西式醫藥服務 (WST) 2012 Q4 法說會逐字稿

Welcome to the West Pharmaceutical Services fourth quarter and full year 2012 conference call. (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 express 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 fourth quarter and full year 2012 results conference call. We issued our financial results this morning and the release has been posted in the Investors section on the Company's website located at www.WestPharma.com. If you have 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 website is a slide presentation that management will refer to that their remarks today. The presentation is in PDF format. Should you require a link to a free download of that software that will enable the users to view the presentation is also available on the website.

I remind you that statements made my management on this call and in the presentation will contain forward-looking statements within the meaning of US Federal Securities Law, and that are based on beliefs and assumptions current expectations estimates and forecasts. Statement that are not historical facts, including statements that are preceded by, followed by, or that include words such as estimate, expect, intend, believe, plan, anticipate, and other words and terms of similar meaning are forward-looking statements. West's estimated or anticipated future results, product performance, or other non-historical facts are forward-looking and reflect our current perspective on existing trends and information. 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.

You should bear this in mind as you consider forward-looking statements. For a non-exclusive list of factors which could cause actual results to differ from expectations, please refer to today's press release. Investors are also advised to consult any further disclosures the Company makes on related subjects in the Company's 10-K, 10-Q, and 8-K reportsExcept as required by applicable securities law, the Company undertakes no obligation to publicly update forward-looking statements whether as a result of new information, future events, or otherwise. In addition, during today's call, management may make reference to non-GAAP financial measures including adjusted operating profit, and adjusted diluted EPS. These measures and their component parts have no standardized meaning prescribed by US GAAP, and therefore may not be comparable to and should not be viewed as a substitute for US GAAP operating income and diluted EPS. Reconciliations 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 would like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thank you, John, and good morning, everyone. Welcome to West's 2012 year end conference call. Joining me today are Bill Federici, West's Chief Financial Officer, and Mike Anderson, our Treasurer and primary Investor Relations contact.

This morning Bill and I will be giving an overview of our fourth quarter and full year 2012 performance, and our outlook for 2013. Throughout our remarks we will refer to a PowerPoint slide deck that can be accessed via our website under Investors. If you cannot access the file, the information in the slides is covered in both this morning's release and our commentary.

Financial highlights for our fourth quarter are summarized on slide number three. Continued strong demand in both operating segments resulted in sales of $321.5 million for the quarter, an increase of 10.6% over the prior year excluding the impact of currency.

Both packaging systems and delivery systems posted double digit sales gains, again excluding the effects of currency. Sales and packaging were lifted by ongoing demand for our high value product lines, while delivery systems benefited from growth in both our proprietary products and contract manufacturing operations.

For the quarter our consolidated gross margin improved to 30.3%, an increase of 1.4 percentage points. Adjusted operating profit improved 10.7% when compared with the prior year and adjusted earnings per share were $0.61.

Additional segment details are provided on slide number four. Pharmaceutical packaging sales were again driven by volume growth. Higher selling prices in key product lines and a continued positive sales mix, bolstered buy higher sales of proprietary products such as Westar, FluroTec, Envision, and ready-to-use stoppers and seals.

Delivery system sales grew as a result of strong demand for contract manufacturing services with existing health care customers, stronger CZsales in the quarter, and proprietary devices for reconstitution and safety. The quarter was a fitting finish to a very strong year for West.

Slide number five provides a high level overview of our 2012 full year results. Revenues for the year totaled $1.27 billion an increase of 10.1% versus 2011.

Our gross margin and operating margin improved by 2.1 and 1.3 percentage points respectively. As a result, full year adjusted operating profit increased to $141.8 millionor up 20.6% versus 2011.

The Euro strengthened a bit against the dollar during the quarter, which created a slight tail wind through the end of the year. Full year earnings at actual exchange rates were $2.76 per adjusted fully diluted share ahead of our expectations at the end of the third quarter. In prior years we have typically seen a dip in our order backlog as customers work down inventories and begin to plan for the upcoming year. This is not the case as we move into 2013.

Demand remains robust, and order flows ahead of expectation. Our backlog of firm committed orders at the end of the year was slightly in excess of $350 million an increase of approximately 13% from three months ago and has continued to strengthen in the early part of 2013. The composition of the backlog is currently weighted toward the high value products as well.

Based on this trend, West should have a good first half to start the year, even when compared with 2012's very strong first half. Slide number six provides a high level summary of our major expansion and new product development programs. Customers continue to convert their existing products to Westar and other West value added offers such as FluroTec Envision, and NovaPure.

Given the expansion in our backlog for these products, we have been proactively working with our customers to ensure that their inventory and production needs are understood and factored into our manufacturing capacity planning. Clearly the investments we made over the past two years in washing and vision systems are bearing fruit, as we continue to see high double digit growth in the packaging system segments.

With continuing product conversions by our customers and new products coming to the market, we expect our high value products to continue their growth for the foreseeable future. We have completed installation of the first phase of equipment in the China rubber facility, and have started to supply customers with validation and test samples. We expect to begin first commercial shipments from the plant early in the second quarter.

Construction on the India facility was slowed by a heavy monsoon season. However, we expect to catch up and by on schedule by the third quarter. The India plant will start metal over seal production in early 2014 followed by rubber production in 2015.

Propriety sales in the delivery systems group reached almost 25% of total sales during the quarter. CZ revenues hit $4.5 million during the quarter anddemand remains strong as we begin 2013.

We expect double digit increases in sales of our proprietary systems during 2013, including CZ,following on a 16% increase during 2012. The most important milestone for CZ during the year is the number of molecules our customers place on formal stability.

While revenues during the next year-and-a-half are expected to be somewhat lumpy, the formal stability trials put a stake in the ground in terms of timing for commercialization.

Our proprietary work on SmartDose remains on schedule. We achieved a major milestone in the programdelivering 10,000 demonstration and training units in the fourth quarter. The next milestone is to deliver units for a clinical trial in the second quarter of this year. As in 2012, we continue to see significant customer interest in delivery systems capable of administering volume in excess of 1.5 ml

Turning to our outlook for 2013, as outlined on slide number seven and in this morning's release, we believe sales growth for the year will range between 6% and 8%, giving revenues approaching $1.3 billion at constant exchange rates.

The primary drivers for packaging system remain mixed in increased sales of our high value product lines, whereas in delivery systems the ongoing shift to proprietary products and rising demand for contract manufacturing willing be key. We are forecasting improvement in our gross margin, which when coupled with our assumptions for SG&A and R&D spending, should produce full year adjusted earnings in the range of $2.97 to $3.17 per share.

Bill will provide some additional detail on 2013 in his commentary. We remain firmly committed to our strategy of focusing on expansion of our value added product lines and packaging systems while continuing to build on our proven ability to develop technologies and products to address currently unmet needs in the marketplace for safe, accurate, and simple administration of injectable drugs.

Our investments in both new product development and our manufacturing footprint over the last few years has put us in an excellent position to deliver organic growth consistent with the range outlined in our five year plan objectives discussed in our third quarter call. I will now turn the call over to Bill Federici for a more detailed discussion of our financial results. Bill?

Thank you, Don, and good morning everyone. We issued our fourth quarter results this morning reporting net income of $21.1 million or $0.60 per diluted share versus the $0.54 per diluted share we reported in the fourth quarter of 2011.

Excluding the effects of restructuring costs and acquisition related earn out adjustments, fourth quarter 2012 earnings were $0.61 per diluted share, versus the $0.59 we earned in Q4 2011. A reconciliation of these non-GAAP measures is provided on slides 15 through 18. Keep in mind as you review our results that foreign currency translation rates, most notably the decline in the Euro's value compared to the US dollar, resulted in a $0.02 per share reduction in Q4 2012 earnings per share, in comparison to the same period in 2011.

For all of 2012, foreign currency translation is $0.16 per share unfavorable, to the prior year.

Turning to sales, slide eight shows the components of our consolidated sales increase. Consolidated fourth quarter sales were $321.5 million an increase of 10.6% over fourth quarter 2011 sales excluding exchange.

The increase was driven by a favorable mix in unit volume gains and sales price increases which, in the aggregate, added sales of $31 million in the current quarter at constant exchange rates. Packaging system sales increased by $22 million or 10.5% over the same quarter 2011 sales excluding exchange.

A favorable sales mix and volume growth accounted for six percentage points of the increase. Higher selling prices in packaging systems contributed the remainder of the increase. High value product sales increased 17% versus the prior year quarter excluding exchange.

Our Q4 2012 sales comparisons to the prior year period continue to benefit from customer inventory management actions. Excluding the positive effects of the customer inventory builds and our higher than normal sales price increases to recover historical material cost increases, we estimate our normalized 2012 sales growth was in the range of 5% to 7%.

Delivery system sales increased by $9.5 million or 11.1% over sales in the prior year quarter excluding exchange.

The sales increase was driven by good performances in our contract manufacturing operations and our proprietary businesses. Sales of proprietary products were $23.5 millionor 24.8% of the segment's revenues in the quarter. CZsales in development activity were approximately $4.5 million in Q4, about $2.7 million above the prior year quarter.

On a full year basis, total proprietary product sales grew 16% in 2012 versus 2011. As provided on slide nine, our consolidated gross profit margin for Q4 2012 was 30.3% versus the 28.9% margin we achieved in the fourth quarter of '11.

Packaging systems fourth quarter margin of 34.6% is 2.2 margin points higher than the 32.4% achieved in the fourth quarter of 2011.

The impact of high raw material prices and general inflationary increases in costs was more than overcome by the favorable mix of products sold, the sales price actions that took effect over the past year, and continued lean savings and efficiencies in our plants. Delivery systems fourth quarter gross margin was 20%, roughly equivalent to the prior year quarter. The positive sales mix and operating efficiencies were offset by increasing in labor and overhead costs.

As reflected on slide 10, Q4 2012 consolidated SG&A expense increased by $10.2 million compared to the prior year quarter. The increase comes from $1.6 million of stock based compensation expense, caused by the rise in our stock price, and higher estimated achievement levels on longer term performance based share programs.

In addition, sales bonus and other annual incentive payment programs are $1.1 million above Q4 2011 levels, due to the favorable sales and operating results versus planned targets. In addition, $2 million of the increase relates to costs associated with our new headquarter relocation.

Slide 11 shows our key cash flow metrics. Operating cash flow was $187.4 million for the full year 2012, $57 million more than 2011, due to the strong operating results.

Capital additions of roughly $151 million were made in 2012, including the capital associated with the new corporate office and research facility. Roughly half of the remaining capital spend was on new product and expansion efforts including our new rubber plant in China. We expect capital additions of between $125 million and $150 million in 2013, including approximately $20 million of costs associated with our new China facility, but excluding the $35 million of accrued new headquarter building additions which were paid in 2013.

Slide 12 provides some summary balance sheet information. Our balance sheet continues to be strong and we are confident that our business will provide necessary future liquidity. Our cash balance at December 2012 was $162 million, $70 million higher than our December 2011 balance. The majority of our cash is invested overseas and is generally not available for repatriation without tax consequences.

Debt at December 31st 2012 was $411.5 million, $62 million higher than at the prior year end. Our net debt to total invested capital ratio at quarter end was 25.5%, a significant improvement from the 20 year -- 2011 year end ratio.

Working capital totaled $295.5 million at December 2012. $67 million higher than at the prior year end. The main reason for the increase is due to the higher cash balances mentioned previously, as well as higher accounts receivable balances.

We have not experienced any material collectibility issues related to our growing receivables. Our backlog of committed orders remains strong, at $354 million as of December 2012, significantly higher than December 2011 balances. Our expanding lead times and customer inventory management actions continue to impact our backlog, and our results.

We have issued our full year 2013 guidance in this morning's release. That guidance is summarized on slide 13. Our guidance is based on an exchange rate of $1.33 per Euro. Our actual 2012 results are translated at $1.29 per Euro rate.

The favorable exchange rate environment creates favorable earning comparisons to the prior year. Each one penny change of the dollar versus the Euro results in about a penny-and-a-half change in full year EPS as a result of translation. We believe 2013 revenue growth will be in the 6% to 8% range at constant exchange rates.

Our consolidated sales should be in the range of $1.36 billion to $1.4 billion at current exchange rates. Both operating segments should generate margin expansion.

Our guidance for 2013 includes an estimate of $20 million to $25 million of sales growth in CZand other proprietary products. R&D funding for all development programs is expected to be $6 million more than 2012 levels.

Using these assumptions, our full year 2013 earnings per diluted share should fall in the range of $2.97 to $3.17 compared to $2.76 per share in 2012, an 8% to 15% improvement in EPS excluding restructuring costs and other one time items.

Slide 14 show the significant factors that are expected to impact our margins in 2013. We expect sales price increases to return to more normal levels. We expect to see a continuing favorable mix shift towards our high value product components and proprietary delivery systems which carry higher revenues and gross margins per unit. Our backlog of committed orders remains high, in part due to customer inventory management initiatives responding to our lengthening lead times in certain of our plants, and general customer risk mitigation efforts.

We continue to have less visibility to second half orders. Raw material, and labor, and overheads are expected to continue to increase in line with inflationary pressures. Our plant lean initiatives are expected to partially offset our increase in costs. China and India start up costs are expected to adversely impact earnings versus the prior year as we continue our expansion efforts in Asia.

We expect a net effect of these items will produce expanded margins in 2013. I would now like to turn the call over to Don Morel. Don?

Thank you very much, Bill. This concludes our commentary for this morning and we now look forward to answering any questions you might have. Operator?

(Operator Instructions) Your first question comes from the line of Arnie Ursaner with CJS Securities. Please procede.

Hi, good morning.

Good morning, Arnie. (multiple speakers)

A couple of questions related to the headquarters relocation. What expenses should we assume in 2013 and how should we think about the timing of those?

The 2013 expenses -- obviously we own the building now, so we will be having depreciation as opposed to rent that we had in the past with our old building. We actually expect that the net expense that is the difference between our cost and the depreciation will be less than our lease costs. There are some costs associated with moving into the building that will be hit in the first quarter. But those should be relatively minor compared to the lease cost versus the depreciation. So overall net we expect a net benefit from the headquarter addition.

Okay, well, again, if you had $2 million of what I would call one time expenses relate stood the move that's almost $0.03 a share that impacted Q4, is that the right way to think of it?

That is the right way to think of it. Again, there will be some of those costs -- moving costs moving into the first quarter as we exit the existing building. And we finish the move -- the actual move itself, which we did in January. Some of the costs associated with that. But yes.

Similar type of level, and all incurred in Q1?

Not similar type level. Less than that. Much less than that. Less than $1 million, and all will be incurred in quarter one.

You led right into my next question. So you obviously are building a number of facilities that are coming on line. How should we think object depreciation and amortization in 2013?

Depreciation and amortization in 2013 will go up. If you think about the low 70s, low to mid 70's that we had in depreciation in 2012, you can add a -- rough numbers about $5 million to that and that should cover the increased depreciation.

Again, I just want to go back to the headquarters I think you said you accrued all of the expenses, all of the capital items in 2012, but they were payed in 2013.

Correct.

So I'm just trying to make sure I get -- so your actual CapEx --

Actual CapEx cash was $131 million. If you add back the $20 million which can was the increase in the accrual primarily related to the headquarters cost you get to the $151 million that I disclosed to you.

Just to charity, in 2013 do you have any of the headquarters embedded in that number you gave us.

Not in the $125 million to $150 million number.

Perfect. CZ total last year did about $9 million. I think you indicated it could jump to $20 to $25 million. Can you go through the factors --

Not in this year.

Not in this year. That's the total number for proprietary products, Arnie.

The $20 million to $25 million increase, Arnie, includes the Eris Safety System,B.Safe, and some of the other proprietary products in that space.

What are you looking for on CZ?

About a $2 million increase in the sales over the $9 million you quoted.

Got it.

Somewhere in the range of $12 million to $14 million.

Before I jump back in queue, I guess if you can broadly speak -- I know you have a slide that talks about factors that can impact 2013, maybe you can just expand a little on, in your mind, the factors that would -- impact the high or low end of the guidance range that you have provided?

Yes, I think the high end of the guidance range is going to be impacted by a couple customers bringing new facilities online in China. I think clearly part of the backlog build is going to result of their pre-ordering into their European facilities in preparation for getting the China facilities operational. On the low side, I think what you may see in the latter part of the year, and again, we have pretty good visibility into the first half, not as good into the second half, as we get into Q3, and late Q4, you may see some customers pull back on inventory builds that happened during 2012, to get their inventories back to more normalized levels after 2009, 2010, and 2011.

I'll jump back in queue. Thanks.

Your next question comes from the line of Dave Windley with Jefferies. Please proceed.

Hi, thank you for taking the question. So my question takes off on Arnie's last, and that is understanding to the extent possible the visibility on clients above normal ordering -- I guess if we go back through time, started to see this trend, I think a year ago, or a little more. And to state it briefly, it's lasted already longer than was originally expected.

How do -- how much additional work -- I think you mentioned in your prepared remarks that you are trying to have more conversations with clients to understand visibility around that. If you can elaborate on that? Just help us to understand what's driving the clients to rebuild inventory for this long a period of time? And -- and how much longer can it last, I suppose?

Well, there's a couple answers to -- or couple parts to the answer, Dave. Number one, clearly some of the inventory builds we're seeing relate to these new plants coming on line in China. A couple of them are fairly substantial. So we've seen -- we think, a pretty good part of the additional backlog growth due to those customers getting prepared to launch production in those new plants. That would be a combination of samples for validation and line runs as well as commercial production.

The second part of this is that we have several customers that are looking at tender business for clients in the Middle East and Africa, and in the far east. For those tenders they put orders in ahead of the actual awarding of the contracts, but they have to build inventory to be ready to deliver against those. We have also had a modest part of the backlog be due to a discontinuation of the raw material, and part of the process in Germany where customers have had to order some extra samples to be able to run validation runs with the components processed with this new material, in advance of getting approval to run full commercial production with it.

You've got, really, three parts to the equation there. How long will it continue? We always see customers change inventory strategies as they get to the latter part of the year. What we are trying to do, where we have substantial backlogs built up and lead times that have extended beyond what we consider to be acceptable. They simply sit down with the customer, understand their current inventory situation, what they consider to be their desired level of safety stock, and ordinary inventory, and then match that against the additional demand and our capacity and availability to deliver. So it's an exercise where we will stay close to those customers that are experiencing lengthening lead times, so that we can plan our production accordingly, and meet expected delivery times.

Okay, so that's helpful, thank you. Last year, a fair amount has been made about FDA approval pace in 2012, accelerating to levels we haven't seen for quite a while. I have to admit I haven't paid close enough attention to know what the mix of all administration versus injectable administration is in those product approvals, but is any of this demand being driven by an uptick in new product launches that your clients are doing that require supply?

Not that we can see. When I think back to the approvals for last year, they were up little bit from the prior year. The balance between injectables and orals hadn't changed a whole lot. There are a range of new injectables over the next two to three years that we expect to see come to the market that we know are in phase three trials but they wouldn't be building inventory for those right now.

The only other thing that might impact that, and I honestly would have to go back and check it, would be expanded approvals for indications above current indications for certain drugs. Which often happens.

Okay, and coming back to your first answer, you mentioned some clients putting in tenders for volume ahead of contract award, is that then -- does that present a backlog risk for you if those contracts still go through to those clients?

A backlog is firm, committed orders. We do not include any sales in that backlog number unless we have a firm P.O. for it. So it doesn't represent risk in that sense. However, as a [bolus] order it is one that may not reappear in 2014, if you have a multi-year tender offered.

Okay. And then finally, on CZ, I wondered if you could give us a more specific update on that proprietary product in terms of clients up on stability, timing of when you might expect to see some substantial commercial orders that will cause the inflection in CZ that is so important for the delivery system's business.

Nothing has changed from our call commentary at the end of the third quarter in terms of timing. Right now we are watching closely as best we can when customers will, and in fact reveal to us when they have something up on formal stabilities. Many of them are being very tight-lipped about that, which is understandable. The variable, of course, is there may be a molecule in the queue that is on formal stability, that has a shelf life of nine or twelve months and doesn't require the full two years versus typical drugs that require the two years.

So unfortunately because of confidentiality we can't talk in depth about those. But nothing has changed in terms of our expectations for what we know now. Assuming a two year formal stability period we think the ramp up occurs towards the fourth quarter of 2015, early 2016.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Ross Taylor with C.L. King. Please proceed.

Hi, I have a couple of short questions. First, looking at your organic revenue guidance for next year of 6% to 8%. If you strip out some of this inventory building action, what do you think the underlying organic growth rate for the Company might be?

It's still in line with (multiple speakers) yeah.

Sorry, Bill, go ahead.

Please.

It's still in line with that mid- to high-single digit range we have talked about.

Okay. Okay. And on -- CZ, the $12-ish million in revenues you expect for 2013, is that basically for the same types of activities that you got the $9 million in revenues for in 2012, and is the profit or margin contribution roughly the same?

Yes. As we have talked about before it is going to be lumpy, and those samples fundamentally are for line trials for stability trials, and in many circumstances even for pre-formal stability testing in the laboratories.

Okay. And also on C.Z. can you comment whether you expect a first commercialized product is likely to be a new drug, or is it likely to replace existing packaging for a drug that's already on the market?

I have no idea. Unfortunately, we don't have very good visibility into what is up on formal stability currently. What we doe know in talking with our customers is the gamut of drugs being tested runs from products that are currently on the market, all the way through new drugs that are in early testing that are incompatible with glass. So we will have to wait and see on that question.

Okay. Last question, just a modeling question. Your interest expense is a little bit lower in the quarter than what I modeled. Is that $3.2 million a good quarterly run rate to use for 2013?

Yes, that's a good -- between $3.5 million , and $4 million is where you ought to be, Ross.

Okay, good, thank you very much.

Thank you, Ross.

Your next question is a follow up from the line of Arnie Ursanger with CJS Securities.

Hi, couple of quick questions. On India you mentioned you are doing the more traditional stoppers and closures. Is there some reason you aren't prepared or thinking about doing the more higher end products there?

We think we're going to watch how the market develops, Arnie. What we are starting out with of course is the metal over seals which are less regulated than the rubber products. But with the capacity that we've got in Singapore for the value add products, we will have the capability to supply out of there as we see how the market evolves in India. My guess is because we are phasing in the construction of that plant, as we begin to put in the rubber equipment that we will quickly follow on with Westar washing and some of the other technologies to meet market demand there.

Couple of questions on pharmaceutical delivery. You mentioned a CZ might be, I gather around $11 million of the $20 million to $25 million in revenue. How much of the remaining revenue would be smart dose for early testing?

It's a small number, Arnie, it's less than $3 million.

So what are the big items in there?

It is as we said, it is Eris, the safety system, as well as B.Safe, which is another safety device that we have.

And reconstitution systems on the Medimop side.

And an increase in those.

Okay, and again, staying on pharmaceutical delivery, you highlighted you had some tooling and development expense in the quarter, in the past, you used to basically not get paid or minimal payment -- minimal margin on that. How much was it in the quarter? And can you speak perhaps broadly about where this is going for? Is it a specific customer program, or...

Normally when we are reimbursed for tooling it is a customer-specific program, and it is a tool that is unique to their design. I honestly don't know what that number is, but it is a small one. Probably on the order of $1 million or so.

But this is for a specific customer?

It would be, yes.

Going back to slide 10 which is your SG&A cost, obviously in the IT & relocation we have $2 million. So going forward it sounds like we may have some additional -- call $1 million of expense for location, what should we think about IT in the upcoming year?

IT, there was -- a significant amount was associated with the new building, getting the infrastructure in place IT-wiseto accept a new building which will obviously come down a little bit. But we are also spending money on, for instance, systems upgrades in the HRarea overseas which will continue. So that IT number is not a bad number to use on a go-forward basis.

The outside services of $1.4 million, is that a one time or ongoing?

It's a little bit of both. There were some one times in there but there are some, for instance in association with how we are looking at our global supply chain. We have some consultants helping us work through that issue. You can -- and that was about $0.5 million in the quarter and that's not a bad idea to think of that on a quarterly basis going forward.

And then going back to an earlier question on the backlog growth, and the expansion of time to deliver products, normally the way West has ended this process is by adding capacity. So I guess a couple of questions related to that, how much incremental -- of the capital spending you are taking how much capacity addition might you be able to get to help clients minimize this issue? And is some of it impacted by competitor changes? Gerresheimer's been -- pieces of their business. They have acquired I guess they were sold to Aptar. Can you comment on how competitor changes might be impacting capacity within the industry?

Yes, it was actually Stelmi that was sold to Aptar. As far as we can tell there hasn't been a substantive change in terms of share. So we think that competitors are most likely growing a little bit less than we are in terms of dollar value. It is difficult to say in terms of units. For us when we look at our capacity demands and we make our capital plans.

As you know, Arnie, we typically try to plan two to three years in advance based on not only looking back at how demand has evolved, but talking to our customers and making our best projection going forward. It is likely when you look at our CapEx going forward outside of the maintenance CapEx which runs probably about $60 million to $65 million a year, that the bulk of the remaining is going into not only new products for delivery, but for capacity in Envision in NovaPure and in Westar. So it will go into the addition of washing and finishing lines FluroTec molding capacity, and then the vision systems. That is one of the hardest things we have to deal with is trying to get that timing right.

I think Arnie, just one other comment. I absolutely agree with Don, but remember we aren't talking about large volume growths that in terms of expectation -- a lot of where the growth will come from is in this mix shift. So you have a little bit of price this year, a good deal of mix shift towards the high value, and proprietary products and then a little bit of volume.

Are you reaching a point where on the lower -- within your pharmaceutical area, you have quite different margins between -- in packaging between the high and low end. Are you reaching a point that at the low end we just don't have the capacity to meet your need? And getting different pricing if they want to continue to get it from you? You can't do everything for every customer.

No, but historically the way the plants have been aligned, we cannot easily shift capacity from pharmaceutical to med device. So the med device of the lower margin customers are done in venues where we think we have a favorable cost structure, and we focus only on those products in that venue. When we look at the higher value-added products that are going to pharma, those are concentrated in Singapore, Le Nouvion, in France, and Eschweiler and Jersey Shore here in the United States. The one plant where we are changing to accommodate capacity is in Kingston, where the changeover from med device to pharmaceutical is taking place, and in fact, a large part of our CapEx for the next year or two on this side will go into Kingston so that we have a second high value product pharma facility in the US

Okay, thank you.

Thanks Arnie.

Thanks Arnie.

And at this time, I'm showing we have no further questions. I would now like to turn the call back over to Don Morel for any closing remarks.

Thank you very much for your time today, everyone, and we look forward to talking with you again in late April when we present our first quarter results. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, have a great day.