Matt DellaMaria - Senior Vice President, Investor Relations Stephan Tanda - President and Chief Executive Officer Robert Kuhn - Executive Vice President, Chief Financial Officer and Secretary.

George Staphos - Bank of America Merrill Lynch Ghanshyam Punjabi - Robert W.

Baird Edlain Rodriguez - UBS Investment Bank Adam Josephson - KeyBanc Capital Markets Debbie Jones - Deutsche Bank Salvator Tiano - Vertical Research Mark Wilde - Bank of Montreal Gabrial Hajde - Wells Fargo Securities Daniel Rizzo - Jefferies & Company David Stratton - Great Lakes Review.

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2018 Second Quarter 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 Mr. Matt DellaMaria, Senior Vice President, Investor Relations. Please go ahead, sir..

Thank you, Howard, and welcome everyone. Participating on today’s call will be Stephan Tanda, President and Chief Executive Officer; Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Stephan will begin our call with a brief overview of the CSP transaction and our second quarter performance.

Bob will then discuss a few financial details and turn it back over to Stephan before we open it up for questions. Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements.

Please refer to Aptar's SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website and Aptar undertakes no obligation to update the forward-looking information contained therein.

I would now like to turn the conference call over to Stephan..

Thanks Matt, and good morning, everyone. Thank you for joining us today. If you are following along with the accompanied presentation posted on our website, Slide 3 shows the agenda for the call. I will start with an overview of CSP Technologies, followed by comments on the second quarter then I will turn it over to Bob. Moving on to Slide 4.

As announced yesterday, we have signed a binding agreement to acquire CSP Technologies, a leader in Active Packaging Technology based on proprietary material science expertise.

CSP Technologies has over 30 years of experience and built a strong position in attractive markets for Aptar, including Pharma and Food Safety with potential opportunities across many of the markets we serve already.

CSP Technologies has solid margin and growth fundamentals, similar core operating competency along with similar cultures and core values. Finally, the CSP team has a strong focus on intellectual property and the transaction meets Aptar’s disciplined approach for acquisitions.

We announced a slightly less than 13 times in last 12 months trailing multiple and we expect a multiple between 11 and 12 times to 2019 EBITDA. Turning to Slide 5. I will share a few highlights on the business. CSP Technologies current business is roughly 75% in the Pharma market and 25% in the Food Safety market.

So to think about desiccant properties for vials and containers, where it's critical to preserve a dry atmosphere. Vials for insulin test strips is one leading example, where CSP is the market leader. The test strips need to be kept dry by the desiccant properties of the three-phase polymer sleeve and the tight seal on the container.

In the Food Safety market, to think about the food service traits with superior moisture absorbent capacity or antimicrobial properties for prepared sliced vegetables. They can be kept fresh and safe for longer periods of time. This is a highly profitable well-managed company with manufacturing facilities in the United States and Europe.

And they are looking to expand across Asia and other high growth economies, where Aptar is already present.

Also, as we grow CSP’s existing business together in the Pharma and Food Service markets, we expect to leverage CSP’s material science know-how to explore new active packaging opportunities in the end markets that we already know well, across beauty, personal care, food and beverage applications. Turning now to Slide 6.

The Company is the leader in material science. They have unique know-how around the three-phase polymer technology and other solutions that can be tailored to either absorb or really specific molecules upon activation.

On this slide, you will see some examples, including active vials, antimicrobial and absorbent trait, active film materials and then a septic dairy sampling kit. The CSP team is also highly experienced in navigating the relevant regulatory environments. Slide 7 shows an illustration of the active polymer technology provided by CSP.

Desiccant Sleeve combined with CSP Technologies active polymer bottle essentially trap moisture before it can even enter the head space of the bottle. Therefore, the medication of bottle sees virtually no moisture. Moving on to Slide 8.

The purchase will be funded with available cash on hand and we expect to close in the fourth quarter of the year if not earlier. Slide 9 shows sales by segments for Aptar in 2017 on the pro forma pie charts, including CSP Technologies. You will see that Pharma and Food/Beverage segment sales will increase.

Now turning to our quarter two financial results. As you saw yesterday, we reported strong second quarter operating results. Sales growth was robust across each business segments, and market and geography.

Next, I will just touch on a few product launches underscoring again our innovative dispensing solutions for each segment and then I will turn it over to Bob. In Beauty, we provided LVMH with a fully custom dispensing solution for Double Serum facial skincare product in Europe for their Guerlain brand.

We also featured in L'Oréal new Seed Phytonutrients line, where our dispensing lotion pumps are features on a more sustainable paper-based bottle for their hair, face and body collection.

In Personal Care, we designed a custom pump for Johnson & Johnson's major global relaunch of their iconic baby care line, ranging from shampoo to bubble bath to lotion. Also Avon is promoting their successful insect repellant line, Skin So Soft, which features a verity of after products.

In Home Care, our finest pump with prolonged spray technology is featured on a Room Freshener Spray by J.R. Watkins. In our Pharma, our preservative-free multidose Ophthalmic Squeeze Dispenser that was announced as the approved delivery device for Bausch and Lomb’s prescription Levofree Multidose in France.

Bausch and Lomb’s Levofree marks its first prescription drug approval by the French National Agency for Medicines and Health Products Safety for Aptar’s Ophthalmic Squeeze Dispenser. In Consumer Health Care, our Advanced Preservative Free plus pump for eye care is found on a new dry eye mist by similar term in the CVS store brand in the U.S.

In injectables market, our stoppers are found on a muscle relaxer in Mexico and on a pain reliever and aesthetic products in North America. Turning to our Food and Beverage segment, our custom closure with our flow control silicone valve was chosen by Chobani, for the first ever inverted squeezable yogurt pouch.

Also Daisy continues to grow with the inverted Squeeze Sour Cream product and recently introduced a new light version using our custom dispensing closure with valve technology. In India, our Bag-On-Valve spray technology is found in a new line of cooking sprays by Ray.

We continue to grow in the beverage market and you will find our sport cap now on CG water in North America and on Gatorade G Active water in Latin America. In closing, we look forward to welcoming the CSP team to Aptar and bringing this active factoring technology to our customers. Our near-term outlook is good.

The transformation of our Beauty and Home segment and the support functions are on track. We have also announced an increased dividend. Our dedicated and smart people continue to partner with customers to win with a strong portfolio of differentiating innovative products that improves the daily lives of people around the world.

We remain committed to executing our growth strategy in order to create long-term value for all our stakeholders. With that, I will now turn it over to Bob..

Thank you, Stephan, and good morning, everyone. I’ll start by sharing some of the details around the second quarter results. If you are following the slides that accompany our remarks, you can refer to Slide 10.

As you saw on yesterday's press release, we’ve reported strong sales growth of 15% that was comprised of solid core growth of 11% and positive currency effects 4%. As you saw on our press release, Beauty and Home core sales keeping currencies constant increased 10%. Sales increased in all regions and all markets compared to the prior year.

When we look at profitability, our Beauty and Home segment adjusted EBITDA margin was 12%. Profitability was negatively impacted by approximately $6 million, which included amongst other things, the timing of passing through higher raw material costs, severance costs, and startup delays that are energizing facility.

Offsetting that was approximately $2 million of improvement in our decorative facility in France. In addition, custom tooling sales increased in the quarter, which carries a lower margin.

Looking at sales growth by market on a constant currency basis, core sale to the beauty market increased 6%, primarily driven by broad-based demand including a robust travel retail quarter and increased demand for facial skin care products.

Core sales to the personal care market increased 16%, primarily due to the increased sales of our body care products and increased tooling sales. Core sales of the home care market increased 6%, due to strong growth across the variety of applications. Our Pharma segment achieved a core sales growth of 14%.

All three markets reported increased core sales over the prior year. Our Pharma segment also grew to adjusted EBITDA margin to 36%.

Core sales to prescription market increased 16%, which is driven by increased demand for an innovative nasal drug-delivery systems for central nervous system and allergic rhinitis treatments along with increased custom tooling sales.

Core sales for the consumer healthcare market increased 20% due to strong demand for nasal saline, nasal decongestants, and ophthalmic related products. Lastly, core sales to the injectables market increased 2%, primarily due to increased demand for components used in the administration of vaccine product to customers in Europe and Northeast Asia.

Our Food and Beverage segments core sales increased 5%, helped by an increase in custom tooling sales and increased demand for innovative, dispensing, and sealing systems. This segment reported an adjusted EBITDA margin of 18%.

Margins were negatively impacted by the mix of products sold and an increase in custom tooling sales Looking at each market, core sales for the food market increased 4% with strong sales of our infant nutrition products offset softness in the sauces and condiment market.

Core sales to the beverage market increased 7% due to strong sales of our closures for bottled water and juice. Comparable adjusted earnings per share, which excludes acquisition and restructuring expenses in the current period totaled $1.09. And this compares to a $1.01 reported in the prior year, and to the currency adjusted $0.05 in the prior year.

I would like to remind everyone that the prior year currency adjusted earnings per share would have been approximately $0.10 lower and our current tax rate been applied versus the 18% effective tax rate reported.

On Slide 12, we can see that our adjusted EBITDA for the second quarter rose 14%, and this is driven by the strong performance of our Pharma segment and in spite of some of the headwinds that I outlined earlier that affected are Beauty and Home segment. Turning to Slide 13 and our outlook.

We are expecting earnings per share for the third quarter to be in the range of $0.90 to $0.95 per share using an expected tax rate range of 29% to 31%. Our guidance compares to prior year earnings per share of $0.83 and prior year currency adjusted earnings per share of $0.82. Prior year’s reported effective tax rate was approximately 23%.

Had prior year's results been tax affected at our current guidance effective tax rate range, prior year earnings per share would have been lower by approximately $0.09. I have a few other details to share and then I will hand it back to Stephan. Cash flow from operations in the quarter was approximately $104 million.

Capital expenditures were approximately $52 million, and a free cash flow was approximately $52 million compared to the $79 million a year ago.

Looking at our balance sheet capitalization on a gross basis, debt to capital was approximately 48%, while on a net basis it was approximately 29% and we remained slightly over one times levered at the end of June compared to our trailing 12 months adjusted EBITDA.

Looking at a pro forma balance sheet post the acquisition, our leverage ratio would be slightly less than 2% both closing of the transaction. At this time, Stefan will summarize the key takeaways from our remarks today.

Thank you, Bob. In closing and as noted on Slide 14, let me sum up our key takeaways as follows. Our people have delivered a strong first half of the year with sales growth across all segments, markets, and region. Each segment has achieved core sales growth within the long-term target range.

We are executing on our balanced capital allocation strategy and returning value to shareholders. We were pleased to have announced the binding offer to acquire CSP Technologies, a leader in the active packaging technology.

Also we previously announced that we have increased the quarterly cash dividend by 6% to $0.34 a share and this year we will mark our 25 consecutive year of paying a higher annual dividend that was paid in the previous year.

We continue to have a very solid balance sheet with plenty of flexibility to execute our strategy and outlook for the third quarter’s positive. With that, I’d like to open it up for your questions..

[Operator Instructions] Our first question or comment comes from the line of George Staphos from Bank of America Merrill Lynch. Your line is open..

Hi, everyone. Good morning. Thanks for all the details and for taking my question. My two plus follow on are this, first with CSP. Congratulations on the news there. Can you state what the growth rate has been for the business, Stephan in the last two years? And the multiple moving from just under 13 times to I think you said 11 to 12 on 2019.

Is that from growth in the business or is that from synergies if you can provide a bit of color there? And I had a quick follow on or two..

Sure. The business is a growth business and has grown well in the past years, well in line with our target range and how Aptar is growing. So it's a growth business and it has a good probability. It is predominantly in pharma. So that is really the kind of business we're buying. In terms of synergies, the synergies will be a few million dollars.

So most of that multiple on a forward-looking basis is also new to growth in the business we acquiring..

Okay. Thanks for that. As I said, I'll have others on that, and I'll come back in queue.

One, the margins in Food and Beverage, and Beauty and Home were somewhat weaker than we would have expected given the revenue growth, and you went through a lot of the things that were affecting them, including the tooling sales, which obviously had an effect on margin.

Bob, I don’t’ know if it's possible, but if you adjusted for tooling, how much more with the margins have been in the quarter for both of those segments? And is there any lingering effect from this beverage closure issue in Asia? And then last, attached was a little bit lower than we were expecting, what was driving that? Thank you, guys..

So on the tooling, tooling account for about 2% of Food and Beverage of core sales growth. So I would have to go back and look at the exact margins on prior year tooling. I can't give you an exact number on the margin..

Okay..

On your point, on the China beverage, yes, there are some still lingering effects of that a little bit of the mix issue that we're facing. And then in looking at the tax rate, as we have said earlier in the year, we had talked about the transition tax and repatriation amount is still to be determined.

So the Treasury Department came out in the second quarter with some additional guidance on how to calculate that. And so that account for about 4% of a rate reduction. And then we've got about another 1% or 2% relating to – 1% relating to higher share based compensation, and then also 1% on our recalculation of the 2018 GILTI and BEAT taxes..

Okay. Thank you, Bob..

[Operator Instructions] Thank you. Our next question or comment comes from the line of Ghanshyam Punjabi from Baird. Your line is open..

Hey, guys. Good morning. I guess first off on CSP, just for context, is this an asset that you’ve had your eye on over time, including when it transacted back in 2014.

This capabilities that you – what your customers have been asking for more recently? And also just to clarify, can you just give us a sense as to how much of the active film material gets sold externally versus being converted into specific products such as what you have on Slide 6?.

I can talk about that. We had an interest. And answer to that question is yes. So when the asset became available for sale, we walked through our logic back in 2014 and their continued interest in the asset today obviously. In terms of the material get sent out, the answer to that is no.

The material gets used in the products that CSP manufactures and gets sold to the customers..

Okay. And just as a follow-up to that.

In terms of the margin progression, you had answered George’s question, in terms of the topline growth, but what about the margins? How those evolved over the last three, four years? And also how the contracts structured with raw materials? And also what are the constituents of the raw material cost basket? Thanks so much..

So the margins have stayed very stable since we last looked at them in 2014, so we are comfortable. This is very stable. In terms of the raw materials, it's generally smaller SKUs in terms of polypropylene.

So we do think that there are some slight synergies there that we can do and then there's some additional compounds that go into the formulation process as well..

And contracts in terms of pricing with customers?.

We are evaluating that and we’ve evaluated that revenue in our diligence. Some of them have pass-through of raw material increases, others do not. But it's not unlike some of the contract that we would see in Aptar, so we're comfortable with the existing contract base..

Let me add to that. When you look at the main customers of CSP, those are the very large Pharma customers that we are also dealing with and very familiar with and very longstanding relationships and there are high differentiation and switching barriers given their integrated quality systems.

So I think they pride themselves never having lost a customer..

Perfect. Thank you..

Thank you. Our next question or comment comes from the line of Edlain Rodriguez from UBS. Your line is open..

Thank you. Good morning, guys. Just one quick on CSP again. In terms of like when you look at the part of the slate that there in many markets that you were involved in.

And after this deal like other many other holes in your portfolio that you would like to eventually address?.

When you think about it, what they really bring to us is, one is, much broader access to the diabetes category. We're in that peripherally, but CSP is really in there with both feet. They bring to us for sure the Food Safety segment, which predominantly goes into food service.

And if you think about it, food service is actually larger – slightly larger than the Food segment, particularly in this country. And with a trend towards fresh food and freshly prepared food, food safety concerns paramount. Thousands of people die every year in this country from food safety issues.

So this is a great new market that becomes accessible to Aptar. At the same time, we believe that there are multiple opportunities across our existing customer universe around short-life, stability extension that we have now being started to explore..

Okay. And lastly, one related to that in terms of the leverage. I mean now you are going to be close to two times which I think is like the highest it's ever been.

Are you willing to stay at that level? Or is there a plan to get back to the more comfortable in a onetimes like you've always been at?.

So we stated before that we are comfortable anywhere in the one to three times leverage ratio. So I mean, I think this gives us still ample dry power issued another exciting opportunity present itself.

I think with the strength in the profitability of this asset and our core business, we would be able to deliver relatively quickly should we move up higher on that, but no one to three is where we're comfortable being..

Okay.

And one last one, just sort of company as a whole, cost sales growth was extremely high, like how much of that was volume and how much was pricing?.

It's difficult to say exactly on pricing. We can’t say that about 2% of the 11% core was coming from tooling. If I look at just the pass-through side of the resin, it probably accounts for about 0.5% on a consolidated basis. We might have some other pass-throughs in Latin America, but it's difficult really for us to desegregate that in its entirety.

So I would say two tooling and 0.5% to 1% on price in general..

Okay, thank you very much..

Thank you. Our next question or comment comes from the line of Adam Josephson from KeyBanc. Your line is open..

Good morning, everyone..

Good morning, Adam..

Stephan or Bob, just one, I think George was asking this about Beauty and Home margins. They were down about 80 bps year-over-year, and I think Bob said, you weren't sure how much of that was related to tooling.

Where the margins in that segment as you expected or lower than you expected and can you just help me understand what exactly transpired there?.

Yes, thanks Adam. Let me address that. First of all, the transformation is well on track. We are fully committed to the targets we published for the transformation of course our EBITDA improvement target. There are a lot of good things going on, but with all the good things going on.

We clearly saw some temporary friction losses in Q2 that added up to about 150 basis points in margin in Beauty and Home. And Bob walk through both of those were adding up to about $6 million. So that's really – and things like severance and startup cost is certainly something that we expected or we don't know in the initial guidance..

So the margins were about as you expected than today?.

Well, I would say they weren't because of those items we mentioned, right. When we did our guidance, we were not aware of those and we’re not baked into our guidance. So I would say that as we got further into the quarter, we obviously became aware of those, initially now we are expecting a higher margin..

Okay, got it.

And Bob, the CapEx guidance increase, what exactly is that related to? Forgive me if I missed that and is that – is the CapEx which regarding fairly representative of normalized CapEx at this point?.

Sure. So the increase – I mean we've had as you seen, we've had a fairly robust first half of the year.

And so when revaluating our capacity planning in some of our key areas and looking now at some of the customer projects that we're working on, we felt that we needed to make – start to make some investments this year rather than wait into 2019 to get some of that capacity improvement during the increases online sooner.

The other small part of that increase is coming from our evaluation of the transformation projects.

So we see some opportunities to accelerate, some of our initiatives, some of those do require some additional CapEx, and again we've had a chance to look at some of the return profile in those and we felt it was also doable and important for us to try to accelerate that as much as we could.

So it's combination of additional capacity increases along with accelerating some transformation initiatives that we had originally scheduled for later this year and early into next year..

Thanks. And just one last one, Stephan on the guidance, you mentioned you expect broad based trying to continue in the quarter across geographies, across the segments, though at varying degrees.

Can you just help me – give me a little more detail as to what you meant by the varying degrees piece of that comment?.

Well, we really don't give guidance by segment and I would say we certainly expect the growth to continue, and for our segments to be solidly within their long-term guidance range, and as you know that’s – that range differs by segment. But let me leave it at that..

Yes, Adam, maybe little help I can – let me give you a Q3 growth rates by region and I will kind of show you a little bit of – some of that dispersion. So on an overall consolidated basis, U.S. grew 9%. Europe was up 10%. Latin America was up 22% about two-thirds of that was volume one-third pricing.

Asia was up 14% in the weighted of all those gets you to a 11%..

Thank you, Bob..

Thank you. Our next question or comment comes from the line of Debbie Jones from Deutsche Bank. Your line is open..

Hi, Good morning. Congratulations on the deal on the quarter. I just want to start with Beauty and Home, you mentioned the specific growth rates to have each category. One in travel, you said it’s a robust quarter, still little confusing to me as to what was driving that and whether or not it’s sustainable.

And then you did say you're still confident in your long-term growth targets, but could you give us a sense between beauty, personal care, and home? How much is the growth that you saw in the quarter is sustainable?.

Let me start off with the travel and maybe Bob can add some color. We are benefiting clearly from global synchronized growth. Consumers are doing well, feeling well. And in particular the Chinese luxury consumer is feeling well, spending and traveling.

So that's what's really driving growth in travel, retail and all of our luxury customers report significant growth in Asia. I would say that’s the biggest driver..

And then as far as some of the drivers, as we said beauty was up 6%, we said facial skin care as well as travel retail was driving part of that growth. It's hard for us to say what travel retail is going to do going forward.

And some people are saying that cost of flights is going to start increasing here soon and if that happens you may see less people traveling. Tariffs and international travel have an impact on that that. It's impossible for us to kind of gauge what that’s going to do whether that's sustainable going forward.

Personal care market in the quarter was up 16%. Missed if I mentioned, some of the few key projects that we've launched in the quarter like Johnson & Johnson, relaunched their iconic baby care line. So I think some of that probably is a little bit of a pipeline still to get product into the market.

I certainly wouldn't expect personal care on the go forward basis to grow in that 16% range. And then home care market obviously is much smaller for us and that was up 6%. So I don't see that as a problem for that going forward..

Okay. Thanks. That's helpful.

And I want to touch on the acquisition, are you planning or could you just help us understand the level of integration that you're expecting between the acquired asset in your existing Pharma business? Do you plans to run a more decentralized model or centralized things? And then if we look to the SG&A comment you made, is this really the couple million dollars you called out? Is that from procurement or SG&A? I'm sorry the synergy comment you made is that from procurement or SG&A? And is there any way you can give us a sense of whether or not you see more or you could be optimistic about going forward once you kind of get in there?.

Couple comments. One is the technology that CSP brings is really applicability across all of our segments. And therefore, it's important that we interface with all of the segments. We are very excited that, one, CSP is a strong management team, and all of the management team are coming with the deal and will continue to drive progress of the business.

When we talk about synergies, it's really indeed back office, SG&A, purchasing, some productivity improvements in the plants. When you look at the unit operations, the unit operations of CSP and our unit operations are almost identical when you think about injection molding – by injection molding quality systems.

So there will be some productivity opportunities. In addition to that, of course, they have extrusion compound and compounding capabilities as well as their molecular expertise. So they bring some additional technology to us. But we will look for the CSP team to work closely with all three segments.

Of course, initially will be predominantly Pharma and food activity..

Okay. Just last one for me.

You mentioned some opportunities in Asia, I am assuming that’s Pharma related, and just wanted to get a better sense of that?.

Yes. Look, I think they are actively looking for expansion opportunities in China, which is going to start up at plant in Guangzhou at the end of this year. So it will be an easy thing just to [open up a bay] and help them accelerate progress..

Okay. Thanks. I’ll turn it over..

Thank you. Our next question or comment comes from the line of Chip Dillon from Vertical Research. Your line is open..

Hi. This is Salvator Tiano filling in for Chip.

How are you?.

Good.

How are you?.

Great. So my first question very short, so far this year while we assume the tax rate is, it's been quite below I think midpoint is 30% that we expect under the new construct.

And you did mention some issues affecting this quarter, but overall is there any indications and the new long-term tax rate is coming below what you disclosed in Q1?.

It's very challenging tax environment that we’re in. Still is a fair amount of uncertainty that’s out there with the way the tax flows are written today. If you listen to other companies that talk about it, everyone is scrambling right now to find ways to lessen some of the unintended consequences of the way to tax flow is written.

So it wouldn't be prudent for us today and sit here and say we think we can get it lower and so we really have had a chance to understand and also when the government is finally finished giving it interpretive guidance for the specific clauses.

And the other thing I want to mention is that there's always in the tax world one-off type items that are impossible to predict both positive and negative whether it's a tax audit or whether it's a tax refund that have been applied for, in some cases many, many years ago.

So what we try to do is give you a steady state guidance of 29% to 31% knowing that in any one quarter it could be lower and it could also be slightly higher. But we feel it's our best estimates of steady states going forward..

Sure, perfect.

And my other question just some on Pharma, the core sales growth 14% was exceptionally strong, I think you haven't seen that for at least six, seven, eight years and I was wondering were there any specific one-offs besides some tooling sales you mentioned this quarter, where for example the nasal decongestant sales above what you’re seeing normally in 2Q and something that may not return for the rest of the year..

So I can touch on the tooling part of it, just so we can isolate that. So tooling added about 3% to Pharma’s topline and then Stephan can take some of the more application field comments..

Yes. All right, I mean it's hard to quantify that, but certainly we had a strong flu season, there might be some replenishment of that strong offtake that has occurred into the supply chain. In addition to that, we just a broadening of distribution, you will see more and more of these products show up in club stores and three packs and five packs.

You also see more moving online and these distribution channels are harder to track for us..

Okay. It makes sense. Thank you very much..

Thank you. The next question or comment comes from the line of Mark Wilde from Bank of Montreal. Your line is open..

Good morning, Stephan. Good morning, Bob..

Hi, Mark..

Stephan, I want to just come back for a minute to kind of the growth rate historically and I'm kind of going forward for CSP. I see that Wendel has their release out and they're pointing to $103 million in sales in 2014 and $136 million in 2017. But they also know there was an acquisition there in the middle of it.

So I wondered if you could just help us a little more with kind of what you think the organic growth rate has been in recent years? And then talk about sort of what your strategy is to extend this franchise over the next three to five years and what that might imply in terms of growth rate?.

So Mark, you’re right. The acquisition that they did in the middle of 2016 tends to distort a little bit of the numbers there that you read. But as we said, trailing 12 months it’s about $140 million for us, probably will end the year around $143 million.

So if you take that with the 2017 figure that they disclosed that would give you really an apple-to-apples growth rate for CSP combined business with they would have had the acquisition for full-year 2017..

Yes..

Again I would say the kind of growth rate that we look at for Aptar and we look at Pharma in the 6% to 10% and for the company total in the 47%. I think CSP will be are well within those ranges. Now on the plans going forward, the CSP team has developed a very robust pipeline.

We of course will continue to support them to develop that pipeline and also brain new opportunities to them.

When you think about it, we have a much broader customer access in a much broader custom universe and what the CSP team is really good at is solving customer problems that are stability, product stability, short-life extension, and particularly as our customers look to be responsive to millennial consumers take preservatives out, have more natural ingredients.

Product stability and short-life are topics that are concern to our customers. And of course, not everywhere, but we fully expect that there will be opportunities where we can bring additional things into the pipeline.

Now bear in mind, in the Pharma pipeline anything that you started today, you will not see in the P&L until many years later, but certainly in the Food Safety pipeline and maybe in the cosmetics, we might be able to get one of the other project going.

But clearly on the one hand, we look to support the CSP team to continue to grow with what they haven't and help them with the international utilization and international footprint. And at the same time, hopefully add additional project to the pipeline based on our broad-based customer access..

Okay. Well it’s a really interesting acquisition, I’m just kind of curious, as a follow-on. Historically, the company is kind of sold itself as a producer of dispensing technologies. This is a little bit different.

How would you have us think about sort of Aptar kind of financial as we go forward here?.

Just want to jump in here for a second. So I mean if you look at the diabetes test strip vials, in fact that is a vial with a hinged closure with a tight seal on it with a lot of technology around it, including the desiccant property. So we would consider that really a closure type product.

But if you look at some of the other acquisitions we've done from the technology base and ones we've been most successful with whether it was the welding Bag-On-Valve line that we bought many years ago as an accessory to our existing Aerosol Valve line.

It was the silicon valve technology, which is an element and additive component to our closure product line. It’s a little bit how we look at the material science expertise that they progress.

How can we incorporate some of that into our existing product lines whether that is beauty and home skincare type products for cosmetic creams, whether it is oxygen scavenging type properties for beverage related product.

So the reality is we're excited about getting our business development people in to understand the technology and really hopefully we can get some really interesting projects that resonate once our people become up speed with what are the possibilities that CSP can bring..

Okay. Good enough. Thanks Bob. Thanks for the comments. Good luck in the second half..

Thank you. Our next question or comment comes from the line of Gab Hajde from Wells Fargo. Your line is open..

Good morning, and thanks for taking the question. I guess to keep on the CSP topic.

Can you talk about, I think, Stephan, you mentioned a new facility that they were already underway in constructing, and it sounds like you’re just going to kind of accelerate that? Is there potential for you guys to co-locate some manufacturing? It sounds like with some of the type processes?.

Yes. Thanks for the question. It helps me to clarify. What I was referring to, they were looking for a site in China to build and make some of their diabetes products in China. With all respect to CSP, if you are a medium, small-size company opening up in China, is quite a hurdle.

We at Aptar are in the finalization of constructing a new facility in Guangzhou. So it will be easy for us to offer some space there or at our existing facility in Suzhou accelerating the process of getting capacity in China. That's what I was referring to..

Okay.

And then, I guess can you talk to a little bit, maybe Bob, the capital intensity of this business relative to maybe Aptar or how it's looked over the past couple years, I mean having three production facilities seems like it should be pretty well, but that obviously will sound like it could be evolving to as you guys look to do in the faster growing markets?.

Yes. It's a good problem to have right with the opportunities that they have on the table and the growth projections.

I mean we're expecting based on the diligence that we did about $20 million a year of capital for them, which is going to be slightly higher, if you look at it as a percent of sales in our businesses, but again, we would view this much like a startup growth type of business and $20 million I would say for us would be a normal expectation to fuel some of that growth..

Okay. Thank you. Good luck..

Thank you..

Thank you. Our next question or comment comes from the line of Daniel Rizzo from Jefferies. Your line is open..

Hi, guys. How are you? I’m sorry, if you touch on this before. But I was wondering what effect that changed in beverage design that you’re talking about in Europe and just the move away from the single-use plastic.

Is that has any positive or negative benefits for you guys?.

Well, let me zoom out and then zoom back into your question. One is, I mean we see this whole waking up to sustainability of our markets really as a positive and as an innovation opportunity.

We pride ourselves, but where we are in terms of sustainability both in how we operate our facilities and we haven't please take a good read of our sustainability report. It’s one of the most extensive in the industry.

And secondly also with our product solution that we have for clients to help along with that and now specifically on your question about water I think one of the storages of bottled water is the flat cap that you screw up and throw away and then that end up somewhere halfway around the world in the ocean and we certainly have solutions for one – for the cap to stay with the bottle or even more to have kind of more sophisticated slip lead type or engine closures that will ensure that the cap goes with bottle to the recycling.

And in general, I think we have the transition to a more circle economy where most of the things are being recycled and we certainly have solutions on the shelf to work with customers and clearly the interest is going up..

Okay. And then you called out raw material cost as a headwind in Beauty.

I was wondering specifically what raw materials you're referring to and what the outlook is for back half of the year?.

So the raw material for instance is always going to be primarily resin, but there were also some other additional input costs an increase. That was about $1.5 million roughly for Beauty and Home. Looking forward, sequentially going from Q2 to Q3, we expect that resin prices in the U.S.

to go up mid single-digits and now be relatively flat Q2 to Q3 in Europe. However, if I look at it compared to last year in the third quarter, both the U.S. and Europe will be up over the prior year levels..

All right, thank you very much..

Thank you. Our next question or comment comes from the line of David Stratton from Great Lakes Review. Your line is open..

Good morning and thank you for taking a question. Just have one since everything has been pretty much answered. And given the margin detail you highlighted around CSP, which was very helpful.

And then the previous question regarding the integration effects, can you give us any timeline as far as when you see the accretion taking place once you finally close on the deal? Will this be something that's accretive immediately or will integration costs push down?.

Okay. I'll take that one and I'll try not to get you too far into leads on that, right. So we're expecting a Q4 close, with that we're – we will start immediately the valuation of the counting treatment for the acquisition.

One of the biggest things that typically come in the evaluations is a write up of the existing inventory to really resale value or sale value. So it could be a quarter or two before that leaves off, so essentially you have – we will have a product sale for a quarter of two with no margin, until you can bleed that on your stock.

We were going to as we have historically in the past, call that out of non-GAAP that as an adjustment type item. So the remaining valuation items, which is the assignment of purchase price to amortizable and intangibles and fixed assets and things. Those evolving factors into our $0.10 estimate of accretion on an annualized basis.

So that’s about as good as I can give you at this point because there's too many other factors timing and final valuation results for the opening or the closing balance sheet rather for me to get into..

It’s very helpful. Thank you..

Thank you. [Operator Instructions] We have a follow-up question from Mr. George Staphos from Bank of America Merrill Lynch. Your line is open..

Yes. Three quick ones. Thanks for taking late in the call. First of all, I think the question was asked earlier on, how the views on plastics is changing the demand outlook there and what it means for your business. From your report, obviously you sell dispensing systems into pretty much any substrate in numerous markets.

Are you currently seeing any shifts from your customers away from plastic or towards the plastic for that matter versus the other substrates that's significant and worthy discussing today? That's question number one.

Question number two, in terms of CSP, are there any peers that are – I wouldn’t expect you to mention here, but are catching up on what that business does or do you think you have a really well defined mode that can last for a number of years with the business? And then lastly, now that it's huge, but I noted with injectables the growth that was a little bit lower than what we've seen in past years going back I guess to 2014.

Anything there that we should be aware of or is it just kind of a timing issue? Thanks guys. And again, good luck in the quarter..

George, let me take those and maybe Bob you can build on it. One is, we really do not see a shift away from plastic, but of course, you do see is a banning of throw away items like cutlery and straws and throw away cups. We obviously not on those.

From a sustainability point of view, as I mentioned, what we do see is a lot more interest in a solution that can be more easily recycled, particularly in the beverage area.

In general a higher interest in sustainability topics scrutinizing suppliers, do they have their act together on sustainability and where do they stand on things like the circle economy and those topics. And I think we score very well there and favorably. And certainly can improve our customers environmental footprint by sourcing from us.

So net-net, I think see that as a positive. And if you do life cycle analysis, I mean going to aluminum is not going to help your footprint..

Yes. One other thing I want to add to that George. We are such a small player in that bottled water market and juice market on dispensing closures compared to the broader overall market. There are far many more screwtop caps that don't have our hinged device on it.

So we've been talking about this internally for a very long time, and overall even the bottled water market could decrease. But what you see is the trend for convenience and on the go and people being more active in their daily life, wanting some convenience in their sports bottle application, and premium waters and other thing.

So that’s the dynamics that we're dealing with, quite honestly. We're just such a small part of the broader segment, but the part we participate in, we see the dynamics increasing with enhanced water flavors and things..

Yes. Bob, I was asking the question last from the water side, but I prefer more and more so even on food, but I think you guys would be able to discern trends given where you sit given again convenience demand for conveniences continuing. But I'm sorry, keep going..

Right. On the mote for CSP. CSP is a very unique technology and while there of course functional competitors here and there, there is no in kind competitor of any size that we are aware of.

And it's really their unique ability to tailor their molecular sieve and then create this three-phase polymer solution for different applications, whether it's for the release of molecules or the absorption of molecules and that in combination with their highly automated both visual and functional quality inspection with 100% inspection rate that gives them a very broad mote in terms of differentiation..

Yes. I mean, I would also add, I mean if you look at their main product lines, diabetes test strip vials. Those are tests which are very, very critical to an exactness of a glucose reading right. It's really critical diabetes to get an accurate reading whether they have high blood sugar, low blood sugar and how best to treat that.

So any moisture on those test strips significantly skews the results of that. So I would say that the technology that they have compared to what we've seen in the industry, it gives a different level of precision.

And along with those quality system that Stephan said really gives those pharma customers the comfort that those diabetes test strips and the diabetes patients that they can be very well assured that those test strips are going to be accurate and give them the readings they need to manage their health according..

And then you on your last question on injector, I wouldn't read anything into it other than it's a quarterly operation..

Okay. Excellent, guys. Thank you very much..

Thank you. Next we have a follow-up question from the line of Mark Wilde from Bank of Montreal. Your line is open..

Yes, just two quick ones.

Bob, any impacts from the trucker strike down in Brazil?.

No, I mean there's a little bit that’s in there. But overall I mean we saw our Latin America operations performed quite well. As I mentioned, we were up 22% and about two-thirds of that was volume related. So I think most of that is behind us and I'm not going to give anything about it.

There was an impact during the quarter, but we caught up by the end of the quarter..

Yes, okay.

And then just on CSP, there are a lot of patents involved here or is there proprietary – is proprietary technology?.

But it's really a mixture of patents, but also there's a lot of trade secret in proprietary know-how that’s very well protected. So it’s really the combination that is important..

Okay. All right, sounds good. Again, good luck in the second half..

Thanks..

Thank you. Our next question or comment as a follow-up from Ghanshyam Punjabi from Baird. Your line is open..

Thanks again.

Hey, Bob, I was just trying to get a sense as to how you exactly get to the $0.10 earnings accretion? We can kind of back into the EBITDA number based on the multiple et cetera, but what are some of the offsets there? And how much are you assuming for the inventories for the D&A step up?.

Well, again, the inventory step up, we're taking outside of that accretion number because we're going to – we're going to adjust that out as non-GAAP, in a non-GAAP figures. The $0.10 accretion again and I caution you since we signed yesterday, it's very early in the process.

So we're taking very broad based assumptions without not yet having done the accounting valuation work, over how much we plan to put towards intangible assets, know-how, time period. How much it will go to goodwill, which is not amortized.

So I think we've been – we've taken a fairly conservative approach to that $010, but again realizing that we just signed a deal yesterday. So we're trying – we need the question come up. We're trying to do the best we can, but we really won't be able to fine tune that officially until the final valuation reports complete..

Thank you..

Thank you. I'm showing no additional audio questions in the queue at this time. I'd like to turn the conference over to Mr. Tanda for any closing comments..

Very good, this really concludes our call today. Thanks everyone for joining us and see you at the third quarter..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day..