DocMorris AG

Welcome to the ROSE half-year results conference call. I am together with Marcel Zivica, CFO, who will discuss the details of the results, and Olaf Heinrich, who will give you an update on the developments around the electronic prescription opportunity, integration, and synergies. I will start with a short strategy update as well as an update on our progress on our journey of building Europe's leading healthcare ecosystems. Let me first briefly look back at the first half year and give you a broad review of the progress we made before handing over to Marcel. The first half year was very active and successful and clearly marked by the exceptional situation in relation to the COVID-19 virus. The biggest news for our industry in the first half year actually came in on the 3rd of July when the German Bundestag passed the PDSG law, ultimately making e-script in the mandatory format for scripts in Germany starting in 2022. With our active approach, We are aiming for some traction for the electronic prescription ahead of the mandatory rollout. In this context, we have signed a number of partnerships, most importantly with Technical Krankenkasse and Medaptix. We will explain this approach in detail later. The acquisition of German leading telemedicine provider Teleclinic is a strong addition to the group's ecosystem strategy and will further support our electronic prescription initiatives. We are convinced that there is a significant synergy potential between telemedicine and electronic prescriptions. which we aim to capture. Our top line developed in line with guidance and with excellent organic growth on our DocMorris and Medpacks brands in the OTC segment. The acquisition of Aputal instantly extends our leadership position by adding 1.1 million customers to the group, raising our customer base to now more than 9 million on a European level. including Aputal, our market share in Germany is now at 40%. We have also made significant progress on our path to profitability with improving the gross margin and are well on track to achieve our full-year targets. I'm thrilled that the first pieces of our ecosystem are coming to life and that we are able to demonstrate via the acquisition of teleclinic that we are well on the way to becoming the healthcare ecosystem in Europe. The combination of the digital doctor visit and our electronic prescription marketplace platform will allow us to offer solutions along the digital patient journey from awareness to diagnosis to treatment to adherence. For the second half of this year, our main focus is on the electronic prescription, And within this topic, the highest priority is the launch of our customer-facing app, which we expect to go live not later than in the fourth quarter of this year. Our financial position was strengthened by the issuance of convertible bonds as well. as the capital increase on the 16th of July. With that, we can now focus on the rollout of electronic prescriptions from a position of financial strength. With these openings, opening remarks, I will now hand over to Marcel, who will explain the financial development.

Good afternoon, and thank you, Walter. Food sales increased by 19% in local currency as already communicated on the 16th of July. This is in line with our expectations and with Q1 being more dynamic while Q2 was lower due to COVID-19 effects in certain areas. Starting with Switzerland, we achieved an H1 goal rate of 5.5%, which is in line with our strategy of sustainable growth in the mid-single-digit area. The stock billing in Q1 and the COVID-related restrictions for doctor visits in Q2 balance out each other. In our largest segment in terms of sales, Germany, we were able to grow, including Netflix, by 88.5% in local currency. This was mainly driven by our strategic position to decentralize marketing on paper prescriptions. and also includes a strong performance in our core OTC brands. Taking Netflix as an example, sales growth came in at a very strong 36% delivering best-in-class performance across the board. Part of our strategy has always been focused on achieving goals via AdMate. Our analysis shows that the volume of grown and seasoned customer cohorts is very attractive compared to new customers acquired via price search engines and Google Shopping, where our quality is lower. In line with this strategy, we have acquired Apotal, the number five player in the German market, with sales of 175 million euros in 2019, extending our market share to 40% in Germany. As communicated, we just closed that transaction and are expecting ApoTal to be accretive in the second half. The revenues will, similar to Medvex, not be fully consolidated in our reported numbers in the beginning. Regnand Europe came in with a very strong performance in H1, with sales up 90.5% in local currencies. The translation effect overall on reported group sales was minus 4%. Next, I want to share the development of the KPIs of our E2C and marketplace business across all segments. The number of active customers rose from 6.1 million to 9.2 million, increasing by 51.2% compared to the 12-month period ending 3rd of This was driven by a strong organic increase in customers of 2 million and the customers added by the Avotale acquisition. Due to higher growth in the German OTC as well as the marketplace business, which typically commands slightly lower baskets, which more commoditize the products compared to prescription drugs and also B2C Switzerland, the average overall basket size decreased from 59 to 54 euros. The same holds true for the order frequency, which is now at 2.4 times per year. Our repeat order rate remains at the high level at 77%, which shows the extraordinary high loyalty of our customers. The decrease mainly results from the high number of new customers, especially in our Europe and Germany segment. In terms of site visits, we saw an increase from 276 to 243 million in the third month period ending 3 June 2020. Operating performance has clearly improved in comparison to last year's number. After adjusting for extraordinary expenses, the ETA margin has improved by a strong 1.5%. This improvement was mainly driven by an expansion of the cross-margin, which has improved from 15.7 to 17.4% on group level. The largest contribution came from the improvements in the German OTC cross-margin. Stronger growth in business models will lower market prices, as we have seen on the KPIO view before. lead to increased cost margin but also to increased variable cost ratios such as personal expenses and distribution. Marketing expenses were slightly higher as a percentage of sales because of an increasing marketplace UROC business with a higher marketing ratio. The finance expenses increased due to the interest rate on the bond and convertible bonds Additionally, the development of the Swiss franc zero exchange rate led to some foreign exchange losses. For transparency, we decided to define an adjusted ADPA level to show the operational performance compared to the previous year, irrespective of the influence of special items. These charges and income are currently related to acquisition and integration. Last year, we had the re-evaluation of Ernaut components, especially Medpacks. And this year, we share this retention package for founders, which are included in the M&A bar on the right-hand side of this chart. We got approximately 2 million Swiss francs integration costs are on a similar level as last year. At the operating level, we see an improvement of 8.9 million Swiss Francs compared to last year. Our financial target for 2020 is to achieve break-even on our established businesses in Switzerland and Germany, resulting in an adjusted EBITDA before expenditures on additional growth initiatives like electronic prescription, and also segment Europe. And for H1, at minus 2.6 million Swiss francs, we are on track to achieve our profitability target for the full year. With our one-way analysis, we'd like to show what our profitability would look like assuming completion of the planned integration steps. On the first line of the chart, you see our 2019 figures, including positive one-offs of 29 million. We have reached an EBITDA margin of minus 1%. The second line shows our run rate based on the current sales. The improvements are driven by increasing cost margins, lower picking costs in a more efficient logistics setup, a higher marketing efficiency by steering the segment with one leadership team, as well as from the realization of organizational synergies. The realization of this synergy will lead to an ABTA margin between 2% and 3%. With our half-year results, we are fully in line with our task to profitability. Firstly, we managed to improve our cost margin. Secondly, we implemented one organization for the German segment and integrated further service functions. Thirdly, we focused our marketing expenses on DocMorris and MedPax and are pursuing profitable growth. The key changes in the balance sheet were driven by the launch of the convertible bond in March, leading to a higher cash position and also higher financial liabilities. On top of this, the capital increase after the end of H1 in July further strengthened our equity base by $213 million. On the other hand, the negative free cash flow of 105 million Swiss francs included the payment and closing of the MedPax earn-out of roughly 42 million, temporarily increased inventories taken by COVID-19, and recurring investments of 17 million reduced the cash position. Overall, the balance sheet clearly has the financial strength to invest in our strategic initiatives and growth opportunities on which we will elaborate in the next part of the presentation.

Thank you very much, Marcel. Let's discuss future and let me explain our plans for the second half of the year on our three key initiatives with regards to our eHealth ecosystem ramp up. We are innovating to ease consumer health journeys via the acquisition of TeleKlinik, the leading German telemedicine provider. We are also in negotiations with a number of digital solution providers to establish partnerships to get closer to our vision of creating a place for every consumer to manage their health within one click. This place will be enabled by our leading technology, that we are developing via our tech hubs in Barcelona, Berlin, and Winterthur, with a growing team of our 100 tech-focused employees. I will provide a little more detail on this initiative in just a minute. In the German market, we hold the player number one position in terms of active customers and are in the pool position ahead of the electronic prescription introduction. Transferring our leading position in the OTC market with more than 8 million active customers in Germany into electronic prescription is our target as soon as scalable electronic prescription pathway opens up. Our first mover strategy and active approach towards scaling ahead of the schematic launch is gaining momentum with the partner network already built up, ready for the rollout. On the integration and synergy side, we have already seen some tangible progress in the first half year, driven by the segment-wide steering of marketing activities. The MapBase team, which has taken over all responses, has demonstrated their unmatched competence in this space, as you will see in the numbers that Olaf will show later. The integration of the acquired businesses is fully on track, with the communicated steps of integrating VitalSana and integration of further service functions through the rest of this year. The remaining locations will run as operational hubs. The group-wide branding strategy will be finalized during the second half of this year. Let me now give you an update on the digital healthcare ecosystem. As communicated during the last calls, we are in the process of building Europe's leading digital healthcare platform, building on our cutting-edge technology, unmatched links to a broad area of partners like insurance companies, our customer base of now more than 9 million on a group level, as well as the highest brand awareness is to create a world where everyone can manage their health in one click. This is the vision we are working towards from a transaction and distribution company to a unifying e-service platform enabled by leading technology with multiple revenue and also profit streams with the ultimate goal to ensure the efficacy of medication with the help of digital solutions. This motivates all of us as it will bring real value to the customers as well as to the healthcare systems. Based on seamless and personalized solutions, we want to make it easy, particularly for chronically ill patients to receive the optimal treatment and benefit from innovative solutions. They can trust us to plan their treatment pathways with controlled and effective medication along the way, and primed access to products and services, thereby disrupting an 800-year-old gilded system. On this slide now, you can see a typical customer journey through the digital healthcare system. We are working on innovating consumer journeys from awareness, to diagnosis, to treatment, to adherence by partnering with relevant providers of solutions along this journey and integrating their offering in a seamless way for the customer. We will do so by leveraging best-in-class solutions and convenient access to products to enable better lives for the consumers. A chronically ill patient can track their fitness or heart rate with a connected device and if a need to consult, the doctor rises directly access to the telemedicine service of teleclinic within the same app. After the doctor has decided on the treatment for the patient, the patient can take advantage of the best-in-class digital solutions tailored to his needs via our platform. If a medication need arises, a new script can be issued and redeemed as the pharmacy of choice by the consumer. Convenient adherence management apps help the consumer to monitor their health in an easy way. Within our ecosystem approach, we aim to leverage our existing assets to evolve our core business. Online pharmacy remains at the core and drives revenues. With our marketplace and platform business, we are opening up for local pharmacies to extend the product and service offering. Integrating partners, for example, digital health solution providers will drive customer acquisition and retention for the online pharmacy and marketplace business and advance our business models. As said before, we will evolve from selling pharmaceuticals to bringing the efficacy of medication to the consumers, especially the chronically ill. The acquisition of TeleKlinik has added an important building block to the consumer journey offered by the group. TeleKlinik is a pioneer in offering reimbursable consultation services compliant with the German National Health Insurance Scheme. The usage of rates of telemedicine have increased significantly since COVID-19 outbreak and teleclinic has also seen a large uptick in usage rates. Based on the current experiences, we estimate that e-scripts will be issued for up to 50% of all consultations on the teleclinic platform. This chart now demonstrates the momentum that telemedicine has gained over the past few months. According to BitCon, every second user prefers video consultation over visits to the doctor since COVID-19. Entrepreneur.com titles that telemedicine is laying the roadmap for healthcare's future. whilst data published in their own health reports that 62% of Germans are open to telemedicine. A projection by McKinsey shows that in mid-term, already up to 10% of all consultations move towards telemedicine, resulting in a significant revenue and earnings potential for teleclinics. With that, I hand over to Olaf to give you an update on the electronic prescription opportunity and our progress on integration and realized energies.