AptarGroup, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2024 fourth quarter and annual results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Introducing today's conference call is Mrs. Mary Scafidis, Senior Vice President, Investor Relations and Communications. Please go ahead.

Good morning. Hello, everyone, and thanks for being with us today. Joining us on today's call are Stephan Tanda, President and CFO, and Vanessa Kanu, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during the earnings call. As always, we will post a replay of this call on our website. I would like to now turn the conference call over to Stefan. Stefan, over to you.

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our fourth quarter results as well as our performance for the full year. Later in the call, Vanessa Canu, our CFO, will provide additional details on key drivers for the quarter. Starting on slide three for the fourth quarter, I'm pleased to report that APTA achieved core sales growth of 2% and delivered adjusted earnings per share of $1.52. We exceeded the top end of our guidance range due to both better-than-expected operational performance and a lower-than-anticipated effective tax rate. The positive results in the quarter were driven by strong, ongoing demand for our pharma proprietary drug delivery systems, especially for allergic rhinitis, emergency medicines, and central nervous system therapeutics, as well as royalty revenues and increased demand for our food closure technologies. In addition, we benefited from productivity gains across the entire company. This quarter, Upstar's adjusted EBITDA margin was at the top end of our long-term range at 23%. Vanessa will give you more details on the quarter, so now I will focus on the full year. Our pharma segment achieved 8% core sales growth within its raised long-term target range. Additionally, pharma achieved an adjusted EBITDA margin for the year of approximately 35% driven by increased sales of higher value products and royalties. Often when asked about pharma's future growth potential, my answer is clearly that pharma is a pipeline driven business. And the continued expansion of our pipeline over the last five years is a major reason why we raised our core sales long-term target in 2023 to 7 to 11%. And we see the pipeline continuing to grow. Pharma performance this year was driven by continued growth in emergency medicines, allergic rhinitis, and central nervous system therapeutics. Our proprietary drug delivery business is the core profit engine of our pharma segment, creating and manufacturing innovative, safe, and highly reliable technologies that support our customers and improve the lives of patients around the world. We anticipate continued strengths for this important franchise. For our injectables business, we saw growth in antithrombotics, GLP-1 drugs, small molecules, and vaccines. Injectable component sales grew 10% in 2024, but the growth was offset by lower tooling and service revenues. The team has done a tremendous job of completing a large capacity expansion project and industrializing our higher value offerings, voting well for the future. Active material science sales were up 13% for the full year 2024 due to increased demand for diabetes diagnostics, probiotics, and all solid dose solutions. Since we acquired CSP in 2018, the sales of that business have grown at the compound annual growth rate of almost 10%. Looking at our beauty segment for the year, we had good growth across a number of end markets, including personal care, Mustiche Beauty, and Home Care. However, growth in these end markets could not offset the decline in Prestige Beauty. The beauty segment saw unit growth in 2024, and sales of personal care technologies grew nicely. Overall core sales declined, however, due to the unfavorable mix. Beauty remains a highly regional business. Europe, our largest region, maintained its adjusted EBITDA margin within the segment's long-term target range. North America continued to recover progressively, with indie brands leading the growth. China remained challenged for most of the year. However, towards the end of the year, the country had a better-than-anticipated 11-11, which is China's equivalent to Black Friday, and we see some green shoots with local brands. We saw good growth in India, albeit from a low base. Looking ahead, new project activities encouraging across most regions and we anticipate progressive improvement for the segment in 2025. In the second half of the year, our closure segment returned to its core sales long-term target range driven by increased demand around the world for food and beverage dispensing and food protection technologies. A focus on converting end markets to higher value dispensing closures and a reinvigoration of innovation globally helped to improve top-line sales. The segment's increased margins were also positively affected by the higher value mix, as well as a consistent focus on reducing costs and a steady improvement in plant utilization, supported in part by the mid-year closing of a loss-making plant in France. The segment improved its plant utilization by over 12% in 2024. Closures adjusted EBITDA margins were also within the long-term target range in the second half of the year, and improved by more than 110 basis points for the full year. Now turning to slide four, we are very proud of our long record of returning capital to shareholders. Over the last five years, we have returned nearly $800 million to shareholders through dividends and share repurchases. 2025 is expected to mark our 32nd consecutive year of paying an annually increasing dividend. Now I would like to highlight our products and technologies on slide five. which feature examples from both the year and the quarter that exemplify our focus on innovation and the value that we bring to our customers and their end users. In pharma, you've heard us talk about our nasal by-dose system for Johnson & Johnson's Spravato medication to treat treatment-resistant depression. Recently, the FDA approved Spravato as a moment treatment meaning it can now be used alone and not requiring additional ORID solid dose drugs. Also, as shared during our last earnings call, the FDA and European Medicines Agency approved NEFI and Euronefi nasally delivered epinephrine, which is now on the market. In consumer healthcare, we continue to increase capacity for our previously highlighted patented lateral control system technology with a one push button dosage actuation providing convenience, efficient relief, and ease of use for halions or trivial nasal mists. We also continue to grow our pharma innovation pipeline. As previously mentioned, during the year, we acquired all technology assets from Cipnos, increasing our proprietary portfolio of intranasal delivery platforms. We also entered into an exclusive agreement with Cambridge Healthcare Innovations for its Quattri dry powder inhaler platform where we see opportunities for this platform in delivering larger amounts of medication to the lungs. In addition, our agreement regarding PulmoTree's Colibri non-propellant liquid inhaler platform will further strengthen our leadership in the respiratory space. In Aftar Digital Health, the MigraineBody app continues to be the number one migraine app with a community of over 3 million users. The latest release of the app optimizes the way users can share migraine reports with doctors, including sleep records and more. Finally, in active material sciences, our NSORB technology, which is part of the FDA's emergency technology program, delivers an active packaging-based solution to mitigate the risk of nitrosamine impurities. Our technology can enable pharma companies to meet the FDA's August 2025 deadline for full compliance with nitrosamine regulations, while avoiding costly and time-consuming reformulation processes. Turning to beauty highlights from the year, our new Prestige Fragrance Dispensing Technology features a more lightweight design and gentle actuation and is the dispensing solution for Lancôme's refillable version of Idole Eau de Parfum. We also adapted our pump technology to meet the growing demand for alcohol-free fragrances. Alcohol-free fragrances are typically oil and water-based, making the formulation more difficult to dispense. Our pump is highly compatible with these formulations, providing consumers with the same optimal gentle mist fragrance experience and is now featured on Guerlain's first alcohol-free fragrance. Also in 2024, our custom beauty plant in Ollonnais, France, supported the launch of a major beauty customer's reformulated facial serum product, which features our patented dual pump technology and locking feature using post-consumer recycled resins. Fusion PKG, our beauty turnkey packaging solution business, supported indie brands Saïd and Anastasia with full pack solutions. In our fourth quarter, Hermès selected our Prestige Fragrance pumps for its line of Barrenia Perfense and the Aven brand Sun Care Mist is featuring our e-commerce capable locking pump with components made from post-consumer recycled resin where no overcap is required. Turning to closures, throughout the year, we continue to partner with a major dish care brand on their Easy Squeeze inverted packaging with flow control. allowing for single-hand operation without any leakage. Positive consumer feedback has led to major category expansion due to this innovation. If you are planning to watch the big game in the U.S. this weekend, you will see commercials for condiments that feature APTA solutions, including our Simply Squeeze Valve enclosure, as we continue to bring convenience and cleanliness to consumer products that line the grocery store shelves. During the quarter, our custom flip-top was featured as the dispensing solution for McCormick's grill-made spices and holiday sugars in the U.S. Finally, in Asia, Nestle introduced a new adult-powered milk product featuring our Lighter Weight custom closure. Now turning to recognitions on slide six, we recently received confirmation that we have secured a place on the prestigious Climate A-list with the global environmental nonprofit CDP for our leadership in corporate sustainability, environmental transparency, and efforts to tackle climate change based on our 2024 disclosures. Also during 2024, APTA was named World's Top Companies for Women by Forbes for the fourth consecutive year and is ranked 41 out of the 400 companies who were evaluated in three categories, including employer brand, public opinion, and leadership. For the sixth consecutive year, we were named one of America's most responsible companies by Newsweek, ranked number 71 out of 600 companies. We are proud to continuously raise the bar on sourcing renewable energy, certifying sites as landfill free through our internal program, and developing products that are more recyclable, reusable, refillable, and incorporate more sustainable materials. Now I would like to turn the call over to Vanessa.

Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. Starting on slide seven, our reported sales increased 1%, which included a foreign currency translation headwind of approximately 1%. Therefore, core sales grew 2%, primarily due to continued demand for pharma's proprietary drug delivery systems, as well as healthy growth in closure technologies for both the food and beverage markets. We achieved adjusted EBITDA of $195 million, an increase of 9% from the prior year, and adjusted EBITDA margin of 23% compared to 21.4% in the prior year, driven by expanding margins in the pharma and closure segments, and the impact of cost mitigation measures executed across the business. These strong margins combined with a lower effective tax rate translated into adjusted diluted earnings per share of $1.52, as shown on slide 8, a 27% increase over the prior year at comparable exchange rates. The effective tax rate for the fourth quarter was 13% compared to 23% in the prior year, due primarily to the realization of deferred tax assets, which were previously not recognized, as well as increased tax benefits from stock-based compensation. Now, turning to some of the details by segments. Our former segments core sales increased 4%, breaking that down by market, starting with our proprietary drug delivery system. Prescription core sales increased 15%, primarily due to continued strong demand for dosing and dispensing technologies for allergic rhinitis, emergency medicines, and central nervous system therapeutics. Consumer healthcare core sales decreased 17%, driven by decreased demand for nasal decongestants nasal saline rinse solutions, as well as cough and cold medicines due to a weaker 2023-2024 cold and flu season, and inventory management at the customer level. The healthy growth in Q4 product sales for ophthalmic and dermal treatments could not offset this decline. Injectable score sales decreased 8% due to lower service revenue and tooling. Injectable component sales were up slightly, led by healthy GLP-1 growth. And for our active material science solutions, core sales increased 35% aided by a large tooling sale in the quarter. Demand for our products used on probiotics and diabetes diagnostics also contributed to the positive results. Pharma's adjusted EBITDA margin for the quarter was 35.7%, a 160 basis point improvement from the prior year. The margin improvement was driven by increased sales of higher value products and services, including royalties, and cost-efficiency initiatives executed. Moving to our beauty segment, core sales decreased 3% in the quarter, with lower tooling sales contributing about a third of the decrease. Looking at the beauty segment by market, fragrance, facial skincare, and color cosmetics core sales decreased 9%, due largely to lower sales of higher-value prestige products, particularly in EMEA, which more than offset increased demand for mass-staged products. Personal care core sales increased 3%, with continued demand for body care and hair care applications across several regions. Home care core sales increased 15%, primarily due to continued growth of air care applications in North America. This segment's adjusted EBITDA margin for the quarter was 12.4%, a 230 basis point decline, primarily due to the top-line shortfall, particularly in higher-priced prestige products. Additionally, you may recall that this segment received a one-time insurance claim settlement that benefited the prior year's margins. The impact of this non-recurring item from prior year Q4 overshadowed the impact of operational efficiencies executed successfully within this segment. Moving on to the closure segment, core sales increased by 7% compared with the prior year, driven by increased demand across a number of end markets and across all regions. When looking at the market fields for closures, core food sales increased 9%. The increase in sales was driven by solid growth across all regions, led by strong continued demand for sauces and condiments in North America, our largest food market. Beverage core sales increased 10% fueled by healthy demand for bottled water and sports drinks. Personal care core sales decreased 5% due to lower demand across several regions, while our other category, which includes beauty, home care, and healthcare, Core sales increased 12% driven by higher sales for dish care and laundry care solutions. This segment's adjusted EBITDA margin was 16.1%, representing a 260 basis point improvement over the same period last year, primarily due to volume expansion and cost and productivity management. Our total CAPEX spend for Q4 was $66 million, with the majority going to our pharma segment. Now, moving on to the full year results, Slides 9 and 10 cover our year-to-date performance and show 3% core sales growth, which includes the impact of an $11 million decline in tooling. Our growth margins expanded by 160 basis points due to top-line growth, favorable mix towards higher margin revenue streams, as well as productivity and cost-efficiency measures executed across the business. These cost-efficiency measures benefited both cost of sales and SG&A. Offsetting the cost reductions in SG&A were increased investments in R&D, particularly for pharma, to support our innovation, and higher non-cash share-based compensation expense. As a result, SG&A as a percentage of net sales remained relatively consistent year on year. Adjusted EBITDA margins expanded by 130 basis points to 21.6%. Indeed, all of our segments expanded EBITDA margins on a full year basis, including our beauty segments. while our adjusted earnings per share, which were $5.64, were up 18% compared to $4.79 a year ago, including comparable exchange rates. Turning to slide 11, we ended 2024 with a 12.5% return on invested capital, which was our second consecutive year of increased ROIC, driven by our increased earnings and realization of returns on our capital investments. Cash flow from operations was $643 million up from $575 million in the year-ago period. Capital expenditures for the year were $276 million, down from $312 million in the prior year. The reduction in capital expenditures signifies the completion of our large capital projects. Slide 12 shows our capital allocation over the last several years, with the majority going to pharma. Free cash flow was $367 million for the year, up from $263 million in 2023, due largely to our increased earnings. Our strong cash flow has allowed us to neutralize any impacts of our interest expense coming from rising interest rates by paying down a portion of our debt that had come due and increased the amounts we returned to shareholders. Speaking of which, in 2024, we returned $183 million to shareholders in the form of $114 million in dividends, and $69 million in share repurchases, up in combined total by 20% from 2023. Finally, we ended the year with a strong balance sheet, reflecting a cash balance of $224 million as of December 31, net debt of $800 million, which was down $116 million from the prior year, and a leverage ratio of 1.08. Now moving on to outlook. Slide 13 summarizes our outlook for the first quarter. We anticipate first quarter adjusted earnings per share, which as a reminder, excludes any restructuring expenses, acquisition costs, and changes in the unrealized fair value of equity investments, to be in the range of $1.11 to $1.19 per share, which includes approximately a $0.07 headwind for currency effects compared to the prior year quarter. Our effective tax rate range for the first quarter is 25% to 27%, due in part to an anticipated increase in the French corporate tax rate, which is an $0.08 headwind compared to the prior year quarter. At this point in time, we expect to have an approximately $0.15 impact due to currency and tax compared with the prior year quarter. Currency impacts are driving a larger headwind in the first quarter than typical because of the US dollar's renewed strength against many currencies, which for us includes the euro, the Brazilian real, the Mexican and Colombian pesos, amongst others. While our rule of thumb on currency impact is that for every one cent movement in the euro, there is a two cent annualized impact on earnings per share, please keep in mind that we are subject to other currencies besides the euro, some of which I just highlighted. In closing, we're pleased with our strong operational performance for 2024 and are looking forward to the ample opportunities that 2025 will bring. As I mentioned earlier, we ended the year with a very strong balance sheet and a leverage ratio that will provide us with significant optionalities. At this time, Stefan will provide a few closing comments before we move to Q&A.

Thank you, Vanessa. We fully anticipate 2025 to be another strong year for Aptar. Having said that, for the first quarter, we expect softer demand in certain end markets, such as dispensing technologies for prestige fragrance and skincare, as well as for nasal saline and decongestants. Results in the first quarter will also be negatively impacted by significant foreign currency effects and a higher effective tax rate compared to the prior year quarter. As Vanessa stated, the impact in Q1 will be about a $0.15 headwind on EPS. Additionally, we are seeing healthy demand for our higher value elastomeric components, but anticipate a more gradual beginning to the year especially as the new capacity comes online and is being validated. Looking ahead, pharma will continue to be the main driver of growth with our proprietary drug delivery systems and emergency medicines and central nervous systems therapeutics leading the way. We expect demand for our injectables divisions, higher value products, to continue to grow throughout the year and are seeing strong interest for our premium code and ready-to-fill solutions. Injectables has a strong pipeline and order book and we are ramping up new capacity for our higher value products cautiously to ensure the quality of our products continue to meet the stringent regulatory requirements. The active material science business has returned to growth and is poised for solid 2025. We anticipate that Beauty's top line will improve as the year progresses. Beauty has a nicely building project pipeline and has made significant structural improvements. Over the last four years, Beauty has reduced its plant count by 10, and over the last two years has reduced its workforce by 11%. Managing costs is an ongoing effort, and while there is always more work to be done, these changes should continue to positively impact the bottom line as the top line improves. Closures has made great progress on several fronts, including reigniting its innovation engine, improving plant utilization rates, and ongoing cost management efforts. Our innovations help customers win market share, and there's tremendous interest in the dispensing technologies that we are developing. When adjusting for currency effects and tax impacts, we anticipate 2025 will continue to deliver solid earnings growth and increase shareholder value. With that, I would like to open up the call for questions.

Thank you, Mr. Tanda. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. And if for any reason you would like to remove that question, please press star followed by two. In the interest of time and fairness to all participants, please limit yourself to two questions and then come back in a queue if you have any more questions as time allows. And just a quick reminder, if you were using a speakerphone, please remember to pick up the handset before asking a question. We will pause here briefly whilst questions are registered. The first question we have on the phone lines comes from George Stafford with Bank of America. Your line is open.

Hi, everyone. Good morning. Hope you can hear me okay. Stefan, Mary, good morning. Vanessa, welcome. My two questions. First of all, can you talk a little bit about the green shoots that you are seeing in China and what momentum, what impact that might be able to have to generate for 2025. The second question, recognizing it's tough to call, if you held currency rates where they're at and taxes do what you expect them, do you expect that earnings per share will grow in 2025 off a very tough comparison 24 would that be too difficult maybe a different way to handle a question if we exclude those effects what how would you define uh solid earnings for share growth thanks guys good luck in the quarter hi george uh we could hear you great um let me take the first one the higher math of the second one i let vanessa handle uh look um

As you know, the beauty market in China in general is still the largest country market for beauty with a particular emphasis on skincare. And all our customers have waited for that market to show additional or renewed vitality. And some of our larger customers have been struggling with that. What we see is that clearly local brands gain share and continue to gain share versus the multinationals. You all know the story of the one US-based large multinational. But in general, 11.11 was pretty solid. The beginning of the year was pretty solid. uh so but it's more with local brands and of course ultimately uh who serves the consumer uh we are um neutral to that so i'm quite hopeful that we will see china building over the year and uh that will benefit particularly our skin care business fragrance is also growing but it's still very small in in china but growing um i think that's uh That's about it, uh, as a reminder, um, we serve in region for region. So all this, uh, speculation about, uh, terrorists for us is not that, uh, meaningful. And what we really looking for is where is the Chinese consumer at anecdotally, we also see the Chinese consumer traveling more internationally again, uh, at the high end. And I think that should also bode well for the beauty business, uh, in general. And I'll hand over to Vanessa.

Hey, George. It's right that you called out the tax and FX headwinds. We haven't seen this kind of headwinds in the recent past. You know, the tax headwinds being given by, you know, a lot of what we talked about, about the French tax legislation that just came or is in the process of coming into effect as we speak. Look, when you normalize for FX and you normalize for tax, we are cautiously optimistic that we will have another potential, you know, double digit EPS growth for 2025. A lot of the drivers, you know, Stefan talked about in his remarks, you're aware that we've done a lot of work around cost reductions. Those cost reductions will accrete to, you know, EBITDA and EPS in 2025. So we are cautiously optimistic that once we normalize for consistency in effects and tax, we'll have another strong EPS growth year.

Vanessa, is it only a one-Q effect, or does it impact the whole of the year? Thank you. Sorry for that. And again, good luck in the quarter.

Yeah, no, that's okay. It impacts the whole year. It impacts the whole year. So really, what happened in the last – so you may recall, George, we thought this was going to happen in Q4 because it was heavily reported by the French media. It didn't happen in Q4. It's happening now. It passed both the lower and upper – chambers of Parliament and we think it's going to be an asset in the coming days, it will be a full year impact. And so we've built the Q1 effects into the Q1 guide.

All right. Thanks so much and congrats on the operating improvements.

Awesome. Thank you, George. We'll take it.

Thank you. We now have the next question from Gautam Panjabi with Baird. You may proceed.

Yeah, thanks. Good morning, everyone. Vanessa, just following up on George's question on, you know, the EPS bridge items. So if currency holds at current levels, you know, what sort of year-over-year headwind would that be on EPS? The same with tax. And then in corporate, 4Q was quite a bit lower than the trend line from previous quarters. How should we think about that as a variance for 25 versus 24?

So, in 4Q, there are a couple of things. If we talk year over year or we talk versus guidance. So, year over year, we did get some tax benefits from our tax planning. I called out in my prepared remarks that we were able to recognize some deferred tax assets from some lost carry forwards that we had not previously been able to recognize as a result of some of our ongoing tax planning. So, that did result in sort of the wind that you're seeing in Q4 year over year. Separate from that, there's the Delta guidance. And so that win was actually built into our guidance. The Delta guidance was really this French tax impact that we had built into our guide in Q4 that did not materialize. And now we're seeing that come into effect in Q1 of this year. You asked, what is the impact in Q1? We called it out. It's $0.15 for the two factors combined. So I'm not clear on what incremental impact you might be looking for.

Yeah, so I meant for 2025 versus 2024. If 2024 baseline EPS is $5.64, the variances for FX, DAX, and corporate.

Yeah, so we're not guiding for the full year. I find it hard to give guidance on ETR, for example, in independence of guiding on income, just because we know that the jurisdiction mix of earnings can be a pretty significant impact. What I will say is at this point in time, given what we know, especially with what's happening around the French taxes, we expect ETR to be higher in 2025 versus 2024. We haven't gotten into exactly what the number will be. We'll guide as the quarters progress. And then the FX headwind, I mean, it's pretty significant in Q1 with the 7 cents. I expect that to continue for the rest of the year. Now, depending on which forecast you're watching, you know, we are seeing or hearing of commentary around perhaps the FX environment improving as the year progresses. But based on what we see now, we expect this double digit impact to continue.

OK, and then the corporate below trend line for 4Q, what was that due to?

So there weren't any sort of unusual items there in Q4. What I will call out is typically as you get to the end of the year, you typically have your year end true up. which includes, you know, adjustments for bonuses and short-term incentive accruals. But if you have pockets of the business where we didn't hit our targets, you know, some of those accruals got reversed. So that's probably what you're seeing. That's mainly what you're seeing in the corporate line in Q4. Nothing more unusual than that. Primary driver.

Got it. Thank you for that. And in terms of, you know, just second question, I guess, in terms of, the de-stocking that you're seeing in cold and flu and, you know, the timeline for that to sort of normalize. And then also in Prestige, you know, you call that weakness. I think in the EMEA region as well, you know, just based on some of the customers that are reported, it seems like volumes seem relatively stable across the board from a customer level standpoint. So, what do you think is going on there specific to Haftar?

Yeah. So, let's take consumer healthcare first. We see some bottoming out. In fact, the last two months, we saw sequential increases again. A lot will depend again on how the flu season unwinds. I just heard this morning that we might have another peak in the U.S. And so sequentially, I think it will start to go up again, but we still face tough comparables in quarter one into quarter two now. On the beauty side, I pointed out that unit volume actually was upping beauty slightly. So what you're really seeing is the mix effect is mustache fragrances picked up significantly and the high-end luxury prestige launches did not repeat. So it's more of a mix effect as opposed to an underlying volume effect.

Thanks so much.

The next question comes from Matt Roberts with Raymond James. Please go ahead.

Hi, Stefan, Vanessa. Good morning. Stefan, you noted that you're expecting a more gradual ramp up in injectables. I believe last quarter you said that that business could potentially be high single digits to low single digits based on GLPM biologics growth, albeit stopping short of any official guide there. But based on the new ramp-up expectations, do you have better visibility or comfort in affirming what that injectables core sales growth number could look like in 2025? Or given strong underlying growth rates in those drugs, what factors could dictate either coming in above or below any expectation?

Yeah, I wouldn't change my answer there. The pipeline looks good. The order buildup looks good. uh, where there will be quarter to quarter variants also in terms of our ramp up. And when we get certain pieces of equipment validated, uh, it's always, you know, after you, the moment, uh, customers want it, they want it now. And so now I'm still need to get this, uh, press done or this, uh, thing done. So overall, the demand picture is good. Uh, all we're being is a big cautious in able to, uh, uh, exactly match that in the first quarter. But, uh,

They're quite bullish about that business.

Okay, that's helpful. Thank you. And then maybe on the proprietary delivery system side, so 2024 had continued strong performance, and you noted that category will lead the pharma segment. So, as we look to 2025, what type of growth do you think is achievable there? And as we've heard positive commentary on some of the newer drugs we've had, whether that's Spravato broadening or NEFI coming out of the gate and 4Q, would you say that 2025 growth in proprietary is more so dependent on further new drugs coming to the market or more so underlying secular trends for nasal delivery and drugs that are already on the market? Thanks again for taking the questions.

Sure, Matt. Look, fundamentally, that core engine of pharma is fully humming. We feel very good about the continued growth there. We were at JP Morgan earlier in January. And also the J&J CO called out Spravato. ARS was there. So we see continued good growth in the emergency treatments, the central nervous system drugs, as well as the underlying allergic rhinitis franchise continuing. As we just discussed, the cold and cough is a little wobbly. but I think we're at the other end of the trough.

Thank you again.

Thank you. We now have a question from Daniel Widow with Jefferies. You may proceed.

Good morning, everyone. Thank you for taking my question. Well, the first thing I wanted to ask you about is tariffs. Obviously, it's a very fluid situation, and I don't expect you to have any as to what's going to happen, but I was wondering what happened last time. There were tariffs on Chinese products, if it had any effect to you guys at all, or not necessarily you directly, but also on your customer demand or customer order trends.

Yeah, look, obviously it's not in our guidance. For the most part, we produce in region for the region, and as I said about China. So there are, of course, some special situations in those cases. We pass it on or will pass it on and have passed it on. Of course, it's a commercial negotiation. But out of all the things you could worry about, the terrorist is not the one that I worry terribly about.

Okay. And then you had a pretty solid improvement in ROIC over the last couple of years. I was wondering what, and maybe you've mentioned this in October or something, and I forgot, but what the goal is, if you can get this up to, I don't know, 15%, or if there is a goal for that metric?

Yeah, we're not in the habit of changing long-term targets. On the quarterly calls, we have an investor day coming up, I think, in September. If we revise it, we would do it then. But clearly, the increased operational performance, the more distant... Acquisition of CSP and continued discipline in CAPEX is helping ROIC and we'll take a look at that as we get into September and we'll update you then.

Thank you very much.

Thank you. Just a quick reminder that if I wanted to ask a question. And we now have Matt Leroux with William Blair. Please go ahead.

You talked a little bit about the cough and cold side and the injectable side of a farm. I wanted to ask about royalties. Obviously, that's something that you've been mentioning more on the call in the last year or so, and I presume was a driver of some of the margin improvement in 24. Was there anything sort of long time in nature in either the quarter or the year, or are they all structured as royalties rather than milestones? And how should we think about the contribution moving forward in 25 and beyond?

Sure. Yeah.

Look, first and foremost, those are recognition of the value we add during the development process of a drug product that can be a decade or longer. Sometimes, excuse me, sometimes if we're dealing with really small companies and they bulked out service fees, then we get something on the back end. And what we call out royalties is indeed that there might be some small amounts on payments, but it's fundamentally royalties on finished product sales. They are lumpy, but they make a bigger part of our overall revenue base, but still, you know, you're talking a few tens of millions for the company.

Okay, and then I did want to just follow up on injectables. Obviously, that was up significantly in Q124, so a tough comp, and then was down the last three quarters. When you say a slow ramp to the year, I guess we should think about that being maybe down in the first quarter and then growing from there.

Yeah, we're not guiding by the individual business line, but, you know, so too far away from the commentary we gave. Okay, thanks.

But having said that, you know, unit volume continue to grow throughout the year. Those are some other things in the injectable that we report like service revenue that is more lumpy.

Okay, thanks, John.

Thank you. We now have Gabe Haley with Wells Fargo. Please go ahead.

I wanted to focus on the capital allocation side of the business. You talked about wrapping up a couple of big investments, as we know, to add capacity and injectables. And I think it's a good thing, but it still seems you guys are kind of guiding 280 to 300 per capital. You also gave us a slide where you're showing a lot of your internal investments are directed at your pharma segment. All in, we interpret that as a positive signal. But just any color that you can provide in terms of what options you're seeing for investment internally.

Sure, Gabe. Why don't I take that? And Stefan, please add any incremental color. So, Gabe, the capital allocation policy, as you know, has been a pretty healthy balance of organic capital. which, as you call out, has been largely geared towards pharma, not exclusively, but largely so, M&A, dividends, and share buybacks. And I think as we get into 2025, you'll see a level of continuation of that. And you did call out our CapEx expected investments in 2025. Pharma will once again get a big piece of that. From an M&A perspective, I'm not foreshadowing anything imminent, but we do regularly evaluate potential M&A candidates where we see strong strategic fit and accretion And you've heard Stefan talk about that in the past. And that, again, more geared towards pharma, but not exclusively so. So I think that would continue in terms of the evaluation process. And then from a dividend perspective, we just ended our 31st year, as Stefan called out in his remarks, of increasing dividends. So I would expect that also to continue in 2025. And then, you know, lastly, just on the share buyback, you know that the board approved a refresh, you know, half a billion buyback program in October, and that is the more discretionary component of our capital allocation. We're already active in the market with the repurchases, and it's a lever that we have, and I would expect that to also continue in 2025. Anything you want to add, Stefan?

Okay. Perfect. And any... particular projects or discrete things that are in that capital that you guys would want to call out?

Not really. As we discussed, we built these three disrespectfully called boxes, the one in France, the state-of-the-art facility in China, and the injectables. Now we're really creeping investment and gradually growing capacity T. Not only those three locations, but everywhere, and I think the single largest investment for us is 5 million in that 300 million to 80 to 300 million envelope so it's a lot of just good organic growth investments maintenance investments capacity creep investments across the company.

T. Okay. Michael Prast- And then I guess switching gears a little bit you guys have been pretty active, I think you called out closing and I apologize I miss her 10 facilities in beauty, but just you know we're kind of on the other end of what was a multi year kind of efficiency. Michael Prast- initiative across the organization. Michael Prast- Again, I know you're not always you're not done you're always trying to get better but. As we look forward, do you see anything else that you need to do from a footprint standpoint or cost reduction?

Yeah, just to clarify, what we said, beauty reduced its plant count or its site count by 10. Not that we built 10, but we reduced by 10.

And also over the last two years, reduced its head count by 11%. And as you rightly said, you're never done. We have some ideas. Nothing is imminent here. And productivity is increasingly coded in our DNA. And I'm very encouraged with the productivity plans. All three businesses have brought to the table for this year and we're tracking that closely. But beyond that, really nothing to report at the moment.

Thank you.

Thank you. I would now like to conclude the question and answer session and hand it back to Mr. Tanda for some closing comments.

Wonderful. Thank you. So let me end by zooming out, as usual. Quarter four was a solid finish to a very strong year, 2024, and on top of a very strong year, 2023. We delivered back-to-back double-digit earnings per share growth. for both years and followed through on our raised margin targets. Driving productivity, as I just said, is increasingly firmly coded into the DNA of the company in addition to innovation and sustainability that remain alive and well. Looking at 25, we are excited to continue the journey. Our customers are taking very much note of our increased focus on competitiveness and on meeting their needs more rapidly and flexibly with our much upgraded footprint. We are back on the front foot. Our project pipelines across the company are in very good shape, and the pipelines continue to grow. Having said all that, as we discussed, we are operating against the more challenging macro, especially with foreign exchange and the anticipated higher French corporate income tax rate. It doesn't mean that our tax planning activities are done. You always look for ways to... a bait impact like that. We had a good start of the year, but faced some spots of tough comparables that we discussed in fragrance, consumer health care, but both of these are fully expected to be transitory. A gentle reminder, I know we all focus on the quarter, but several of you were able to look under the hood, so to speak, just four months ago when you visited some of our facilities. We're still the same company that you saw four months ago. And even in a slowing economy, we are confident in our future trajectory, given the resilience of our product portfolio and the strength of our pipeline. We discussed the balance sheets. We're on track for our 32nd year of paying an annually increasing dividend, and our balance sheet affords us a lot of strategic flexibility. Thanks for joining the call, and we look forward to discuss more on the road.

Thank you all for joining the APTA 2024. Fourth quarter and annual results conference call. I can confirm today's call has now concluded. Thank you for your participation and you may enjoy the rest of your day.