DKSH Holding AG (DKSH) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the DKSH Full Year Results 2021 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Till Leisner, Head, Media and Investor Relations. Please go ahead, sir.

Thank you, Alice, and good morning or good afternoon, everybody, wherever you are seated. It's a pleasure to officially welcome you on behalf of DKSH. As Alice said, I'm Till from the Investor Relations team, and I'm very happy to have today with me Ido Wallach, our CFO; and Stefan Butz, our CEO. Before we start, please, if you will 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 web page under the Investor Relations section at dksh.com. With that short introduction, I'd like to hand over to Stefan.

Good morning, and welcome, everyone, to the presentation of our full year results 2021 on this wonderful sunny day here in Zürich. As Till said already, Ido is joining me here today during the presentation. Let's first have a look at today's agenda. I will begin with an overview of the 2021 highlights and then talk about the updates in our 4 business units. Right after that, Ido will provide you with the financial details of our results. At the end, I will provide an outlook before opening up the Q&A session. Let's first focus on where DKSH stands after closing the year 2021. Disciplined execution of our strategy, people agenda and operational objectives delivered strong '21 results, despite the ongoing mobility restrictions in our markets and the Q3 lockdown. The key takeaways remain. Our business model is asset-light, resilient and highly cash-generative and delivered solid GDP-plus growth in Asia Pacific. We further transform our business to expand our leading positions in our industries. We consistently strengthened our culture of trust and empowerment and connection and our leadership team. Our financial performance improved with good progress in terms of margin-accretive growth and strong cash generation. And we create sustainable shareholder value through our operations, M&As and consistent dividend distribution. The proof point of our established strategy are our '21 results. Our committed team and our strong operational performance, coupled with the agility and resilience of our diversified business enabled us to strengthen our balance sheet and deliver a strong performance in still volatile times throughout '21. Net sales at constant exchange rate grew 5.4% and ahead of comparable GDP of 3.2%. Core EBIT grew double digits and margins increased. Profit after tax was up 39.6%, excluding the one-off, still very strong 25.1%. Further, earnings per shares increased by 42.6%, RONOC increased to 19.8% and free cash flow was up 24.5%, reaching more than CHF 260 million. In sum, all business units have increased their net sales as more and more clients choose DKSH to be their partner for market expansion and value-added services across Asia Pacific. In our unrivaled geographical span, deep omnichannel reach and expertise in multiple categories scale up to a compelling value proposition to clients and customers alike. We have a purpose-driven organization that operates with ESG values at the core to position us for long-term success. What equally set us up for future success is an increasingly important part of our strategy growth, namely acquisitions. They provide us with access to attractive business segments and expand our market position. In '21, we successfully closed 7 companies across all 4 business units. Especially in our Performance Materials business, we secured several bolt-on acquisitions, with SACOA in Australia, Right Base Chemicals in China and HTBA in Spain, we strengthened our foothold in the specialty chemicals and ingredients distribution industry in Asia Pacific as well as in Europe. The integration of the companies is proceeding very well, and we are confident that these acquisitions will further strengthen our business and market position. Our strong future M&A pipeline and balance sheet provides ample of opportunities to accelerate growth further this year. Our convincing results and strong M&A track record allow us to continue our progressive dividend policy. Our confidence in the future is supported by strong cash flow performance, which led the Board of Directors to propose a 5.1% increase in the ordinary dividend to CHF 2.05 per share. This is in line with our progressive dividend policy, under which we have paid a higher ordinary dividend since the IPO in 2012. Let me now continue with an update on our business unit, starting with health care, please. Results are ahead of last year's level with an accelerated performance during the second half of '21, notably despite the impact of COVID-19 on the health care industry in Asia, the lockdowns seen in the third quarter and the difficult market environment in Myanmar. Our purpose of enriching people's lives came into full effect in '21. We played a key role in supporting governance by supplying the public with COVID vaccines and test kits. In total, we have distributed more than 80 million of COVID doses such as from AstraZeneca as well as test kits across the region. In line with this division's outlook, we provided exactly a year ago, we continue to monitor our expenses, expand our digital channels and advance in higher-value segments and services. And lastly, on the M&A side, we strengthened our geographical footprint by acquiring MedWorkz in Singapore and Hahn Healthcare in Australia. Moving now to the business unit consumer goods. Here, we strongly improved profitability with EBIT margins reaching the 2.2% mark again. Our fast-moving Consumer Goods segment, we are harvesting the benefits from the transformation of the division. EBIT increased double digit for the third consecutive year, thanks to an enhanced service portfolio, driving gross margin expansion, a leaner and more agile organization with a very strong leadership team, a consistent strategy execution across all markets and first time contributions from the acquisition of Australian field marketeer Crossmark in 2020 and STP in '21. In the luxury and lifestyle segment, we see a continued gradual recovery albeit from a low level. However, in view of the Omicron variant, travel will remain limited. The watch brand, Maurice Lacroix, further improved their positive results. Let us turn our focus now on the business unit Performance Materials, where we recorded another year of strong performance with double-digit sales as well as EBIT growth. As you all know, '21 was marketed by global supply chain constraints and shortages. However, the strong technical expertise of our team, the value-added services, wide market coverage and focus on digital marketing we provide in our Performance Materials business helped us to overcome these challenges. The Industrial business increased sharply and the Life Science business, including food and beverage, personal care and pharma performed well across key markets. In addition, we successfully signed the before-mentioned 3 value-accretive acquisitions, thereby taking further steps towards consolidating the Specialty Chemicals distribution in the industry, in Asia Pacific and in Europe. Based on our scalable business model, strong business development pipeline and consolidation potential, I am very confident for solid future growth opportunities in this business unit. Concluding our business unit update with technology, I can highlight that we grew sales organically as well as through the Bosung acquisition in Korea. We have to bear in mind the thought that pandemic-related movement restrictions impacted the service business and product mix and supply shortages delayed equipment deliveries. From this perspective, the EBIT was slightly behind last year. Overall, the business unit is on track with implementing its focused strategy and digital transformation. With that, I now hand over to Ido, our CFO, who will walk you through the financial numbers in more detail. Ido, please.

Thank you, Stefan, and welcome, everyone, also from my side. I'm pleased to provide you with further details of our 2021 results. Let me start off with our net sales. We achieved 5.4% growth at constant exchange rates. This growth has met our objective that we call GDP-plus. It describes our mission to grow faster than economic growth in the markets where we operate. We do this by winning market share for our existing clients as well as winning brand new clients. Organically, that is before M&A and FX, our net sales increased 4.6%, with all business units growing. In 2021, we successfully executed our strategy of scaling our platform, not only organically but also through M&A. We have stepped up our efforts in this front in half 2, adding 4 new acquisitions to the 3 already accomplished in half 1. In total, we acquired 7 margin-accretive companies in 2021, deploying as much as CHF 91.5 million at competitive multiples and across all business units. As mentioned by Stefan, we pursued 2 main priorities in our capital development strategy this year, one is the specific industry-focused and the other one, geographical. First, we continue to drive consolidation of the specialty chemicals industry with the acquisition of SACOA, RBC and HTBA, thus reported the 2020 acquisition of Axieo. Secondly, we continue to grow disproportionately in Australia and New Zealand with the acquisition of Hahn Healthcare, STP, both joining SACOA in 2021. This acquisition followed the acquisition of Crossmark, CTD and again Axieo to a total of 6 accretive deals in Australia and New Zealand in the past 20 months alone. Our M&A strategy is already bearing fruit. From a category perspective, we have strengthened our #1 position in specialty chemicals in Asia Pacific. From a geographical perspective, today, we can offer a wide and meaningful array of expansion services across all our business units, not only in Asia, but also across ANZ region. In total, these acquisitions added 0.8% to our net sales. Finally, our net sales have adversely been affected by a negative 2% following the strengthening of the Swiss francs against several Asian currencies. Let's turn our eyes now to the development of EBIT. First of all, I'm very pleased with this double-digit EBIT growth. It is up organically 10.1% driven not only by sales growth, but also disciplined cost optimization and control initiatives that delivered margin gains. M&A added 2.4% and was consistent with our strategy being margin accretive. Similar to net sales, FX had a negative impact of minus 2.4% on our EBIT this year. As a result, core EBIT, which excludes one-offs, reached CHF 283.4 million. Now let me explain this one-offs in more detail. First, we have a onetime noncash gain of CHF 10.3 million, as we extended our partnership with aCommerce. As part of our omnichannel strategy, over recent years, we have built a successful B2C platform to complement our B2B offerings. At the same time, and as early as 2015, DKSH has made a strategic investment taking a substantial stake in aCommerce, a leading e-B2C specialists in Southeast Asia. Over time, we have successfully developed an operational partnership between aCommerce and DKSH. This partnership has reached a level in 2021 that made us confident to shift our e-B2C fulfillment to aCommerce in Singapore, Thailand and Malaysia. We have done this in exchange for an increased stake in aCommerce, which now also entitles DKSH for 2 seats on the Board of Directors of aCommerce. The consideration for this transaction taking aCommerce shares was valid at CHF 10.3 million. Related to this but not displayed on this chart and not part of our EBIT is a positive CHF 33.8 million noncash revaluation impact of our investment in aCommerce. This revaluation is reflective on aCommerce stellar results in 2021. As for the second one-off, you see in the chart, we recognized CHF 9.1 million nonrecurring and noncash share of loss in the associate, an associate in which we hold a minority share. Excluding the one-off effects, PAT is up 25.1%. Let us move on to review cash generation in the period. An important part of our strategy is our asset-light business model. We typically lease our offices, we lease our distribution centers and even our transportation fleets are leased when they are not fully outsourced. As a result, our capital expenditure in 2021 remained at a lower level of 0.5% of net sales. This figure is not only low, but also includes a catch-up effect for some projects delayed from the early pandemic waves of 2020. For example, a move into a new and modern distribution center in Taiwan. Accordingly, CapEx stood at CHF 55 million in 2021. For 2022, we expect CapEx to remain at 0.5% of net sales. In conjunction with our accelerated M&A strategy, we continue to focus on working capital optimization in 2021. For a second consecutive year, our cash generation was well ahead of profits. Free cash flow in 2021 was CHF 261.6 million compared to CHF 210.2 million last year. Cash conversion measured as free cash flow over profit after tax was 134.8%. This disproportion of cash generation follows 135.4% of conversion achieved in 2020. Going forward, with the various working capital components now largely optimized and structurally asset-light model, we expect future cash conversion to be closer to our long-term objective of around 90% of PAT. However, it should be noted that we may on occasion chose to put our strong balance sheet to work on a short-term basis. For example, when specific growth opportunities arise or when clients offer us material discounts to advance our payment to them. Let us now move to our balance sheet. It continues to show its strength overall and by many individual components. Here, I wish to highlight 3 things. First, the net cash position at the end of 2021 was CHF 367.3 million. It is up CHF 25.1 million compared to the same period a year ago. This is after topping up dividends to CHF 126.8 million, accelerating M&A investment to CHF 91.5 million. Second, working capital, defined as trade receivables plus inventory minus trade payables, is at CHF 1 billion, CHF 33.2 million down versus a year ago, despite our growing sales. As a percent of annual net sales, working capital is down 60 basis points to 9.0%. But not only that our working capital is down in absolute for a second year in a row, its quality has improved, also for the second consecutive year. The level of our excess, aging stock as well as our sale overdues are all at multiple years low. These are a result of the relentless and passionate work of our business teams that have been able to increase customer order fill rate this year by working with leaner inventory and collecting receivables faster. And third, our equity ratio is at 35.3%, up for a second year in a row. It provides with ample room for leverage, leverage we can engage at the right opportunity to continue to grow our platform through industry consolidation. Before I turn to Stefan to elaborate on our prospects, let me provide you with some financial indications. In terms of M&A, we estimate that our recent acquisitions will contribute 0.6% to net sales in 2022. On the FX side, assuming that current rates prevail for the remainder of the year, we expect the full year FX impact within negative 1% to 2%. Tax rate we estimate will remain within the mid-range of 27% to 29%. Capital expenditure is expected to be set to remain at 0.5% of net sales for the full year. With that, I would like to thank you for your attention today and hand over back to Stefan.

Thank you for this financial review, Ido. Before wrapping up, let us focus on the outlook. In view of our strong results in '21 which prove our diversified and resilient business, we expect further EBIT growth in 2022 and deliver GDP-plus. This outlook is based on the following 3 assumptions: economic growth in Asia Pacific weighted by our footprint. Currently, it's forecasted to grow from 3.2% to 4.5%. Stable exchange rates for the remainder of the year and excluding any unforeseen events. Factoring in these indicators, we remain very confident about the long-term potential of Asia as the dynamic growth region of the world, which is expected to be accounting for roughly half of the growth in global consumption over the next decade and driving the rise of the middle class. We are very well positioned to benefit from favorable market industry and consolidation trends. Notwithstanding external factors, we will continue being the trusted partner for our stakeholders, reliably supplying essential products and building a better company in 2022. Thank you very much for your attention. And now I would like to open the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Andy Grobler with Crédit Suisse.

Three questions, if I may? Firstly, on Performance Materials, where operationally was very strong last year. Pricing has been strong across the industry, given those supply chain constraints. What are your expectations for the sustainability of that pricing through this year and I guess, in the medium term? Secondly, in terms of M&A, you talked about the strong pipeline. Could you talk through market conditions? And I'm thinking particularly actually of Performance Materials, where there is a lot of competition for those assets at the moment? And then thirdly, just within consumer -- or sorry, within health care COVID vaccines, what was the impact on growth and profits in '21? What are your expectations for this year?

Okay. Thank you very much for your questions, Andy. And indeed, I mean, the conditions in Performance Materials were very favorable and prices also due to the shortage of product or availability play a role in the performance of our PM business as well as, I think, with all the competitors. So we expect that if you look at the numbers that around 80% was coming from volume and a little bit more than probably 20% was coming from price increases. So far, we have not seen any material price decreases. We do expect that over time, the situation is going to normalize a little bit more. But on the other hand, I mean, the sector in total and the chemical industry is still facing some tailwinds. So we expect a good outlook here not only for '22, but also beyond this year. The market consolidation or M&A activity is, indeed, it's very active. It's also competitive. On the other hand, if you look into the BCG study, there are still over 20,000 players available globally to be consolidated. So you don't -- you should not expect that in every target we look at that we are continuously bidding against the other 3, 4 big consolidators in this world. Sometimes, there is 1 in there, sometimes there are 2 in there. Prices are indeed -- they increased in '21. I expect that in '22 and '23, the price level of the multiples will come slightly down again. And I think there are a few indications. Our pipeline looks very strong, very strong in Asia Pacific as well as in Europe. And we also have some targets in the pipeline in North America. So we do expect that we can show this year even more activity in the M&A market than last year. And the third question, I hand over to Ido.

Okay. Thank you, Stefan. And if I understood the question was the impact of COVID-19 on the CG I heard in the health care business. Overall, we've seen consumption increasing versus previous year. It is not yet at the levels that we experienced before the pandemic, of course. One of the main reasons that tourism and general mobility across the region have not yet come near to where they've been in 2019 and before. We expect some improvement in 2021, but in -- sorry, 2022. But we see that at least short term, there's still considerable restrictions across the region. In terms of business related to the pandemic, we're very proudly serving vaccinations in 5 countries, helping the overall effort to combat this pandemic and also participate in distribution of testing kits in several of the markets. The overall impact on our P&L have been relatively minor as this is not -- this is a business that we also do with a certain courtesy to the people of Asia and not necessarily for profit generation.

The next question comes from the line of Pascal Boll.

I have also 3 questions. First of all, a follow-up question. You now reported higher net cash again, thanks to nice cash generation. I think many people are asking, are we going to see that piling up over the next years or will there be something larger you acquire, which would then, yes, meet those cash? Or are we going to see more of those smaller, yes, bolt-on acquisitions? And then it maybe comes up the question if we should not see like the cash out, the return of cash to shareholders in the form of share buybacks or something similar? And this is my first question. Secondly, touching on consumer goods. You have improved the margin materially. When I remember correctly, there was a target of 2.5% you were aiming at in the past, but you haven't given any other outlook for. Can you give there some? And finally, you have posted a strong free cash flow with another record in cash conversion for the second consecutive year. I think last year, you said this is not sustainable. This year, you even exceed the level of cash conversion this year. Yes, when do we see a reversal here?

Okay. Thank you very much. Maybe I start with the CG question, and then I hand over to Ido for the cash-related question. Yes, indeed, we gave guidance that the objective is or was to achieve 2.5% margin in the second half of last year. Obviously, there was a significant uncertainty because of COVID. And I think that uncertainty was there rightly because the Q3 lockdown was not foreseen. But despite this lockdown in Q3, we had a very strong Q4. And we -- despite everything and anything, we did achieve the 2.5% margin in the second half of the year. We will continue to strive for margin enhancement also in the year '22 and the years moving forward. And then let's see how far we get there in the year 2022. But the focus is on to further improve the results and also step up our market performance and deliver sustainable growth. Ido, would you like to?

Yes. Happy to answer the 2 questions related to cash. I think the first one was more about the future usage of cash and the second about the rate of accumulation. At the moment, as Stefan said in the previous question, there are many deals that are being discussed. There are many targets out there, and we believe that there's a good chance that we will even intensify our deals -- our M&A acquisitions in 2022. Of course, there's never a guarantee. And as we've seen in the past the year can fall in the last minute, but we're certainly planning to put our larger cash pile this year to work harder for us as we increase the M&A spending in 2021 to CHF 91.5 million versus the around CHF 62 million we spent in 2020. With regard to the sustainability of the cash conversion, we have -- we continue to claim that over a longer period of time, we can also do more cash in profit, no business. And yes, we have been more successful than we even believe in the second half year back in the first half. Our collection was very strong and so was our inventory management. We did benefit a little from some inventory shortages. So especially inventory that came from North America or inventory that has to reach Australia had some supply shortages, which helped us to keep inventory low and demand high. Over time, we retain that we cannot produce cash ahead of PAT, hence, the guidance to go down back to around 90% of PAT over the long term.

Maybe a follow-up question here. I mean is there also a risk? I mean you're talking about just-in-time deliveries, there also a risk around these low levels of inventory?

I didn't hear you clearly, I apologize. Look, at 9% of net sales of working capital, it's not a race to 0. We cannot run the company with 0 working capital. There are occasions, there are seasonalities where we can go below. There are occasions in which we will have to go up. Overall, we believe that right now, we're at the very optimal level of working capital and do not expect it to improve as a percent of sales significantly from here.

The next question comes from the line of Gian-Marco Werro with ZKB.

Congrats for the strong results. Three questions from my side, please. The first one is also pointing out to your consumer goods business there. I'm also impressed about the margin improvement in the second half of the year. Can you give us a bit more flesh to the bone there in relation to the luxury business? As I understand, this is usually margin-accretive, but do I understand correctly or I assume correctly that the luxury business is still performing quite poorly and therefore, this margin improvement that we saw now in the second half of this year was mostly from your fast-moving consumer goods business? That's the first question. Then the second question is in relation to health care. I'm also positively surprised about this [ max ] acceleration of growth that we see here. Is this also -- has to do with an improved consumer sentiment mostly also in Thailand, Malaysia and Taiwan? Maybe you can elaborate a bit more about the background of these growth dynamics in this kind of business segment, please? And then just also for net working capital levels. So we definitely have to assume now I can expect that especially your trade payables will also come down meaningfully as I just saw in your balance sheet, this number helped you strongly during the last half year. So do we assume correctly that the trade payables mostly need to go down again also going forward?

Thank you very much, Gian-Marco. And let's start with the consumer goods, please. Yes, your assumption is right that the strong drive of the strong EBIT development was coming from FMCG. As we stated in the announcement, luxury and lifestyle is improving from a lower level. And again, obviously, the lockdown, for example, in Q3 and still some travel restrictions, et cetera, is not going to help the retail market at this point of time. But we see a very strong performance in FMCG by the team overall and some room for even further improvement also in terms of the margin, as I said before. In health care, yes, you're right as well. There was an acceleration of growth in H2, not that much in Q3, to be honest, again, because of the lockdown scenario we were faced with. But in Q4, actually, 60% of the business, as you know, is going into the hospital channel, and that is where the majority of the growth was coming from across most of the countries because the restrictions were lifted and hospitals went again back to, yes, normal level of surgeries, et cetera. So it was not that much the over-the-counter business, it was more big pharma hospital channel delivering those results. And the last one, I hand over to Ido, again.

Yes, let me give you some more meat on the bone on net working capital. It is true that at absolute level, accounts payables are higher versus last year. There are several effects here, I'd say. First of all, this has always been our business model. In most of our contracts, our payment days are higher than our receivable days. And in certain things we've been victims around success of collecting quickly and being flat despite growing sales of several high single -- sorry, mid-single digits. None -- we don't have any overdue. So this is not a tool that we use in order to prevent a number or anything like that.

The next question comes from the line of Stefanie Scholtysik with Mirabaud.

I have 3 questions. One is on EBIT coming from others. So corporate costs, they increased from CHF 50 million to CHF 67 million. Can you explain or share with us from where this increase is coming from? And what we have to assume going forward? Is that the new corporate costs? And then on Consumer Goods, the organic growth was 1.5%, which was a bit lower than what I expected. I mean 1 reason is certainly that you called out certain products. Is this process, is this going to stop or is this going to continue in 2022 or until when will it be finished? And the third one on health care. I mean this very strong organic growth, that's very impressive. But then when I look at the margins, they were rather stable. I mean I'm missing here a bit the operating leverage. Can you explain why the margin did not increase with such a strong organic growth?

Okay. Let me start with commenting on the increase in the non-BU expenses. We have made significant investments this year in IT and digital, also in the area of cybersecurity to strengthen our company in that front. And some of this is also an impact of catch-up effect from last year with non-BU has decreased to CHF 54 million in 2019 to CHF 50 million in 2020. We also made some investments that are not BU specific in supply chain. I mentioned some of the pieces earlier. And here, we also being a little bit victims of our own success again because some of the incentives has increasing costs due to the share price increase over the past year.

Okay, Stefanie, I will take the question regarding CG 1.5% organic growth rate. Yes, you're right. I mean we are still in the process of client and SKU rationalization and threading them out of the portfolio. This is a drag around 2% to 3% or was a drag of around 2% to 3% in '21. There's still something going on, and there's always something going on. I think as we explained in the past, I mean, it never stopped. It's always going in, going out, but there is still a little bit of one-off in -- to be expected in H1, but not to the same degree as what we have seen in last year. So that means a 2% to 3%. If you just -- as a benchmark here, if you look across Asia, the same-store sales, of CP that are the 7/11 stores or Big C, I mean those parties or players were faced in Q3 with a decline somewhere between 7% and 9%. So if you then compare our performance against those sales, you see that the team is doing a pretty good job on the ground. Regarding health care margin development or this table, what is missing there at this point of time is really the business being sold -- over the counter business sold to tourists as well as the cross pharmacies, which is a little bit lower. And that is the reason why you see right now no economies of scale despite some growth, and we are obviously also investing in our e-commerce business as well as expanding our footprint into more countries.

The next question comes from the line of Pascal Furger with Vontobel.

First of all, on Consumer Goods, just a follow-up. Did I understand correctly due to basically your SKUs and client rationalizations, this year, you will still sort of grow below the GDP growth forecast of 3.5% you mentioned is currently expected for the region? If you could just at least confirm that? And then also in terms of regional performance a question here on Thailand. So I actually derive almost 4% organic growth, which is quite okay and implies also a substantial acceleration in the second half of the year. So in your view, has the consumer sentiment improved? Because looking at the political environment, it appears uncertain and also you mentioned the luxury and lifestyle business has still not fully recovered in the absence of tourism. If you could just give us some more flavor there? And then last question on your e-commerce business. So you shared some numbers at your last Investor Day was quite some bullish statements. And can you just, please, remind us what the contribution in millions Swiss franc terms was for 2021?

Okay. Thank you, and thank you very much, Pascal. And yes, in CG, I mean the focus is still on building a better business before just a bigger business, but we do expect a higher organic growth rate in 2022 than in 2021, coming close to the GDP rate you did mention before. In terms of consumer confidence, I mean, the uplift is not coming from tourism. I mean we all read the news and the sandbox and the different opportunities that gave tourists to come in were not really leveraged. So the amount of tourism is still close to 0. So it is indeed primarily the consumer sentiment locally of the people who are going back to the stores and buying, which is supporting the numbers, but as we said before, from a low level. In terms of our e-commerce business, yes, I mean, we have seen over 40% growth in our e-commerce business in 2021 and deliver now more than CHF 300 million in e-commerce. Did that answer your questions, Pascal?

Yes. Perfect...

Okay. Thank you.

The next question comes from the line of Nicole Manion with UBS.

I think mine are mostly answered, to be honest, in the Q&A, but maybe just 1 more then from me. I wanted to ask if there's any more detail at all that you can give on the FMCG versus luxury and lifestyle breakdown at the profit level? Because we know that FMCG has been sort of doing really well now for 2, 3 years in terms of the recovery. That's obviously been mitigated by, first of all, issues in the luxury, lifestyle business and then the pandemic, but it's difficult to split out the moving parts. And then you've got food service, which is kind of in the FMCG bit as well, but what seems to have been a bit not really discussed since the Auric acquisition. So I wondered if you could give any more numbers or at least maybe some kind of indication of, yes, of how that splits out and how everything is kind of doing within that?

Okay. Yes, with pleasure, Nicole. So the Luxury and Lifestyle business is around 5% in terms of sales of the overall business. And you are right, it's in -- if you look at the CG margin, it's margin-enhancing. It is a profitable business ahead of the core business in terms of margin. We see some good development making progress, but on a very low level. What is not a surprise since, as I said before, if the stores are closed, it's really hard for the people to spend money. But as soon as the lockdowns are being released, people go back to the stores. So we do expect that in 2022, we will see a further uplift in this. Business is moving in the right direction, it's a profitable -- cash flow positive business. But again, coming back to the Capital Market Day statement, there's also -- there is some business in there where we are just harvesting contracts, especially on the luxury side because strategically, we don't consider that business as core and are saving a few of those contracts out.

Okay. Great. That's clear. Anything on food service, particularly Auric?

Yes. I mean overall, if we look at the Auric business, again, despite those lockdowns where restaurants were closed and hotels were empty, we're ahead of the business plan, which we signed off during the acquisition process. And we -- yes, it's a good, nice profitable business, where we're in a leading position in Malaysia as well as in Singapore. And we are rolling this business into new markets and expect a gradual improvement over the months to come as soon as the stringency index across Asia has been further released.

[Operator Instructions] We have a follow-up question from Mr. Grobler with Crédit Suisse.

Just 2 quick follow-up questions, if I may? Performance Materials going back to that. Margins were up very strongly in the first half, but flat in the second half versus last year. Could you talk through why that's the case? And then secondly, just a bit of clarity on the central cost you talked through why they had gone up. What are the expectations for this year and ongoing is the 2021 number the new normal?

Okay. Yes. Maybe I'll start with Performance Materials. I mean, first of all, the comparables for H2 were higher than the year before. We were faced with the lockdown in Performance Materials as well as in the other business in Q3. And then we had some additional significant M&A costs in there, and that is the reason why you see that the margin development was slightly below H1.

As for the non-BU costs, in terms of our investment, yes, as I said before, we had a catch-up effect this year. I expect in the future to -- we've been planning to grow slightly behind net sales growth as we are quoting, net sales as we grow, but slightly behind. Of course, this is the part that we completely own and spend the part related to our share price will also depend a lot on your valuation.

Yes. We have a question from Mr. Cameron Robson with Northcape Capital.

Yes. Just interested to hear a bit more about aCommerce. Could you elaborate on what, if anything, is changing with the aCommerce relationship? You mentioned that you've now moved to their fulfillment in some markets. And just can you give us a sense of how quickly your sales with -- in partnership with aCommerce are growing? Is it similar to the 40% growth rate you mentioned for e-commerce? And what kind of growth can we expect from aCommerce and e-commerce going forward? And just finally, I understand aCommerce is planning to list on the SET this year. Do you intend to increase your strategic stake further ahead of listing?

Okay. Thanks, Cameron. I mean maybe just for a better understanding, I mean, our strategy is to offer our clients the best omnichannel experience within the region. And as we said before, I mean, we are seeing some very high growth in this segment as to other market players. We are very strong in the B2B segment where we are selling products onto platforms. But our strategic partner, aCommerce is much better in delivering B2C. At the end of the day, right, I mean, our infrastructure and our processes are not perfectly built to send out $5 and $10 packages. There are others out there in the market, which can do that significantly better. aCommerce is the leading e-fulfillment provider across the region of 6 countries. The biggest and most important country for them as well is Thailand. They have around 700 people and very well-branded large multinational clients. So at the end of the day, by moving this relatively very small B2C business into the hands of our strategic partner. We can offer our client a better B2C experience. And obviously, we also do expect that we are going to see even a higher growth there comparing to what we delivered in, in the past. In terms of their IPO, yes, I mean, we can't comment on that. We know there are articles around that, that this IPO process is in the making. And I'm sure at one point of time, the market will be informed about the progress in this regard. We hold the 21.6% of shareholding, which you can see in the annual report. And at this point of time, there is no intent to change that moving forward.

We have a follow-up question from Ms. Scholtysik with Mirabaud.

I have 1 on your outlook. You state that you expect EBIT to grow in 2022. I mean that's nice. What should happen that this EBIT is going to grow strongly in 2022, especially when I look at the consensus numbers, this actually are implying that you're EBIT should grow stronger or very strong and not just grow? Or can you quantify this growth a bit?

Okay. Yes. Thank you very much, I think our '21 results showed very strongly that despite the headwinds we are all facing due to COVID, we can deliver GDP-plus growth, and we are very confident that we can also do so in 2022 on, as we said before, on an accelerated GDP forecast across the region. But we have to put also into consideration that there are still some restrictions of COVID and Asia is a little bit behind on the curve in terms of the release of those restrictions. If you look at the Stringency Index, for example, I mean, it only came down from 58 to 55, this is comparing Q1 last year to Q1 '22 comparing to a Stringency Index of like 30% in the U.S. or numbers around 40% in Europe. So we have to face reality that in Q1, the breaks are still a little bit on. But I do expect that as what we see here that this is going to be released and with a strong track record we have, we will again deliver GDP-plus growth rates. On the other hand, please also put into consideration, we have seen very strong EBIT uplift in CG and Performance Materials north of 25%. We can obviously also not repeat that year after year. So we are very optimistic looking into '22 and we'll deliver, again, a stronger EBIT.

We have another follow-up from Mr. Werro with ZKB.

Just a quick follow-up again on the Performance Material EBIT margin. As I understood, thanks for highlighting this M&A costs that you had considered also in the second half of last year. Can you maybe quantify these M&A costs roughly? Or if I just ask the question differently, can we then still expect an EBIT margin to be possible for the ongoing business of, let's say, 9.3% or well above 9%?

Let me take this question. I think the -- we had several activities related to M&A and the impact for the second half year was around 30 to 40 basis points of the margin. The region of 9% of our long term, the area of 9% EBIT margin is probably where we believe we're going to stay in the next few years of current market conditions.

The next question is another follow-up from Mr. Boll with Stifel.

Yes. First question regarding food service, you mentioned before. For -- what food service exposure do you have in the CG business? And the second question is regarding health care and medical tourism. I think prior to pandemic that was quite an important business. Do you expect that to fully recover maybe, let's say, 2023 on or whatever? Or do you believe that people got -- received treatment in other countries, and there is now a change in behavior? Or what is your view on that?

Okay. I mean in terms of food service is under 5% of the FMCG business. So it's not material, but it's a nicely growing and margin-enhancing business. In terms of your health care question, yes, it's a medical tourism as well as over-the-counter product. In 2022, I think we can expect that -- I mean, from a very low number, that tourism is going to increase. I don't know if you have seen the headlines. Right now, there are some discussions between Thailand and China to probably create a travel bubble to make sure that Chinese tourists come back to Thailand. If that is going to materialize, that would be very nice for the country of Thailand, but let's wait and see. There's still probably many hurdles there. I mean over time, I not only expect that the numbers are coming back to where they have been before, I think there will be even a catch-up effect. I would be surprised if in the long run, people will travel because of COVID. I think people were now 2 years, they were locked up and couldn't really travel, especially in Asia, right? I mean here in Europe, we still have the luxury to be able to visit Italy or Spain, as an example. But over there, I mean tourism was completely frozen for the last 2 years. So I'm optimistic there is a catch-up. And I'm sure that maybe more like '23-'24, we might even be able to see higher numbers than what we have seen before the pandemic.

That was the last question, Till. Back to you for any closing remarks.

Yes. Thank you very much, everybody, for all of the questions. Enjoyed the session. We look forward speaking to you in staying in contact. If you have any further questions, please contact the Investor Relations team. We wish you a very good day and see you soon. Thanks a lot.

Yes, thank you very much. See you on the roadshow. Bye-bye.

Thank you.

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