DocMorris AG

Dear ladies and gentlemen, welcome to the conference call-off to Rose Group AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Walter Oberhensly, CEO, who will lead you through this conference. Please go ahead, sir.

Thank you very much. Good afternoon, everybody, and welcome to the ROSI Group's 2020 Results Conference. I'm joined by Marcel, who will discuss the numbers, and as a result of the recent change in the management team, our new head Germany, who is Walter Hess, who I'm really happy to introduce to you today. Otto is actually a long-standing member of the executive board with a proven track record in leading the Swiss business as well as parts of the German business in the past. In his function, he has proven excellent inclusion capacity, ability to form and scale partnerships in the context of platform strategies and also new business models. He has a great network in the German and also Swiss healthcare system and we are all confident that Walter is the perfect fit to lead us through the upcoming growth phase initiated by the introduction of electronic prescriptions in Germany. He will now share with you firsthand insights on the developments around the ERX opportunity, but also brand integration and logistics capacity. an update on technology and new business before Marcel will finish with our 2021 and mid-term financial outlook. So let me now start with my personal summary of 2020. A quick word to start on the financial performance, which Marcel will explain in detail. With a sales growth of 14.4% in local currency, we exceeded our target for 2020. On the earnings side, we also achieved our target with an adjusted EBITDA before growth investments of minus 0.9 million. Nevertheless, EBITDA reported came in at minus 17 million, largely driven by extraordinary non-recurring effects that Marcel will explain. Important to notice that on a like-for-like basis, we achieved an operational improvement of 30 million. Our focus has to remain on growth, given the opportunities in our market, and it is crucial to invest now to fully capture the opportunities ahead of us. Overall, two main themes shape this year, which in my opinion has been one of the most important years in the history of SoRose. In the big picture, I see the preparing for the ARX opportunity and the developing and also investing in our tech capabilities, which builds the cornerstone in metamorphosis on an e-commerce to a tech company with a clear platform ecosystem focus. Out of the many highlights in 2020, I would like to discuss three. First, the regulatory changes around the introduction of the ERX triggered by COVID-19. especially the mandatory electronic format for prescriptions already starting in 2022. I see these changes as a turning point in the history of e-commerce pharmacy, whereas in the past the protection of brick and mortar was the common theme in legislation, a new regulation has to be seen as the starting of reshaping We had to wait a long while for these changes. The second highlight to pick out is the extension of our tech capabilities as demonstrated by the acquisition of TeleKlinik, which added a new business model to the group. The combination of the digital doctor visit and our digital medication services, fully enabled by ERRAT, will also will allow us to offer relevant solutions along the digital patient journey. We believe that telemedicine has a bright future by its own, and furthermore, will create a lot of synergies to our base business and vice versa. Via COVID, telemedicine has also seen an accelerator in acceptance, which boosted overall telemedicine visits. We invested heavily in our tech capabilities, and the results can already be seen. With the multiple contributions of our subsidiary ESTech to enable the ERX backend infrastructure, then our first fully in-house developed app, and within the successfully launched Cooperation or Better Joint Venture with CSS, Allianz, and Visana as a proof of the accuracy of our efforts. I see indeed a third highlight within the changes in our team. Walter brings his knowledge in building platform-based networks to Germany, and his track record in operational excellence will further improve our execution in everything we do. In the summer 2020 has been a very important year, with course-setting key milestones in the areas of ERX technology, and our management setup to fully focus on the direct introduction, execution, and to continue on our growth trajectory. These opening remarks, I'd like to hand over to Marcel who will explain the financial development.

Thank you, Walter. Good afternoon. I'd like to start with the achievements of our communicated targets for 2020. As you can see, we delivered on sales and also on ABTA. With sales growth of 14.4% year on year, we exceeded our target of over 10%, like we already communicated also in January. On the profitability side, we achieved our target of break-even on an adjusted ABTA level and before expenses for additional growth initiatives. This corresponds to an operational improvement compared to previous year of roughly 30 million on a life-for-life basis and shows that our established business models of e-pharmacy is a sustainable one. And I will explain the extraordinary items and the impact of the COSIN initiatives in detail later in the presentation. But let's start with group sales growth of this 14.4%. Overall, the impact of COVID-19 on our sales development was a slight tailwind in 2020, with extra demand and impact in all business models and segments. In Switzerland, we achieved a growth rate of 7.1%, which is ahead of expectations and also above market growth. Both B2B and B2C business performed very well, driven by higher volumes from existing customer and new customer growth as well. In our largest segment in terms of sales, Germany, we were able to grow by 16.5%. This is in local currency and includes Medtex and Uppertown. Main drivers of this growth were our base business, despite a flat development in our paper Rx business, as well as strong performance of our OTC business and the acquisition of Apotal, which is included in the numbers since the closing of the acquisition in August. Especially our core brands go at a strong pace. The third segment spot delivered a very strong performance with sales of 73.5% in local county. This was possible to a significant increase in the number of active customers, which now stands for above 1 million. Next, I want to share the development of the KPIs of our B2C marketplace business across all segments. On the left-hand side, we see the development in the growth of the number of active customers, 10.5 million, corresponding to a growth rate of 52%. This was driven by a strong organic increase in customers of 2.5 million and 1.1 million added via the acquisition. Continued higher growth in the German OTC as well the European marketplace business with typically more commoditized products and slightly smaller baskets compared to RX and B2C in Switzerland. The average overall basket price decreased from 57 to 54 euros. Same holds true also for the order frequency which is now at 2.2 times a year. Our repeat order rate remains at a high level of 76%, which shows the significant loyalty of our customers. The decrease was driven by the large number of new customers, especially in our Europe and Germany segments. In terms of site visits, we saw an increase from 216 million to 244 million in the 12-month period ending end of 2020. Besides sales sales operational improvements, investments for growth initiatives and extraordinary effects were the key drivers in the P&L. This P&L shows the adjusted numbers without extraordinary items, but including expenses for growth initiatives. With this, we want to show the operational performance on a comparable level to previous years. One comment about the sales, we want to continue to show both the reported sales line as well as the sales line, including MedTech and APOTAL, which shows the best view on our growth performance. As the focus for the next two years is on ERF readiness and flexibility in terms of purchasing capacity, we do not expect the full integration of the two brands in this time period. and therefore the reporting structure will remain the same. The gross margin was a strong driver in 2020. We achieved an expansion from 15.4% to 17% on group level, and the largest contribution came from the improvements in the German OTC gross margin. Stronger growth in business models with lower basket sizes, as we have seen in the KPI overview before, led to this increased gross 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 Europe business with a higher marketing ratio. This leads to an improvement at the adjusted ABTA level of 0.9% or 9 million Swiss francs to previous year. Expenses in additional growth initiatives such as ERA, European expansion and telemedicine of roughly 30 million are also included in these line items. I will explain the impact on ABTA on the next slide in more detail. Below EBITDA, depreciation increased as a result of a higher base due to acquisitions and also higher spending in pet development. And finance expenses increased due to the interest rates of the bonds and convertible bonds. The 2019 straight bond for the first time has a full year impact of 5 million, whereas the convertible bond interest amounted here today to 3.6 million. Now let me lead you through the EBITDA impact. This chart gives you a chance to compare the performance of our established business compared to last year. It therefore shows adjustments, but also investments in both initiatives where the revenue and profit return will generate value in the future. For transparency reasons, we decided to define an adjusted EBITDA level to show the operational performance compared to previous year, irrespective of the influence of special items and one-offs. The bars on the left-hand side, of each year shows reported EBITDA, which reduced from minus 13.8% in 2019 to minus 78.4% in 2020. This is not really comparable because it includes significant one-offs in each year. Starting in 2019, the most significant adjustment was the re-evaluation of earn-out components, especially in connection with the acquisition of medpacks. and the disposal of assets to the MedBase joint venture in Switzerland, leading to an adjusted ABTA of minus 40.2%. In 2020, on the right-hand side of this graph, share-based retention package for founders was the largest position included in the M&A bar, which leads to a total positive adjustment of 17.9%. at million, so 17.9 million, at 3.5 million, the integration cost caused by the bundling of activities in Herlen and Mannheim and the integration of Wittelsahne. These extraordinary positions resulting out maybe significant improvement compared to previous year. In addition to this, As of end of last week, which was unfavorable for our VAT statement, we reassessed our risk position and increased accordingly by 13.7 million. Let me give you some background on this. The legal proceeding was back to change in the billing process with German insurance companies in 2013. Since then, Doc Morris was no longer able to apply the RX bonuses as a reduction in the tax base as it was the case previously. This would result in a higher tax burden. In our view, this represents unjustified systemic disadvantage compared to German pharmacies. The legal proceeding is still ongoing and will now continue in Germany, but has no impact on our ongoing business. Other adjustments with 12.1 million Swiss francs related to COVID-19 product price decreases in 2020. After these adjustments, we achieved improvement compared to the previous year of 9 million at the adjusted ADPA level. Our financial target for 2020 was to achieve break-even before investments in additional gold initiatives, or in other words, break-even in the performance of our established business. The gold initiatives each year's significant potential of future earnings. The three investment categories are Segment Europe, which is in a strong growth phase, ERX, where we expect first impact on sales after the Gnatic launch in July, and New Business, which mainly accounts for the expenses in scaling our telemedicine platform, TeleKlinik. This investment amounts to 30.3 million Swiss francs, With a margin of 0.1% and an absolute number of minus 0.9 million, we are in line with our profitability target for the year. This comparable figure for last year was minus 30.8 million Swiss francs, with therefore a beefed operational improvement of roughly 30 million. With our run rate analysis, we show what our profitability would look like assuming full integration of acquired businesses. On the first line of the chart, you see our 2020 figures. As just explained, we see the starting point for like-for-like level at an ADK margin of minus 0.1%. The second line shows our run rate based on the current sales. The improvements are driven by increasing cost margins, low picking costs in more efficient logistic operation, better efficiency in marketing, as well as from the realization of organizational synergies. This realization of the synergies leads to a run rate EDTA margin of between 2 and 3%. With our operation with fully results, We are fully in line with our path to profitability targets. Firstly, we managed to improve our gross margin. Secondly, we implemented one organization for the German segment and integrated service functions. And thirdly, we focused our marketing expenses on DocMorris and Netbex and are pursuing profitable growth. The key changes in the balance sheet were driven by the launch of the convertible bond in March last year, leading to a higher cash position and higher financial liabilities and the capital increase in July, which strengthened our equity base and also added to the cash position. On the other hand, we invested in the acquisition of Teleclinic and in the development of our common platform and in our new logistics center in . And increasing payables, we could keep our networking capital stable and despite the COVID-related increase in inventories. Overall, the balance sheet with an increased equity ratio of 41.6% and 300 million of cash clearly has the financial strength to invest in our strategic initiatives, especially the ERX opportunity, which Walter will now elaborate on in the next part of the presentation.