Earnings Call: H1 2020

Jul 15, 2020

Good morning or good afternoon, everybody, depending on where you sit. It's a pleasure to welcome you again to the first half 2020 results conference call of DKS H. I'm Till, as Eva said, Investor Relations for DKS H. And I'm happy to have with me Bernhard, our CFO and Stefan, our CEO on the line. Before we start, please all have a look at the disclaimer of the presentation regarding forward looking statements. And for those of you who do not have the presentation in front of you, you will find them on the web under Investor Relations at dksh.com. Let me give you a quick overview of what you can expect today. 1st, Stefan will present to you as usually the highlights of the first half and the development of the business units. Then Bernard will walk you through the financials. And at the end, Stefan will close with some final remarks. With that, I'm done. I'd like to hand over to Stefan. Thank you very much. Good morning, everyone. I'm very pleased to welcome you to our half year results 2020. When we met the last time at our full year conference in February, the global economic outlook for 2020 was positive. Since then, however, the spread of COVID-nineteen has resulted in a sudden and sharp decline of commercial activities. With a consistent 4% to 5% GDP growth, Asia is one of the most attractive regions to do business in the world. Even during the financial crisis, Asia continued to grow. This year, however, we will see most economies in Asia contracting. The Asian Development Bank predicts a GDP decline of 4% for Malaysia and even 6% for Singapore. For Hong Kong, which has not only been marked by the pandemic but also by political unrest, they even forecast minus 6.5%. There, retail volumes, for example, fell 37% from January to May. And in Thailand, consumer confidence stands at a 21 year historic low. At the beginning of 2020, the lockdowns impacted only a few of the Asian markets we operate in, such as China and Hong Kong. Since the second half of March, however, this changed. Most of our markets were in a lockdown, some for a few weeks only, but most for a couple of months. With this in mind, we achieved solid numbers in the first half of this year, thanks to the resilience of our business model. Faced with this unexpected situation, we immediately set up a COVID-nineteen action plan that enabled us to remain operational. Our highest priority is to ensure the safety and well-being of our employees and stakeholders as well as ensuring business continuity. Our people work tirelessly to ensure the reliable distribution of daily consumption items. I am very pleased that we had no larger disruption in our supply chain across the whole region. In all countries, large parts of our employees work from home. As governments considered our supply chain management and services in the field as essential, we received approvals to maintain operations and therefore continued our business mostly. With the gradual easing of the lockdowns, we have meanwhile widely returned to our offices. At the same time, we diligently controlled our foreign currency risk and stayed home from our working capital and payment terms. We safeguarded our assets, generated higher cash flows and maintained our strong balance sheet. While we have flexible and asset light business model, we increased cost control too. Bernhard will elaborate on this aspect later. The impact from COVID-nineteen played out differently on our business unit. In technology, many of our customers had to shut down their production and reduce investment. The situation in business unit consumer goods was twofold. The first segment, fast moving consumer goods, grew EBIT strongly. This highlights the ongoing success of the restructuring that we had initiated at the end of 2018. The second segment, Luxury and Lifestyle, however, experienced heavy declines due to shop closures and reduced travel. In Business Unit Performance Materials, we even exceeded last year's level due to the relatively high exposure to the life science industry. And Healthcare was relatively resilient despite lower patient traffic and operation numbers in the 2nd quarter. In addition to our COVID-nineteen action plan, we also advanced with our strategic initiatives. For many markets, we increased our business development pipeline. In healthcare, we expanded our partnership with TreblaPharm for the 2nd time to now include Tayva. Last month, we announced our partnership with Biocon, the largest biotech company in India. Business Unit Health Care has increased the focus on patient solutions and is continuously developing new tailored projects in the region. In the first half of this year, we have signed various new projects with renowned clients such as Novartis, Roche, Lanofi and Bayer. In consumer goods, we saw on the one hand a revival of the well known Western brands and started partner with names like Unilever in Indonesia as well as Kraft Heinz and Ferrero in Malaysia. On the other hand, we expanded business with Asian brands such as with the Japanese confectionery giant, Boringaga in Vietnam, FNN in Vietnam and Myanmar or Kaino in Indonesia. Our continued agreements with new clients confirm the ongoing trends towards outsourcing. Our employees are our most valuable asset. To cater to their needs even better and to continuously drive change in our organization, we recently hired a new head of HR. Additionally, we introduced the 1st online learning management system across the group. Few months ago, we also launched our new identity, which brings us together as a company to fulfill our promise to deliver growth in Asia and beyond. A core value in our new purpose driven culture is sustainability. This is an area where we further developed our standards and for the first time have committed to long term targets. In Supply Chain Management, we maintained a high level of service and continued our efficiency projects. We deployed our paperless process in 4 major markets, providing greater control, visibility, accuracy and efficiency to our operations. Our vehicle routes in Thailand, which will bring a much more sustainable delivery services across the region. In the first half of twenty twenty, we also continued our digital transformation, supported by our new digital officer and achieved double digit growth in our e commerce business. Increasingly, FMCG manufacturers consider outsourcing to us due to our distinctive online capabilities, including our award winning omni channel sales and marketing capabilities. In addition, our digital B2B Healthcare sales platform now extends to more and more customers across the region. Since 2017, we have intensified our acquisition strategy. We expanded across the region and with Axios and Crossmark acquired 2 more companies this year. Also, it has become a bit more quiet in the market recently, we continue to look for attractive assets. Lastly, the turnaround in FMCG is a good example of our increased focus and excellence. We increased profit for the 2nd time. With that, let me move to the business unit in Babu and Healthcare. At the beginning of COVID-nineteen outbreak, many of our in some of our markets, even up to 50%, five-zero. In addition, the share of our out of pocket spending is higher in Asia, which has an adverse impact of demand for over the counter and consumer health products. Given its dependency on medical and leisure tourism, Thailand was impacted more than other markets. Many markets, we continue to grow as we onboard new clients and expanded existing partnerships. Due to our diversified product portfolio across channels, categories and markets, we almost matched last year's net sales and EBIT at constant exchange rates. Also not yet back to normal level, patient numbers have recently recovered. Business Unit Healthcare will continue to monitor expenses while pivoting to more digital channels for ordering, marketing and sales. Let us now come to the business unit consumer goods, which is made up of 2 segments, as you know. The larger one, fast moving consumer goods, FMCG, primarily includes daily necessities with a low price point. Across our categories, we saw stockpiling for staples and more purchases of hygiene and home care products. However, consumer purchased less confectionery and makeup, for example, and made fewer impulse purchases. And the demand for festive and gifting products declined during Songkran and Haziraya. The performance in our food service sector, where we distribute to hotels, restaurants and cafes was significantly impacted due to COVID-nineteen related lockdowns as well. Despite this, we grew in the Indochina region and expanded significantly in Indonesia. In e commerce, our sales grew double digit. In addition to our healthy business development pipeline, we also successfully developed the acquired business of CTD and CrossMark. In sum, net sales in FMCG remained around last year level. The restructuring program that we had initiated at the end of 2018 has progressed positively ever since. With the leaner and more agile structure, we reacted quickly to the challenging market environment and increased EBIT strongly. While the duration and impact of COVID-nineteen remain unclear, we are very confident about the transformation of our FMCG business in the long term. The second segment of our consumables business unit is luxury and life style. It primarily includes discretionary items such as apparel, accessories, household luxury products and watches. As retail shops closed and tourism was significantly lower during the lockdown, net sales and EBIT declined substantially. To limit our EBIT impact, we implemented several cost saving initiatives in recent months. Since a few weeks, we also see the first signs of market improving here, albeit at lower levels. As some of the 2 segments, net sales for consumer goods increased by 0.8% at constant exchange rate, and EBIT stood at CHF 25.5 1,000,000. This brings me to the business unit Performance Materials, where we further cemented our position as a leading specialty chemicals ingredients distributor with a focus on Asia. Net sales increased by 11.7% to $535,700,000 as we expanded our business with existing and new clients and consolidated acquired companies. Our life science business, where we cater to the pharma, food and beverage as well as personal care industries, performed especially well. With the acquisition of Axiom in Australia and New Zealand, we expanded our market coverage and strengthened our technical expertise. We now operate in 46 innovation centers globally and plan to open some new ones too. Despite softer markets, in the Q2, we continue to grow and reach an EBIT of CHF 44,100,000, which is above last year's level at constant exchange rate. Here, our asset light and resilient business model as well as continued business development in digital marketing activities provide future growth opportunities. The business unit technology looks back on an exceptionally challenging first half of twenty twenty, during which many customers had to temporarily shut down production facilities and put investments on hold. This not only affected the project, but also our business service business. Consequently, net sales at constant exchange rates declined 12.4%, and EBIT came in at $2,100,000 only. The business unit has initiated cost savings in the mid single digit million range, mainly becoming effective in the second half of twenty twenty. To put the business unit in a better position for the future, we intensified our business development activities with a focus on more resilient business areas, our after sales services and digital transformation. With that now, I would like to hand over to Bernhard in Singapore, who will talk you through our financial results for the first half of twenty twenty. Bernard, please. Thank you, Stefan. Dear ladies and gentlemen, I would also like to welcome you, this time from Singapore. I'm pleased to further explain TKSH's 20 half year results. Let me start with an overview of our key figures. Despite COVID-nineteen, our net sales at constant exchange rates almost matched last year's level. As you can see on these pie charts, our efforts to diversify our business are on track. The category Rest of Asia Pacific accounts for more than 20% of net sales for the first time. This category includes emerging markets like Vietnam, Myanmar, Cambodia, Indonesia but also Australia and New Zealand. Our EBIT in the first half of twenty twenty increased by 4.7% at constant exchange rates. Profit after tax of CHF 60,200,000 dollars was 9.1% below last year at constant exchange rates, while the free cash flow increased by 59.2 percent to $51,100,000 Our RONOG of 15.2% was slightly below last year's level. Now let's have a look at the development of our net sales. During the first half year, our organic growth rate was only down by 4% in unprecedented times. Since 2019, we consolidate the acquisitions of Orec Pacific, SPC, DOLS and CDT. In 2020, we included Crossmark and Axiom. Combined, these 6 acquisitions added 2.8% to our sales growth. Exchange rate effects had a negative 3.8% impact. In sum, net sales of CHF 5,300,000,000 declined by 5% compared to last year. Let's now have a look at the EBIT in more detail. The EBIT in the first half of twenty nineteen was $110,700,000 Adding back the onetime restructuring cost of $13,300,000 in consumer goods, the adjusted EBIT was 124,000,000 dollars The organic development was minus 10.4 percent and acquisitions added 4,800,000 or 3.9 percent. Currency effects reduced EBIT by 3.7%. In sum and at constant exchange rates, EBIT of $111,300,000 was only down by a single digit of 6.5%. During the first half of twenty twenty, we increased our efforts to control cost and safeguard our assets. Across markets and business units, we reduced discretionary spending. Furthermore, we put in place a general hiring freeze, except for critical positions and new business. I'm especially pleased that in these unprecedented times, we control our currency risk and remain firm on payments and inventory levels. We also optimize short term investments. Therefore, we expect only $30,000,000 to $40,000,000 of CapEx this year, down from the initial $50,000,000 planned. At the same time, we are preparing for the future. We are investing in our distribution and innovation centers, drive digitization across our organization and invest in our people. Let me now highlight the key aspects of our balance sheet and cash flow statement. In the course of the last few years, we have diligently implemented our asset light strategy with typically these offices and distribution centers as well as outsource transportation to 3rd parties. Dear participants, unfortunately, there seems to be a problem with the line, so we can't connect to our CFO, Bernard from Singapore. So I will chip in and just continue with his speech, and then I hope that Bernard is back for the Q and A session. So Bernard just mentioned that he would like to mention the key highlights of the balance sheet and the cash flow statement. In the course of the last few years, we have diligently implemented our asset light strategy as we typically lease offices and distribution centers and outsource transport to third parties. The capital intensity measured as capital expenditures as a percentage of our net sales is very low. In the last past 6 months, it was even below the 0.4% average of recent years. Our cash generation was healthy in the first half of twenty twenty. We achieved a free cash flow of €51,100,000 and was at 59.2 percent more than in 2019. Let us now move on to the balance sheet on the next slide. As you can see, the balance sheet remains strong, and we recorded 3 main changes in the first half of twenty twenty. First, we continued with our progressive dividend policy and distributed a higher ordinary dividend in total of CHF 123.6 million. Secondly, we closed 2 deals in the first half. We paid CHF 53,000,000 in total for our acquisitions of Crossmark and Akceo. And third, we realized a profit after tax of about CHF 60,200,000. In sum, our balance sheet declined slightly by 5.8 percent to CHF 5,000,000,000. Despite our accelerated acquisition strategy, we still carry very little goodwill on our balance sheet. Goodwill currently only accounts for 14.1% of our total equity. We continue with a solid equity ratio of 34.3 percent and a good net cash position of 195.8 1,000,000 On the next slide, a short overview of our 6 acquisitions that we have closed in the last 18 months. In total, we have acquired €460,000,000 of annualized sales. Of these, we recorded around €210,000,000 in 2019, some €160,000,000 in the first half of this year, and the rest will primarily come in the second half. All acquisitions done last year are already fully integrated into our structures running on SAP and are performing according to plan. The integration of CrossMark is also done and we expect Akceo to be on our platform in the next months to come. Typically, we acquired profitable business, which are on average margin and earnings accretive and at the same time they are fulfilling our return I. E. Roanoke requirements. With a few exceptions like Ulrich, we typically pay a single digit EBIT multiple for businesses and see further leverage potential on our balance sheet. To sum it up, we delivered solid first half results with a good cash flow and continue with our strong balance sheet. And with that, I would like to hand back to Stefan. Thank you very much, Till. Due to Ann Bernhardt, at least in the beginning, due to the limited visibility about the duration and impact of COVID-nineteen, we refrain from providing a financial outlook for 2020. We have a robust and asset light business model, a good share of daily consumption items and a strong balance sheet, which provide resilience and offer growth opportunities. Our relevance as a reliable distribution partner has increased in recent months. This is also evidenced by a study from AC Nielsen about the growth drivers in FMCG in Southeast Asia, for example. They found that distribution is a top driver for offline growth even before new product launches. Looking into the second half of this year, we will continue with our strategic initiatives while controlling costs. We have recently seen the first signs of improvement, albeit at a lower level. For example, Thai consumer sentiment improved very slightly in June. The growth drivers for our business are intact. And beyond short term market uncertainties, we remain optimistic about our long term potential in Asia. Before we come to the Q and A session, please let me remind you of our Capital Market Day, which will take place on September 21. You will receive the invitation and agenda in August. The purpose of this event is to update you on our strategic initiatives in more detail and our way forward as well as to present to you our business unit heads. As stated in the past, do not expect any strategy revolution, rather an ongoing evolution and fine tuning of our strategic priorities. With that, I conclude my speech, and we are now happy to take your questions, including Bernard or excluding Bernard? Including Bernard. Including Bernard. He is back on the line from Singapore. Yes. I'm very sorry for the technical glitch there. Okay. Operator, can we have the first question, please? Okay. The first question is John Cox from Kepler. Yes. Good morning, guys. Good afternoon, Bernard. Basically, just on your you're saying things are slowly recovering. Can we just get a rough idea of what you're seeing in the last couple of weeks in terms of what's happening with the various divisions in just give us a bit more granularity to what you're seeing. You're still running down 4% organically overall or whatever you may have there? 2nd question, just on Healthcare. I'm just you mentioned about the impact on procedures and tourism and how Thailand is sort of like a big tourist center for medical practices. I I wanted to give us a rough idea of how much of health care that business is because I'm guessing interregional travel isn't going to start anytime soon. So that could be impacted for longer than anticipated. 3rd question, just on the Performance Materials. Basically, that looks a decent organic growth there. Margin under pressure, I guess, on the mix. But given you've pretty much consolidated that, is that how we should think about the margin for the second half of the year? Or will the mix still be slightly negative? And then just the last question on CapEx. What are your expectations for CapEx for the year as a whole? Thanks very much. Okay. Thank you very much, Sean. And maybe I start. Regarding the slight improvements we have seen in June, let me try to summarize as follow. If we look into the businesses in the production sector, we currently see levels back to 75% to 85% in terms of capacity. China is maybe a little bit higher, back to 90%. If we look into the health care sector, as I mentioned before, the utilization of hospitals and a few of them are even publicly listed, was down to 50%. Most recently, what we have seen in Vietnam, which was probably best case, is up to 90%. Thailand right now, occupation of surgery rooms, etcetera, is back somewhere between 80% 90%. The retail outlets, most of them are all opened. Sales have been down up to 50%. Right now, the at least in the stores we operate and we manage, we are back somewhere between 60% to 70% in terms of sales. Overall, across the region, retail revenues were down year to date 10% to 15%. The chemical market or chemical distribution market is holding up quite well, as you also have seen in our numbers and if it cooled very slightly more towards the end of H1. But we are very optimistic also there in regards to H2, especially since we only do somewhere between 25% 30% in industrial and all the rest is life science, which is holding up quite well. Food is cooling food ingredients is cooling very slightly. In terms to the margin, we expect that best case, we can hold the margin, maybe it will be slightly declining in the second half of the year because we also have a few higher costs we need to carry. In terms of CapEx, obviously, right now, we are holding the cash a little bit closer to the chest. So we expect a slightly lower CapEx than what we normally see during the years. But we do want to invest into our long term initiatives to really position ourselves or keep position ourselves for the long term growth opportunity. So I would expect something in the ballpark between €30,000,000 €40,000,000 Thanks. Sorry, just on the margin, you were talking about Performance Materials there? Or are you talking about the group as a whole? No. I think my understanding was your question was targeting Performance Materials only, and that was my answer. Okay. Thanks. Right? Okay. Thank you. Next question. Operator, John. Yes. Next question. The second question comes from Andy Garbrier from CS. I open the line. Hi. It's Steve Grobler from Credit Suisse. Hello, everybody. Just a couple from me, if I may. Could you talk a bit about the competitive environment and particularly whether you're seeing signs of distress amongst some of your competitors and the opportunities that may provide? And then secondly, in terms of cost reductions through the second half and I guess into next year as well, Where do you sit at a group level? You've given some more specific guidance around technology, but just kind of across the broader business units and head office costs would be great. Thank you. Okay. With pleasure, Andy. I mean, in terms of the competitive environment, yes, you're right. There are obviously, especially a few of the smaller competitors who are not being able to deliver seamlessly through the crisis. And we even have some requests from clients if we can onboard them more or less within days because their distribution partner is not providing services, only very limited services in the crisis or since the crisis. This is also an opportunity here and there for us maybe on the M and A side. The larger competitors in Healthcare and in Performance Materials, I think they all were able to operate more or less almost seamless as we did. So I don't see a major change there. In terms of the cost reduction, I mean, obviously, you're right in the beginning of the crisis, as Bernhard was elaborating already on, we stopped all nonessential hiring. Obviously, our travel costs are down significantly. Even so, they are now slightly coming back because twothree of our people are salespeople, and those salespeople are out in the markets again visiting customers and selling the products of our clients. We are also holding back A and P levels because in the current environment, it does not really make sense to spend a lot of advertisement and promotion to try to trigger sales, which are not really happening. Also in the head office and all support functions, we try to reduce costs and costs are declining as we sit here. So we expect a higher cost saving rate in H2 than what we have seen in H1. Okay. Thank you very much. Thanks, Andy. Thank you. Next question, please. The first question comes from Marco Strytmater from ZK Sabe from Zurich. I open the line. Thank you. Well, hello there, gentlemen. Just one question regarding the performance in the consumer goods business. As you point out now, very clearly, there are 2 parts in the business. So if I expect a strong EBIT increase in the FMTG subdivision, I can only guess what the losses must have been on the Luxury Goods side. So would you put a number there? Or will you comment on my number if I say my best guess for the loss in the Luxury Goods division is somewhere between CHF 10,000,000 CHF 20,000,000? Thank you very much for your question, Marco. So in FMCG, what I can share with you, the increase in net profit is double digit, and we are very pleased by the progress we are making there. In terms of your statement about the losses or the EBIT development in Luxury and Retail, I mean, we don't disclose those details. But what I can share with you is that the revenue was going down somewhere depending on the different segments. Writing equipment and leathers is smart. So the sales decline was somewhere between 30% 50%. Okay. Great. Thank you. Thanks, Marco. There is another question from Bose Folker, Baader Bank Germany. Hello, gentlemen. Volker Bosse from Baader Helvea. Thanks for taking my question. First question, yes, it's regarding the lockdown by country. Thanks for the overview on Page 2, by month and country. So in which countries the business is still locked down? I don't know if there are any. So an update on that would be helpful. A second question, I'm overall worried about the situation in Hong Kong, given the political changes there, of course. How do you look at Hong Kong? How do you see the impact on your current business and the outlook on your local business? How do you see the momentum evolving given the political uncertainties? And third question would be on the consumables segment. Is it fair to assume that Luxury stands for around 20% of segment sales? So the split FLCG and Luxury 20%, if that is a good guess? And finally, on your guidance, I mean, you gave no concrete guidance in regards to sales and earnings in absolute terms. So my question is just, you could say, look, we have 6 months in the books and we see an underlying improving trend and you could say, look, under the condition that no second wave will occur. Question is, wouldn't it be possible to give a kind of guidance range or so at least to have the flight level for the second half, at least in general, you see what I mean? Thanks. Yes. Thank you very much, Volker. In terms of the lockdown, I mean, at this point of time, there is no general lockdown across a whole country in our region, but there are obviously many limitations. So for example, in Singapore, in general, offices are still closed. Yapan just increased the emergency level again this morning. Thailand increased the limitations on travel again during this week. So it's really hard to predict what is coming. But there is no general lockdown in any of our countries as we speak. But you mentioned already a second wave in your last question. So I think we need to be prepared depending on the infection, local or regional infection rates we see that there will be pockets of restrictions coming up. Regarding Hong Kong, Hong Kong is now a volatile market since years. Almost last year already, GDP growth was negative with minus 1.5%. I mean, currently, it doesn't look that the market is going to stabilize or that there are strong positive impacts on the economic environment. And we do expect that the GDP rate is going to drop to 6% -6% or -7% during this year, which will be obviously not very helpful. So we focus on sustaining our operations despite all those local challenges there and try to increase market share for our customers as well as our clients, but clearly a large market with some strong headwinds. Regarding the percentages of Luxury and Lifestyle in CG in total, 20% is a good guess, but it's a little bit too high. So the share is approximately 10% of sales. In terms of the guidance, yes, you're right. I think we have seen in H1 that despite the headwinds, we were able to deliver solid results due to the resilience of our business model. But please do understand that in this environment, it's really hard to predict the length, the depth and the economic impact of COVID-nineteen in H2. And that was the reason why we stayed away from giving a guidance. And the same statement is valid also for a guidance in terms of range. I mean, all what we can say is that we see an increase, as mentioned before, in terms of revenue streams, but on a lower level. And if you put that statement in perspective with the half year results of last year, I think it gives you at least a good idea. We will do whatever we can. We have a very strong business development pipeline. The trends towards outsourcing is even being accelerated in this crisis, and we feel that we will leave this crisis stronger than we went into it. Thank you. May I come up with a follow-up question regarding your e commerce? Is it allowed? Yes, please. Yes. And regarding e commerce, you mentioned double digit growth, which is impressive figure. Of course, could you remind us what the absolute amount of sales and to get an idea of the size? And what is the nature of the e commerce business? It's a B2B business, right? You're selling the assortment to the retailers via e commerce? And do you need any different or expansion of your logistical requirements given the strong growth in that field? So do you feel well prepared logistical wise to fulfill the increasing demand? So we offer an omnichannel services to our clients in e commerce. That means from running their dotcom in different countries, making sure that their products are marketed across different e market retailers in the region as well as B2C. We cater all of their needs. But you are right, the majority of the business in e commerce is B2C B2B, sorry. B2C is only a very small part of it. And in the case of B2C, we don't do the fulfillment. So we use distribution partners to deliver product to the homes of consumers. In terms of the size, we have now 800 brands online, have almost 150 people across the region in e commerce and are serving e commerce services across 9 countries. Overall, it's approximately right now 1.5 percent of group revenue, but it's growing significantly. On top of group revenues, yes. And perhaps it's split, I think, in consumer goods, it's a larger portion. So well, am I wrong? Yes. Consumer goods is a larger portion, but also in health care, especially on over the counter products, we see a very nice development. And we are now entering The consumer goods is the larger part. The consumer goods is the larger part, but also in health care, over the counter products are growing nicely in e commerce. And we are right now just in the process of setting up spare parts for technology in e commerce or some standard products even in the chemical distribution for online sales. But even in consumer goods, it's below 5%, right, of segment sales? In Consumer Goods, it's a little bit higher than the 1.5%. Okay. Thank you, Steve. Maybe comment from my side to that. This is more or less the market here in the region. E commerce is very big in China, but not in this region. Typically, we look at 2% roughly, and the majority of the products are actually apparel and technology products I mean, computers and printers and things. So the e commerce environment is very different here compared to, that's China and America. The next question comes from Oberhuber Allan, MainFirst. Good morning, Stefan, Bernhard and team. I have three questions from my side. The first is regarding the cash flow. Obviously, this year you will have lower CapEx, as you said. Could you tell us where you do the savings? And then regarding CapEx on a normalized level, could we see CapEx going up again next year to the €50,000,000 And then on working capital, what could we see this year on working capital, I. E, where do you expect the cash flow to be? Could it be similar to the year before as you have shown us the free cash flow in H1? The second question is regarding other expenses. These declined by €90,000,000 Could you let us know what this was? And how could be the development of this position in H2? And the last question is, again, coming back to group sales organic growth. If you do a pecking order of the 4 divisions for the second half, where could we expect the highest growth? Will that be again in the Performance Materials? And what will be the lowest growth? Will that be in technology? Thank you. Bernard, would you like to take this question? I can start with the first question was about CapEx. What we have done, we are continuing with the bigger projects. We are looking into a major expansion in Taiwan, which will not come online this year, but we do the CapEx there. Where we are slowing down is more in areas like office moves and office renovations, simply because after we have to see how the situation looks like after COVID. We may not need all that office space anymore. That is still unclear. So that's why we, for the time being, put everything on hold in that area. We keep continue to invest, as I said, in distribution centers. We also will work continue on investment in Innovation Labs in PM. Would we see a rebound next year? I mean, I say to my guidance, usually, I expect EUR 50,000,000 plusminus EUR 10,000,000, so I'm not going away from that for next year. On the working capital side, you see that the movements there are pretty much in line with the sales development when it comes to receivables and payables. On the inventory side, we have a slight increase in the first half. That is mainly driven by the fact that Hari Raya, which is a very big holiday here and Songkran, which is a very big holiday in Thailand, the fact that it did not happen, and we ordered for that festive season. So we will deplete the stocks now over the next few months. So we should see a little bit improvement there. Receivables and payables should stay roughly where we are right now. I think the good news is that receivable days are not going up. So we are able to collect our sales, which is not given in a crisis like that normally. So the whole working the working capital management is still very solid. On the other expenses, I think we explained we put in a lot of cost cutting measures. Obviously, travel expenses came down quite a bit. We have A and P reductions. Those will probably continue in the second half. Travel expenses should increase slightly again. By no means, will we come back to levels we had last year simply because international travels will not continue or will be on a very low level. Whereas in the countries, our salespeople, as Stephan said, they are now able to travel again, and that increase we will have. So you will see a lower level than the year before, but not probably as much as in the first half. On organic growth, Stefan, you want to take that or will I take that? Yes. No, I can take this over. So Alan, in the second half of the year, I mean, it's really hard to predict how COVID and the impact of COVID is playing out in H2. I mean, in general, even now in H1, we had some very good growth across most of the business units in Indochina. And I actually or we actually don't expect that this is slowing down significantly. In Healthcare, you will have 2 effects. I mean, obviously, the hospitals are coming back in terms of utilization, as mentioned before. But all the products, which are tourist related over the counter, I don't foresee that the travel market is going to open up significantly. I think we will see some very good continue to see some very good growth, especially in e commerce and in consumer goods. In general, we are making some very good progress. But please, as Bernard mentioned, last year, Chinese New Year or this year, Chinese New Year was very early. So we had seen that revenue already in December. In 2021, Chinese New Year will be 3 point 5 weeks later. So most of that revenue is going to move into 2021. But looking at the BD pipeline overall, we are still very optimistic that we can reconfirm our resilience here overall in this market environment. And regarding excuse me, a follow-up question on technology and regarding technology, could you see an improvement because it's a lot of project business. So therefore, you should have good visibility for the 2nd part in technology. Yes. Technology is a very challenging environment. As mentioned before, I mean, most of the factories are open again, but companies are very resistant in terms of investments in this current environment. So we need to expect that a few of those projects will again be delayed into next year or even being canceled. I mean, we are shifting the portfolio now a little bit more and stronger into the life science and then hygiene sector, and we have the cost savings coming in, in H2. So we do expect a better half, significantly better half of H2 than H1. But as you know, the technology business overall is always H2 heavy. Thank you very much. Thanks, Alan. Thank you. Next question, please. The next question is from Rajeev Kumar, HSBC. Hi, good morning. Thanks for taking my question. Just when you look at the shape of the recovery, could you give us some color on the type of conversations you're having with your suppliers? And how much of that is feeding into the Investor Day planning for September? That would be my first one. And second one, in the Performance Materials business, are there in terms of regions there, are there any regional performance differences? Appreciate that you've given good color on Life Sciences and Specialty Chemicals. The industrial part, just in terms of regions, are there any discernible differences? Okay. Thank you very much. In terms of conversations with clients and the market outlook. I mean, I can only repeat what I was saying before. I think we have to look into the GDP environment here. I mean, currently, if you compare our revenues to the GDP development as well as retail sales, We do better than the market. So that means we are gaining market share for customers, clients and ourselves. And this is accelerating the trend towards outsourcing. So we have some very positive discussions with some especially with the large multinational clients, which are accelerating the trend towards outsourcing. And if you track our announcements on the web page in terms of new clients we onboard, I think you will see many of the large multinational names. In terms of Performance Materials, we are seeing some very good developments in Japan. Actually, the Japanese market is a very important market for our Performance Materials business in the life science sector, and this market did hold up well in H1. And for H2, so far, there is no indication that, that market is significantly going to decline at this point of time. We also see some good development in China in the most recent months. China left the COVID lockdown earliest, and production facilities were turned on again. And so there, even in May, the market started to pick up already. And as I mentioned before, right now, we guess it's working at approximately 90% capacity. So we are very confident about our strong market position in PM and look forward to good results in H2 as well. Thank you very much. Next question. Thank you, Rajesh. The next question from Fokker Pascall, Vontobel. Hi. Good morning from my side. Three questions, if I may, starting. First one on Thailand. So obviously, you already mentioned it's tough to assess the COVID-nineteen impact on H2 revenues. But as though for H1, like you're right, an organic growth for Thailand of 9.3%. Would you agree on this number then looking at the GDP forecast of minus 6.5% and the drop in consumer confidence. So do you think it's fair to assume that you will see a meaningful slowdown in the second half in Thailand? And then the second question related to the loss on sale of subsidiary. There was this €5,500,000 warranty claim related to China healthcare disposal from 2018. Can you please explain this? And is there a risk for more? And last question on M and A. So obviously, you showed your impressive M and A takeovers over the past 2 years. However, in the recent months, obviously, it has become more challenging. Can you give us an update on your pipeline and how you perceive the M and A market during COVID-nineteen? Thank you. Okay. Yes. Thank you, Pascal. Bernard, maybe I'll start with 13, and then you can finish with question 2. I think the numbers you were referring to in Thailand, they were very reasonable and we can confirm this here. Yes, Thailand is a challenge and will remain a challenge in the second half of the year. On the other hand, we have some very good BD activity in Thailand. We are gaining the confidence of some large multinational clients, especially in FMCG and also on the PM side. And as mentioned before, I mean, the hospitals should come back as well in H2, at least for domestic surgeries because I think the medical tourism will also not be allowed to enter the country. So we do expect that, again, we can beat those benchmarks here in H2 as we did in H1. But the question is what is COVID going to do us. In terms of the M and A pipeline, yes, Pascal, we have a good pipeline. But obviously, this environment is not making it easier to negotiate deals between 2 parties because most of the targets we talk to, they see a significant drop a stronger drop in numbers than what we see here in our financial H1 results. And that means that from our side, we need to work with longer earn out than we normally probably do. And from a seller perspective, he would love to just ignore the COVID impact as a brief one off, which is going to absolutely disappear within minutes. And we both know that this is not going to happen. So that makes it a little bit challenging around the negotiation table. We have a few in the pipeline, and I do stay optimistic that we will be able to share some good news in the second half of the year as well, but can't promise anything. There are a few deals where the owners are clearly saying, look, I want to keep control, I want to keep ownership during this crisis. Let me manage this through it, and then we come back to the negotiation table in 2020 1 or even later. Okay. Then I give you the answer on the warranty claim. So in any M and A transactions, give, of course, a series or if it's the other way around, we request a series of reps and warranties. In this case, the buyer challenged some of those in the Q1, and we negotiated and came to an agreement of 5 $500,000 Your question was, is this the final payment? Yes, absolutely. That window closed end of March. Now there is it's not possible to put any more claims on the reps and warranties forward. Thank you, Pascal. Are there any further questions? No. There are no more questions in this conference call. Thank you. Then a very big thank you from our side. Apologies for the disturbance on the line. And we very much look forward speaking to you at our Capital Markets Day on the 21st September. And if there are any follow-up questions you have, the Investor Relations team is around for you and happy to take them up.