DocMorris AG

Good morning, and welcome to everybody.

Marcel and I, we are very happy to present to you the half-year results today. is facing many turbulences at the moment, resulting in uncertainties at markets. Whereas our business with pharmaceuticals is hardly impacted by all of that. On the contrary, our key messages for you today are that we have set all our key priority on achieving EBTA breakeven already in 2023. And as a result, there is no additional cash needed for operational business. Our highly efficient distribution center in Herlen is live. And the Medvex brand integration has started. And with the rollout of the ERX in Germany, the digitalization of a 50 billion euro market with prescribed medication will take off now. So let's deepen these topics now by first giving you a business update, followed by a deep dive in our breakeven program that we have announced. And then Marcel will give you a financial update and an outlook before we come and move to the Q&A sessions. Executing and delivering is of highest importance for us as a management team. Therefore, we are very pleased that we can report today that we have achieved all our targets in the first half of this year. The slight revenue increase of 0.4% is within expectations. We have improved Our EBITDA already by 37 million by increasing gross margin by 0.6 percentage points, by realizing first cost reductions, and by improving marketing performance. And we have 200 million of cash on hand by end of June this year. One of the most important objectives was to go live of the distribution center, the new distribution center in Helen. On the picture, the upper picture on the right hand side, you see in front the new distribution center, we call it DC2, and in the back, the previous, the existing distribution center, DC1. This target we have successfully accomplished. For us, it is a strategic milestone as it is a precondition for the brand integrations. With that, the capacity increased from 12 to 27 million parcels per year. And with this unique infrastructure, with highly efficient and secure processes, we will now be able to fulfill the ERX demand ahead of us. The improvement of the logistic cost per parcel is higher, is more than 30%, which will lead to a cost reduction of 10 million per year with first savings already in the course of this year. The next big milestone for us is the operational integration of the Medvex brand into the new distribution center in Herlen. Stiftsapotheke, this is the pharmacy of medpacks, will be closed by its owner by end of October this year. Yesterday evening, the 350 employees concerned have been informed about this step by the pharmacist. The location in Ludwigshafen will continue and operate in the future as a logistic hub of the Zurose Group for non-pharmaceuticals and add a capacity of 7 million persons per year. Therefore, we have offered jobs to about 200 logistics and pharmaceutical employees from the Stiftsapotheke in Ludwigshafen and in Herlen. At Vision Runner, that's a rose group company and a service provider to the Stiftsapotheke, we will reduce 36 jobs. The employees concerned we'll get individual compensation packages out of our responsibility, social responsibility. And all in all, the leverage of the synergies out of that and the reduction of complexity will lead to positive EBITDA impact of more than 8 million Swiss francs per year. Let's come now to the ERIGs. As of yesterday, More than 154,000 ERX have been redeemed from the telematic infrastructure, and all of them without any technical problems, and most of them could already be built without any problems. Our share within this test phase on ERX is three times higher already than with the PRX, the paper prescriptions. This ERIX test phase will now end successfully on August 31st this year. And then immediately, the German-wide phased ERIX rollout will start on 1st of September. All stakeholders, and that's very important, are committed to this step and to this rollout. And they have agreed commonly on success criteria for a mandatory rollout in the first two regions, which are Schleswig-Holstein and West Valley Alipay. This includes about 11 million inhabitants, which is equal to 14% of the German population and already relevant. The success criteria they have agreed on are that all the patients have to be informed by insurance companies, by doctors, by pharmacies, Second criteria is that 25% of all issued prescriptions have to be issued electronically in an invoicing period of one month. And the rate of patients returning to the doctor and asking for an old paper prescription because they had a problem with the e-prescript has to be below 3%. Once these criteria are fulfilled, These two regions will turn into a mandatory rollout phase and the next six federal states will start the rollout phase as these two regions will start on 1st of September. With regard to the redemption channels for ERX, there is the gematic app, the paper printout and the scan of the tokens already in place and working without any problems. Further channels are under examination, such as the use of the EGK, SMS, email, or third RTMs. We on our side, we support every redemption channel, which helps to speed up the ERX rollout nationwide. With regard to the EGK, we are in close contact with the Ministry of Health, the BSI and the GAMATIC, together with the EAET, the European Association of the E-Pharmacists, to define and find a common solution which is convenient and non-discriminatory for online pharmacies and for our customers. We are convinced at the end of the day there will be several redemption channels and the patients will decide and the patients will choose which channel fits best for him. and they certainly will choose the one with the highest convenience and the best value added services. And as in all other sectors, online will play a relevant and major role in that. Let me remind you again on why ERX is really a once in a lifetime opportunity and is the game changer in Germany. As mentioned at the beginning, there is a 50 billion market. It is a growing 50 billion market where now 500 million Rx per year are getting digitalized within the next quarters. 80% of this 500 million prescriptions is for chronic demand where we as a pharmacy, as an online pharmacy, have most convenient processes and best value-added services. The online penetration as of today in Germany for Rx is below 1%, whereas the OTC online share in Germany is already 23%, which means and shows that the Germans are very online pharmacy safe. And to the most comparable market in Sweden, online share there within six years went up to 13% already. We on our side have already an ERX potential of more than 1 billion euros in our hands with our existing OTC active customer base. This comes out of studies which say that in Germany, potentially 26% of the population are chronic patients. This will bring us up the revenue potential that is already four times higher than the PRX revenue we have on hand as of today. But also the unit economics and the KPIs of PRX are outstanding. An ERX customer, an ERX patient with chronic demand has a time higher customer lifetime value than a regular OTC customer. The basket of an ERX is €110, whereas a basket of an OTC order is at €40 only. And the contribution margin of an ERX order is €14, whereas the OTC order is €4 only. So you see, ERX and OTC are two completely different businesses. And we at StockMorris are really best positioned with the largest active customer base and the best brand awareness with a native brand awareness of 68% recently and already an ERX awareness of 22%. And this all summed up, explains and shows why and how much ERX will be the game changer in the German market. So let's come to our breakeven program now. Between 2017 and 2021, our focus was on growth. Growth of revenue and growth on active customer base. A space for conversion of active OTC customers to ERX customers. We invested in best talents, in technology, in ERX readiness, and in internationalization. with the result of a revenue CAGR of 20% for this period of time. Now, this year and next year, our clear focus is on achieving breakeven. Therefore, we have defined an accelerated breakeven program, which includes reduction of complexity, operational excellence, and the focus on core businesses and core markets. with the clear target to get to break even EBITDA by next year. And then based on that, we will focus on ERX-led profitable growth and the third expansion of our digital health ecosystem with our target to profitable double digit growth and positive free cash flow. Already in Q1, this year, we have started to implement the transformation program, which would have led us to a breakeven in 2024. Now we have extended this program and we have accelerated it to a breakeven program with a positive EBTA impact of 130 million compared to 2021, which will bring us to the EBTA breakeven in 2023. In order to realize as many as possible full year effects already in the whole year 2023, we have immediately started with executing the measures with an effect of a mid single digit percent negative revenue in 2022. The program includes also a significant reduction on OTC marketing spend, but also a relevant reallocation of the reduction to an ERX marketing budget. But very importantly, and we really would like to underline that, the EBITDA breakeven 2023 will be independent on the ERX scaling. We have set up a full measurement plan with actions behind and all the measures are backed with clearly defined actions. They are quantified and there is a clear responsibility behind. We have defined three clusters of measures. Gross margin increase, performance improvements and structural synergies. In the cluster of gross margin increase, we have defined activities and actions for improving our purchasing conditions with the industry, but also with the wholesalers. We have defined actions for selected price increases and product mix. We have further defined actions to extend our assortment, but also to optimize our assortment and to go live with our advertising services now in Germany. In total, this will lead to a positive EBITDA impact of 25 million Swiss francs. On the performance improvement cluster, we have defined activities and actions for productivity improvements, whereas the DC2, the realization now of the savings, is of highest importance for productivity improvements. We have further defined actions to reduce direct logistic costs, for example, distribution costs. We have defined measures and actions to improve our marketing efficiency. And here very clearly, we will focus much more in the future on profitable orders and profitable customers and customers with a higher potential being converted from OTC customers to ERX customers. And we have defined actions to reduce brand marketing costs. All of that in total will contribute with 60 million Swiss francs. Then in the third cluster of structural synergies, we have clearly defined action for operational integration of brands. I've already shown to you before and explained to you before what we have started now with the Medtex brand. We have further defined actions to consolidate and reduce brands, the number of brands, and we have defined more actions to reduce indirect costs, including overhead costs. contributing with 45 million and in total contributing to this 130 million EBITDA improvement, which we plan to achieve with EBITDA breakeven in 2023. And all of that will result that there is no external cash required for our operational business until breakeven. based on the cash balance of 200 million Swiss francs we have on hand by mid of this year. The external financing needs are limited to refinancing of our upcoming maturities plus some additional headroom. We have prepared various financing options. We are actively monitoring the markets for a suitable environment and for the right moment. And now I would like to hand over to Marcel to continue with the financial update and with an outlook.

Thank you, Walter, and welcome everyone to the financial update. In summary, we can say that the half year results are fully in line with our communicated targets. But let's just dive into it, starting with external revenue development. So Rosa Group achieved a 0.4% growth in local currency. Converted at the current exchange rate, this results in a decrease in absolute numbers, as you can see on the yellow bars. In Switzerland, the acceleration of growth to 9.6% is mainly driven by the B2B development, which was extraordinary strong. This is based on a normalization of the Swiss market after the pandemic. In Germany, the external sales decreased by 3.9%. This includes the continued decrease of paper prescription business upfront to the launch of electronic prescription and also reflects the optimization of OTC marketing in a rather weak online market. And segment Europe achieved 2.9% growth. This already reflects the decided slowdown of the international expansion due to our stronger focus on earnings. As Walter said, we have already started to implement measures on marketing efficiency and focus on high quality customer cohorts. The development of our KPIs reflects these first results of this program already. The number of active customers came slowly down from 12.4 million to 11.7 million and is overall in line with H1-21. On the other hand, the repeat order rate increased to 76%. reflecting the focus on existing customers with high loyalty and a certain reduction in new customer acquisition, for example via price search engines. Our average basket for prescription drugs went up to €128. The combination with the increase on order frequency shows the improvement out of our marketing measures. On the OTC side, the development of baskets and order frequency remains stable. In terms of site visits, we saw an increase from 234 million to 255 million from June 21 to June 22, but a slight decrease compared to full year 21. on half-yearly ABTA development is shown on this slide. In the second half of 2021, we increased our goal spendings in reliance on the introduction of electronic prescription. Because of the delay, we have turned back this again and started this dedicated program to improve earnings. The preparation and implementation started and will lead to ABTA breakeven in 2023. Nevertheless, we are already seeing the first promising results from the measures that have been initiated. This leads to an improvement of 37 million compared to the previous period to minus 49.2 million adjusted ABTA in the first half of 2022. In the P&L view, we see a cross-margin increase by 0.6 percentage points compared to the second half of 2021. This upside trend will continue and even accelerate. The insourcing of specific functions started with an overall positive impact. The increase on personnel spendings is overcompensated by reduction on auto-operating expenses. Marketing expenses still include one of electronic prescription TV campaign in the first quarter of 2022, which could not be stopped on short notice. Below EBITDA, we see a slight decline of depreciation and amortization. but an increase of net financial results impacted by foreign currency. The actual figures show negative adjustments from the reported EBITDA of minus 43.1 million to adjusted EBITDA of minus 49.2 million on the white graph on this chart. The 12 million adjustments for M&A are mainly driven by an earn-out valuation related to the share price decrease of Zorose Group. The 5 million integration costs of adjustments are in connection with the initiated break-even program and especially the grand integration of NetFax. Finally, our balance sheet remains in good shape with a solid cash position of 199.2 million. We could again successfully reduce the capital need for networking capital by 13.6 million. The main impact came out of the reduction of inventories, where we have implemented additional tools to increase efficiency. The management of networking capital and inventory will stay in our focus. Other positions of the balance sheet remain broadly in line with previous year. With this, I would like to lead you through our outlook. Due to the strong focus on earlier EBITDA by Given, including the concentration on more efficient sales channels and customer cohorts, Group external revenues 2022 are expected to decline in the mid single-digit percentage compared to previous year. The clear market leadership of Zurose remains untouched. The non-RX growth rate of our main brand, DocMorris, is also impacted by this short-term priority on overall earnings. we still expect a positive growth rate on the DocMorris buy-in. Despite these lower sales, we are pleased to confirm the outlook on adjusted EBITDA level in 2022 in the range of minus 75 to minus 95 million. As explained, we now target the adjusted EBITDA breakeven already in the financial year 2023. According to our assessment, the inflationary impact will not be very significant and will be balanced out throughout the whole income statement. Our mid-term EBITDA margin target is confirmed at around 8%. Before we get into the Q&A session, Walter will conclude the presentation with a few final remarks.