Ladies and gentlemen, good afternoon. Welcome to the DKSH presentation, full year results 2017 conference call and live webcast. I'm Iruna, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Till Leisner, Head of Investor Relations. He will now be joined into the conference room.
Thank you, Iruna, and good afternoon, everybody. It's a pleasure to see you here and to welcome you to the 2017 results conference call of DKSH. My name is Till Leisner. I'm Head of Investor Relations, and for those of you in the call with me today, I have Stefan Butz, our CEO, and Bernhard Schmitt, our CFO. Before we start, please have a look at the disclaimer of the presentation regarding forward-looking statements. For those who have not the presentation in front of them, you will find them on our webpage under Investor Relations. Let me give you a quick overview of today's agenda. First, Stefan will present to you the highlights of the last year. Bernhard will walk you through the financial highlights and performance, at the end, Stefan will close with an outlook statement.
Before we go to the Q&A session, I will quickly ask you to tell your name when you have a question and the company that you are working for. With that, I would like to hand over to our CEO, Stefan Butz. Thank you very much.
Good afternoon, ladies and gentlemen, and welcome to DKSH Analyst and Investor Presentation on our 2017 results. It's great to have you here. Please let me start with the key figures and highlights of the past year. Compared to 2016, net sales increased by 4.8% in 2017, exceeding the 11 billion mark. Organic growth constituted the greater part of the increase, particularly in Vietnam, Laos, Cambodia, and Myanmar, we generated strong growth. We also exceeded other key figures in 2017. At CHF 297 million operating profit, that's EBIT, was above 2016, and profit after tax, just over CHF 213 million, was slightly above the previous year as well. Despite muted consumer demand in audible] to keep the results of the Business Unit Consumer Goods on the previous year level. In the Business Unit Healthcare, DKSH grew strongly and further expanded its leading position.
In business unit performance materials and technology, net sales rose due to higher demand for capital investment goods and specialty raw materials. We increased the free cash flow too, by 8%, from CHF 129 million to CHF 140 million. In addition, we continued to expand our market position in Asia and maintained a strong balance sheet. In line with our strategy for sustainable and profitable growth, we largely grew organically in 2017. This is also our aspiration for the future. We also made value-added acquisitions in Cambodia, Vietnam, and Indonesia, which I will come to shortly. Against the background of the slightly increased key figures of the board of directors, we're proposing an ordinary dividend of CHF 1.65, 10% higher than last year.
The year 2017 was without a doubt a year of change for DKSH, both because of the external headwinds in some of our key markets and the leadership changes. When I presented DKSH half-year results for the first time last July, I stated that our proven corporate strategy is fully intact. Today, I can gladly confirm what I said half a year ago, expect an evolution, not a revolution. With today's figures, we have proven that in 2017, we diligently deliver on our successful strategy. This is primarily due to the strong performance of our almost 32,000 employees. As a service provider and as a people's business, having motivated and well-trained employees on board is very crucial to us. Over the past year, we trained approximately 9,000 specialists in our Fantree Academy.
We see that our growth drivers, the growing middle class, the increased inner Asian trade, but also the trends towards outsourcing, are intact. As you can imagine, I was constantly on the road in the last year. From the approximately 65 meetings with existing and potential clients and customers, I can say that DKSH service offering is very well-received. In every meeting, we managed to either start a new business relationship or further deepen an existing one. Overall, we significantly expanded our business development pipeline over the past months and further sharpened our customer and market focus. The focus lies particularly on fast-growing clients and local Asian heroes. While talking to our business partners, we also found that many of them consider outsourcing more activities over time. This trend has also been confirmed by a study we launched among pharmaceutical decision-makers last summer.
In the luxury goods business, in particular with Maurice Lacroix, we continue to make progress and further improve results compared to the previous year. Obviously, we are not there yet where we want to be, but we are getting there. We continuously improve our performance and work further to optimize our processes and structures at DKSH. In the field of digitization, we have further expanded our activities and our team in recent months, and as a consequence, has increased significantly ourselves. DKSH omnichannel approach is very well received. There, we offer our clients products across all distribution channels in online and offline channels. The acquisition of eSweets at the end of 2016 and the continued investment in aCommerce developed well. By appointing our chief information officer as a member of the group management team a couple of weeks ago, we have underlined the importance of digitization in DKSH.
In 2017, we continuously invested in the education of our employees. We also used the past year to expand and improve our infrastructure. In Business Unit Performance Materials, we opened three innovation centers in Vietnam, Philippines, and Spain, and expanded distribution centers such as in Cambodia and Thailand. At the end of last year, we made the final preparations for a new healthcare distribution center in Hong Kong that sets new standards in terms of automation. I've just been there 10 days ago and was very impressed. All these investments will support our growth over the coming years. Now let's come to the acquisitions we made in 2017. Part of our strategy is to acquire selectively companies if they fit our business and are earning accretive. As you can see on the slide, we have been active in three markets during the last year.
First up, in January, we acquired a medical device distributor, Europ Continents in Cambodia. With Europ Continents, around 100 new employees joined DKSH. The company markets devices from well-known international clients such as Philips, B. Braun, Medtronic. In March, we moved on to Vietnam, where we acquired the field market service provider, IMA. With this step, we further strengthened our services in retail solutions. In July, the acquisition of PT Wicaksana enabled us to enter Indonesia in the Consumer Goods and Healthcare business. Also, we have been present there with our business units, Performance Materials and Technology, for several years. We managed to fill one wide spot on our map for the two larger business units. Indonesia, with its 260 million inhabitants, of which already one-third are part of the new country's middle class, offers a lot of potential for DKSH. The Wicaksana transaction was successfully closed in October.
Since then, we have invested a considerable amount of time and resources to further raise the company's standard. The assessment after some months is positive, and we clearly see the motivation of our new Indonesian colleagues. The transaction also attracted a great deal of attention among our international clients. We are now in the process of expanding our business units, Consumer Goods, and Healthcare teams there and are continuing to train their skills and capabilities. As Wicaksana is very much focused on traditional trade, we are upgrading the existing infrastructure to address the modern trade channel, too. To sum it up, I can say that we will continue to invest in the company, remain optimistic about the medium and long-term potential of Indonesia. I mentioned a couple of minutes ago that e-commerce becomes an increasingly topic for DKSH.
In China, but also in Southeast Asia, more and more people go online to buy their products or goods. It is important to mention, though, that volumes are still low in Southeast Asia, mostly in the low single-digit percentages. Last year, we decisively strengthened our DKSH digital team. We now offer services for around 400 clients brand in eight different Asian countries. As you can see here on the slide, we make a distinction among four e-commerce business models. In the first model, we sell our client products to e-retailers. In the West, that would be Amazon. In Southeast Asia, it's often Lazada, a subsidiary of Alibaba. In the second model, the products go to so-called e-resellers, which sell to end consumers through online marketplaces. Here in Europe, that corresponds to Amazon Marketplace, where the products are sold by independent, mostly small vendors.
In the third model, DKSH sets up own shops for its clients on online market platforms. Contrary to Asia, the model is not very widespread in Europe. In Asia, it's normal for, as an example, Lindt Hong Kong to operate its own shop on Tmall. If you look at the imprint on that platform, you will see that this e-shop is operated by DKSH. On the fourth and final model, we operate e-commerce platforms directly on our clients' websites. Take Levi's, whose jeans we sell directly through levis.com in Thailand as an example. Overall, the B2B channel accounts for approximately 80% of total online sales, and the remaining 20% go directly to end consumers.
Even online, selling and distributing products is complex and diverse. In the digital space, clients prefer to entrust their sales to a partner who knows the market well and ensures alignment across all off and online channels, especially in terms to pricing. That's exactly what we mean by our omnichannel approach. I would now like to hand over to our CFO, Bernhard Schmitt, who will provide you with the details of our results.
Okay. Dear ladies and gentlemen, I would like also to welcome you to our presentation of the full year results of 2017. In the past year, we exceeded CHF 11 billion in sales for the first time. Net sales increased by 4.8%. The organic growth was 3.7%. 0.2% of the growth was derived from acquisitions. While currency fluctuations had a slightly positive impact of 0.9%. Nearly all countries contributed to this growth, except for Thailand, where we saw a slight reduction in sales. This was driven by the weak consumer demand because of the political uncertainty. Sales in the region Greater China have increased strongly. The region includes Hong Kong, Taiwan, China, and Macau. Overall, the healthcare business has developed well in the region. Despite the underlying weakness in the industry in Hong Kong, our business unit, Consumer Goods, grew by attracting new clients.
This underlines the ongoing trend towards outsourcing. DKSH is a very attractive partner for multinationals as they try to capture more growth opportunities and at the same time try to cut costs. We are very well-positioned in the markets of Vietnam, Myanmar, Cambodia and Laos, where we have achieved clear double-digit growth. Just recently, I've been in Vietnam, I was again fascinated by the dynamics in the country. Now to our results. EBIT of CHF 297 million was 1.4% above the previous year. Profit after tax amounted to CHF 213.3 million, slightly ahead of last year. Despite challenging market conditions, we have again exceeded last year's figures. Therefore, we have once again demonstrated the robustness of our business model. The free cash flow for 2017 was CHF 139.5 million and remained well above the previous year.
The net cash position is still very strong and amounts to CHF 344.2 million. Not only have we paid out an ordinary dividend in 2017, but on top of this, also a special dividend. This summed up to CHF 292.7 million for dividend payments. RONOC, the return on net operating capital, is still on a good and high level with 25%. Now, I would like you to give you an overview of the performance of our four business units. In Business Unit Consumer Goods, net sales decreased by 3.3% to CHF 3.6 billion. Especially the political situation in Thailand resulted in subdued consumer demand. Also in Malaysia and Hong Kong, consumer demand was rather sluggish. Despite these challenging market conditions and exceptional setup costs for new clients, we increased EBIT slightly to CHF 105.9 million.
If you follow market trends in Asia closely, you know that Asian brands are on the rise. Compared to large consumer goods companies, they have a couple of advantages. For example, they are closer to the end consumer and have a higher innovation speed. Over the last year, we have put an even stronger focus on these local brands. We have already onboarded some new Asian clients. The Luxury Goods Business stabilized in 2017, and we could further improve the result compared to 2016. This is indeed encouraging. Nevertheless, we continue to drive our optimization efforts. Business Unit Healthcare reported a strong growth in net sales of 10.7% to CHF 6.1 billion. Performed especially well in the Mekong region of Vietnam, Cambodia, Laos, and Myanmar. As Stefan has already mentioned, our Business Unit Healthcare conducted a study about outsourcing of sales and distribution last summer.
It revealed that the pharma industry expects an increase in outsourcing in the coming years. A main driver for this trend is the need to better understand the markets. With our regional presence as well as our strong IT platform, we are ideally positioned to convince clients with our innovative solutions and to drive this trend forward. EBIT increased significantly by 9.1% to CHF 146.5 million. Let me move on to Business Unit Performance Materials. We achieved net sales of CHF 894.1 million, an increase of 2.7% compared to last year. The Business Unit developed well both in Southeast Asia and in Europe. Over the past year, we succeeded to position the Business Unit on an even broader basis. We have expanded our Performance Materials business to Cambodia and opened or enlarged innovation centers in South Korea, Spain, Vietnam, and in the Philippines.
EBIT of CHF 73.2 million was below the previous year. In 2016, EBIT was positively influenced by the strengthening of the EUR and JPY. Cost for specialty raw materials in EUR and JPY decreased due to the strengthening of these currency. This led to higher operating profits in 2016. Without this effect, EBIT in 2017 would have increased slightly again when compared to 2016. We are also confident for this Business Unit as the overall market volume is large and continues to grow. Additionally, the market is still highly fragmented. Finally, let me talk about the Business Unit Technology. In terms of net sales, we reached CHF 404.2 million, 4.9% more than last year. Particularly in China, Taiwan, Indonesia, and Japan, we saw a high demand for capital goods. The EBIT of CHF 23.1 million was 8.5% significantly above previous year.
This business unit combines, on the one hand, our so-called project business, in which we drive Market Expansion Services and sales for machines and other special goods. Capital goods, sorry. On the other hand, we offer after-sale services that generate a steady revenue stream for us. Over the past year, we successfully focused on this part of the business and we strived to push the service further ahead. Let me summarize. With achieved net sales growth and an increase in profits, we generated an attractive return on equity of 13.1%. This is a solid track record and demonstrates how robust our business model is. With that, I give back the floor to Stefan. Thank you.
Many thanks, Bernhard. DKSH has continuously increased its ordinary dividend, as you can see on the chart. Since our IPO in 2012 and including this year's dividend proposal, we have paid out approximately CHF 650 million in dividends to our shareholders. 15 years ago, we decided on our strategic path, and we will pursue this successful way in the future too. Therefore, the board of directors proposes to the annual general meeting an ordinary dividend of CHF 1.65 per share. This would reflect a dividend increase of 10% versus last year. Now let's take a closer look at the environment we operate in. Of course, there has been some challenges in one or the other market in Asia. I already did mention that before. Nevertheless, after a year at DKSH, I can confirm that I see substantial potential for Asia and our business model.
Asia, for years to come, will remain the region with the greatest potential worldwide. A key growth driver is the rising Asian middle class, which is expected to more than double its size by 2030. That is only 12 years away from currently 1.4 billion to 3.5 billion people. Other important growth drivers are the increasing inner Asian trade and the ongoing trend among our clients towards more outsourcing. Market Expansion Services remains one of the most promising areas of the outsourcing industry, especially in Asia. More and more clients are also consolidating the number of partners to which they hand over their distribution activities. A recent example is Church & Dwight, a traditional U.S. consumer goods and consumer health company, which you might know. Their ARM & HAMMER baking soda can be found virtually in every U.S. household.
Church & Dwight wanted to strengthen their presence in fast-growing Asia and at the same time reduce the number of existing business partners over there. Our international clients increasingly ask for regional rather than just local solutions. That's good for us because only we have a capillary network spanning the whole region. Meanwhile, we have started distributing Church & Dwight brands across the region. Let me share another example with you, please. This time from our healthcare business. A couple of weeks ago, we started partnering with CHEPLAPHARM. CHEPLAPHARM is one of the fastest-growing pharmaceutical companies in Germany. Their strategy is to acquire tail end brands from large pharma companies while they increase their focus on blockbuster products. XENICAL, for example, a drug designed to treat obesity, for example, is one of the brands that CHEPLAPHARM acquired in 2016 from a Swiss pharma multinational.
There are two scenarios for DKSH when such a tail end brand gets a new owner. Either we have the product in our portfolio even prior to transfer and continue to market and sell it after all, or we get the product for the first time after the change of ownership, helping our new owner to distribute it in Asia. Both scenarios are obviously beneficial to us. To the outlook. We will continue to grow, first and foremost, organically. We will continue to invest in new markets like Indonesia, but also in other countries where we are about to open new distribution centers. Digitalization remains at the top of our agenda, and we are ready to size future opportunities. DKSH expects further improvements in 2018. All key growth drivers are intact. The strategic position of DKSH remains strong and sustainable, and our most important market, Thailand, seems to improve.
The performance of our almost 32,000 specialists and a promising business development pipeline from our clients around the world will drive our expansion. Overall, we are confident and expect an increased net sales and profit growth rate for 2018. Thank you for your attention, and we are now happy to take your questions.
For questions, star and one.
Thank you very much. We will start with questions in the room. As I said before, please quickly mention your name and the company that you are working for before asking the question. Thank you very much.
Good afternoon. This is Pascal Furger from Bank Vontobel. I have three questions. First of all, Thailand, it was still a negative in the second half, however, sequentially sort of improved a bit. Can you give us here a little bit more kind of relativity between the third and the fourth quarter performance and also how the year started? For instance, in Malaysia, in the third quarter, you sort of experienced a rebound with 8% growth. Is this something we will see in Thailand as well with sort of a lag? Or was this result impacted by some contracts you have lost? Second question on consumer goods, luxury. Here I understand you have reduced your losses. Also, you reduced your capacities at Maurice Lacroix, I understand. Here, with sort of improved sentiment in the watches business, have you already reached breakeven for distribution business?
For the whole luxury segment, do you still expect it to breakeven in 2018? Last question on free cash flow. Here you had a CHF 62 million outflow in net working capital. Is it fair to assume that the acquisition in Indonesia had an impact on this result? Looking at the fact that timing won't be an issue anymore in 2018, is it fair to assume that free cash flow will improve considerably? Do we have here sort of a guidance which you can share with us? Thank you.
Okay. I'm trying to answer now all of that in the right direction. To Thailand. I think we said already in the last year, what we saw in Thailand was strong GDP growth, relatively strong, 3.5%, which was mainly driven by capital goods infrastructure. A lot of concrete has been poured in Thailand during this time. We saw very high exports and a high increase in tourism, mainly Chinese. All those three have not, at the beginning, not translated into consumer demand. One reason was clearly that the King was still not buried by the time. I think it's fair to say since the King has been buried, we see slight improvements. Of course, in October, you saw nothing yet. November, a little bit. December, more pronounced. That's a question to Thailand. Malaysia, I think, was a quarterly adjustment compared to the previous quarter.
Overall, we see growth in Malaysia. However, not the aggressive growth we are used to five, six, seven years ago. It will continue to grow moderately. Question on luxury distribution. Overall, we don't give details of our business units or business segments, typically. What we can say, we have reduced losses in our Maurice Lacroix Environment quite well. We are still loss-making, but it's single digit. I think the positive news there is we are able to generate cash flows despite the loss situation, which in turn means, of course, we have reduced inventories, which allows us to generate positive cash flow. We have started to reduce inventories, I think, ahead of the industry, which now benefits us. Overall, we keep on restructuring. We are predominantly strong in Europe with Maurice Lacroix.
Some of the positive sentiments you hear from Asia will not fully translate, a little bit, but not fully translate to Maurice Lacroix. Okay, cash flow. Yes, cash flow was impacted by Indonesia, not to the extent you talked about. Of course, the increase in working capital, a good part of it is simply sales growth where you have to finance. Do we expect for the year-end a big end effect as we normally have? I hope so, but I'm not giving you any numbers or guidance on cash flow.
Maybe I can add two comments on Thailand. We also redirected our business development activities, in particular in Thailand, to focus stronger on the fast-growing tier 2 players as well as local Asian heroes. We are also continuously expanding our footprint, our route to market, to reach more stores within the country. Both of it, including some young brands we already onboarded in 2017, are giving us the confidence also for our Thailand market in 2018.
Yes, Marco.
Marco Strittmatter, Zürcher Kantonalbank. Is it probably fair to assume you expect growth within your business in Thailand this year again, after several years of shrinkage?
I mean, overall, we expect an increased growth rate in net sales and profit across the whole region, yes.
The mic is working again. The CapEx was very subdued in 2017. Will this rise again this year?
I mean, our CapEx, I would say, is around CHF 40 million, plus or minus CHF 10. It depends heavily whether we move into a new distribution center. I think you have to recall that we are running an asset-light strategy. That means if we move into a new distribution center, like we just have done in Hong Kong, which is actually quite automated, the CapEx we do in the distribution center is not that high, right? Because it's done by the developer. That's why you see relatively low numbers. I would guess, in a couple of years, when the new IFRS standards come in and I have to show you the lease obligations and I have to capitalize those, that's becoming more visible.
Okay, great. Maybe you could give us a guidance about your tax rate, because this was also a bit low last year for the whole year.
Again-
Not very low, but yeah.
One big question is always how much dividends do I pull from the country? Some countries have withholding taxes. We are holding over here. I cannot offset. The more dividend I pull, the higher the tax rate, the other way around. It's typically between 27% and 28%, plus or minus. It's embarrassingly high for a Swiss company.
Thank you. Maybe one final question from my side. Do you plan to sell more buildings or stuff like last year, this year? Is there anything in the pipeline that will be priced special gains again?
I would like to. There's not much left. We have a few smaller real estates still left, but not anything significant anymore. We clearly go diligently after the asset-light strategy. We still had a couple of real estates where we bought them because of regulatory reasons. We need long-term leases. We have to be sure we are not kicked out suddenly. In those countries, we bought our own real estate. The moment they become more stable, we sell it off. That's what you saw last year.
Not CHF 14 million anymore this year.
No, not CHF 14. No, that we had never. We had once CHF 20 million in translation.
Yeah, that's fine. Okay. Thank you.
Thank you, Marco. Next question maybe from Tomek.
Yes. Tomek Pulin from Kepler Cheuvreux. Three question, if I may. The first one is on the P&G deal. Do you have some color on how the process of insourcing for you took place in 2017 and the impact it might have had on the P&L and also in terms of the relationship, how about you can say about that? That's the first one. Second is on the healthcare. You saw very strong growth once again, but limited operational leverage on the healthcare side. I guess there's still competitive pressure from Zuellig, who happens to be also up for sale. Could you give us some more color on that competitive landscape and how it could evolve given the potential M&A situation? On that, obviously, could you say something about your positioning on the Zuellig opportunity? That would be the main question for me.
Okay. Thank you very much. I would like to start with Procter & Gamble. Yes. I think the contract with Procter & Gamble is running very well for both sides. We completely onboarded the Procter & Gamble team, so the business is in full operations as we talk, and we achieved some very nice growth rates. Three months after we took over the contract, market share in the market for that client is on the rise. We have a very good relationship, and we also do expect that we can expand our business with Procter & Gamble continuously moving forward. Regarding healthcare, our healthcare operations are growing very nicely, as you did point out. We achieved close to 10% growth over the years.
We are still entering many younger countries within the region, and we are continuously investing in expanding our footprint, and that is one of the reasons why you'll probably see a little bit lower operational leverage than what you expect. We are sure we do the right thing to continue to have a very high growth rate in the years to come. Zuellig. Yes, Zuellig is one of our main competitor within the region. Even in some countries like Indonesia and Philippines, they are stronger, therefore, we are stronger in some other countries. Overall, our statement regarding a potential partnership or acquisition around Zuellig is not changing with what I did say last year. If Zuellig would come on the market, yes, we would be interested to take a look and talk to them.
We are very open, but so far, as far as I know, Zuellig overall as a company is not on the market. What is on the market is the 20% Temasek share, and a lot was written about it in the past. Obviously, acquiring a 20% stake within Zuellig is not of interest to DKSH unless it would lead to a significantly larger position, which is not the case. In that regard, our position remains the same as in 2017, we stated already.
Next question. Gianmarco.
Thank you. Gian Marco Werro, MainFirst. 2 questions for me, please. We already talked about the healthcare segment, and just after decline of your EBIT margin since 2015, your EBIT margin in healthcare segments seems to stabilize more or less. Can you elaborate a little bit now on the price competition that you faced during the last years and how this developed in 2017? Can you highlight us some of your cost-cutting measurements also in the consumer segment, and how you aim to improve the EBIT margin in this segment? Thank you.
Okay. The healthcare margin came under pressure and we flagged that at the capital markets a couple of years back, where a couple of major contracts, we call them legacy contracts, came up for renewal, and we got into a strong competition there, which led to a direct reduction in the EBIT margin. I would say it's actually positive in the sense we have recovered most of that. We're still below those numbers you have said, but it's very well on a good trend now. For those who were not aware of the case at that time, legacy contracts for us were contracts where we started with the client very small, very high margins. The clients grew to quite some size. Of course, when they bid it out again for a new business, we couldn't sustain those unnaturally high margins.
That's what happened at the time, reflect that. Besides that, I think the EBIT margin has developed quite well. What's on the healthcare side, cost-cutting, you want to talk or should I? In terms of consumer goods and your question regarding cost-cutting. Overall, also in consumer goods, our business model is fully functioning, and we are seeing some very good growth rates across Indochina, and we are investing into our operations in those countries. In markets where we do see challenges, primarily from the external side, we always try to look and streamline our costs as much as possible. You will also recognize that despite the fact that the business was slightly shrinking, we were able to hold the margin. We continuously look into our operations and try to improve processes and also further digitize them.
Overall, as I was saying before, we are very optimistic looking into 2018, and the focus is more on investing in our operations and delivering the growth we were talking about than being in a cost-cutting mode. We try, obviously, continuously to be as lean as possible.
Thank you. Any further questions in the room? Not the case, I would Sorry, maybe one last question, Marco, please.
Sorry again. Maybe you could spend a few words on the reclassification of the aCommerce share you have, which was an investment in my view so far, and now it's held for sale and led to a gain.
aCommerce was one of these areas where we are looking into e-commerce, and we still do. During the year, a subsidiary of KKR took a stake in the company. Not KKR themselves, but a subsidiary. We went with in the investment, but obviously having them in, our position and influence became less at the end. We decided to classify this as a financial investment rather than an equity investment, which reflects the changed dynamics in the company. We continue to stay in there, and we will use them also as a partner, but not with a long-term view anymore.
Strategically. As I was pointing out before, strategically, we will focus very much on developing our organic digital business, which is developing very well.
Good. Any last questions in the room? I would hand over to questions in the call, please.
The first question from the phone comes from Rory McKenzie from UBS. Please go ahead.
Good afternoon, everybody. It's Rory McKenzie from UBS here. One question on the numbers and one on your strategy, please. Firstly, on your guidance. There are obviously a few non-repeating items in your EBIT this year. I think in total you had CHF 10 million-CHF 11 million EBIT from gain on property sales. I know you had some one-off costs in there as well. Are you confident on growing EBIT this year from that reported base of CHF 297 million? Should we strip out these gains on sale from our forecasts when we think about growth? Secondly, on strategy and focusing on digital. Could you maybe talk about penetration rates? How many clients have you onboarded now to your digital offering?
What do you think, Stefan, is the most important advantage for you to try and protect your position as a competitive player across all the channels? Where do you think the biggest threat might come from?
Okay. First of all, a statement regarding the guidance. Obviously, the basis of the guidance is the CHF 297 we achieved this year, and the reference point was an increased growth in profit and sales. That was regarding the first question. Digital penetration. As I was saying before in my speech, we currently already have 400 brands on our digital platform and have 400 brands to be sold across different e-channels within the region. I think that's a very good start considering where the overall market in Southeast Asia is. Please don't forget for the relevant segments which are sold online. In China, 20% are already happening online of the 100. In Southeast Asia, this percentage is still somewhere around 2%. We are talking about a very limited market. If you consider that, I think 400 is quite an impressive penetration rate, as you call them.
We are more or less weekly onboarding new clients and new brands across the region. I think the key advantage for us in digital is that we are the only one who can ensure clients alignment, especially in terms of pricing, no matter if they sell the product to modern trade, traditional trade, that means the offline business or online. In online, when they're working together with DKSH, as I was pointing out before in my speech, even within the online market, we can offer B2B and B2C, and within B2B, we can offer direct access to Lazada. We can offer access to e-market retailers and so on and so forth. I think this is a large USP we are having in the digital market. Plus the fact that obviously we have the products already in our distribution centers.
Okay, thanks. Maybe just to follow up on the first one. Can you maybe help us understand any of the other one-off items then that might not recur next year? Because otherwise, without those gain on property sales, that's obviously a 4% headwind to any of your profit that you deliver in the business. Anything else to be aware of that would fall out on the cost side?
I would not call it a 4% headwind because you're only taking out the positives. We had a few negatives as well as we have every year. They cancel out quite a few of the 11 million. I'm quite confident that's going to be roughly neutral. I'm still with the growth Stefan has mentioned before.
Okay, great. Thank you, guys.
Next question, please.
The next question comes from Josh Puddle from Berenberg. Please go ahead.
Yeah. Hi. A few questions, please. The first one, just coming back on Rory's question. You've got CHF 11 million of one-off costs which are going the other way. Could you quantify what those are, please? Second question, just coming back on the healthcare margin. You talked about investments in younger countries holding back the leverage. Should that continue into 2018, or would you expect that division to start showing operational leverage in 2018? Just last question, I know there was a big increase in the corporate costs. I'm aware of the dual CEO running costs, and presumably, some of this is in relation to that CHF 11 million. Can you confirm that those dual costs have ended, and can you just help us out with what's the underlying number in corporate costs that we should be factoring in for 2018? Thank you.
May I'll answer the number one and three question. The CHF 11 million, I think the additional costs we had, one of them you just mentioned yourself, that's the increased corporate cost because of the transfer of the responsibility between the two CEOs. That's one big portion of it. We had a couple of very big clients we onboarded, where we had onboarding costs, which we don't have normally in that range. We had a few M&As where we also had, at least in one case, a little bit higher cost than normal. Because in Indonesia, we took over a listed company. There's some complexity in the whole deal. Those are the main drivers of these CHF 11 million.
The double cost or the additional cost for the transfer of the CEO from one CEO to the other CEO will not recur again in 2018, to answer that part of the question. For the second question, I pass on to Stefan.
Yes. Regarding healthcare, please don't forget, we don't manage the business by optimizing the margin. Our key objective is to continuously increase the EBIT. A lot of things are driving the margin. At the end of the day, it's a mixed issue. On the one hand, between pharma, over-the-counter, own brand business as well as medical equipment in there. Regarding the investments, there are not only investments in the build-up of new countries, it's also investment into continuously upgrading our services. For example, expanding the footprint in terms of regulatory services we offer, and so on and so forth. The focus is on continuously increasing the EBIT.
Okay. Thank you.
Yep. The next question, please.
The next question comes from Andy Grobler from Credit Suisse. Please go ahead.
Hi. Good afternoon. Just a couple from me. Most of mine have been asked already. Just in terms of depreciation versus CapEx, that's moved an awful long way. What is the guidance for the depreciation charge for the next couple of years, if that's okay? Secondly, a bit more strategically on M&A, what areas, either geographically or by business unit, are you going to be looking at? I think it's been mentioned before that the focus on M&A is likely to pick up relative to the past. What have you done in order to get that focus into action? Thanks very much.
Okay. Again, I'll ask the first part of the question. Depreciation, again, I mentioned before, it's around CHF 40 million, plus, minus. It's relatively stable. There are years with a little bit more, years with a little bit more or less. Overall, that will be the level. That means also depreciation should be in a similar level. Not much movement around that. Is that okay?
Yeah. Okay. CapEx guidance is around CHF 40 million-odd this year.
Plus, minus, I would say.
Plus, minus. The big gap between the two, is that not going to bring depreciation down at some stage?
No.
Okay.
Regarding M&A, yes, we did accelerate our rate already and close 3 transactions last year. Our objective is to keep that pace or even further increase that pace. From a regional point of view, you did ask, we will continue to focus on our core region, which is Southeast Asia in particular, and North Asia, and to some degree, also Asia Pacific. There are no intentions to do any acquisitions outside of this region, primarily with the exception of performance material, where we also have a European footprint and did some acquisitions in Europe as well over the last couple of years. In terms of the business unit, in all 4 business units, we have a list. We have a list with some potential targets we are looking at. Obviously, in performance material, we talk about a very fragmented market.
In pharma, it's more in niches like in medical equipment. Overall, we look across the whole board of our portfolio.
Okay. Thank you.
Are there any further questions on the call?
There are no more questions from the phone.
Many questions in the audience here in Zurich? No? I thank you very much for all of your questions. We'll close the call and obviously wish you a very good day. Thank you very much.
Thank you very much.
Thank you.
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