At DKSH, we are the value creators, the market navigators, the catalysts for growth.
We exist for one purpose: to enrich people's lives. From the streets of the busiest cities to the most remote villages, we provide access to high-quality products, services, and insights, creating sustainable value for our partners and generating jobs.
We have been at home in Asia for over 150 years. We have developed our business as entrepreneurs over four generations with a set of clear values and a long-term commitment to all our stakeholders. This mindset continues to be the driver for our ongoing success.
As the next phase of our journey dawns, we are united by our common aim. Our vision to go beyond the boundaries of expectation and be the trusted partner for companies looking to grow their business in Asia and beyond.
We are guided by the values that define us.
We never compromise our ethical, business, and compliance standards.
Empower one another. We own our decisions, take accountability for our actions, trust and respect each other so each one of us can make a difference and grow.
We collaborate and work as one DKSH team, supporting each other and our partners to achieve joint success.
We stand for entrepreneurial spirit. We innovate, identify business opportunities, and focus on operational excellence to drive growth for our partners and us.
For everything we do, we aim to operate sustainably and take responsibility for our environmental, social, and economic impact to account for present and future needs.
Only by strengthening our service offering, increasing our agility, our operational efficiency, and embracing digital technologies will we achieve our goal. As we carry out this strategy, we adapt to the ever-changing market environment, ensuring sustainable, profitable growth. As we move forward, each one of us has a part to play in charting our trajectory skywards. DKSH, Delivering Growth in Asia and Beyond.
Good morning. Good afternoon, ladies and gentlemen, welcome to the DKSH Capital Market Day 2020. On behalf of DKSH, I'm excited that after the initial postponement, we can connect digitally with you today. The theme of this year's Capital Market Day is Delivering Growth in Asia and Beyond.
We want to make this theme more tangible for you with today's round of speakers, which consist of our Chairman, Marco Gadola, our CFO, Bernhard Schmitt, our Business Unit Heads in order of their appearance, Bijay Singh for Healthcare, Terry Seremetis for Consumer Goods, Hanno Elbraechter for Technology, as well as Natale Capri and Thomas Sul for Performance Materials. They are all well-established experts in their fields will offer you first-hand insights into our businesses. Let me provide you with a closer look on today's agenda for your easy reference.
I will kick off with an overarching perspective on our strategy. This will be followed by a personal welcome from our Chairman, Marco Gadola. We will dive into the Business Unit updates, starting with Healthcare and Consumer Goods. After a short coffee break, we will then continue with Technology and round the Business Unit deep dives up with Performance Materials.
Last but not least, our CFO will give you an overview of our financials before I will conclude this Capital Market Day with some final remarks. There are four main objectives that motivated us to conduct this event. First, to give you an update on our strategic priorities and actions to deliver sustainable growth. Second, to point out the progress in our evolution and where we stand today.
Third, very important for today, to give you the chance to get know our great leadership team and their focus areas going forward. Finally, we want to provide you, as key stakeholders, with a better understanding of our business model and our growth drivers. Where are we today?
DKSH provides companies with access and expertise to grow in and with Asia. We call this Market Expansion Services. Our business partners can choose the services they need to grow their business from our comprehensive and ever-growing omni-channel portfolio along the entire value chain, ranging from sourcing, market insights, marketing and sales, and e-commerce to distribution and logistics, as well as after-sale services. We take on a profound responsibility to grow our clients' and customers' businesses.
Our specialists proactively provide strategic advice based on their experience, know-how, and networks, gathering data from our more than 500,000 customers and translating it into detailed, up-to-dated market information. We operate in 36 markets with 3,350 specialists on the ground, generating net sales of CHF 11.6 billion in 2019.
Taking all this together, we are the trusted partner for companies seeking to grow business in Asia and beyond. As the future builds on the foundation of the past, it is important to also recollect DKSH history. We have a rich heritage and can look back on more than 150 years of experience in Asia. Over time, we reinvented our business model from being a traditional trading house to a specialized Market Expansion Services provider.
During this time span, we have reached considerable milestones, such as the formation of DKSH in 2002, under the name we all know it by today, as well as the IPO at the SIX Swiss Exchange in 2012. We admittedly did not fully capitalize on our growth strategy to exploit the potential in Asia in the last decade. To fully reach our future potential, we have made important adjustments in recent times, which I will elaborate on in a few minutes.
Governed by a strengthened board of directors and management team, as well as our recently launched new identity, we embarked on a transformational journey for DKSH to deliver growth in the future. Now, you might wonder what exactly our growth ambition of the future is. Standing here today, with all the uncertainty surrounding COVID-19, it is more difficult than ever before to give a precise answer to that question.
We will focus on key growth drivers for our business in the medium to long run. We are positioned in fast-growing and at the same time, resilient markets in Asia Pacific. Current market studies unequivocally agree that economic fundamentals, demographic trends, as well as consumption levels, are going to increase over time.
Second, there are favorable industry trends. Just to name a few, we have the continued outsourcing trend, digitization, our clients further consolidating their distributor network. We, as a leading and truly regional player, will benefit from those trends. Third, we see more potential for M&A. We continue to have a very strong balance sheet that can be leveraged up to 2x net debt EBITDA, and that gives us an additional firepower of up to CHF 1 billion. Combining these three growth drivers, we see a potential to grow GDP plus in real terms post-COVID-19.
We have a clearly defined strategy for growth in place to achieve our objectives. It focuses on six main areas. First, we invest in people and nurture high performance. Second, we drive our business unit strategies and strengthen their service offering to generate value in the long term. Third, we expand our regional footprint via value-accretive acquisitions. Fourth, we drive operational excellence by focusing on better execution, sustainability, and good corporate governance.
Fifth, we champion digitization through digital business models, transforming as well as leveraging data and analytics. Finally, we strengthen our supply chain to have more modernized facilities and work processes. Let me talk about these six pillars a little bit more in detail. Driving change and aiming higher always starts with our people.
At DKSH, we have an interest in not only finding, but also developing and retaining the best talent while nurturing our performance culture of trust and empowerment. The recent launch of our new identity and the appointment of our new Chief Human Resources Officer are testament to this. To upgrade our capabilities, we recalibrated our management team, and we replaced 25% of our top 50 management in recent years.
We cascaded our Long-Term Incentive Plan further down the organization, which now includes 4.5x more people than three years ago. In addition, we initiated several employee recognition programs and launched new tools to drive continuous learning across our group. One of our targets for 2025 is to increase the amount of employee training by 25%. With all these initiatives, we develop future leaders and ensure high education levels at DKSH.
For each of our four business units, we have a dedicated and updated strategy in place. Our focus in Healthcare is to leverage our strong position and drive into higher value segments and services. In Consumer Goods, we capitalize on our leadership position in Asia Pacific. The emphasis in Technology lies on building resilience and delivering growth to exceed pre-COVID-19 levels.
In Performance Materials, we will expand our leading position aggressively in specialty chemicals and ingredients distribution. My colleagues will give you more insights about the strategic direction in their business units later. Let's move to another strategic focus areas. Excuse me. Mergers and acquisitions. We have substantially accelerated our M&A execution since 2017 and closed 10 deals since then. In total, we acquired around CHF 530 million of net sales on accretive terms.
We have clear criteria for our targets, such as gaining additional Value-Added Services and capabilities, expanding our geographic footprint, and ensuring a cultural fit. We have a proven track record of expansion in our European specialty chemicals business, and we are continuously driving market consolidation in Asia Pacific across all four business units. The ambition for the future is clear. We want to close more accretive deals. Our balance sheet enables us to quickly execute deals when they arise.
Operational excellence and the stringent execution of projects is among the major target of our management team. In the last two years, we reduced overhead costs by around 5%, while we continued to invest in IT and digital, for example. Going forward, we will focus on further mid-term efficiency improvements. Sustainability is an integral part of our mindset.
For us, a successful business is taking environmental, social, and economic sustainability issues into account. As outlined in our sustainability report published this July, we have, for example, committed ourselves to the UN Sustainable Development Goals, and in line with that, for the first time, also set sustainability targets for all members of the Executive Committee. We are seeing the first fruitful results of our efforts in the field as our external ratings keep improving.
Another key aspect of our strategy is digitization. We have made very good progress in recent years in our e-commerce business, which is now an integral part of our service offering. E-commerce net sales are targeted to reach over CHF 150 million, and with that, would have increased tenfold during the last four years. To further accelerate transformation in DKSH, we have recently appointed a Chief Digital Officer.
We will roll out additional digital business models and leverage data and analytics. In terms of our objective to strengthen and update our supply chain, we rolled out our new data-driven transport management system in four key markets, and we are currently in the process of implementing it in Vietnam and Taiwan as well. This system will enable us to gain efficiency and transparency by digitizing the planning, control, and tracking of orders and collections.
Overall, we have already saved millions in 2019, and while COVID-19 has disrupted order volumes, we still aim to double this amount for 2020. We also deploy more automated processes across our distribution network. This gradual automation increases our efficiency and reduces the overall error rate with B2B and B2C fulfillment capabilities.
As you see, our strategy for growth is based on these six pillars, which make us confident that we are heading in the right direction to achieve our growth ambition. Our strategy also proved to be the right one in those uncertain times. The COVID-19 outbreak demonstrated that our business is not necessarily immune, but certainly resilient against unexpected market challenges and changes in demand and consumer behavior. What makes us especially resilient are many different factors, and I just want to highlight a few here, such as the focus on attractive industry, like life science, our high share of A items of daily use, or our broad diversification across markets as well as clients and customers. On a group level, for instance, our top 10 clients and customers each only account for 20% and 15% of our business, respectively.
As a result of all of this, and thanks to the unwavering commitment of the whole team in every market, we continued to deliver every day during the peak of the crisis, and we recorded, as you know, solid half-year results of 2020. Net sales almost matched last year's level. At the same time, our free cash flow grew as well. We also continued with our progressive dividend policy and distributed an ordinary dividend of CHF 1.90. We are prepared and able to master the challenges of COVID-19.
At the same time, we see favorable market and industry trends in the long term, which combined with our M&A strategy, provide us with the potential of achieving GDP plus growth in real terms and margin enhancement post-COVID-19. Thank you very much for your attention, and let's move on to Q&A, please. Thank you.
Thank you very much, Stefan. Thank you very much to everybody on the call of submitting the questions. We have them in front of us. I will take out the first three ones. The first question we have from Peter Gilgen. He's asking: How important are personal relationships and networks in Asia, and how does this relate to our changed slogan of Asia and beyond? How important are our personal relationships and networks? And how does this relate to our changed scope? Bernhard and Stefan, one of you, please.
First of all, we have a very strong position across our four business units in this marketplace. Clearly, at the end of the day, people do business with people. One of the reasons our organization is so much decentralized is that we want to be very close to our clients and customers. We, from the corporate level, as well the heads of our business units, put a lot of time and effort in there to maintain and build very good relationship with clients and customer across the region.
Also our clients, and in particular, they have a structure in their business. Most of them cluster the business into Asia Pacific. What do they do expect from us is that we help them to deliver growth not only in Asia, but also in Pacific.
That was the reason why we enhanced our position also down in Australia and New Zealand. You will hear later on from our business unit heads, that even with the most recent acquisitions in Australia, we were already able to leverage those very good relationships we have and secure contracts from the acquired companies in Australia into Asia, as well as the other way around.
Thank you. The second question for Bernhard, from Jon Cox, Kepler. Does DKSH have RONOC or WACC goals in M&A? Given that M&A seems to be getting more important, do we have RONOC hurdle rates in the M&A targets?
Internally, we have RONOC hurdle rates for all our businesses. That is regardless whether it's a new client coming in, where I have to get more NOC into the business or whether I purchase a company, and our internal hurdle rate is around 15%.
Thank you very much, Bernhard. Another two questions, for Stefan from Jon Cox, Kepler again. Is DKSH still committed to Business Unit Technology?
Yes, we are. The vision is clearly, and our strategy clearly builds on enhancing the position of our four business units. Hanno later on will explain in detail the strategy behind Technology, and we do believe that we can significantly enhance our footprint also in our Tech business.
Good. A final question, from Anik Boll. He's asking for Stefan: What are the advantages of being a family-owned company?
Clearly, we are very proud of having a family as an anchor shareholder since many, many years. The advantage is that we really, with our anchor shareholder, we only don't think short-term from quarterly report or half-year report to half-year report, but we think long-term. We are fully committed, together with the anchor shareholder, in enhancing our positions in many years to come in Asia, and we feel fully supported by the Keller family.
Thank you very much. Thanks for all of your questions in the chat. We will now move on to the next presentation of our Chairman, Marco Gadola. Marco, please go ahead.
Thank you, Till, welcome to everybody also from my side to this Capital Market Day. I would like to share with you some of my initial impressions, then building on the initial comments of Stefan also what I see as the key focus areas for the short and mid-term. When it comes to my initial impressions, can we have the slide, please? I don't see the slide. Is the slide on the screen, Till?
Yes.
Okay, I can see it. Okay. My initial impressions are that we have a very solid position in the key markets, in Southeast Asia. I'm talking here mainly Thailand, Malaysia, Singapore. That we still have opportunities to extend our presence through some of the markets where we have still some wide spots.
I'm here talking mainly the Philippines for FMCG and healthcare and Indonesia. When it comes to healthcare, we have started to actually penetrate the large and promising Indonesian market through the acquisition of Wicaksana a couple of years ago. The other impression is that, and that has been proven with our first six months results, that our business model is very resilient. This, despite the fact that COVID has also been quite a factor and has had quite some negative impact in many of our core markets. If you take, for example, Thailand.
Thailand is still closed for tourism. I guess you all know how important tourism is for the economy and for the GDP of Thailand. Very resilient business model. We have done very well during the first six months. This is also, in a way, a signal that we are on the right way when it comes to actually developing and implementing our core strategic initiatives.
I would also like to compliment Stefan when it comes to building a strong team. You have probably also noticed in our results for the first six months, the consumer goods, especially the FMCG part of consumer goods, has developed very positively despite, and I mention it again, the COVID-19 situation. Terry and his team, they have done a great job. I'm very confident in the teams.
Stefan has made some very important changes. I feel that we have now today the strongest team in the industry driving the business forward. Stefan mentioned the family. The anchor shareholders. I just would like to mention we are not a family business. We are a publicly traded company. Obviously, DKSH, with 45%, has a main saying, and they are by far the largest shareholder.
Being able to rely on a stable shareholder with a long-term strategic perspective obviously allows us also to take the right long-term decisions for the business. Let's now talk about where I see the focus areas for the short and medium term. Stefan has already mentioned most of them in his introductory remarks. I strongly believe that we have still a lot of potential to generate more cash flow than we have generated in the last years.
On one hand, through being tighter and more efficient in managing our working capital, and I'm talking here mainly about excess inventory, which we still have on our balance sheet. On the other hand, also in tightening the collection of our receivables. Being normal trade receivables on one hand, but also supplier account receivables, so money which we have outlined on behalf of our clients when it comes to A&P activities.
The second driver of improved cash flow is efficiency and profitability improvement actions. Stefan has mentioned supply chain processes, so the further automation of our supply chain. There we still have a lot of potential. I would also like to mention a second area, which is the order-to-cash cycle. Also there, through automation, through process improvements, efficiency improvements, we should be able to become leaner and to generate corresponding cost savings and thus improved cash flow.
I would like to mention as a second important focus area, the continued transformation of our FMCG business. I already mentioned before that we have been very happy, or we are very happy with the performance of Terry and his team. Terry has had a tremendous impact when it comes to actually transforming FMCG. We are not yet fully through. Obviously, there is still a lot of potential to do even better. New retail as a kind of a buzzword. To be the first ones when it comes to digitalizing customer-facing processes in some of our key markets, mainly Thailand and the other two I mentioned before, Malaysia and Singapore. Also when it comes to expanding our network of points of sale.
We have to make sure that we stay hugely relevant in our core markets, and you only stay relevant if you have actually corresponding coverage when it comes to points of sale. Also there, we still have potential to improve. Overall, I'm very happy and very positive that actually our FMCG business will yield again returns as we have seen years ago.
I mentioned white spots. Geographic expansion. I know I'm repeating myself. I'm mentioning again the Philippines and Indonesia when it comes to healthcare and FMCG in Philippines. These are two big markets, two growing markets, and our footprint there is still relatively low. We are making efforts as we speak to change that, and I'm convinced that these two markets will actually contribute very positively when it comes to our future organic growth.
Finally, Performance Materials. My impression is that it has been underappreciated how important and how compelling our Performance Materials business is. First of all, when it comes to the margin it's delivering. It's dis proportionately delivering gross margins and EBIT margins compared to the rest of the business.
Also the fact that we are the clear market leader in the fastest-growing part of this industry, Asia-Pacific. That we have been slowly but surely building a global business, and we are actually competing with the big companies in this industry, and we are very well prepared to actually continue to take share and to further drive this business. I'm sure that Natale and Thomas, they will actually share with you some more relevant information when it comes to Performance Materials.
One final remark on capital allocation. We have a very strong balance sheet. We have been generating nice free cash flows, also during the first six months, in a very difficult environment. We are continuing to be committed to actually return cash that we cannot meaningfully reinvest into our business to shareholders. In other words, we are committed to increasing dividends in line with hopefully increasing EBITs and profits after tax. These were some remarks from my side. Again, I think that you will hear a lot of more details, more insights, during the presentations of our BU Heads and the other colleagues presenting during this Capital Market Day. Till, are there any questions for me?
Marco, we have no questions in the chat. Everything that you have said seems to be pretty clear and well understood. Thank you very much for your time. We will move on with Bijay from Healthcare in Bangkok, please.
Excellent. Thank you.
Good morning, good afternoon, good evening, wherever you may be. Very happy to present to you today on this Capital Markets Day. My name is Bijay Singh. I'm the Head of Business Unit Healthcare. I've been with DKSH since 2015, and have been in the industry for almost 30 years. Today, what I want to share with you is a little bit about Business Unit Healthcare, our strategy, and then also share with you a little bit the midterm outlook, as well as how we're performing during COVID.
If you look at our healthcare business in Asia- Pacific, the key point that I'd like to leave with you is that we are a leader in commercial outsourcing and one of the top two in distribution in healthcare products in Asia. If you look at our performance last year, our net sales were CHF 6 billion, our EBIT of CHF 134.5 million.
We operate across 14 markets. If you look at our net sales split, it's about 64% into pharmaceuticals, 21% into medical devices, which is a faster-growing segment, 13% in over-the-counter consumer health, and 2% in our own brands. I'll show a bit later how this own brands kicks well above its weight in terms of flow-down performance into our EBIT.
One of the things that separates us at DKSH, I'll touch on this a bit later, is our customer footprint. We go direct and have what we call capillary distribution in many of our markets, covering 130,000 customers, what we call hospitals, pharmacies, clinics, across 14 Asian markets. We have over 500 clients or principals, as you may know, and over 8,000 associates or what we call specialists in DKSH Healthcare. How we add value for stakeholders in Asia is our very large distribution presence.
The beauty of this going direct is it allows us to see exactly what's happening in the markets. It allows us to see the inventory. It allows us to make sure we control price and volumes in these markets, which is something that our customers and our clients very much value. We have a leading commercial team in Asia.
Over 4,000, almost 4,500 commercial specialists doing sales and marketing on behalf of clients here in Asia. We also adhere to the highest quality and compliance standards. We have several international certifications such as Good Distribution Practice, Good Manufacturing Practice, and of course, ISO certifications. An area I'll touch on in a moment is our growth in driving high value-added services, areas such as patient solutions, regulatory services, and analytics and insights.
If you look at our client base, you will see and recognize many of these names as household ones in healthcare. Several of them are blue-chip clients such as Roche, AstraZeneca, Sanofi, Medtronic, GSK, and Abbott Nutrition. Again, well-known household names that we represent in several markets across Asia. I'd like to highlight a couple of other ones, particularly Haw Par and especially LifeScan.
LifeScan was a division of J&J that was purchased by a private equity company last year, and that private equity company came to DKSH and asked us to represent them across several markets. This is one of our sweet spot areas where we can immediately add value for clients such as private equity looking to accelerate growth where they see potential. We have a variety of partnership models that we can provide for clients.
Starting on the left, you see the classic 3PL or 4PL, third-party logistics, fourth-party logistics. Essentially, logistics and distribution with an annex of credit and collection, which is often very important for clients who don't have the infrastructure to manage this. As I've said earlier, a key part, a key differentiator of DKSH Healthcare is our commercial outsourcing. This can be an add-on to our 3PL, 4PL through contract sales or contract sales and marketing, or it can be a full-service solution, what we call full agency, which is predominantly our sweet spot area, where we essentially take over for the client everything from regulatory all the way to managing HR, finance, and sales and marketing on their behalf. In addition, we also have in-licensing and acquisition, where we selectively purchase our own brands and own the IP. I'll touch on that in a moment.
Underlying all of this is also a few areas of value-added services, which I will cover in a few moments. I mentioned before the unique direct omni-channel approach that we have, connecting clients to over 130,000 customers in Asia. This covers customers such as the medical channel, hospitals and clinics, which is the predominant channel. Traditional trade, independent pharmacies, about a quarter of customers. Modern trade, about 10% of customers. These mainly are chain pharmacies.
A relatively small part of our business, but growing very fast, is e-commerce. The reason that is small is because a big part of our business lines, particularly pharmaceuticals and surgical medical device, cannot be served by e-commerce at this time. It is generally restricted to consumer health. However, we see lots of growth opportunity in this channel. As I mentioned before, DKSH is one of the leading healthcare distributors in Asia.
Here you can see in this chart that we're one of the two largest healthcare distributors. There we can differentiate by the number of clients that we have, the number of countries we serve, and again, the direct distribution that we offer, which again, becomes a value added to clients. If I touch on the healthcare strategic direction, I'd like to touch mainly on the top three areas: markets, our industries, and the business solutions we offer.
In terms of market, we segment in terms of maximize, realize, optimize, and launch. This helps guide our investment and our resource allocation. I'll touch a little bit more on that in a moment. In terms of key business lines, I've touched on before, pharmaceuticals, OTC, and consumer health. I'll talk a little bit more about medical devices, which we find particularly interesting and attractive.
In terms of business solutions, I'd like to share with you a little bit more about what we're doing in commercial outsourcing, some of the value-added services, and our own brands, which I mentioned are a very profitable part of our offering.
If you look at the markets, you'll see that there are a number of emerging markets, about 80 million patients in smaller Indochina countries such as Myanmar, Laos, and Cambodia. These markets are characterized by a low absolute GDP and a relatively underdeveloped healthcare infrastructure. It's in these markets that we see very high growth, and DKSH has a very strong market position in each of these markets, generally making us the preferred partner to clients who wish to enter.
The next group of markets, Vietnam, Indonesia, Philippines, often termed by our clients as the VIP markets, see higher GDP growth, have the largest proportion of patients, almost 450 million population, you see a relatively reasonable healthcare infrastructure and growing. I would highlight Philippines as one, as mentioned by Marco, as a white spot area that we see lots of opportunity, as well as Indonesia.
The next two markets, including our home market of Thailand and then Malaysia, represent a population of about 100 million people. Relatively well-developed infrastructure, not growing as fast as the markets I've indicated before. Finally, a group of very developed market, almost OECD-like, high absolute GDP and mature healthcare infrastructure. In each one of these markets, we have a slightly different strategy.
If we look at healthcare across Asia Pacific, a recent market study by Fitch shows that a mid to long-term outlook in healthcare is approximately 5%-6%, which is pretty much similar to the numbers that we saw in the previous years, 2016-2019, of 6%-7%. I'll touch on a bit later that COVID has had an impact in the healthcare market in 2020.
The mid to long-term numbers that I'm presenting here, I think could reasonably be extrapolated to post-COVID. As I mentioned earlier, the growth driver in terms of business lines is coming from medical devices. Again, this is driven by an aging population, aspirational, still relatively low healthcare spend per capita, and a number of innovative therapies that are being launched in Asia today.
Touching on medical device, we see this as being the faster-growing of the various business lines, and no one distributor is dominant or leading in Asia, so we see a certain opportunity here. Our strategy here is quite simple. We've selected several categories in medical devices that we wish to win in. Diabetes, you would know, is a scourge in Asia. Very high incidence and prevalence rates, and causes a huge burden on society. We see with medical devices, we can operate differentiated distribution solutions.
For hospital cases, particularly acute, sometimes you need urgent delivery within three to four hours. In certain cases, where you have doctors who don't know exactly what unit, what SKU they may need to use in a patient, they appreciate the type of service that we can provide, where we can give what we call a boom box. They can select which product to use and return the rest, also known as reverse logistics.
There's also an opportunity for value-add solutions here, such as managing consignment. Again, where you have a plethora of SKUs, the hospital may not wish to purchase all of these. They need to be held in consignment at the hospital owned by clients. DKSH provides a service of managing that consignment on behalf of our clients.
Again, these are some of the reasons why we see medical device as a particularly interesting and high-value area. In terms of commercial outsourcing, we see multiple client trends driving the need for commercial outsourcing solutions. What we see clients focusing on is their own R&D and developing key brands. We also see a prioritization towards key markets: U.S., Europe, China, or Japan. Price pressures and cost pressures have been there pre-COVID. I can imagine during COVID, with budget deficits, will only become higher.
In addition what we see is that many of our clients are focusing on specialty products. These specialty products tend to be high value in the tens, sometimes even hundreds of thousands of CHF. Every patient counts, therefore new starts and keeping patients on product is critical. I'll touch on that as I touch on patient solutions.
If you look at DKSH Healthcare's presence from 2017 to 2020, you'll see that our share of commercial outsourcing in new business development has steadily been rising to almost 80% of our business development coming from commercial outsourcing, which again, is higher value. If you were to look at DKSH as a standalone company in many of these markets, including all of the business that we have in commercial outsourcing, we would rank in the top 10 among these blue-chip pharma companies.
In Thailand, Cambodia, Laos, and Myanmar, we would rank number one. In Vietnam, number two, and in Hong Kong and Malaysia, we'd be number five. Own brands represents an opportunity to provide continuous shareholder value generation, and we can develop a very attractive long-term pipeline. We have a proven growth track record in own brands, expansion opportunities, including lifecycle management. As I mentioned, very good profitability.
We own the IP rights, outsource the production to third parties, and carefully manage potential client conflicts in terms of our entry into own brands. Last year, we signed a partnership with Alvotech to bring biosimilars to Asia. Biosimilars are essentially generics of biologics, large products such as HUMIRA, Avastin, Herceptin, that you may know, multi-billion dollars that we could provide to Asian patients and greatly increase access. We're in discussion with Alvotech right now to have further opportunities for biosimilars to Asian patients.
I'd like to touch on some of our value-added solutions. Regulatory affairs often is an area where we have our first entry, our first discussion with clients, particularly those that are new to Asia. We have almost 90 professionals across Asia managing regulatory, registering products, and maintaining dossiers for our clients. Patient solutions represents an opportunity to provide beyond-the-pill support for patients.
Through patient solutions, we can provide education, convenience, and adherence. Remember, as I shared with you the slides about the evolution of the markets. In many of the markets that are emerging, patients do not have reimbursed access, and therefore have to pay out of pocket. There is an incentive for clients to access these patients. However, due to patient confidentiality and compliance reasons, they cannot house that data internally.
We had this insight several years ago and have developed a cloud-based solution which is scalable, and through that, we have a real strong differentiator that adds value and we believe creates stickiness with clients. We also have omni-channel sales and marketing. I've touched on the various channels. Besides that, we're very strong in digital and teleservices, providing lots of touchpoints to connect with customers.
Finally, analytics and insights. Beyond our transactions data that we can cover to find what's white spots for our clients, we are also looking to integrate both other sources of internal data and external data to provide and share opportunities and white spots for our clients. DKSH has successfully navigated through the COVID-19 crisis, as you can see from our first half year results. This chart shows the evolution of COVID and the impact in our major market of Thailand.
In May, patient numbers were significantly affected in the medical channel, both for pharma and medical device, as well as the pharmacy channel, as patients were either unable or unwilling to visit healthcare. That slowly improved in June, July, and August. However, we do see that the basket size that patients buy is relatively smaller as they feel more uncertain about the future. Finally, I'd like to give you some highlights around DKSH Healthcare.
Number one, we're the leader in healthcare commercial outsourcing in Asia. We run a resilient asset light and very cash generative business model. We're successfully navigating through the COVID-19 challenge, and we see opportunities through the expansion of higher value-added segments and services, and I've touched on commercial outsourcing, own brands, and medical devices. Through this, we can expand our strong market position and drive into higher value segments and services. With that, I'd like to wrap up my presentation, and I'd be happy to take your questions. Thank you very much.
Thank you very much, Bijay. Let's move on to the Q&A session for Business Unit Healthcare. The first question is for you, Bijay, in Bangkok from Jon Cox. He's asking, w ill you move more into own brands now? And how much of your business today, and how much of revenues do you want that to be in roughly five years' time?
Yeah. Thank you. As I mentioned, own brands is clearly one of the areas that we see an opportunity. The beauty of the own brands is that it can leverage the strong sales and marketing and commercial platform that we have built, as well as our distribution. We see it as an area that we wish to grow. We are in discussions with partners to license in products into Asia. I don't have a particular number to share with you, but I can share that certainly we expect it to be higher than the 2% that it is today and continue to provide a strong, profitable cash generation for DKSH. Thank you.
Thank you. Another two questions for Bijay. The first one again from Jon Cox from Kepler. He's asking, what is the main weakness during COVID-19? Is it more on the hospital side or with the independent pharmacies?
Thank you. It really depends by country. If you see countries such as Cambodia and Laos, patients and consumers are moving around very freely. Other markets, there's more of a lockdown. To answer your question directly, I think the one segment that has been most affected in the short term has been elective surgeries.
Clearly, where patients have been able to postpone surgeries, they've really thought about going into hospitals. That's probably the most affected, and I think the second most affected is where, in some cases, for the independent pharmacies and some of the chains, depended in certain categories a lot on international tourists. As Stefan mentioned earlier, Thailand, a couple of other countries, are essentially in lockdown, and those businesses have seen a tremendous impact, together with private hospitals. As you know, Thailand and Singapore are often centers for medical tourism.
I would say, number one, elective surgeries. Number two, certain categories due to international tourists in pharmacies. Number three, private hospitals that depend on international tourists. Thank you.
Thank you, Bijay. One more for you, from Alain Oberhuber from MainFirst. The question is, what is the highest hurdle to get more outsourcing contracts? Why did we not see so many outsourcing contracts in the past?
Let me tackle the second one. Actually, we've had a very steady growth of outsourcing contracts happen, and you could see from the slide I presented the proportion that was happening. I see that happening more and more. I think what has changed a lot is how corporates look at the Southeast Asian market.
Speaking personally, having been in this industry almost 30 years, back in the late 1990s, early 2000s, Southeast Asia was a darling. A lot of companies looked at having their own footprint. I think that's evolved as you've seen the growth of China, and the U.S. has still been an important market, and they're re-looking at their business model and their business approach or go-to-market approach, and therefore, looking more at outsourcing. I think the biggest hurdle is clearly the time, the contracting, and really when it comes to the mindset of that company.
Certain companies really want to outsource, and that's the way they see the future. Others choose to run and own this part of their operation by themselves. I would say that's the number one hurdle.
Good. The next question related to healthcare for Bernhard. How do financials, margins, RONOC differ between pharma, medical device, OTC, and own brands?
Okay. I'll give you a qualitative answer to that question. Clearly, medical device is the more attractive business among the outsourcing businesses. Then, as Bijay mentioned, the own brand is, of course, the most attractive one from a profitability point of view. Overall, RONOC is very strong in healthcare. That's due to the fact that in many cases, we don't take inventory and receivables and payables cancel each other out. It's, from a RONOC perspective, the most attractive business.
Just seeing there is a last question for Bijay just coming in right now from Pascal Furger, from Vontobel. What are the risks in the own brand business? It is only at 2% of your business currently because pharma companies don't want to license out their products?
Actually, we see that several of the pharma companies are looking at licensing out. They have huge groups of assets, some of them legacy. They want to focus on their key new launches, they realize that they can't put the investment behind some of these. There is an opportunity. I think the challenge for us is we are not a global player always in own brands, sometimes we're going against that. We're very much looking predominantly at Asian markets.
However, there have been opportunities and there are certain companies that are looking to piecemeal out their own brand into different regions. I think that's where certainly the opportunity lies because of our commercial acumen here. There's no other company that has the commercial acumen that we have. Thank you.
Good. Thank you very much, Bijay. As we go, there's another question for healthcare coming in for Bernhard, from Andy Grobler from Credit Suisse. He's asking, what is the margin and RONOC difference between simple distribution logistics versus commercial outsourcing and own brands?
Clearly, if we just do simple outsourcing and logistics, the margins are very slim. We don't have to provide sales teams, so our cost base is also much lower. That's why the margins there are very low. Whereas if we do commercial outsourcing, obviously the margins are higher and at the end, also the EBIT margins.
Good. Just checking the chat. I think there might be another one or two questions. No, that's not the case. Thank you very much, Bijay. Thank you very much, Bernhard, for your answers. We will now move on with Terry Seremetis, Head of Business Unit Consumer Goods. Terry, please go ahead.
Great. Thanks, Till. Hi, everyone. Great to be with you today. Just by way of introduction, my name is Terry Seremetis. I'm the Head of the DKSH Consumer Business Unit. As some of you don't know me, I'll give you a quick update on my background before I joined DKSH. I've been working in Asia-Pacific region in senior leadership roles in FMCG organizations for over 25 years. The last 10 years specifically been focusing on turnarounds, transformations, and integrations.
Predating my arrival at DKSH, I was with the Mars organization, another family company for almost eight years. Initially in Europe, navigating the challenges of the global financial crisis there, looking after a cluster of markets as the Regional Market Director. Then I moved to Malaysia to take up the responsibility for 16 markets at the end of 2014, and I've remained in Asia ever since.
I joined DKSH in Bangkok, in August last year to spearhead the transformation of the consumer goods business. Today, I want to share with you how we're transforming the FMCG business specifically amidst the attractive market potential that exists, which is why I joined. In essence, my focus really centers around two key themes: driving strategy and leading people.
Before I run you through an update of our business today, it's important to understand that our business unit consists of FMCG, which is around 90% of our net sales, and specifically in the Asia Pacific region, and luxury and lifestyle makes up less than 10% of our net sales, and predominantly being in Asia, but also with a small footprint in Europe and the Americas. We have a portfolio of over 700 recognized clients that includes multinational and local companies. Today, I'll predominantly focus on FMCG.
On this slide, I can speak from personal experience when I was previously heading up my previous organization on the client side and dealing with DKSH. We wanted to move to a strong regional partner who could represent our brands across these channels, and by far, DKSH was the biggest omni-channel provider of these services across this geography.
As my responsibility was to drive these efficiencies in the business, I was looking for a scalable, standardized, and pan-regional distribution partner, which allowed me to switch my sunk costs to variable. In essence, describing fundamentally the benefit that our model provides for our clients today.
This capability also has other cascading benefits, as we were able to simplify our operating model and eliminating the complexity of dealing with hundreds of small distributors to a much more uncomplicated and integrated business model with DKSH becoming the biggest distribution partner in the ASEAN market catchment.
However, back then, DKSH wasn't structured in a way to benefit from this simplification trend that clients like myself were seeking, and I remember having many discussions about this at the time with the people at DKSH to better cater for these consolidation opportunities. Now that I'm here, it's incumbent upon me to focus on this development and build our capability and to ensure that we capitalize on the strategically important advantage that we have. We are positioning our services as the most capable, advanced, and the most reliable business partner across the region, focusing on growth through insights and analytics.
This approach helps clients reduce complexity in their business versus doing it themselves, as they can leverage our scale and helps them avoid taking the risk of building a bespoke and costly infrastructure themselves that provides no guarantee for success. The largest part of our FMCG business is our full-service model. Due to our underdeveloped performance previously, the EBIT contribution of this full-service business has declined over the past few years.
I'm happy to share with you this has gone up again following the focus as this being a key area of our transformation. We're also confident that we'll grow our share in this attractive business model, which requires a higher caliber of talent to navigate the nuances of this channel as it impacts both growth and EBIT results. Now that I've discussed our service offering, let's take a look at the client and customer portfolio.
As you can see here, and this is really a small taste of the organizations we represent, of the 700 organizations we represent. You see the likes of P&G, Coca-Cola, L, Philips, et cetera, just to name a few. What I'd really like to emphasize on this chart is really the diversification across all the categories, with no category representing more than 20% of our portfolio.
We have a very resilient, diversified business through a strong presence in all FMCG categories of daily necessities, which is an important point. Typically, we are active in high volume business with daily consumption items at lower price points, which addresses over the majority of the pricing petitions we play in. Our categories are evenly balanced to reflect today's decomposition of the grocery basket, which continues to evolve.
60% of our business is in the food portfolio and 40% in the non-food portfolio. Again, by way of example, we represent leading world-class brands for daily necessities, and organizations in big food like Kraft Heinz or Nestlé, but also the local jewels, companies like the beverage giant Tipco in Thailand, just many amongst our client list in the region.
Let's take a look at our customers now. To drive the growth of our clients, we are present in all relevant channels. We deploy an omni-channel approach. It provides us the scale to represent the leading brands, connecting with consumers wherever they shop. Modern trade represents 45% of the market and continues to remain very relevant in the future as e-commerce continues to grow. Food service is currently temporarily impacted by COVID.
You've heard around the tourist impact, but it's also an important channel for DKSH, as our clients are demanding to reach more consumers through the different product formats and different usage occasions. We've averaged the composition of the channels on this slide, being mindful that this can vary by market. On one hand, we serve markets like Myanmar with a very small profile in modern trade, and on the other hand, customer landscape in Hong Kong, which is more skewed towards modern trade.
Today, these different profiles and the geographies are a barrier to entry for our competitors. We are building a network that moves insights quickly through the network, combined with the long and strong relationships at both local, country, and regional levels. Somebody was asking the importance of relationships. Being here for over 150 years is definitely a huge advantage.
As we move on to the next slide, let's look at the growth potential of both categories and markets. As we see the growth potential, we see the growth potential in all FMCG categories and markets. Our markets, no doubt, have been impacted by COVID-19 this year. We don't have a crystal ball to know exactly when COVID will shake out.
However, what we've learned from the past is that these disruptions, specifically in the FMCG business, is a resilient business. It's also visible in the market studies, which predicts consumer goods industry to be down 4%-5% in Asia this year, while other industries suffer much more. People will continue to consume. Market studies see a growth potential in the range between 2% and 4% midterm.
We will benefit from this after-COVID rebound as we represent our clients' brands in all relevant channels and able to shape our profile accordingly. What makes us confident is that DKSH is the only true regional player to support our clients' needs. To further labor this point, let me show you the consolidation that's been driven through our clients recently.
As a client, you can't necessarily afford the complexity of dealing with many local distributors, and as I previously highlighted, that there is a need to simply interface with the markets with a single solution regional player. This is exactly what I did previously to joining DKSH and what we are seeing driving the client agenda today. A less is more approach. This is also what we see in the DKSH numbers. Over the past five years, we've increased the number of regional clients by 25%.
On top, we expanded the share of our wallet with our top 30 clients. On average, we work with them within five markets, but I can say there's many examples where we go to six and seven markets. Fundamentally, we embed ourselves in their ecosystem. B efore I came on board, heard that there's a suggestion that maybe the model is not as relevant anymore. In contrary to this, I see clients entrusting us more with their responsibility, and would like to provide you a few examples of the work we are doing with some important multinational and regional giants that have entrusted us to expand their responsibilities across the region. As you can see here, DKSH remains highly relevant as we represent the leading brands and we continue to benefit from industry trends by being an enabler and trusted partner to deliver.
Clients are reducing complexity in their own business and as such, are outsourcing more. For example, this year, Unilever further expanded our partnership to include new regions in Indonesia. We are distributing and marketing a wide range of products across all channels in this important market. As a second trend, clients are reducing the number of distributor partners.
In July, we gained Kraft Heinz in Malaysia, a full service solution client with several household brands. It was also reported in the media Kraft Heinz has simplified its operations in the region and moved away from a multi-distributor model to fewer service providers. There's also a regional component to it as we're already working with them in Singapore and Hong Kong and continue to have dialogue in other important markets to simplify their business while upgrading their impact in these markets.
A key client need is also consistent approach across all channels. Therefore, they're interested to work with us in e-commerce. As a proof point, we recently won an award from Lazada, a leading e-commerce retailer in Southeast Asia. This is a good example during COVID-19, toy stores being closed, and how we pivoted quickly to upweight the online sales direct-to-consumers capability and manage every step of that process flawlessly and being recognized for it.
Now that I've hopefully explained the business to you, let's have a look at why we've underperformed the last few years and what we've done to transform our business for a better future. As many of you are aware, DKSH FMCG business has been underperforming for many years, and the reason for our underperformance is a mix of external and internal factors. Clearly, our end markets were challenging.
For example, the market that I reside in, Thailand, where consumer confidence has been muted for several years. Internally, our setup was not dynamic and agile enough to respond to market trends, and we've been slow to respond to some of these changes. Since the end of 2018, we've been addressing these issues, and as you can see on the charts, the improvements are already visible in our numbers.
Please note that these numbers are for the entire consumer goods business. If you call out FMCG, I can tell you that we've made substantial improvements even during COVID in the past first half of the year, where we continue to achieve better results. Let me now focus on the action plan to address the previous issues we faced.
Our goal is to be the preferred regional trusted partner for clients, thereby fulfilling our promise to deliver growth and enrich people's lives. To get there, we're working in two phases, which I'll explain. First, we're ensuring a focus on fixing the basics, ensuring that we are resetting markets through high caliber, empowered in-market leadership and capability to ensure that we can continue to scale up performance with our clients.
Our clients expect us to move with pace, to capitalize on live data that highlights both risks and opportunities. We've been scrutinizing our portfolio, our investment model, and our client profile by market and reducing complexity while having the ability to pivot with pace into our model, which is an important differentiated advantage in the fast-moving consumer goods business. All of this is now underpinned through insights we gather, the vast amount of data we're able to utilize.
We're embedding these changes in our system, and this should be completed by the end of this year. After completing phase I, we'll focus on pursuing target market strategies and empowering our step change capability to pursue accelerated growth opportunities by now, which is that we built our strengthened platform. Let's now look into the first phase and what we've done so far. In essence, we've been working across three key pillars.
On people, we've taken a strategic approach to make an intervention to intentionally upscale our capabilities in some specific areas of our network. For example, over the past 24 months, we've recalibrated our management team, introduced a standard set of incentives, aligned our KPIs across the network. We've also delayered the structure to allow the ability to move with pace and make some tough calls on people, and focused on training and development exponentially.
From a portfolio perspective, we've rationalized non-performing SKUs, and as such, put a focus on ensuring, again, through data and insights, that we have the right inventory. In our fast-moving environment, it continues to be crucial to understand that the decomposition of the evolving shopper basket, which is shifting at an ever faster pace. I think we've seen that occur this year.
On the supply side, we have never collaborated more strongly than we have today with our supply chain network. As an example on the rationalization of non-performing SKUs, we put together a higher focus of our inventory management as a priority to ensure that we have stronger exit plans for poor performing SKUs. We're doing this at a much faster pace, and thereby eliminating both cost and complexity.
In addition, we're rolling out our new transport management system that I think Stefan touched on earlier and introduced a higher developed sales and operational planning system. To evaluate our progress made, I'll let the numbers speak for themselves. The headline here is that we substantially improved our results despite COVID-19, which as a reminder, no one had planned for this year. We are very satisfied with our EBIT development, our continued focus on the working capital side, and have moved the RONOC up quite nicely.
Let's take a look at phase II. Phase II is about doing three things: building our effectiveness in our market strategies, building strong momentum in the business development, and continuing to focus on winning channels like e-commerce. Data is the new currency we focus on to drive our behaviors, leading to stronger decision-making through insights gathered at pace.
We sit on a large amount of data and now at the center of building our decisions, not only for our internal fast decision-making, but also provider of market insights for our clients and our customers. Again, we are rightly poised for phase two shifts. To unlock potential for our clients, we've standardized regional service offering, also enabling commercial pragmatic dexterity in our approach.
Remembering that within the region, markets are in different growth and development levels of maturity. We're now addressing this with clients by understanding category nuances and geographies instead of a rigid one-size-fits-all approach that left us flat-footed previously. In our largest markets like Thailand and Malaysia, we have a very strong footprint across all channels, and we focus on profitable growth. This means that we're especially keen to have the right product, channel, client mix, and monitor our costs carefully.
On the other hand, in geographies like Indochina, markets are growing very strongly and have a comparably smaller footprint than, say, Thailand. We focus resources, especially on pushing high organic growth that leads to introduction of many of our clients' brands into this geography for the very first time.
In the Greater China region, we want to generate higher value by becoming more efficient, utilizing the advanced productivity and technology available through this region and are pushing more of a niche strategy, working very closely with customers in pursuing the right opportunities. In ANZ, we've had smaller operations that we've built up through M&A.
As we come from a small base, Australia and New Zealand represent the food bowl for the region and a higher focus for us on higher margin products that provides us the ability to strongly drive premiumization, which is a leading category trend across our entire network.
Finally, in terms of opportunities, the Philippines, we have aspirations to enter this market midterm through an acquisition to ensure that there's a total ASEAN solution available to our clients. Let's take a look at business market development. Here we've made very good progress and are driving our best business development performance for the past five years. I think this is testament to our relevance, which continues to grow. We repositioned our business development activities as this is driving the growth trajectory of our fortunes.
For example, we have scrutinized our pipeline of some potential clients that were below new operating hurdle rates, where the opportunity has been subscale, or we were bringing in too much complexity. In other words, we're scrutinizing the company we keep. We're also careful in monitoring market trends to scan for business opportunities. For example, through COVID-19, we see some organizations being caught out as they couldn't reduce their sunk costs at fast pace.
For clients that work with us, our platform provides the ability to manage risk and pivot much faster than if they managed everything themselves. The current environment has made our model for potential clients even more compelling, especially with the backdrop of COVID-19, which has amplified the benefit of working with DKSH.
Our efforts are already turning into results. Year- to- date, we've gained CHF 180 million in accreted EBIT from new business across these categories, including regional Asian clients. Again, I would say our strongest performance versus the past five years. These discussions take time. COVID-19 distracted some of those discussions in Q2. Again, we've noticed a pickup and engagement on those discussions once more.
Let's take a look at the winning channels we're diligently expanding. We'll continue to strengthen our proven omni-channel approach while investing in new winning channels and developing our service offerings. E-commerce is a key offering for many clients. On one hand, DKSH can align and synchronize the omni-channel marketing approach, pricing, and ensure efficient inventory management for products that already exist in our DC.
We're building a business that offers outstanding access to offline and retail channels as we continue to build a multi-channel offering through the acceleration of our e-commerce business. We have further work to do expanding depth and breadth, but we are now delivering significant benefits to the business unit.
New retail means that we can reach new consumers in a more efficient way and digitizing our business to amplify efficiencies. As we connect traditional outlets digitally, shops can order and pay for goods online, therefore requiring less visits from our sales representatives, allowing us to focus more on value-added support. In addition, we can represent clients' brands in developing new channels for them. For example, in rural areas where otherwise they wouldn't deliver to.
Consequently, this is in line with our promise of enriching people's lives as it drives the purpose, as we see the emerging middle class in Asia can allow people to experience these products for the very first time. As the term new retail suggests, it's a relatively new approach, and for us, we're testing, learning, and graduating our capabilities.
Specifically on our food service business, following the successful Auric acquisition in Malaysia and Singapore, we're creating further value for our clients as we incorporate this capability in the suite of services that we offer. It's an attractive opportunity to promote products in a new way to consumers, and also strengthen our capability of services that we're able to offer our clients and our brand owners. This continues to be an emerging channel and remain confident on its increasing relevance in this region.
Far, I've focused predominantly my presentation on FMCG, but let me just say a few words on luxury and lifestyle business. Even though this segment represents less than 10% of our sales, it remains a good profit contributor. We follow a niche strategy and made the decision to be active in only selected areas. The segment essentially includes watches, apparel, as well as household goods and lifestyle items.
These industries have been impacted by COVID-19. First of all, many stores were closed, and in addition, we distribute more discretionary products at higher prices, and this spending has taken a hit. Since COVID-19 restrictions have been lifted around June, we see demand stabilizing and some rebound in recent weeks. Let me summarize my final slide. Firstly, we've addressed the highlights and jointly the factors leading to the underperformance of FMCG in recent years.
I hope you now understand that we've addressed all factors leading to the underperformance. As you can see, results are still improving. We report higher EBIT levels again. Secondly, we not only remain highly relevant, but our relevance has increased exponentially as we see existing and new clients entrusting their business to us. Thirdly, the FMCG transformation is well on track. There's still some homework to do.
However, today we have got a great team of strong leaders. We have rebuilt confidence in the trade at both a local and regional level and are benefiting from the various industry trends. Finally, our business is now much better positioned to capitalize on our strong regional leadership position during these unprecedented times. Thanks for your time today, and I'll pass on to Till with Q&A.
Thank you very much, Terry. Let's move on to the Q&A session, please. The first question is for Terry in Bangkok. It comes from Nicole Manion from UBS. She's asking, how is your geographic diversification within consumer goods? What is the progress with strengthening your footprint in Indochina and other regions? Terry, please.
I think as I explained, I think we have a strong presence across the ASEAN market. We don't have a presence in the Philippines. What Indochina represents is really a growth cluster opportunity for us. We see a lot of our clients still in their infancy. The growth trajectory is going to come a lot from those markets. However, we still continue to see growth opportunities even in the, I guess, the more developed markets, the more advanced markets.
I think there's a balance in terms of our portfolio opportunities. Thailand, Singapore, Malaysia, Hong Kong are much more established markets, and we still feel that there's still a huge opportunity for us to grow in those larger scale markets. In terms of trajectory, we see huge inroads from Indonesia, Indochina, and even the Australian market, which is, again, fairly relatively new for us as well.
We feel that there's opportunities there as well.
Thank you very much, Terry. There's another question for you from Jon Cox from Kepler. He's asking: how much are impulse confectionery and snacks purchases under pressure currently amidst COVID-19?
You've done your homework.
Yeah, exactly.
Look, I think as most people know, in terms of confectionery, when the mask wearing came, it affected some categories. Namely chewing gum, because usually people only chew gum when they leave home, and when you've got a mask, it makes it doubly hard.
I think what we see is a recalibration of some of those categories to take advantage, I guess, of the fact that, again, no one prepared for COVID. We're seeing a different portfolio in the second half. We're seeing a lot of our partners change that portfolio that they started the year with. It has taken, obviously, some pressure, not only on impulse, but also seasonal. Some of the events like Chinese New Year and some of the Ramadan and so forth, obviously COVID had an impact.
Again, what we see is the FMCG clients retooling their businesses very quickly to reshape their portfolio in the second half. I think we'll see a much stronger impact, positive impact, in the back half of the year than we saw in the front half of the year. I think that will lead to a stronger trajectory going into next year.
Thank you very much, Terry. It's a relatively long list of questions here. Another one for you again from Jon Cox from Kepler. He's asking, under how much pressure is the food service business currently, and what is the share of sales of the food service business?
I think as you take a look at the business that we acquired in Singapore and Malaysia, with that came also our own brands. That own brands component of the Auric business has been very powerful, even through COVID.
On a food service aspect, obviously, it's been impacted. It's down, as you would expect, as most food service categories have been down this year. It's still only a very small part of our business. Exponentially, the food service business we interface with currently is in Singapore, in Malaysia, and a small amount in Hong Kong. We haven't necessarily had that exposure. Having said that, I think the teams worked very well. As food service dining, in-house dining fell, there was still a relatively strong uptake in terms of takeaway. We've seen that business, again, pivot. It hasn't bounced back to the same degree.
Again, I would say it's poised as when we have these restrictions loosening up in those two markets, again, to take advantage of more people staying in hotels and more increased airline traffic. I think we've weathered the storm quite well so far, I guess, is my headline.
Good. Terry, I'll give you another one. Andy Grobler is asking, how much of your growth in the past has been driven by outsourcing, and what are our expectations for the next five years to come in terms of outsourcing?
I think a lot of it has been driven by the fact that clients either are coming new to the region or have. This region is a very tough region to make money, but a very easy region to lose money. As they learn their lessons around trying to build their own infrastructure, I think what we're seeing is exponentially this outsourcing model, which is, again, pre-me coming into DKSH, which was what I was pursuing. I see that increasing. Again, I think COVID really has accelerated that, where we see a lot of our clients saying, "We want to simplify our business. We want a strong regional partner."
We want to focus on innovation and brand, and we want to give everything else to someone who can do that much better than us and much more efficiently than us. I think there's a dual role for us to play. I think a lot of the next five years is going to be driven by clients wanting simplification of outsourcing, not only just market by market, but really consolidation as well.
Super. Thanks, Terry. Here's another one for you. Comes from James Filsell from Fidelity. "How's the investment and focus on Asian heroes developing? How long does it take to see material growth from these new clients when they are won? And what proportion of our revenues is generated from Asian heroes?
Yeah. I think on the Asian heroes side, we need to remember that a lot of multinationals are also buying Asian heroes. The Asian hero brands don't only live with Asian companies, but they actually live within multinational companies. What we're seeing is, as these brands start building, I guess, kind of touching the ceiling of opportunities in some of those markets, they're starting to look and graze across all of Asia. That's our role.
I would say we're much more relevant to them today. A lot of our interface with them are also, we have Asian leaders who are interfacing there. There's some really good examples of some of the work that we've been doing in Cambodia, in Thailand, in Malaysia. We're now exponentially getting much more of the local business as they see us as a step into a regional footprint.
Again, I think they're going to follow the same kind of trajectory that a lot of the multinationals have done. Having said that, the multinationals, I still feel, will still remain relevant, and they'll probably do some M&A with regional local heroes. I think we can grab them, whether they come from the multinational acquisition side or whether we're dealing with them directly.
Thanks, Terry. Another one for you, again from Nicole from UBS, w hat is your progress in FMCG margin only? Excluding the luxury and lifestyle, what's the margin doing on FMCG?
Look, I'm very satisfied that we're making really strong progress. I think some of the decisions that we've made around reshaping our portfolio, taking a lot of the cost drivers out of our business, and I'm confident, I think we've said that we want to get to 2.5% by the end of next year. I'm confident we're going to hit that target.
Thank you, Terry. A more financial question on consumer goods. I'll pass that to Bernhard from Alain Oberhuber. What are the differences in gross profit and EBIT margin for FMCG and luxury and lifestyle?
Yes, thanks, Alain. Obviously, the gross margin in the luxury business is much higher than in the fast-moving consumer goods business. That's mainly driven by the also definitely a lot higher advertising promotion costs we have in that business. On the EBIT margin side, currently, of course, it's no surprise, the FMCG business has a much better margin because we have practically none in the luxury and the lifestyle business due to COVID.
Another one, Bernhard, I'll pass that on to you from Jon Cox, Kepler. Is there a difference in profitability within the FMCG categories that we have?
The profitability is more driven by the service model. The question is, how many services do we provide, and what type of products do we have? To make an example, the gross margin for a bottle of water has to be much higher because the transportation costs are much higher, and the warehousing costs are much higher. Whereas to stay with Terry, a Mars bar, of course, doesn't need that kind of cost structure, and the margins is different.
Thank you very much, Bernhard. There's another question. I will pass that to Stefan from Jon Cox again from Kepler. Can you get back to the 3% margins in Consumer Goods, and what would be the timeframe on that?
Good. Thank you very much, Jon. I think as Terry was already indicating, we did disclose that the objective is to achieve 2.5% margin the second half of next year. I think Terry and I agree that this is not the end of it, let's take it from there as soon we achieve the 2.5% the second half of next year.
Thank you very much, Stefan. Next question, also from Jon Cox, Kepler. I'll pass that to Terry. Can you give some granularity on EBIT improvements in FMCG or indicate CHF 1 million saving initiatives? Maybe you can talk a little bit about the levers that you mentioned before.
Yeah. I think, as you saw in terms of our first half performance, I won't talk again specifically. There's an opportunity for us as we consolidate our network to really drive some costs out of our infrastructure. We're also changing our portfolio. We're attacking our inventory, non-performing inventory, with a breakneck speed because a lot of that has also burdened us previously.
What I can share with you is that we're making improvements across every element that builds that EBIT line. I'm very satisfied with the progress that we've made since, I guess, the transformation started at the back end of 2018. We saw some of that coming through last year, and we're seeing exponentially that momentum continue this year.
Thanks, Terry. The next question from Nicole Manion from UBS. I'll pass that to Stefan. What is your commitment to luxury and lifestyle within the consumer goods business? Would you prefer to focus on FMCG only?
Clearly, our luxury and lifestyle business, we pursue a niche strategy. We have no intentions at this point of time to invest heavily into this business line or scale that up significantly. As we discussed also in the past, we are willing to sell our watch business, Maurice Lacroix, as soon as we find a reasonable buyer. Strategically, to sum it up, the focus is clearly on Terry's FMCG business.
Good. Another follow-up question from Alain Oberhuber from MainFirst for Terry. He's asking, what was the main factor to gain recent outsourcing contracts?
I think it was a multiple of factors. I think confidence in what we're doing today, the way that we're interfacing with these clients. When clients look at you, they really are trying to measure whether you're equal to or better than the capability that they can build. I think that question is becoming a lot easier for them to answer. That's what I would say would be, I guess, the main driver.
Thank you very much, Terry. I have two more questions here in the chat, again, about the margins. I will pass that to Stefan. Jon is asking, your margin target of 2.5% by the end of next year, is that for FMCG only, or is that for the entire consumer goods business?
At this point of time, it's really hard to predict how the luxury and retail business is going to cope with COVID also moving into 2021. When we disclosed this target, that was pre-COVID, we clearly stated that this is for CG in total.
Great. Another question from Alain Oberhuber from MainFirst for Terry. When will phase II be fully implemented and to what levels of margin could we move back by then?
I think, again, it's part of our intent to get this business, in terms of its structure of the business, in a much healthier state. I would say, we'll see it start implementation back end of this year. Mid-next year, I think most of the changes that we're looking at should have been predominantly embedded. Again, the benefit should come through at the back end of next year.
Good. I just see that there is one more question coming in from healthcare or for healthcare, and I see Bijay is in the room. Maybe I pass that on to you. This is from Laurent Millet from Artemis out of London. He is asking: How aggressive has Zuellig been recently, and what is the risk of further margin pressure from them, and how can you overcome that?
Zuellig continues to be the major competitor, particularly in pharmaceuticals. I believe that the area that we have entered and developed strength in, which is commercial outsourcing, is relatively more resilient, and along with value-added services, we feel confident there.
At the same time, I would indicate that if you look at the top 20 pharmaceutical distribution contracts, my personal view is the levels have reached a threshold now, and probably there is not much more margin erosion to come in that size of clients. I believe, yes, a lot of growth in commercial and VAS, which is along our strategy. Thank you.
Good. Just looking at the chat, if there are any more questions, please stay with me for two seconds. I'm just waiting for my question list to refresh. Don't see any one more question comes right now in. Again, for consumer goods for Terry. Again, from James Filsell from Fidelity out of London. The question is: What are the biggest opportunities for growth, and where is their main focus? Is the focus, for example, on winning new customers, adding new services or new markets for clients?
I think there's still opportunities for us in terms of new geographies. I think we've tabled that opportunity. Absolutely to do more with our existing clients and to do more with our new clients. I think it's probably a trilogy of those three. Obviously, e-commerce, new retail really is also a huge driver for us.
Also, we see that as being a differentiator versus our competition. If you take a look at our capability that we're developing versus the capability that exists right now, I would say a lot of the options are either the client has to do it themselves, and as they build their confidence in our capability, they'll move across to us. Exponentially, I see a mix of all of that.
I think some of the categories definitely will see some categories disproportionately growing in the next five years than what we've seen previously as behaviors shift and consumer tastes change as well. For that part, I think it's just making sure that we are as relevant as possible and that we take as much of that shopping basket opportunity that we can leverage.
Good. Thank you very much, Terry. I have a couple of more questions coming in here. One more time for healthcare, please, for Bijay. Do you anticipate margin improvements with the shift to own brands and medical devices, or is it really all about maintaining margins?
Well, it's clear that own brands, as I mentioned, are higher margin than the rest. Medical devices, depending on the type of model you have, can be potentially higher margin. That's our strategy. That's where we aim to go, is to enter some of these areas. Yes.
Good. Thank you very much, Bijay. I have another one for consumer goods. It's a financial one. I would give that primarily to Bernhard. Maybe Terry can also add on the levers. The question is: What is the RONOC for the consumer goods division by reaching the 2.5% EBIT margin in the second half of 2021? What's the RONOC level? Maybe you can talk a little bit about the levers of driving the RONOC upwards.
Yeah. Essentially, we have two drivers by definition. One is EBIT. I'm there very confident that Terry will drive EBIT upwards on Consumer Goods, and as we said before, it's 2.5% of sales. We have the NOC component. There we are now working on a very diligent S&OP process, which would help us to reduce working capital usage at the same level of sales. I would expect a better RONOC, and it should come back to group level or even above.
Thank you very much, Bernhard. I have a previous question from Jon Cox from Kepler. He's asked for Stefan. He's asking about e-commerce statistics. Is e-commerce through our own platforms or through platforms of clients where we are selling? What is the bigger one, and if you could specify that a little bit.
The majority, we use the platforms of e-market retailers, around 70%-75%. The key customers there are Tokopedia, Shopee, Lazada or RedMart, and 25% we are selling through our own platforms or specialized dot-com appearances for key clients, Levi's or in the luxury market.
Thank you very much, Stefan. I'm just checking again my chat. Please bear with me for a couple of seconds for a refresher. Just scanning it one more time. Bear with me. I'm currently not seeing any questions for Terry or Bijay. Gentlemen, thank you very much for your time. A lot of questions. If there are any questions we couldn't cover right now, the investor relations team will get back to you. With that, we would close the Q&A session for Consumer Goods, and we will make a short break, and we will be back at 11:10 A.M. Swiss time. That is roughly in 25 minutes. See you soon. We have a short coffee break, and we speak again in 25 minutes. Thank you very much, everybody.
Ladies and gentlemen, also from my side, I welcome you to our Capital Market Day 2020. It's a fresh, windy, and rainy day today in Singapore, and I take that as a good sign. My name is Hanno Elbraechter. I'm the Head of Business Unit Technology, and I've been in DKSH since 2014. I've been living and working in Asia for more than 16 years, thereof 13 years in China, and most recently, four years in Singapore. Before joining DKSH, I was the CEO Asia for DMG Mori Seiki, one of the biggest machine tool builders. In the first part of today's presentation, I would like to bring our technology business closer to you. In the second part, I will share with you what measures we took in order to quickly recover profitability.
In the third part, I will show you our ambition to build resilience and deliver growth to exceed pre-COVID-19 levels in the mid-run. Let me start with an overview of Business Unit Technology. We consider ourselves the leading solutions provider for capital investment goods and technical services in Asia- Pacific.
We generated last year net sales of CHF 431.9 million and an EBIT of CHF 26.8 million. With 1,670 specialized employees on the ground, we are operating in 80 markets across Asia Pacific, serving 25,000 customers and 650 clients and suppliers. Our biggest contributors are our business lines, scientific instrumentation with 27%, and precision machinery with 26% of our net sales. From 2015 to 2019, we delivered solid growth with an average 3.8% net sales and 7.5% EBIT growth. We have increased our top line each year and at the same time improved EBIT margins.
Our asset-light approach enabled us to generate good returns on net operating capital or RONOC, as we call it. Now let's take a look at our client portfolio. We have strong and long relationships with industry-leading manufacturers of capital investment goods.
The portfolio is diversified, and I'm sure that some of these names are familiar to you, such as Thermo Fisher, the biggest scientific instrumentation player in the world, HP for 3D printing solutions, Cummins, a renowned producer of power generators and engines with whom we started to work together 50 years ago in Thailand, or Vertiv, a leading provider of equipment and services for data centers. On the other side, we have our customers.
Applying the same structure of our business lines to our customer landscape, there are as well many names that are familiar to you, like SGS is one of our larger customers that purchases analytical instruments and services from us. Nestlé, to whom we provide instruments for their research and development activities. 7-Eleven, which we supply with equipment for convenience stores like coffee machines or microwaves.
TSMC, a Taiwanese semiconductor manufacturer whom we supply with semiconductor equipment and the related technical support. Indosat, a large telecommunications provider from Indonesia to whom we provided a data center solution and the related services. We follow an industry-centric approach in order to provide the most suitable solutions to our diversified customer base of more than 25,000. Let's have a look at another good customer example for our scientific instrumentation business line.
DKSH provides the customs department in Vietnam with an integrated testing solution to comply with international standards and regulations. Export and import regulations have become more stringent, which resulted in an increase of daily testing and analysis requirements. In workshops, we assess and define the exact requirements and provided an integrated solution, including extensive training for the related personnel of the customs department.
The resulting better control of imports and exports through higher efficiency and accuracies was the key for a successful outcome. By now, the customs department of Vietnam is one of our biggest customers. Why do clients and customers work with us? What is the unique value proposition that we bring to the table? Firstly, we have a pan-Asian footprint operating in 18 countries, enabling us to create synergies, and at the same time we offer clients solutions across markets out of one hand.
Secondly, with more than 500 service and application engineers and 18 labs and showrooms, we have the capabilities and the infrastructure to cover the entire life cycle of the solutions that we provide. Thirdly, we systematically develop our markets using an integrated marketing, sales, and service platform with a state-of-the-art CRM system and service management tool. Having access to more than 125 existing and potential customers. This allows optimum penetration of the buying centers with its key purchase decision-makers and influencers.
We can ensure maximum coverage of our installed base to drive our service business. With this platform, we constantly generate market intelligence to anticipate customers' needs and to provide market insight to our clients for future product development. Fourthly, as we have just seen, we bring well-known brands and high-tech solutions to our customers in Asia-Pacific.
Let's zoom into the second value proposition in more detail, the coverage of the entire life cycle of the products we provide. Using the example of our client, HP's 3D printing solutions, let me illustrate how we deliver industry, technical, and service expertise and cover the entire life cycle of the solutions we provide.
The first thing we did when we started to explore a partnership with HP, we developed a market entry strategy for Singapore, Malaysia, and Thailand, targeting educational and medical segments. We leveraged our access to our existing and potential customer base and educated the market through a strong online presence, webinars, email campaigns, and of course, seminars and workshops. As customers usually do not just buy standalone equipment, but an entire process, our application engineers design solutions, including other complementary products.
Being certified by HP, DKSH is also performing the installation, commissioning, and training of the customer's personnel, both on-site and in our in-house facilities. To ensure maximum uptime, our service engineers provide on-site and remote maintenance and repair in the frame of service contracts. Last but not least, as a value-added service, we provide process optimization to increase our customers' productivity and improve the quality of the products they produce.
Due to the successes we had in these markets, we just extended our partnership to South Korea, where we will take over the installed base and continue to grow the 3D printing business with HP. Now that we better understand who we are and what services we provide, let us look at our way forward. We delivered a sound financial track record in the last five years, where our EBIT on average grew 7.5%.
However, our results have been impacted by COVID-19 recently, as many customers having had to shut down or scale down production and delay in CapEx. We reacted immediately and set up a cost-saving plan to recover our profitability. We intend to build a more resilient business and deliver growth to exceed pre-COVID-19 performance in the midterm.
Before we talk about the midterm, let us focus on our cost-saving plan, which contains primarily three elements, personal costs, travel and entertainment, as well as marketing. Across all categories, we diligently cut expenses, while at the same time, we accelerate our digital marketing activities to boost online lead generation and sales. Earlier, at our half-year 2020 results, we identified some single-digit million cost-saving potential that we have been able to increase by 30%.
In sum, we now expect a CHF high single-digit million to be saved this year. So far, we are running on plan. As mentioned, our aim is to build a business that is more resilient and delivers growth. How are we going to do this? Firstly, we will grow our leading position as a Pan-Asian provider of scientific instrumentation solutions.
Secondly, we streamline our existing portfolio and focus on key businesses and markets for industrial equipment where we are in a strong position and can capitalize further growth opportunities.
Thirdly, we continue to grow our service business, consisting of technical service, consumables, and application engineering. We continue our digital transformation journey to support these strategic directions. You might recall that scientific instrumentation is our largest business line, already accounting for more than a quarter of our business. How will we further solidify our position here?
Firstly, by focusing on life science, pharma, and food and beverage, as we consider these resilient and structurally growing segments. Secondly, by prioritizing our investments according to market potentials and our own position in these markets. For example, in China, we have a strong position in the scientific instrumentation market, and we just expanded our demonstration lab to provide more support to our customers.
Thirdly, we will expand the business of the core products that we have in our portfolio while accelerating our service and consumable sales. Finally, as the market is very fragmented, we are scouting for acquisition targets and have built a good pipeline in this respect. You might recall that we have a proven M&A track record with the SPC acquisition in Thailand in 2019. What drives our focus on the scientific instrumentation business is also its market potential.
Scientific instrumentation is an attractive market in Asia Pacific, with an expected average growth of 8% until 2025 and a market size of $35 billion by then. Around 53% of that market is coming from life science, pharma, and food and beverage, segments in which we already have a foothold and where we want to further focus on. I hope you now have better understood why we want to focus and increase investments on a Pan-Asian scale for our scientific instrumentation business.
I'm coming to the second pillar of streamlining our portfolio and focusing on key businesses and markets for other industrial solutions that we have in our portfolio. We will grow and expand our precision machinery, packaging, printing and converting, and data center solution businesses. Keep growing those businesses where there is a good product market fit combined with a strong position of DKSH.
Some of our businesses we streamline or exit, which is a gradual process over the next couple of years, for which we do not foresee any one-time costs. One concrete example of a business where we want to build regional competencies is the growing data center business in Indonesia, where we have a strategic partnership with our client Vertiv. BNI is a leading financial institution offering banking services for businesses in Indonesia.
As the Indonesian government had mandated for all Tier-1 banks to have their own data center based in-house and locally, the bank needed to have an experienced business partner to help them meet this requirement. The difficulty was to find a partner that understood the challenges of having limited space, the technicalities of data center technologies, and is familiar with the market's financial regulations.
Our approach was to provide the Vertiv SmartAisle solution, which is an integrated solution of data center racks, power, cooling, air containment, monitoring, and control technologies, resulting in an efficiency increase of 27%.
Coming to the third pillar of our strategy, we aim to further grow our service business, which includes consumables, technical services, and application engineering. Why? It's a growing business, and the bigger the installed base gets, the more revenues we can generate with the service or aftermarket business.
Secondly, in general, the margins are higher in the service business than in the equipment business. Thirdly, we see growth potential as our share of the service business is lower at 39% compared to the market level of 53%. To further increase the share of our service business, we now have dedicated service sales teams approaching our end users to offer customized maintenance and service contracts.
As well, our business development teams are onboarding new clients with an attractive consumables portfolio. The key benefits of growing our service business are growth opportunities, attractive margins, more resilient and recurring business, and the increasing stickiness of our client and customer base.
Let's move on to our digital transformation journey. We believe that B2B future will be increasingly digital. Customer journeys change, and we therefore aim to provide a better customer experience, from awareness to engagement, from purchasing to repurchasing. In the next two years, our target is to build a digital ecosystem consisting of a product management information system, quotation tool, global e-commerce platform, and an enhanced service management tool. Combined with a strong focus on digital marketing, we want our digital transformation to have a tangible impact on decreasing our cost to serve and increasing our sales.
With that, I come to the end of my presentation. Before we go to the Q&A session, I hope you recall that we have a proven financial track record of 7.5% average growth. We set in place a stringent, high single-digit cost-saving plan to recover profitability.
We will further develop our business in scientific instrumentation, focus on key industries in strategic markets, as well as grow our lucrative service business. Our digital transformation will support this development. All this to exceed pre-COVID-19 levels again in the midterm. With that, thank you for your attention, and over to the Q&A session.
Thank you very much, Hanno, and thank you for all of your questions that we have received. The first question is for you, Hanno. It is from James Filsell, and he is asking, are you exclusive for HP for 3D printing, or are you able to provide similar services to other manufacturers in Asia?
That's a good question. Thank you very much. It depends on the markets, and HP has several layers of distribution channels in these different markets. Depending on country by country, it's either exclusive or we are one of these layers within the distribution channels. Certainly, we are also able, in those markets where we are not exclusive, to also offer the same 3D printing solutions as we do for HP.
Thank you very much, Hanno. The second question is also from James Filsell from London. He's asking how much pricing power we have with our clients and customers.
I would say, we are working in a competitive landscape in which the pricing is defined based on your competitive position and how much value you can bring to the table, both on the customer side and on the client side. I wouldn't say really it's a power game, but it's much more a question of how much value to bring to the table, and then both on the client side and on the customer side, and the willingness to pay for this kind of value that we're bringing to the table.
Thank you very much. Another question for you, Hanno, from Laurent Millet from Artemis. How much of your revenues are recurring or service business?
As mentioned in the presentation, overall, it's around 39% in the scientific instrumentation business. It's a bit less for the overall Business Unit Technology. What we see that there's certainly a great potential to further grow that business, both on the technical services side and also on the consumer side.
Great. Next question from Alain Oberhuber from MainFirst. The question is: could you give a timeframe by when the transformation in Technology is accomplished? If accomplished, how will the Business Unit Technology look like?
That's a very visionary question. I would say that the transformation that we are going through now will take a couple of years. It all depends a bit also how long COVID-19 and what the impact really of COVID-19 will be. I would say under normalized circumstances, a couple of years to go through that transformation.
As we know, it's a combination of organic and inorganic growth. We need to see what are the opportunities that we will find along the way in order to accelerate that growth after we have been going through that transformation.
Thank you. The next question is again from James Filsell from Fidelity. He's asking, historically, the market growth was around 11%. Why do you think it will be slower going forward at 8%? I think James is hinting here to the scientific instrumentation business. How much above of the total market do you aim to grow as you are focused on higher growth industries and aim to grow about that? Again, Hanno, I think the question is entirely related to the scientific instrumentation business.
Okay. If we look at these three segments, we believe that their growth potential lies at a CAGR over the next few years of some above 8%, above 10%. It really depends on how quickly we can tap into these life science, pharma, food and beverage segments in order to leverage this growth potential.
Thank you, Hanno. There's another two ones coming up for you. The first one is from Laurent Millet from Artemis. He's asking about mergers and acquisitions. How large are the deals you're looking at, and would it be in the area of services mainly? If Stefan and Bernhard would agree on also a larger deal?
I guess that question we need to address then too after I answer my part of the question. No, it's certainly not purely service business that we would acquire normally, but it will be a combination of an instrumentation business and which usually also has a very strong and profitable service component in it because we believe that the service business is very important to us.
Great. The last question I see in the chat, Hanno, again to you. Jon Cox from Capital is asking, is there any underlying problem with profitability or is it all linked to COVID-19? How long do you think it will take, if we are in a normalized situation next year, to get back to former profitability levels?
I'm very convinced that if there wasn't any COVID-19, we would be very much on track in terms of achieving our growth targets that we had set for the year 2020. We definitely have been hit hard by COVID-19, which is very natural considering the CapEx nature of the business. It's difficult to say how quickly. I would say, under normalized circumstances, in a couple of years, we should be back on growth track or on pre-COVID-19 levels.
Great. That covers all the question for Business Unit Technology. Thank you very much, Hanno.
Thank you.
We will now have a very short break here before we move on. Please bear with us for a few minutes. We are back, as I said, in a few minutes. Thank you very much.
Welcome. We are happy to meet you virtually today to introduce Business Unit Performance Materials. It is managed by two persons with a very long experience in the specialty chemicals and distribution industries. A few words on ourselves. Natale Capri, Italian, doctor in chemistry, and an MBA from Bocconi University of Milan.
My name is Thomas Sul. I was born in the Netherlands, raised in Germany. I have a business degree.
We both joined DKSH more than 20 years ago. Both are sales managers, and in different years, we had different local and regional roles. Since 2013, we jointly lead this business unit. We love our jobs and this company.
The possibility to run a business that offers so many opportunities for growth, it's exciting and actually a lot of fun. We enjoy this business every day. As you will see, it has been a successful ride and the future is bright. In the years to come, we aim on expanding further our leading position in specialty chemicals and ingredients distribution.
Who is DKSH Performance Materials? We are a top three pure specialties distributor of chemicals and ingredients, creating turnover of about CHF 1.5 billion with 1,100 employees across 32 different markets. We are focused on the highest growth segments, Asia and life sciences. We have a long history and are proud of our long-standing and well-diversified partnerships with about 1,900 clients and over 20,000 customers.
Our business is supported by a comprehensive and differentiated offering of value-added services. This includes a network of 46 innovation centers as well as 80 regulatory experts. We have a track record of organic growth supported by several successful acquisitions to close geographical and portfolio gaps. We are pursuing additional projects with further value growth potential. Our business model is resilient, asset-light, and cash generative.
We want to show you about our regions and our business lines. Let's start with our regions and coverage. As you can see from the map, we are a global player. We focus on Asia, the most attractive regions for economic growth. Here, we generate nearly 70% of our business. We also have a good and sizable presence in Europe.
Going forward, we intend to expand our market coverage here as well. Regarding our business lines, our main focus is the life science industry, which includes food and beverage, personal care, and pharma. This makes up to 65% of our business and is nicely growing. 35% of our business is still in specialties, namely specialty chemicals, but for industrial application.
Let's have a look at the market for outsourcing specialty chemicals and ingredients. On top of the usual annual growth, one more factor to keep in mind is that the outsourcing share of specialty chemicals industry is currently only 17%, very low compared to other markets like car parts or pharma, for example. We expect more outsourcing to come.
There's a need to provide local technical support, which requires labs and experts that can adjust formulations to local needs. There are regulatory hurdles that are increasing and need to be managed on a local basis. These challenges cannot be handled by a head office of a large supplier based in Europe or the U.S. It requires local expertise that we, DKSH, provide.
Our clients and suppliers will focus on their core competencies and their key accounts while they outsource distribution to B and C customers, to professional, regional, and global distributors like DKSH Performance Materials.
A good example is the large business that was outsourced to us by Elementis in China this year. They will now focus on their key accounts and on production of the ingredients, and they outsourced the vast majority of their customers to us. They became more lean and agile while we leveraged our structure and added a lot of new customers. With this, we now have a market coverage that will attract additional clients. Our services reduces the headaches of our suppliers and helps them to grow faster. Let's have a look at the competitive landscape. Now, we compare only ourselves to specialties distributors. We do not include the commodity players.
Looking at our market position, we are among the top three pure specialty chemicals and ingredients distributors globally. We rank among names that might be familiar with you, like IMCD and Azelis, and in Asia Pacific, we are the number one. We continuously strengthen our position, recently with the acquisition of Axieo in Australia and New Zealand. In Europe, we are among the top 10 distributors and aim to further build our footprint here. The market is very fragmented, we see ample room for consolidation potential.
We would like to give you an overview and examples on our client portfolio. Across all four of our business lines, we have a long-lasting relationship with our clients. We have a well-diversified portfolio consisting of well-known blue-chip companies like DSM, Evonik, or Dow, in order to give you some familiar names. This is also well combined with many specialized SMEs who have unique products. For example, fiber from Beneo, coating additives from Elementis, or preservatives from Schülke.
Also a good mix of emerging Asian players like company like Shin-Etsu or Toyobo from Japan. With many of them, as we said, we have long-lasting relationship, some dating back over 50 years, like the partnership that we have in Japan with the French company, Axens, which is global leader in catalysts. We want to show you on how we work and what we really do in essence.
We act as intermediary between clients and customer. We buy chemical specialties and natural ingredients from our clients. We create prototypes with these raw materials based on our technical know-how and formulation expertise according to the localization, customization, and innovation needs of our customer in each market.
These prototypes can be healthy drinks, cosmetic foundation, pharmaceutical tablets, or car coatings. What we do, we don't simply visit a customer with a powder or a bottle of the raw material. We show them how the product works in the final formulation, and this shorten the time to market for our customer to launch a new product. One example is a range of cosmetic launched by one of our customers in Vietnam.
This customer picked up on our consultancy approach and was very successful in adopting our formulations, which contained a whole range of product from our portfolio with great benefits for our efficiency in sales and bottom-line results in Vietnam.
Now that we showed you many insights on how we operate, we will also share with you the strategy for growth. We have structured it by markets, industries, and operating model or value-added services. In terms of markets, we are number one in Asia, and we'll continue to focus on growing this region. We will continue to build Europe.
In terms of industries, we will only sell specialties and ingredients for chemical and life sciences. Our focus is on life science. Our business and operating model, we will continue to expand distribution as the backbone of our business. That expands our value-added services, as mentioned, particularly in innovation formulation and in regulatory capabilities, as well as sourcing. We will continue to develop our digital capabilities, a bit more in a later slide, and we'll continue to focus on talent retention and development, promoting internal talents.
We want to enhance our technical expertise with market specialists and pursue value-accretive acquisitions.
Let's take the first value-added service we mentioned before, innovation and formulation. We said it a few times, key for our success is our network of innovation centers. With 80 specialists in 46 labs all over the world, we create customized formulation for the local needs with the aim to include as many product from our portfolio as possible in these prototypes. The prototypes are introduced to our customer by our sales expert, who also have a deep technical background.
They are anyway supported by our lab people who are there to explain the performance and the advantages of our product in the finished formula, with a clear outcome of speeding up the approval time for the new business development. This combination is a key success factor to do portfolio selling of our ingredients in the formulations and recipes of our customers. Let's continue on our innovation center descriptions.
We have one of the largest global network of innovation center for specialty chemicals, and we are clearly number one in Asia. Each lab is dedicated to a specific industry or business line. In particular, we have innovation center for food and beverage, nutraceutical, confection and bakery, color cosmetic, makeup, coatings, and plastics. What our people are doing in the lab?
Our scientists develop new formulation, they do troubleshooting, customized solution, perform quality control, competition benchmarking, giving technical supports and training to our customer, and last but not least, they join technical visit with our salespeople to customers. We said it just before, this is a great asset for promoting the full portfolio of our ingredients in the formulation and recipes to customer.
In the last 10 years, we have successfully invested in this area, and we have more than doubled our global network of innovation center, moving from 22 to 46 different labs. You can clearly see that we continue investing in this area and now continue investing for our sustainable growth. This year, we have renewed all our labs in Vietnam. We are opening a new food lab in Indonesia, and we are going to expand the lab in Australia and New Zealand, plus the renovation and expansion project of our lab in Japan.
As an extension of our value-added services, we have a food blending facility in the Philippines. This one is certified according to all food regulations and has been an engine for growth in this market. It's an extension of the value chain by using our expertise in formulating recipes that are able to create tailor-made formulations to be used in the food service products, like sauces, batters, and premixes, according to the needs of leading players in the global fast food industry.
This facility has 50,000 tons of capacity and the database proprietary formulations, 6,000 at this point. These are approved by several multinationals. We also provide toll blending for some of the global ingredient players. We provide fast service and can quickly adapt to a new requirement or request for a modification of a formula to meet the regular changes in the menu of those fast food chains.
This saves time for our customers and helps them to follow new trends very quickly. For us, this means higher margins than in pure distribution. It's a profitable and growing pillar that we aim to expand to other markets. Talking about food ingredients. One success factor here is the ability to cope with regulatory challenges. This slide we share with you, our scary slide. It's an eye-opener for anyone interested to enter the food industry, and particularly in Asia. It shows how complex and vast the regulatory landscape is.
On the screen, you see just some of the regulations that we have to deal with. Each country develops their own. Thai FDA, Indonesian Halal, Malaysian Halal, China food regulation. It never stops. These are barriers to entry for inexperienced suppliers, and keeping abreast of those regulations can be very time-consuming for companies looking to expand in different markets.
This value-added service gives them a lot of time that they can focus on their core competencies and speed up time to market. These are just the examples in the regulation of food in Asia. Next to this, we also handle similar, if not bigger, challenges in pharma, personal care, and specialty chemicals in Asia, Europe, and U.S. How do we at DKSH help our suppliers and customers? Through our regulatory team.
This is a team of 80 experts across 14 markets. We are able to meet many requirements regarding product certification and registration. On a side note, this is 8% of our employees. We believe this is a very strong sign of commitment from our side to be always compliant, to keep our clients and customers compliant, it's a competitive advantage when dealing with so many country regulations.
We have received many positive feedbacks from our suppliers on our high level of knowledge and service. In many cases, our regulatory services was crucial to obtain licenses to be able to sell their products in Asia. Again, less headaches for our suppliers and more business for all of us.
Sourcing is the next value-added service that we want to guide you through. We have a global network of 60+ dedicated sourcing specialists that spans Asia, Pacific, Europe, and Americas in 17 different offices. Those specialists support us in our business development with technology scouting, supplier audit, and locating, identifying, and developing new supply sources.
When our customers are looking at emerging trends in other markets and need to locate how to find specialty chemicals and ingredients, they come to us for assistance. We leverage on our sourcing network of dedicated resource who are well connected with the global and local chemical ingredient industry to support them in finding weekly high quality, cost-effective solution from these new suppliers for the required product or application.
Now, let's talk about digital capabilities. Our digital team provides a range of digital services to clients and customer. Our multicultural team network, which spreads across different countries, drives digital transformation both for clients and customer, as well internally, by optimizing our digital system to make us more agile. Among their core competencies, we count state-of-the-art key client reporting, providing tools and insights in order to utilize our sales force in the most effective way, and last but not least, digitization of our processes to become faster and leaner.
This next slide looks pretty busy, but in essence, it shows our digital ecosystem. Digitalization is a buzzword in every industry, but we embraced this very early on, and we have been using salesforce.com as our central CRM tool for over seven years. It is part of our operating model and is managed by people through our organization.
What we show on the left side is that we manage all of our global business development projects, 16,000 today, on salesforce.com. We promote products and formulations through digital campaigns, marketplaces, and email marketing. Any lead, any project is automatically tagged into salesforce.com, our cloud-based platform. Our existing business is managed on SAP. Currently, 20,000 customers being supported and 1,900 clients.
In addition, we use outside sources for market information like Mintel and Euromonitor to analyze trends and markets. All of this information we are combining in the Power BI tool, which works a bit like a cocktail mixer. You put all those ingredients in, and then it produces unique insights and valuable information that we can share with our clients.
We create close to 7,000 reports a year for our clients. We have set up fully optimized business review dashboards and process hundreds of pitches to gain clients for our portfolio. The good thing is, since all of this data is automatically processed, no salespeople are bothered with filling in templates or filling in Excel tables anymore. They can focus on developing additional business and are rewarded for the business they commercialize. Last but not least, we have recently launched our PIM, our digital product catalog, with 30,000 SKUs.
We will complete the rollout to all markets in our organization, and will soon extend this with e-commerce functionalities in order to gain further efficiencies in our back-end processes and for routine operations.
Now that you have seen how we build up our organic growth, let's have a look on how we grow also by M&A and our track records here. As you can see from the slide, we have accelerated on our M&A strategy in the last years, and we have successfully completed several acquisition, ranking from India up to the north of Europe.
Most recently, we acquired Axieo in Australia and New Zealand and have already fully integrated the business into our structure since the closing in March. When acquiring businesses, we focus on retaining the key personnel and retaining the key clients that come with the deal. The latter stays when the business grows, which we have been able to achieve in all cases.
An example we want to give you is in India, we acquired a company with 30 people and have more than tripled the number of headcounts since then. Of course, also the contribution of India has grown nicely together with it. We are well-positioned to continue driving consolidation in the fragmented specialty chemicals and ingredient distribution market. We are constantly working on a pipeline of value accretive M&A opportunities, and going forward, we see attractive targets both in Asia Pacific as well in Europe.
With that, we come to the end of our presentation. What we would like you to take home today is that we are a pure-play specialty chemicals and ingredients distributor with a clear ambition of further expanding this leading position. We run a resilient and cash generative business model with a high EBIT CAGR. We have a high share of life sciences as well as a strong footprint in Asia.
Our global team of highly experienced industry talents offer specialized value-added service. And thus, we are able to exhibit a solid track record of organic growth supplemented by value-accretive acquisitions. As we said in the beginning, we have enjoyed being part of this for the last 20 years. We are convinced that the future continues to be bright for DKSH Performance Materials. With this, we finish our presentation and open the Q&A session. Thank you.
Thank you.
Great. Thank you very much, Thomas and Natale. Looking at the chat, we already have a lot of questions for you guys out there. Seems to be really good interest here. Let me kick it off. The first question comes from Nicole Manion from UBS, and she wants to know: If you want to expand internationally via mergers and acquisitions, could you also imagine expanding in Latin America?
Our core business is Asia. We aim to keep growing in Asia. We are looking at the opportunity to grow in Asia. We have also some opportunity for Europe. For the time being, we are not looking at opportunity in Latin America.
Thank you very much, Natale. The next question from Laurent Millet from Artemis: Why do you want to grow in Europe if Asia is growing faster? Is it because you don't find targets in Asia for M&A?
No. We've historically been busy in both regions. In Europe, we still believe that there's opportunity to grow. We have been successful in several acquisitions over the last couple of years. We will continue to look at this. In Asia, yes, it's more difficult to find targets that can be bought. Also here we are looking for potential targets to acquire.
Great. The next question again on M&A from Alain Oberhuber from MainFirst, he's asking, will M&A mainly come in Europe and in life sciences?
Life science is a growing area, and we are looking at opportunity, clearly so. Europe is an area where we are growing, and as my friend and colleague Thomas said, it's not only Europe, but will be also Asia-Pacific.
The next question from Andy Grobler from Credit Suisse. He's asking, what is our competitive advantage in the European market?
Our competitive advantage is basically on the same levels as in Asia. It's basically value-added services, formulation, technical expertise, and regulatory support.
Good. Next one from James Filsell from Fidelity: How important is price for customers when deciding between distributors? Do customers work exclusively with DKSH, or are they likely also to work with our beloved competitors, IMCD and other ones?
Customers buy the materials that help them to create business. When we compete in the market, we compete both with competing distributors and also suppliers themselves. Our value-added services provide more than just product and price. It helps them to formulate products quicker and reduce time to market. This is where we believe that price becomes only secondary interest.
Good. Thank you. Next question is from Jon Cox from Kepler. He's asking, how should we think about profitability for the division going forward?
We have a good profitability, and we are capitalizing on our value-added services, so we think we can expand further.
Thank you. Another question from James Filsell from Fidelity. He's asking, with 20,000 customers, what percentage of revenue is the largest customer, how much percentage of revenues do the top customers roughly contribute?
No customer will make more than 1% of our revenues. We have a very well-distributed risk profile across our customers, and it's, as we said, 20,000 of turn over CHF 1.5 billion. It means that each customer is actually quite low number.
Good. I spotted here one more question for Stefan, also in the Q&A. What are the synergies for the four business units? What does the group provide for the units? Looking at the IMCD valuation, why do you not spin off the business unit?
Okay. First of all, what we share across all four business units is our presence in Asia. In every country, we have a sufficient infrastructure for all four of them to tap in. The group provides them from financial services, HR services, all the back office services a business unit needs to be successful so that our business unit heads and our employees can fully focus on customer and client needs in those markets.
Performance Materials is a core element of our business unit, and I think what we have done over the last couple of years, I think earlier this morning it was said, was a little bit in the shadow in our portfolio. I think what we have done over the last years, we highlighted the potential of Performance Materials in our portfolio, as well as a very positive outlook.
Those two gentlemen and the business unit with all the employees behind it have. I'm sure that at one point also, the capital market, by putting the sum of the parts together, will value the contribution PM is giving to our portfolio today, as well as most likely tomorrow.
Great. Thank you, Stefan. Another question from Nicole Manion from UBS. Is the figure of 30,000 SKUs specific for Performance Materials, or is it a group figure? How easily can you digitize your business, for example, compared to the Consumer Goods business?
The 30,000 SKUs are related only to performance materials. That's the first part of the question. It's very different from consumer goods. We sell B2B, and what we provide are raw materials that need to be formulated. We do see and we do expect that there will be a certain part of our business will be digitized and there will be e-commerce.
As recent studies have also shown, this is not going to happen so fast. It's an add-on. It's helping us to stay in touch with customers. It's helping us to digitize also value-added services. We don't foresee that it's going to take up the majority of our business very soon.
Good. Another question from Mera Tabati from Kepler Cheuvreux. He's asking, what is our market position in pharmaceutical excipients distribution in Asia Pacific, and what we think about the recent IMCD announced acquisition of Signet in India.
We have a market position for life science in Asia and is one of the fastest-growing area. We are present in India since 30 years, and we are successfully growing in India, and we welcome new players coming into this field.
Good. That's the last question. Stefan, I think this is one for you again from Alain Oberhuber from MainFirst. He's asking, why does DKSH have a joint leadership with two Business Unit Heads in Performance Materials? Maybe you can answer that question, or I can also chip in.
Very interesting question. Thank you. Thank you very much. I think you saw the opportunities in this business field. It's tremendous, and I think it will deliver a large contribution to the future of DKSH, and we want to shoulder it on the two most experienced guys that we have in our executive board. They work very well together as a team.
Good. We just received another question. Thank you very much. For Thomas and Natale, what are the synergies, or maybe also for Stefan, what are the synergies you can create from M&A? Are there network advantages that you can build through M&A? I think that those maybe you can answer it for Performance Materials first.
Very clearly. Our main target is to have a portfolio that can meet all the requirements of customers in our different industries. By acquiring companies, of course, the synergy is that you get contact to new suppliers, and there's an opportunity to expand into other countries. Just recently in Australia, New Zealand, we acquired a very nice company called Axieo.
After the acquisition, one of our clients from the rest of Asia moved with us in New Zealand and Australia, and gave us substantial business. Actually our clients are looking for regional distributors, and by acquiring companies, we of course offer more opportunities.
Maybe I can add here. The large transaction of IMCD most recently just highlighted again that the consolidation in this industry is even accelerating. It was already on a high speed before, it further accelerated. Clearly the driver behind it is that clients that want to consolidate their distribution network or the amount of distributors they work with globally. That is also the reason why we not only acquire in Asia, but also try to serve at least two or maybe with the U.S., even three regions in the near future.
Great. Okay. Looking at the chat, we have cleared all questions. Thank you very much, Thomas and Natale for being with us today. We will have a two minutes break. We need to rearrange a little bit, and then we are back with the presentation from our CFO. Thank you.
Thank you very much.
Thank you. Have a good day.
Hello. Good afternoon. I'm pleased to meet you virtually for our second Capital Market Day. In the previous presentations, you have gained more insights from our leadership team about our four business units and how they have set the stage for future growth. I'm now pleased to wrap up in financial terms.
Let me start with my key messages for today. We have a resilient, asset-light, scalable, and at the same time, cash-generative business model. In addition, we continue to steer our business with proven KPIs. This means that we mastered the COVID-19 challenge well, and looking ahead are prepared to navigate through these unprecedented times. We can continuously drive M&A. At the same time, we maintain our progressive ordinary dividend policy. Given our business characteristics, we are positioned for future growth and margin enhancements once markets normalize again.
First, let me now give you more insights about the resilience of our business. Since 2012, we have significantly diversified our business. A few years ago, consumer goods contributed half of our group EBIT. Since then, we continuously expanded our healthcare and performance material business, which now contribute around 70% of profits.
In addition to their growth characteristics, they also are positioned in resilient end markets. We have also shifted market concentration. In 2012, Thailand accounted for more than a third, and Greater China area for more than a quarter of our net sales. In the last years, we doubled our exposure in the faster-growing regions of Asia-Pacific. What you see named Rest of Asia-Pacific in the pie chart on the right-hand side. We have grown strongly in markets such as Laos, Vietnam, Cambodia, and Myanmar.
Part of this region is also Indonesia, where we entered with our consumer goods and healthcare business three years ago. Now we see very high growth rates. In addition, our accelerated M&A increased our footprint in Australia and New Zealand. This better diversified setup provides us more resilience in the future. We run an asset-light business model and typically don't own distribution centers or transport vehicles. We drive cash generation through this asset-light approach.
Our capital intensity, measured by CapEx as percentage of our net sales, is very low on average some 0.4% in recent years. Also for this year, we do expect similar ratios. Since our IPO, we have generated more than CHF 1 billion of free cash flow. Our cash generation is closely linked to net working capital. This is mainly inventory, as accounts receivable and payable roughly balance out.
As we see potential to generate even higher free cash flows, we have put a higher focus on net working capital in our incentive system. We implemented operational measures like the SKU rationalization explained by Terry in FMCG. All this should help us to achieve our long-term target of growing net working capital below net asset sales growth. Sorry, net sales growth.
Despite the COVID-19 challenges, we maintain a strong balance sheet. Our equity ratio stands at 34.3%. Goodwill accounts only for 14.1% of equity. Even after paying out dividends this year, we have a net cash position of around CHF 200 million. Our strong fundamentals are the basis for both organic and M&A-led growth. This allows us to onboard new clients and grow with existing ones.
In addition, we have the firepower to spend up to CHF 1 billion on acquisitions while keeping our leverage ratios at a maximum of 2 x net debt to EBITDA, and that is excluding lease liabilities. As we focus on better utilizing our balance sheet going forward, we need the right KPIs to steer our business.
Therefore, RONOC is a key incentive apart from EBIT and profit after tax. By doing so, we naturally balance the trade-off for higher margins or lower net working capital terms. Due to the nature of the different models, RONOC varies substantially. In Business Unit Healthcare, we achieve a relatively high RONOC as we don't take inventory for a large part of the business. The higher margins, especially chemicals and ingredients, as well as our asset-light approach, result in a RONOC for Performance Materials, which clearly tracks above our current group average of 15%.
In consumer goods, we typically take inventory risk. Because of the weaker results in the past, RONOC was below group average. However, we are confident of moving this up over time. In technology, RONOC is usually slightly above group average. However, in 2020, because of the large COVID-19 impact, it's clearly below. The proof point for our well-diversified asset light and cash-generative business model is our dividend track record.
Since our IPO, we continuously increase the ordinary dividend. We also commit to this progressive ordinary dividend policy going forward. We are also providing you more KPIs to better track our progress. For example, we are disclosing sales per business line to you today. We are also expanding our segment reporting and will going forward provide you more granularity when publishing sales for relevant markets and regions.
In addition to more disclosure and KPIs, let me also provide you with a business update for the first eight months of 2020. Our half year results prove the resilience of our business despite lockdown restrictions across all markets. Measures have been eased, demand hasn't fully recovered yet. Tourism in general is still virtually zero. Patient flow across hospitals currently stands at around 90% compared to previous years in Thailand, for example.
To mitigate the lower demand, we focus on our business development activities, intensify our digital marketing campaigns, and at the same time diligently manage our cost base. In sum, we have delivered a continued solid performance year to date. We cannot reliably forecast the remainder of the year, we are confident to master the challenges ahead. Let me give you some more financials that we expect for 2020 and in the midterm.
Our M&A activities will contribute around 2% of net sales this year. As of today, the strong Swiss Franc would reduce sales in the mid-single digits. You may expect the group tax rate between 27%-30% for 2020, and slightly lower than usual CapEx expenditures of CHF 30 million-CHF 40 million.
Mid to long term, M&A will play an important part of our growth story. At the same time, we are confident to keep our tax rate at around 27%-29%, and CapEx in the range of CHF 40 million-CHF 50 million or at 0.4%-0.5% of net sales if it grows faster. Thank you very much, and let's now move on to the Q&A session.
Thank you very much, Bernhard. We have quite a long list of questions here in the chat. Thank you very much again to all of you of sending those through. The first question that is for Stefan, please, from Alain Oberhuber from MainFirst again. He asked for consumer goods, but also for the group where we have white spots for acquisitions.
I think especially as Terry was indicating earlier in his presentation, with distribution in CG, we are not active in the Philippines. The Philippines are an attractive economy in our region of the world, so this is clearly a white spot. You are aware that in 2017, we acquired PT Wicaksana in Indonesia. That was one step. It's a huge market, so maybe there are more opportunities. I would also look at it from a value-added services perspective. The field marketing activities we have together with our small and joint venture are very attractive business field, and maybe also there I see some opportunities in some countries across Southeast Asia.
Thank you. The next question is from Jon Cox from Kepler. We had a similar question before. Should we expect the consumer goods margin to go back to the 3% historically? I think we answered that already on the 2.5%. The next question again from Jon Cox from Kepler. He's asking, What sort of free cash flow generation is possible for you around CHF 200 million? Bernhard, maybe you take that one up.
Conceptually, you have to look at our cash flow, essentially profit after tax, plus minus changes in working capital from growth. We can use the profit after tax because depreciation and CapEx is roughly the same over the years. As we are committed to grow working capital slower than sales, you will see an incremental increase of the cash flows over time. I cannot tell you now CHF 300 million or CHF 200 million, obviously, that heavily depends on the profit after tax growth.
Thank you very much. The next question from Alain Oberhuber from MainFirst again. In which business unit do we expect the highest margin potential? Will you get back to peak gross margins?
I think there is potential across the group or across all four business units by optimizing our client portfolio, as well as delivering more full service contracts, including a huge amount of value-added services. That will improve us, obviously, to help us to improve the margin overall.
Short-term, obviously, looking at the historic development and the most recently delivered turnaround in FMCG, obviously FMCG offers the highest potential to increase the margin short-term. Again, I think for us, medium to long term, it's more important to deliver sustainable EBIT growth and capitalize on the broad opportunities we have in the market instead of short-term peaking the margin.
Great. Thank you. Next question from James Filsell from Fidelity. Bernhard, maybe you take this one up. How much of the healthcare business is exposed to healthcare tourism, and how does that impact the different channels we are serving?
The biggest impact from tourism we see actually in Thailand and Singapore. In those markets, we look at the mid to high single-digit % in reduction of sales.
We see essentially two areas. One is medical tourism, with that medical device, because medical tourism quite often is elective surgery. That is the most profound drop we see. That's a little bit higher margin than the rest of the business. Then we saw some drops in OTC products, where Chinese tourists would buy it in bags actually, and leave the country. That, of course, has dropped to zero as well. Overall, we see in those markets, as I said, mid to high single digit impact.
Great. Thank you, Bernhard. Next question is from Andy Grobler from Credit Suisse. Stefan, that's one for you. Can you quantify the historic impact of outsourcing and our views on the impact in the years to come, please?
Clearly, there is a trend from outsourcing. I also believe that all four business unit heads did bring that across as our clients try to reduce and flex their cost base across the region and the challenges to grow the business over there is particularly challenging. Outsourcing always contributed to our growth.
We personally believe that this trend is going to accelerate, even further accelerated to COVID-19 most recently, and our BD pipeline has never been as strong and solid as it is right now today. Looking out, we believe somewhere between 50-100 basis points, this outsourcing trend will accelerate our growth in the region.
Thank you, Stefan. Next question from Anik Boll. What sustainability objectives have been defined for the executive committee? Maybe you can give a couple of examples on that one.
Okay. Yeah, creating values, minimizing impacts is our claim in sustainability. There's a very strong commitment from us to sustainability within the group. All members of the executive committee, they have a 5% objective or target for sustainability. Some of the targets includes the increase from selling sustainable products within the business unit. It goes to reducing the carbon footprint.
I'm sure you did pick up already that we are carbon neutral in our founding countries, and by 2030, we want to be completely carbon neutral as DKSH in the group. We also have targets in terms of implementing and supporting social projects, for example, across the group to give something back to society.
Great. The next question, Bernhard, for you, from Alessandro Faletti from Octavian. What is the split of sales by client? Isn't there a risk to lose clients as soon as they have reached the critical size with DKSH? I think it's about insourcing and just client concentration.
We don't have concentration risk, which we have heard before and in the different presentations in general. The risk of insourcing we see a ctually, I've hardly seen any insourcing for the Business Units Consumer Goods, Healthcare, and Performance Materials. We see it once in a while in Technology. Why is it not happening? We are giving clients an immediate access to the market with a full capillary distribution.
Their incremental profit is quite high from these additional coverages. If they would leave us, they would not be able to rebuild that kind of coverage and would lose quite some gross margin on their side. That's why we don't see it. The complexity and collection in our markets. We print 20 million invoices, which we have to collect. In those markets, hardly anybody pays voluntarily. You have to actually collect.
Thanks, Bernhard. A couple of more questions. The next one again from Jon Cox from Kepler. Maybe Stefan, you take that one. On the progressive ordinary dividend policy, can we assume that the dividend goes up next year?
I think we heard a couple of times today that we are fully committed to our progressive dividend policy. At the end of the day, it's a decision by the board and then by the shareholders.
Thank you. Next one from Laurent Millet from Artemis. Stefan, maybe you take that one up. Can you explain the GDP plus target? I think he's talking about our potential here. All the BUs have strong growth plans, but the headline target of GDP plus does not reflect that. Are you overly cautious on our potentials?
It depends on the plus, I guess, Laurent. We also really want to make sure that we rather under promise and over deliver, looking at the track record of the most recent years. We also have to put into consideration there's always a little bit of volatility within the region. Overall, I agree with you. We have very strong growth plans. We have very strong growth ambitions, and there are detailed action plans behind it. I hope that we can surprise you positively in the years to come.
Thank you. Next one from Jon Cox again from Kepler. Stefan, maybe you take that up. Could you imagine including metrics like RONOC or free cash flow in your LTIP, in your long-term incentive plan?
RONOC is part of our LTIP already. Free cash flow at this point is not.
Good. Okay. Bernhard, next one for you again from Laurent from Artemis. Is your 2x net debt to EBITDA ratio a maximum target or your new normal? What do you expect the average to be in the next three to five years?
That obviously depends heavily on the M&A which is available. This just gives you a feeling for the firepower we would have if we would go for bigger acquisitions. That would still give us roughly investment grade. That was the limit we were looking for.
Great. Thank you. Very clear. Stefan and Bernhard, maybe the next one for both of you, again from Alain Oberhuber. From MainFirst. Do you expect second half 2020 to be similar to second half 2019? If not, which unit is contracting the most?
Obviously, we will try to get in 2020 as close as possible as 2019. As we said in the half year results, it will be better than H1 2019 matching 2019 H2 looks like a stretch looking at the current COVID environment, what is out there. I think we did mention that already in the Q&A sessions after H1 results. Chinese New Year this year or into 2021 is significantly later than last year. Some of that revenue is also going to move into January 2021 already.
Okay, good. Maybe Bernhard, the next one again from Alain from MainFirst. How much sales will future M&A deals contribute?
Sorry, it is very hard to answer. Depends on the deal, obviously. We are open to bigger deals, also to many smaller deals. Historically, we have 2%, 3%. We clearly hope to have a higher number in the future.
Okay, good. The next question from Andy Grobler from Credit Suisse. I hope we understand this correctly. RONOC looked heavily impacted by COVID-19. How would the RONOC distribution look like in 2019 as normal? Can you explain the differences qualitatively and quantitatively? I think you just give a bit granularity on the impact of RONOC short term.
You want also?
Yes.
I think the biggest impact right now we have on luxury lifestyle, obviously, and technology. They are hardest hit by COVID. They should improve their RONOC. Consumer goods generally should improve because we have started a lot of initiatives there. They should come clearly above the group RONOC over time over the next one or two years.
Okay.
Healthcare will stay very high.
Okay. Thank you. Next one again from Jon Cox from Kepler on working capital. How can you improve cash conversion cycle, which is at 28 days last year? What number should we expect in the coming years? Could there be a cash inflow from working capital changes in the next years?
We would see a gradual improvement there. What I tried to say in my speech was that there is a correlation between EBIT margin and how much working capital we take. Obviously, the more working capital we take, the higher is the EBIT margin. I can, of course, increase now short-term cash flow by sacrificing on the margin. The other way around.
The key for us to improve cash flow over time as to what Marco in the beginning alluded to, is to reduce excess inventory. That is inventory we hold in excess of contractual arrangements and to reduce overdues further. Just to preempt that question as well, we have no increase in overdues during the crisis right now. This will be a general decrease of overdues.
Okay. I try to combine two questions we got from Jon and from Nicole. The question is, how did organic sales growth for the group trend in recent months versus the first half? The same question is here, is the third quarter trending up better than the second quarter? Maybe we can wrap that into one question. Stefan Butz, maybe can give a bit of commentary around that.
Clearly, Q3 is going to perform better than Q2. Q2 was heavily impacted by COVID. We are moving into the right direction. Again, as I was saying before, we are not back to 2019 levels.
Very clear and precise. Thanks, Stefan. Next one, maybe you take this up again. How will DKSH be positioned in five to 10 years' time? Do you expect a fundamental change in the business model?
I don't expect a fundamental change in the business model. I think we see that there is a clear need for our clients to have an outsourcing option for Market Expansion Services. My vision is, yes, definitely over the next five to 10 years, I think our four business units will be positioned much stronger in the markets. We will offer a significantly broader range of full value-added services, and we will also be able to enhance our margins across all four business units.
Thank you.
Sorry, I forgot the M&A part. As we learned today, I think in all four business units, the markets are still fragmented. Over the next five to 10 years, I do hope that we were able to consolidate many of the smaller to medium players in those markets.
Great
On top of our good organic growth.
Good. Let's take question 21, again, from James from Fidelity. He's asking, how is COVID impacting acquisitions? Are we changing the processes and procedures given travel restrictions?
The M&A activity in the market was extremely low in Q2. I think everyone was just dealing with securing the business and securing the balance sheet in those challenging times. Most recently, we have clearly seen that activity is coming up. We discussed the example of IMCD last week, who did a major acquisition in India. We also do see increased activity.
The challenge is always when you have already a relationship or when first discussions were already kicked off pre-COVID, now we are able and we are in a position to enter them again, obviously, due to the travel ban in a pure digital way. It is not making it easier because delivering an acquisition means you have to build trust. You have to build trust with the seller who at the end of the day is putting the baby in your hand.
I can share with you it works much better, for example, if Thomas, myself and I can fly to the potential target and have that discussion face-to-face. Anyway, we are optimistic that with the increased activity level we see, that we will be able to deliver something over the next six to 12 months.
Thank you, Stefan. Next question for you again, Stefan, from Andy Groebli, Credit Suisse. From a diversity perspective, the whole Executive Board is male. Do you expect this to change in the coming years?
I do hope. I do hope very strongly that this is going to change over the years. We are very pleased also, I think as the Chairman pointed out, with our current Executive Board. Don't expect any short-term changes. In general, diversity is very important to us. I think if you look into our organization from a broader lens, we have a huge diversity within the organization. Over 50% of our workforce is female. We have over 70 passports in our staff across the board. Yes, if you look just at the top board, I agree with you, currently, there is no female member.
Next question for you again, Stefan, from James from Fidelity again. How can you promote sustainability across the business units, what is being done in each business unit to reduce emissions, use environmentally friendly products, influencing customers and clients, et cetera?
Yes. As I said before, I think we take sustainability very serious, so do all of our Executive Board members. We also do recognize that products which do consider sustainability and environmental factors are more successful in many marketplaces across the board. It's in our best interest if those products are growing faster than other products to really make sure that they are part of our portfolio, and that is what our business units are aiming for.
On the other hand, what can we do to reduce our footprint? I mean, first of all, we can reduce inventory levels because less warehouses means less footprint, and it means improves cash flow. That's a very important factor we are aiming for. We are also running pilots already with electric vehicles, for example, in Thailand to deliver our products downtown.
In every building, in every facility, we look at the lighting systems, et cetera, at heating systems, and optimizing air conditions, et cetera. There is stuff we can do. Obviously the other thing is what we are learning now today is also that we can conduct more meetings online or digital, and that means that most likely we as an organization, we will definitely fly less in the future than we have done in the past, and that will also help us to reduce our footprint.
Great. Thank you, Stefan. Question 24, again from Andy Grobler from Credit Suisse. Bernhard, maybe you take this one up. I think we already touched on that. Do you have a target for net working capital as percentage of sales? If yes, over which period?
No, we don't have a specific target because that is always a matter of negotiation with every single client. As I said before, it's usually a game between EBIT margin and working capital. The only target we have is to grow working capital slower than sales.
Good. Last question, number 25. Again from Alain from MainFirst. Could we expect group gross margins for the full year 2021? Next year, to be back to 14.5% as it was the case in 2015. Based on what we heard today from the consumer and healthcare business.
Yeah, I'm just thinking. I think we should get back to that level. Yeah. Of course, there's always a caveat, depends on contracts. If you get a few very big contracts in which are on the pharma side, it might have an impact on the gross margin. Generally, yes, with the mix, we should have it better.
Good. Super. I see no more questions in the chat. Thank you very much for posting all of that. Before I give the word to Stefan, maybe one clarification we also received. There was the slide 51 from Terry, and I think there was a little bit of a confusion about a number. I think Terry spoke of CHF 180 million. That's actually a CHF 200 million net sales addition from business development at accretive terms for this year. Yeah? That's a net sales number, CHF 200 million at accretive terms that we have generated through our business development activities in fast-moving consumer goods. Good. With that, I think we have covered all of the questions. Maybe Stefan, you would like to say a couple of final remarks?
Yes, with pleasure. After this deep dive into our business units and our financials, please let me conclude this Capital Market Day by stating once again the following points. Recapping the last half year, we successfully navigated through COVID-19 challenges while simultaneously setting the stage for future growth. What differentiates DKSH is our scalable and resilient business model.
We have a strong management team consisting of experienced DKSH executives with a proven track record. They in turn, can rely on highly specialized teams of industry experts. We also profit from a promising trend in the growth market and resilient industries we are active in, such as outsourcing and increasingly more complex regulatory environment or industry consolidation. We have a compelling strategy in place that focuses on our well-defined six pillars, also incorporating sustainable initiatives in the markets we operate in.
We finally turned FMCG around, and our recent focus on accelerating performance materials will especially enable us to capitalize on that further in the years to come. All this is supported by our solid financials, including a strong balance sheet and improving working capital management, which led us to continue with our progressive dividend policy, combined with organic and M&A-led growth with the potential to achieve GDP plus growth in real terms and margin enhancements once markets normalize.
With that, we have reached the end of our capital market day, and on behalf of all presenters today, I thank you very much for your time and participation. We appreciate your interest in DKSH and are looking forward to our future discussions and hopefully again, face-to-face. Thank you very much, and please have a great day, a great afternoon, and a great evening. Bye-bye