DocMorris AG (DOCM) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Zur Rose Group AG. At our customer's request, this conference will be recorded. [Operator Instructions] I may now hand you over to Walter Oberhänsli, CEO, who will lead you through this conference. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. Welcome to Zur Rose 2019 results call. I'm joined by Marcel, who will discuss the details of the results in a moment, but also Olaf, who will give you an update on the developments around electronic prescription opportunity in Germany, but also integration and synergies. I will give you a strategy update as well as an update on the impact of the coronavirus on our industry and us in particular. But first, let me briefly look back at 2019 and give you a broad view of the progress we made and some of the challenges we faced before handing over to Marcel for a review of our financial performance. Overall, 2019 was very active and also successful year with very strong top line growth of 30%. We launched a number of really strategic corporations such as the partnerships with the German Association of General Practitioners and the German Association of Specialists, but also KRY with regards to the e-script introduction in Germany and with CSS in Switzerland, where we launched a future-oriented insurance model with relevant customer benefits. A notable challenge was the continuation of the discussions around Rx bonus ban in Germany even so we are confident and convinced that this bonus ban will not come into effect. My personal highlight of the year also occurred in Germany with the enactment of the law to introduce electronic prescriptions. The introduction of the e-script has the potential to be the major game changer to determine our Rx markets, and we are ready to take full advantage of this development. Olaf will discuss that in detail later in this presentation. I'm fully convinced that this is the starting point for the long-awaited game change within the German pharmacy market. Over the last weeks, the spread of the coronavirus has been the predominant topic in all channels. It is impacting all of our lives, and we are closely monitoring the developments. As of today, I'm not aware of any cases affecting on one of our employees. The operations at all our sites are running quite smoothly given the circumstances and the taken internal measures. What we are seeing as an immediate impact is significantly increased volume at all of our brands and in all segments. Obviously, it's now too early to fully assess the full year effect. However, we see a clear push in acceptance of digital services in the broader public and especially in digital health-related areas. The digitalization in health care and especially in the pharmacy field, obviously, takes place anyway, but the virus is accelerating this move and also the shift from online to off-line -- off-line to online, excuse me. The virus will catalyze especially the electronic prescription in all of our segments. Therefore, we are getting massive tailwind in our business already short term. As an example to make, we are seeing a largely increasing number of new Rx customers in Switzerland sending in their prescriptions via fax because people want to stay safe and their medicine to be delivered to their home. If I may cite the economist, it's just one example of the current news coverage. The COVID-19 epidemic has brought millions of new patients online. They are likely to stay there. Of course, the coronavirus-related risks need to be taken very serious, and it is our task to manage through this very dynamic time via making sure that all our warehouses stay fully operational and cope with the largely increased additional volumes. Picking up on the additional volume, I would like to share with you some preliminary data and evidence as to the current impact on our operations. Please take note that we are not drawing any conclusion from this initial data point on our quarterly or annualized basis. On the demand side, we are winning new customers by the thousands on a daily basis and in all regions. We see an increased demand of up to 100% in the last few days. Zur Rose is meeting these new peaks of demand with a capacity reserve of 50% among our 5 hubs in Germany and in Switzerland as well. In terms of staffing, we are increasing our employee numbers, offering opportunities to employees affected by the crisis elsewhere. We are taking the social responsibilities that we have in Switzerland, Germany and Europe very serious. Overall, we think that the coronavirus will be very generally spoken a catalyst for our business model and especially for electronic prescriptions. I'd now like to hand over to Marcel, who will summarize the financial performance in 2019.

Good afternoon from my side, and thank you, Walter. Let me also start with a look back. As you can see, we achieved what we said we would with sales growth of 32.8% in local currency. We achieved our sales target above CHF 1.6 billion. Due to the exchange rate effect, total sales amounted to CHF 1.569 billion. We achieved also the target of an EBITDA margin in line with 2018 at minus CHF 13.8 million, which equals minus 1.0%. Let's look at this in more detail, starting with group sales. Sales increased by an impressive 30%, in line with our guidance. The biggest contribution came obviously from Germany, where we were able to grow sales, including medpex at 45.4% in Swiss francs and above 30% in local currency. These numbers resulted in a challenging environment, driven by OTC competitiveness and also reduced Rx marketing. In Switzerland, despite regulatory price cuts having a negative effect of around 3% on our sales, we achieved a growth rate of 5%, driven by good performance from the professional service business and a slight decrease in the B2C segment, mainly driven by the declared price cuts. In segment Europe, we achieved sales of CHF 30.8 million, growing over 50% in Q4 2019, and we continue expansion outside Germany and our home country, Switzerland. Next, I want to share the pleasing development of the KPIs of our B2C and marketplace business combined over all segments. The number of customers rose from 4.3 million to 7.0 million and increased by 61% compared to the 12-month period ending 31 December 2018. The increase was obviously also driven by the customers added via the medpex acquisition, which you can see in gray color. Due to the high growth in the German OTC as well as the marketplace business compared to Rx and B2C Switzerland, the basket size on the bottom right side slightly decreased from 61 to 57 year olds. The same holds true for the order frequency, which is now at 2.4x this year, though our repeat order rate mainly remains at a high level at 79%, posting a slight decrease versus full year 2018 of 81%, which shows the extraordinarily high loyalty of our customers. In terms of site visit, we saw an increase from 146 million to 216 million visits in the 12-month period ending in December '19 versus the period in the previous year. Earnings for the year were broadly in line with previous year's level. Sales reported, excluding medpex, were at CHF 1.355 billion. On a segment level, Switzerland continuing to be the solid profitable cash-generating unit of the group. The sales of the existing shop-in-shop pharmacies to the medpex joint venture led to a positive effect on earnings of roughly CHF 15 million. Europe showed excellent sales performance, thanks to the increased marketing efforts, the impact on earnings, of which were in line with our plans. In Germany, [ 3 effects ] has an impact on our profitability. The progress of the integration led to higher costs driven by increased complexity and product volume, following the integration of the apo-rot operations in Heerlen. To ensure continuing excellence in our customer service, we have installed a third shift in our warehouse, which will likely continue until the completion of the new warehouse. The new building is ready, and we are on track for completion in 2021. Secondly, we saw some pressure on OTC margins as the market stays competitive. The third and largest effect resulted from the revaluation of the medpex earn-out, as communicated at the half year result call, also as a result of the competitive market situation. The positive effect overcompensated the negative ones outlined before. Let me take you through the details of the income statement. Gross profit at CHF 208.7 million was slightly lower as a percentage of sales due to the fact that medpex is not consolidated yet on this level and a slightly more competitive market in 2019. Personnel costs rose as we continue to expand our operations across our market and also due to higher growth in the businesses with lower basket as we saw in the KPI overview. Marketing expenses were slightly higher as a percentage of sales at 3.9% compared to 3.4% a year ago, also to higher share of B2C business and upfront investments in growth in Europe. At the operating income and expense line, an increase in integration cost to drive future growth were more than offset by the revaluation of the medpex earn-out and the sale of the existing shop-in-shop pharmacies to the newly set up joint venture. Overall, the positive one-off effects were higher than the negative ones, resulting in a slight improvement in profitability on EBITDA level. The key changes in the balance sheet occurred out of our growth strategy through acquisitions and also through organic growth. Assets increased mainly because of the impact of IFRS 16 of approximately CHF 45 million. Intangible assets increased by CHF 200 million. The dominant effect came from the addition of goodwill from the acquisitions, including earn-out components, the investments in technology increased this line item as well. Financial liability rose to CHF 125 million, driven by earn-out components and leasing liabilities. The straight bond issuance of CHF 200 million increased the bond outstanding line item. While this led to a decrease of the equity ratio, it still stands at a solid 40.9%. This development leads to the change in cash. To summarize the main impact, M&A payments for medpex, ClinPath, [ Clark Protect ] and DoctiPharma, investments in our tech platform, the operational results and the bond issuance in October 2019 resulted in a cash position of CHF 204.7 million. With that, I hand back over to Walter, who will give you an update on our strategy and recent management additions.

Thank you. I would like to start by introducing our new organizational structure and new executive Board members. Zur Rose has historically operated on a predominantly country-based model and still does so. This has worked very well as we built our business firstly in Switzerland and Germany and across Europe. As we have expanded in size, offer and skills, we have also been considering the optimal way to organize ourselves to deliver maximum value to customers, partners and also shareholders. While there is no plan for imminent organizational change and the countries remained bit back of our structure, we are starting to build up core centers of expertise, which can then be leveraged across the businesses and countries. A good example of this is the marketplace expertise that we acquired with PromoFarma in which we are expanding across the group with excellent early impact. We will continue this process in the coming years so that we can fully realize value across the full group. We have also added new functions to our executive Board and have strengthened our team. Betül has joined us as the new Chief Strategy and Digital Officer and will predominantly work on the ramp-up of our eRx ecosystem and data business. She joined us from Novartis, where she was Global Head of Digital Medicines, and has a background in this industrial engineering. Bernd will become our new Chief Operations Officer and will lead the completion of our new Heerlen site and bring his considerable experience in cutting-edge operations acquired at Amazon, where he was the Country Director Logistics for Germany and Austria. He has a degree in Industrial Engineering from RWTH Aachen. The third addition into the team is David, who has been with the group since the acquisition of PromoFarma. He will take full responsibility for the Europe segment and also will distribute his marketplace know-how across the group. He is the founder of PromoFarma and has a telecommunication engineering background and has also completed a Stanford Executive background. With these additions to our strong management team, I feel very confident that we will be able to continue to deliver on our strategy. I would now like to give you an update on our key initiatives. The absolutely clear focus of the whole group is on the eRx opportunity in Germany. We are, therefore, shifting our resource allocation from OTC to eRx, while maintaining our position as a clear market leader. In the second half of 2020, we will launch our eRx marketplace app and are targeting a large scale pilot project to establish the proof that the electronic prescription is scalable. Olaf will take in greater detail about that opportunity as well as the current status of the integration work, where we are continuing the scaling of the Heerlen site, and we'll be making progress on our branding strategy, all based on a further strengthened segment management team. The impact of the coronavirus is a topic that will develop into a major impact on our company, as explained in the beginning of the call. The effect of COVID on any digital business but especially in healthcare is massive and is here to stay. In addition to these 3 key topics for this year, further growth opportunities are the French OTC market and the E-Health Ecosystem ramp-up. The French OTC market could be fully addressable via marketplace and/or cross-border e-commerce in the near future. This would create an additional opportunity for us. Last, but not least, we continue to work towards reaching our vision of becoming Europe's leading E-Health Ecosystem, where we aim to integrate key partners into our network. I would now like to hand over to Olaf, who will inform you firsthand about the current status of the eRx opportunity and also integration progress. Please, Olaf.

Okay. Good afternoon, everyone, and thank you, Walter. Yes, as you all know, we are following a dual strategy approach on the eRx topic. On the one hand, we have the official process governed by Gematik that is the body where to introduce the e-script in Germany. And the second one is we have our own approach, right, for this the entrepreneurial approach. And the good news is they can both go hand in hand. So let's talk first about the official process. And as you can see on the slide, everything is going the way it has been already presented. So that means, we have -- the e-script law was introduced last year. The Gematik, 51% owned by the Ministry of Health, is mandated to implement the technical infrastructure and the focus is on a safe connection of physicians and pharmacies. And as of now and then all installing national eRx server. The time line for the infrastructure is -- already has been defined. Currently, all of the doctors are being connected to this infrastructure. Right now, we are approximately on 80%. The plan is and the intention is to connect to the pharmacies to this network until Q3 of this year. And the rollout of the national eRx server is planned to take place mid of '21. Like always in life, when it becomes relevant, and that is -- we will -- let's talk about this one a little bit more in detail. It is now about the way how the e-script should be -- become operational in Germany. And so there's a detailed rollout plan. And currently, all of the different stakeholders, of course, are trying to make sure that their interests are somehow met in this process. The very good news is, from our perspective, look into the rule set, which has been currently developed, is that the access for the eRx server will be possible for all market participants, meaning not only pharmacies from Germany but also pharmacies from the EU can connect to this server. There will be a competition between the different pharmacies, and this is an open solution. And overall, it's a very good news from our perspective because as you know, and some -- at least the pharmacy association in Germany try to have a hand on this server, but as of now, it looks very good. It will be an open server, and everybody can connect to this platform. So very good news on the Gematik side. If we then go to our own process, [ quality of the whole ] strategy, it also looks pretty good. As you can see on the next slide, we have -- Christophe, maybe you can turn that into the next one that would be great. What you can see here is, this is actually what we are doing. This is to me our own strategy chart and the business model chart of what we intend to do going forward. Christophe, can we have that slide on this? So well, I don't see this slide right now, but maybe I will try to give you the explanation of what we try to do. Here we go. On the one hand, we have what we call the B2B approach. This is the -- this is our eHealth-Tec vehicle. The company we acquired last year. But as you know, we already had a 50% stake in that company already a couple of years ago. And we want to use that B2B platform to enable the e-script in Germany. And then on the other hand, we want to launch our marketplace model with the top most brand in Germany, and that is supposed to be the tool for convenient use of eRx. Let's first talk about a little bit the eHealth-Tec approach. eHealth-Tec, the product is connecting doctors and pharmacies and enables them to issue an e-script following all of the standards and rules which are out there. So for example, encryption, qualified electronic signature and other kind of things. And we will connect the solution with doctors and also with pharmacies on the other hand, and the incentive model for doctors to do so is, in most of the cases, an increase in convenience because almost half of the scripts at a doctor's office is used for repeat purposes. So that means chronically ill patients are showing up and want to sign up on a repeat script. And by using this technology, this software, it's more convenient for the doctor just to issue an e-script as opposed to having the patient in the office. And especially in these days, with the virus out there, of course, that is even further a service towards doctors. So the intention is to launch this model already in 2020. And here, we are currently in strategic talks with all of the relevant stakeholders in the market. And as you can imagine, this is a game changer kind of approach. And because of that, we are actually talking to all of the players in the market, meaning doctors, doctors' associations, software providers for doctors, software providers for pharmacies, payers, of course, and also to the regulator. And we are pretty confident that we can, by using eHealth-Tec as an enabler, launch something already in 2020 ahead of the Gematik and that can be later than transformed into the Gematik. If we now go to our marketplace model. So eHealth-Tec is the enabler of e-scripts and the marketplace apps as of DocMorris, that is the tool we want to capture the consumer or the patient. And within this tool, we do not only want to offer, let's say, the one and only solution online pharmacy, but we want to offer more options. And more option means -- more options means this can be a pickup at a brick-and-mortar pharmacy or it can be a 2-hour delivery by using the infrastructure of the existing pharmacies. And there will be additional services in this marketplace app as well. For example, one of the relevant services will be stock availability in brick-and-mortar pharmacies. And this especially for chronically ill patients, it's a relevant need. So that by the end of the day, if we use the marketplace app, you have a couple of advantages. On the doctor's side, you can simply ask for a repeat script in an electronic way, and you don't have to see the doctor. You don't have to go there. You don't have to call there. And then once you have the e-script in the app, then you can select out of the different pharmacies. Of course, you can select the online pharmacy and it will be processed by the existing facilities of us or you can use the brick-and-mortar for a 2-hour delivery or pickup by using also stock reservation. So overall, I think we are very well positioned. We have the eHealth-Tec to enable the e-script business ahead of Gematik. We have a very strong product on the marketplace side, also using technology from PromoFarma, and we are pretty confident that we can launch something already in 2020. We also have already out there a case study together with the German largest payer, Techniker Krankenkasse, means our technology, the eHealth-Tec technology, is already up and running. It is working. So we have doctors who are connected in that pilot to that solution, issuing e-scripts, especially repeat scripts. And then we have participating pharmacies, where the customer can do the dispensing or actually the pickup of the product. So overall, I think we are very well prepared to launch this in 2020. If we now go to the next slide, which is our technology slide. It also clearly shows you that what we did in the past. So acquiring PromoFarma is very helpful in order to achieve our strategy because now we do have different technology hubs, and we can put this all together so we have 3 great tech hubs, the one is Berlin, the other is Barcelona and the next one is Zurich. And already today, we have more than 150 employees from 20 nationalities working in an agile culture and continuous deployment. So we have actually what we need in order to get this done because the solutions going forward, say, for sure, will be more tech-driven than in the past, and we feel very comfortable with the setup we have here. If we now go to the integration part, I would like to say at the beginning, we are moving fast on this one. And the integration is not only about the logistics. The good news is the earn-out models from medpex but also from [indiscernible] they ended end of last year. And now we have everything, and we can align all of the interest we have, because previous years, use of the earn-out and some of the case, of course, the teams were working because of the earn-out. Now we can bring it all together and build this one organization, and we have started to do so already 1st of January of this year. Accenture is supporting us on integrating and building this new organization. So we also have external help to get this done in a reasonable frame -- time frame. So let's talk about the organization first. Now we have already this one organization. We have built clear responsibilities within this organization. There's only one organization for Germany across all legal entities and across all sites and across all brands. It's in place already since January 2020. And it's organized in the way more as a functional way. We have marketing responsibilities, purchasing of technology and finance. And of course, by doing so, we can reduce staff in some areas and in other areas, like marketing and technology, where we are happy to have all of those employees with us. On the branding, now we have the advanced because of the aligned interest after the earn-out phase, the aligned interest now in 2020, that we can build this one marketing team, and the good news is we have Frank Müller. He has been the CMO, Chief Marketing Officer, of medpex, and medpex provides best-in-class marketing in our industry. That was actually the reason why we acquired medpex. And now he's heading this team. And you know we are currently keeping the different brands, but we are aligning the brand strategy. That means pricing positioning, channel marketing, branding marketing. This is all aligned. We're only supporting one brand. And we are making sure by exchanging on a daily basis that all of the brands we have currently out there from a marketing perspective, especially performance marketing perspective, work in the same way. If I look into the IT platform, we are also moving here into one platform. We already got rid of the apo-rot platform and the clear target is to have one common platform already in 2021 for the German site. And the more we integrate them, of course, the more synergies we can get. On logistics, the target is to have one hub, but as Walter mentioned earlier, I mean, right now, we are in a very good position because of the different hubs we have out there in Germany because they can provide additional capacity right now, and we are making use of that currently and ramping up all of our sites. In terms of management team, we are very happy that we now have a strong, strong team for the German market. We have -- on the one hand, we integrated the medpex founders, the 3 guys, and it's great to have them here on board with their entrepreneurial spirit. And as Walter already pointed out, we are also working very closely with David from PromoFarma, who has the marketplace know-how. So we have a strong team of entrepreneurs here working on the German market. And at the same time, we also got external experts, like Bernd and Malte. They have proven track records from great companies, like Amazon and Zalando. So I think now we are very well positioned to get to achieve all of our targets with this great team. And that's actually from my side on integration. And I would like to hand this over back to Walter.

Thank you. In addition to that one and only opportunity because of the electronic prescription introduction in Germany, nevertheless, there are more opportunities and especially one to add is the French OTC opportunity. The French OTC market might open up for e-commerce to create an additional growth opportunity to us. As France is the second biggest pharmacy market in Europe, of course, this is -- has obviously a strategic relevance for us. The draft law is currently in the debate, which includes measures to ease OTC e-commerce for French pharmacies and will create an opportunity for our own OTC market entry in France. According to [indiscernible], the French OTC market is worth EUR 6 billion. We will follow the regulatory process in detail and in the form once we know more. As communicated already during the last calls, we are in the progress of -- in the process of creating Europe's leading health care platform, building on our cutting-edge technology, unmatched links to a broad area of partners, like insurance companies and physicians, customer base of 7 million and, on a group level, the highest brand awareness. 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 profit streams with the ultimate goal to ensure the efficacy of pharmaceuticals with the help of digital solutions. This vision motivates all of us as it will bring relevant value to the customers as well as to the health care systems itself. We are ready to take health care where retail, entertainment, travel and mobility have already gone. As the examples on this page show, the winners have succeeded in transforming their transactional core business deals to a wider level, ultimately becoming tech companies offering superior services to their customers. Our proposition is to become our customers' health partner in life by offering personalized data-driven products and solutions that work seamlessly with a single sign-on in our app. The eRx marketplace is the first step in this journey and will allow us to widen our offering afterwards -- ultimately becoming the one-stop shop for our customers and their digital health-related needs. On the supply side, we see emerging health players creating innovative solutions along health journeys with evolving business models. Our ecosystem will be the missing link connecting demand and supply. We are in a fantastic position to deliver on that vision. 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, OTC, Rx and BPC. 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 model. As said before, we will evolve from not just selling pharmaceuticals to bring the efficacy to medicine -- of medicine to the customers, especially the chronically ill. With that, I hand over to Marcel for the financial outlook.

Thank you, Walter. As we have outlined in the presentation, the current developments in the market are extremely dynamic and create very strong momentum. Based on the strategic focus shifting towards electronic prescription, we are targeting to increase sales by roughly -- or to say only 10% with subsequent overproportional Rx growth acceleration starting 2021. Adjusting for expenditures on additional growth initiatives, the profitability target is to breakeven in 2020 at the EBITDA level. Please note that effect of the coronavirus on the business are not reflected in this outlook. For the midterm, we see sales of more than CHF 3 billion and an adjusted EBITDA margin of around 8%. We also believe that the E-Health Ecosystem has the potential to drive longer-term EBITDA acceleration. To make it more tangible, I would like to run you through the steps and the line items of the P&L of achieving our midterm targets. On the first line of the chart, you see our 2019 figures, including positive one-off effect. We reached an EBITDA margin of minus 1%. The second line shows our run rate based on the current sales but after completion of the integration with an increased gross margin post the medpex integration. Additionally, we see a decrease in variable cost, thanks to our efficient warehouse and increased marketing efficiency after implementing our branding strategy and the decrease in other expenses driven by organizational synergies leading to a run rate margin of 2% to 3% EBITDA. On the sales level, we aim to reach CHF 3 billion in sales, mainly driven by an increasing online penetration in the German Rx market. This will have a positive effect on our gross margin, where we see additional contribution from our ecosystem business. As communicated, our midterm margin is adjusted, which is why we calculate it with the marketing ratio needed to lock in customers and sustain our sales. The combination of this effect leads to our midterm target of an EBITDA margin of around 8%. With that, I would like to conclude the presentation and open the Q&A session.

[Operator Instructions] The first question is from Volker Bosse of Baader Bank.

Volker Bosse, Baader Bank. Congratulations on the great set of results. I have a couple of questions. I would like to start with your guidance. To have it clear, it's in the target of 10% growth is on top to the CHF 1.6 billion, so to say, on a pro forma basis, right, which means including medpex? And it brings me to the question if we can expect medpex to be fully consolidated in the course of 2020? An update here would be helpful. And also, in regards to the guidance, you mentioned the great growth potential of the marketplaces, France and Spain. So what growth do you expect for the rest of Europe segment? And yes, a bit more guidance would be helpful here. And for clarification, Italy is postponed, right? So it's not going to happen in 2020. So it's still on the agenda, but beyond somewhere, I guess. And the second question would be on the midterm targets. You guide for a CHF 3 billion midterm and 8% EBITDA margin. Is that the replacing the '22 guidance of CHF 2.4 billion sales and an EBITDA margin of 5% to 6%, which you mentioned earlier? So -- or is it guidance for 2022 still valid, too? And a final question would be on the trading update of your business. Sorry to come back to coronavirus outbreak, but did I get you right that over the last days, the number of orders increased by 100%? Or, I mean, a bit more clarification here and perhaps also, how do you see differences between Germany and France? In Germany, stores are closed, but we are still allowed to go out. While in France, we have really a shutdown, so people are obliged to stay at home. Does that make differences to your business? Do you see here regional differences given the coronavirus outbreak between the different countries, given to the different travel bans, so to say, mobility bans reoccur?

Thank you for your questions. Let's start with the first one. You are right. This 10% growth rate is including medpex. So on the baseline of 2019 of this CHF 1.57 billion. In terms of time of consolidation of medpex numbers, as you know, we will consolidate medpex operations latest. Then we can integrate them after the completion of the new warehouse in 2021. And so we will not have all the consolidation in 2020. The second question was about our segment Europe and the growth rate of this business. As you know, we are starting on a low absolute number. And so the percentage growth levels are, of course, significantly higher than on group level. And Italy is postponed because we have our focus on the German market and do everything in order to succeed in the electronic prescription business in Germany. Question number three was about the midterm guidance, the CHF 3 billion and 8% EBITDA margin. This is a roll-forward of our guidance from 2022 because we think it makes sense to give you a midterm perspective of our business. That does not mean that we do not target the announced numbers in 2022, but it's a roll forward to a 3- to 5-year time frame.

And then maybe to the corona effect, actually, I said in the beginning that for this week, we have an increase of demand of 100%. And this increase of demand is happening not only in Germany but also in Switzerland and in Europe. That means Spain and France. In France, actually, it's even higher, just also due to the fact that the revenue numbers are comparably much smaller. But it would be too difficult and too early to say what would be the differences into -- in the different markets we have. But I would say, in general, it's very comparable what we see. So this corona effect brings the shift from off-line to online and which will take place anyway. But the corona really is just is accelerating this effect. That's what we see.

The next question is from [ Alexander Chu ] of [ Jefferies ].

My name is [indiscernible]. I actually have one question for each of you. Maybe Marcel, just the first one for you, technical one. Given that you cannot include medpex right now in your current financials, what would have been the drop-through rate on EBITDA if you would have included medpex?

You mean in the annual results 2019 or in our guidance perspective?

Yes. Actually on both. I mean, 2019 would be interesting, but going forward, more interesting even more?

In our guidance -- in our midterm guidance, medpex is included because we can consolidate then on -- from 2020 one. And so it's fully included in these numbers. And in the numbers of 2019, there is a sales number included of -- in the reported numbers of CHF 30 million sales. And on an EBITDA level, it's more or less 0. There's no impact on earnings.

Okay. But if you could have included all the sales, what would have been the effect on EBITDA?

It's on a similar level. So in 2019, it was more or less a breakeven result out of the medpex operations.

Okay. Got it.

But Marcel, if I can add to this. I think it's fair to say medpex is operating on a significantly higher gross margin in DocMorris. It has been since the acquisition. They have a better go-to-market approach, and therefore, their gross margins are higher.

Okay. For Walter, maybe the next one. What would be the business profile in France look like? What would be the approach? And do you have any insights on the time line for the draft order?

So what the time line concerns, I couldn't tell you. What approach means, obviously, we have already the marketplace approach in place in France with DoctiPharma for the moment. And obviously, we would base on that marketplace approach first.

Okay. And last one, maybe for Olaf, what was the response actually from the brick-and-mortar pharmacies for this stocks availability feature on your app?

Very interesting question. So you mean -- I mean, there are 2 answers to that. The answer number one is, if you look into the, let's say, press from pharmacy associations, and so they started a survey. And in this survey, up to 25% said that they might consider to work together with us. That is one part of the puzzle. And the other part of it is that we are currently talking to all of the major associations out there, meaning corporations. So there are a lot of strategic talks. And then also, on the big ones and the very good ones, the very good corporations are in discussions with us because they think it's a very interesting model. And they know that this is one of the models going forward, which you should probably join, and that's the -- so don't not only -- do not believe what you see in the press. It's about the discussions we are currently having and again, talking to all of the major corporations. To me, a very promising start into our marketplace approach.

Okay. And currently, the coronavirus situation, do you have any emergency plans for your logistics in the Netherlands?

Yes. Of course. But we do not only have this for the Netherlands. We have this also for -- I can only talk more, in detail, about the German side. We have different logistic sites, and we have taken a couple of measures to make sure that we stay operational. Yes. So we are working in different shifts. For example, we have significantly more people. Yes. We have introduced home office wherever possible. We even took some of the, let's say, operational processes, and now we are doing them from home. So I think we are very well prepared. We also asked for special permissions to cross border. Yes. Because you know we are located in the Netherlands, and some of our staff is coming from Germany. And we even got a provision for that one because, I mean, we are a pharmacy. And so it's important that we stay stable. So as of today, I would say, we are very good prepared to keep this operation up and going and even to make sure that we can handle the increased volume.

Okay. Last one, maybe the 100% increase was mentioned. Was it on the page visit or orders? Or what was that related to?

Actually, that was the demand, not the revenues, but the demand.

Yes. Demand in terms of page visits or on new orders? Or...

Yes. On orders. That means order. That means orders.

Yes. That's the demand on orders. What we try -- what we currently try to do because it happened from 1 day to the other. We cannot ramp up that quickly within 1 day, 100%. Yes. So we see the demand, and we try to realize as much as possible of that demand, bringing it to the 100%. But that, of course, means hiring more people, working on night shifts, working over the weekend. And this is what we are currently doing to ensure that you can fulfill all of that demand.

The next question is from Alvira Rao of Barclays.

I've got 3 questions. First, as you've highlighted, COVID caused a certain demand. Just curious what you're hearing from suppliers. To what extent are you running into any supply constraints? And then with this natural surge in demand, have you been cutting back marketing costs, since you were getting a lot of demand organically? Number two, can you give us any update on the potential bonus cap discussion if there's anything new to report there? And then number three, on the financial model of your marketplace solution, how would this work? Would pharmacies be paying you a commission? Or what would the economics of that be?

Okay. Maybe, Olaf, would you answer 1 and 2 and then Marcel 3?

Yes. That's fine with me. Yes, your first question was COVID supplier constraints. And as of now, we don't see any constraints on the supply chain. But of course, I mean, we do not know what's happening -- what's going to happen in the next couple of weeks. So far, it's okay. I mean, sometimes you see, for example, paracetamol yesterday, because of the story out there, exploded. Yes. But besides that, most of the relevant products are still on stock, and we see a stable supply chain. We are in close relations to all of our suppliers, especially, of course, the pharmaceutical industry. And as of now, it looks good. But of course, we cannot promise that it will stay the same way. Again, we have, I think, very good relationships to the suppliers. And right now, we feel comfortable. The marketing cost was the second part of the question. Yes, we just discussed the demand. And of course, what we try to do is to play with whatever we have, to make sure we can somehow control and handle the volume. And one of the measures we can take is reducing marketing. So that means, yes, we have reduced marketing on the performance marketing side. For example, on Google and on other channels. On the question number two, which is on the bonus. If I understood the question right, there's not really -- there's no any -- there's no update. I mean, this is still, I mean, the proposal has not passed the cabinet because they are waiting for the feedback from the EU Commission. And so far, everybody is still waiting for the feedback from the EU Commission. So there's not really -- there's not really any news on that on the bonus part. And question number three, Marcel, you would like to?

Yes. I think it was about the financial model of the marketplace in Germany. I mean, we have a lot of experience of marketplace out of Spain and France, and we are in negotiations in Germany. We have our concepts, but we cannot disclose right now how the financial model in the German market will be in detail.

The next question is from of [ Olivier Camray ] of [ Pebla ].

First one, maybe on capacity usage. How many orders can you process today at your existing facilities, maybe including and excluding medpex, please? And what's the target capacity that you are targeting at your new warehouse?

So as I said before, we see that the aim is enlarging our capacity as of now up to 50%, without the new logistics. And the new logistics, of course, have a much different approach, which maybe Olaf can answer to that question about the new logistics.

Yes. I would love to do. So, yes, as Walter said, I mean, we think -- I mean, only -- we think right now in the German market, I mean, we can scale or bring it up to an additional 50% on short-term capacity. And this would bring us to more than, let's say, 22 million parcels on the existing warehouses. And then we have our -- what we call the DC2, so distribution center 2, which will be live in '21. And here, we have a capacity of more than 20 million parcels if we go for a 3 shift model. So that means if you add it all up, it's almost 40 million in volume.

Okay. Very clear.

But this, of course, requires a 3 shift model if we want to go for a volume like this, of course.

Okay. Can you maybe tell us approximately how much Rx bonus you paid out last year approximately?

In Switzerland, we do have a Rx bonus or a discount of 12% in average. And in Germany, in relation to sales price, it's about 5%.

And that's 5% of Rx or?

Yes. Of Rx, yes.

Okay. And roughly speaking, did you -- can you comment on your Rx growth this year?

Because our strategy is to emphasize on the electronic prescription, we reduced on our Rx marketing in Germany. And therefore, the development was more or less stable.

Okay. Okay. So close to the 2018 level, right?

Yes.

Okay. And then just -- I was just wondering about your preparations for market entry in France. I mean, obviously, I don't know if that's something that was on your radar. So -- but there was this -- the senate struck down the article 34 that you're referring to, which introduced the simplification rules of main order of pharma. And is there -- am I correct in assuming that this is not leading you to change gear? And could you sort of detail your strategy and legal setup? Is it going to be still a marketplace? Like to what extent are you going to rely on local pharmacists?

So at the current stage, it's not yet decided, either -- if it's just a marketplace-only approach or in addition to also a mail-order approach. That will be effective for the law, how it will end up. And so for that, at this stage, we cannot say more than this. Actually, we are prepared to whatever solution will come up.

Okay. And then can you maybe comment on when e-scripts will really kick off in Germany and maybe also Switzerland?

Maybe, Olaf, you say something about Germany?

Yes. I love that question. Yes. So as I tried to point out, I mean, there's this official process, Gematik, and maybe mid of '21, end of '21, you never know. But on the other hand, we feel comfortable that we can already launch something this year. And that means we might be ahead of the curve that looks actually pretty good based on what we have developed. So it's difficult to say. It could already be this year a little bit. And based on our own solution, boosting next year, or we have to wait for Gematik and then maybe more towards mid or end of '21. That's all we can say at this point in time.

And to add Switzerland, in Switzerland, we have already relevant revenues coming from electronic prescriptions. And there, we see also from the virus sort of an acceleration of that effect. But we could not say how much that will be. I mean, we will have to look at the next day, weeks and months in order to assess what is in for the electronic prescription in Switzerland.

The next question is from [indiscernible] of [indiscernible].

You already said a lot of things about the marketplace model. I was just wondering, how many pharmacies would you need to have these 2 hours delivery slots?

Maybe I can try to answer that question. I mean...

Yes.

Yes. I will try to answer that question. So what we think, I mean, based on our initial calculations. But again, it's not set in stone. We think we need around about 1,000 pharmacies in Germany to have a 2-hour delivery service up and running. But that does not mean that we target to have 1,000 pharmacies. That's not the same kind of thing. So right now, we don't have a specific target on the numbers of -- on the number of pharmacies we want to acquire. But we would probably need 1,000 with 2-hour delivery.

Okay. And you said you're initially speaking with the corporations in Germany?

Yes. As I pointed out earlier, I mean, this is a time for change in Germany, and that means new alliances will come up for sure. And because of that, we are talking to partners, major stakeholders in the market, and they are also talking with us. A lot of corporations and -- are talking to us, approaching us and are interested in our marketplace model, how they can participate in the online world as opposed to just being stuck on the off-line world. So very interesting times. But it's too early to say -- to give any more details into that one.

All right. So it's still in the road map to launch in the second half of the year?

Yes. Our intention is still to launch an eRx marketplace approach in the second half of this year.

The next question is from Sibylle Bischof of ZKB.

I have 2 questions concerning the outlook. First of all, the outlook for 2020 with EBITDA, you expect 0 EBITDA, but you also plan to invest in growth initiatives in Germany and France. Could you give us any hint how much are you planning to invest there? And then the other question is about the long-term EBITDA of 8%. So do I understand right? This is the EBITDA reach -- you reach when you don't invest additional in growth initiatives, right?

So the first question about the EBITDA target 2020. Before these investments in these additional growth initiatives, as Olaf and Walter mentioned before, we do not know exactly when this scaling up is taking place. In France, we are depending on the regulatory environment. And in Germany, we intend to launch the marketplace in the second half year. But we do not exactly know at which time we can invest in this growth. And that's why we give the guidance that we have an EBITDA level of breakeven before this additional investment. On the long-term EBITDA of 8%, we included some upside in high-margin businesses out of the E-Health Ecosystem. And on the marketing ratio, we target to have the marketing for the existing business and the locking of the customers on a sustainable basis but not additional marketing for further growth initiatives that are not integrated in the plan right now.

Additionally, could you give us your plans about CapEx in 2020? How much you're going to invest?

So the CapEx will be in line with what we said before. Additionally, we have these investments in the distribution center 2 in Heerlen. Altogether, we expect CapEx in the size between CHF 40 million and CHF 50 million for 2020.

This includes intangible and tangible assets, right?

Yes. That includes both and also the distribution center 2 in Heerlen.

And depreciation, amortization went up in 2019. Will it be the same growth in 2022?

In 2019, the growth came also from the integration of the acquired businesses, like PromoFarma, like apo-rot and also from the IFRS 16 effect. And so the growth between '19 and '20 will not be in this amount.

The last question is now from Sebastian Vogel of UBS.

I got 3 questions. And the first one, you mentioned in the press release this morning for sort of special or exceptional items. It would be great if you can break them apart into the individual ones and how each of them has contributed in terms of a quantitative number? The second thing is you mentioned your increased marketing spending by a bit, it was like, if I'm not mistaken, 30%. Is that sort of a proper run rate for the future? If you assume like -- if you take the COVID-19 case a short-time aside? And the last one would be on the whole E-health side of things. I'm correct that Gematik is currently actually still defining how the eRx platform is actually -- should be look like. Is that an issue that you potentially come up with a pilot that is eventually not in line with the one with Gematik defining thereafter and therefore, need to be again discontinued?

Question number one about the one-offs in 2019. In our detailed outlook guidance, we showed a number of CHF 29 million of one-offs, and that includes the positive one-off effect of the sale of shop-in-shop business in Switzerland in the joint venture. The second, the reevaluation of the medpex earn-out. And the third one is the integration costs and M&A, one-off costs in 2019 and altogether, leads to these amounts.

Can you break them apart? Which of these 4 points has contributed, which number to the overall CHF 21 million?

Yes. You can see it also in our annual report in the note number six, business combination. We disclose a positive effect out of the sale of shop-in-shop in the size of about CHF 15 million, medpex or all the revaluations of the earn-out at about CHF 70 million. And on the other hand, we have this one-off costs of about CHF 3 million to CHF 4 million. The second question about the marketing expenses development from '18 to '19, as I understood you correctly, with the growth of 30% on the absolute numbers of marketing spendings, if this is continuing over the next year. Is this right?

Not the 30%. But if that sort of absolute level is the one that you expect that it's the sort of level you can -- you should be going on for the future?

As we -- our strategy has the focus to the electronic prescription. And therefore, in the past, we reduced our marketing spendings for electronic per sale of our prescription. And so there will be an increase in the future if we have the business model of electronic prescription in order to acquire new customers on this level. So this will not stay on this absolute level in the future. It will increase on an absolute level.

And the third question, maybe Olaf, you can answer about Gematik.

Yes. Maybe I can try to answer that one. Yes, that's a very good question. But like always in life, I mean, we can either wait or we can try to build something, and we feel very comfortable building something. So that means we develop today a solution and partners are willing to install that solution. We think that's going to happen. But on the other hand, of course, we try to make sure that with our solution, we also meet future Gematik specifications. And those specifications are especially circled around the national eRX server. And our solution has developed in a flexible way so that the part, which will be run and operated probably by Gematik, the National eHealth server, I mean, we can migrate this part of our solution into the Gematik solution and then keep the remaining part. And the remaining parts are the parts at the doctor's side and at the pharmacy's side. So we are talking, of course, to Gematik, like everybody is talking to Gematik. We try to anticipate their specifications, and we are building a model, which can be transferred or migrated into the Gematik model.

Now back to the speakers for the conclusion.

Okay. Thank you very much for attending our con call, and have a good day.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.