Ladies and gentlemen, good morning. Welcome to the DKSH presentation, half-year results 2018 conference call and live webcast. I am Alice, the call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to go to an operator. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Till Leisner, Head of Investor Relations. Please go ahead, sir.
Thank you, Alice, and good morning, everybody. It is a pleasure to welcome you to the 2018 half-year results conference call of DKSH. I'm Till, as you've heard, and for those on the call with me today, I have our CEO, Stefan Butz and our CFO, Bernhard Schmitt. Before we start, please have a look at the disclaimer of the presentation regarding forward-looking statements. For those who do not have the presentation in front of them, you will find them on the 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 half-year. Then Bernhard will walk you through the financial highlights of the group and the performance of the business units. At the end, Stefan will close with some final remarks.
Before we go to the Q&A session, I kindly ask you to tell us your name and if you have a question, also the company that you are working for. With that, I would like to hand over to our CEO, Stefan Butz. Thank you very much.
Good morning, ladies and gentlemen, and welcome to the presentation of our half-year results 2018. Please let me get right to the point with the highlights of the first six months. The DKSH Group increased net sales by 7.4% to CHF 5.7 billion. With regards to EBIT, we are approximately at last year's level with CHF 139.5 million. We increased profit after tax by 4.5% to CHF 97.5 million. Our business units, Healthcare, Performance Materials, and Technology all delivered good results. After several years of declining revenues in business unit Consumer Goods, we managed to bring back to growth and through targeted investments and initiatives. This naturally had an impact on the results of the business unit. More on that shortly. Overall, we have grown our business and have increased our strategic focus again.
The sale of the Healthcare business in Mainland China, as announced two days ago, is the best example of this. There, we are active in a niche market. Further market penetration in the People's Republic of China would have required significant additional scale. Therefore, after assessment of the market situation, we have decided that these funds can be put more effective use elsewhere. An increased strategic focus means that we reassess our broad portfolio on a regular basis. Let me give you an overview of the two factors that drove our growth in the first half of the year. As mentioned, net sales of CHF 5.7 billion at group level meant an increase of 7.4%. On the slide, you can see that 3.7% can be attributed to organic growth. Acquisitions, primarily the new business in Indonesia, contributed marginally with 0.6%.
Foreign currency movement had a positive impact of 3.1%. Let us have a look at the split of sales by countries and regions. Thailand, with around 31%, remains the largest market for DKSH. There, the demand for our Healthcare service continued to be solid, and in the Consumer Goods sector, we have increased demand significantly for the first time in a few years. We have increasingly brought Asian brands, so-called local heroes, into our client portfolio. For example, Korean cosmetics, which is very popular in Asia. Since May this year, Malaysia has a new government, as you might have followed in the media. We expect positive impulse from the changes. One of the electoral promises was to abolish the goods and services tax, the VAT of over 6%, which was unpopular among the population. This happened on June 1st and resulted in delayed demand for Consumer Goods.
In Cambodia, Laos, Vietnam, and Myanmar, DKSH reported strong growth. Here, consumer demand is soaring and DKSH is well-positioned as a company. We currently employ already more than 8,000 people in those promising markets. Finally, in Mainland China, we have made an important decision with the announced sale of the Healthcare business. As soon as the transfer is complete, China's share of group sales will decline, obviously. Nevertheless, China remains an important location for DKSH in the areas where we continue to rely on our niche market strategy. Especially the measures that we initiated in Business Unit Consumer Goods and the growing demand in countries such as Vietnam and Thailand enabled us to increase net sales in the Consumer Goods business for the first time in a few years.
We have expanded and upgraded our business development and key account management, which is all about building better relationships with our clients, be they existing or potential. Identifying and onboarding new clients demands additional personnel resources, especially for the smaller Asian clusters. This led to higher short-term costs, but also to higher growth. As you might have observed, the entire Consumer Goods industry is undergoing changes and facing growth challenges. Another lever is the routes to market. This means that we are further strengthening our capillary distribution network in Southeast Asia. For example, in Myanmar, we significantly upgrade our coverage. As consumer demand, especially in more rural areas, continues to rise, we need to take those further investments. We must ensure that we offer the right products to the best-selling retail outlets. We call that winning with the winners.
Over the past few months, we have rolled out a new transport management system called Roadnet, which optimizes the delivery of orders and synchronizes them across the group. A third important aspect is the development of our new market in Indonesia. As some of you might recall, exactly one year ago, we announced acquiring the majority of the Indonesian distributor, Wicaksana, enabling us to bring in international clients over time. We have just won the first multinational Consumer Goods clients for Indonesia. To boost growth in this market, the largest in Southeast Asia, we have made the required investments over the past few months. On a group level, we will continue to focus on expanding our acquisition pipeline as the industry for market expansion services in Asia remains fragmented. The fourth and final aspect of our strategy, which I would like to mention today, is digitization.
We continue to rely on our proven omni-channel strategy, which means regardless of which channel is used, offline or online, DKSH ensures consistency across all channels also when it comes to pricing. This approach is well accepted by our clients, and our digital business is experienced solid double-digit growth. With this overview in mind, I would like to hand over to Bernhard Schmitt, our CFO. He will provide you with more detail about the group results and specifics on the four business units at DKSH.
Thank you, Stefan. Dear ladies and gentlemen, I would also like to welcome you to our presentation of the half-year results 2018. In the first half of 2018, we grew net sales by 7.4% to CHF 5.7 billion. Operating profit is on last year's level and amounts to CHF 139.5 million. Profit after tax was 4.5% ahead of last year and amounted to CHF 97.5 million. As you can see, we kept our operating profit at last year's level and our net profit above previous year, despite our targeted investment and initiatives in business unit Consumer Goods. This again highlights the resilience of our business model across different Asian markets. Free cash flow grew by 22.8% to CHF 69.6 million. With that, our net cash position remains strong and amounts to CHF 304 million.
The RONC, the return on net operating capital, is still on a good level with 22.1%. Additionally, the number of specialists grew by 3.8% to slightly above 32,000. Let me now give you some more details about the performance of the business units. First, Consumer Goods. Our business unit, Consumer Goods, managed to return to sales growth in the first half of 2018. Net sales increased by 9.4% to CHF 1.9 billion. Especially the fast-growing region of Vietnam, Cambodia, Laos, and Myanmar achieved good results. The growth was especially driven by the growing Asian middle class in these countries, as well as by our continued focus on Asian clients. EBIT of CHF 34.1 million is below last year's level. As Stefan Butz has already explained, we have both qualitatively and quantitatively strengthened our key account management in FMCG.
Furthermore, we have expanded our distribution network, especially in the more rural areas. We also invested in the market build-up in Indonesia and in growth initiatives in e-commerce. These measures have impacted our operating profit. In sum, these investments will strengthen the market position of DKSH in the future. In the luxury goods business, we continued our restructuring. It is progressing, but the business is still loss-making. Nevertheless, we continue to invest into the Maurice Lacroix brand as we believe in its value. Let me move on to Business Unit Healthcare. Sales increased by 6.7% to CHF 3.1 billion. In the past half year, EBIT of CHF 79.7 million increased by 4.9% compared to last year. We recorded good growth across Southeast Asia as these Healthcare markets are still highly under-penetrated. This means that pharmaceutical products are still not fully available to all consumers.
Two days ago, we announced the agreement to transfer our Healthcare business in China for approximately CHF 100 million. DKSH has pursued a niche strategy in the Chinese Healthcare market for many years. Reviewing our portfolio on a regular basis, we realized that scale matters to further take advantage of the potential of the business. With Warburg Pincus , we have found a partner who is able to create the needed scale. We expect to close the transaction towards the end of this year. If successful, we will deconsolidate the proportionate share of our sales of more than CHF 300 million and related profits in 2018. A larger part will follow in 2019. The transaction will result in a significant profit for DKSH. More information will follow once the transaction is closed. Let me continue with Business Unit Performance Materials.
We achieved net sales of CHF 475.7 million, an increase of 5.8% compared to last year. Especially in Thailand, the Philippines and India, DKSH recorded strong growth. Also in Europe, in markets such as Germany, Spain or France, we performed well in the first half of 2018. This again shows the success of our acquisition strategy. We cover more European countries, which gives us more power in the market. Accordingly, EBIT of CHF 39.7 million was 6.1% above previous year. Finally, let me talk about the Business Unit Technology. In terms of net sales, we were slightly ahead of last year's level with CHF 192.1 million. Particularly in Thailand, Indonesia and Japan, we recorded good growth. The EBIT of CHF 8.7 million was more than 50% above last year.
We closed larger projects in Japan in the first half year of 2018 and initiated portfolio adjustment in selected countries such as Vietnam. Technology is a project-driven business which can lead to fluctuations of the results between the half years. Let me summarize the first half year results as following. The achieved profit and cash flow growth once again proves the resilience of DKSH's business model. Thank you very much, and with that, I hand back to Stefan.
Thank you very much, Bernhard. Before we come to the outlook, I would like to share our focus topics for the rest of the year. These topics are part of our strategy for sustainable, profitable growth. We have been pursuing this strategy for many years. It is based on three pillars. Firstly, focusing on our existing four business units. Secondly, continuously expanding our service offering. Thirdly, increasing our operational efficiency. Particularly three key growth drivers, the growing middle class, the increased inner Asian trade, and also the trend towards outsourcing remain. In addition, there is an increasing demand from our clients for regional solutions, a demand for which DKSH is naturally well-positioned for with its Pan-Asian coverage.
This is the case with the pharma multinational GSK and the leading cosmetic company Coty, who do not want to work with a multiple of partners for Southeast Asia, but increasingly with a partner like DKSH. With regard to the first strategic pillar, focusing on the existing business units, we will continue to invest in business development and key account management. I mentioned before that we expanded our route to market, meaning the market access to customers and consumers. In the coming months, we will continue to roll out our new transport management system in further countries such as Malaysia and Hong Kong. By expanding our service offering, the second strategic pillar, our aim is to add more value for our clients and customers. With these additional services, we can clearly differentiate ourselves from local competitors.
A good example is in the business unit Performance Materials, where we increasingly offer regulatory services. In Technology is the after-sales services. In Healthcare with hospital solutions, where we support specific departments in hospitals by managing their supply chain and product inventories. The last topic is to increase operational efficiency. A few months ago, we newly opened a partly automated distribution center for Healthcare. 30 automatic guided vehicles optimize the logistics, ensuring that the right product is delivered to the right customer at the right time, and that the pick and pack is most efficient. Further, we have introduced a comprehensive set of KPIs in the company and are now able to even better identify progress in our business processes to increase operational efficiency continuously. Let us proceed to the outlook. As I mentioned earlier, I am still firmly convinced of Asia's long-term potential.
Thanks to the intact growth drivers, we will continue to grow sales this year. Due to the targeted investment and initiatives in business unit Consumer Goods, as well as the announced transfer of the Healthcare business in mainland China, we expect an operating result in 2018 around last year's level. As mentioned already by Bernhard, if the transaction in China materializes, we expect a substantial book gain, which is not included in our operating result outlook. We will continue with our progressive ordinary dividend policy in the future. Ladies and gentlemen, thank you very much for your attention. We are now happy to answer your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handset to ask a question. Anyone who has a question may press star and one at this time. First question comes from Aymeric Poulain from Kepler. Please go ahead, sir.
Yes. Good morning. I've got a series of questions, if I may. The first one is on the disposal of the Chinese Healthcare business. Do you have an indication of the EBIT contribution that you will discontinue both this year and next? In terms of the use of cash, you will basically receive CHF 100 million. You already are cash rich. Do you have already a view on what you will do with that extra cash? Still on the Healthcare, we see a sharp deceleration of top-line growth in that first half. Now, there's obviously a lot of countries involved, but what would you best guess about the underlying trend that we should again extrapolate for that business going forward, and what may be responsible for that deceleration? Is it related to China specifically, or other markets are also suffering from that apparent slowdown?
Last but not least, you had a pretty significant cost investment in Consumer Goods that you highlighted in the presentation, but you did not quantify this investment. Could you give us a bit more color on how much you're spending and how long you're planning to spend in that division and what kind of payback we should expect? Thank you.
Okay, Poulain. This is Bernhard speaking first. I'll give you the answer for the first two questions. Stefan will take over the next two. You wanted an indication for the Healthcare business in China, how much EBIT we will deconsolidate. We normally don't give indications of country profitability and where we stand there, so I'm afraid I cannot give you an answer on that. As we said, there will be significant profit from that transaction, and this probably helps you to gauge it a little bit. On the use of cash, you're absolutely right. We will be rich with cash afterwards. We still have to do the closing, of course. Our dividend policy will stay unchanged as before. We are committed to a progressive dividend policy. Means we will always pay more than the year before on the ordinary.
If substantial cash builds up sustainably, we will decide on a special dividend. Clearly, we would prefer to invest that money into the company. That is a decision we have to take at the end of the year, and it's finally a shareholder decision. Stefan, if you see the top line question on Healthcare.
Yes. Thank you very much, Bernhard. Regarding the development of the Healthcare business, the net sales growth in Healthcare was 6.7% or 3.7% at the current exchange rate. We see very good and strong performance in markets as Thailand, Malaysia, as well as across the Indo-China region. The market in Northeast Asia is a little bit more challenging, and we also had a change in revenue recognition with a few contracts in China, which was slightly depressing the growth rate in the year-to-date numbers for H1. Looking forward, we will continue to see some good growth in our Healthcare business. The next question you did ask was regarding the investment into Consumer Goods. Overall, I would like to point out that after three years of declining revenues in Consumer Goods, we were able to turn the situation around and deliver some solid growth in Consumer Goods.
If you look especially at some recent data of FMCG sales in those markets, you know that this is definitely not guaranteed and a strong achievement. The gap between the last year's numbers and this year's numbers is a little bit over CHF 10 million. Please consider that last year we had CHF 3 million in there being represented by the sale of a distribution center which brings the number down to around CHF 8 million. We have significant investments in developing markets like Indonesia and Myanmar, we are also strengthening our regional competency. That means the quality and quantity of people, especially in our business development and key account management teams. What we do here is, we have more opportunities to grow the business outside of the main cities. We are moving further down into the countryside.
That's the reason why we need to expand our route to market. The small Asian players are gaining more market share in those markets and identifying those local Asian heroes, advising them about the right market approach for the right market and the right channels and bringing them on board requires more personnel, that is the reason for those investments. Obviously in terms of route to market and our transportation management system, these are one-off set up costs who are going to disappear over the time. We look much more optimistic into 2019 than in 2018.
Okay, thank you.
You're welcome.
Next. Thank you. Alice, next question, please.
The next question comes from Markus [Stigmatter] with ZKB. Please go ahead, sir.
Thank you. Good morning. I'm also wondering a bit about the revenue growth in the Healthcare division. Can you quantify the impact you had from the revenue recognition change? How much would it have been, how much would the revenue growth have been if there would have been no change in the contracts? About your guidance of an operating result more or less in line with last year. I'm having a bit trouble imagining this because I think clearly in Consumer Goods, your margin in the second half will also suffer. If you compare it to last year, you'll be clearly below this. The Healthcare margin, I also cannot see much higher probably. With the low growth in Healthcare then, I'm really having trouble imagining you will come to an EBITDA level of around CHF 300 million.
I wonder how this will work out. If you could elaborate on that a bit, please. Thank you.
Maybe regarding China and Healthcare, we would expect that the difference would be between 3%. That means instead of a growth at constant currency of 3%, the growth would have been 6%. In terms of the overall margin development, I think if you park Consumer Goods for a second and you look at the overall margin development across the three business units, Healthcare, Performance Materials, and Technology, you would see that the margin did increase. In particular, under consideration that last year, we had some one-off in our H1 results. In Consumer Goods, as I was just explaining before, we did recognize that the announced investments and initiatives are showing some traction and delivering some growth. It was a well-defined decision to accelerate those investments, to accelerate the growth.
The additional growth we are going to generate will also then obviously stabilize the margin and increase the margin over time.
Okay. Thank you.
Next question, please.
As a reminder, if you wish to register for questions, please press star and one. The next question comes from Pascal Furger with Vontobel. Please go ahead.
Good morning. Also three questions from my side. First question, a follow-up on Consumer Goods. Can you please just elaborate a bit more into detail, where do you stand in terms of execution? Just if you could give a bit more of an update on the timeline. How long will this really go? I mean, with just the measures you implemented right now. In these high investments, I think this also compares sort of to much higher investments. You see Amazon, Alibaba investing billions of dollars. Does this put pressure on your business as well? Next question also on your brands portfolio reassessment. Here, first of all, the Healthcare is mostly in China. Can I assume when you said this impact from the revenue recognition, was mainly in China, and this will disappear next year?
Part of your portfolio assessments were probably also other countries. Are there any other niche assets you could divest, for instance, Consumer Goods, China, activities in Taiwan? Is there more to come from that side? Thank you.
Okay. Thank you very much, Pascal, for the four questions. Regarding execution in Consumer Goods, this is on the way. I mean, while we talk here, the team is diligently putting those initiatives into action. The majority of those measures, they will be happening over the next 12 months. The positive effect of that is probably ongoing because it would enlarge our footprint into the market, so increasing the points of sales on the one hand, and on the other hand, bring more local Asian heroes into our portfolio. If I might say a few more words, what we need to make sure in this changing environment in Consumer Goods, not only in Asia. You know that the whole industry is suffering from that now a little bit. It's what we call winning with winners.
We have to make sure that if we look at the portfolio on the client side, we have the clients on board who are delivering innovative, market-appropriate products, which can generate a significant amount of growth in the region. On the other hand, we have to make sure that we are with our customers in those regions, where additional growth is happening, and that they have an attractive portfolio for their respective and local market. This is what we call winning with winners. The rollout is consistently and ongoing. A few years ago, we had around 20% of local Asian heroes in our portfolio. We enlarged that already to 30%, and more is to come. Regarding your question in online or e-commerce, we perform an omni-channel strategy.
That means no matter if the client wants to go modern trade, traditional trade, or online, we are there to help them. Also within online, we position ourselves that from running its own brand.com store within Thailand or Vietnam to managing different channels in the online business across e-market retailers or, we put a lot of products onto Lazada, which belongs to Alibaba, as you might know. Overall, online penetration in Asia is still quite low. We talk here about 2%-2.5%, depending on the market. This had, at this point, no material impact on our business, and we are very well positioned to capture this growth opportunity across different channels in the years to come. The third question was regarding Healthcare. Yes, as we mentioned in the announcement, the 2017 revenue of that business was CHF 300 million.
If the transaction is going to be successfully executed in Q3 or Q4, this revenue stream obviously will be no longer there in 2019. Regarding your question of other areas where we review our portfolio and increase our strategic focus, yes, we are continuously doing that, and one very good example is Technology. At the end of last year, we did some major review in Technology and pulled some business lines out of a few markets, and that's the reason why you see moderate growth in Technology, but a huge jump in the profitability in tech. Even we must say there is a second driver included in here. Technology is a project business where you cannot always define exactly where the projects are going to land. You have to be careful in extending the 60% growth rate and profitability into H2. Did I answer all of your questions?
Yes. Thank you.
Ladies and gentlemen, that was the last question. I'd now like to turn the conference back over to Till Leisner for any closing remarks.
Okay. Probably, maybe very briefly from my side, thank you very much to all of you for your time this morning, and thanks for listening in. I look forward to see at least some of you during the upcoming roadshow over the next days. 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 lines. Goodbye.