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Earnings Call: Q4 2021

Mar 2, 2022

Stefan Feltens
CEO, Shop Apotheke Europe

Well, thank you very much. Jasper and I wanna welcome everybody to the full year 2021 Shop Apotheke Europe earnings release call in these truly unprecedented times. Our thoughts are, of course, with the people of Ukraine. I hope, I assume you're all joining us in hoping for a very quick cessation of all hostilities and an end of the suffering. By the way, a substantial delivery of urgently needed pharmacy products will be on its way from Shop Apotheke to the Ukraine tomorrow. Just to preempt a question that you might have. No, Shop Apotheke is not directly impacted by the war in Ukraine. We don't have any suppliers that are based in Russia or in the Ukraine, and we don't have any currency exposure beyond the Swiss franc.

I think you all agree that, in times like this, having some Swiss francs in your balance sheet is probably not the worst currency to have. Admittedly, you know, this is not an easy transition. We, as Shop Apotheke, we have some really good news that we wanna share with you about what we did last year and what we're going to do this year and what 2022 is going to look like. We're once again broadcasting live from our headquarters here in Sevenum, which is a fully BREEAM- certified facility. At the end of our presentation, you will, of course, have the opportunity to ask questions. Please use the dial-in numbers that have been provided together with the invitation.

We'll start by walking you through the financial performance of last year, and we're going to share with you some of the e-commerce typical KPIs. We'll give an update on where we are with the execution of Shop Apotheke strategy. Jasper is going to conclude by sharing with you what the outlook and the guidance for 2022 and beyond is going to look like. How did we do last year? Last year, you know, when I look back, it was a very good year for Shop Apotheke. We had experienced some challenges, but most importantly, we overcame these challenges very quickly. We marked an important milestone last year. We joined, if I dare to say so, we joined the club of sales billionaires last year with sales of EUR 1.06 billion.

In total, our sales were up by 9.5%. Our international segment went up by around 40%. DACH went up by around 4%. In Germany, I think that is a remarkable achievement, we significantly increased our market share in the non-prescription market. Our growth outpaced, that is probably not a surprise, the growth of the non-prescription overall pharmacy market in Germany last year. We also significantly, by a wide margin, exceeded the growth of the non-Rx online pharmacy market in Germany. Based on our own estimates, by the way, the same is true for Shop Apotheke's other large markets, notably Austria, Belgium, and Italy. The adjusted EBITDA margin came in at a little bit more than - EUR 5 million last year.

This translates into an adjusted EBITDA margin of - 0.5%. This compares to the last guidance that we had provided to the markets, which was aiming for an adjusted EBITDA margin of - 1.0%. Very important. We are a growth company and we grow through our customers. Our active customer base went up by 25% or 1.6 million, and by the end of last year, we had reached an active customer base of 7.9 million. As of today, of course, we have surpassed the 8 million mark by a significant margin. In terms of our strategy execution, we remain fully on track and we are ready for e-prescriptions. Of course, we're going to talk about all of these components more when we come to the strategy update.

With the conclusion of our move from our old pharmacy and our old distribution facility to our new headquarters, which hosts our new pharmacy and our new distribution facility, we are in a position to support the growth ambition of Shop Apotheke Europe in the future. We certainly will have ample capacity over the next two years to participate in the eRx opportunity. With the acquisitions of SmartPatient and MedApp earlier last year, we significantly expanded our capabilities in the area of digital health services with an emphasis, a focus on digital medication management. Since the middle of last year, since June, we are in a position to offer same-day delivery services through our partner pharmacies under the label Shop Apotheke Now! in all 13 metropolitan areas in Germany.

By the way, late last year, we also started our Now! service in Vienna, in Austria. We are very excited about the launch of our own marketplace in Germany to be able to offer a much broader assortment of healthcare and beauty- related products to our more than 8 million customers. Taking a closer look at our two reporting segments. You remember our total sales grew by 9.5 percentage points to over EUR 1 billion. Starting on the right-hand side, our international segment, consisting again of Italy, France, Belgium, and the Netherlands, grew by almost 14%, exceeded sales of EUR 200 million last year. Our DACH segments requires a little bit of a closer look. In total, we grew sales by 4% , by almost 4%.

You see a very different picture when you split the total growth into the non-Rx segment and the Rx segment. The non-Rx segment grew at, I think we can say, at a healthy pace of 18%. Please keep in mind, for several months last year, around the middle of the year, we were capacity constrained . Our growth would have been significantly higher, even higher, if we had not been capacity constrained. We gained market share in the non-Rx market, the non-Rx online market in Germany. On the Rx side, we see a different picture. Our sales decreased by a little bit more than 1/3 . Admittedly, the impact of the Rx bonus ban, which came into effect in December 2020, had a more severe impact than we had anticipated.

We also want to state clearly the only driver behind the decline of our Rx business was indeed the Rx bonus ban. We can say this with certainty because we saw a decline in our business with publicly insured patients in Germany. The business with privately insured patients, where we can still pay the Rx bonus, continued to grow last year. We remain convinced that the Rx bonus ban is a violation of European law, and this will have to be resolved, in all likelihood, this will have to be resolved through the legal system. Looking at a couple of e-commerce typical KPIs. We already talked about our customer growth.

I just want to emphasize the gray blocks that you see on the left-hand side that lead you from the 6.3 million to the 7.9 million active customers at the end of last year, t he biggest block here is Q4. We had Q4 in terms of customer growth. New customer growth was indeed a record quarter. We gained around 500,000 active customers. This is on par with Q2 2020. In Q2 2020, you remember this was the first Corona quarter. We also gained around 500,000 customers. So, Q4 last year, a record-setting quarter. Our Net Promoter Score averaged 68 across the year.

If you compare Net Promoter Scores across industries, you know that this is still a very, very strong score, a bit below 2020. Of course, our ambition is to get back to the 70 and beyond in 2021. Our average shopping basket value, or AOV, average order value, dropped from a little bit more than EUR 66 to a little bit more than EUR 61. The almost exclusive driver behind the drop of our AOV was the reduced share of our Rx business. If you follow Shop Apotheke, if you have followed Shop Apotheke for quite some time, you know that our average order values of Rx orders are significantly higher than the average order values of our non-Rx orders. Taking a quick look at our web traffic.

The green line indicates the total number of visits to all of our websites and to our apps. You see a steady increase in the middle of last year. Again, that was the time when we were capacity constrained. We had to reduce our online marketing in order to manage the number of incoming orders to a number that we can actually handle. Again, you see a steady increase in December. In November and December, we were at or above 6 million visits per week, and then we see another spike at the beginning of the year when we got to 7 million weekly visits and beyond. The blue bars indicate the growth of our web traffic in comparison to the exact same week last year. A very similar picture.

You see a re-acceleration of our growth since the beginning of last year. In Q4, we were between 30% and 40% growth compared to the same weeks a year ago. By the way, you see a drop in the growth towards the end of the year. The only reason for this drop was because Christmas last year fell completely on a weekend. With this, Jasper?

Jasper Eenhorst
CFO, Shop Apotheke Europe

Yes, if you can go one slide back, there. Yeah, just the last comment is, if you look at the blue bars, the year-over-year growth, the fact that on the left side it is higher, that is because that is cycling when there was no Corona in Europe yet, the year before. That's why the growth was very high. Okay, next slide. Thanks a lot. Yeah, this has led in total, all those customers have led in total to close to 20 million customer orders that we processed and delivered in 2021. In the graph, you're seeing three years with the quarters.

You see the growth, but most prominent on this slide, you see the huge increase, not only year-over-year from Q4 2020 to Q4 2021, but we are most proud of the fact of the acceleration from Q3 2021 to Q4. We were able to leave the low point behind us and end very upbeat. Each quarter past year had more than 80% of the orders coming from returning customers, so that's a very healthy level. On the next slide, we see what those 20 million customers have brought us in financials. This is the normal slide we always look at, with the key financial numbers from sales up to and including the adjusted EBITDA.

Again, to not repeat too many of the numbers, but we achieved last year sales of EUR 1.06 billion , which was a growth in total of 9.5%. In Q4, our year-over-year growth was 8.8%. If we just go one level deeper, then you see that everything but Rx, which was in total EUR 970 million or 90% of our total sales, in 2021, was increasing for the full year by 22%. Actually, the growth was increasing in Q4 from 22% to 24%. The only reason why total growth was lower is the impact of the Rx decline, as Stefan already talked about.

Those sales we achieved with an improved gross profit margin that was in quarter four, 1 percentage point higher than the year before, but later I have a bridge for the full year, 2.5 percentage points. Selling and distribution is including marketing, and that's the reason for the increase. The main reason for the increase you see in Q4, after the release of the Q3 numbers, we said we use more marketing. In the end, you see we did a better performance than we were guiding for, and it resulted in a big increase of market shares, traffic to our website and more customers. Administrative cost as a percentage of sales were 3.1% of sales for the full year, and in quarter four, at 3% of sales, it was year-over-year flat.

If you add all the numbers I was just quoting together for the full year, you get to the -5% adjusted EBITDA for the full year or -0.5%. This slide also allows me to explain to you that there is a relatively large adjustment in the quarter four numbers of EUR 2.5 million. This, to me is not a relevant item, but I will explain you very clearly what it is. First of all, we are always very conservative with our adjustments. It's only the non-cash element of the employee stock option program, as you probably know. It's the limited external expenses related to projects. So that was actually then on 2020. Now there is the number three in this quarter four.

The only reason for it is that in the 2021 business acquisitions we did, buying 100% of the shares of MedApp and SmartPatient, we included in the deal structure a regular earn-out in the coming years. One of the criteria there is that the former sellers need to stay employed. Because of that, if you apply the accounting rules of IFRS 3 very strictly, you have to expense for those despite the fact that in the pure nature, it's of course, it's a purchase price, and that's also fully supported by our accountants. Because this is distorting our numbers, we adjust for that in the EBIT for the adjusted EBITDA. Nothing to do with good old write-offs.

They are solid acquisitions we get, but we apply here the black and white best approach to account for those contingent earn-outs that were part of the purchase price. All in all, let's go to the more relevant thing, EUR 1 billion of sales and an adjusted EBITDA, slightly better than our latest guidance. Next one, please. This is another visualization of the elements we have within Shop Apotheke, of the prior slide we just had. On the vertical axis, it's the adjusted EBITDA margin, and on the horizontal X, it's the sales growth. Where do you want to be? In the upper right, growing fast and profitable.

What's in your face on this slide is that even in 2021, where we had some challenges, the core of our business at the moment, the DACH non-Rx, was growing very fast, 18.1%, and profitable, so. That stuff, that's the non-Rx. If you go to the left side, the only one that was growing negative was the paper Rx, but you also see that the profitability of paper Rx is slightly better than non-Rx, and it will be even better with eRx. As of the moment that eRx will kick in, we expect that this bubble of paper Rx will grow, and we'll move to the upper right of the diagram very fast. International, the blue one, is growing even faster than DACH non-Rx. DACH non-Rx 18%, international was growing 40%.

The only reason why DACH is at a negative adjusted EBITDA is scale, because the unit economics are the same as they are in the non-Rx. Scale is leading to a lower density throughout the entire value chain and to higher cost as a percentage of sales. DACH growing very fast with attractive unit economics. We're investing in growth there, and we're still smaller than we are in the DACH region. Both DACH and international have the benefits that we have own brands there, own brands with a high margin and growing very fast. Our most prominent own brand is Redcare. The last thing I want to say on this slide, if you look to the total, right? Things grow even much faster, that's our investments in additional future growth margin drivers and USP drivers for us as a company.

All in all, in this slide, in 2021, the core of our business growing really fast at positive adjusted EBITDA margins. Next one, please. The gross margin for total company was up 1%. We discussed that already. For, I think, the eighth consecutive quarter, we can report better sourcing year-over-year. There was a significant positive impact from mix from country and our assortment, and other is mainly the non-repeat of negative Corona-related assortment items we had in 2020. But also year-over-year, we see that our media income is increasing even faster than our sales did increase. So an improvement of our gross profit margin. On the next bridge, please, here's the S&D for the full year, an increase of 4.8%, which is a very significant increase of our costs.

Of course, we had an exceptional year in the year 2020, which was the first Corona year. Looking into the details, there are two things relevant. First of all, the increase in marketing. We were cycling the very attractive 2020 year, and we had our issues, as we talked about already this year, and we accelerated successfully away from that from Q2, Q3, to Q4, and that's explaining what you see in marketing here. All the other elements are impacted by a lower average baskets. Shipping, the cost did not increase per parcel, but international is growing faster than our DACH is growing, and it's the lower basket, as I just said. Operational labor makes totally sense. We were operating two facilities last year when we were shifting to the new location.

We also increased our wages, but with the efficiency that we have in the new building, we are confident to offset that in the near future. Next one, please. Then our cash. We started the year with a total of EUR 128 million of cash and other short-term cash balances. By the way, the year before it was EUR 113 million, so it increased from EUR 113 million to EUR 128 million. Throughout the year 2021, we had a total operating cash flow of a + EUR 12 million. The operating result was -EUR 17 million, but we drove through programs, the payables, and the receivables position successfully, so we had an inflow from working capital movements of EUR 29 million. -EUR 17 million plus EUR 29 million is a +EUR 12 million operating cash flow. Then we had our elevated level of investments.

It's this building with a new facility, it's a general IT, and it's of course the acquisitions of MedApp and SmartPatient. Besides that, we had an inflow of a new convertible bond a little over a year ago with a 0% coupon of EUR 230 million. At the moment we stand at a cash balance of EUR 282 million. Stefan?

Stefan Feltens
CEO, Shop Apotheke Europe

Thank you.

Jasper Eenhorst
CFO, Shop Apotheke Europe

Well, back to you.

Stefan Feltens
CEO, Shop Apotheke Europe

Thanks, Jasper.

Jasper Eenhorst
CFO, Shop Apotheke Europe

Yeah.

Stefan Feltens
CEO, Shop Apotheke Europe

Shifting gears for a few moments. Yeah, talking about strategy. Shop Apotheke Europe, of course, we have taken some important steps on our strategic journey last year and will continue on our path from a pure online retailer to Europe's leading truly customer-centric e-pharmacy platform. I'm sure you've heard, you know, the description, this wording before. Today, we wanna take the opportunity to add a little bit more color. What does it mean when Shop Apotheke talks about a platform? We wanna put it all in one picture because it also emphasize the importance of the milestones we reached last year, starting with medication management, an important part of our platform concept.

With the acquisition of SmartPatient, with the acquisition of MedApp early last year, we certainly bolstered our capabilities in the area of digital medication management, enabling our customers to better manage their medication therapy at the end of the day to yield better health outcomes. In Q4, SmartPatient also introduced its first disease-specific modules enabling, allowing users to better understand their disease and to better manage their disease. Again, aimed at generating, yielding better health outcomes. In terms of our Now! service, I already mentioned this, covering 13 areas. This is becoming an increasingly important part of our platform, and we'll talk more about this in a moment. Our online doctor services, we are cooperating with one of Europe's leading telemedicine and online doctor service providers, ZAVA. We've been working with them now for over two years.

I think that is a very beneficial cooperation for both sides. By the way, we have purposefully decided to cooperate with online doctor service providers instead of fully integrating. This gives us more flexibility in the future because we have the option to work not just with one online doctor service provider, but with several of them if we choose to do so. Resulting from this cooperation, and this means that customers of Shop Apotheke through our platform, through our webshop, can now obtain a consultation, medical online consultation with ZAVA. Customers that are using this opportunity are already today sending hundreds of prescriptions to Shop Apotheke that we can dispense.

The marketplace, we're going to talk more about this, w e launched it last year, w e're very excited, will be a key contributor not just to Shop Apotheke's growth, but also to our bottom line in the future. Our own brands, Jasper already talked about this. We have now four own brands. We acquired nu3 functional food, some dietary products under the brand BEAVITA. They're developing nicely. We introduced Redcare, which focuses on pharmacy products, including OTC medications. Just a couple of weeks ago, we introduced our next line of own brand products under the name of SKINTIST, our first truly sustainable beauty and care line of products. Of course, all of these brands, again, they're developing nicely, but they're generating significantly higher gross margins than third-party products. These products can only be purchased at Shop Apotheke, so it also helps us to increase the customer loyalty.

Talking about customer loyalty, our customer loyalty program, Red Points, is developing nicely. It's generating tangible benefits in terms of generating, yielding higher customer lifetime values for the customers that use Red Points versus the customers that don't use Red Points. Red Points is becoming more and more the bracket that encompasses all of the components of Shop Apotheke's e-pharmacy platform. Just to give you two examples of how these various components interact. Users of our MyTherapy medication management app, they can now start collecting Red Points by using the app, and of course, these Red Points can be redeemed in our webshop. Another example, users of our Now! service through local partner pharmacies, they can now also buy Redcare products when they place Now! orders that will be delivered through our local partner pharmacies.

A few more details about a couple of the components of our e-pharmacy platform, starting with the marketplace. I already mentioned we launched this last December. The objective is to offer our now more than 8 million active customers a much broader portfolio of healthcare and beauty-related products. We started late last year. Every day, every week, we are adding additional merchants and additional products. We have purposefully chosen the concept of an actively managed marketplace to ensure high quality standards. By the end of this year, we started in Germany. Germany will grow substantially over this year and in the future.

By the end of this year, we will have launched our marketplace in at least one additional market, and we will have prepared for the launch in additional markets over the course of this year. Another really important and increasingly important component of our e-pharmacy platform is, of course, our same-day delivery service under the Shop Apotheke Now! label. As we mentioned before, we are reaching now through the Now! service in 13 metro areas in Germany, 20 million potential customers. We launched our marketplace in the first non-German city late last year in Vienna. By the way, the NPS, the customer satisfaction of customers that use our Now! service is even higher than the already high customer satisfaction levels of customers that place their orders directly with Shop Apotheke.

Really critical, more important, the network of Now! pa rtner pharmacies is, of course, an important springboard for us in order to quickly respond and to anticipate changing customer expectations. Throughout 2022, we will strengthen the network of Now! partner pharmacies we already have. By the way, we will help some of them to scale up their businesses. And secondly, of course, we're going to expand our offering in terms of additional options for existing partner pharmacies, and we're going to make our Now! service available in other areas as well. Electronic prescriptions in Germany, and I know that is something that's on top of mind of everybody, certainly also of everybody at Shop Apotheke. I wanna share with you what is our view of the Gematik test phase that has been extended, as you all know, and what is the status of Shop Apotheke.

Just, you know, to make this clear right at the beginning, we have been and we are ready for e-prescriptions in Germany as Shop Apotheke. Most of you probably know that in late January, the shareholders of Gematik agreed on six predefined quality criteria. These quality criteria must be met in order to successfully conclude the test phase of e-prescriptions in Germany. As of, I think two days ago, 2,882 prescriptions had been redeemed, electronic prescriptions had been redeemed through the telematics infrastructure. The target in terms of the number of e-prescriptions that must have gone through the Gematik telematics infrastructure is 30,000. This means 30,000 electronic prescriptions must have been issued by doctors, must have been dispensed by pharmacists, and must have been reimbursed by statutory health insurance.

Based on everything we've heard from, you know, the political realm in Berlin, and that was very important, very reassuring for us. Everybody we talked to emphasized e-prescriptions remain a top priority because they are an important building block for the further digitalization of the healthcare system in Germany. Just one example, the electronic patient file, which is another important component to digitalize the German healthcare system. They are not going to be successful without e-prescriptions. Again, everybody we've been talking to, and we're talking to a lot of people, e-prescriptions remain a top priority. They need to come as quickly as possible. Once we go live with e-prescriptions on a broad scale, they need to be working properly.

If you follow Shop Apotheke for quite some time, you might remember that starting in October last year, Jasper and I, we communicated that we didn't assume a big bang of nationwide go live of e-prescriptions in Germany. At the time, we stated that our assumption was that we would see a significant surge of e-prescriptions starting around mid-2022. Again, based on everything we are seeing in the Gematik dashboard, everything that we are hearing from the people we talk to, we are still standing behind this assumption. How is Shop Apotheke doing? As of yesterday, we had processed 85 electronic prescriptions via the telematics infrastructure. The first e-prescriptions had been processed on, I think, Jasper, it was the 26th of October last year, have been processed on the 26th of October.

Again, it's still a relatively small number, but more important, all of these e-prescriptions, the 85, they have gone through our processes from the beginning to the end. Everything is working. We have received reimbursements for these prescriptions, not from one or two, but from 17 different statutory health insurance companies. We have received these prescriptions through the patients, not from one, but from 18 doctors. Let me re-emphasize. Everything at Shop Apotheke in terms of e-prescriptions is working. Once we go live, and for competitive reasons, of course, we're not disclosing all the details yet, but once we go live, our customers are going to experience a very convenient, a very compelling end-to-end customer journey. We're very confident once a customer experiences the end-to-end customer journey for e-prescriptions at Shop Apotheke, they will continue to send their prescriptions to Shop Apotheke.

Yes, I think we all understand, we all acknowledge the nationwide introduction of e-prescriptions is taking a little bit longer than we had all thought a year ago. We remain confident at Shop Apotheke that e-prescriptions are going to happen in Germany this year. We are ready, and honestly, we can't wait to get started. Last, but certainly not least, Italy. Italy truly it is a massive opportunity for Shop Apotheke. We all know Italy is a large pharmacy market. You know, we're talking about EUR 30 billion in terms of the total pharmacy market. This includes non-prescription but also prescription products. We started serving customers in Italy already in 2018 under the label Shop Farmacia. Last year, we more than doubled our business in Italy, and we have significant growth expectations going forward.

You know, let me say it differently. Italy will certainly be one of our very important growth drivers going forward. In order to serve our customers in Italy better, we have already announced, we already communicated that in Q3, we're going to open our second distribution facility besides the facility that we are broadcasting from today in Italy, near Milan, again, in order to better serve our growing number of customers in Italy. One important benefit in addition to serving our customers faster and better is of course that we significantly reduce the magnitude of CO2 emissions because we no longer have to transport our products from suppliers in Italy to our pharmacy and distribution facility in the Netherlands and eventually back to our customers in Italy.

All of this in the future is going to happen within the boundaries of Italy, and again, that is going to result in significantly reduced carbon emissions. I hope that we have been able to share with you a little bit of context in terms of what Shop Apotheke has done, what we intend to do, and hopefully you share our view that we have been on the right path and will continue to be on the right path by executing our strategy. Well, Jasper, what is 2022 and beyond going to look like?

Jasper Eenhorst
CFO, Shop Apotheke Europe

Yeah, thank you. Yeah, very happy to share with you, our updated guidance. I will do that in three slides, and let's start with the broad picture. Our mid to long term adjusted EBITDA margin outlook is unchanged. It is an adjusted EBITDA margin in excess of 8%. Then of course, the question is, how do we get from the current level towards this level of in excess of 8%? To quickly walk you through the drivers that we identify here, and starting with the top of the P&L with the gross profit margins. It's in the DNA of Shop Apotheke to provide very attractive prices to our customers, and we will continue to do so.

At the same time, we are also seeing significant opportunities to improve our sourcing conditions, to have more direct sourcing, to improve the mix of the product that we are selling, and also the impact of our own brands. That's in the gross profit margin. Then to media income. Media income is already a significant part of our P&L. Seeing the strength that we are having with our unique positions in our main countries and with the high traffic to our websites and seeing the team that is working on media income at Shop Apotheke, we are convinced that media income growth will even outpace our fast growth ambitions in the coming years. Number three, a lower marketing as a percentage of sales.

As you see, if you are growing, everything else being the same, then marketing as a percentage of sales will be lower if you're larger versus if you're smaller. That's pure marketing scale. In addition to that, we have our medication management programs to increase loyalty, and that will also benefit marketing as a percentage of sales. We have the operational and overhead efficiencies. On scale, I want to repeat what I already said in the bubble graph, that the unit economics actually in international are as attractive as they are in Germany. It's only the pure scale at the moment why the margins there are lower than they are in DACH region. This is through the P&L and then two elements from an holistic view, very important on top of that. The introduction of eRx

eRx is having better unit economics than even our attractive non-Rx business that we do in. Also, eRx is having very valuable customers. That's the top of it. Why do we give guidance not of 8% but in excess of 8%? That has to do with our platform, because everybody who understands how a platform is working, and I hope that the movie has helped to show how concrete it is, will understand if this is successful, how attractive the margin structure of a platform model is. On this slide, 8% mid- to long-term unchanged. Going to the current year, 2022. It's a full year sales growth, and we give guidance as much as possible that we can in those areas where we think we can provide you guidance because we feel comfortable about it.

That's on the non-Rx, a continuation of the double-digit growth. In 2018, 2019, 2020, 2021, and also this year, we expect a continuation of double-digit growth of our non-Rx, and we specify it between 15%-25% growth. Note that our non-Rx was in 2021, 90% of our assortment. So this over EUR 1.9 billion we expect to grow between 15%-25%. On Rx, we don't give guidance for 2022. Please don't read that we don't believe in Rx. On the contrary, I think Stefan made that very clear, but it's just too uncertain what the exact timing is of the rollout of early adoption rates. We don't give guidance on this, but this is of course, perhaps at the moment, more an art than a science. That's the full year sales growth.

The adjusted EBITDA is in a range of -1.5% to +1.5%. Important for me to let you know that this includes what we plan to do when eRx launches. It's not like when eRx is launching in the middle of the year, we will tell you, "Oh, we need EUR 50 million more of marketing." No, it's included in the guidance. What we as a market leader in Germany think is necessary to make it into a big success. The range of -1.5% to +1.5%, actually underlying that we have internally a business case, a business plan with a favorable outcome.

There are other scenarios, the exact timing, like on the eRx we talked about, but also the situation of uncertainty that continues on Corona, for example, on the impact of post-Corona on customer behavior that's a little bit less predictable. Also it's giving us room to maneuver to take every day the right decision. This is the guidance for 2022. On the next one, because today it's already next slide, please. Yeah, thank you. Because today is already March 2nd, a little bit more color on Q1. Our non-Rx, we see that the strong growth continues across our geographies. Meaning we see a continuation of double-digit growth across our geographies in non-Rx. Please take into account that Q1 last year was a very strong quarter, both in non-Rx and in Rx of Shop Apotheke.

Perhaps the growth in Q1 will be at the lower end of our guidance or perhaps be slightly below, but we give a full year guidance of between 15% and 25%. To the margin of Q1, everything else being equal at Shop Apotheke, we have a seasonality being promotional also this year. Take that into account for quarter one. Then on Rx. I talk about the paper Rx. What we have been seeing is that from Q3 to Q4, also to Q1, we are seeing what we can name the bottoming out of the decline. We even had some analysts saying, "Hey, congratulations, your total volume of sales of paper Rx from Q3 to Q4 is increasing last year." I said, "No, you cannot draw that conclusion because that's seasonality." It is a bottoming out of the decline.

That's what we are seeing there. In looking at Q1, please see that year-over-year, we have the strong comparables of only a slight decline that we had last year. All in all, that's the outlook growing very strong in non-Rx, waiting for the eRx opportunity where we are ready for, and we give you a margin range with upside and also put potentially some room to maneuver if that is needed. Before we go to the Q&A quickly, I'm very happy to also show you this slide. We were acknowledged by a significant upgrade by MSCI on our ESG rating. We increased from a 5 out of 10, 5.0 to an 8.1. As you remember that already from 2019 to 2020, we made significant improvements in reducing our carbon footprint.

We did that already a year ago. The main driver last year was the acknowledgment of our very strong, both active and passive data privacy of our customers, the governance, how we steer our company, and the management of how we treat our people. That was acknowledged with an 8.1 in total, meaning that we are in our industry in the top 20% according to the ESG ratings. With this AA on MSCI, we conclude our presentation. Let's please go quickly to the Q&A.

Operator

Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. Again, that is star one to enter the queue for questions. We'll take our first question from Alexander Thiel of Jefferies. Please go ahead.

Alexander Thiel
Equity Research Analyst, Jefferies

Hi, Stefan and Jasper. Good to see you. I hope you can hear me. Three questions from my side, and I would like one by one. Firstly, on your guidance, I understand you don't guide on eRx for the top line, but you bake it into your profitability guidance. Could you walk us through your thinking here and what basically changes if we reach, let's say, the 30,000 scripts by end of April, beginning of May? Would you have to change your full year guidance based on the early data? It looks like there's significantly more than 1% currently going online in the near-term future. A follow-up on that would be your ZAVA cooperation. Based on my understanding, ZAVA did more than 250,000 e-scripts last year.

How much of these are going to you as those scripts are not really on the Gematik dashboard?

Jasper Eenhorst
CFO, Shop Apotheke Europe

The first one is guidance. Shall I take that one? Yeah. Indeed, Alexander, it's exactly working. I think what you were implying, one of the reasons for the range is that the exact timing is of course unclear. You can imagine that if the eRx is being introduced a little bit later and we do a lot of marketing already in 2022, then we will end at the lower end of our guidance. At the moment, it will be earlier. We will not only have the increased marketing, but we will already also have a large part of the benefits that we anticipate that will follow from eRx. We will end up everything else being equal at the higher end of our guidance. That's exactly how it's working.

That's one of the main underlying reasons for this guidance range. On ZAVA.

Stefan Feltens
CEO, Shop Apotheke Europe

Yeah. On ZAVA. Yes. You want me to answer that one?

Jasper Eenhorst
CFO, Shop Apotheke Europe

Yeah

Stefan Feltens
CEO, Shop Apotheke Europe

Alexander, good to hear from you. We, you know, we have to be a little bit cautious here because it's not just Shop Apotheke that's impacted if we disclose information, but also the other side, ZAVA. I can only say that we are receiving, and these are indeed electronic prescriptions, but they don't go through the telematics infrastructure. Perhaps we are a little bit more cautious than others in terms of how we present this. What I can say, you know, with full confidence is every day we're getting hundreds of prescriptions through the cooperation with ZAVA from patients that are using the online doctor service that ZAVA offers. Again, because there is another party involved, I'm sure you understand that we cannot disclose specifics there.

Alexander Thiel
Equity Research Analyst, Jefferies

Yeah, definitely. Secondly, on your logistics capacity, you stated in your press release that you can now fulfill 35 million orders per year from the Netherlands, and you will add on top with the Italian hub going live. This year, you fulfilled around 20 million orders with some soft quarters in the second and third quarter. Could you provide some color on how much capacity will be added with the Italian hub and how much CapEx you will spend on that, plus how much room you have in the Netherlands to grow further capacity? Also the degree of automation for the Italian hub would be interesting. Thank you

Stefan Feltens
CEO, Shop Apotheke Europe

Yeah. The Italian distribution center is a very good distribution center on a very good location. We gonna open that already in the middle of the year. But it's a very different animal from the location we are having here. The total CapEx we needed for the current location, which is highly mechanized, was up to EUR 60 million. If you include operating leases, the capitalization of that even EUR 100 million, because we lease the building. In Italy, including all the IT, it's significantly below EUR 10 million, what we're gonna spend in total in Italy. It's a straightforward distribution center for the Italian markets. It can do a lot of sales, enough for our ambitions there for the coming years.

I think of EUR 100 million of sales as a capacity that we have available in Italy, but it's not the mechanized way of working like we have here in the Netherlands. Orders, everything we can say there, EUR 35 million last year, we did EUR 20 million. We have Italy, it's minimum that one. The only statement we make there with the new facility that has been operating flawlessly in the past month, that we more than doubled our capacity.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay, that's good. Degree of automation in Italy, is it comparable?

Stefan Feltens
CEO, Shop Apotheke Europe

No, no, absolutely not. No, it's very different, but I think the efficiency will be comparable. Yeah, because it's just one country, and then the density of your order picks that you are doing. I mean, it's just with those volumes, it doesn't make sense. I mean, here we have a thing that's doing billions of sales, and there we have a different distribution center, and then it doesn't make sense from my perspective to invest in mechanization as much. That's my experience also with online grocery, that often doing it the old-fashioned way is more efficient. Unless you have big volumes like we have here in the central hub.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay.

Stefan Feltens
CEO, Shop Apotheke Europe

Alexander, you have been to our old facility, to the previous facility, that gives you an idea of what the facility in Italy how it's going to be operated initially.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay. Yeah, but it still had a degree of automation, right? It was like 60% and now you said.

Stefan Feltens
CEO, Shop Apotheke Europe

Oh, yeah. No, we have. Yeah, we have. It's also all digital, just to be clear. It's all digital. People work with scanners, et cetera. So we have a very good, clear, efficient operation that we're planning to do in Italy. Yeah.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay. Lastly, on your current trading, I mean, you put it on the last slide, right? OTC was going quite well in Q4 and spilled over into Q1. I mean, could you comment a little bit on the effect that is still in your business coming from COVID products, flu season? How do you see the France impact and the Italian impact? Lastly would be on the adjustments for 2022 for M&A transaction. What should we expect there on the adjustment side for earn- outs?

Stefan Feltens
CEO, Shop Apotheke Europe

OTC, no limited impact. We've seen our numbers of double-digit growth. The fact that we did, for example, some more self-tests in Italy in January, that's not moving the needle. It's just a benefit. It's just rounding. The total number in Q1 will be on the lower end of our guidance because of the strong last year. We have a full year guidance of 15%-25%. We ended the year with all the traffic records that we had to our websites. That's the momentum, how we enter there. That was on the OTC. The other question was?

Jasper Eenhorst
CFO, Shop Apotheke Europe

Earn-out.

Stefan Feltens
CEO, Shop Apotheke Europe

Oh, yeah. The earn- out of the acquisition. Okay. The way how it's accounted for, you know what our purchase prices are. We disclosed everything we did already with the half-year results and also in the annual report for both acquisitions. The earn-out element of that is basically taken. We need to take the full first year, 1/2 of the second year, 1/3 of the third year, and that's why it's much more in the first year than it's in the second year, and it's only 1/3 in the third year. It's gonna be significantly below the EUR 22.5 million that we had to share.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay. Thank you very much. I'm jumping back into the queue.

Stefan Feltens
CEO, Shop Apotheke Europe

Just to say, it's not any cash impact, it's the accounting. For us it is actually in the nature also acknowledged by the accountants, it's purchase price. Yeah. We account for it in the adjusted labor cost

Alexander Thiel
Equity Research Analyst, Jefferies

Perfect. Thank you

Stefan Feltens
CEO, Shop Apotheke Europe

Thank you for your question. Yeah

Operator

We'll take our next question from Christopher Johnen of HSBC. Please go ahead.

Christopher Johnen
Equity Analyst, HSBC

Yeah. Thanks, guys, for taking my questions. Two , if I may. First, looking at the eRx numbers, I know you're probably not gonna like the math one- to- one. I understand the sample size with less than 3,000 eRx processed until yesterday. It's still very, very small, all taken. Nevertheless, I mean, your share around the 3% is arguably not a bad start. If we were to add numbers from your competitors on top, you know, whatever the real number is going to be, somewhere 6%-7%ish, I would guess. I mean, that's a decent start for the project. Even given the small sample size, I mean, how do you view those numbers?

Is this primarily driven by a lot of people wanting to try out the new method? Any sort of comments on that would be interesting for me. Second question on your non-Rx growth guidance. Obviously, you didn't guide between segments, but is it fair to assume that even the DACH region would be able to deliver the low end of your guidance, i.e. are you fine with us assuming at least 15% growth in Germany? Oh, sorry, a third small one just on CapEx for the full year. If you have a view, that'd also be helpful. Thank you.

Stefan Feltens
CEO, Shop Apotheke Europe

Yeah. I'll start with with the e-prescriptions. I know that we all love to do our math, but I think the numbers are still, you know, pretty small overall in terms of, you know, us processing 85 prescriptions. I think the sample size is too small to draw any conclusions from this in terms of future market shares. For us, it's important that we can say with confidence that our systems, our processes are working. We can't wait to get started. When you follow the Gematik dashboard, you see it's not just that the number of prescriptions, e-prescriptions, and again this is important, that have gone through the telematics infrastructure is increasing every day. But the daily, we see an upswing in terms of the daily number.

It's not just that we're on a linear function, but it's more, it's better than a linear function. I know I'm repeating myself there. Everything that we are seeing, we assume that in terms of e-prescriptions issued by physicians, we should probably in early Q2 get to the 30,000. In terms of, you know, going through the whole process, e-prescriptions reimbursed by statutory health insurers in Germany, we're probably approaching the end of Q2 this year. Everything we're seeing so far, for us, it is encouraging. It confirms our thinking that we first conveyed to the market in October last year.

Jasper Eenhorst
CFO, Shop Apotheke Europe

No, of course, I really like the mathematics that you're doing, and which is leading to a very positive conclusion based upon the hundreds versus the few thousand. That's really the sample size is too small, so it's too early to do that. I cannot support that. I understand the question. On non-Rx, it's your question whether we can break it down into segments. No, we only have guidance on the total, and I can tell you that international is most likely gonna grow significantly faster than DACH. Your question was will there also be growth in DACH at the lower end, so that means close to 15%. I cannot confirm that.

I mean, I would be really surprised if we don't grow double-digit there and see the momentum that we're having there. It will be somewhere there, but at least more than 10%. CapEx, we don't have guidance on that. Of course, we don't have a repetition, at least we don't foresee that, of the acquisitions we did last year. We also have in Italy only a limited number. We will continue to invest in IT. Numbers of the exact percentage will of course depend on the denominator sales, how much it is in total. I think in a steady state at Shop Apotheke, not necessarily this year, you would look at 3%-4% of our sales being CapEx.

Alexander Thiel
Equity Research Analyst, Jefferies

Okay. Very clear. Thank you.

Stefan Feltens
CEO, Shop Apotheke Europe

I would say it's time now, but for me, it's okay to continue with questions as long as there are people. Yeah? No, it's not possible you say? Okay. Let's take one more question. Yeah, yeah. No? Okay. There we go. Okay, we crossed the time. Yeah.

Okay. I think it's time to conclude. Again, thank you for your interest, and thank you for your time in Shop Apotheke. I'm sure many of you have more questions. You know how to reach Jasper or me, so please feel free to do this. We are excited about 2022 because a lot of the work that has been done, not just last year, but you know, starting much earlier, will finally come to fruition in 2022, e-prescriptions, our marketplace, our Now! program, digital medication services. Hopefully, you walk away from this call with at least a better understanding of what platform at Shop Apotheke means, and we'll talk more about this in the future. At this point of time, let's conclude the call. Again, I'm going back to the very beginning.

We're all hoping for a very quick cessation of all hostilities and the end of the suffering in Ukraine, and I'm confident that you share with us in this hope and belief. Again, thanks for your time, and we'll talk to you soon. Bye-bye.

Jasper Eenhorst
CFO, Shop Apotheke Europe

Bye-bye.

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