DKSH Holding AG (SWX:DKSH)

CMD 2020

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Sep 21, 2020

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've developed our business as entrepreneurs over 4 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. And 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. And 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 1 DKH team, Supporting each other and our partners to achieve joint success. And we stand for entrepreneurial spirit. We innovate, Identify business opportunities and focus on operational excellence to drive growth for our partners and us. And 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. And as we carry out this strategy, we adapt to the ever changing market environment, ensuring sustainable profitable growth because 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, and 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 scene more tangible for you with today's round of speakers, which consists of our Chairman, Marco Gardulla, Our CFO, Bernhard Schmidt and our business unit heads in order of their appearance, BJ Zing for healthcare, Terry Zirimides for consumer goods, Arno Elbrechter for technology, as well as Natale Capri and Thomas Zuhl for performance materials. They are all well established experts in their fields and 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. Then we will dive into the business unit update, starting with healthcare and consumer goods. After a short coffee break, we will then continue with technology and round the business units 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 4 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. 2nd, to point out the progress in our evolution and where we stand today. 3rd, and very important for today, to give you The chance to get to know our great leadership team and their focus areas going forward. And finally, we want to provide you as key stakeholders with a better understanding of our business model and our growth drivers. So, 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 sales services. We take Found 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 half a 1000000 customers and translating it into detailed up to dated market information. We operate in 36 markets With 33,350 specialists on the ground generating net sales of 11,600,000,000 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 service 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 6 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-nineteen, 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. 2nd, 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. 3rd, we see more potential for M and A. We continue to have a very strong balance sheet that can be leveraged up to 2 times net debt to EBITDA and that gives us an additional firepower of up to CHF1 1,000,000,000. Combining these three growth drivers, we see a potential to grow GDP plus in returns post COVID-nineteen. We have a clearly defined strategy for growth in place to achieve our objectives. It focuses on 6 main areas. First, we invest in people and nurture high performance. 2nd, we drive our business unit strategies and strengthen their service offering to generate value in the long term. 3rd, We expand our regional footprint via value accretive acquisitions. 4th, we drive operational We champion digitization through digital business models, transforming as well as leveraging data and analytics. And finally, we strengthen our supply chain to have more modernized facilities and work processes. So let me talk about these 6 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 Resource Officer A testament to this. To upgrade our capabilities, we recalibrated our management team and we replaced 25% of our top fifty management in recent years. We cascaded our long term incentive plan Further down the organization, which now includes 4.5 times more people than 3 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 4 business units, we have a dedicated and updated strategy in place. Our focus in health Care 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-nineteen levels. And in performance materials, We will expand our leading position aggressively in specialty chemicals and ingredients distribution. My colleagues We'll give you more insights about the strategic direction in their business units later. Let's move to another strategic focus areas, mergers and acquisitions. We have substantially accelerated our M and A execution since 2017 and closed 10 deals since then. In total, we acquired around CHF 530,000,000 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. We currently see activity to come back to the transaction market and 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. The last 2 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 midterm 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 150,000,000 and with that would have increased tenfold During the last 4 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 4 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 1,000,000 in 2019. And while COVID-nineteen 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 6 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-nineteen outbreak demonstrated that our business It's 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 8 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% 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 190. We are prepared and able to master the challenges of COVID-nineteen. At the same time, We see favorable market and industry trends in the long term, which combined with our M and A strategy, provide us with the potential of achieving GDP plus growth in real terms and margin enhancement post COVID-nineteen. Thank you very much for your attention, and let's move on to Q and A, please. Thank you. Thank you very much, Stefan, and 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 is asking how important are personal relationships and networks in Asia And how does this relate to our changed slogan of Asia and beyond? So how important are our personal relationships and networks? And how does this relate to our changed slogan? Bernhard and Stefan, one of your, please. I mean, first of all, we have a very strong position, across our 4 business units in this marketplace. But clearly, The end of the day, people do business with people. And one of the reasons our organization is so much decentralized Is that we want to be very close to our clients and customers. And 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 client a very good relationship with clients And customer across the region. But also our clients and in particular, They have a structure in their business and most of them cluster the business into Asia Pacific. So what do they do expect from us is that we help them to deliver growth not only in Asia, But also in in Pacific, and that was the reason why we enhanced our position also down in Australia and New Zealand. And you will hear Later on from our business unit heads, that's 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. The second question for Bernhard From John Cox, Kepler. Does DKSH have RONOG or WACC goals in M and A? And given that M and A seems to be getting more important, so do we have Roanoke hurdle rates in the M and A target? Internally, we have, Roanoke hurdle rates for all our businesses. That is regardless whether it's a new client coming in, where I have to Get more knock 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 Gen. 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 4 business units and 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. Got a final question from Annick Boer. He's asking for Stefan, what are the advantages Of being a family owned company. I mean, clearly, we are very proud of having a family as our anchor shareholder Since many, many years. And 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 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 Gardola. So Marco, please go ahead. Thank you, Till, and Welcome to everybody also from my side to this Capital Market Day. I would like to share with you some of my initial impressions And then building on the initial comments of Stefan, also what I see as the key focus areas for the short and midterm. 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, Teo? Yes. Okay. I can see it. Okay. So my initial impressions are that we have a very, 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 white 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 promising Indonesian market through the acquisition of IXANA a couple of years ago. The other impression is That has been proven with our 1st 6 months results that our business model is very resilient. And 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 here. If you take, for example, Thailand, Thailand is still closed for tourism and I guess you all know how important tourism is for the Economy and for the GDP of Thailand. So very resilient business model. We have done very well during the 1st 6 months. And this is also In a way, a signal that beyond the right way when it comes to actually developing and implementing our core strategic initiatives. I would also like to complement Stefan when it comes to building a strong team. You have probably also noticed in our results for the 1st 6 months, The consumer goods, especially FMC, cheap part of consumer goods has developed very, very positively despite, And I mentioned it again, the COVID nineteen situation. And Terry and his team, they have done a great job. So I'm very confident into the teams. Stefan has made some very important changes. And I feel that we have now today The strongest team in the industry driving the business forward. Stefan mentioned the family, So the anchor shareholders, I just would like to mention we are not a family business. We are a publicly traded company. Obviously, you know, DKK with 45% has a main saying and they are by far the largest shareholder. And You know, 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 mid for the short and midterm, and 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 our working capital. And I'm talking here mainly about, Excess inventory, which we still have on our balance sheet, and on the other hand, also in tightening the collection of our receivables, Being a 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 and P activities. The second driver of cash flow of improved cash flow is Efficiency and profitability, improvement actions, as Stefan has mentioned, supply chain processes, so the automation, The further automation of our supply chain, there we still have a lot of potential. I would also like to mention a 2nd area, which is the order to cash cycle also there through automation to profit through process improvements, Efficiency improvements, we should be able to become leader 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. So to be the first ones when it comes to digitalizing, you know, customer facing processes in some Our key markets, mainly Thailand and the other 2 I mentioned before, Malaysia and Singapore. But 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 only stay relevant if you have The corresponding coverage when it comes to points of sales. Also there, we still have potential to improve. But overall, I'm Very, very happy and very, very positive that actually our FMCG business will yield again returns as we have seen Years ago, I mentioned white spots. So geographic expansion, and I'm no, I'm repeating myself. I'm So these are 2 big markets, 2 growing markets, and our footprint there is still relatively low. We are making efforts as we We need to change that. And I'm convinced that these two markets will actually contribute very positively when it comes to our future organic growth. And finally, Performance Materials. My impression is that, You know, it has been underappreciated, how important and how compelling our Performance Materials business is. 1st of all, when it comes to the margin it's delivering, it's all proportionately delivering Gross margins and EBIT margins compared to the rest of the business. And also the fact that we are the clear market leader in the fastest growing part Of this industry, Asia Pacific, and that we have been slow slowly but surely building a global business, and we are actually competing It's a big company in this industry, and we are very well prepared to actually continue to take share and to further drive this business. And I'm sure that Natalia 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 1st 6 months, so in a very difficult environment, and we are continuing to be committed to actual return Cash that we cannot meaningfully invest, reinvest into our business to shareholders or in other words, we are committed to Increasing dividends, in line with, hopefully, increasing EBITS and profits after tax. So 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. Tiel, are there any questions for me? Marco, we have no questions in the Chet, so everything that you have said seems to be pretty clear and well understood. So thank you very much for your time. And we will move on with BJ from Health Care in Bangkok, please. Thanks, Son. Thank you. Good morning, good afternoon, good evening wherever you may be. Very happy to present to you today at this Capital Markets Day. My name is Vijay 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 2 in distribution In healthcare products in Asia, if you look at our performance last year, our net sales were $6,000,000,000 Our EBIT of €134,500,000 We operate across 14 markets. And if you look at our net sales split, It's about 64% into Pharmaceuticals, 21% Intermedical devices, which is a faster growing segment, 13% in over the counter consumer health, And 2% in our own brands and I'll show a bit later how this own brands kicks well above its weight in terms of Slow down performance into our EBIT. One of the things that separates us at DKSH and I'll touch on this a bit later It 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. Again, how we add value for stakeholders in Asia is Our very large distribution business and 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. And 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 Hawpar and especially LifeScan. LifeScan was a division of J and 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 3rd party logistics, 4th 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, and 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 Omnichannel 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. Also traditional trade, Independent pharmacies, about a quarter of customers. Modern trade, about 10% of customers. These mainly Our, our chain pharmacies and a relatively small part of our business but growing very fast Is e commerce. And 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's 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 2 largest Healthcare distributors and 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, and this helps guide And our resource allocation, and 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, and 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 80,000,000 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 450,000,000 population, And you see a relatively reasonable healthcare infrastructure and growing. And I would highlight Philippines as 1, 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 100,000,000 people, Relatively well developed infrastructure, but not growing as fast as the markets I've indicated before. And finally, A group of very developed market, almost OECD like, high absolute GDP and Mature healthcare infrastructure and 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 long term or mid to long long term outlook in healthcare is approximately 5% to 6%, Which is pretty much similar to the numbers that we saw in the previous years, 2016 to 2019, of 6 to 7. Now I'll touch on a bit later that COVID has had an impact in the healthcare market in 2020. So 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. And 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 It's 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, 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 3 to 4 And 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, and 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, and 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 and D and developing key brands. We also see a prioritization towards key markets, United States, Europe, China or Japan. Price pressures and cost pressures are have been there pre COVID, and I can imagine during COVID with budget deficits We'll 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 100 of 1,000 of dollars. In this case, every patient counts. Therefore, new starts and keeping patients on product is critical You will 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 1. In Vietnam, number 2. And in Hong Kong and Malaysia, we'd be number 5. 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 owned brands, Expansion opportunities, including lifecycle management. As I mentioned, very good profitability. We own the IP rights, outsource the production to 3rd parties and carefully manage potential client conflicts In terms of our entry into own brands, last year we signed a partnership with Alvatech To bring biosimilars to Asia. Biosimilars are essentially generics of biologics, large products such as Humira, Avastin, Herceptin that you may know, multibillion dollars that we could provide To Asian patients and greatly increased access and we're in discussion with Alvatech 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 Beyond our transactions data that we can cover to find what's white spots for our clients, we're 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-nineteen 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 August. However, we do see that the basket size that patients buy is relatively smaller as they As they feel more uncertain about the future. Finally, I'd like to give you some highlights Around DKSH Healthcare. Number 1, 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-nineteen 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, BJ. Let's move on to the Q and A session for Business Unit Healthcare. The first question It's for you, BJ, in Bangkok from John Cox. He's asking, will 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 5 years' time? Thank you. So as I mentioned, Own Brands is clearly one of the areas 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. So 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 For for BJ, the first one again from John Cox from Kepler. He's asking what is the main weakness during COVID-nineteen? Is it more on the hospital side or with the independent pharmacies? Thank you. It really depends by country. So if you see countries such as Cambodia and Lao, 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, so that's probably the most affected. And I think the second most affected is where, In some cases, for the for the independent pharmacies and some of the chains, depended in certain categories a lot On international tourists and as Stephane mentioned earlier, Thailand and a couple of other countries are essentially in And those businesses have seen a tremendous impact together with private hospitals. As you know, Thailand and Singapore are often centers for medical tourism. So I would say number 1, elective surgeries. Number 2, certain categories due to international tourists in pharmacies. Number 3, Private hospitals that depend on international tourists. Thank you. Thank you, BJ. One more for you, from Alain Oberhuber from MainFirst. The question is, what is the highest hurdle to get more outsourcing contracts? And why did we not see so many outsourcing contracts In the past. So 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. So 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 nineties, 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 US has still been an important market and they're relooking At their business model and their business approach or go to market approach and therefore looking more at outsourcing. I think the biggest hurdle It's 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 Health Care for Bernhard. How do financials, margins, Device, OTC and owned brands. Okay. I'll give you a qualitative answer to that question. Clearly, medical device is the more attractive business among the outsourcing businesses. And then as BJ mentioned, the own brand is of course the most attractive one from a profitability point of view. Overall, Roanoke is very strong in healthcare. That's due to the fact that in many cases we don't take inventory and receivables or payables cancel each other out. So it's from a roller perspective the most attractive business. Justine, there is a last question for BJ just coming in right now from Pascal Foga from Fonto Bell. What are the risks in the own brand business? It is only a 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 and they realize That they can't put the investment behind some of these. So there is an opportunity. I think the challenge for us is we are not a global Player always in own brands and sometimes we're going against that. So 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. And I think that's where certainly the opportunity lies because of our commercial acumen here. There is no other company that has the commercial acumen that we have. Thank you. Thank you very much, P. J. And as we go, there's another question for Health Care coming in for Bernhard From Andy Grobler from Credit Suisse, he's asking what is the margin in Roanoke difference between simple distribution and logistics versus Commercial outsourcing and owned brands. Okay. So clearly, if we just do simple outsourcing and logistics, the margins are very We don't have to provide sales team, so our cost base is also much, 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 1 or 2 questions. No, that's not the case. Thank you very BJ, thank you very much, Bernard, for your answers. We will now move on with Terry Ceramidis, Head of Business Unit Consumer Goods. So Terry, please go ahead. Great. Thanks, Till. Hi, everyone. Great to be with you today. Just by way of introduction, My name is Terry Saramidis. 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 KSH, I've been working in Asia Pacific region in senior leadership roles in FMCG organizations for over 25 years. And 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 8 years, initially in Europe, Navigating the challenges of the global financial crisis there, looking after a cluster of markets as the regional market director. And then I moved to Malaysia to take up the responsibility for 16 markets at the end of 2014 and have remained in Asia ever since. I joined DK Sage 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 2 key themes, driving strategy and leading people. Before I run you through an update of our business today, it's important to 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. 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 omnichannel 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 switch my sum 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're able to simplify 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 AZN market catchment. However, back then, DK Sage wasn't With the people at DKCH 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. But I'm happy to share with you this has gone up again following the focus in this 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, Lego, Phillips, etcetera, just to name a few. But what I'd really like to emphasize on this chart It's really the diversification across all the categories, with no category representing more than 20% of our portfolio. We have a very resilient diversified business with strong presence in all FMCG categories of daily necessities, which is an important point. Typically, we are active in high volume business with data 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 the 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. And And again, by way of example, we represent leading world class brands for daily necessities and organizations in big food like Kraft Heinz and Nestle, 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 style 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 DK Sage as our clients are demanding to reach more consumers through the different product formats On one hand, we serve markets like Myanmar with a very small profile in modern trade. On the other hand, customer landscape in Hong Kong, which is more skewed towards 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 through the network combined with a long and strong relationships at both local country and regional levels. And somebody was asking the importance of relationships. And 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 As we see the growth potential in all FMCG categories and markets. Our markets no doubt have been impacted by COVID-nineteen this year. We don't have a crystal ball to know exactly when COVID will shape out. However, what we've learned from the past is that these disruptions, specifically in the FMCG business, is a resilient business. It's People will continue to consume and market studies see a growth potential in the range between 2% 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 plan 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's a 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 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 5 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 within 5 markets, but I can say there's many examples where we go to 6 7 markets. And fundamentally, we embed ourselves in their ecosystem. I've also, before I came on board, heard that there's a suggestion that maybe the model is not as relevant Anymore. And 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 for some important multinational and regional giants that have entrusted us to expand their responsibilities across the region. As you can see here, 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 for several household brands. And 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 fuel 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 Therefore, they're interested to work with us in e commerce. And as a proof point, we recently won an from Lazada, a leading e commerce retailer in Southeast Asia. This is a good example during COVID-nineteen toy stores being closed and how we pivoted quickly To upgrade 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 in the last few years and what we've done to transform our business for a better future. As many of you are aware, the DKFMCG 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, the 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. But 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 It's 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 2 phases, which I'll explain. First, we're ensuring the focus on fixing the basics, ensuring that we are resetting markets through high caliber, Empower 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 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 1, we'll focus on Pursuing target market strategies and empowering our step change capability to pursue accelerated growth opportunities On now, which is that we built our strengthened platform. Let us now look into the first phase and what we've done so far. In essence, we've been working across 3 key pillars. On people, we've taken a strategic approach 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, Introduce the standard set of incentives, aligned our KPIs across the network. We've also delayed the structure to allow the ability to move with pace and make some tough calls on people and focus on training and development exponentially. From a portfolio perspective, rationalize nonperforming SKUs and as such put a focus on ensuring through again through data and insights that we have the right inventory. In our fast moving environment 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 nonperforming SKUs, we put together higher focus of our inventory management as a priority to ensure that we have Stronger exit plans for 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 high 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-nineteen, which as a reminder, no one had planned for this year. We're very satisfied with our EBIT development, Our continued focus on the working capital side and have moved the Rynoch up quite nicely. Let's take a look at Phase 2. Phase 2 is about doing 3 things, building our effectiveness in their market strategies, building strong momentum in the business development We send 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 to phase 2 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 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. And in ANZ, We've had smaller operations that we've built up through M and 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 a high margin products, it provides us the ability to strongly drive premiumization, which is a leading category trend across our entire network. And finally, in terms of opportunities to the Philippines, where we have aspirations to enter this market mid term through the Through an acquisition to ensure that there's a total ASEAN solution available to our clients. So let's take a look at business market development. Here we've made very good progress in driving best business development our best business development performance for the past 5 years. And 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 3 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-nineteen, we see some organizations being caught out as they couldn't reduce their sun 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-nineteen, which has amplified the benefit of working with DKSH. Our efforts are already turning into results. And year to date, we've gained CHF180 1,000,000 in accretive EBIT From new business across these categories, including regional Asian clients. Again, I would say our strongest performance versus the past 5 years. These discussions take time. COVID-nineteen distracted some of those discussions in Q2. But again, we've noticed the pickup and engagement of those discussions once more. Let's take a look at the winning channels we're diligently expanding. We'll continue to strengthen our proven omnichannel approach Investing in new winning channels and developing our service offerings. E commerce is a key offering for many clients. At one hand, DK Sage can align and synchronize the omni channel marketing approach, pricing and ensure efficient inventory management 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. And specifically on our foodservice business following the successful Orec 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. So far I've focused on predominantly my presentation on FMCG. 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 make 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-nineteen. First of all, many stores were closed. And in addition, we distribute more discretionary products at higher prices and the spending has taken ahead. Since COVID-nineteen restrictions have been lifted around June, we see demand stabilizing and some rebound in recent weeks. So let me summarize my final slide. Firstly, we've addressed the highlights And join me 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've got a great team of strong leaders. We have rebuilt confidence in the trade at both the local and regional level during these unprecedented times. So thanks for your time today, and I'll pass on to Till with Q and A. Thank you very much, Terry. Let's move on to the Q and A session, please. The first question is For Terry in Bangkok, it comes from Nicole Diversification within Consumer Goods. What is the progress with strengthening your footprint in Indu China and other regions? Terry, please. I think as I explained, I think we have a strong presence across So the ASEAN market, we don't have a presence in the Philippines. What Indochina represents is really a growth cluster opportunity for us. So we see a lot of our clients Still in their infancy, so the growth trajectory is going to come a lot from those markets. However, we still continue to see growth opportunities even in guess the more developed markets, the more advanced markets. So 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. And in terms of there's opportunities there as well. Thank you very much, Terry. There's another question for you, from John Cox from Kepler. He's asking how much our impulse confectionery and snacks purchases under pressure currently amidst COVID-nineteen. You've done your homework. Look, I think as most people know in terms of confectionery, when the mask Where in came, it affected some categories. So namely chewing gum or because usually people only chew gum when they leave home. 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. So 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. So some of the events like Chinese New Year and some of the Ramadan and so forth, obviously, COVID had an impact. But again, what we see is the FMCG clients retooling their businesses very, very quickly to reshape their Portfolio in the second half. So I think we'll see a much stronger impact, positive impact in the back half of the year We saw in the front half of the year, and I think that, that will lead to a stronger trajectory into going into next year. Thank you very much, Terry. And it's a relatively long list of questions here. Another one for you again from John Cox From Kepler, he's asking under how much pressure is the food service business currently and what is the share of Food and sorry, what is the share of sales of the Foodservice 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. And so that own brands component of the Oryx 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 So this 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. So 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. And so we've seen that business again pivot, Not to the it hasn't bounced back to the same degree, but again, I would say it's poised as when we have Restrictions loosening up in those two markets again to take advantage of more people staying in hotels and more increased airline traffic. But I think we've weathered the storm quite well so far, I guess, is my headline. Good. Harry, 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 5 years to come in terms of outsourcing. I think a lot of it has been driven by the That's that's your clients either are coming new to the region or have this region is a very tough region To make money, but a very easy bridge and to lose money. And 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 What I was pursuing, I see that increasing. And 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. So I think there's a dual role for us to play. I think a lot of the next 5 years is going to be driven by clients wanting simplification of outsourcing, not only Market by market, but really consolidation as well. Super. Thanks, Terry. Here's another one for you, comes from James Fussell from Fidelity. How is the investment and focus on Asian heroes developing? How long does it take to see material growth from these new clients When they are 1 and what proportion of our revenues is generated from Asian heroes. Thank you. Yeah. I think on the Asian hero side, we need to remember that a lot of multinationals are also buying Asian heroes. So the Asian hero brands don't only live with Asian companies, but 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 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. And there's some really good examples of some of the work that we've been doing in Cambodia, in Thailand, That was now in Malaysia, we're now exponentially getting much more of the local business as they see us as a step into A regional footprint. And again, I think they're going to follow the same kind of trajectory that a lot of the multinationals Having said that, the multinationals, I still feel, will still remain relevant, and they'll probably do some M and A With regional local heroes. So I think we can grab them whether they come from the multinational acquisition side or whether we're dealing with them directly. Thanks, Thierry. Another one for you, again, from Nicole from UBS. What is your progress in FMCG margin only? So 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 Aller Oberhuber. What are the differences In gross profit in EBIT margin for FMCG and Luxury and Lifestyle. Yes. Thanks, Anne. 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, Bernard, I'll pass that on to you from John Cox, Kepler. The profitability by within the FMCG categories that we have. The profitability is more driven by the service model. So the question is how many services do we provide and what type of products do we have? So to make an example, the gross margin for 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, ex employer, And Maspar, 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'll pass that to Stefan from John Cox again from Kepler. Can you get back to the 3% margins in consumer goods and what would be the time frame on that? Good. Thank you very much. I think as Terry was already indicating And we did disclose that the objective is to achieve 2.5% margin in the second half of next year. I think Thierry and I agree that this is not the end of it, but let's take it from there as soon we achieve the 2.5% in the second half of next year. Thank you very much, Stefan. Next question also from John Cox, Kepler. I'll pass that to Terry. Can you give some granularity on EBIT improvements in FMCG or indicate a CHF1,000,000 saving initiatives? So maybe you can talk a little bit about the levers That you mentioned before. Yes, I think as you saw in terms of our first half Performance, I won't talk again specifically, but 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 kind of breakneck speed because a lot of that has also burdened us previously. So what I can share with you is that we're making improvements across every element that builds that EBIT line. And 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 an exponentially that momentum continue this year. Thanks, Terry. The next question from Nicole Magnon 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? I mean, 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, Mois Lacroix, as soon as we find a reasonable buyer. So 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 Trying to measure whether you're equal to or better than the capability that they can build. And I think that that question is becoming a lot easier them to answer. So that's what I would say would be, I guess, the main driver. Thank you very much, Terry. I have 2 more questions here in the chat, again about the margins. I will pass that to Stefan. John is asking your margin I mean, at this point of time, it's really hard to predict how the luxury and retail business is going to scope 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 2 be fully implemented? And to what levels of margin could we move back by then? I think it's again, it's part of Our intent to get this business in terms of its structure of the business in a much healthier state. So I would say, we will see it start implementation back into this year. Mid next year, I think most The changes that we're looking at should have been predominantly embedded. And again, the benefit should come through at the back end of next year. Good. I just see that there's one more question coming in from Health Care or for health care and I see BJ is in the room. Maybe I pass that on to you. This is from Laurent Millet from Artemis out of London. He's asking how aggressive has Zuliq been recently? And what is the risk of further margin pressure from them? And how can you overcome that? So Zulik 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, so 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. So I believe, yes, a lot of growth in commercial and BAS, Which is along our strategy. Thank you. Good. Just looking at the chat, if there are any more Questions? Please stay with me for 2 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 from for Terry, again, from James Fizzel 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 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. So I think it's probably a trilogy of those 3. Obviously, e commerce, New retail really is also a huge driver for us. And also we see that as being a differentiator versus our competition. So 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. So 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 5 years than what we've seen previously as behaviors shift And consumer tastes change as well. So 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 That we can leverage. Thank you very much, Terry. I have a couple of more questions coming in here. One more time for Health Care, please, for BJ. Do you anticipate margin improvements Was 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, And medical devices depending on the type of model you have, can be potentially higher margin. So, our That's our strategy. That's where we aim to go, is to enter some of these areas, yes. Good. Thank you very much, BJ. I have another one for consumer goods. It's a financial one. I would give that Primarily to Bernard, maybe Terry can also add on the levers. The question is, what is the RO NOK for the Consumer Goods division By reaching the 2.5 percent EBIT margin in the second half of twenty twenty one. So what's the Ronak level, maybe you can talk a little bit about the levers of driving the Ronak Yeah. I mean, essentially, we have 2 drivers by definition. 1 is EBIT. I'm there very confident that Sales. And then we have the NOC component. There, we are We're working on a very diligent S and OP process, which would help us to reduce working capital usage At the same level of sales. So overall, I would expect a better ROANOG, and it should come back to group level or even above. Thank you very much, Bernard. I have a previous question from John Cox from Kepler. He's asked for Stefan. He's asking about e commerce statistics. Is it is e commerce through our own platforms or Through platforms of clients where we are selling. So what is the bigger one? And if you could specify that a little bit. Okay. So the majority, we use the platforms of e market retailers around 70% to 75%. So the key customers there are Tokopedia, Shopee, Lazada or, Redmart and, 25% we are selling through our own Farms or specialized.com appearances for key clients, Levi's or in the luxury market. Thank you very much, Stefan. I'm just checking again my check. Please bear with me for a couple of seconds For refresher, just scanning it one more time. There was me. So I'm currently not seeing any questions for Terry or BJ. Gentlemen, thank you very, 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 and A session for Consumer Goods, and we will make a short break, and we will be back at 11:10 Swiss Time. That is roughly in 25 minutes. So 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 Han Elbrichta. 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. There are 13 years in China The most recently 4 years in Singapore. Before joining DKSH, I was the CEO Asia For DMG Moriseki, one of the biggest machine tool builders. In the first part Of my 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. And in the 3rd part, I will share you, show you our ambition to build resilience and deliver growth to exceed Pre COVID-nineteen levels in the mid line. Let me start with an overview 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 CHF431.9 million and an average of CHF26.8 million With 1670 specialized employees on the ground, we are operating in 18 markets across Asia Pacific, Serving 25,000 customers and 650 clients and suppliers. Our biggest contributors are business lines, Scientific Instrumentation and with 27% And precision machinery with 26 percent of our net sales. From 2015 To 2019, we delivered solid growth with an average 3.8% net sales and 7.5 percent 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 Our net operating capital or Lamaque 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 3 d printing solutions. KAMENS, a renowned producer of power generators and engines with whom we started to work together 50 years ago in Thailand, Overtoff, 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. Nestle, to whom we provide instruments For the research and development activities. 711, which we supply with equipment for convenience stores like coffee machines Or microwaves or TSMC, a Taiwanese semiconductor manufacturer, whom we supply in semiconductor equipment And the related technical support or in Endosat, a large telecommunications provider from Indonesia To whom we provided a data center solution and the related services. We'd 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. DKS H 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 assessed and defined the exact requirements and achieved 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 to higher efficiency and accuracies was the key for successful outcome. By now, the customs department of Vietnam is one of our biggest customers. So why do clients and customers work with us? What is the unique value proposition that we bring to the table? Firstly, we have a pulp Asian footprint operating in 18 countries, enabling us to create synergies. And at the same time, we have to 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. And 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 lifecycle of the products we provide. Using the example of our clients HP's 3 d printing solutions, let me illustrate How we deliver industry, technical and service expertise and cover the entire lifecycle 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 In Thailand, targeting educational and medical segments. We leveraged our access For 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 a 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 Training 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 have in these markets, we just extended our partnership to South Korea 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 5 years, Where our average grew 7.5%. However, our results have been impacted By COVID-nineteen, recently as many customers having had to shut down or scale it on production and delaying CapEx. And we reacted immediately and set up a cost saving plan to recover our profitability. And we intend to build a more resilient business and deliver growth to exceed pre COVID-nineteen performance in the mid term. 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 At our half year twenty twenty 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 high single digit million to be safe this year And so far, we are running on plan. As mentioned, Our aim is to build a business that is more resilient and delivers growth. So how are we going to do this? Firstly, we will grow our leading position as a parent agent provider 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, consumers and application engineering. And 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. So 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 for 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. And 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 and A track record with the SBC acquisition entirely in 2019. What drives our focus on the Scientific Instrumentation Business It's 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 35,000,000,000 US stock up by then, around 53% of that then market It's 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 While we want to focus and increase investments on a Pan Asian scale for our Scientific Instrumentation business. Now I'm coming to the 2nd 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. And keep growing those businesses where there is a good Product market fit combined with a strong position of 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 For the businesses of a business, when we want to build regional competencies, is the growing data center business in Indonesia, BNAR is a leading financial institution offering banking services for businesses in Indonesia. As the Indonesian government have 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 as familiar with the market's financial regulations, our approach was to provide the Vertiv Smart AL 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 3rd pillar of our strategy, we aim to further grow our service business, Which includes consumables, technical services and application engineering. Why? Because 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. And 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 So the key benefits of growing our service business are growth opportunities, attractive margins, More resilient and recording business and the increasing stickiness of our clients 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 2 years, Our time 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 and A session, I hope you recall that We have a proven financial track record of 7.5 percent EBIT growth. We will 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 Inclusive Service business and our digital transformation will support this development. While this tracks sees pre COVID-nineteen levels again in the mid term. 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's from James Fussell, and he is asking, are you exclusive For HP for 3 d printing? Or are you able to provide similar services to other manufacturers in Asia? So 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. So 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 3 d printing solutions as we do for HD. 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, you know, we are working In a competitive landscape, you know, 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. So I wouldn't say really it's a power game, but it's much more, you know, a question of How much revenue 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 bring to the table. Thank you very much. And another question for you, Hanno, from Laurent Millet from Artemis. How much of your revenues are recurring or service business? So as mentioned in the presentation, overall, it's around 39% in the Scientific Insulination business. It's a bit less for the overall business human technology. What we see that there's certainly a great potential Great. Next question from Alain Oberhuber from MainFirst. The question is, could you give a time frame by when the Transformation in technology is accomplished. And 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. And it all depends a bit also Now how long COVID nineteen and what the impact really of COVID nineteen will be, but I would say under normalized circumstances, A couple of years to go through that transformation. And then, as we know, it's a combination of organic and inorganic growth. And then we need to see what are the opportunities that we will find along the way in order to accelerate that growth 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 8%, and I think James is hinting here to the Scientific Instrumentation business. How much Above the total 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. So if we look at these three segments, we believe that their growth potential lays at a CAGR over the next few years, of summer is about 8%, 8%, above 10%. And then it really depends on how quickly we can tap into these Life Science, Farm and Food and Beverage segments in order to leverage this growth potential. Thank you, Panu. There's another 2 ones coming up from you for you. The first one is from Laurent Millet from Artemis, he's asking about mergers and acquisitions. How large are the deals you are looking at? And would it be in the area of Services mainly, and if Stefan and Bernhard would agree on also a larger deal. Yeah. I guess that question you need to address then to after I answer my part of the question. So, no, it's certainly not A purely service business that we would acquire normally, but it would be a combination Of an instrumentation business, which usually also has a very strong and profitable Great. The last question I see in the chat, Hanno, again to you. John Cox from Kepler is asking, is Any underlying problem with profitability or is it all linked to COVID-nineteen? 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-nineteen, we would be very much on track In terms of achieving our target, the growth target that we had set for the year 2020, so we definitely have been hit Hard by COVID-nineteen, which is very natural considering the capex The nature of the business, now it's difficult to say how quickly I would say, under normalized circumstances Great. That covers all the questions for Business Unit Technology. Thank you very much, Hanno. Thank you. We will now have A very short break here before we move on. So 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 2 persons with a very long experience in the Specialty Chemicals A few words on ourselves. Natalia Capri, Italian Doctor in chemistry and an MBA from Gocconi University of Milan. And my name is Thomas Zuhl. I was born in the Netherlands, raised in Germany, And I have a business degree. We both joined DKSH more than 20 years ago. Both are sales managers and in different years we have 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 Growth is exciting and actually a lot of fun. We enjoy this business every day. And 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 Chemicals and Ingredients Distribution. So who is DKSH Performance Materials? We are top 3 pure specialties distributor of chemicals and ingredients, creating turnover of about CHF 1,500,000,000 With 1100 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 1900 clients and over 20,000 customers. Our business is supported by a comprehensive a 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. Now, 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 economical growth. Here, we generate nearly 70% of our business. We also have a good and sizable presence in Europe. And going forward, we intend to expand our markets coverage here as well. Regarding our business lines, Our main focus is the life science industries, which includes food and beverage, personal care and pharma. This makes up to 65% of our business and is nicely growing. And 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 with UKI's labs and experts that can adjust formulations to local needs. And 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, we took out local expertise that we, DKKH, 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 BKSH 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 leverage 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. We compare only ourselves to specialty distributors. We do not include the commodity players. Looking at our market position, we are among the top 3 Pure specialty chemicals and ingredients distributors globally. We rank among names that might be familiar with you, like IAMCD and Adzelis. And in Asia Pacific, we are the number one. We continuously strengthened our position recently with the acquisition of Baxseo in Australia and New In Europe, we are among the top 10 distributors and aim to further build our footprint here. As 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 DAO in order to give you some familiar names. And this is also well combined with many specialized SMEs who have unique products. For examples, fiber from veneo, Coating additives from Elementis or preservatives from Schulke. And also a good mix of emerging Asian players, Like company like Shinetzu 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, Accents, which is global leader in Catalysts. Now 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 then 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 customers in each market. These prototypes can be healthy drinks, Cosmetic foundation, pharmaceutical tablets or car coatings. So what we do, we don't simply visit a customer with a powder 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 contain a whole range of products 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 1 in Asia, and we'll continue to focus on growing this region. In addition, 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. On top, we will continue to develop our digital capabilities, a bit more in the 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. As we said 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. There are any way 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 We are one of the largest global network of innovation center for specialty chemicals, and we are clearly number 1 in Asia. Each lab is dedicated to a specific industry or business line. In particular, we have Innovation Center for Food and Beverage, Nutraceutical, confectionery, color cosmetic, makeup, coatings and plastics. What our people are doing in the lab? Our scientists develop new formulation that do troubleshooting, customized solution, perform quality control, competition benchmarking, Giving technical support and training to our customer. And last but not least, a joint 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 Our 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 foodservice products, Like sauces, betters 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 tall 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 such 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 unexperienced suppliers. And keeping abreast of those regulations can be very time consuming for companies looking to expand in different markets. So this value added service gives them a lot of time that they can focus on their core competencies and speed up time to market. And these are just the examples in the regulation of food in Asia. Next to this, we won't also handle similar, if not bigger challenges, Pharma, Personal Care and Specialty Chemicals in Asia, Europe and U. S. So how do we, at KTH, 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. And 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 able 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 plus dedicating 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 hard to find specialty chemicals and ingredients, they come to us for assistance. We leverage on our sourcing network of dedicated resource We 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 embrace this very early on, We have been using salesforce.com as our central CRM tool for over 7 years. It is part of our operating model and is managed by people throughout the 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 e mail marketing. Any lead, any projects Our existing business is managed on SAP, Currently, 20,000 customers being supported and 1900 clients. In addition, we use outside sources For market information like Mintel and Euri Monitor 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 processed hundreds of pitches to gain clients for our portfolio. They can focus on developing additional business and are rewarded for the business they are commercialized. 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 we'll soon extend this by with e commerce functionalities in order to gain further efficiencies in our back end processes and for routine operations. Now that you've seen how we build up our organic growth, Let's have a look on how we grew also by M and A and our track records here. As you can see from the slides, We have accelerated on our M and 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 Axios 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 headcount since then. Of course, also the contribution of India has grown nicely together. 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 and 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 Degrees 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 DKC's performance materials. With this, we finish our presentation and open the Q and A session. Thank you. Thank you. Great. Thank you very much, Thomas and Nathalie. Looking at the chat, we already have a lot of questions for you guys out there. Seems to be really good interest here. So let me kick it off. The first question comes from Nicole Magnon 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, and we aim to keep growing in Asia. And we are Looking at opportunity to grow in Asia and we have also some opportunity for Europe. For the time being, we are not looking at opportunity in Latin America. Thank you very much, Nathalie. The next question from Laurent from Emily 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 MLA? No, we've historically been busy in both regions. And in Europe, we still believe that there's opportunity to grow. We have We've 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. But also here, we are looking for potential targets to acquire. Great. The next question again on M and A from Alain Oberhuber from MainFirst. He's asking, will M and A mainly come in Europe and in Life Sciences? Life science is a growing area, and we are looking at that opportunity, clearly so. And Europe is an area where we are growing. And as my friend and colleague, Thomas said, is not only Europe, but will be also Asia Pacific. The next question from Eni Grobler from Credit Suisse. He's asking what is our competitive advantage in the European market? Our competitive advantage is basically on the same, or same levels of areas 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 DKS 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. And When we compete in the market, we compete both with competing distributors and also suppliers themselves. Our Value added services provides more than just product and price. It helps them to formulate products quicker and reduce time to market. This is where we believe The price becomes only secondary. Good. Thank you. Next question is from Jon Cox We have a good profitability, and we are capitalizing on our Value added services, so we think we can expand From James Filssel from Fidelity. He's asking with 20,000 customers, what percentage of revenue is the largest Customer and how much percentage of revenues do the top customers roughly contribute? No customer We will make more than 1% of our revenues. So we have a very well distributed risk profile across our customers. And it's, as we 20,000 or return of €1,510,000,000 means that each customer is actually quite low number. Good. Then I spotted here one more question for Stefan also in the Q and A. What are the synergies for the 4 business units? What does the group provide for the units? And looking at the IMCD valuation, why do you not spin off the business unit? I mean, first of all, we what we share across all four business units is our presence in Asia. And in every country, we have a sufficient infrastructure for all 4 of them to tap in. And the group provides them from financial services, HR 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 that it 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 2 gentlemen and the business units with all the employees Behind it have, and I'm sure that at one point also the capital market, by putting the sum of its parts together, We will value, right, the contribution PM is giving to our portfolio today as well as most likely tomorrow. Great. Thank you, Stefan. Another question from Nicole Magnon from UBS. Is the figure of 30,000 SKUs Specific for Performance Materials or is it a group figure? And 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. And It's very different from consumer goods. We sell B2B. And what we provide are raw materials that need to be formulated. And so 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. But 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. But we don't foresee that it's going to Pick up the majority of our business very soon. Another question from Mehra Thobati from Kepler Cheuvreux. He's asking What is our market position in Pharmaceutical Exservience 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. And we have presence in India since 30 years, and we are successfully growing in India. And we welcome new players coming into this field. Good. And that's the last question. Stefan, I think this is one for you again from Alain Oberhuwer from MainFirst. He's Asking why does DGFSH have a joint leadership with 2 business unit heads and performance materials? Maybe you can answer that question, or I can also chip in. Very interesting question. Thank you very much. You know, I think, you saw the opportunities in this business field. It's tremendous, and I think it will deliver, you know, In large contribution to the future of DKSH, and we want to shoulder it on the 2 most experienced guys we have in our executive board. And they work very well together as a team. Good. So we just received another question. Thank you very much. For Thomas Natale, What are the synergies, or maybe also for Stefan, what are the synergies you can create from M and A? Are there network advantages that you can build through M and A? So I think that's both Work advantages that you can build through M and A. So I think that's both. Maybe you can answer it for Performance Materials first. Very clearly, I mean, our main target is to have a portfolio that can meet all the requirements of Customers in our different industries. So by acquiring companies, of course, the synergy is that you get contact to new suppliers. And there's an opportunity to expand into other companies. Just recently in Australia, New Zealand, we acquired a very nice company called Axseo. After the 1 of our clients from the rest of Asia moved with us in New Zealand and gave and Australia and gave us a substantial business. So actually our clients are looking for Regional distributors. And by acquiring companies, we, of course, offer more opportunities. Maybe I can add here. I mean, also The large transaction of IMCD most recently just highlighted again that the consolidation in this industry is Even accelerating. I mean, it was already on a high speed before, but it's further accelerating. And clearly, the driver behind it is that Clients that want to consolidate their distribution network or the amount of distributors they work with, globally. And that is also the reason Why we not only acquire in Asia, but also try to serve at least 2 or maybe with the U. S, even 3 regions In the near future. Great. Okay. Looking at the chat, we have cleared all questions. Thank you very much, Thomas Natale being with us today. We will have a 2 minutes break. We need to rearrange a little bit, and then we are back with the presentation from Our CFO. Thank you, Jean Marcio. Have a good day. Hello. Good afternoon. I'm pleased to meet you virtually for our 2nd Capital Market Day. In the previous presentations, you have gained more insights from our leadership team about our core 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 generated business model. In addition, we continue to steer our business with proven KPIs. This means that we mastered the COVID-nineteen challenge well, and looking ahead, are prepared to navigate through these unprecedented times. We can continuously drive M and A. At the same time, we maintain our progressive ordinary dividend policy. And 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 crew epic. Since then, we continuously expanded our Healthcare and Performance Materials 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 We create our 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 Lao, Vietnam, Cambodia and Myanmar. Part of this region is also Indonesia, where we ended with our consumer goods and healthcare business 3 years ago. And now we see very high growth rates. In addition, our accelerated M and 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 a percent of our net sales is very low and 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 1,000,000,000 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 and FMCG. All this should help us to achieve our low term target of growing net working capital below net asset sales growth, Sorry, net sales growth. Despite the COVID-nineteen challenges, we maintain a strong balance sheet. Our equity ratio stands at 34.3%. Woodville accounts only for 14.1% of equity. And even after paying out dividends this year, we have a net cash position of around CHF200 1,000,000. Our strong fundamentals are the basis for both organic and M and A led growth. This allows us to onboard new clients and grow with In addition, we have the firepower to spend up to CHF1 1,000,000,000 on acquisitions, While keeping our leverage ratios at maximum of 2 times net debt to EBITDA, well, that is excluding these liabilities. As we focus on better utilizing our balance sheet going forward, We need the right KPIs to steer our business. Therefore, Roloc is a key Incentive apart from EBIT and profit after tax. By doing so, we naturally balance the trade off for higher margins Or we won at rapid capital terms. Due to the nature of the different models, Ronak varies substantially. In business unit healthcare, we achieve a relatively high Ronak As we don't take inventory for a large part of the business. The higher margins in Specialty Chemicals and Ingredients As well as our asset light approach result in a roadwork 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, Roanoke was below group average. However, we are confident of moving this up over time. In technology, Roanoke is usually slightly above group average. However, in 2020, because of the large COVID-nineteen impact, It's clearly below. The proof point of our well diversified asset light and cash generative business model Our dividend track record. Since our IPO, we continuously increased the ordinary dividend. We also commit to this progressive order every day with the 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 we'll go it forward, provide you more granularity when publishing sales relevant markets and regions. In addition to more disclosure and KPIs, let me also provide you with a business update for the first 8 months of 2020. Our half year results proved the resilience of our business Despite lockdown restrictions across all markets. Even though measures have been eased, demand hasn't fully recovered yet. Tourism in general is still virtually 0. And 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 In sum, we have delivered a continued solid performance year to date. Even though 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 and A activities will contribute around 2% of net sales this year. While as of today, the strong Swiss francs would reduce sales In the mid single digits. You may expect the group tax rate between 27% to 30% for 2020 It's slightly lower than usual CapEx expenditures of €30,000,000 to €40,000,000 Mid to long term, M and 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% to 29% The CapEx in the range of €40,000,000 to €50,000,000 or at 0.4% to 0.5% of net sales, if we grow faster. Thank you very much. And let's now move on to the Q and A session. Thank you very much, Bernard. We have quite a long list of questions here in the chat. Thank you very much again for all of you for sending those through. So the first question, that is for Stefan, Please, from Alain Ober, who work 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 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 PTV Juxana in Indonesia. That was one step. It's a huge market, So maybe there are more opportunities. And then 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 John Clark From Kepler, he's asking what sort of free cash flow generation is possible for you, around CHF 200,000,000? Bernard, maybe you take that one. So conceptually, you have to look at our cash flow, essentially profit after tax Plus minus changes in working capital from growth. We can't use the profit after tax because depreciation and CapEx is roughly the same over the years. So as we are committed to grow working capital slower than sales, You will see an incremental increase of the cash flows over time. I don't I cannot tell you now it's €300,000,000 or €200,000,000 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 We work 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. And 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. But 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 Fossel from Fidelity. Bernard, maybe you take this one up. How much of the healthcare business is exposed to healthcare tourism? And how does the impact And how does that impact the different channels we are serving? So the biggest Impact from tourism we see actually in Thailand and Singapore. In those markets, we look at the mid to high single digit Tourism and 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. And 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 0 as well. So overall, we see in those markets, as I said, mid- to high single digit impact. Great. Thank you, Bernard. 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. I mean, 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 in particularly challenging. Outsourcing always Contributed to our growth. We personally believe that this trend is going to accelerate, even further accelerated to COVID-nineteen most recently and our BD pipeline has never been as strong and solid As it is right now today. So I mean, looking out, we believe somewhere between 50 to 100 bps This outsourcing trend will accelerate our growth in the region. Thank you, Stefan. Next question from Annick Bo. What sustainability objectives have been defined for the Executive Committee? Maybe we can give a couple of examples on that one. Yes. Creating values, minimizing impacts is our claim in sustainability. And there's a very strong commitment from us To sustainability within the group. So all members of the executive committee, they have a 5% objective or target for sustainability. And 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 pack up already that we are carbon neutral In our founding countries and by 2,030, we want to be completely carbon neutral as DKSH in the group, but 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, Bernard, for you, from Alessandro Folletti from Octavian. What is the split of sales by client? Isn't there a risk to lose clients as soon as they have reached a critical size with DKK? So I think it's about insourcing and So we don't have concentration risk, which we have heard before and in the different presentations in general. The risk of insourcing, we see actually, 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. Now why is it not happening? We are giving clients an immediate access to the market with a full capillary distribution. And their incremental profit is quite high from these additional coverages. And 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. Plus the complexity and collection in our markets, we print 20,000,000 invoices, which we have to collect. And in those markets, hardly anybody pays voluntarily. You have to actually collect. Thanks, Bernard. So 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, I think we heard a couple of times today that we are fully committed To our progressive dividend policy, but at the end of the day, it's a decision by the Board and by the shareholders. Thank you. Next one from Laurent Miele 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 potential? It depends on the plus, I guess, Laurent. And 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, and we also have to put into consideration, there's always a little bit of volatility within the region. But overall, I agree with you. We have very strong growth plans. We have very growth strong growth and ambitious. And there are detailed action plans behind it. So I hope that we Can surprise you positively in the years you come. Thank you. Next one from John Cox again from Kepler. Stefan, maybe you take that up. Could you imagine including metrics like a RONOG or free cash flow in your LTIP, in your long term incentive plan? RONOG is part of our LTIP Already free cash flow at this point is not good. Okay. Bernhard, next one for you again from Florent from Artemis. Is your 2x net debt to EBITDA ratio a maximum target or your new normal? What do we expect the average to be in the next 3 to 5 years? I mean, that obviously depends heavily on the M and A, which is available. This is just gives you a feeling for the firepower we would have if we would go for bigger acquisitions. And 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. Do remind first, Do you expect second half twenty twenty to be similar to second half twenty nineteen? If not, which unit is contracting the most? I mean, obviously, we will try to get in 2020 as close as possible as 2019. But As we said in the half year results, it will be better than H1 2019 matching 20 2019 H2 looks like a stretch looking at the current COVID environment, What is out there? And also, I think we did mention that already in the Q and A sessions, after H1 results, Chinese New Year, this year or into 2021 is significantly later than last year. So some of that revenue is also going to move into January 'twenty one already. Okay. Good. Maybe bearing up the next one again from Alain from Einfirst. How much sales will future MNDA deals contribute? Sorry, it's very hard to answer. It depends on the deal, obviously. We are open to bigger deals, also to many smaller deals. So, I mean, historically, we have 2%, 3%. I think 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. Ronak looked Heavily impacted by COVID-nineteen, how would the Roanoke 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 raw material short term. You want also? Yes. So I think the biggest impact right now we have on Luxury Lifestyle, obviously, and technology. They're hardest hit By COVID, they should improve their own work. Consumer goods generally should improve because we have started a lot of initiatives there. They should come clearly above the crude chronoq over time over the next 1 or 2 years. And health care will stay very high. Thank you. And next one again from Jon Cox from Kepler. On working capital, How can you improve cash conversion cycle, which is at 20 8 days last year? What number should we In the coming years, and could there be a cash inflow from working capital changes in the next years? We would see a gradual improvement there. That's what I tried to say in my speech was There is a correlation between EBIT margin and how much working capital we take. Obviously, the more working capital we take, the less But the higher is the EBIT margin. So I can of course increase now short term cash flow by sacrificing on the margin And the other way around. So the key for us to improve cash flow over time as to what Marco at the beginning alluded to Is to reduce excess inventory. That is inventory we hold in excess of contractual arrangements and to reduce overuse 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. And I tried to combine 2 questions we got from John and from Nicole. The question is how did organic sales growth for the group Trended in recent months versus the first half. And the same question is here, is the 3rd quarter Trending up better than the Q2. Maybe we can wrap that into one question. Stefan Bernhardt, maybe we can give a bit of Commentary around that. I mean, clearly, Q3 is going to perform better than Q2. Q2 was heavily impacted by COVID, so we are moving into the right direction. But again, as I was saying before, I mean, we are not back To 2019, Davout. Very clear and precise. Thanks, Stefan. Next one, maybe you take this up again. How will DKSH be positioned in 5 to 10 years' time, do you expect a fundamental change in the business model? I don't expect The fundamental change in the business model, I think we see that there is a clear need for our clients to have an outsourcing options For market expansion services. So my vision is, yes, definitely over the next 5 to 10 years, I think our 4 business units We'll be positioned much stronger in the markets. We will offer a significantly broader range of full value And we will also be able to enhance our margins across all four business units. Thank you. And then maybe then, sorry, I forgot the M and A part. As we learned today, I think in all four business units, the markets are Still fragmented. So over the next 5 to 10 years, I do hope that we were able to consolidate many of the smaller to medium players in those markets Good. Let's take question 21. Again, from James from Fidelity. He's asking, how is COVID think acquisitions, are we changing the processes and procedures given travel restrictions? I mean, the M and 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, and we discussed the example of IMCD, last We, 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, and 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 faith. But anyway, we are optimistic that with the increased activity level we see, that we will be able To deliver something over the next 6 to 12 months. Thank you, Stefan. Next question for you again, Stefan from 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. I mean, we are very pleased also, I think, as the Chairman pointed out, with our current executive board. So don't expect any short term changes. But in general, diversity is very important to us. I think if you look into our organization at a 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. But 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? And what is being done in each business unit to reduce emissions, use environmentally friendly products, influencing customers and clients, etcetera? I mean, yes, as an as I said before, I think we take sustainability very, very serious. So do all of our executive board members. I think we also do recognize that products which do Consider sustainability and environmental factors, you know, are more successful in many marketplaces Across the board, so 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, I mean, 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 improved Cash flow, so that's a very important factor we are aiming for. But we are also running pilots already with electric vehicles, For example, in Thailand, to deliver our, our products, downtown, I mean, in every building, in every facility, I mean, we look at the lightening systems, etcetera, at heating systems, and optimizing air conditions, So there is stuff we can we can do. And then, obviously, the other thing is what we are learning now today is also that we can, You know, 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. Bernard, maybe you take this one up. I think we already touched on that. Do you have a target for net working capital percentage of sales and if yes, over which period? No, we don't have a specific target course, that is always a matter of negotiation with every single client. And as I said before, it's usually a gain between EBIT margin and working capital. The only thing the only target we have is to grow working capital slower than sales. Good. So last question, number 25. And from Alain from MindFirst. Could we expect group gross margins For the full year 2021, so 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. Yes, I'm just thinking. I think we should get back to that level. Of course, there's always a caveat. It depends on contracts. If you get A few very big contracts in which on the pharma side, it might have an impact on the gross margin. But generally, yes, with the mix, we should have a better. Good. Super. So I see no more questions in the chat. Thank you very much All of that, before I give the word to Stefan, maybe one clarification we also received, there was the Slide 51 from And I think there was a little bit of a confusion about a number. So you I think Terry spoke of €180,000,000 That's actually a €200,000,000 net sales addition from business development At accretive terms for this year, yes? So that's a net sales number, €200,000,000 at accretive terms that we have generated through our business development 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, it was a pleasure. So 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-nineteen 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 KSH 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 An increasingly more complex regulatory environment or industry consolidation. We have a compelling strategy in place that This is on our well defined fixed pillars, also in cooperating 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 and 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.

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