Redcare Phamacy Unsp/Adr

Welcome to the SHOP Apotheca Q1 2022 earnings release presentation. This conference is being recorded. At this time, I would like to turn the conference over to Stefan Seltzen. Please go ahead.

Thank you very much, operator, and good morning to everybody, Jasper and I. We welcome you to SHOP Apotheca's Q1 2022 earnings release call. Before we get into the details, we want to take a moment to recognize and to remember that while we are having the earnings call a little bit further east, a terrible war is continuing to ravage Ukraine at this point of time. Our thoughts and prayers are with all the people that are suffering from this terrible war. Well, what are we going to share with you today? Jasper and I are going to start with an overview of our financial performance, operational performance over the first three months of this year. Then just on a couple of strategic topics, we're going to give you an update. And at the end, Jasper is going to talk about the outlook for the remainder of the year. I can already tell you that we are going to confirm the guidance that we just provided a couple of months ago to you. At the end of our presentation or after our presentation, rest assured, we're going to have enough time for your questions. Well, what were some of the highlights of the first quarter? Our non-Rx growth amounted to 15% and this needs to be seen in comparison or on top of the strong growth in Q1 2021 when our top line expanded by 22%. In all of our markets, at least in the markets for which we have reliable and valid market data, we have seen a notable increase of shop apothekers' market shares. Our ARIC sales have stabilized, or as we sometimes refer to it, they have bottomed out at around 10 million per quarter. In terms of our bottom line, our adjusted operating results came in at minus 4 million euros or minus 1.4% of net sales. This is an improvement versus Q4 last year, but it's a little bit of a deterioration compared to a year ago and Jasper is going to talk more about this. Most importantly, our Q1 EBITDA is fully in line with our guidance for the full year. Our operating cash flow added up to a positive 24 million euros driven by continued favorable development in our working capital, most notably a reduction of our inventory levels and an increase of our payables combined with a bit of seasonality. The highlight of the first quarter was a record customer satisfaction level with an NPS of 73. on the smooth operations in our new pharmacy and distribution facility here in Severnum. By the way, in the first quarter, we also set another record in the number of orders, customer orders processed in a single day, which exceeded 110,000. In terms of our customers, our active customer count went up in the first quarter by around 400,000 Phamacy Unsp & Adr Phamacy Unsp & Adr with acquiring First A, one of the leading quick commerce players in the pharmacy space. First A will be an important cornerstone for us to ensure that we will continue to be able to address all of the relevant Our total sales went up by 7.3%, reaching 305 million euros. When we look at the two reporting segments, the DAF segment went up by 2%. This is, of course, a blend of a solid non-RX growth of 10% and a decline of our RX business of around 33%. Even though the RX bonus band came into effect on the 15th of December 2020, we all remember that we didn't see the full effect of the RX bonus band until later in 2021. So again, the RX bonus band is the driver Phamacy Unsp & Adr in Q1 last year. So quarterly sales of our international segment are now at around 70 million euros. Looking at some of our KPIs, I already mentioned the active customer base went up compared to a year ago by 1.5 million. So that's, of course, purely organic growth, 1.5 million or 22%. I think I already Phamacy Unsp & Adr was certainly the case in the first quarter. And as I already mentioned, the pharmacy and the distribution facility is now really working smoothly here in Sevenon. A high IPS or a high NPS, of course, translates right into our P&L. Happy customers are returning customers, resulting in Phamacy Unsp and Marketing Resources. Looking at our average basket value, the average basket value dropped from around 63.5 euros a year ago to around 57 euros. Phamacy Unsp The main driver, not the only driver, but the main driver behind the reduction of our AOV was the decline of our RX business and the RX basket is significantly higher than an average non-RX basket Phamacy Unsp & Adr web traffic all the visits to shop Apotheke's websites in Germany and all of the other markets you see here with the green line on the right hand side throughout Q1 it was between seven and eight million visitors or visits that is a notable increase compared to even Q4 last year which was already you know a strong quarter in terms of our web traffic when you look at the year-over-year growth in comparison to the exact same week a year ago. Here, indicated with the blue bars, you saw that throughout Q1, our growth, year-over-year growth, was at or above 30%. According to similar web, in March, Shop Apotheker's website in Germany was the most frequently visited e-pharmacy website. That is probably not a surprise. We have mentioned this before, but more Phamacy Unsp

Phamacy Unsp & Adr If you look at this slide, then you see that in 2019, we for the first time achieved 3 million orders per quarter. In 2020, 4 million. Last year, it was around 5 million orders. And then this quarter, we crossed the 6 million customer orders for the first time. You mentioned already, Stéphane, that we achieved more than 80% of all the orders that you see here came from returning customers. Next slide, please, Karwin. Thank you. And then what financials did we produce with those 6 million orders? On this slide, the customary P&L financials on one page from sales up to and including the EBDA. The sales ended up at 305 million, and the adjusted EBITDA margin was a minus 1.4. If I start with the top line sales, they increased by 21 million to 305, which was a 7.3% increase, but also compared to quarter four, we increased by 5.8%, and that absorbs the impact of, for example, that February has fewer days than an average month. The Gross Profit Margin and the SMD. In a minute I will show you in the variance bridge the year-over-year change, but now already on a high level on the total company perspective. percentage points compared to the most recent past quarter for 2021. SMD as a percentage of sales was 25%. That was a significant increase compared to last year. Please remember that last year was a full lockdown quarter and also included significantly more Rx sales than we had this year. Administrative expenses as a percentage of sales at 2.9% were stable year over year and slightly improved compared to the past quarter. And if you add up all the numbers I just quoted, then the adjusted EBDA in absolute millions of euros was minus 4 million. That was 10 billion lower than last year. And it was an increase, an improvement of 6 million compared to quarter four. Margin minus 1.2%. If you look at the adjustments, the adjusted EBDA last year was 6 million and EBDA was 3 million. So adjustments were 3 million. This year from minus 4 to minus 11 is 7 million. This is not an increase because we want to show a nice adjusted EBDA number. No, we continue to be very conservative in the use of adjustments. The only reason for the increase, namely the 4 million increase, Phamacy Unsp & Adr Phamacy Unsp Phamacy Unsp & Adr Phamacy Unsp & Adr Phamacy Unsp & Adr Phamacy Unsp But this is also number three, the total company perspective and international is growing even faster at 30% than that is growing and in the mix in total. Phamacy Unsp & Adr to the past quarter. All in all, S&D as a percentage of sales, 25%, a slight improvement versus the prior quarter. And with that, we go to the next slide because what is this doing to our cash position? We started quarter one with 282 million of cash and cash equivalents and ended the quarter at a 9 million higher level of 291 million. Phamacy Unsp Adr Phamacy Unsp Adr Pham in Italy and the financing cash flows of 3 million also includes our lease payments. All in all, slight increase of our already robust cash position in the quarter. Back to you Stefan.

Okay, thank you Jasper. So let's just briefly look at a couple of key strategic in Germany. But before we go there, please let me take the opportunity to remind ourselves of the big opportunity that lies ahead of us. Of course, I'm referring to the introduction of e-prescriptions. You see this here on the lower right hand side. The total RX market in Germany amounts to around 50 billion euros. Right now, the online share and I'm not just referring to Shop Apotheke, but to Shop Apotheke and all of our direct competitors, amounts to less than 1%. To be precise, 0.7% of the 50 billion RX market is currently served by e-pharmacies. When you refer to independent market observers, everybody agrees, even after the introduction of e-prescriptions, the vast majority Phamacy Unsp You've heard us mention this before. Sweden is a good reference market because the market characteristics are not too different from Germany. At this point of time, the online share in Sweden stands at 11% to 12%. With the red donut on this chart, you also see the non-RX market in Germany. Phamacy Unsp Phamacy Unsp & Adr ePrescription mark in terms of ePrescriptions having E-prescriptions will have been reimbursed by the health insurance. Again, that leads us to the conclusion that sometime in the third quarter, the ERX test phase will be concluded successfully. The next obvious question, of course, is, OK, once the test phase has been concluded, what is the rollout going to look like? And at this point of time, you know, the and as recently as yesterday mentioned that the ERX introduction is going to start, is going to commence right after the successful conclusion of the ERX pilot. And yesterday he mentioned that the nationwide rollout of e-prescriptions is going to happen in 2021. As far as Shop Apotheke is concerned, we have been and we are ready. All of our systems and processes are working smoothly. We continue to stress test our systems and processes. We are very eager for e-prescriptions to start and we can't wait to receive a much higher number of electronic prescriptions after the conclusion of the ERX test phase. So again, putting everything together, Referring to the Health Minister, but also to everything that we are seeing at Schott Apotheke, we remain confident that e-prescriptions in Germany are going to start in earnest in 2022. An important step, of course, along our strategic journey was the acquisition of First Aid, a leading quick commerce player in the German pharmacy space. We concluded the deal in early April. Both sides, we, but also the management team and the founders of First A, we're really excited. We're really happy about the marriage of these two organizations. First A is now going to have the backing to realize their ambitions. And we at Shop Apotheke, we have added another important component to to make sure that our ambition will come true, that we'll be able to continue to address all of the current and future relevant use cases in the German e-pharmacy market. will continue to operate separately and under their own brand but in parallel of course we we have already and will continue to identify opportunities where it makes sense to cooperate to make sure that one plus one equals three or more and in april we did not just conclude or close the deal with first aid but we also launched a brand new tv campaign in germany with the aim to further You've probably already seen the DB spots if you haven't or if you don't live in Germany. Let's have a look.

Hey! Hey! Did you bring the meds?

Well, I hope you

Phamacy Unsp

One slide. In a world where clearly several e-commerce or in general digital companies have some challenges to continue to grow in a post-dynamic time and also facing the peaks of quarter one last year. On top of that, an overall declining customer confidence, more insecurity in the world and in addition inflation up to significant levels. I think that our Q1 results actually show, according to me, that we as a leading e-pharmacy in Europe have been able to continue our growth, that we on all levels increased also versus the peaks we had in Q1 last year. We increased our active customer base in a quarter significantly with 0.4. across all our seven countries and also in Germany specifically. And with this set of results in our pocket of quarter one, we feel comfortable in reiterating our full year guidance for 2022 in all elements. And that means that we expect a continuation of our many years consecutive track record Phamacy Unsp & Adr Phamacy Unsp & Adr Thank you. If you would like to ask a question,

Please press star 1 on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. But again, please press star 1 to ask a question. We will take the first question from Christopher Yorn from HSBC.

Yes, thanks for taking my questions. Three, please, and I would like to do them one by one if possible. First A. So the guidance wasn't touched, yet I think the guidance was set when or before First A was acquired. The asset is probably burning some cash. Maybe you can give us a couple of numbers on the asset, maybe the consolidation impact for 2022 or sort of any view on the impact for 2023, basically how much you guys want to ramp this up. When international expansion is likely next year, all those things that would help us model this a little bit better.

Indeed, Chris, we gave the guidance before the acquisition of First Aid. It's our ongoing business, so it's not that suddenly we're going to deliver our Nolarex sales growth just because of the acquisition. No, we don't give any specifics on the first aid transaction. It is on all levels, albeit whether it is sales or adjusted EBITDA or EBITDA or cash. It is not relevant in 2021 from a total company perspective. We report in two segments, that's international and DAG. And first A is part of that. First A is not big enough at this moment to have a significant impact on total shop apothecary. So that's everything there. Then you were asking something about the future, international expansion, 2023. Yeah, it depends a lot on how big the use case is, how fast ERX is going, But it's absolutely our idea where we now focus with First A on Germany, as we announced already, actually for the reason that we expect ERIKS to happen very soon. But very quickly after that, we envision very well that First A is a very good addition to our propositions in the other countries where we act. In modeling, at the moment, we don't give any guidance there at the moment. We have, of course, our several scenarios for the coming years, but it will all depend on how big this opportunity and the relevance for those specific customers is. I don't know if you have anything to add on that on the output, but I think you covered it all. Yeah, okay.

Okay, perfect.

That's helpful.

Then second question on ERX. I mean, you chose not to disclose the number of scripts that you processed this quarter. I think that was deliberate. I would assume, you know, why is that the case? I hope it's not because the percentage of scripts processed was lower than at your main competitor, I would assume.

I can quickly answer this, Chris. The reason why we disclosed this in the past, I think we did it twice, was simply to indicate, Phamacy Unsp & Adr about e-prescriptions. But what I can tell you is today, the number of e-prescriptions that we have received is significantly higher than what we reported the last time, but we want to leave it at this. Again, it's not relevant. The key is that our systems and processes are working smoothly, we are ready, and we are eager for the test phase to be concluded and to get started.

Okay, that's clear. And the last question on Q2, the current quarter, April is over, first week of May almost as well. Is there any sort of comment, color you can give on the current quarter, please?

Yeah, I think the past many years of shop up and take have actually proven that mostly there's happening dynamics of a full year in a quarter already. Phamacy Unsp & Adr which is not unlikely, probably related to some customer confidence decline that you see across the markets. But we see all kinds of dynamics continuing to the same extent as the positive ones also, to the same extent as we saw in quarter one. I think that's all we want to say on quarter two. So it's in line with our full year guidance. Got it.

Thank you.

As a reminder, to ask a question, please press star 1. We now take the next question from Alexander Thiel from Jefferies.

Yeah. Hi. Good morning, gentlemen. Good start to the year and some weak comms upcoming. Three questions from my side. I would also like to take them one by one. First, a high-level question on your average basket value. And I assume we all understand the negative correlation between high RX AOV. and lower gross margin, but first, could you give us an indication on the current paper RxEOV and how stable this has been over the last quarter?

Yeah, Alex, we have seen really a marginal decline of the paper, of the average paper RX basket, nothing of any significance. But again, we are not using the paper RX basket to project the future ERX basket, so it's too early for this. But again, no drastic change in terms of the average paper RX basket value.

because on a group level right if I account for the shift in sales mixed by four percent less I think you want the average in flight OTC AOV excluding the VAT is actually increasing so I was just wondering what was the driver behind that as the gross margin of international was actually slightly declined can you confirm that the OTC basket is actually slightly increasing which is not the case

Phamacy Unsp & Adr Phamacy Unsp & Adr Phamacy Unsp & Adr

Yeah, I think we can take this offline. Maybe my second question is more a suggestion, as I would like to see a pure German reporting in the future, right, to calculate the future customer conversion from the existing OTC customer base to ERX in the future. I think we are now at some point where this is definitely very good for analysts to have a better visibility for the future, to make some very good estimates going forward. And my last question would be on your marketing spending. I mean, you commented on a very difficult market in Germany. Could you provide a ballpark figure for Q1 and break it out of the SG&A?

Your first remark on reporting Germany separately, that's not possible. We steer our business on a international level and there are requirements. And that's why we report external segments the way how we how we steer our business. On the marketing spending, can you be a little bit more specific what your question is exactly?

Could you break it out of the S&A, what you roughly spend on marketing for Q1?

We have S&D and roughly one-third of S&D is our internal pharmacy and fulfillment activities. Roughly one-third is our last mile and roughly one-third is our marketing. That has always been the case. That's also now the case. Phamacy Unsp& But if you compare it to last year, you see that our marketing is a percentage of sales increased compared to last year. So it's, it's somewhat higher than the one third, which is nobody is.

Thank you.

Yeah, and please, it's very important if you look at those numbers, that there is actually, mathematically quite some mix there, which International, and those numbers are, because of lower scale, slightly higher than they are in the DAG region, and impacting the total, the total number as a company. Yeah. Also for marketing as a percentage of this.

Okay, I think he was already operated with another question.

There is no further questions at this time. But again, ladies and gentlemen, to ask a question, please press star 1. We'll take the next question from Michael Heider from Warburg Research.

Yes. Hi. Good morning. I have a follow-up question on the marketing spending. You have this TV campaign that you have shown us in Germany. Give us an indication if the main cost for this TV campaign has already been booked in Q1 or is it rather a continuous booking of the cost? So, I mean, can we expect the marketing cost to come down somewhat going forward? Thanks.

Nothing of the campaign is booked in Q1 because we started the campaign in April and April is Q2. So that's in the upcoming quarters.

Michael? Yeah, okay, thanks. Maybe that the cost of the production phase might be higher than the cost when you actually show it on TV, but yeah, okay, you made it clear.

I understand your question, but that is insignificant on the total level of our cost, yeah.

Okay, thanks.

Again, ladies and gentlemen, as a final reminder to ask a question, please press star one. We now have a follow-up question from Christopher Yohan from HSBC. Please go ahead.

Yes, I figured if nobody else wants, I'll come back with another one. Maybe you could give us an update on Italy. That'd be interesting to see if you saw any sort of positive impact in the first quarter.

Well, again, we are not disclosing the country specific numbers, but we are very happy with the development of our business in Italy. We are on track to open our second distribution hub. Beyond the one, of course, that we are in right now here in seven in Milan in the in the third quarter, we are again, we're on track with this and we have very high expectations looking further into the future for Italy. This seems to be a very is a very promising market and we're very excited about the opportunity this presents for shop. Understood.

Thank you.

Growth in Italy is of

Got it. Thanks.

We will now take the next question from . Please go ahead.

Yes. Good morning, gentlemen. Just one question regarding the costs in general. I acknowledge the excellent gross profit margin that you provided. Now, if I look at the rest of the P&L, like selling and distribution costs in percent of sales, which was up significantly, can you please explain again how much of this is related to the mix effect, how much of that is related to cost increases, which couldn't have been passed over, but which you will be able to pass over Phamacy Unsp & And, and if you look at it like from a normalized basis or an underlying basis how this compares to your budgets that you have going forward and will this come back come down again or do you expect this to be kind of new slide level at this point in time, like the 25% of sales, thank you.

Thank you. Yes, indeed, there is from our success in also countries outside of Germany and that is at this moment a total company level having a mixed impact. And also, if you look at the total numbers.

Sorry, sorry, sorry, sorry, but sorry if I interrupt, but I mean, it's in both segments. Phamacy Unsp& So if I look at international, it went from 28 to 31. On the DOHC segment, it went from 19 to 23. So there was a mixed effect, of course, but also for the individual segments, both were up, actually.

Yeah, actually, I was just going to address that. So there is this mixed impact on those total numbers, but also in the segments. If you look at the segments, it is mainly the impact of the lower average basket that you see here is the impact. And the remainder, because the biggest variance that you were seeing there, and that's both the case in DAG and also in international and on total company level, that's our choice because that's marketing as a percentage of sales. And we deem it at this moment best for our value creation to spend the amount of money that we did in quarter one. So that's not it happened to us or it's inflation. That's the main reason why you're seeing an increase of cost as a percentage of sales.

And also, you mentioned this before, we are comparing the comparison to Q1 last year with a lockdown quarter. In a lockdown quarter, that automatically gives us the opportunity to reduce our marketing spending. So luckily, we're not in a lockdown any longer.

And that is also applied, of course. Yeah, absolutely. If you go two years back, so before a distortion of all kinds of trends, there was always the seasonal pattern that you see that with shop apotheker quarter one was the most promotional, most marketing driven quarter of the year. That's suggesting that I'm saying now that the other quarters will be better in a cost perspective than quarter one. That's on an underlying base. That is true. But I'm not going to make the statement because we only have four Phamacy Unsp

have a follow up question on this one. I mean, it explains a lot. If we go back into 2018, 17, 19, so before the COVID distortions, so to speak, there we were talking about selling and distribution costs of like 20, 17 and a half, 18 and a half percent. Now, at that point in time, your growth was around 20 to 30 percent, the organic growth rate. Now, at the moment, we're talking about 25%. The organic growth rate was clearly lower, but that's also distorted by COVID, of course. So let's don't focus on this quarter. But going forward, as you say, it's a business decision how much you want to grow and how much marketing dollars you want to spend on this. Do you expect that the marketing efficiency going forward is going to be Phamacy Unsp & Adr

Yeah, but we don't see that. We don't see that. Some weeks yes, some weeks no. But just as a general trend, we don't see that. I think there are two things important when you compare it to a couple of years ago. I think at those moments, our international share was less than 10%. So there's a big increase of our success in our other countries. And there's a big impact of the fact that in those times, our X was around 25% of sales Phamacy Unsp & Adr Thank you for your time.

I am going back to what you emphasized in a very turbulent environment. I think we delivered a solid

in line with our full year guidance. As a result of this, we have reiterated our guidance for the full year. We are very excited about this important step that we have taken our strategic journey with the acquisition of first aid. I'm sure you're going to hear more about this in the future. And last but not least, I think our next call is in early August. We're confident that we're going to we will certainly have more news about the Phamacy Unsp & Adr