A
#Thanks for the question.
I have to say, it really was across the board, with one exception which is the chemical and energy markets.
All the other markets were up quite substantially for us.
And I think this is consistent with what we had talked about in prior calls, which is really there's going to be a level of investment in China relative to quality of life issues, environmental and food, lined up directly with their five-year plan that they're in the midst of a major improvement in their overall pharma industry.
And that there's a lot of money going into research.
Then I think the reason Agilent has been able to do so well here is we've got this combination of we've been working the organizational structure, our channel model in the country, we've had a lot of stability over the last 18 months.
So we've got a really strong team there.
And that combination of the team, our historical strength in China, and the new products we have, it's all coming together in terms of growth.
I guess maybe I'll just add one thing.
<UNK>, perhaps you can comment here.
We often talk about the strength of end markets and the new products going into these end markets.
But I think there's something going on relative to your business there and the move to services I think it's worth commenting on as well.
Thanks, <UNK>.
And thanks, <UNK>.
To add a little color to that, is we've seen a fundamental shift in buying behaviors in China, largely shifting from the core areas and around Shanghai, Beijing, to some of the more Tier 2, Tier 3 cities where services now is viewed as a commonplace purchasing item in China.
And it's certainly driving the growth.
The breadth of services, I think in China, as well as the consumables business now, is the rest of the story where they have reached the size and scale that they have the same interest that we'd find in the Western markets around enterprise services and consumables all coming together.
So starting as you mentioned, <UNK>, with our extraordinarily strong position to start with, the install base of China has just allowed us to build the business and truly outgrow our expectations in the second half around this, too.
I mentioned ---+ I asked <UNK> to comment on that because as you may recall, we really have changed the portfolio composition of the Company to be much more in the aftermarket.
So [CapEx] instruments are actually less than 50% now of total Company's revenue.
And historically, China has been driven by new instrument purchases.
We're seeing increasing growth also coming from services and consumables.
The main reason for the increase, which is about $60 million, from $139 million this year to $200 million next year is really the significant increase that we are planning in terms of our nuclear acid facilities, RNA-based therapeutics in Colorado.
So we had one facility.
We're still expanding the capacity of that facility.
But we are building.
And we just started a few weeks ago 20 miles away a second facility that will kind of double the capacity when it will be put in production end of 2018, 2019.
That is the main reason for the increase.
Starting in 2018 we should start ---+ we will see a reduction in the CapEx.
This is not the run rate.
Our CapEx run rate is still between $100 million and $120 million per year.
This is way above our run rate.
Sure.
Yes, <UNK>.
Thanks for the question.
I think I'll pass it over to <UNK>, maybe get a little bit more color on the quarter results.
Yes.
We really continue to see overall in our Radiance pick-up, driven definitely by Omnis that we see the growth is coming back.
It's nice momentum we're seeing.
It has continues to ---+ basically it has continued to increase over ---+ during 2016.
So with that momentum, we expect that we will continue to see a good performance into 2017 also.
From a reimbursement perspective, obviously there are already some expectation how that will look like into 2017 and 2018 with the [permits] on.
Now we'll have to see what happens under the new Administration here whether that will change anything.
So far we actually don't expect any significant changes in 2017.
<UNK>, feel free to augment my response here.
But I think obviously it's going to be volume, which is about 60% of the margin improvement comes from volume.
And the things that we can control, we're on top of.
So it's really ---+ that's the one thing I can't control, is what's going to happen in the market.
So obviously there's that 60% tied to margin.
And then we've got some pretty big initiatives in the gross margin area with our water fulfillment team.
I think you may have heard me speak previously about some of our work in value engineering, material cost, reductions, and logistics.
Also keep an eye on our gross margins as we work through the year.
Some of those things take a while to actually they start coming through your P&L.
Once they're there, they're there for an extended period of time.
And <UNK>, anything else you can add to that.
No just that we do have stretch goals, as we mentioned.
We are paid internally on achieving 22%.
And that means all of us have stretch goals to make ---+ to achieve that, to contribute to 22%.
And the OFS and Henrick, the order fulfillment and supply chain organization, which has delivered greatly in 2016 is looking at opportunities to deliver even more in 2017, which would help us bridge the gap.
Thanks, <UNK>.
One additional thought here is I think it's important to remind everyone, is that some of the things that are going to help in 2017 have already been finished in 2016.
So things such as our simplification of our financial system's infrastructure, so it's done.
And now the saving will show up in 2017.
No.
I would just mention that what we saw was really strong pacing throughout the quarter.
So it wasn't ---+ we didn't see something happen all of a sudden in the last 4 or 5 weeks.
We had strength all through three quarters of our fiscal year close.
<UNK>, great question.
I would point back to what we discussed back at the May <UNK> Day where we really said, what this is really all about is generating superior earnings growth.
If you think about what we're trying to do here, is we're trying to outgrow the market, expand the operation margin to keep driving up our adjusted earnings per share growth.
So what we like to be able to do is, really that should be the focus of the team as we move forward.
Operating margin expansion and capital deployment and the growth in market are all ways to get there.
So we'd like to really be, that have become the cornerstone of our long-term focus.
And we want Agilent to be viewed as a Company who grows their earnings faster than revenue.
But as I mentioned at the <UNK> Day is, I really want to also make sure that we don't get so focused on continuing to drive up the operating margin year in and year out that you pass on things that are [immediately], say, accretive.
Maybe they're dilutive on your margins, but with good M&A additions to the business.
I think the way we're going to talk about the Company post 2017 is very consistent with what we had talked about back in the spring in New York City.
Sure, <UNK>.
As I look through my notes here, I think we're expecting low single digit growth.
I think it's important to kind of parse it out by academia and government.
So we think, if I go by the major regions, China is going to be strong.
And they've actually helped mitigate some of what's been happening in the US and Europe.
We're not expecting much in Europe.
It's been down.
It was down again, but not ---+ it was basically sort of almost feels like the chemical and energy market, which is kind of chugging along at a reduced rate.
We're not expecting the governments there to do anything in terms of more stimulus.
In fact, one of the things we're watching is what are they going to do as a result of Brexit, among other things.
We expect a strong China, academia, and government.
We expect a continuation of this current environment in Europe.
In the United States, the academia side is not bad.
What we've seen more it's been on the US government side.
The US government, our US government business is down in 2016 relative to 2015.
And that's why in my call I mentioned, we need to see where this new Administration goes with its budget plans and investment priorities.
So right now we're kind of staying on the sideline, just saying it's going to continue do be just like it is but ---+ in the United States.
But we could see something different in a few months.
We just don't know.
I think you anticipated my answer.
So we basically have a flat line for the year and it hasn't ---+ it's been shrinking for the last 7 or 8 quarters, 2% or 3%.
I think we ended up down about 3% for the full year.
And we're basically saying it's going to be flattish for 2017.
If there's any good news to that story is, the fundamental industries are still out there in terms of gasoline is being produced.
We've seen record levels of production in United States, for example.
The plants are running.
There's a lot of discussion.
There's a lot of reports externally about a turn.
Oil prices have been inching up.
But our history here is that it's really hard to know exactly when it's going to turn.
What I can say is that if you have a profitability productivity message associated with something you can bring to the laboratory, then they might listen to you.
And we're hopeful that some of our new product introductions will hit the mark there.
But in terms of our overall market assumption and growth assumption for the Company, we're assuming flat for 2017.
No big movements one way or another.
I think what we've said, and I'm really trying to be ---+ have actions that are consistent with our prior communication.
We said we would look at acquisitions that could be short-term dilutive in nature.
And we did one latter part of 2016 and we just love having iLab part of the portfolio.
It's going to be ---+ it's a great addition to the business.
But right now it's not at the corporate average.
We'll move it up.
So if we saw other opportunities like that, we would pursue them.
But I think if you want to look at the type of deals and the size and other things, just look at what we've done so far to give you kind of a sense of the things that we're looking at going forward.
We like accretive deals.
And we like ones that can move up ---+ move the barges up.
You're quite welcome.
Sure.
So there's a couple things going on, which is in terms of the overall fundamental end market growth rates we think biopharma and the small molecule side of pharma are both growing quite strongly.
Small molecule side is really being driven by a conversion to the new technologies, liquid chromatography in particular.
Also an increasing interest in enterprise service, what we have to offer from ACG.
So I think what's been going on here for Agilent, we've had a combination of really strong end market growth.
There's a new market that has and will continue to develop in the services side.
We're doing well there, along with our new instruments in the pharma.
When I look at 2017, we think that the biopharma side of that market's going to continue to go quite strongly.
It's been an area of prioritization for us in terms of new solutions.
But we do think that over time, that the small molecule stuff will start to move back towards more of a long-term growth rate.
<UNK>, I think ---+ what do we kind of think about a long-term growth rates in the small molecule side.
On the small molecule side I think more in the low to mid single digits range, whereas in biopharma we're more optimistic.
It continues to be double digits.
That's our projection right now.
Does that help.
I have to say, I don't think they really know yet, as well.
What they're doing right now is they're right in the midst of their capital budgeting process.
So what I can tell you is that I've had a couple conversations with customers over the last two or three weeks on this exact topic.
And what they describe for me is ---+ hey, our end ---+ these are ---+ one customer was somebody who provides services into and equipment into the energy market.
Listen, we're starting to get interest in quotes.
But we're not sure whether it's going to hit in 2017 or 2018.
When we had our VIP launch for the Intuvo 9000 GC a lot of our customers were in the chemical and energy space.
And they said ---+ listen, we love this productivity message you have here.
I think there's a real economic ROI.
I'm now right in the midst of my budgeting process inside the company.
Maybe I'll be able to he get this thing through this year or maybe the following year, because there still seems to be this sentiment, particularly with the larger companies, they want to hold onto the equipment as long as they can before they have to replace it.
So ---+ and again, that's why I pointed to the fact it's not all negative because of the fact we do have a strong service and consumables offering into that space.
But again, we just don't ---+ I don't think our customers know yet, as well, what's going to happen.
We do know it's going to happen.
History will repeat itself.
There will be a replenishment of aged equipment.
But again, we're just not confident enough right now to say when that's going to occur.
You're quite welcome.
Thank you.
Thank you, everybody.
And on behalf of the management team, I wanted to thank you for joining us on the call.
If you have any questions, feel free to give us a call in IR.
Appreciate it very much.
Bye-bye.
