Redcare Pharmacy NV (RDC) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Redcare Pharmacy Full Year 2024 Earnings Release Analyst and Investor Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Olaf Heinrich, CEO. Please go ahead.

Yes. Thank you very much, and good morning to everybody, and a very warm welcome also from my side. So let's have a look into the agenda of today. So first of all, we would like to start with some highlights from 2024, followed up by business performance of 2024 and leading into an update on strategy session. And then finally, the outlook and guidance. If we go to the highlights of '24, I mean this has been an exceptional year to Redcare. If you just look back, I mean it's almost like you can't believe. But I mean, at the beginning of the -- of last year, there were the questions, is the e-script coming? Is it not coming? What will be the adoption rate of it? And so -- but I mean, we quickly learned that e-Rx became the nationwide standard in Germany for all publicly insured patients and that is actually great news. And then there was the second question. I mean how can we access that market? How do we discriminate -- how do we get discrimination-free access? And then we launched our fully digital patient journey via CardLink in May of last year. It seems like it is almost more than 1 year ago, but it happened last year in May. And at the same time, we also further develop our product. So we have a highly valued customer-centric product. It has all the features you need so it does not only have the card link functionality, but also you have the product availability, you have the payments, you have the 24/7, you can order OTC, BTC, Rx. So everything is in the product, and this product actually has developed over the year, and now we think it's a great product out there in the market. And at the same time, we also launched our marketing campaign. So it is on the one hand, the product, but on the other hand, also our very successful marketing compared from last year. So which really I think also made a difference when looking back with great achievement also on that side. And also the decision to step up our marketing activities in Q4 was also the right decision based on the numbers we see. Our growth accelerated from 7% in Q1 all the way to 142% in Q4, again, confirming we have a great product out there, and we had a great marketing campaign. And putting this all together, it led to a market leadership position for Redcare in Germany. We always have been the market leader on non-Rx, but now, in 2024, we also got the market leadership on Rx, so we can say that it has been an exceptional year and looking back in terms of the e-Rx. But the company is not only about e-Rx. We have a larger value proposition than that one. So we also continued our great growth in all of our other countries. So what you already saw in the numbers, I mean, really great achievements across all countries, also high customer satisfaction. So NPS continues to be one of our key metrics. And as a result of that, I mean some of you are probably tracking also traffic in Italy as a result of that, we are now also market leader in Italy. So not only in Germany, Austria, Belgium and Switzerland, but now also in Italy a clear market leader. And we are proud of that because, again, it's not only about e-Rx, it's also about our other businesses. And this is a major success. And being a market leader, as we learned in the other countries, a lot of advantages. At the same time, we also continue to grow our marketplace business. We have a very successful marketplace business in Germany and Austria, and we launched this into Belgium and also into Italy, making use of the traffic that we have in those markets and try to improve our value proposition. Well, at the same time, with this growth also, we have to produce much more parcels. So we are really proud of that we manage that also in a great way. So this especially looking here into Sevenum, but also in Italy, I mean, it's been a great achievement that we kept our high level of customer satisfaction and service levels, and we're really able to manage all of those parcels leaving our warehouses. And at the same time, we even increased our efficiency in logistics. But this is not the whole story of it. You know we also had a change in the leadership team. So in April, 2 Board members left, and then we had 2 successors coming in. And I think to me, I mean, that shows how strong also the organization is set up because, I mean, we had 2 internal successors, Dirk and Lode, and it's almost worked out seamlessly, I have to say. So it shows organization is strong and has a strong leadership, and we build also tenants on our own. So we are really happy with what we have seen throughout 2024 and thanks to Dirk and Lode for stepping in and making this happen. And then the last thing is the first year of reporting CSRD. So it's been a tough audit, we have to say, it's been a tough audit. But we are ahead of the legal requirements, and we are part of the product, which is out there. So 2024, great achievements. Let's look into the numbers, whether that's seen in numbers. You have seen the numbers. So it's a growth of 32% in 2024. Even if you exclude MediService, I mean, you're still in the 26%. To confirm our strong growth part here, the non-Rx growth is 21%, and the Rx growth is at 64%. And you know it was even higher in the German segment. At the same time, we also managed the margin at 1.4%. And you know that's based on the strategic investments, we are -- also the decision we took to further accelerate the market in October of last year. I mean, strongly underlying core businesses, and Jasper will talk a little bit about that later in the presentation. With the strong underlying core business, which, of course, also helps to have a positive margin here out there. Cash flow is minus EUR 26 million. We are operating, and we are generating cash from our operations. But at the same time, we also undertook some strategic investments. And also, I think here we did a good job, managed the working capital. And Jasper will talk a little bit more about the cash flow later in the session. If we go to the next slide, you are familiar with those slides. I mean it's just one additional information. International, again, it's growing on the non-Rx a little bit faster than the DACH region. And of course, I mean, I pointed out the market leadership in Italy, it is also driven by our success in Italy, but not only in Italy, we are growing in all of our other countries on the international segment. If we go to the next page, you can also see that the number of active customers increased significantly. Now we are at the level of 12.5 million active customers by the end of the year. We added 0.6 million active customers in the last quarter of 2024, so also great achievement on our customer development. And at the same time, we kept the NPS at a very high level of 69. Again, this is still one of our key metrics. This is all about the customer, and we need to continue to work hard on keeping that Net Promoter Score up. If you look into the AOV or the basket size, I mean, of course, you can see the first impact of the Rx business. So we have more Rx orders coming in and the average basket size is increasing. It's now almost at EUR 61. If we go to the next page, you can see our very impressive development of the orders, but the overall message, I think it's still the same pattern that it has been previous years. I mean Q3 even has been a little bit better. Usually, Q3 is a little bit lower. But if you look into 2024, we almost reached the level or we exceeded the level of the Q2. So great development. And it's the first time that we processed 10 million or more than 10 million orders in one quarter, also a milestone for this company. And as always, if you look into the share of repeat orders, still very healthy at a level of 88%. So having said that, I would like to turn it over to Jasper.

Yes. Thank you very much, Olaf, and thank you all for joining today's call. Very happy that you show your interest in the company, and we are very happy in sharing with you today our results of the past year. And here the key financial numbers in the customary table. And after that, I have 4 instead of 2 slides in shedding more lights on the underlying developments. But first, the high-level number here -- numbers here. So in the fourth quarter, we achieved a total of EUR 675 million sales, which was an increase fully organic and also no impact of MediService because it was last year there too of 27.1%. And as Olaf just said, that the full year growth number of 31.8%. That was close to 26%, to be precise, 25.6% fully organic. So actually, our growth accelerated in the fourth quarter on an organic basis. So an increase of EUR 1.799 billion last year to close to EUR 2.4 billion this year, an increase of EUR 572 million. If we look at the gross profit margin line, that is slightly down versus last year in quarter 4, and it's more down year-over-year for the full year. The margin of Rx is very attractive, and that's the full explanation what you're seeing here. We are adding more of the very profitable sales of MediService in Switzerland, and we're adding more of the very profitable Rx sales in Germany. So in quarter 4, it's mainly the impact of the increase of the e-Rx in Germany, more euros in the gross profit and lower margin, but we explained that also in the second part of the presentation data, and in the full year, that's a bit an apple and an orange because of the full year impact of MediService. In selling and distribution as a percentage of sales in the fourth quarter, you see an increase of the cost to above 20% impacted by our marketing and that we are really happy with the marketing that we have been spending. I hope it will become clear when we show the second part of our presentation and our overall numbers. And perhaps you are a bit surprised to see that here, the full year, year-over-year is a flat number. There we have the big benefit of the lower -- significantly lower S&D as a percentage of sales of MediService. A lot of mix. I'll explain it in the other slides a little bit more clear. If we then go to the admin expense was 2.9%, and actually it improved in the fourth quarter to 2.8% of sales and year-over-year that is flat. Adding all up, the adjusted EBITDA in Q4 was minus 0.7%. And for the full year, we generated EUR 33 million of adjusted EBITDA, which you will see later. It's very close to our cash generation, and that's why we adjust for it to get close to the cash that we generate with our businesses, and it was 1.4% positive margin for the full year in the range of 1.2% to 2.2% as we updated you on October 3 for the guidance for the year. If you go to the next slide, please. So this is the gross profit margin to the left, the same number as we just saw a range that is going down 0.5% because more of the profitable Rx sales that we have. And on the right, you see the larger increase as we reported it in the first 2 pillars. But actually, if you take out the full year impact of MediService, it's a similar decline that you are seeing there in the gross profit as a percentage of sales. Apart from that, you see that we, on a organic basis have been growing more than 25% in the company, and that did not come at the cost of our gross profit margins. Across the group, our gross profit margins were stable and the results that you're seeing in the P&L is only because of the impact of mix. On the next one, the cost in total, the quarter 4 we already looked at, if you then look at the right hand of the slide and you exclude the impact of mix, and you see the year-over-year increase of a bit over 1 percentage point. And that's, of course, because of our decision to increase the e-Rx marketing, some the large opportunity that we have there. But it will also make clear if you look at the total numbers, say, how can the company achieve only such a small increase in all the firepower that we showed in the e-Rx campaign and that is really because it gives you just one example that logistics, in our case, actually achieved a record efficiency and also across the group with automation, scale and also the benefits of being the market leader, we see that cost as a percentage of sales in our core business is improving year-over-year. On the next one, this is about the DACH segment, where I wanted to communicate a certain message on. And then after that, also international. So in DACH, Germany, Austria, Switzerland, we are reporting the purple ones here in the segment reporting, and that was last year, a total of EUR 1.5 billion of sales at the margin -- a fully loaded margin of 5.1%. This year, we report a significant increase of the sales impact, the full year impact of MediService, in part organic growth, in part also because of the e-Rx expedition that we have, we increased to EUR 1.5 billion to EUR 1.9 billion and a 2.6% margin. But if we now look at what we then define only for the purpose of this slide now here today as the established businesses, then I say, okay, in Switzerland, we had do it together with Galenica and that's going really well, but also in Switzerland with the launch of redcare.ch, which we did 1.5 years ago, we have a strategic reset and growing there really fast, e-Rx is also the growth that we have at the moment. So if you then only look at the established businesses, you can see in the black graphs already that, that is actually EUR 1.1 billion in 2023, operating at a very solid 5% to 6%. And perhaps the term established businesses is suggesting that's a stable business, but that's not the case because this -- also this business has been growing double digit before corona, during corona, after corona, 2 years ago, last year, also the past year, this established businesses continues to grow fast from EUR 1.1 billion, double digit to EUR 1.3 billion. And also this year, if you have to take out the impact of the e-Rx push, but then also the sales and also the contribution margin, we are again operating at 5% to 6%, meaning that our contribution margin is even much higher because this is fully loaded, including all the overhead. How is this possible? Because we have a continuous growing base in our core propositions of active, happy customers. We have the most comprehensive proposition and are the clear market leader in Germany and in Austria. And later, you will also talk about the proposition elements, of course, you can order same day. You can order next day, we have the assortment of the marketplace. We have all the other things that you will discuss also later. And with that, we always have internal expression. You need to run to stand still. So we invest in our proposition continuously to continue to aim to have the best proposition and expanding our market leadership. This segment well above EUR 1 billion is, of course, cash generating and is continuing to grow really fast. In international, actually, all the -- the numbers on this slide are the same numbers that you can also find in our annual report and our interim reports, but I just put them on one slide to emphasize what is happening in international. And that's also because in the second part, we will dedicate a lot of attention to e-Rx how great the developments are. So I took the opportunity to also show a bit of our other businesses here. So in 2020, we had EUR 150 million of sales in the Netherlands, Belgium, France, and Italy combined. And in only 4 years, we almost tripled that to last year close to EUR 450 million. And at the same time, you see that our fully loaded, including everything, marketing overhead, everything that we can allocate an adjusted EBITDA margin of minus 9.8% in 2022, then minus 6% and last year, we improved with 2.4 percentage points to 3.8%. And as we also disclosed segment reporting before overhead. So it's also in annual report, you see that last year, you had the first half a positive result before overhead for the total international segment of 1.3%. What do we have in international? We already for many years, the market leader in Belgium, 1 out of the 4 households in Belgium is an active customer of us. We have over 90% brand recognition in Belgium. And actually, after the big boys like Amazon and Shein, et cetera, we are in the top 5 of leading websites in the country. And then you gave it already now in addition, since 2024 also market leadership in Italy. The next slide, back to the total group view. This is our cash flow. We started the year 2024 with EUR 204 million in cash balances including what we have in fixed deposits. And at the end of the year, we have 178. From the left to the right, we got to the minus EUR 26 million, we were generating EUR 32 million of operating cash and had a minus EUR 3 million in working capital. With the growth that we achieved as a company, also knowing that we have some more receivables related to e-Rx, it is showing that the working capital rate improvement also in the past year because it only increased with EUR 3 million. So operating cash flow in total around EUR 29 million positive. We have total investments of EUR 38 million. And then we have the financing, which is according to IFRS. So also this overview also including the leases that we paid in total. So minus EUR 26 million continued working capital improvements. With that, back to you. Thank you very much.

Thanks, Jasper. So now we would like to give a little bit an update on strategy. And we would like to focus on 2 topics. First of all, talk about the overall strategic positioning of the company. And then secondly, get into some of the great key metrics of our Rx business. And we think at the start of 2025, it's a good timing to also take some time to talk about our overall positioning and also why we think we are set up in the right way to also have a great 2025 ahead of us. On this slide, you will find the story for, let's say, the next 6 slides. So we'll not spend so much time on this one. But the overall story is, I mean, we are Europe's leading one-stop pharmacy with a unique and broad customer value proposition. We'll talk about this later. We're also best positioned as the leading pharmacy to accelerate market leadership in Germany. We are gaining Rx market share in Germany month after month, quarter after quarter. We tripled within 1 year. We have now more than 1 million active Rx customers in Germany in 2024 and our cohorts, our Rx cohorts already outperformed our strong and really strong non-Rx cohorts in year 1 by a multiple. Last slide will be about the unit economics also to show how both businesses in non-Rx business, as well as the Rx business can fuel our midterm EBITDA guidance in excess of 8%. So if we start with the first one. Again, we think we are Europe's leading one-stop pharmacy, and we are in a great position. And I would like to take some time to also explain to you why we think it's like that. So if you look into the pharmacy part, if we offer Rx, OTC and BPC products. And so we have a really huge wide range of assortment here in the OTC, BPC, Rx. But on top of that, we also have, let's say, what we call real-time availability information. So we are known in the German market for if you really want to find a product, you need to download our app, and you can check on that app. So if we don't have it available, probably difficult to find that product. And on top of that, we have -- we always call this the marketplace, but what is really the marketplace. The marketplace is we will give sellers on our platform, the opportunity to sell additional product, we call it health-related products. So this, for example, is medical supply, baby food, diapers, whatever you can imagine when you think about a health care-related product assortment, this is what we offer on our platform, and we have currently more than 140,000 SKUs being offered on our platform. So overall, we have really the widest assortment out possible. At the same time, we also have great enhanced pharmacy services, how we call them, and I would like to give you at least 2 examples here. The one is really when it comes down to the Rx, it is the check of interactions and double medication. So you know we have something like an electronic health record from all patients. So we have all the orders from the past, including also the OTC and BPC orders, and we do checks on that and reach out either to patients or to doctors, if things are not in the right way. And we provide all of this information in a digital way in our app and customers really love that. We also are developing a repeat script service. So that means, especially for the chronically ill patients, they can use that service to get a refill slip from the doctor and then you can use our pharmacy to get the product. So we think -- and in that area, we are really ahead of the curve and most of our products are digital. If we then think about the delivery I mean -- so we have all the options. We have the next-day delivery. We have the same day, but we also have the pick up. So next day and part of the same day we do via our own pharmacy here in the Netherlands, but we also have a wide network out there of brick-and-mortar pharmacies in Germany. So currently, with our network, we are covering already more than 30 million Germans and we are increasing this network while we speak. So if we combine this all together, it's about assortment, it's about great price on OTC, BPC. It's about convenience. Those are the key success driver for our pharmacy platform. And then on top, we have what we call the retail media business. So look, we offer our partners. So that's the pharmaceutical industry as well as the sellers taking use our platform and our reach in terms of customers and traffic to offer tailored solution towards our customers, and they really like that. So that means we have, of course, the margin we make out of our own business. We also have an income stream out of the marketplace business as well out of the retail media business. And from a customer perspective, it comes all together. It is a one-stop pharmacy. You have all the products and you just get and you can pay all of these in one store. That's why we call it a one-stop pharmacy. If we now move to the next slide, we would like to talk a little bit about the positioning of our pharmacy in the German market because we think we are best positioned as a leading pharmacy to even accelerate our market leadership in Germany. Let's look into this wonderful metric. So you see 3 layer fields, 3 layers, how we can actually act in the German pharmacy market. And then there are also 3 product categories: OTC, BPC, the Rx and then the combination, the OTC, BPC and the Rx. If we start with the layer at the bottom, this is the easiest one. It's the brick-and-mortar pharmacy layer. We all know that one. I mean there's a ban on foreign ownership in Germany. Only pharmacists can own a pharmacy, and they don't really have a strong brand or something like this. They have their local pharmacy, sometimes it's called [Foreign Language] or whatever it's called. So this is just a local business. And then we get to the next level, which we call the platform level. And let's look into the platform level. On the one hand, this is the platform, OTC, BPC box. There, we have online retailers or drug store apps or retail apps. So different retail players who either have a store out there and then have an ad on top or just an online retailer and they can sell OTC, BPC via online pharmacy sellers on their platform. So there's a large competitor of us who has been doing this for 10 years. But I mean, besides of him doing that, I mean we have always built our business very strongly with all of the great numbers Jasper just presented. So there then let's look into the next one. The next one is the Rx. So on the Rx platform, you can see that there are players like the apps from the payers or the gematik app. But I mean, on those apps as a customer, you can place an Rx order. But I mean you do not have the full advantages of our product available. So what you can do, you can place the order, but you don't get any reliability information. You don't get any opportunity to buy OTC on top and you also can't do payment on that one. So it's almost like you just leak your script there and somehow you will get a delivery from a pharmacy. So we don't really see a lot of orders coming to our pharmacy via that channel. So then that's left on the right-hand side, the platform business for OTC, BPC and Rx. And here we saw in the last year, platforms coming up, and they are more platforms organized by the brick-and-mortar pharmacies. So they have more digital entry point for the brick-and-mortar pharmacies. This is, from our perspective, it's a difficult business model because, again, it's a highly regulated. So if you want to do something like this, you have to list all of the German pharmacies and the business model is very limited. We cannot, for example, get a commission on an Rx or on script. Overall, this platform level is not positioned as a pharmacy, has been out there in the past with sellers of OTC. And it has not hindered us at all to really grow and continue to grow in the German market. And then there's the third level, which is the level of the online pharmacies. Here, we see 2 different types of online pharmacies. On the one hand, based on a ruling from the European Court of Justice of 2003, OTC and BPC, online pharmacies can offer products in Germany. And then there is only a very limited number of countries from which you are allowed also to send Rx into the German market. So the Netherlands are one of those countries and in the Netherlands, we even have the advantage that you can give discounts on Rx products. So if you put this picture altogether, we are positioned in the upper right box. So we can do the OTC, the BPC and the Rx. We can position ourselves as a pharmacy, supposed to not be in a pharmacy. So that means we feel really comfortable to accelerate our market leadership in the German market. If we go to the next slide, let's get some into some more of our metrics, which we can measure. And let's talk about the market share in the first day. So what you can see here, we have tripled our market share within 1 year, now reaching in February 0.82% market share. So steady over time, we are building this one. And please keep in mind, we are showing here our total Rx numbers and also the total Rx market. There is this market of for statutory insured and private insured, and in some cases, there's an e-script and in other cases, there's still a paper script out there. So if you would just look into, let's say, the market where we have the e-script and then looking into our e-script receive and compare that to the number of e-scripts out there based on what the market is saying, of course, our share already is a little bit higher because the dynamic is with the e-script and not so much with the paper script and the privately insured because private insurer right now, they don't have an e-script. Nevertheless, more important to us are the number of customers. And if we can go to the next page, you can see here, at the beginning of the last year, we already started our marketing campaign and then we increased it over the time, and we have a couple of objectives on our marketing campaign. First of all, I mean, we have to do some kind of education. So we have to talk about the carbon solutions. And of course, secondly, we want to establish SHOP APOTHEKE as the leading brand, which worked out pretty well in 2024. And then the third objective, of course, is to generate first-hand customers, first-time Rx customers for Redcare. And we decided to show you the first time, I want to give you an insight also what that really means, what are the results of the campaign because there's a lot of speculation on downloads of app, monthly active users in the app, and that's all fine, and we also look into those numbers internally. But for example, I mean, and that one could also be an OTC customer who's downloading the app, monthly active user could also be an OTC user. That's why we decided to show you the most relevant numbers from our perspective. And those are the active Rx customers. And what you can see, again, we doubled this one in only a couple of months, and there was an acceleration in the second half of the year, of course, also fueled by our dedicated e-Rx marketing campaign. So overall, we think it's important to show you those numbers so that you see what we have in our mind, the marketing campaign works out pretty well. We are building the active cost base, and we are currently continuing to grow our customer base. If we go to the next slide, this is actually a slide we love a lot -- we love a lot, I have to say Jasper, because, I mean, let's start with the key message here. And the key message is the average new customers of cohort -- of an Rx cohort which we acquired in the first quarter of 2024 has a significantly better performance than the already good non-Rx cohorts we acquired in Q1 of last year. So in terms of sales, we are 4.5x higher on the Rx cohort than on the non-Rx cohort. And on the gross profit level, the factor is still 2.7. So I mean we only have now 1 year of actuals in, but we -- I think it is important to share those kind of data because it's not making some kind of assumptions about a customer lifetime value, what's going to happen in 5 years from now or so, this is really those are facts this is what it's all about. And you can see strong non-Rx cohort and significantly stronger Rx cohorts. Maybe let me try to explain in detail if it's not completely clear based on the picture. So what we have done is, I mean, we looked into the Q1 of last year, looked into all of the new customers we received on the non-Rx side. And then looked into the sales, those customers generated in the first quarter could be that they placed 1 order, could also be that they placed the second order. Those new customers, for example, the one from January placed an order, second one already in March. So that means that we have the sales and the number of new customers in the non-Rx cohort. And then we build just a sale per average customer of that cohort, and we indexed that one at 100. And it's the same exercise, of course, we did with the Rx. And what you can see immediately already in the first quarter, the Rx cohort is stronger. I mean you would have expected probably something like that because of the higher AOV. But then you can clearly see how it's developing over time. And the main driver for that is, of course, it's interesting to see when you acquire new customers, not all of them return, but what we can see on the Rx cohort, more customers return than in the non-Rx cohort. And then secondly, what really kicks in is we have a high share of Rx patients with chronic conditions. And they have a significantly higher AOV, but also a significantly higher order frequency. And if you put this all together, already after 1 year, you can see the sales are 4.5x higher. And of course, I mean that is just the beginning of it. This, of course, will continue. So the gap is going to widen over the next quarters and also the next years. And the similar pattern is on the gross margin. So putting this all together, we are happy with our non-Rx cohort because that is what we showed Jasper, it is working. We already have fully loaded EBITDA above 5% in established markets in Germany and Austria, but we put something really great on top here. So overall, it confirms our marketing strategy with because we acquired a lot of new customers, and we see based on 1 year actual data that the cohort model works. If we now go to the next page, we would like to show you also how this order play out. So how can we get to the midterm EBITDA guidance in excess of 8%. So let's have a look into the unit economics on the non-Rx order as well as on the Rx order. So let's go line-by-line. We start with AOV. You all know that we have something around EUR 50 on the non-Rx and more than EUR 100 on the Rx side. So we are starting off with an AOV, which is more than twice as high on the Rx side. If we then go into the gross margin, very interesting, what you can see the absolute gross margin on Rx is the third higher on non-Rx yes. Percentage-wise, it's lower percentage-wise we are on almost 30% on the non-Rx and 18% to 22% on the Rx. And I don't know if everybody of you is familiar how it works, on the margin side on the Rx. It's regulated in Germany. So what you get is you usually get or you always get to fix the amount of money for each script you're handing in with a payer. And then on top, you get a percentage, which is then calculated based on the value of the product. So that means the higher the value of the product, the more margin absolutely you get. But of course, the higher the value of the margin -- the higher value of the product, the lower the percentage, of course, becomes because of the fixed block of it. What we currently see based on the customers we have acquired. And again, most of them they are chronic conditions. Currently, we see gross margin coming in, in the area of 18% to 22%. If we then look down all the way on the cost, we can -- let's start with the variable cost, variable cost or all of the cost except marketing. So what we can clearly see here the variable costs are almost comparable. I mean, the logistics cost as well as the last mile costs are comparable. On the Rx cohort, we have an additional step which is the pharmaceutical check. So absolutely, the variable costs are a little bit higher. But on the other hand, percentage wise, it's lower, yes? So and on marketing, we see a similar pattern. I mean, looking now back into the cohorts we acquired on Rx, we can clearly see you almost don't need marketing once you have them because they love the service so much. So we see that the marketing cost to keep an Rx customer is lower, absolutely . So that means both cohorts can very well fuel our EBITDA guidance in excess of 8%. And if you then put on top of the Marketplace business, which I explained earlier to you where we also have an additional revenue stream.You can clearly see both areas are playing and fueling our midterm EBITDA guidance in excess of 8%. So having said this, I would like to turn over to Jasper.

Thank you. So we look even further ahead now. So after the great results that we saw, that we achieved the past year, this is such an important slide that we're having here because in the last year, we expanded our capacity being covered success in Italy. We've also shared with you already that we are building distribution capacity in the Czech Republic, that this is something else. This is a major project that actually right in a location where we are sitting here . We have started a major project in the intra logistics here in [indiscernible], and this will not only double our capacity that we have in total at this location, but it will also significantly reduce our cost because of much fewer labor per quarter. . So it's a highly automated solution. We selected the world's best technology firms for this. It's proven technology. And of course, we tailored it towards the specific of our processes. Repeating what I just said, we doubled the capacity and we reduced labor by 70% plus versus the current process. The total investment is around EUR 100 million, and we will be paying that in '25, '26, '27. We finance that through our existing cash balances at the moment, but very likely because it's such a good collateral, we will be replacing that by a lease anytime soon. Fast payback, and we're planning to go live operational parcels from the automated system very early in 2027. And we then go to the second, the last slide, which is the guidance for the current year is I'm reading out what's on the slides and add a little bit of color. We expect for this year the total sales growth in excess of 25%. So in other words, we are not expecting any slowdown versus what we achieved in the exceptional year last year. In Germany, we expect that the Rx will roughly double to above EUR 0.5 billion. Non-Rx for the total group, we say, in excess of 18%, and we want to do so with an adjusted EBITDA margin above 2%, namely between 2% and 2.5%. And all those 4 elements are full year guidance -- in Q1, and those that know the company and the many seasonality because of our internal but also because of the seasonality of the quarter. We don't know it for sure, but it's likely that Q1 will be somewhat lower, also meaning that all the quarters will be somewhat higher, probably. Taking now the helicopter view looking at this is that I had to think back of the year 2021. We then crossed the EUR 1 billion -- it was EUR 1.060 billion. That was 2021. And if you add all the numbers that you're seeing here, it seems to be that we are approaching in the current year, the EUR 3 billion already. So for the coming year, we expect unabatedly some uninterrupted continuation of our organic growth. We expect a doubling of the e-Rx. And as an outcome to the total, what we think is the best value creation for the company what we are doing there, we think it will be a margin minimally at 2%. Of course, if things happen, we will add the policy we always do as a company, but this is, at the moment, our best expectation for the current year. And with that, I think we should rapidly go to the Q&A. Yes. If there are any questions.

[Operator Instructions] The first question comes from Asia Nor from Morgan Stanley.

My first one is on the Rx sales ambition of more than EUR 500 million would imply that you achieved about 0.9% market share for the year when you're already running at 0.82% in February. So is it fair to say you are being conservative here? And do you think there could be some volatility? Just give your color on the downside risks you're building into this figure? And my second question is on the gross margin. Thanks for the new economic data, very helpful. Could you describe a little bit the drivers of the 18% to 22% range for the e-Rx cohort between pricing, mix, growth. What takes it to the bottom and upper end of that? And would you expect your gross margin to gravitate towards this kind of 20% for 2025?

Jasper, you want to start on the first one?

Yes. Also from my side we didn't speak to her. So thanks for your question there. No, it's not -- it's our best expectation. If you give me now a document where I can sign and you will have EUR 0.5 billion of sales, I sign it immediately. We have to do a lot of hard work for that, and we're looking forward to that, and we are not conservative there. But thankfully, this is consumer over there, you say I have to say that the step-up that you're really seeing from 0.66% to 0.82% from December to memory, it's fair to say that this December number that is a seasonality lower number of our market share. So that is a huge step-up, actually December was somewhat lower than November was, but that's just seasonality. So no, we are, in total, not this is our investor expectation. And of course, ours aiming for more, but this is a realistic expectation. Good question on the gross margin, but I think you are looking forward to answer that.

Yes, yes, yes. We love to answer. Great, I like the question on the gross margin. So there are many ways how we can get the gross margin also the reason why we currently still give a range. I mean, so some of the things are easy. This is a business now we are first starting to get in, if you compare to the larger OTC and BPC business we have. So that means, in terms of supply, you can -- sometimes you go with a wholesale, sometimes you direct supplier from manufacturers. So there's also a margin gap in between that one. So that is one of the drivers, the more volume you get, of course, the better we become also on purchasing. The second one is the share of OTC products also in the Rx basket. And of course, I mean, that share can go the time. As you can imagine, that is part of our product where we offer also OTC and BPC products to our customers. So that is a reason why there's still also movement in this one because we only had 1 year of learning. And it's really -- we haven't reached what I would call the ideal share of a mix basket. And then, of course, the main driver is again this reinvestment scheme in Germany I mean, you usually get a fixed amount, which is EUR 8 something and then it's a little bit of a substraction from that and then you get 3% on the product value. And as you can imagine, if the product value goes up, of course, the asset margin goes up, but the percentage goes down because EUR 8 something they say where they are and the only get to 3% related to the value of the product. And which kind of customers we will get in this year and the upcoming years, we don't know exactly what we have seen so far, which is the good news. The customers we see today are those with chronical conditions. So that is exactly the target group we want to have, but it really heavily depends on which kind of products are they sending in? Is it more on the generic side and the price is lower. So the percentage margin is higher? Or is it more on the higher priced items and the absolute margin is higher, but the percentage is lower. So this is something which is ongoing, and therefore, we have to give a range. We have to give a range. It's only really the first year of experience we have in this fast-growing area. And then maybe by the end of the year, we will be much smarter. But in any case, it's good enough to fuel our above 8% EBITDA midterm guidance.

The next question comes from Christopher Johnen from HSBC.

First, is it possible to get a bit of -- I noticed there wasn't anything in the prepared remarks on the ruling with respect to bonus advertising. I know you sent out a PR after the ruling a couple of weeks ago. Maybe you could give us a bit more color as to what your thinking is on that. And then second question, I was curious on Belgium. I mean, you've said this a couple of times now in a couple of calls, like 1/4 of the population being a customer that would suggest that this must be a somewhat stable business with respect to being quite mature, albeit probably still growing. Is there anything you can share on profitability for Belgium. I know you're probably not keen to talk about individual markets, but given that international overall is still loss-making, it would be interesting to hear about drivers or individual countries within that sort of profit mix? And then last question on the 8% margin target. I understand it's a mid- to long-term guidance, but in the prepared remarks earlier, you have sort of alluded to the, let's say, established part of the business that has already been at 5% to 6%. I think the general assumption is that, that marketing and size also play quite a big role. I mean is it reasonable for us to assume that at some point, you'll give us a specific target, like is the 8% already theoretically possible I don't know, in 2030. What is your thinking about it? Because obviously, this mid- to long-term thing has been a rolling target for quite a while. And the question is at what point should -- is it going to be a realistic expectation.

So I will give this a try on the first question and then hand it over to Jasper. So your question was on the ECJ ruling. And so first of all, I mean, we are really happy with the ruling. It is the second time that the European Court of Justice after first time has been 2016 allows a bonus on Rx. So that is great and that has also been our statement in our press release. And you know how this works. I mean, the European Court of Justice only receives specific cases from a German court, they get forward to the European Court of Justice. And from there, they find their way back to the German court, and then that is what is now going to happen. And I think we should not really speculate about what this means in detail. Again, the overall direction, I think it's clear we can give a direct bonus on Rx. This is what we are really happy with. And then let's see really what happens then on the German side. And then we will, of course, react accordingly to that so that we are always in line with in line with the actual ruling. I think that's all we can say at this point in time, the rest would just be speculation. Again, we are happy it's a confirmation of 2016 and then let's take it from there. Jasper, do you want to go for question number 2 and 3?

I'll do that. So thanks on Belgium, indeed, I can confirm what you are saying, but I cannot confirm the second part because actually, though we indeed don't talk about individual countries. So I will also not do that now. We have the segment reporting. I can disclose here that we continue to grow double digit in Belgium. And I also can say that the penetration numbers that we are having here despite all the growth that we are seeing there are much lower than we have in Germany at the moment. And in Germany, even penetration is still increasing. So there's ample room to grow. Olaf also just said we're even adding the marketplace to that now in total. So it's a very good base, and we don't see an end to the growth opportunities that we're having there. And we're also really happy with the financial results that we are achieving in that market. The third one, the midterm to 8%, yes. I think that is super important that you asked that question because it is not that we see, we need to scale, we need to be larger and that in the end, we hope we will get to the 8%. We are saying that our established businesses are doing 5% to 6%, indeed, what you are saying, there is a lot of marketing included in there. So you can estimate what the contribution margin is there. So we could be within month that we could be close to the 8% if we would like to do that. But we are so convinced of the opportunity in total Europe in e-Rx that we think is much more value creating by continuing to increase our base but underlying our unit economics are very strong because of the setup of our model because of the focus on the efficiency that we're having in the attractiveness of the industry. So you say, when will you achieve it, yes? That's a decision that we can take when we will achieve it. And the thing that you're seeing now is that we continue to grow very fast in combination with the margin improvement. And I think that's the -- that's the fastest value creation that we can do at the moment. But I'm repeating myself a little bit, so sorry for that. But I hope that the other numbers are also showing the attractiveness of the contribution margin in our case.

The next question comes from Jan Koch from Deutsche Bank.

My first one is on your Rx business. You mentioned that you have more than 1 million of active Rx customers by the end of 2024. Could you share with us how many of them have a chronic disease? And then a second question also on the e-prescription market. Is there any update on the e-prescription for privately insured people in Germany? I understand that the market opportunity is a bit smaller, but it should still be a tailwind for you. And then finally, on your marketing strategy and without giving your competitors too much information, what are the key learnings of your intensified marketing campaign over the last few months?

Yes, the other question.

Yes, on the chronic. I mean look, we do not really want to give so many insights. I love the question, and I can understand and then, but we do not want to give so many insight. I mean we try to say that there's a high share. I think that's what -- that's what is on the page. The high share of patients with chronic conditions because I mean the fear probably could have been, oh it's only a onetime customer or something like this. We see it's exactly the other way around. And if we look into the frequency, so that means the number of scripts being available to an individual active customer for sure that has to be chronic patient. Can't be that there are so many strips on that level. And therefore, additionally, of course, we can also look into what is called the ATC code. So there is always a coding of the product. And if you look into this one, you can pretty easy if you're a pharmacist and even if you're not of pharmacists, you can differentiate it. If it's something acute which may be a pain killer or something like this or on the other hand, it is something more chronic, which is maybe blood pressure, sugar, diabetes, whatever it is. So it's easy to see that, therefore, we can identify a very high share of chronic conditions, but we do not want to give any more details into that one. I think the second question was, if I recall it right, also in the privately insured so [indiscernible] business. Yes, an interesting question. Overall, the market share, I mean, 90% of the Germans are . So statutory insured, 10% are privately insured. So therefore, the most relevant market is the [indiscernible] market where we have the e-script and where we are really happy. And to my knowledge, the paper is still lagging behind. So I haven't seen schedule or, let's say, from a regulatory perspective, a push where you have certain deadlines when to introduce, they are working on that. But I -- to my knowledge, there is not such a fixed date or something like this. Of course, at one point in time, it will happen. And of course, we will also try to get into that business, which we did also in the past. But as of now, not to my knowledge, not a fixed date to have e-script on the [indiscernible]. And then the third question, yes. I forgot the third question. So I thought it maybe a little bit also on your side.

No, and you placed it in the context already, Jan, and, indeed, that's an area where we sometimes shed some light on, but we don't want to share too much for obvious reasons, I would say. It has been a very exciting year. What's the key learning of the marketing that we have in total. Well, in the end, you need also to count your question. It is working. So there is a technology change something with et cetera. And how are you able to explain it to your customers? Well, you see the results that we have. So what's the key learning is that we are apparently capable of educating the people or at least they place their trust into our hands to place their order with this digitization that we're seeing here. We see that if we also subsequently deliver on what people hope that we will do, we get very high scores, so very satisfied with the additional service in the perspective of the total health care system having also this possibility next to all the availability of the digital stores that has also this customer journey. Your question was to disclose the earnings. But I'll leave it there. We are continuously learning also.

The next question comes from Christian Salis from [indiscernible].

I'm giving the marketing try again. So I understand that you're not disclosing the exact marketing amount. But could you maybe just give us an indication, for example, whether your marketing ratio has increased year-over-year in percent of sales in '24 or has it remained rather stable. And then also on the quarterly run rate. So would it be fair to assume that you obviously have increased marketing quite significantly in Q4. And then during Q4, maybe sales it was maybe a little bit too much. And now you are scaling back a little bit more to a normalized level, which would maybe be in between the Q3 and Q4 levels on an absolute basis. That would be interesting. And then also in light of the recent ECJ ruling, how is the Rx bonus going to play into the marketing strategy going forward?

Well, I mean, those 2 questions are wonderful questions, I have to say. I mean to the point, then totally, we do not -- really do not want to answer them in detail. So let me give it a try on the first one. So what we try to do is, I mean -- and we always said that we are very agile in terms of marketing. So we are looking into different channels, different communication messages, messages we have here out there and then we try to steer the cut, so the cost per new customer. So this is something we are doing. And then whenever we see that we are doing too much then we reduce a little bit maybe in one channel or increase in another channel, so it is more an ongoing optimization on the CAC. So where we say this is this amount per customers we -- per new customer we want to spend. And we are working on fine-tuning on this quarter after quarter and month after month. So if possible, we would not -- do not really want to give more insights how we steer it, that is one of our success factors. On the second part, the bonus I mean I think that's also a good question. So we have a voucher out there. It has always been out there, and it has been confirmed by the ECJ. So you get for the first order, currently get a direct bonus on your Rx. So if you have a core payment or in Germany, there's also some other things like different. So that is very regulated, detailed information on the pricing, but nevertheless something a customer potentially has to pay. I mean, that is in the details of our vouchers. So it's out there for new customers. So we have been using this in the past, and we are currently using that. And then, of course, the question is what else do we want to do on the bonus side? And this is again something which we do not want to display here because that is sensitive information. We are really happy on what we have today, and we have an established business model currently where it's more driven by our great product as opposed to by price. So -- but we have all the options on our hand. And then you will see once we act on the market. But so far, we have this voucher for new customers, and it is in line with the ECJ volume.

All right. And then just a quick follow-up on the paper Rx business. So there are still people who are really sending in the paper script to you, and also what's been the e-Rx development over the last quarter? Was it stable? Or is the share decreasing again or still increasing?

What was the last question, increasing or decreasing?

Is the paper Rx share, is it stabilizing? Or is it -- does it continue to decrease quarter-over-quarter?

We will keep our pharmacy services open until the last letter in Germany they'll be sent to us. So we took the principle. So everybody who wants to send in a paper can always send in a paper. All the privately insured customers, patients, they are still doing that. Also some socially insured, but I can say it has really because of the customer preference really diminished to a minimum percentage that we have in the socially assured. That's because of the paper file we still have and as I just said. Yes. So we have some -- that the majority of the people, they really want to benefit from not working to the letter box and waiting, but placing the order immediately as the improved journey where they can also order all things at the same time, see availability checks and other things. So answering your question directly, a very small percentage is social.

The next question comes from Olivier Calvet, UBS.

I have a few questions left. The first one just on German Rx. So EUR 500 million is close to 0.9% market share. Just as a follow-up to the first question. Do you expect any headwinds on the German Rx growth or a slowdown in market share gains versus last year? Because if you assume your February market share hold, you're already at EUR 450 million. And your 1 million active Rx customers, could you quantify the share of your customers that are repeat customers maybe? So that's the first question. Second question would be on sort of -- you're showing a very impressive growth in non-Rx across International and have done so historically. But obviously, we've seen competitors' interest in the space. Would it be fair to assume that your non-Rx business is broadly evenly split between medicines as in OTC versus non-medicine? So vitamins, BPC stuff like that. And then finally, on the free cash flow, I understand that you don't want to -- given the dynamic situation and free cash flow guidance. But I was just wondering if you could help us with the building blocks in terms of working capital dynamics now that you've seen about a year of e-Rx customers, what is the working capital dynamic in Rx specifically versus non-Rx And CapEx guidance for the year. So if you could help us a little bit with the phasing of that EUR 95 million to EUR 105 million project that you have in Sevenum over '25 to '27, that would be helpful.

EUR 500 million.

Yes. Yes. Yes. So I mean, maybe the first question is -- if I recall the first question, the slowdown on Rx, we can see, no, we don't see a slowdown on Rx. Why should we see this? I mean the way fundamentally works is, I mean, we have this freedom of choice here in Germany. And as long as the product is good, and we think we have a great product, we don't see any reason why there should be a slowdown. I mean we have a great product on the non-Rx side, which has a market share is more than 20%. So why should there be a slowdown. And in terms of looking into our overall guidance, I think that's also what Jasper already pointed out. I mean, look, I mean if you if you are -- right now, we are below than the -- I think you mentioned 0.9%, we think it has to be higher to reach our guidance. But nevertheless, right now, we are lower and we still have to bring in this full year, but I think that is already what Jasper pointed out. So I don't see any slowdown on Rx. It's the opposite. The solution becomes more and more popular. Then there was a second question on competitors entering the market. So I was trying to explain that there has been -- there has been online platforms out there for more than 10 years. On those platforms, there are online pharmacies offering OTC and BPC. And that's fine. It has always been the case. So -- and especially, there's one online retailer who is the largest one in Germany, he has been doing this for 10 years. So we don't see there any additional competition even if not others are trying to do the same thing because over the last couple of years, the last 10 or 15 years, we have been growing our business very well. And so we also don't give any breakdown of OTC and BPC. But to us, it's also not so relevant because I mean, those are just platforms, not really pharmacies, and we have been growing even despite them offering OTC and BPC. And so then there was, I think, some more questions, which I probably go better with you. Yes, is that right?

Yes. I hope and otherwise, you add. Yes, the number of repeat customers in the 1.1, we will -- you will understand, not disclose, but looking at the cohort information, you will see that they are better than we have seen in non-Rx. And non-Rx, we are really happy with the frequency of our customers. So I will not disclose any additional information. Your question about everything that Rx, how is the split between OTC and BPC. The interesting thing about it, it's very little driven. So in some countries, we have significantly higher shares of BPC and in other countries, it's mainly OTC. Also there, I don't want to add anything else. We talk Rx and we talk all the other assortments, which we always name OTC, but it is indeed OTC and BPC, healthcare-related vitamins, et cetera, that's the entire business. . Free cash flow, I understand, but we don't give guidance on free cash flow. So I cannot answer your question there, but also nothing to hide. You see the EBITDA as a driver of our cash generation. You talk about working capital dynamics there. On one hand, you see the underlying continuous improvement that we're having as a total company. At the same time, you see that the receivable from the insurance companies might increase somewhat, but it's also not unlikely that we have a certain solution for that as we will see that in the future in total. And as to the investments, the base scenarios, as we just said, and that is that we will be spending this money in the coming 3 years, but I also added to it, and it is also quite likely that there will be a lease. And that means there is no cash out at all in the coming years until we start artisting the benefits when we were starting to pay a lease. But that's a little bit forward-looking because otherwise, we would have announced that now, but that's a common practice. It's such a good collateral to do that. And adding those swings up there, you get to the free cash flow, but we don't have advantage there.