John Woolford - Westwicke Partners Don Morel - CEO Bill Federici - SVP and CFO.

Arnie Ursaner - CJS Ross Taylor - CL King Rafael Tejada - Bank of America Merrill Lynch Dave Windley - Jefferies.

Welcome to the West Pharmaceutical Services Second Quarter 2014 Results Conference Call. At this time, all participants are in a listen-only mode. This call is being recorded on behalf of West and is copyrighted material. It cannot be rerecorded or rebroadcast without the Company’s express permission.

Your participation in this call implies your consent to our taping. If you have any objection , you may disconnect at this time. And now I’d like to turn today’s meeting over to Mr. John Woolford from Westwicke Partners. Sir, you may begin..

Thank you, Operator. Good morning, everyone, and welcome to West’s second quarter 2014 Results Conference Call. We issued our financial results this morning and the release has been posted in the Investors Section on the Company’s Web site located at www.westpharma.com.

If you’ve not received a copy of this announcement please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately. Posted on the Company’s Web site under Investors on the Presentation Materials tab is a slide presentation that management will refer to in their remarks today. The presentation is in PDF format.

Should you require a link to a free download of software that will enable users to view the presentation, it’s also available on the website. I remind you that statements made by management on this call and in the presentation will contain forward-looking statements within the meaning of U.S.

federal securities laws and that are based on management’s beliefs and assumptions, current expectations, estimates and forecasts. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict.

These statements are subject to known or unknown risks or uncertainties and therefore actual results could differ materially from past results and those expressed or implied in any forward-looking statement.

For a non-exclusive list of factors which could cause actual results to differ from expectations, please refer to today’s press release as well as any further disclosures the Company makes on related subjects in the Company’s 10(k), 10(q), and 8(k) reports.

In addition, during today’s call management may make reference to non-GAAP financial measures including adjusted operating profit and adjusted diluted EPS.

Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in materials accompanying this morning’s earnings release. At this time I’d like to turn the call over to Don Morel, West’s Chairman and CEO.

Don?.

a very good quarter based on high value products and proprietary product growth. Second half demand is unfolding but we expect some quarter-to-quarter lumpiness due to seasonality and customer inventory management. We’ve made excellent progress on CZ and SmartDose, including the initial CZ filing which we expect to take place later this year.

There are no changes to our fundamental long-term growth drivers and it includes a strong and growing pipeline of biologics within our customer base. I’d now like to turn the call over to Bill Federici for a more detailed discussion of our financial results.

Bill?.

Thank you, Don, and good morning everyone. We issued our second quarter results this morning, reporting net income of $37.6 million or $0.52 per diluted share, versus the $0.43 per diluted share we reported in the second quarter of 2013. There were no non-GAAP adjustments either this quarter or the comparable prior year quarter.

Turning to sales, Slide 7 shows the components of our consolidated sales increase. Consolidated second quarter sales were $368.9 million, an increase of 5.3% over second quarter 2013 sales excluding exchange. Packaging Systems sales were $268 million, 4.5% above same quarter 2013 sales excluding favorable exchange.

Our mix of products sold was favorable in the quarter with High Value Products increasing 8.5% above Q2 2013 levels. Delivery Systems sales were $101 million this quarter, an increase of 7.2% over the prior year quarter excluding exchange.

Crystal Zenith product sales were $5.8 million in the current quarter, approximately $1 million above Q2 2013 levels. Much of the CZ sales were comprised of vial and cartridge samples. SmartDose sales were $2.6 million for the quarter, up nicely from the prior year quarter’s sales of $400,000.

Sales of proprietary products were $27.2 million or 27.1% of the segment’s revenues in the quarter versus the prior year quarter’s 25.6%. As provided on Slide 8, our consolidated second quarter gross profit margin of 33% was eight tenths of a margin point higher than we achieved in the second quarter of 2013.

Packaging Systems second quarter gross margin of 37.8% was nine tenths of a margin point higher than we achieved in the second quarter of '13. The increased margin reflects the favorable mix of product sold and stable raw material cost.

Delivery Systems second quarter gross margin of 20.3% was eight tenths of a margin point higher in Q3 ’13 benefiting from increased plant utilization and a better mix of product sold. As reflected on Slide 9, Q2 2014 consolidated SG&A expense decreased by $2.2 million versus the prior quarter.

As a percentage of sales, second quarter 2014 SG&A expense was 15.6%, versus 17.3% in the second quarter of 2013. Lower retirement benefit cost, incentive compensation, and employee medical benefit cost accounted for the majority of the decrease in SG&A cost. Slide 10 shows our key cash flow metrics.

Operating cash flow was $73 million for the current year-to-date period, $25 million less than the comparable prior year period, mostly due to the $20 million licensing payment for SmartDose received in June 2013. Our capital spending was $56.2 million for the first half of’14.

We expect to spend approximately $125 million to $145 million in capital in 2014. Approximately half of the planned capital spending is dedicated to new products and expansion activities, including approximately $13 million for the new Packaging Systems facilities in China and India. Slide 11 provides some summary balance sheet information.

Our balance sheet continues to be strong and we’re confident that our business will provide necessary future liquidity. Our cash balance at June 30th was $226.7 million, down $3.3 million from the December 2013 balance. A large majority of our cash is invested overseas and is generally not available to be repatriated to the U.S.

without incurring net tax consequences. However, during this quarter we repatriated approximately $28 million of offshore cash, which we used to pay down debt and advanced fund a $3 million pension payment at June 30th. Debt at June 30th was $361.5 million, approximately $12 million lower than at year end.

Our net debt to total invested capital ratio at quarter end was 12.2%. Working capital totaled $464.2 million at June 30th, $50 million higher than at year end. The majority of the increase is due to higher inventory and accounts receivable balances.

Our backlog of committed Packaging Systems orders stands at $314 million at June 30th, equal to year end levels but about 9% lower than the June 2013 backlog. We attribute the decrease in backlog to our success at reducing production lead times alleviating customers need to place orders earlier to assure delivery.

While lower, the composition of our backlog remain strong with High Value Products representing 51% of the orders compared to 47% as of June 2013. The decrease in backlog does reduce our short-term visibility, but discussions with our customers show no loss of business and no change in longer term expectations.

Based on our year-to-date 2014 results and our analysis of our orders on hand, we have confirmed our full year 2014 diluted EPS guidance in this morning’s release.

We have reduced our sales growth expectation for 2014 based on less near-terms visibility and continuing customer inventory management including global movements of customer products sourcing.

The sales reductions are expected to be offset by a strong mix of product sold as evidenced by the strengthening high value product mix within the current backlog and continued lean savings. That guidance is summarized on Slide 12. We have based our guidance on an exchange rate of $1.37 per euro, the same ratio used in prior guidance.

Our Q3 results will have tough comps to the prior year quarter when a surge in high value product sales and strong price increases drove a 10.9% increase in consolidated sales and a 50% increase in adjusted diluted EPS. Nonetheless, we expect modest EPS gains for Q3 versus the record 2013 quarter while Q4 comps will be less challenging.

I’d now like to turn the call back over to Don Morel.

Don?.

Thank you very much, Bill. This concludes our prepared remarks for this morning. We look forward to answering of you questions.

Operator?.

Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) First line of question comes from the lien of Arnie Ursaner of CJS. Please proceed..

Don, I think you want to add your weight three or four times to highlight customer order patterns, lumpiness and various other terms that lack of visibility or less visibility for Q3 and obviously you’ve always had this issue.

Could you explain a little bit more on what you’re really seeing there and because again $314 million backlog is far from a negative number. So maybe talk a little more about what you’re seeing backlog and why you are a little more uncomfortable about visibility. .

I think it’s a combination of things as I outlined in my remarks; first of which is that in the third quarter as you know, we get our historic seasonality. Europe shuts down. We do a PM&A in the plants. So that certainly is part of it. We’ve got the factors that of many of our med device customers actually end their fiscal year on September 30.

So they are pulling back on some of their orders based on what they are seeing in the marketplace. And then we have the issue at the beginning of the year where we have these two or three one of items and we weren’t certain how those patterns would unfold when that business started to come back. So as I said, we’re very optimistic about the full year.

We will deliver a good year. But those things combined give us a little bit less visibility and backlog than we would ordinarily have.

The other issue of course is that we brought additional capacity online whereas last year in the third quarter, when we saw this tremendous demand on the HVP side because our customers were under the impression that we had constrained capacity, we don’t have that issue and lead times for those products shot in some cases to 20 to 24 weeks down into our more traditional 12 to 14 weeks.

So they're getting more comfortable placing orders in that timeframe as opposed to the longer lead times. So overall, no real change from what we’ve seen historically but those things that have tribute to a little less visibility than we would ordinarily have. .

My second question relates more generally to one of your customers, Amgen, an announcement they made recently about restructuring and capacity.

Could you comment on how you envision that impacting a company like yours on a go forward basis?.

It’s a broader question for the industry and that has to do with manufacturing footprint and capacity off of the given line.

So one of the things we see anecdotally is a subtle but increasing shift away from massive clean rooms and massive infrastructure that can handle very high volume-filling requirements to shorter lower-volume runs that can be done in smaller, contained environments such as barrier isolators. Our customers have massive infrastructures.

They are looking at their own production needs. I think they are also looking at what their future products are going to look like in terms of yearly demand.

They would rather deal with 2 million-unit run on a system that has 2 million to 3 million unit capacity for growth then they would on a 20 million unit line, run for a couple of weeks, shutdown for a couple of months and then go through all of the requirements to start up again.

So I would not be surprised as a general rule to see many of our customers begin to look at this kind of an option. For us, it doesn’t really change anything because the inventories will be kept the same and our volumes won’t change unless there is organic growth in any specific drug..

Thank you for your question. The next line of question comes from Ross Taylor of CL King. Please proceed..

Yes, just missed a couple of your comments related to the CZ filing you expect in 2014.

What was the timing you would expect for your approval of that and when could your sales maybe start to ramp up related to that product?.

Yes, I think assuming that it follows the timeline that we’ve been given by the customer, approval would take place sometime early next year and we would expect commercial volumes to begin ramping up sometime in the second or third quarter based on the time of the regulatory cycle.

Just to be clear, this is a custom container that is different from the syringe and it’s a very unique product that is being done with a supplement for an existing product, not a new drug..

And also you mentioned as part of the reason for bringing down your organic revenue growth forecast, I think you mentioned something like global changes in product sourcing.

What were you referring to there exactly or maybe you could just give us some color on that?.

Yes, there is a couple of things. I’ll let Bill handle the sourcing question, but just to be clear, we think it’s a timing issue.

So you will remember in the February call, we talked about these process changes within our plants and we expected to see those volumes begin to develop further in the year as customers worked down the inventory they'd ordered in '13. That is a happening but a little bit slower than we thought.

So some of the orders that would have taken place in Q3, Q4, we believe are going to come in late Q4, but not be delivered until the early part of 2015. So I’ll let Bill address the geographic answer..

I think Ross, what we're seeing is based on some of the difficulties that some of our customers were having regulatory wise, you saw -- especially in the generic space, you saw a lot of movement of those products sourcing around the globe. It was moving from -- in one customer’s sense it moved from Europe and United States over into Asia.

So there is a lot of movement, a lot of different players that are picking up the slack from the regulators slowing down the ability of some of those contract manufacturers to produce. And by having all those things, all those moving parts and different players coming in and out of the story, it makes it very difficult to track actual needs.

And what we saw last year and we’ve talked about it already in Q3 last year, we had a big surge in high value product orders. Some of that was due to this phenomenon where you had multiple different players going after these -- to fill the blanks left by these other customers who are having regulatory problems.

So when we look at it this year and we look at the reduced backlog from the perspective of shorter lead times and some of these pieces that are moving around, it makes this less visibility issue a little tougher for us to predict exactly when it’s going to come out, as Don said.

We know that all of the underlying favorable trends that we’ve seen in our business, especially at it relates to biologics remain unchanged. We know that we've got no loss of business from customers’ perspective. It’s a just function of timing and when will those orders come back into the order book.

So it’s just the global nature of those products and then moving around just makes it a little more complicated for us to be able identify exactly when it’s going to come back..

Thanks for your question. The next line of question comes from the line of Rafael Tejada. Please proceed..

So just wanted to comment a bit more on the change to the top line guidance. I know that it's specific to packaging. So you mentioned, backlog contained more high value products.

So can give specific examples of sort of products I guess that you’re -- that are coming out of it and I would presume that it’s more standard product and you’ve talked about what’s going on in terms of sort of the issues, what’s sort of product the ones been impacted?.

Yes, there is a couple of things in there, the first one of which is, yes, it is some standard product, it is some disposable med device where we tend to see much short lead times.

You may recall from the February call, we spoke specifically about Teflon-coated plungers for prefilled syringes and the two customers that has ordered larger quantities in the third quarter of last year. Those two combined make up the bulk of the shortfall and again it’s a timing issue.

It’s a shift that’s going to happen when those come back in 2015..

Okay that’s helpful.

Again just to be clear, M&A and sort of asset transfer changes that we saw earlier this year, that’s not having any sort of impact on I guess the timing of order in packaging?.

Not that we can put our figure on, no..

Okay.

And with regards to the CZ filing, any sort of color that you could give us on the type of drug that it is, volumes or therapeutic area for this filing?.

Not that I’d be comfortable with. That’s customer proprietary..

Okay, I had to try.

And my last one just one -- I guess as this filing occurs, what sort of preparation do you need to do on your end to be able to meet some of the anticipated demand?.

Yes, we actually, on this particular product, we've already started -- the primary capacity is more to go into the injection class. So, we are ready for volumes as they unfold. There'll no additional capital investment that we can see right now to meet to those volumes..

And lastly, do you think that this sort of expedites any conversations that you have with existing customers, those that are kind of brink of whether they do want to use this product or not?.

I think it’s just case by case. It depends on what’s driving the need. If it's a new product and a compatibility issue; it’s one thing. If it's an existing product going to exist in product with the lamination of the glass as the primary driver, it’s going to be another issue. The conservations have been ongoing at a high level for several years now.

It’s just the fact that of the matter that it’s working its way through the approval process much like a new drug would and the timelines are somewhat comparable.

The good news is we’ve seen no reduction in levels of interest and in some cases, especially as it relates to developmental interest in SmartDose where we use the CZ cartridge, its increased interest..

Thank you for your question. (Operator Instructions) Next line of question comes from the line of Arnie Ursaner of CJS. Please proceed..

A couple of follow-up starting with follow-up on Rafael’s question, obviously two figures I think are impacting people’s view of the industry, customer consolidation which would lead to dramatic changes in research in a short terms basis and also more concern over pricing of new orphan-type drugs that would be more likely delivered by biologics or through injection.

Are you seeing any of these impacts yet and how would you react to it, this fear or uncertainty investors are raising?.

No, we haven’t seen any impact yet and we ordinarily wouldn’t until the closing happens and then usually not until anywhere from six months to a year later as they start to prioritize their R&D program.

Usually by that time, they've made decisions and are fully aware of who they're are going to put on stability, especially for the drugs that are entering Phase III or are in Phase III. So there is quite a lag between when it’s announced and when we actually see an impact.

On the biologic side, we usually don’t see one because of the strength of the position of the Westar non-coated closures within that particular segment. So haven’t seen any impact yet. It usually happens when the product transfer start by that usually is not for lengthy period of time after the actual merger takes place..

But you're not hearing your customers indicate to you, be careful, we could see a dramatic change in the way we spend R&D or otherwise at this point?.

No..

Okay.

And then going back to the initial roll out or testing quantities of both CZ and SmartDose, could you comment on the types of margin you are getting now but importantly what you think you'll get when they do reach commercial volumes?.

Yes, it’s a traditional manufacturing run where in the early going, where you're doing small sample runs and you're not at volume and the margins you are lower. We expect our efficiencies will improve dramatically as we ramp up volumes.

I think you will see fairly traditional device volumes out of both of those as we go through commercial sales and that would be north of 45% or 50% on a gross margin..

And then just a quick follow up on SmartDose. I know you manufactured in Israel. Clearly there is uncertainty related to Israel. I know you are building a facility.

Have you seen any impact yet at all in your facility there and are you seeing customers change their order patterns to try to allow for that uncertainty?.

No, our facilities are secure, our folks are working. There has been no disruption to this point. Obviously we encourage them to take all measures to stay safe. We have contingency plans that we put into place for manufacturing for the products that come out of Israel that we could put into place should the situation dictate it..

Thank you for your question. The next round of question comes from the line of Rafael Tejada of Bank of America Merrill Lynch. Please proceed.

Just one quick follow up -- just wanted to make sure I heard you correctly on EPS for Q3.

I guess you're expecting just a couple -- did you say $0.02 of growth year-over-year? And also just wondering if you can just talk I guess about -- I know this seasonality in Q3 typically to the degree that it might just differ from what we’ve seen in the past?.

Yes, I think we talked about a modest increase in Q3 versus prior year, Rafael. This is why we don’t guide the quarters. We are more comfortable with the guidance for the full year and as we’ve talked about on the call, we’ve reaffirmed that guidance. I don’t think we’ve seen anything different out of the seasonality.

We’re certainly not through August yet, which is a primary period for the Europeans to do their planned shutdowns and PM&A. They key is always and we’ve talked about this before, it's how efficient we are in the startup coming out of that shutdown period. So September tends to be a huge driver.

If we do have some orders flip that don’t fall into the quarter, they'll go into the fourth quarter then we will pick it up then..

The only thing I would add is that in Q3 2013, we had that big surge in high value product orders as Don mentioned earlier. So seasonality last year was a little skewed. This year it’s more back to what we see as a normal.

I would also mention that the high value products, we continue to see that the growth in the range that we’ve talked about in the past, but the volatility from quarter-to-quarter is increasing. So we saw in the first quarter it was a -- High Value Products actually decreased versus the first quarter of the prior year.

In this quarter they were up nicely 8.5%. So you have this effective Q3 2013 having been very, very high percentage growth. It was over 23% growth in High Value Products last year in the third quarter driving that good results. And it was a more modest growth in high value products in Q4 of 2013.

So while we're seeing now change in the overall trajectory or the fact the macro drivers of the business, we are seeing a lot more volatility quarter-to-quarter, especially in high value products..

Thank you for your questions. The next round of question comes from the Dave Windley of Jefferies. Please proceed..

So we had a couple of it that came to mind. One around -- a kind of a follow on to Rafael’s question there.

Coming out of 1Q where backlog had been down a little bit at year end and improved significantly by March, with High Value Products being kind of a big driver of that improvement, I guess I would have expected high value products to outpace overall packaging in 2Q and I think if I read this right that your constant dollar packaging was like 11% and high value was 8.5%.

Am I looking at that right and why is that dynamic?.

Yes, growth in PDS was about 4.5% adjusted for currency and the HVP growth was about 8.5%. So it’s roughly 2x on the HVP..

I read the 4.5% higher as meaning higher than 6.6%. So I apologize..

To answer the other part of your question about the volume, the dollar volume of the backlog, remember that our lead times have come down. So we would expect orders to -- the volumes of orders -- to share dollars of orders to have contracted a little bit, which it did, at same level at yearend but lower than the June 2013 number.

But the percentage of high value products in the backlog has increased which is what we would expect..

And on that Bill so the -- we again joined late and I was looking to show on and we didn’t hear a backlog number.

Did you give a backlog number for the June 30?.

Yes, 314, which is the equal to the 20 day, December 2013 balance and 9% lower than Q2 2013..

Okay.

How about kind of penetration statistics on high value products? Are they still quite low?.

They in their 40s. We’ve talked about before..

For the mature high value products like Westar and Teflon coating, you still have some that are very small basis and growing like Envision and like our NovaPure lines, which we see great promise into the future. We still -- as I mentioned earlier we don’t see a change in the trajectory of our growth in high value products.

Its grown double digits over the last five years. We continued to that. We think that it will still be in that same 8% to 12% as we go forward, with the caveat that we’re seeing a lot more volatility in the quarter-to-quarter comparison..

Okay and again I’ll ask one more at the risk of repeating, but you highlight that this quarter's margin did benefit quite nicely from an actual decline in SG&A cost related to a least of things that you named.

How should I think about the transient and non-transient nature of that?.

I'll take them by the numbers. The decline in the retirement benefit cost is something that we’ll continue for the rest of the year. And obviously each year you have the actuary give you valuation and that dictates that what the following year’s pension expense would be.

If rates rise, as we all expect them do, the timing of which we don’t know but if we do believe they will rise -- we believe that we'll see a further contraction in the expense. We are also putting some money into the plant that will also help reduce the expense going forward. In terms of the -- we have other things that impact it in the quarter.

We had incentive compensation costs that were less. That's purely a function of the results. Our incentive compensation is driven by the performance of the Company. And if you look at last year’s this time, the Company was performing, just came off some very high performance.

So we looked at our bonus calculations and our incentive comp calculations and that drove them up in the prior year. This year they’re not nearly as robust. So you actually have comparison, quarter-to-quarter comparison. We have less of an expense from the incentive cost. And employee medical benefit costs were also down.

We are on a -- we look at the actual claims that have been made against our policies and adjust accordingly and our experience has been better than we expected and so therefore we ended up with less employee medical benefit cost in this quarter..

Thank you. Thank you for your question. Ladies and gentlemen, that now concludes the question-and-answer session. I would now like to turn the conference over to Don Morel for closing remarks. Thank you..

Thank you very much, Operator, and thank you everyone for your time this morning. Terrific second quarter for the Company. We look forward to reporting back to you at the end of October in our Q3 call when we’ll update our long-term plans. Thank you very much. Have a great day..

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Enjoy the rest of you day. Thank you..