West Pharmaceutical Services, Inc.

Thank you, Operator. Good morning everyone and welcome to West’s fourth quarter and full-year 2011 results conference call.

We issued our financial results this morning and the release has been posted in the Investor Section on the company's website located at www.westpharma.com. If you have not received a copy of this announcement, please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately.

Posted on the Company’s website is a slide presentation that management will refer to 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 is 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 law and that are based on management’s beliefs and assumptions, current expectations, estimates and forecasts.

Statements that are not historical facts, including statements that are preceded by, followed by, or that includes words such as estimate, expect, intend, believe, plan, anticipate, and other words and terms of similar meaning are forward-looking statements.

West’s estimated or anticipated future results, product performance or other non-historical facts are forward-looking and reflect our current perspective on existing trends and information.

Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. These statements are subject to known or unknown risks or uncertainties and therefore actual results could differ materially from past results and those expressed or implied in any forward-looking statement.

You should bear this in mind as you consider forward-looking statements.

For a non-exclusive list of factors which could cause actual results to differ from expectations please refer to today’s press release. Investors are also advised to consult any further disclosures the Company makes on related subjects in the Company’s 10-K, 10-Q, and 8-K reports.

Except as required by applicable securities laws the Company undertakes no obligation to publicly update forward-looking statements whether as a result of new information, future events, or otherwise.

In addition, during today’s call, management may make reference to non-GAAP financial measures including adjusted operating profit and adjusted diluted EPS. These measures and their component parts have no standardized meaning prescribed by U.S.

GAAP, and therefore may not be comparable to, and should not be viewed as a substitute for U.S. GAAP operating income and diluted EPS.

Reconciliations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in materials accompanying this morning’s earnings release.

At this time, I would like to turn the call over to Don Morel, West's Chairman and CEO. Don?

Thank you very much John, and good morning everyone. Welcome to this morning's call to review West’s fourth quarter and full-year results for 2011.

Joining me today are Bill Federici, our Chief Financial Officer; and Mike Anderson, our Treasurer and primary investor relations contact.

Bill and I will refer to slides throughout our prepared remarks this morning which can be found on our website. The content of those slides is covered both in this morning's release and our commentary.

The fourth quarter results are summarized on slide 3. And I'll begin with the highlights shown on slide 4.

We finished the year on a very strong note with revenues increasing 6.8% to $295.4 million on a consolidated basis, even with the unfavorable effects of currency.

Revenue growth was driven primarily by gains in the Packaging Systems segment, which grew 8.6%, with strong demand in Europe for our high value products such as Westar and Envision, which rose over 12%.

Our gross margin improved 0.7 percentage points compared with the fourth quarter of 2010. The improvement in gross margin was driven in large part by improved operating results in our contract packaging operations within the Delivery Systems division.

Although helped by an improved sales mix and pricing actions to offset escalating raw material cost, the gross margin in the Packaging Systems segment declined slightly.

Our consolidated adjusted operating margin improved substantially by 2.4 percentage points resulting in adjusted diluted earnings per share of $0.59, an improvement of 40% versus the comparable period in 2010.

For the full year, revenues totaled $1.19 billion representing overall sales growth of 5.2% excluding currency impacts, and adjusted diluted earnings per share increased approximately 11% to $2.33 per share versus $2.10 for the prior year.

In the Packaging Systems segment, growth was strongest in Europe, South America and Asia and benefited from increased sales for diabetes products, value-added components and growth in emerging markets.

From an earnings viewpoint, the combination of pricing actions, an improving product mix, spending controls and main programs in our operations were able to mitigate to a large extent increases in raw material and overhead costs.

More importantly, the strong demand in our backlog and strengthening of committed orders we experienced in the second half of 2011 has carried forward into 2012. Within pharmaceutical packaging, globally, the current backlog stands at $282 million, up 16% from the same period last year.

We are optimistic about 2012 as many of the core business drivers we have previously discussed remain intact. Namely, we expect continued growth in systems for diabetes treatment, oncology, autoimmune disease and vaccines.

In addition, several key customers have received marketing approval for new molecules, which incorporate less components and reconstitution systems.

As we begin the year, order patterns in the packaging segment remains strong and we expect to bring several new production lines into operation in our contract manufacturing segment during the second half of the year.

We believe the consolidated sales will grow between 4% and 7% at constant exchange rates to between $1.215 billion and $1.245 billion, with improvement in our gross margins to 29.6% versus 28.5% reported for the full year of 2011. R&D expense will increase by approximately $3 million as the CZ 1ml long syringe and SmartDose systems move towards commercialization and clinical trials respectively.

Our guidance does include $10 million to $15 million of new sales that we anticipate generating for these proprietary products under development. However the timing of these revenues is largely up to customer decision points in their internal product development plan.

As a result, adjusted earnings at current exchange rate should fall between $2.37 and $2.55 per share.

Slide 5 provides some quick highlights of our ongoing expansion and product development program. The China rubber facility remains on schedule for completion at the end of 2012 and the startup operations in early 2013.

Construction of the India facility is slated to begin in the second quarter and the expansion of our Kinston, North Carolina facility to accommodate growing demand for Westar and planned additions to our highlighted product line is well underway and should be completed by the end of the year.

Demand for Envision has been particularly strong as customers and regulators continue to push for lower and lower levels of particulate matter in finished dosage forms. In the second quarter, West will initiate the global launch of NovaPure, the next-generation closure system developed completely in accordance with the principles of quality by design as outlined in the FDA’s guidance on quality systems for good, current manufacturing practice regulations.

Products developed in accordance with these principles are based on more focused science-based decision making, with rigidly predefined quality and performance specifications which are then designed into the manufacturing processes for production. Initially, the NovaPure line will encompass small volume vial [ph] closures in addition to puncture components for prefilled syringes.

CZ sales for the year totaled $7.6 million, slightly short of our goal for the year and principally due to a delay in the availability of validated filling capacity to formal stability and line trial.

In November, West announced its collaboration with Vetter Pharma and the installation of a dedicated CZ filling line, which is fully validated and is capable of producing units formal stability testing.

Our expectation is that several customers will begin the process as growing stability samples over the coming weeks and months. We continue to see strong customer interest in the SmartDose system for large volume self-injections.

And our efforts are now focused on validation of the CZ cartridge container so that those customers can begin the requisite stability studies as soon as possible.

We currently anticipate this will be in the second quarter. We also continue to feel the significant number of inquiries for custom CZ systems for delivered volumes in excess of 1 ml.

We believe that those capabilities will help to eliminate the 1 ml upper limit for biologic drug formulations in current prefilled formats.

In our safety systems product line, we executed a new, 3-year supply agreement with a key customer for our Eris system, and expect to launch a new passive safety system in the second quarter. We have also secured 2 new programs with the Medimop Vial Adapter, representing 12 million to 14 million new units for 2012.

Overall, we finished 2011 on a strong note, with demand carrying into the New Year and remain focused on generating profitable growth from our strategic expansion and product development programs.

I'd now like to turn the call over to Bill Federici for a more detailed look at both our fourth quarter and full year results, along with our revenue and earnings guidance for 2012. Bill?

Thank you, Don, and good morning everyone. We issued our fourth quarter results this morning, reporting net income of $18.9 million or $0.54 per diluted share versus the $0.18 per diluted share we reported in the fourth quarter of 2010.

Our fourth quarter results are summarized on slide 3 of the accompanying PowerPoint presentation and in the release. As explained in the release, results in both periods included restructuring charges, adjustments to our liabilities for the continuing consideration from recent acquisitions and discrete tax items.

Excluding the effect of these items in both periods and a Q4 2011 separation benefit cost, fourth quarter 2011 earnings were $0.59 per diluted share versus the $0.42 we earned in Q4 2010, a net increase of 40%.

Turning to sales, slide 6 shows the components of our consolidated sales increase. Consolidated fourth quarter sales were $295.4 million, an increase of 7.2% over fourth quarter 2010 sales, excluding exchange effects.

Packaging systems sales increased 9.1% over same quarter 2010 sales, excluding favorable exchange effects. Sales price increases in packaging systems contributed approximately 3.6 percentage points of the increase.

Favorable sales mix and volume accounted for the remainder of the increase.

Geographically, we were again strongest in Europe and Asia. North America sales grew modestly during the quarter as compared to the prior year quarter due to customer regulatory issues that limited customer production levels and thus demand for our products.

For the packaging systems segment as a whole, sales growth in our high value products, specifically Envision and Westar process packaging components more than offset the customer-specific sales issues.

High value product sales increased 12% versus the prior year quarter. Delivery systems sales increased by approximately 2% over sales in the prior year quarter excluding exchange.

High demand for various contract manufactured healthcare devices drove the sales increase.

Sales of proprietary products were $18 million or 21% of the segment's revenues in the quarter, slightly down from the prior year quarter's 22%. CZ sales and development activity were approximately $1.7 million in Q4 about the same as in the prior year quarter.

Full-year 2011 CZ sales were approximately $8 million and total proprietary product sales including CZ were $67 million for the year.

As provided on slide 7 our consolidated gross profit margin for the quarter was 28.9% versus a 28.2% margin we achieved in the fourth quarter of 2010. Packing systems fourth quarter gross margin of 32.4% declined slightly from the 32.5% achieved in the fourth quarter of 2010.

High raw material prices continue to put pressure on margins. But the impact was mitigated to a sales price surcharge and other contractually scheduled price increases that went into effect over the past few quarters.

Delivery Systems fourth quarter gross margin improved 2 full percentage points to 20.1% compared to the prior year quarter. The improvement in margins was mostly from the increased volume in mix of revenues generated from the contract manufacturing side of the business.

Raw material price increases were largely passed through to customers with the exception of a net decrease in selling price to a contract manufacturing customer in Europe. Our restructuring efforts also helped to improve the overall margins in this division.

As reflected on slide 8, Q4 2011 consolidated SG&A expense decreased by $2.1 million versus the prior year quarter. Lower information system cost, restructuring savings and lower stock-based compensation cost account for the majority of the decrease.

As a percentage of sales, fourth quarter 2011 SG&A expense was 16.4% versus the 18.2% in the fourth quarter of 2010.

Slide 9 shows our key cash flow metrics. Operating cash flow was $41.8 million for the quarter ended December 31, 2011.

Our strongest quarter for the year but still $5.4 million below the prior year quarter with most of the difference attributed to the settlement of differed comp and pension obligations.

Capital additions of $47.8 million remain in the quarter including $14.4 million in the accrued capital most of which is for the new corporate office facility. $15.4 million of the capital is spent on new products and expansion efforts.

Our full-year CapEx was $122 million in 2011 including the accrual of $25 million of cost mostly associated with our new corporate office and research facility.

We expect to spend approximately $135 million to $155 million in capital in 2012 including approximately $40 million of cost associated with our new corporate office and research facility.

The building’s cost will be funded upon its completion and we expect to -- which we expect to occur at the end of 2012 or early '13.

Slide 10 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 December 31 was $91.8 million, $18.4 million below our December 2010 balance. However, not included in that cash balance is $26.5 million of short-term investments purchased primarily in '11 with maturities of less than one year.

About 80% of our cash is invested overseas, 2/3 of which is not available to be repatriated to the U.S. without incurring significant tax consequences.

Debt at December 31 was $349.4 million, $9 million lower than at year end, due primarily to repayments on our revolving debt facility. Our net debt to total invested capital ratio at quarter end was 28.2%, slightly lower than the prior year-end ratio.

Working capital totaled $228.8 million at December 31, $38 million lower than at the prior year end, with $11 million of the decrease due to foreign exchange. Main reason for the decrease in working capital is due to the reclassification of $50 million of our private placement notes to current liabilities reflecting their stated maturity date of July 2012.

The increase in our accounts receivable balance is due to higher sales levels in the current quarter versus the fourth quarter of 2010. Accounts payable balances also increased due to higher year-end purchases from Daikyo and accrued capital spending.

We issued our full year 2012 guidance in this morning's release. That guidance is summarized on slide 11.

We have based our guidance on an exchange rate of $1.32 per euro. By contrast, our 2011 actual results are translated at $1.39 per euro rate.

This strengthening of the dollar creates adverse earnings comparisons to the prior year. Each one penny strengthening of the dollar versus the euro results in just over $0.01 reduction of full-year EPS as a result of translation.

We believe revenue growth will be in the 4% to 7% range in constant exchange rates. Our consolidated sales for 2012 should be in the range of $1.215 billion to $1.245 billion at current exchange rates.

Both operating segments should generate margin expansion. As stated in the earnings release, our guidance for 2012 includes an estimated $10 million to $15 million of growth in CZ and other proprietary products.

R&D funding for these programs is expected to be about $3 million more than in 2011. Using these assumptions, our full-year earnings per diluted share should fall in the range of $2.37 to $2.55 excluding restructuring cost and including adverse currency effects, without which our 2012 EPS guidance would be $0.09 to a $0.11 higher.

Slide 12 shows the significant factors that are expected to impact our margins in 2012. We expect higher than average price increases, a continued favorable mix shift towards high value products and a strong lean savings program to more than offset higher raw material cost and normal inflationary pressure on cost.

We expect these net affects will produce expanded margins in 2012.

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

Thanks very much, Bill. This concludes our prepared remarks for this morning and we'd now be pleased to answer any questions you might have.

Operator?

My first question relates to the guidance you provided, which increased a little bit from what you had given in November from 4% to 6% or 4% to 7%. At the time in November, I think you had talked about price being 2%.

When you think about the 4% to 7% now, how much is mix and how much of it is price?

The price is just a little bit higher than that Arnie, somewhere in the -- approaching 2.5%, not quite there. And mix is also expected to be favorable as well.

Okay. And the new production lines that you highlighted in your prepared remarks, can you just remind me what they're going to be used for?

They’re actually contract manufacturing lines for 2 products that we expect our customers to receive approval. One should be in the second quarter and one should be late in the third.

And will the customer help in the funding of these facilities, or you hopefully have contracts where they'll take the output from these?

A little bit of both. I mean, it's a mix depending on a specific customer, but there are cost offsets through the tooling and some of the assembly equipment.

It's customer-specific.

Okay, my final question is on your backlog which continues to be a very positive surprise, very strong. Last year when you were talking at this time, you were highlighting that your customer orders were shrinking in terms of when they would give them to you, the size.

It became much more just-in-time, and you’ve been running very strong backlogs all year. Can you give us a little more color about what is behind the backlog growth?

Is there a lengthening of the delivery schedules? Are people willing to give you more of the order upfront?

What's changing there?

I think there is a whole host of factors. Part of it is timing, so we've got a number of large med device customers whose fiscal year ends September 30.

So clearly what they were doing was managing down inventories in our third quarter, and what we received was several large bonus orders into the backlog to begin their new fiscal year, which started October 1. But we’ve also seen general demand increasing in areas like diabetes, which we think is very positive, as well as some of the exports that we do out of Europe into the North Africa and Middle Eastern and Eastern European countries, so, strong growth there.

A little bit of it is an extension of lead times. When our factories get to the point where we’re running them now, which is kind of that mid-80s utilization level, you will see lead times extend a little bit.

So it's so far manageable.

Thank you very much for your time this morning. And this concludes our call for today.

If you have any further questions please do not hesitate to call Mike, Bill or myself. Thank you very much.