DocMorris AG

Dear ladies and gentlemen, welcome to the conference call of Sororza Group AG. As our customers expect, this conference will be recorded. As a reminder, all participants will be in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press the start key followed by zero on your telephone for operator assistance. We are now handing over to Lata Oberhensley, who will lead you through the conference.

Go ahead. Thank you very much. Good afternoon, ladies and gentlemen, and a very warm welcome to Zerose Group's half-year 2021 results conference call. Zerose is in the middle of the really most exciting time that I personally have experienced in my 20 years, eight years since the foundation of that company, and I'm happy to provide the latest update on our path to electronic descriptions and beyond where we are very much on track. With me today are Marcel and Walter, who will present the financials and especially the latest ERX update firsthand. The first half year was really an exceptional period in several concerns, and I'd like to highlight a few points in particular. We were first able to accelerate our growth performance once again with Q2 growth of 26.2% on group levels and impressive 35% in Germany. Our active customer base grew to 11.7 million, which equals an increase of 3.6 million compared to last year. We always aimed for the biggest possible customer base at the forefront of ERX and therefore are really excited now about that great number. What a starting point. On the ERX front, we were able to launch our new DocMorris app, including the scanner function, and delivered the ERX server for Gematix as part of IBM on time for the launch of the test phase, which started already in July. We see the development in making everything ready for the ERX, furthermore, fully on track. As already explained at our full year results call, we initiated a large TV campaign with the initial focus on branding. And I'm happy to say today that we achieved our targets with an uplift in unaided brand awareness by 8 percentage points. Additionally, and obviously most importantly, customers state Doc Morris as the most relevant brand when being asked about which company come to their mind when thinking about ERX. Eight brand awards, which we have won, including renowned Red Dot and New York Festival Awards, proved the brand building capabilities within SOSE. In terms of new business, we were able to launch our first ecosystem partnership with Novo Nordisk by implementing DocMorris Adipositas Care at the end of the first quarter. We also made another step regarding integration with the completion of the transition of our board to DocMorris. Last but very much not least, I'm extremely happy about the addition of Madhu Nuttakri as group CTO. The first three weeks now with him on board have already shown that he is very deep in the topics that concern us the most, and that he has a relevant experience and insight that he will apply to help us reach our mission. I'm fully convinced that he's the right person to help us transition from an e-commerce pharmacy to your leading healthcare ecosystem and also to improve our products such as the DocMorris app continuously and really very fast. As already explained at our Capital Markets Day in June, I see actually five key pillars for the future success that I want to reiterate today. First, and at least in the short term, the biggest and most important topic is obviously the opportunity that the introduction of the electronic prescription in Germany is bringing to us. This is the largest growth driver for the next years, and the main factor was to reach our mid-term targets. We just visited Apothea in Sweden this week to better understand the dynamics of electronic prescription in that market, where the Rx online penetration has jumped to 12% after COVID-19. These learnings coming from Sweden confirm our confidence in our target in Germany once again. All disruption in the past had always been in favor of the customer, doing things better for them was always the main driver. People are dealing with really too many challenges in their journeys and the efficacy of medication is by far not where it could be. Here comes in our approach with combining medication with digital services, what will lead to a better adherence and therefore better outcomes. There is so much place for improvement. Let us empower people to manage their health in a much more convenient, personalized, and effective way. Therefore, our vision is to create a world where everyone can manage their health in one click. This means to build the healthcare ecosystem of Europe, providing personalized and seamless health journeys specifically designed towards the needs of chronically ill people. We are really up to boost our core business as well as create new business models based on tech and data. Tech is more and more in the core of our business as well as we see technology as the key enabler to reach our vision. With Madhu joining our team, we work and we took another big step to get closer to our mission. All of us at Zurose are committed and really excited to execute on that strategy and create value for customers, employees, partners, and with that, our shareholders. I now hand over to Marcel, who will explain the financial performance of the first six months of 2021.

Thank you, Walter, and good afternoon from my side. I'd like to start with emphasizing again the three highlights from a financial perspective. First, the gain of market share in Germany resulting from the really impressive 35% growth rate in the second quarter support our strong position in preparation for the launch of electronic prescription. Second, the spending in the marketing campaign are showing promising returns and increase in active customers and increase in brand awareness, especially with the RX focus and support our growth rates. And third, the significant reduction of networking capital by roughly 2.5% of sales is leading to a more efficient use of capital. Let's go into more details, starting with the group sales performance in the first half of 2021. We once again accelerated our growth rate to really compelling 20.8% in local currencies with a strong development in all segments. In Switzerland, we achieved a solid and sustainable growth rate of 5.6%. In Germany, we were able to grow external sales by 30% with the important fact of increasing our market share. The Rx business continued to develop with low single-digit declines despite discontinued paper prescription marketing and the bonus ban. The OTC and BPC business developed very strong, especially when taking the rather weak market development into consideration. Segment Europe achieved 22.9% growth in local currency. This somewhat lower growth compared to prior periods is a result of the very strong demand driven by previous year's hard lockdown in Spain. I would now like to highlight the performance of the second quarter. On a group level, we achieved a very strong growth of 26.2%, mainly driven obviously by our performance in Germany, where we achieved this really exceptional 35.6% growth. Switzerland and Spain both show atypical performances caused by previous year COVID impacts. Let's dive into our KPIs. The key development here is the growth of the number of active customers to 11.7 million. Compared to last year, this is an increase of 3.6 million a combination of 1.1 million Varia Rapotale acquisition and 2.5 million organic increase. Due to the continued higher goals of the German OTC as well as the marketplace business with typically more commoditized products and slightly smaller baskets compared to RX or B2C Switzerland, the average overall basket size decreased from 54 to 52 euros. The same applies for the order frequency, which is at 2.2 times per year. Our repeat order rate remains at the high level of 74%, which shows the significant loyalty of our customers. The decrease was driven by the large number of new customers. In terms of site visits, we saw a slight decrease to $234 million in the 12-month period ending June 21. We see this as a result of the peak in Q1 2020 due to COVID-19. As we stated in our full year results, this year is, in our view, a critical one in regards to building the strongest possible position ahead of the InScript launch. We increased our growth expenses significantly, especially on the marketing side, which resulted in accelerated growth and in an increase in brand awareness. This on this slide shows the adjusted numbers without extraordinary items. The gross margin came in below previous year, again driven by the pandemic with a very strong increase in 2020 and the slowdown of the market, especially in Q1, as a result of the missing flu season. It is, however, in line with the second half of 2020. Personal expenses developed in line with revenue growth, despite increased expenses for future growth. The main reason for the increase in marketing expenses is our marketing campaign that we launched to increase awareness ahead of the eScript launch. The marketing ratio is currently at 5.9%. Distribution expenses show a slight improvement in relation to sales. and other operating income and expenses include some costs of new business initiatives and developed in line with our expectations. This led to an adjusted EBITDA of minus 42.9 million Swiss francs. I will explain the adjustments and the bridge of 2020 to 2021 earnings in more detail on the following two charts. Depreciation increased as a result of a higher base due to acquisitions and also higher spending in tech development. And the net financial results improved compared to previous year due to a positive exchange rate effect. The adjustment on ABTA level in H1 2021 reduced significantly compared to previous year. Amundey related adjustments amounted to 5 million Swiss Francs while integration, mainly related to the upper road integration, amounted to 1.2 million. Including other adjustments of 0.7 million, total adjustments declined to 6.8 million compared to 13 million in 2020. This chart gives you a chance to understand the drivers of the earnings compared to previous years in more detail and build the bridge from H1 2020 adjusted EBITDA of minus 11.5 million to H1 2021 of minus 42.9 million. First, we increased e-script related expenses by 14.2 million compared to last year in order to achieve the best possible position ahead of the ERX opportunity. The amount is mainly attributable to the marketing campaign. Second, as explained at the Capital Markets Day, our new businesses, Telemedicine, Platform as a Service, and Ecosystem Collaborations appear a high future margin potential which is why we increased our spendings in these initiatives by 6 million. As explained in the P&L previous year, exceptional gross margin impact caused by the pandemic and the slow market development caused by the missing gross margin compared to H1 2020, with an impact of minus 9.2 million on earnings. The remaining 2 million from other line items are additional expenses that occurred as growth expenses, overcompensated our operational improvements in these areas. Our balance sheet remains in a good shape ahead of this fallout. Our cash position is at about 250 million Swiss francs, from 300 million at year end, driven by our operational performance and the reduction of net working capital by 34 million. This reduction was driven by a stronger management focus, which led to a decrease of inventory, a decrease of receivables in relation to sales, and an increase of payables and accrued expenses. Significant investments of 23 million in our technology resulted in an increase of intangible assets of 12.5 million. Overall, the balance sheet with a negative ratio of 37.2% and 250 million of cash has the financial strength to invest in this great opportunity. A quick word on our financial outlook. which is well known. It confirmed both our communicated 2021 and also our targets. Our profitability also remain unchanged. With this, I will hand over to Walter Hess who will give you the latest update and look forward to answer your questions in the Q&A session.