of the year, and in absolute numbers, it is more or less comparable to where it stood in Q1 2017. There are 2 effects to bear in mind for the increase here. Q1 is typically characterized by an increase in inventories and a reduction of trade payables. This quarter, we've also decided to build some more inventories despite the modest customer demand to be able to deliver more in the subsequent quarters. Additionally, with Q1 being the weakest quarter after a strong one in Q4, there are less trade payables as the consequence of the reduced demand. As mentioned before, we expect these effects to unwind later in the year, and if you compare the change in net working capital on average, you'll see a slight increase year-on-year from the 16.1% to 16.7% but nothing too dramatic. The decrease in adjusted EBITDA as well as the increase in working capital are the main drivers for the operating cash flow development in the quarter. Both divisions posted a positive operating cash flow. As a whole, capital expenditures were lower in percentage of sales during the quarter compared to the same period last year, but as we will see on the next slide, our 8% guidance is unchanged on a currency-neutral basis. We continued to invest further in growth opportunities as well in initiatives to improve quality and productivity. As a whole, CapEx amounted to EUR 10.8 million and a large chunk of it was deployed in Plastics & Devices, in particular with the aim to further expand our inhalation capabilities in Peachtree and more generally, our product portfolio. In Primary Packaging Glass, we underwent the first wave of the plant furnace repair, with, by the way, the second wave being expected in Q3. We also invested, as in precedent years, in molds, tools and modernization measures. Cash and cash equivalents decreased in the quarter as the consequence of the decrease in trade payables. This was the main driver behind the increase in net debt as seen on the chart. Overall, the adjusted EBITDA leverage remains under 2.5x at 2.4x. This would conclude my review of the financials for the quarter, and I would like to move towards the outlook and a few words of conclusion from my end. Regarding the elements for 2018, all on a currency neutral basis, that we have provided you with a couple of weeks ago on the occasion of our full year 2017 earnings release remain unchanged. I am not going to repeat them, but these are outlined on the chart accordingly. With that in mind, let me recap on where we stand today. As chart mentioned, Q1 2018 came in as expected, both on an organic and reported basis, and we have not observed any material deviations to our internal budget at this stage. We still expect the phasing of growth to be more as Q2 versus second half of the year. Why is that? First, because of comparables. If you remember the magnitude of the decrease we had in Q3 last year, which was the basis for our risk scenario. Second, expected contribution from improved product mix with regards to Peachtree and for example, the first commercialization of Elite Vials, but all of that has to be seen in the overall market context. We see some encouraging signs for the second half of the year, but we want to wait until Q2 is behind us to see how these trends will ultimately unfold. We are systematically reviewing the growth opportunities identified within our growth levers both organically and inorganically, along the operational and financial framework that I have detailed in our last presentation, and the executive board as well as the entire operational teams remain fully committed to driving the business further. We're not lacking any decision making, and our processes are really well oiled, so there is no standstill. We have the full control on the strategic direction we want to pursue. Many thanks for your attention. I will be happy now to take some questions and hand over to Severine.

[Severine Camp, Corporate Senior Director of Investor Relations]

Thank you. So the lines are now open for any questions. [Operator Instructions] So the first question comes from the Veronika from Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I have 2, please. The first one is on the second half year outlook. I think you said you are cautiously optimistic for an improvement in market condition, and I was hopeful, Rainer, that you can characterize how maybe your optimism is different today versus when we last heard from you a few months ago. Do you have any indicators that you're watching which give you a little bit more confidence that the growth improves in the second half of the year? It would just be great to get a little bit more color into that or on that. And related to that, your large competitor has also been flagging some softness in the market so maybe put that into context with their commentary. And my second question is on the Triveni exercise. Congratulations on completing that asset. Help us understand the kind of growth outlook if you look at Triveni from here. What do you think it could contribute to the group? And how does the growth outlook change now that you own the asset?

[Rainer Beaujean, Speaker of the Management Board]

So let's start with the first one. I've already said in our -- on our year-end call, the same. We always said the second half of the year should be better for us than the first half of the year, because the -- especially the first quarter was still influenced by a good order pattern before the election of Mr. Trump. Everybody in the industry had their biggest problem in Q3 2017. And as you know, we are very, very relevant on all our customers. And my optimism for the second half of the year comes out of our customer discussions, and we clearly can see that our customers do have a totally different perception for the rest of the year than it had -- than they had last year at the same time. Remember, when we had the Q1 call or even the year-end call 2017, we started the year at the low end of the range, that's clearly not what I'm telling you this year. This year, we have to be a little bit more conservative, because last year, we lost 2% of revenues compared to 2016, and we only had such a situation twice during the last 10 years. The second one, when we lost revenues, was after the financial crisis in 2008. So if -- and that's at least the numbers which we see what we hear, if IQYIA statistics, which is the basis for us, is serving the top 20 customers or even the top 50 customers, where we have contact too, if this market is growing, again in 2018, which is forecasted, then we at least should grow with the market, and then we do have the outperformance chance, based on our products, which we are ramping up in Peachtree, with the product portfolio which we have in syringes were already outlined in our February 22 call, that we are very successful in the syringes, this biotech, biosimilar. So we do have a lot of things, which are running pretty well. Elite Vials, for example, in the second half of the year. I'm already repeating what I already said, so we have a lot of good things, but again, when you start a year after a loss of 2%, you should start conservative, because the first quarter is not really relevant. It is the weakest quarter in our portfolio, and the second quarter will prove a little bit but not a lot. But we then have orders in for the rest of the year, and if our customers are right, then we should grow, especially, in the second quarter of this year. So it's more on customers based my assumption for the second half year of discussions with our customers as well as that I also see, look in the statistics of the markets which are also more optimistic for 2018 than they were in 2017. So second question, Triveni. Triveni is already fully consolidated in our group. That means, the only thing which disappears are the minority interests. And therefore, from a revenue point of view, you can't assume that there comes something on top, because we already own it before 75%. We only take in the minorities of 25%. For us, the question is more or less what will disappear off our balance sheet. For sure, it is the put option, because we will take that out. The market for us in India and especially in Triveni was pretty strong. In the first quarter, we have seen good uptick here, and we hope it stays on that level. So for sure, it is higher than 4%, as you can assume when I say good uptick.

[Veronika Dubajova, Equity Analyst]

Thank you for that color. My question was more, does anything change with regards to Triveni and growth there, now that you own the asset 100%?

[Rainer Beaujean, Speaker of the Management Board]

No. It can't.

[Veronika Dubajova, Equity Analyst]

Or do you think it's more of the same in terms of what [indiscernible]

[Rainer Beaujean, Speaker of the Management Board]

It can't change, because from a bookkeeping point of view, you have the revenues already in. And what is changing, we're already leading this company with our 75% stake in the company, but what for sure will change we also were looking at what we can do in the region. We are investing also, even if we have some difficulties or our customers out of the U.S. have some difficulties in India, we are investing in India. We have also Neutral Glass, which is the molded glass manufacturing there and we also have the converting business in there for sure. When we own 100%, we also can look what we can do on the profitability side, how we can take advantages of working together better than we have done, perhaps, in the past. So therefore, this company, when we own it 100%, can address the market difference and you have -- when you have a minority shareholder in. But it not -- it hasn't happened. We are -- we still have to perform it, because when we call, it means now we have to finish negotiation, and if we need some time before we fully own it.

[Severine Camp, Corporate Senior Director of Investor Relations]

We're going to take the next question from Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

So the first question related to the Plastics & Device business, please. You mentioned that Peachtree was compensating for continued weakness from some of your other inhaler business, I think based in Europe. So I just wondered if you could provide a little bit more context as to what's going on with those customers. There seems to be a pressure to your business for some time. When do you expect that balance to tip to the positive? And can you extend those comments to talk about upcoming plastic contracts? I understand there are several contracts to be had over the coming months, and what that means to Gerresheimer's business should you win or not win those? So that's the first question set, please. The second just relates to a clarification of your one-off. EUR 4.4 million is quite a high one-off when it specifically relates to the severance of the CEO that served only for 4 months and left for personal reasons. Can you give a little bit of details as to why that is so high? And what that encapsulates, please that one-off? So they are the first 2, and I have a follow-up.

[Rainer Beaujean, Speaker of the Management Board]

So I'll start with the second one. The one-off is not fully for the -- for Christian Fischer. The amount which is paid out is approximately EUR 4.1 million. Why is it as high? Besides a small severance payment, there are other financial entitlements that were due to him anyway under his service agreement so for instance, the competitive clause or something like that, and these are in the contract and therefore, when you take out or when someone resigns or doesn't work anymore, then you have to get it. What happened, and I already said that during several discussions in the past, we do have a situation when the year ends especially, in January, beginning of February, that especially, the whole management board has to review, approved and also sign the financial statements for Gerresheimer, and when you can't reach one of the people, and he is not available to conduct these talks, you have the risk and for sure, you also -- we also postponed this or that, because we're not talking about something which is on a strategic discussion or on business performance. It is really on personal reasons what I'm talking about. Then you are getting to the risk that you're not meeting the deadlines from the German Corporate Governance Kodex for the publication of the financial statements and so on and so on. So there are certain risks with that, also from the legal side in Germany. So in that situation, the supervisory board has then to make a decision, how they want to handle the situation, and then the supervisory board for sure decided that it would be best to find a solution. And again, the severance payment, which is part of the EUR 4.1 million is really below the requirement, which is normally the maximum requirement by the German Corporate Governance Kodex is. There is more -- you also have a lot of payment, as I already said due to service agreements, which is -- which were in like for instance, the big amount is the competitive clause, which is not, for sure, prepared for a situation like that. So hopefully, that explains it. Peachtree question was? Yes, so Peachtree is a success story. In that case that we are ramping up, still ramping up the manufacturing. This is not fully utilized. We -- I also said in my speech before that we also used further CapEx to increase the capacity further for this product where we are the contractor manufacturer of a big pharma company. We're just doing very well, very -- is very strong on the other side. As I also said, we have 2 customers who do have products in the -- which are going down, so they are going out of the market. So the situation here is that -- and you know that we always have volume price clauses. For sure, our costs are settled. In that case that we are not making losses here, but on the other side, product in our production needs a high utilization. And as I said last year, there is a point during this year where Peachtree will clearly outperform the other areas so that also growth comes out of Peachtree, and that will be in the second half of the year. Then you also asked, are there some contracts, and should Gerresheimer win or not win. For sure, Gerresheimer is one of the major players in this market, and if new contracts and they are big ones, and there is at least one big one coming. If we -- there are others also which are running for it and pretty optimistic by the width of performance which we have as contractor manufacturer that we have a good chance to win it. And for sure, this will be relevant and not for the next year and not for today but for the outer years, somewhere, and which also will underpin, first of all, our business model and second, it also will underpin that the growth for the next years will come further on.

[Scott Bardo, Analyst]

Okay, very good. And sorry, just to again clarify on that point, if you don't win it for example, would that put a growth profile that you aspire to, this 4%, 5%, at risk? Or is it arguably -- sort of, would it allow you to outperform that expectation? Just trying to understand how relevant that contract or those series of contracts may be for your midterm growth prospects?

[Rainer Beaujean, Speaker of the Management Board]

So, Scott, if you'll know, first of all, let us win something, and then we'll discuss how this will influence our numbers for the future. But for sure, our aim is to go on with that what we've said. We investing further on with the 4% for growth, as we always said. And this, when you look on the cycles we are in, and we are in cycles like 5, 7 and 10 years, and we are not in cycles quarter-by-quarter, and this is exactly our industry. Our industry is 5, 7, 10 years, when you make this exercise and look on the organic growth and I know that we were pretty weak, especially -- for sure with the year 2017 with the minus 1.8%, but when you make this exercise, you would figure out that we were always growing this 4%. And I'm -- I hope that 2018, the market comes back volume wise and that the statistic is right with the IQYIA, so that perhaps, at the end of the year, we then can discuss substance again instead of a deviation on the EBITDA of EUR 1 million up and down.

[Scott Bardo, Analyst]

Understood. Last one for me, please. I know that you've had a relatively cautious communication and outlook, which I think is the right approach. But just to understand, do you still see prospects to reach the upper end of your guidance this year given the flat start? And can you please, at least, confirm the Q1 is likely to be your worst quarter with respect to growth and margin?

[Rainer Beaujean, Speaker of the Management Board]

Q1 is always our worst quarter and it will be this year too. Second, for sure, my target is and I -- my target is or our target as a Board is to be at the higher end of the range, yes, like it should be. The upper range of the guidance wouldn't be good and would mean that the whole market would see a development again like we have seen last year, which is not in our assumption.

[Severine Camp, Corporate Senior Director of Investor Relations]

Thank you very much. So we are going to take the next questions from Christoph Gretler from Crédit Suisse.

[Christoph Gretler, Managing Director in Equity Research]

Rainer, Severine, I have actually a few questions. First of all, could you actually quantify the elements on the margin decline in Plastics & Devices? I mean, you separated them out, but maybe if you could give a clarification resembling on the resin price increase. And then, secondly, on your dividend comment in your press release. I will also note to some degree a bit surprised given operational trends and then, basically, I mean, the $50 million is basically a noncash effect. And your effective tax rate stripping out is maybe 29% or so. I mean, it's not that much different. Could you elaborate on the thinking behind that?

[Rainer Beaujean, Speaker of the Management Board]

The second one is easy because we have this definition what we adjust since I am here in 2013, and the definition doesn't allow us to take out tax changes. So therefore, it's only fair also to put that in. And I think it's also a good signal because we believe, as I said, in our company, and we also believe that we are able to grow. And therefore, we also should increase our adjusted earnings per share. So I'm not afraid that this money is something from a cash flow perspective which will hurt us on the other things which we want to do. Quantification of the elements which we have for our -- in Plastics & Devices, I give you one. And I also said in my speech, it's all minor up and down. So we have this resin price effect, which is a quarterly effect to take Centor as an example. This is approximately EUR 0.8 million on the first quarter. But again, when I say price escalation clauses, this is a temporary effect. So when the resin price goes up, customers up to the second quarter, if it's not growing further on, then we'll pay the new price and, for sure, it will also help on the revenues because it gets through. So the effect is EUR 0.8 million for the first quarter. But in the second quarter, you won't have this effect again. If the resin price is not further increasing also in the second quarter because the first effect then will be -- the new price will be set then on the first quarter. And that's how it works on and on and on, and vice versa. And we had the negative effect out of that in the last year when for sure, the resin price came down. We also had that effect too. So this is like -- that's the business model in Centor. It's very transparent to customers too and that's the reason why this is how it works. And the other effect, as I said, the underutilization in the manufacturing left and right is something, and perhaps, the people on board to produce for the second half of the year, this is really something which is a calculation point of view. So don't overestimate it. Again, the first quarter is always the weakest quarter in the year, so I'm not a single second afraid that we are able to reach our guidance for the full year on the adjusted EBITDA and that's how we target for the year, between EUR 305 million and EUR 315 million. Currency-neutral, I'm always commenting for sure currency-neutral.

[Christoph Gretler, Managing Director in Equity Research]

Yes. We understand that. And one last question. I mean, it looks like on to some degree, you're quite optimistic on the second half, given that you less kind of capacities in place. You kind of stocked up in inventories, et cetera. I don't think there is that great signal or no signs of such an improvement at least on our side. And I mean, the question essentially is, if that does not come through as expected, do we need to prepare for restructuring here or what would you say about that?

[Rainer Beaujean, Speaker of the Management Board]

As a fact, my assumption is that it will happen in the second half. Please have in mind, when you look in the third quarter last year when we build up our risk scenario with a EUR 30 million, which came as a surprise for everybody in the industry. And then have in mind in Q4, we had a growth of 6.7% compared to the year before. And perhaps, some of you also look in our presentations from the full year or the investor presentations. In Q3 2017 as well as in Q4, we had the situation that several crazy statements were out. I give you one. The FDA approved some injectable drugs to be used beyond the manufacturers' labeled expiration date. So that for sure is hopefully nothing which everybody will assume also for 2018. So if everything gets back to a normal pattern, we should have in the second half a good growth based again on the situation that the market will come back. And that's the signal which we have got in our discussions from our customers.

[Severine Camp, Corporate Senior Director of Investor Relations]

Thank you. So we are going to take the next questions from Falko Friedrichs from Deutsche Bank.

[Falko Friedrichs, Research Analyst]

I would have 2 left. Firstly, what is driving the strong growth in China in your Glass business? Maybe you can provide a bit more color here. And then secondly, has anything changed in terms of potential M&A intention since we last heard from you?

[Rainer Beaujean, Speaker of the Management Board]

So China is mostly ampoules and vials. So this is the classical business Primary Packaging Glass business, which is always the basis in the future for -- then also Devices business. Again, this is a 10-year approach, which is in front of us. We are big company in China. We are very successful in that area, so the overall market is stronger again and that's what you can see there. That's the only reason. Nothing else. So M&A, no changes. I already outlined that in our February 22 call. First of all, we look on several things. We look on regional expansion as well as we could show last year that we are also interested in owning some IPs for -- which will be helpful for the biotech, biosimilar market. There we bought last year 2 patents. First of all, the InnoSafe patent from West, which will help us to create a market standard there. And second, the EZ-fill solution from Ompi for ready-to-sell vials. So we -- because we also believe that vials will go the same way like syringes. From bulk syringes to ready-to-fill syringes. If vials go the same way, then we are very well prepared also for this kind of businesses for the future. Again, a long-term shot. On the other side, we believe that besides our contractor manufacturing business, Scott was asking before about, when we are talking about big contracts getting to the market, I was talking about contractor manufacturing contract. So the biotech, biosimilar business for sure you will need some solutions where you perhaps also have own IP and also -- and a long shot again when you look on electronic solutions to measure or to count also is a medicine really in the body of someone who has taken it. That's something which we also look in, and that hopefully explains the directions which we want to go.

[Severine Camp, Corporate Senior Director of Investor Relations]

So -- and we are going to take the last questions from David Adlington from JPMorgan.

[David James Adlington]

Most of them been answered. But maybe just a bit more color around. You talked towards refining trading expectations at Q2. Is your expectation to narrow the current range of that point? Or maybe just sort of give us the color what you mean by refined expectations of the second quarter results?

[Rainer Beaujean, Speaker of the Management Board]

Yes. At the end of the second quarter, I should have a better view how the rest of the year will run. For sure, our range is pretty wide currently. But again, Q1, as I said, is not the basis for the full year. We need Q2 to get a better feeling. Again, yes, perhaps it is a little bit conservative what I'm doing here. But at the end of the day, after last year, I hopefully have all rights to be conservative up to the point that I know exactly how it will run out for the rest of the year.

[Severine Camp, Corporate Senior Director of Investor Relations]

So we are now going to take maybe one last question and then we are going to close the call. So -- and it comes from Aliaksandr from Hauck & Aufhäuser.

[Aliaksandr Halitsa, Equity Analyst]

I have more of a general question. It looks like Gerresheimer has the offering to tackle biotech market. But for some reason, it is not very successful in it. Maybe you could spend a little bit of time sharing your thoughts as to why Gerresheimer hasn't been able to establish adequate presence in this market? And maybe how do you think it is unfolding going forward?

[Rainer Beaujean, Speaker of the Management Board]

So first of all, I think we are doing pretty well during the last years. There's better shots in the biotech. Biosimilar markets are long. I give you one example, when you remember, when we talked first about the RTF-4 line in syringes, this was somewhere around 2013, 2014, and now we have approximately 1/3 of our revenues in the syringe business in biotech, biosimilar and that situation. And this is exactly why we invest at the RTF-4 line for and this is already then EUR 30 million and we also have biotech, biosimilar also in other parts of our business, but this is the most obvious one. So why do we order and why do we order now the RTF-5 line because we do have the questioning of several customers to go further down the road because we offer an outstanding quality and an outstanding performance and a very good product in that area. And dealing together with that, we invested, for instance, in the InnoSafe patent. Around that we increased our situation with the accessories and so on and also for -- when I announced before, which is also in the press, we also have a press statement around that with the 3,000 square meters, which we -- where we increased our capacity in Wackersdorf, where we will do glass as well as COP syringes. We totally -- hopefully, show you this and then for the smaller batch production, also for the higher value products in that area that we clearly step-up the value chain, which is that all we want to do and nothing else, and is that when we talk about ready to use vials and the EZ-fill solution. This is then a similar path and that's the reason why we also will install this kind of products in Wilden in Germany, where we have the ready-to-fill capacity also for syringes. So where all our washing know-how for the high-value product is in. So it's hopefully showed you that it's a clear strategy in Gerresheimer to tackle this kind of business. On top of that, we already talked about [ Gx ] solution since 2 years. This is a joint approach and a very important approach between 2 -- all our divisions and all our business unit heads because here we have to put in all kind of products in this solution to our biotech, biosimilar customers, which has instead of the big pharma or generic customers, which we have, low experience in packaging. And in this situation, for sure, you need the right people to explain this kind of product to the customers. And for sure, you -- when you see the other side of our company, perhaps, you don't see it as a one-step solution and a huge increase in next month and next quarter, but long term you will see that and especially, we can see the mix and we can see the -- hopefully, our performance through the next years. But again, it always needs time. Again, you have to run all the processes, stabilization tests in healthcare industry and so on so that means even if a customer says, "I want to have -- I want to go this part of Gerresheimer," before you see the product on the market, it's 3 to 5 years and that's how the business is. I can't do something against that.

[Aliaksandr Halitsa, Equity Analyst]

Okay. Fair enough. Maybe just one follow-up. Could you maybe confirm whether you are on -- or how many products do you actually serve from the last, let's say, 3 years that have been approved? I'm talking about new molecular entities.

[Rainer Beaujean, Speaker of the Management Board]

No. We are not providing this information due to one reason. The customers which we have, and I talk about real big customers, which are also very relevant for the biotech, biosimilar market, don't share with us, which kind of products they use here and they have the advantage which we have against other competitors in that situation. We have this wide portfolio of all sort of customers, for instance, I don't mention a name, would order several syringes -- high-value syringes and also will put some of this product also in the stabilization test. That's how it works. So therefore, sometimes to managing this number is interesting and there is a lot of marketing around that, I know that also, in the industry. But in my opinion, it's sometimes a little bit misleading, because not everything which is in the pipeline, whatever comes to success and for sure if you look on all the developments, which we are theoretically in, you will totally get the wrong impression about the future. So in our opinion, when it comes to the point that we win something when it comes to the point that we can generate revenues, then we will communicate it and that's how we want to handle it and how we tackle the market.

[Aliaksandr Halitsa, Equity Analyst]

Okay. Fair enough. And just lastly, briefly, if you could break down the exposure you have to pharma, generics and biologics? Would it be possible for you?

[Rainer Beaujean, Speaker of the Management Board]

No. We are not looking on that because exactly for us, all this kind of customers are for us customers and we serve, for instance, some customers in all kind of areas. So you have big customers who have their biologics area as well as the generic area as well as their biotech area. So we have everything. It's lots of customers. If you would split this to a different way, it also wouldn't have some.But have in mind, we are a very important player in that business. And you can see that from the product due to the fact when you -- the last presentation on February 22, I put down the markets and I explain in which markets we are in and which kinds of products we are serving. And for sure, when you go into the slides and you would figure out that we are in the full relevant space and that we have lots of products, which are in that situation. Again -- but there won't be a product which changes the needle in the next quarter or during the next year. It's a long-term shot, which we are moving with.

[Severine Camp, Corporate Senior Director of Investor Relations]

Thank you very much. So this would conclude our conference call. Two things, next set of results will be published on the -- on July 12. And obviously, if there is any or there are any follow-up questions, you can reach the Investor Relations Department. Thank you.