Earnings Call: H2 2018

Feb 7, 2019

Welcome to the DKSH Presentation Full Year Results 2018 Conference Call and My Webcast. I'm Andre, 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 presentation will be followed by a Q and A session. The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Till Leisner, Head of Investor and Media Relations. Please go ahead, sir. Thank you, Andrea, and good afternoon, everybody. It's a pleasure to welcome you to the 2018 results conference call of DKSH. My name is Till. I'm the Head of Investor Relations. And I'm very happy to have with me Bernard Schmidt, our CFO on the right hand side and Stefan Butz, our CEO. Before we start, please all have a look at the disclaimer of the presentation regarding forward looking statements. And for those who do not have the presentation in front of them, you will find them on the webpage under Investor Relations at www.dksh.com. Let me give you a quick overview of what you can expect today. First, Stefan will present to you the highlights of 2018, then Bernhard will walk you through the financials and the business units. And at the end, Stefan will close with some final remarks. Before we go to the Q and A session, I kindly ask you all to use tell us your name and the company you're working for, and we will then start with questions in the room. With that, I would like to hand over to Stefan. Thank you very much. Good morning, everyone. I'm very pleased to welcome you to the presentation of DKSH full year results 2018. I was told that 7 companies listed on the 6th Swiss Exchange are reporting their results today. Therefore, I much appreciate that you have taken the time to join us here at the Park Hyatt or on the phone. Please let me get straight to the point with the highlights of the past year. Group wide, we increased net sales by 3.1 percent to CHF 11,300,000,000. Organic growth was 3.6%. In countries like Vietnam, Laos, Cambodia and Myanmar, we reported strong growth. In Thailand too, DKSH reported a slight net sales increase in 2018. Profit after tax increased by 22% to CHF260,300,000 Earnings per share of CHF3.92 were 23% higher. The divestment of the Healthcare business in China resulted in a one time gain on the sale of CHF70 CHF75.2 million, which is included in the profit after tax. Adjusted for this gain in China and by one time effects in the business unit Consumer Goods and Healthcare of €27,700,000 profit after tax was slightly below last year's level. Let me move to the EBIT. At CHF263,600,000, it was 11% below last year. Excluding the one time effects of CHF20,700,000 the EBIT decline would be only 4.3%. Bernard Schmidt and I will give you more details on the cause of the decline in earnings and these one time effects later on. In line with our long term progressive and shareholder friendly dividend policy, the Board of Directors will propose a higher ordinary dividend of CHF 1.85 per share. That's CHF 0.20 or 12.1 percent more than last year, which currently corresponds to a return around 2.5%. That leads me to the outlook. From today's perspective, we expect a higher operating profit for the DKSH group in 2019, but more on this at the end of my presentation. Ladies and gentlemen, 2018 was an intense year with some challenges, but above all with much progress. Three aspects in particular were central to DKSH in 2018. First, business units Healthcare, Performance Materials and Technology performed well on sales and EBIT. 2nd, we had a very challenging on sales and EBIT. 2nd, we had a very challenging year in Business Unit Consumer Goods. The entire consumer goods industry is undergoing change, which also affected our business. We still achieved growth in 2018. And for the first time in years, we recorded higher sales in this business unit. We achieved this growth through an optimized route to market approach and through increased business development activities, despite operating in a rather stagnant market environment. In addition, 2018 was characterized by efficiency. Finally, the 3rd aspect central to DKSH in 2018 was we spent a lot of time focusing further on our core competencies at DKSH. On the slide, you can see once again the figures that we achieved good results last year in the business unit Healthcare, Performance Materials and Technology. All three units, we have increased both net sales and operating profit. In total, based on reported figures, we grew 2% to 3%. On a like for like basis, without distorting one off effects, we grew from 5% to 6%. We extended our existing client relationships, while also gaining new clients. For example, we expanded our business with multinationals like GSK from the U. K. Otsuka from Japan Healthcare or Novo Nordisk in Performance Materials. In addition, we onboarded startups like Sucradia, an innovator in artificial intelligence for breast cancer screening in Hong Kong from Hong Kong, sorry. I would also like to highlight a future project that we have confirmed in the business unit performance materials with the Australian commodity company TNG. We expect to distribute up to 150,000 tonnes of their titanium oxide titanium oxide per year starting in 2023. Titanium oxide is the most commonly used white pigment, for example, in coatings and plastics. This deal, if realized, will have a very positive effect on our business. We have weighted heavily on that last year, however, was the development of the business unit Consumer Goods. Thanks to intense business development activities and the expanded distribution network, we increased net sales for the first time in years. The profit, however, was much lower or disappointing. Firstly, because of accelerated investments secondly, due to weaker operating performance and thirdly, due to the restructuring initiated, which led to increased charges in 2018. Roughly speaking, these three effects each influence the result by a third. The challenging market environment was not helpful either. We made changes on different leadership positions. The search for a new Head of Business Unit Consumer Goods is in full swing. The restructuring forms the foundation for improved results that we anticipate in full year 2019. We will continue our investments this year, while simultaneously restructuring the business unit consumer goods in selected areas. The combination of these measures should enable us to maintain and expand our leading position within a demanding market environment in a targeted manner. In terms of investments, I would like to highlight our new transportation management system. Last year, we have successfully launched it in Thailand, Singapore, Hong Kong and Malaysia. The aim of this investment is to optimize transport routes through better and more interactive planning, tying up fewer resources. We are confident that this system will be almost fully implemented by the end of 2019 with efficiencies already visible. We believe we can achieve savings up to 10% depending on the different markets. Last year, we expanded cost benefit, we have somewhat reduced our ambitions. In terms of business development, we are very well positioned to both target large client needs in their outsourcing efforts, while at the same time being very attractive for small and medium enterprises. In Indonesia last year, we laid the foundation for further growth. You will remember that we took over a local distributor, Vijaksana, which we are bringing up to our service levels. Vijaksana's distribution center in Jakarta is now completely meets both decays state standards and for consumer goods and for pharmaceutical distribution. We were able to welcome our 1st major clients in Indonesia such as Unilever and further expanded business with existing clients like Coca Cola. Our clients also appreciate our investment efforts in the digital sector. Today, we have more than 600 brands in our e commerce portfolio already. For instance, Lego, Levi's in Thailand, Abbott Diabetes product in Malaysia or Lindt Chocolate in Hong Kong. What will occupy us even more in the digital space this year is big data. Our SAP platform endpoint of sales information on excellent basis for further investments in data analytics, a hot topic for clients and our customers. We have started an in-depth analysis in some pilot markets in Asia and have drawn up a road map. This will now be implemented consistently. We will further focus this year on the restructuring we initiated on building a leaner organization. Internally, we call it acceleration program. In terms of our portfolio, we will further streamline our client and customer relationships and increase the share of growing and synergetic brands. Going forward, we will put more emphasis on the fast growing and higher margin business on both the client and customer side. We call this winning with winners. In addition, not only do we want to reach more customers through the extended distribution network, but also increase the revenue per customer. Our efforts in the business unit consumer goods also include the cost structure and the optimization and digitalization of individual processes. Obviously, there will be further changes and adjustments in the upcoming months as our organization needs to become more efficient in this area. In concrete terms, we have to make better use of our A and P budgets, streamline our inventory levels to minimize rental spaces and transportation costs. This will result in onetime costs in the first half of the year, but we expect earnings to improve in 2019 for Consumer Goods. In 2018, we further focused DKSH business. We acquired future oriented high margin companies and separated ourselves from niche areas. With Davis Food Beverages in New Zealand, we took over a small but very profitable business in June 2018. Over the years, DKSH has grown to become a major FMCG distributor in New Zealand with well known clients such as Lindt, Red Bull or 3 ms in its portfolio. With the intended acquisition of AURIC Pacific that we announced shortly before Christmas, we will expand in the consumer goods sector in Singapore and Malaysia. Orec, with over 4 20 employees, used to be one of our largest competitor on the Malayan Peninsula. The company has a product portfolio of over 150 brands and a strong foothold in the foodservice business, supplying hotels, restaurants and cafes. With annual sales of over CHF 185,000,000 and an operating result of around CHF 14,000,000 Orec is highly profitable. Therefore, we expect the acquisition to be immediately earnings accretive once the transaction is completed. We anticipate the transaction will be closed at the beginning of the Q2 in 2019 as it is still subject to certain conditions and regulatory approvals. All in all, we added around CHF190 1,000,000 of high margin sales to deca SH last year. This will further strengthen our market position in Asia. Let's move on to the divestments from last year. We deconsolidated our Healthcare business in China in November because we worked in a niche market there and there were some regulatory changes. An extended market coverage in China would have required significant scale. The new regulations make the business overall less attractive. We have decided that these funds can be used more effectively elsewhere. Our business spans many markets in a highly diverse portfolio. This is why we need to assess our activities on a regular basis and increasingly focus on the business areas in which we can achieve a leading position. In addition, we further advanced optimization in the luxury goods sector. We are in particular pleased that Kalo, the watch case manufacturer we sold in the second half of last year remain in Swiss hands. We managed to further reduce losses in the watch business in 2018 and expect even to be slightly profitable in the watch business in 2019. With the 2 divestures amounting to more than CHF 120,000,000, we were able to realize the value created over the years. In addition, we have made some portfolio adjustments by refocusing our Healthcare business in Macau and South Korea and selectively focused our technology business such as in Vietnam. We will continue to work to look for attractive acquisition opportunities in 2019 and further focus the company. With that, I would like to hand over to Bernhard Schmidt, our CFO. Thank you, Stefan. Dear ladies and gentlemen, I also would like to welcome you for the presentation of the full year results today. Last year, we grew net sales by 3.1 percent to CHF11.3 million. Exchange rates had a positive impact of 2% and acquisitions added 0.5 percentage point. As already communicated, with our half year results, we have adjusted our service offering with a few clients in China. As a result, we recorded revenues for our services instead of revenues for our products. In addition, we sold the Healthcare business in China and deconsolidated the business from November onwards. In sum, these effects reduced net sales in 2018 by 3%. At constant currencies and excluding effects from acquisitions in China, organic growth was 3.6% in 2018. Operating profit of the group amounted to CHF263,600,000. Business Units Healthcare, Performance Materials and Technology reported an improved operating profit compared to the last year. The EBIT decline in business unit consumer goods, however, could not be compensated. The EBIT of CHF263,600,000 includes onetime effects of CHF20.7 million in total. On a like for like basis, without these onetime effects, EBIT of CAD284.3 million was CAD 4.3 million below last year. Profit after tax grew by 22 percent to CHF260.3 million. This includes the gain of £75,200,000 from the divestment of the Healthcare business in China. On a like for like basis, adjusted for these gains and onetime effects in Consumer Goods and Healthcare, profit after tax of CHF204,800,000 was around last year's level. Free cash flow defined as the operating cash flow minus capital expenditures increased to CHF 140.6 million. In total, our net cash position was CHF473,800,000 at the end of the year. We intend to pay out a dividend of CHF1.85 per share. This will result in a cash outflow of CHF 120,300,000 We will further pay around CHF 160,000,000 for the acquisition of Orec Orec Pacific's distribution business in Singapore and Malaysia once the transaction has successfully closed. Let me now give you some more details about the performance of our business units. 1st, consumer goods. After several years, business unit consumer goods returned to sales growth in 2018. Net sales increased by 5.9 percent to €3,900,000,000 Especially the fast growing region of Vietnam, Cambodia, Laos and Myanmar achieved positive results. In Thailand, the business unit also reported a slight increase. Reported EBIT of $62,900,000 was 40.6% below last year's level. On the one hand, the operating performance was clearly weaker, but on the other hand, the result was impacted by some special items. Last year's results included a gain on sale of 2 distribution centers of £6,800,000 And as consumer good industry is currently changing, we initiated investments in the first half of twenty eighteen and reinforced them in the second half of the year. As Stefan has already explained, we have both qualitatively and quantitatively strengthened our key account management fast moving consumer goods. Furthermore, we are in the process of rolling out a new transport management system and are expanding our distribution network, especially into the more rural areas. We also invested in the market buildup in Indonesia and in growth initiatives in e commerce. These measures have impacted our operating profit. In sum, these investments will strengthen and we have therefore initiated restructuring measures. Initial expenses reduced the result in 2018 with CHF12.6 million. We will continue restructuring the business unit in 2019. Therefore, we expect further P and L charges in the first half of 2019. The restructuring, however, forms the basis for an improved result in 2019 when compared to 20 18. In the Luxury Goods business, we have further reduced operating loss in 2018. We continued our restructuring and successfully sold the watch manufacturer, Kolo sorry, watch case manufacturer, Kolo. Last, let me move to Business Unit Healthcare. Sales increased by 0.8 percent to CHF6.1 billion. DKKH has pursued a new strategy in the Chinese healthcare market for many years. Scale matters in this business to further take advantage of the potential in the business. With Warburg PINKHUS, we have found a partner in 2018 who is able to create the needed scale. Therefore, we deconsolidated our Healthcare business in China in November. Additionally, we have adjusted our service portfolio with a few clients in China. As a result, we recorded revenues for our services instead of revenues for products sold. This is in relation to the 2 invoice policy in China for those who heard about that. Both effects reduced the growth rate in Business Unit Healthcare considerably. Adjusted for these effects, the organic growth was 4%. DKKH grew sales in all major markets except for China. The EBIT increased by 2.7 percent to €150,500,000 compared to last year. Measures to refocus the business in South Korea and Macau resulted in one time charges. In South Korea, we outsourced logistic operations and specialized more in sales and marketing. In Hong Kong and Macau, we have further integrated the sales organizations. In combination with the deconsolidation of the Healthcare business in China, the business unit recorded onetime effects of €8,100,000 Without these effects, EBIT grew significantly by 8.3%. The deconsolidation of the Healthcare business in China will impact sales and results in 2019. Let me continue with Business Unit Performance Materials. We achieved net sales of CHF 960,400,000 an increase of 7.4% compared to last year. DKSH recorded growth in all major markets. We expanded contracts with international clients and gained new business. This makes us confident for further growth in the business unit this year. EBIT of CHF75.1 million was 2.6 percent above previous year. Due to higher demand for our services, we opened and expanded innovation and distribution centers. For example, in Vietnam and Thailand, we now operate 29 such innovation centers. Our position in the less cyclical yet growing personal care for pharma as well as food and beverage markets make us confident for the future. Finally, let me talk about business unit technology. In terms of net sales, we were 2% ahead of last year with CHF 412.1 million, particularly in Japan, Thailand, Vietnam and Indonesia, we recorded good growth. The EBIT of €24,000,000 was 3.4 percent above last year. We closed larger projects in Japan and initiated portfolio adjustments in selected countries such as in Vietnam. Let me summarize the results as following. 2018 was an intense year with much progress. Business units, Healthcare, Performance Material and Technology recorded higher operating results. However, we also face challenges. In Business Unit Consumer Goods, we will improve performance with initiated restructuring. Our free cash flow enables us to increase our ordinary dividends in the future and at the same time pursue our acquisition pipeline. With that, thank you very much and I hand back to Stefan. Our priorities for DKSH are good balance of investments in our business, value adding acquisitions, a healthy capital structure and attractive shareholder returns. In 2019, we will continue to invest into our business such as into e commerce and the development in Indonesia other new countries. We have a good acquisition pipeline. Our strong balance sheet enables us to play a very active role in that field. We will also continue to consistently pursue our dividend policy. As you can see, ordinary dividend in recent years. This year, as Bernhard mentioned, the Board of Directors will propose an ordinary dividend of 1 €8.85 at the AGM with correspondence to a 12% increase. Let's move to the key priorities for 2019 in DKSH 4 business units. The business unit consumer goods, we will continue to rigorously implement and finalize the structural topics that we initiated in 2018. This will sustainably increase decaysh market position in this business unit. We will, however, put increased focus on cost and efficiency. We will finish implementing the transportation management system. We will drive the expansion of our capillary distribution network in a more cost effective way. And we will push our business development activities. Further, we will expand our business in both in Indonesia and online. The major focus in the business unit Consumer Goods this year is the continuation of the initiated restructuring with the Accelerate program. In doing so, we are sustainably setting up the business unit for a successful future. This will lead to one off costs in the first half of the year twenty nineteen, but we expect profits to improve in the full year. In the business unit Health Care, we will continue to update our distribution infrastructure. In course of 2019, we will open state of the art distribution centers in Vietnam, Singapore and Taiwan. Supply chain automation is another priority, especially in high priced locations such as Singapore and Taiwan. Finally, we will pay particular attention to Medical Devices' own brands and the expansion of our full service portfolio. The Business Unit Performance Materials, we will further consolidate our industrial leadership in Southeast Asia, especially in the field of pharmaceutical, food ingredients and cosmetics. We are well positioned in this non cyclical yet growing industries. In the business unit technology, precision instrumentation, the equipment for medical or other laboratories as an example, continues to be a high priority. Other key topics are Industry 4.0 as well as 3 d printing. Now let's proceed to the outlook. We remain firmly convinced of Asia's long term potential. The 3 growth drivers that are decisive for DKSH, namely the growing middle class, the increasing inner Asian trade and the trend towards outsourcing are fully intact. In addition to this, there is an increasing demand from our clients for regional solutions, a demand for which DKSH with its pan Asian coverage naturally sees itself excellently positioned. We have a resilient business model. Overall, we expect a higher operating profit for the DKSH group in 2019. Also, we will continue our progressive ordinary dividend policy. With that, I would like to conclude my speech. Thank you very much for your attention, and Bernard and myself are now available for your questions. Thank you. Q and A session starting in the room. Pascal, you want to kick it off? Pascal or yes, to the mic. Good afternoon. This is Pascal Foeger from Vontopel. Two broader starting with consumer goods here. In the second half, we saw flat organic growth despite investments you already started in the first half year. Can you give a bit of more reason why haven't we seen strong growth as probably we have seen in the first half when it was around 4% to 5%. And then with regards to your restructuring, can you please give us some more numerical details here, please? And my question is a bit what is really one off and then what could be sort of recurring costs? And I would just like appreciate with more of a strategic roadmap of the Consumer Goods division, especially now since you, Mr. Bose, took over the division at the interim like a couple of months ago? That's my first question. Maybe I think I'll ask the second one after your answer. Thank you. Thank you very much. I mean, first of all, it was a wonderful or a great achievement that we were able to increase the sales for the full year of 2018 for the first time in many years. The sales are not consistently coming in. I mean some of the contracts are quite sizable. It depends on the actually on boarding date. And we are investing more into our BDM activities as I will explain shortly to bring the sales growth on a more consistent basis. In terms of the consistent basis. In terms of the restructuring, let me give you a little bit more details here. I mean, obviously, we are in consumer goods acting in a very changing marketplace. And we have to enhance our value proposition to deliver sustainable profitable growth over the years to come. And in the restructuring program, we are working on 2 angles. 1 is the revenue generating side and the other side is the organizational efficiency and effectivity. Let me start to give you a little bit more insight into the revenue side. So what we are doing is we're looking into our portfolio in terms of clients, customers, specific contracts, the profitability of contracts, but also go down into the level of the different SKUs. On the other hand, we have to further invest and enhance the effectiveness of our business development to bring in new profitable clients as well as to increase the sales on the customer side. Thirdly, we have to expand our capillary distribution network or our route to market as well as entering new markets to be more attractive and have a better value proposition for our clients. Last but not least, we are investing in further data analytics as well as expanding our field marketing team across the region to increase sales even further. In terms of the organizational effectiveness and efficiency, we will we have made and we will make some changes in the leadership. We have to enhance the effectiveness of our supply chain and we did talk in the presentation already about the transportation management system. But we also have to look into the general cost structure of the business units especially on the back office and support side. So overall, this will be a drag in H1 in consumer goods moving into 2019. But we are very confident that with those measures, we not only established the business unit again for a profitable sustainable future, but also to deliver overall better results into 2019. Since I just recently took over and enhanced this program, please understand that at this point, I can't give you much more granularity, but I look forward to give you more details during the year to come. Thank you. And second question, if I may, on Healthcare. So here if I exclude this whole China situation, I still only derive a 4% organic growth or it is implied like a slowdown of to 2% in the second half. So what happened here in the market? So it can obviously not just be China. And also, I mean, we saw the impairment on 2 acquisitions you have done in the past 3 to 4 years. Yeah, what is happening? And is there more to come? So overall, I mean, we are very optimistic in terms of the outlook of our Healthcare business. As you are rightly pointing out, the underlying organic growth rate in Healthcare is 4%. We were able to grow the EBIT by almost or by 8% and we are very confident in terms of the organic outlook. In terms of the 4%, we see growth across all markets in Healthcare. There are 2 markets where some regulatory adjustments, lead it to a slightly depressed sales growth, which brought the growth rate down to 4%. But our medium term outlook for Healthcare is very positive. And Bernhard can give you some more details on the write off in Korea and Macau. Yes. So the write off in Korea was we were we are concentrating now on pure sales and marketing and stopped to do the distribution ourselves. We are giving this to 3 PL providers. We simply didn't have the critical mass to do it competitively against others, which meant had to do an impairment on that acquisition, which we had a few years before. Ladies and gentlemen, please hold the line. The connection with the speaker has been lost. The conference will continue shortly. Thank you for your patience. Yes, good afternoon. If I may, the first one on the consumer goods business, the €30,000,000 decline in EBIT on a kind of pro form a basis before the restructuring item, could you explain a bit more the decline coming from the investments that are the extra costs you put in the business? And what is actually an underlying margin you face in some of your markets or units? And also more on this consumer goods, do you think there is something broken with the model or because you obviously invest to adapt the model, but is there something structurally broken in the division that needs to be addressed perhaps more aggressively? Secondly, you've got an acquisition in, as you said before Christmas, Ulrich, which will add €14,000,000 at least €14,000,000 of EBIT on an annualized basis, a bit less on a full year this year. But when you talk about progress for the consumer product profit this year, do you include the contribution of ORIC? Or is it an underlying progress? And 3rd, that's on that consumer products, there's an election in Thailand. Is that something that you believe could be material for the business in the second half? And that's you have this balance sheet still quite cash rich and you made a series of acquisition of SAES but not the big ones. I'm just wondering what's the scale of the deals you mentioned you have a rich pipeline, but what kind of scale of acquisition could we anticipate this year? Okay. Thank you very much. I noted 5 questions and please let me respond to that. So in terms of structure, no, there is nothing broken in the business model. As I was saying before, I think we have to do some homework in some fundamental issues within the setup of the business. But in terms of the market and the strategy, nothing is broken and we are very confident in terms of the long term prospects of that business unit in the region we are active in. In terms of the difference between 2018 2017 and let me bridge that for you. So we are 43,000,000 euros under 2017 in the business unit. In 2017, we had a €7,000,000 1 off in there from the sale of 2 distribution centers. So the difference underlying is €36,000,000 And technically you can divide the €36,000,000 into 3 pockets. 1 is the investment as I was saying before investment in enhancing our route to market, strengthening our BD and sales team, digital buildup of Indonesia. 1 third is a lower operational performance. And within the one off restructuring which primarily is a write off of inventory as well as redundancy payments for changes in management and on the people side. In terms of AURIG, AURIG was the largest acquisition and DKSH is going to make. I mean, it's obviously still in the process. We are not closed yet since the IPO. And for the outlook, we did not include the EBIT of Orec in there. So it is excluding to achieve the 284,000,000 €1,000,000 plus. Then the next question you had was regarding Thailand. The GDP in Thailand in 20 18 came in a little bit better than forecasted with 4.8% GDP growth. The majority of that was driven by investments by the government. If you look into the consumer confidence and consumer spending, it was a little bit less or was not developing that well as the growth. Ladies and gentlemen, please hold the line. The connection with the speaker has been lost. The conference will continue shortly. Thank you for your patience. Then in the other part of the region like Indochina and in terms of Ladies and gentlemen, please hold the line. The connection with the speaker has been lost. The conference will continue shortly. Thank you for your patience. Consumer demand with the time lag, we've reflected this before. I would also like to make a quick comment on the Oryk acquisition. We presented before we bought a business with CHF14 1,000,000 of EBIT. Please when you do the modeling be careful when we buy a business we have to recognize intangibles which means amortization. Since the deal is not closed yet, I cannot tell you how big that will be. I guess it will be single mid million somewhere just to manage expectation in that area. Yes. Mean, we did strengthen our M and A pipeline significantly into 2018. And we are looking very optimistic into 2019. In terms of the prospects of deals, as you know, in this part of the world, it's not the most easiest thing, but we have a very healthy pipeline, in particular in Performance Material Technology, but also some prospects in consumer goods as well as in health care. In terms of size, it's all out there. It's hard to limit it down to one specific numbers. We have some smaller, some medium sized deal. I mean, obviously, Auryk was a good size or will be a good size for us moving the needle. But we are very confident that we will be even more successful in 2019 5 questions, correct? Perfect. Thank you. Next question please, Marco. Yes. Marco Streatmutter from Zurich Cantona Bank. Just in terms to manage our numbers, I wonder is this China effect, will this still be present in 2019? And will this still be about between 2% 3% of overall revenues? Ladies and gentlemen, please hold the line. The connection with the speakers has been lost. The conference will continue shortly. Thank you for your patience. Okay. Thanks. And I'm not sure if I got it right. The goodwill impairment of CHF5 1,000,000 was related to Korea? We don't know the exact number yet. I said I expect that order of magnitude But that's what you booked in the No, you mean Korea, not Oregon. Oh, Korea. Yes. Also, I understood. €4,900,000 goodwill impairment. We had 2 impairments. 1 was Korea, 1 was Macau. They were in roughly the same range. And in Korea, we had on top of few restructuring charges. Yes. Okay, great. Maybe a word on Maurice Lacroix. I think the watch industry is getting it's getting harder to sell assets there. Yes. But I must say that we are enjoying Morris Lacres. We see a decent inherent value in this brand. And as I was saying in the past, we are not willing to sell this brand under this value, especially not if we are advancing so well from a P and L perspective. So there is no need right now to respond to any bargain hunters in the market. No questions in the room before we go to the call participants. No? Then I would hand over to the questions from the call, please. The first question comes from the line of Alain Oberhuber from MainFirst. Please go ahead. Good morning. Stefan Beernhardt and Till Alain Oberhuber MainFirst. I have two questions. The first is, could you go a little bit more into the dividend, given that you probably have more than €500,000,000 cash by the end of this year, that you didn't pay out more this year and probably doesn't look that you will do so next year. The second question is regarding your Board of Directors. Out of 10 members, 4 will leave Mr. Vollemy knew already, but it looks now that there are 3 other ones. You haven't nominated any new members yet. Could you evolve a little bit what is the reason for these departures? Yes. Hello, Alan. Maybe I start with the Board Directors and then I hand over to Bernard in terms to the dividend policy. As you know, Doctor. Woller handed over the CEO position 2 years ago, and this is now the 2nd step in a long term transition, which will take place now at the AGM. Mr. Peugeot and Mr. Siegert did serve in our Board for over 10 years, and we are very grateful for their loyalty over such a long time period. And thank them very much for their strong contributions over the years. And the same as well as for Mr. David Kamenetzky, who was joining our Board for over 5 years. Also him, we thank for the strong contributions over that time period. And then Bernard, you would like to respond to the Yes. As for the dividend, we have committed ourselves to a progressive ordinary dividend policy. We are living up to that by increasing this year again by 12%, which would give us an output just a little bit above CHF 100,000,000 already on dividends. We also still if Ory gets closed, we have to pay CHF 160,000,000 for the Ory acquisition. And beside that, I think we need some firepower for our M and A pipeline to be able to create some growth on the acquisition side. Thank you. Maybe just a follow-up question regarding the growth rate in Healthcare. You already discussed it. Could you give us a little bit more detail when we look at the long term trend? For many years, you grew double digit. Now last year in 2018, it's just 4%. And I didn't hear from you that you expect an acceleration in the organic growth rate in Pharmaceutical and Healthcare for this year. Why is that the reason? Okay. I mean, 1st of all, we are somehow getting obviously Wickdom of the very high growth rate we have seen in the past. So the business, I mean, grew substantially, I think, over the last 3 to 4 years. We are very pleased that we are able to grow the business, the Health Care business across all countries and by the way also across all service lines. So that means Pharmaceutical, personal care, as well as medical devices. As I was pointing out before, there are 2 markets where the growth rate was a little bit depressed and probably stays a little bit depressed at least for next year as well. But in the long term, we are very optimistic in terms of the outlook. And as you know, we are focusing on profit more than sales. So if you look at growth rate this year like for like on an EBIT basis that was 8%. Thank you very much. The next question comes from the line of Rory McKenzie from UBS. Please go ahead. Hey, good afternoon everyone. It's Rory here. My first question is on that earnings decline in Consumer. You kind of broke it into 3 buckets to understand it. On that middle bucket, the kind of the lower like for like operating performance, can you explain that a bit more, please? Organic growth on the top line was kind of flattish in H2. So was there pricing pressure? Was there a negative mix shift? Were there cost overruns? So kind of more detail on that would be great. And then secondly, on the restructuring in Consumer. In general, over the past year or so, you've made a few divestments China Healthcare Distribution in Korea. And in Consumer now, you're talking a lot about evaluating your SKUs and customers. But could you imagine exiting or divesting any parts of the Consumer business today to focus on higher margin or higher growth areas? Thank you. Okay. I hope it was really hard to understand you. So I will try to do my best to answer your question. Yes, you're right. We said that out of the gap of €36,000,000 €12,000,000 was driven by operational inefficiencies. And the main reason is cost overrun in some of the areas, but it also leads right away to your second question. It was also an issue that we were carrying in some countries SKUs, which were very slow moving or no moving and which was pulling down the operational performance because we were only able to sell them with strong and high A and P. The thing with the SKUs is, I mean, we call it, in general, winning with winners. That means we have to make sure we have clients who are gaining market share within our portfolio as well as customers who are gaining market shares who are running successful stores. And the same is Wellhead for the SKUs. So it's the thing about the more well running successful SKUs who are meeting the needs and the demands of the market you have on board, the more successful you are. And I agree with you. I think you have to be more rigorous and make sure that you don't take on SKUs where you can expect that you are not able or only sell them with very high A and Ps. Okay. That's helpful. And just one follow-up. On those slower moving or no moving products, are you able to have discussions with the clients on the pricing? Are you able to ask for higher gross margins to offset that cost? Or is that just not really a market environment where you can raise your own prices? This is Bernard answering. We can, of course, always discuss with clients. There can be multiple measures to address that. It could be you go into more of a Chevron said advertisement promotion. So instead of buy 5, get 1, 3, buy 3, get 1, 3 or something like that. We also, in selected cases, are able to return products to the clients. That's not so common, but can happen. So yes, we will have negotiations with clients how to mitigate the effect, but typically we have to take some hit as well ourselves. Okay, great. Thank you. The next question comes from Andy Grobler from Credit Suisse. Please go ahead. Hi, good afternoon. Three questions, if I may. Firstly, just following up from Rory's question. If you find yourself in a situation where products and SKUs are just not moving and you can't see a way out, will you walk away from that relationship with those clients? Do you think that is feasible? Secondly, you mentioned some potential transport savings. And you said that the cost could be reduced by as much as 10%. Approximately, how much is that cost? What sort of quantum are you talking about? And then lastly, just in terms of your own brand strategy, could you update us on approximately how much of your business is own brand at this stage? Thank you. Okay. Okay. I mean I'm sorry. I took the first one. Sorry. Okay, good. For the walk away from clients, that would be a very, very extreme measure. That happens occasionally, but it's really an exception. Typically, it's not the whole portfolio, which is a problem. What we see sometimes is that we get full portfolio of a client and then only certain area deep. And we try to reduce number of units and products or send back to the clients or do these measures we talked about before. Walk away is really extreme. On the TMS side, central management side, we will save about 10% of transportation costs. Of course, there's always the underlying issue of petrol prices. Like last year, all of that savings or nearly all of the savings was compensated by petrol price increase. So it's not necessary that you see the full 10% in our result at the end. Okay. And in terms of the owned brands in consumer goods, the own brands are really not material at all in terms of sales. In Healthcare, it's around 20%, but it's very profitable, the Own Brands business. And we are rolling out the Own Brands in more and more countries. So in 2019, for example, we will start rolling out Own Brands into Indonesia as well as Korea. Okay. So it's the own brands as of now is really just within Healthcare. There's nothing material within Consumer. That's right. That's right. Okay. Thank you very much. You're welcome, Andy. Any more questions? There are no more questions from the phone. Good. Then we'd like to conclude today's conference. We've heard there were some issues with the line. Apologies for that. For the participants on the call, if you do have any further questions, please reach out to the Investor Relations team. We are very happy to take all of your questions. 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 lines. Goodbye.