Earnings Call: H2 2017

Feb 5, 2018

Ladies and gentlemen, good afternoon. Welcome to the DKSH Presentation Full Year Results 2017 Conference Call and Live Webcast. I'm Irona, 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. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. T. Leissner, Head of Investor Relations. You will now be joined into the conference room. So thank you, Miruna, 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 Leif. I'm Head of Investor Relations. And for those of you in the call with me today, I have Stephan Butz, our CEO and Bernard Schmidt, 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 in 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. Then Bernhard will walk you through the financial highlights and performance. And at the end, Stefan will close with an outlook statement. Before we go to the Q and A session, I would quickly ask you to tell your name when you and the company that you are working for. And with that, I would like to hand over to our CEO, Stefan Wuth. Thank you very much. Good afternoon, ladies and gentlemen, and welcome to the DKFAR 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 past year. Compared to 2016, net sales increased by 4.8% in 2017, exceeding the €11,000,000,000 mark. Organic growth constituted the greater part of the increase, particular in Vietnam, Laos, Cambodia and Myanmar, We generated strong growth. We also exceeded other key figures in 2017. At €297,000,000 operating profit, EBIT was above 2016 and profit after tax just over €213,000,000 was slightly above previous year as well. Despite muted consumer demand intent 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 129,000,000 to CHF140,000,000. In addition, we continue 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 to the Board, Bernhardt Sorry, against the background of the slightly increased key figures of the Board of Directors, we're proposing an ordinary dividend of CHF1.65 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 Century Academy. We see that our growth drivers, the growing middle class, the increased inner Asian traits, 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. To focus, like particular, 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 our sales. DKSH omni channel approach is very well received. There, we offer our clients products across all distribution channels in online and offline channels. The acquisition of Esuite at the end of 2016 and the continued investment in e commerce 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 Material, we opened 3 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 impressive. 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 that fit our business and are earnings accretive. As you can see on the slide, we have been active in 3 markets during the last year. First up, in January, We acquired a medical device distributor, Europe Continents in Cambodia. With Europe Continents, around 100 new employees joined DKSH. The company markets devices from well known international clients such as Philips, 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 PTV Jaksana 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 white spot on our map for the 2 larger business units. Indonesia with its 260,000,000 inhabitants, of which already 1 third are part of the new country's middle class offers a lot of potential for DKSH. The Vijak SANA transaction was successfully closed in October. Since then, we have invested a considerable amount of time and resources to further raise the company's standards. 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 and capabilities. As Vijaksana is very much focused on traditional trade, We are upgrading the existing infrastructure to address the modern trade channel 2. To sum it up, I can say that we will continue to invest in the company, remain optimistic about the medium and long term and 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, so 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 of 400 clients brand in 8 different Asian countries. As you can see here on the slide, we make a distinction among 4 e commerce business models. In the first model, we sell our clients' 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 3rd model, DKSH sets up own shop 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, Linde 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 4th 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. And in the digital space, clients prefer to entrust their sales to a partner who knows the market well and ensures alignment across all offs 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 Smit, 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 of 2017. In the past year, we exceeded CHF11 1,000,000,000 in sales for the first time. Net sales increased by 4.8%. The organic growth was 3.7% and 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 has 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 trying to cut costs. We are very well positioned in markets in the markets of Vietnam, Myanmar, Cambodia where we have achieved clear double digit growth. Just recently, I've been in Vietnam and I was again fascinated by the dynamics in the country. Now to our results. EBIT of CHF297 1,000,000 was 1.4 percent above the previous year. Profit after tax amounted to at CHF 213,300,000 slightly ahead of last year. Despite challenging market conditions, we have again exceeded and last year's figures. Therefore, we have once again demonstrated the robustness of our business model. The free cash flow for 2017 was CHF139,500,000 and remained well above the previous year. The net cash position is still very strong and amounts to CHF 344,200,000. Not only have you paid out an ordinary dividend in 2017, but on top of this also a special dividend. This summed up to CHF292,700,000 for dividend payments. Roanoke, The return on net operating capital is still on a good and high level with 25%. I would like to give you an overview of the performance of our 4 business units. In Business Unit Consumer Goods, Net sales decreased by 3.3 percent to $3,600,000,000 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 CHF105,900,000. 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 customer and have a higher innovation speed. Over the last year, we have put an ever even stronger focus on these local brands. We have already onboarded some new Asian clients. Our 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 percent to CHF 6.1 1,000,000 CHF 1,000,000,000. We performed especially well in the Mekong region of Vietnam, Cambodia, Laos and Myanmar. As Stephen 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. The 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 percent to CHF 146,500,000,000. Let me move on to Business Unit Performance Materials. We achieved net sales of CHF 894,100,000, an increase of 2.7% compared to last year. And business unit developed well both in Southeast Asia and in Europe. Over the Last 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. Of CHF73.2 million was below the previous year. In 2016, EBIT was positively influenced by the strengthening of the euro and yen. Cost for specialty raw materials in euro and yen decreased due to the strengthening of this currency. This led to higher operating profit in 2016. Without this effect, EBIT in 2017 would have been would have increased slightly against again when compared to 20 16. 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 404,200,000, 4.9 percent more than last year. Particularly in China, Taiwan, Indonesia and Japan, we saw a high demand for capital goods. The EBIT of CHF23.1 million was worth 8.5% significantly above previous year. This BIN business unit combines on the one hand our so called project business, in which we drive market expansion and sales for machines and other special goods capital goods, sorry. On the other hand, we offer after sales services that generate a steady revenue stream for us. Over the past year, we successfully focused on this part of the business and we strive to push the service further ahead. Let me summarize. With the 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, Bernard. DKSH has continuously increased It's 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 650,000,000 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 CHF1.65 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 2,030, that is only 12 years away from currently 1,400,000,000 to 3 of 0.5000000000 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 the distribution activities. A recent example is Church and Dwight, a of traditional U. S. Consumer goods and consumer health company, which you might know. The ARM and HAMMER baking soda can be found virtually in every U. S. Household. Church and Dwight wanted to strengthen their presence in fast growing Asia and at the same time reduce 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 and White 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 Sheplafarm. Sheplafarm is one of the fastest growing pharmaceutical companies in Germany. The 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 Shepla Pharma acquired in 20 seen from the Swiss Pharma Multinational. There are 2 scenarios for DKSH when such a tail end brand gets a new Owner, either we have the product in our portfolio even pure the 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. Now to the outlook. We will continue to grow. 1st 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. Digitization 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 1. 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're working for before asking the question. Thank you very much. Good afternoon. This is Pascal Volker from Bank Vontobel. I have three questions. So first of all, Thailand, and 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 granularity between the 3rd and the 4th quarter performance and also how the year started. For instance, in Malaysia, in the Q3, 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? And then second question on consumer goods luxury here, I understand you have reduced Your losses also you reduced your capacities at Boris Locker, I understand. Here, we sort of improved sentiment in the watches business. Have you already reached breakeven for distribution business? And for the whole Luxury segment, do you still expect it to breakeven in 2018? And then last question on free cash And here you had EUR 62,000,000 outflow in networking capital. Is it fair to assume that the Acquisition in Indonesia had an impact on this result. And looking at the fact that timing won't be an issue anymore in 2018, is it We are to assume that free cash flow will improve considerably. Do you have here sort of guidance which you can share with us? Thank you. Okay. Trying to answer now all of that in the right direction. To Thailand, I mean overall, 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 high increase in tourism, mainly Chinese. All those 3 have not at the beginning not translated into consumer demand. One reason was clearly that the King was still not varied by the time. So I think it's fair to say since the King has been buried, we see Slide improvements. Obviously, in October, you saw nothing yet. November, a little bit. December, more pronounced. So, a question to Thailand, Malaysia, that 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 5, 6, 7 years ago. It will continue to grow moderately. Question on luxury distribution. So overall, I mean, 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. So overall, We keep on restructuring. We are predominantly strong in Europe with Maurice Lacrae. So some of the positive sentiments you hear from Asia will not fully translate a little bit, but not fully translate to Maurice Lacrae. Okay. Cash flow. Yes, cash flow was impacted by Indonesia, not to the extent you talked about. Of course, the increase in working capital is simply a good part of it is simply sales growth where you have to finance. Do we expect for the year end a weak 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 2 comments on Thailand. I mean, we also redirected our business development activities, in particular in Thailand to focus stronger on the of fast growing Tier 2 players as well as local Asian euros. And we are also continuously expanding our footprint, our route to market to reach More stores within the country and both of it including the some young brands we already onboarded in 2017 are giving us the confidence also for our Thailand market in 2018. So it's probably fair to assume you expect growth within your business in Thailand this year, again after several years of shrinkage. Overall, we expect an increased growth rate in net sales and profit across the whole region. The mic is working again. The CapEx was very June 2017, will this rise again this year? I mean, our CapEx, I would say, It's around $40,000,000 plusminus10. It depends heavily whether we move into a new distribution center. I mean, you have to I think you have to recall that we are running an asset light strategy. That means if 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. So that's why you see relatively low numbers. I will guess in a couple of Here's 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. And 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, 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. So the more dividend I pull, the higher the tax rate the other way around. It's typically between 27%, 28% Plus minus. More or less. It's embarrassingly high for a Swiss company. Thank you. And maybe one final question for myself. Do you plan to sell more buildings or Stuff like last year, this year, is there anything in the pipeline that will give you special gains again? I would like to. There's not much left. So we have a few smaller real estate still left, but not anything significant anymore. We clearly go diligently after the asset light strategy. And we still had a couple of real estates where we bought them because of regulatory reasons. So when there is we need long term leases, we have to be sure we're not kicked out suddenly. So in those countries, we bought our own real estate. At the moment, they become more stable. We sell it off. That's what you saw last year. So not $14,000,000 anymore this year? No, not $14,000,000, no. That we had never. We had $20,000,000 in translation. Yes. Thank you. Thank you, Marco. Next question may be from Amariq. Yes. Tamik Poulin from Kepler Cheuvreux. Three questions, if I may. The first one is on the PNG deal. Do you have Some color on how the process of in sourcing for you took place in 2017 and the impact it might have had on the P and L and also in terms of the relationship, how that about you can say about that? That's the first one. Secondly, on the Healthcare, You saw very strong growth once again, but limited operational leverage on the health care side. And I guess there's still pressure from Zellek, who happens to be also up for sales. So could you give us some color on that competitive landscape and how it could evolve Given the potential M and A situation and on that obviously could you say something about your positioning on the Zwadig opportunity? That would be the main question for me. Okay. Thank you very much. I would like to start with Procter and Gamble. Yes. I think the contract with Procter and Gamble is running very well for both sides. I mean, we completely onboarded The Procter and Gamble team, so the business is in full operations as we talk and we achieved some very nice growth rates. So 3 months after we took over the contract, market share in the market for that client on the is on the rise. And we have a very good relationship and we also do expand that expect that we can expand You know our business with Procter and Gamble continuously moving forward. Regarding health care, I mean, our health operations are growing very nicely, as you did point out. We achieved close to 10% growth over the years. We I mean, we are still entering many younger Countries within the region and we are continuously investing and expanding our footprint. And that is one of the reasons why you probably see a little bit lower operational leverage than what you expect. But we are sure we do the right thing to continue to have a very high growth rate in the years to come. Zuliq, yes, Zuliq 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 potential partnership or acquisition around Zulich is not changing with What I did say, last year, if Zulik would come on the market, yes, we would be interested to take a look and talk to them. So we are very open. But so far, as far as I know, I mean, Zulich overall as a company It's not on the market. What is on the market is the 20% Temasek share and a lot was written about it in the past. I mean, obviously, Acquiring a 20% stake within Zulik is not of interest to DKSH unless it would lead to a significantly larger position, which is not the case. So in that regard, our position remains the same as in 2017, we stated already. Next question. Gianmarco Ferro, MainFirst. Two 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? And then maybe also 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 reflected at the Capital Markets Day 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 EBIT margin. I would say it's actually positive in the sense we have recovered most of that. So we are still below those numbers you have said, but it's very well on a good trend now. Those who were not aware of the case at that time, Legacy contracts for us were contracts where we started with the client very, very small, very high margins. And then the client grew to quite some of the clients grew to quite some size. And then of course, when they bid it out again for new business, they couldn't sustain those unnaturally high margins. That's what happened at the time, reflect that. Beside that, I think the EBIT margin has developed quite well. So it's on the healthcare side, cost cutting, you want to talk or do I? I mean, yes, in terms of Consumer Goods and your question regarding cost cutting. I mean, overall, also in Consumer Goods, I mean, our business model It's 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 cost 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 digitalize So but 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, then I would handle sorry, maybe one last question, Marco, please. Sorry, again. Maybe you could spend a few words on the reclassification of the e commerce share you have, which Was an investment in my view so far and now it's held for sale and led to a gain. So e commerce was one of these areas where we're 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 the subsidiary event with in the investment, but obviously having them in, Our position and influence became less at the end. So we decided to classify this as a financial investment rather than and Equity Investment, which reflects the change dynamics in the company. We will stay we continue to stay in there and we will use them also as a partner, but not with a long term view anymore. Strategically. I mean, 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? Then 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 then 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 €10,000,000 to €11,000,000 EBIT from gain on property sales. But I know you had some one off costs in there as well. So are you confident on growing EBIT this year from that reported base of €297,000,000? Or should we strip out these gains On sale from our forecasts when we think about growth. And then secondly, on strategy and focusing on digital. Can you maybe talk about penetration rates? How many clients have you onboarded now to your digital offering? And 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. I mean, first of all, a statement regarding The guidance, I mean, obviously, the basis of the guidance is the $297,000,000 we achieved this year. And the reference point was an increased Growth in profit and sales. So that was regarding the first question. Digital penetration. I mean, as I was saying before in my speech, I mean, we currently already have 4 100 brands on our digital platform and help 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%. So we are talking about Very limited market. And if you consider that, I think 400 is quite an impressive penetration rate, as you call them. And we are, I mean, more or less weekly onboarding new clients and new brands across the region. I think the key advantage for us in digital is I mean, 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 trades, that means the offline business or online. And 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. And 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. But 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? Otherwise, without those gain on property sales, that's obviously a 4% headwind to any of your profit that you deliver in the business. So 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. So They canceled out quite a few of the $11,000,000 So I'm quite confident that that's going to be roughly neutral. So I'm still with the growth Stefan has mentioned before. Okay, great. Thank you, guys. Next question please. The next question comes from Josh Baill from Berenberg. Please go ahead. Yes. Hi. Few questions, please. The first one, just coming back on Rory's question. If you've got EUR 11,000,000 of one off costs, which are going the other way, Could you quantify what those are, please? 2nd question, just coming back on the Healthcare margin. You talked about investments in younger countries holding back the leverage. Should that continue into 2018? Would you expect that division to start showing operational leverage in 2018? And then 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 EUR 11,000,000. But 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 quick I'll answer the number 1 and 3 questions. The $11,000,000 I think the additional costs we had, one of them you just mentioned yourself, that's the increased corporate costs because of The transfer of the responsibility between the 2 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. And we had a few M and As where we also had, at least in one case, a little bit higher cost than normal. Because in Indonesia, we took over listed company with some complexity in the whole deal. Those are the main drivers of these 11,000,000 The double cost or the additional cost for the transfer of the CEO to from 1 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. I mean, regarding I'm Healthcare. I mean, please don't forget, I mean, we don't manage the business by optimizing the margin. So our key objective is to continuously increase the EBIT. And a lot of things are driving the margin at the end of the day. It's a mix issue. On the one hand between Fava over the counter own brands business as well as medical equipment in there. And Regarding the investments, there are not only investments in the buildup of new countries, it's also investment into continuously upgrading You know our services, for example, expanding the footprint in terms of regulatory services we offer and so on and so forth. So the focus is on continuously increasing the EBIT. Okay. Thank you. Next question please. The next question comes from Endy Grobler from Credit Suisse. Please go ahead. Hi, good afternoon. Just a couple for 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. And then secondly, a bit more strategically on M and A, what areas, either geographically or by business units, are you going to be looking at. And I think as we mentioned before that the focus on M and 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 $40,000,000 plus minus. It's relatively stable there years with a little bit more years with a little bit more or less. But overall, that will be the level that means also depreciation should be in a similar level. No much movement around that. Is that okay? Yes. Okay. So CapEx guidance is around EUR 40 odd 1,000,000 this year. Plus minus plus minus and the big gap between the two, is that not going to bring depreciation down at some stage? No. Okay. Regarding M and A, yes, we did accelerate our rate already and closed 3 transactions Last year, our objective is to keep that pace or even further increase that pace. And from a regional point of view, you did ask, I mean, we will continue to focus on our core region, which is Southeast Asia in particular and North Asia and to some degree also Asia 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. I mean, in all four business units, we have a list. We have a list with potential targets we are looking at. And so there is no focus. I mean, obviously, In Performance Materials, we talk about very fragmented market. In pharma, it's more in niches like in medical equipment. But overall, you we look across the whole board of our portfolio. Okay. Thank you. Are there any further questions in the call? There are no more questions from the phone. Many questions in the audience here in Zurich? No? Then I thank you very much for all of your questions. We will close the call and obviously wish you a very good day. Thank you very much. Thank you very much. Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your line. Goodbye.