Good afternoon, ladies and gentlemen. Welcome to Zur Rose half-year results conference call. I am together with Marcel Ziwica, CFO, who will discuss the details of the results, and Olaf Heinrich, who will give you an update on the developments around the electronic prescription opportunity, integration, and synergies. I will start with a short strategy update, as well as an update on our progress on our journey of building Europe's leading healthcare ecosystem. Let me first briefly look back at the first half year and give you a broad review of the progress we made before handing over to Marcel. The first half year was very active and successful and clearly marked by the exceptional situation in relation to the COVID-19 virus.
The biggest news for our industry in the first half year actually came in on the 3rd of July when the German Bundestag passed the PDSG law, ultimately making e-script in the mandatory format for scripts in Germany starting in 2022. With our active approach, we are aiming for some traction for the electronic prescription ahead of the mandatory rollout. In this context, we have signed a number of partnerships, most importantly with Techniker Krankenkasse and medatixx. Olaf will explain this approach in detail later. The acquisition of Germany's leading telemedicine provider, TeleClinic, is a strong addition to the group's ecosystem strategy and will further support our electronic prescription initiatives. We are convinced that there is a significant synergy potential between telemedicine and electronic prescriptions, which we aim to capture.
Our top line developed in line with guidance and with excellent organic growth on our DocMorris and Medpex brands in the OTC segment. The acquisition of Apotal instantly extends our leadership position by adding 1.1 million customers to the group, raising our customer base to now more than 9 million on a European level. Including Apotal, our market share in Germany is now at 40%. We have also made significant progress on our path to profitability with improving the gross margin and are well on track to achieve our full-year targets. I'm thrilled that the first pieces of our ecosystem are coming to life and that we are able to demonstrate via the acquisition of TeleClinic that we are well on the way to becoming the healthcare ecosystem in Europe.
The combination of the digital doctor visit and our electronic prescription marketplace platform will allow us to offer solutions along the digital patient journey from awareness to diagnosis to treatment to adherence. For the second half of this year, our main focus is on the electronic prescription, and within this topic, the highest priority is the launch of our customer-facing app, which we expect to go live not later than in the fourth quarter of this year. Our financial position was strengthened by the issuance of a convertible bond as well as the capital increase on the 16th of July. With that, we can now focus on the rollout of electronic prescriptions from a position of financial strength. With these opening remarks, I will now hand over to Marcel, who will explain the financial development.
Good afternoon and thank you, Walter. Group sales increased by 19% in local currency as already communicated on the 16th of July. This is in line with our expectation and with Q1 being more dynamic while Q2 was lower due to COVID-19 effects in certain areas. Starting with Switzerland, we achieved a H1 growth rate of 5.5%, which is in line with our strategy of sustainable growth in the mid-single digit area. The stock building in Q1 and the COVID-related restrictions for doctor visits in Q2 balance out each other. In our largest segment in terms of sales, Germany, we were able to grow, including Medpex, by 18.5% in local currency. This was mainly driven by our strategic decision to de-emphasize marketing on paper prescriptions and also includes a strong performance in our core OTC brands.
Taking medpex as an example, sales growth came in at a very strong 36%, delivering best-in-class performance across the group. Part of our strategy has always been focused on achieving growth via M&A. Our analysis shows that the value of growing seasoned customer cohorts is very attractive compared to new customers acquired via price search engines and Google Shopping, where loyalty is lower. In line with this strategy, we have acquired Apotal, the number five player in the German market with sales of EUR 175 million in 2019, expanding our market share to 40% in Germany. As communicated, we just closed that transaction and are expecting Apotal to be accretive in the second half. The revenues will, similar to medpex, not be fully consolidated in our reported numbers in the beginning. Segment Europe came in with a very strong performance in H1, with sales up 90.5% in local currency.
The translation effect overall on reported group sales was -4%. Next, I want to share the development of the KPIs of our B2C and marketplace business across all segments. The number of active customers rose from 6.1 million - 9.2 million, increasing by 51.2% compared to the 12-month period ending 3rd of June 2019. This was driven by a strong organic increase in customers of 2 million, and the customers added via the Apotal acquisition. Due to higher growth in the German OTC, as well as the marketplace business, which typically commands slightly lower baskets, with more commoditized products compared to prescription drugs and also B2C Switzerland, the average overall basket size decreased from EUR 59 to EUR 54. The same holds true for the order frequency, which is now at 2.4 times per year.
Our repeat order rate remains at the high level, at 77%, which shows the extraordinarily high loyalty of our customers. The decrease mainly results from the high number of new customers, especially in our Europe and Germany segment. In terms of site visits, we saw an increase from 376 to 243 million in the 12 months period ending 3rd of June of 2020. Operating performance has clearly improved in comparison to last year's number. After adjusting for extraordinary expenses, the EBITDA margin has improved by a strong 1.5 percentage points. This improvement was mainly driven by an expansion of the cost margin, which has improved from 15.7% - 17.4% on group level. The largest contribution came from the improvements in the German OTC cost margin.
Stronger growth in business models with lower basket sizes, as we have seen on the KPI overview before, lead to increased gross margin, but also to increased variable cost ratios such as personnel expenses and distribution. Marketing expenses were slightly higher as a % of sales because of an increasing marketplace Europe business with a higher marketing ratio. The finance expenses increased due to the interest rate on the bond and convertible bonds. Additionally, the development of the CHF EUR exchange rate led to some foreign exchange losses. For transparency, we decided to define an adjusted EBITDA level to show the operational performance compared to the previous year, irrespective of the influence of special items. These charges and income are currently related to acquisition and integration. Last year, we had the revaluation of earnout components, especially Medpex.
This year, we share this retention package for founders, which are included in the M&A bar on the right-hand side of this chart. We got approximately CHF 2 million. Integration costs are on a similar level as last year. At the operating level, we see an improvement of CHF 8.9 million compared to last year. Our financial target for 2020 is to achieve breakeven on our established businesses in Switzerland and Germany, resulting in an adjusted EBITDA before expenditures on additional growth initiatives like electronic prescription and also segment Europe. For H1, at -CHF 2.6 million, we are on track to achieve our profitability target for the full year. In our run rate analysis, we want to show what our profitability would look like, assuming completion of the planned integration steps. On the first line of the chart, you see our 2019 figures.
Including positive one-offs of CHF 29 million, we have reached an EBITDA margin of -1%. The second line shows our run rate based on the current sales. The improvements are driven by increasing gross margin, lower picking costs in a more efficient logistics setup, a higher marketing efficiency by steering the segment with one leadership team, as well as from the realization of organizational synergies. The realization of these synergies will lead to an EBITDA margin between 2% and 3%. With our half year results, we are fully in line with our path to profitability. Firstly, we managed to improve our cost margin. Secondly, we implemented one organization for the German segment and integrated further service functions. Thirdly, we focused our marketing expenses on DocMorris and Medpex and are pursuing profitable growth.
The key changes in the balance sheet were driven by the launch of the convertible bond in March, leading to a higher cash position and also higher financial liabilities. On top of this, the capital increase after the end of H1 in July further strengthened our equity base by CHF 230 million. On the other hand, the negative free cash flow of CHF 105 million included the payment and closing of the Medpex earn-out of roughly CHF 42 million, temporarily increased inventories driven by COVID-19, and retiring investments of CHF 17 million, reduced the cash position. Overall, the balance sheet clearly has the financial strength to invest in our strategic initiatives and growth opportunities, on which Walter will elaborate in the next part of the presentation.
Thank you very much, Marcel. Let's discuss future. Let me explain our plans for the second half of the year on our three key initiatives. With regards to our eHealth ecosystem ramp-up, we are innovating to ease consumer health journeys via the acquisition of TeleClinic, the leading German telemedicine provider. We are also in negotiations with a number of digital solution providers to establish partnerships to get closer to our vision of creating a place for every consumer to manage their health within one click. This place will be enabled by our leading technology that we are developing via our tech hubs in Barcelona, Berlin, and Winterthur, with a growing team of our 100 tech-focused employees. I will provide a little more detail on this initiative in just a minute.
In the German market, we hold the clear number one position in terms of active customers and are in pole position ahead of the electronic prescription introduction. Transferring our leading position in the OTC market, with more than eight million active customers in Germany into electronic prescription is our target as soon as scalable electronic prescription pathway opens up. Our first-mover strategy and active approach towards scaling ahead of the gematik launch is gaining momentum with a partner network already built up, ready for the rollout. On the integration and synergy side, we have already seen some tangible progress in the first half year, driven by the segment-wide steering of marketing activities. The Medpex team, which has taken over all responsibility for this theme, has demonstrated their unmatched competence in this space, as you will see in the numbers that Olaf will show later.
The integration of the acquired businesses is fully on track with the communicated steps of integrating Vitalsana and integration of further service functions through the rest of this year. The remaining locations will run as operational hubs. The group-wide branding strategy will be finalized during the second half of this year. Let me now give you an update on the digital healthcare ecosystem. As communicated during the last calls, we are in the process of building Europe's leading digital healthcare platform, building on our cutting-edge technology, unmatched links to a broad area of partners like insurance companies, our customer base of now more than 9 million on a group level, as well as the highest brand awareness. Our vision is to create a world where everyone can manage their health in one click.
This is the vision we are working towards from a transaction and distribution company to a unifying e-service platform enabled by leading technology with multiple revenue and also profit streams, with the ultimate goal to ensure the efficacy of medication with the help of digital solutions. This motivates all of us as it will bring real value to the customers as well as to the healthcare systems. Based on seamless and personalized solutions, we want to make it easy, particularly for chronically ill patients, to receive the optimal treatment and benefit from innovative solutions. They can trust us to plan their treatment pathways with controlled and effective medication along the way and primest access to products and services, thereby disrupting an 800-year-old gilded system. On this slide now, you can see a typical customer journey through the digital healthcare system.
We are working on innovating consumer journeys from awareness to diagnosis, to treatment, to adherence by partnering with relevant providers of solutions along this journey and integrating their offering in a seamless way for the customer. We will do so by leveraging best-in-class solutions and convenient access to products to enable better lives for the consumers. A chronically ill patient can track their fitness or heart rates with a connected device, and if a need to consult a doctor arises, directly access the telemedicine service of TeleClinic within the same app. After the doctor has decided on the treatment for the patient, the patient can take advantage of the best-in-class digital solutions tailored to his needs via our platform. If a medication need arises, an e-script can be issued and redeemed at the pharmacy of choice by the consumer.
Convenient adherence management apps help the consumer to monitor their health in an easy way. Within our ecosystem approach, we aim to leverage our existing assets to evolve our core business. Online pharmacy remains at the core and drives revenues. With our marketplace and platform business, we are opening up for local pharmacies to extend the product and service offering. Integrating partners, for example, digital health solution providers, will drive customer acquisition and retention for the online pharmacy and marketplace business and advance our business models. As said before, we will evolve from selling pharmaceuticals to bringing the efficacy of medication to the consumers, especially the chronically ill. The acquisition of TeleClinic has added an important building block to the consumer journey offered by the group. TeleClinic is a pioneer in offering reimbursable consultation services compliant with the German National Health Insurance Scheme.
The usage rates of telemedicine have increased significantly since COVID-19 outbreak, and TeleClinic has also seen a large uptick in usage rates. Based on the current experiences, we estimate that e-scripts will be issued for up to 50% of all consultations on the TeleClinic platform. This chart now demonstrates the momentum that telemedicine has gained over the past few months. According to Bitkom, every second user prefers video consultation over visits to the doctor since COVID-19. entrepreneur.com titles that telemedicine is laying the roadmap for healthcare's future. While STADA published in their own health reports that 62% of Germans are open to telemedicine. A projection by McKinsey shows that in midterm, already up to 10% of all consultations move towards telemedicine, resulting in a significant revenue and earnings potential for TeleClinic.
With that, I hand over to Olaf to give you an update on the electronic prescription opportunity and our progress on integration and real synergies.
Yeah. Good afternoon to everyone, and thank you, Walter. Moving now to the long-awaited and much-discussed move to the eRx in Germany. This will be the big game changer for the market. On the regulatory side, we saw a very important development on July 3rd this year when the German Bundestag passed the PDSG law, which includes a sentence that makes the e-script the mandatory format of scripts in Germany starting in 2022. This is a big step. As before, e-scripts were only introduced as an alternative format in which scripts could be issued. The mandatory introduction speeds up the adoption curve of the e-script, probably by years. Additionally, and with regard to recently discussed implementation within the gematik rollout, the following progress has been made.
All market participants, including EU mail-order pharmacies, will be able to connect to the Telematikinfrastruktur and will be enabled to access e-scripts on the national eRx server. gematik will provide a service solution and is also targeting to provide a standard app, which is planned to have connectivity features to other apps developed by market participants. There will be a competition between platform providers about winning customers for their platform. Value-added services will become the key differentiator in this competition. Just to remind you of the size of the opportunity, you can see on this chart the size of the online market in different online penetration scenarios. Today, the online RX market is roughly CHF 600 million in size, which equals an online penetration of 1.4%. We all know the reason for that is the inconvenience of the paper script.
If this moves to 5%, the online market would be at CHF 2.1 billion, at 10%, at CHF 4.3 billion, and at 20%, which equals the online penetration on the OTC side in Germany, the online market would be CHF 8.6 billion. We are talking about a big market, this is a huge opportunity ahead of us. On the next chart, this shows our assumption of the adoption curve of platform usages in an e-commerce only approach versus marketplace approach. We have learned from our customers that they are looking for the options of choice to decide based on their current situation, whether they want to use a brick-and-mortar pharmacy or an online pharmacy. This is something we can't determine, it's the choice of the customer. Also this combines both makes it more likely that they will use a platform rather than continuing to walk straight to brick-and-mortar pharmacy.
While we think that an e-commerce only approach can also be successful, we strongly believe that a marketplace approach with value-added services will increase the adoption curve significantly. Let us have a look at our own approach towards eRx. As you might know, the German focus of DocMorris as innovator and first mover has always been RX. The current management team has a long-standing history on shaping the RX market in Germany, especially when it comes down to the core drivers, which are legal, regulatory, reimbursement scheme, and payers. Because of this know-how, we strongly believe that we cannot simply wait until RX to happen, but we have to take our own initiatives. This results in what we call the two-phase approach, shape and build pre-gematik, and then harvest within gematik. Let's talk a little bit about the pre-gematik phase.
We are partner and eRX technology provider for the most relevant eRX initiative in Germany, led by the largest insurance companies like TK, BARMER, DAK. They are representing more than 35% of the total market. Within this corporation, we enable more than 50% of brick-and-mortar pharmacies in Germany to connect to our eRX services via a deep integration into their primary IT ops system. Even more important, we signed the medatixx deal that I already talked about, which gives more than 27% of the German doctors access to our eRX services also via a deep technology integration into their IT ops system. That means from, let's say, a partner perspective, technology perspective, and product perspective, we are best prepared to boost the business already in the pre-gematik phase. The potential of this phase depends heavily on the question of the eRX reimbursement scheme.
The question is, do customers need to register in a two-step or one-step approach for the new eRx service? In the two-step scenario, customers first have to register with their insurance company. The legal term for that is called as a 140 contract, just from a legal perspective. Afterwards, they have to register also with DocMorris. In the one-step scenario, they can directly register with DocMorris. As you know, in terms of conversion, there's a significant difference between the two scenarios, and this will also determine how quickly and how fast we can manage to grow. The current regulatory status, determined by the Selbstverwaltung, we'll talk about Selbstverwaltung in a second, requires the two-step registration process and also applies only to participating insurance companies.
The intended regulatory status of the GSAV, this is the e-script law which passed last year in July, foresees only a one-step registration process. From a legal perspective, it looks all good. The one challenge ahead of us is Selbstverwaltung. This is a body consisting of the doctor associations and pharmacy associations and payer associations, and they are usually governing the implementation of health care laws in Germany. They have, in this case, not implemented what is required by the GSAV law. We see a good opportunity that this regulatory framework is going to change into the direction of what's required by law, and this might already happen in the upcoming month and will then, of course, bring us into a pretty good starting position in terms of boosting the business prior to the gematik.
In the gematik phase, we will, of course, profit from our experience, especially on product and partner level, and will have whatever we have done in the last month. After talking about enabling the stakeholders to provide and access this, I would now like to explain how the different apps will be connected during the two phases. In the pre-gematik phase, our own marketplace app, as well as the apps of the network partners, will be directly connected to the eRx server. Other competitors will only be able to connect their application to the eRx server via the eHealth-Tec basic app or not at all. Within the gematik framework, it is currently defined that only the gematik basic app will have direct connection to the national eRx server. This basic app will provide connectivity for third-party apps going forward.
Our roadmap for the implementation phase consists of launching our customer-facing eRX marketplace, which I will talk about in just a minute, and subsequently become the first mover in the eRX opportunity in the pre-gematik phase in 2020, but mainly in 2021. Here we see three opportunities. First phase is test and learn, if we have this two-step approach via the 140 contract set up. For this one, we should be ready once we launch the marketplace app. The second one is the scaling via the digital prescription service of TeleClinic, Walter was talking about earlier, in which no 140 contract is needed as there will be a paper RX flow in the background. That means from a customer perspective. It's a fully integrated service that looks and feels like an e-script, but in the back, there's a paper flow.
The third and largest opportunity, as just described, of course, is if we can switch to the one-step registration process, then we can significantly boost based on the partners that we have set up the eRx business. After the implementation of the Telematikinfrastruktur and the mandatory e-script implementation, we will focus on building our great starting position on the pre-gematik phase and on leveraging our unmatched customer base of more than eight million customers in Germany with a clear distance to the number two and other competitors. I think it's important to say that those active customers are not only OTC customers. Because of the size, those customers, they pretty much reflect the average situation in Germany, meaning we have 25% of those are chronically ill by definition. It's a great starting point into this journey.
We believe that the key to success for the eRx scaling is creating a customer benefit for the end user, which we are convinced to deliver with our patient-facing marketplace solution. The marketplace will connect the offering of e-commerce pharmacies and local pharmacies. The customers will be able to choose between a number of delivery and pickup options and show the whole range of RX, OTC, and BPC products within the app. Another key feature that we are developing is a repeat script function, through which the customer can connect with his doctor to ask him to issue a repeat script. We also aim to combine the marketplace offering with our recent acquisition of TeleClinic, as Walter pointed out earlier, allowing patients to connect with a doctor within the app and choosing among the partner pharmacies to fill their scripts.
We're looking to build upon our existing marketplace technology from PromoFarma, combined with our eRx know-how from eHealth-Tec, and we are pretty much on track to launch the first version of the app in Q4 of this year. Also, of course, we will make use of the tech capabilities of TeleClinic. Combining all of those into this one marketplace will give us a competitive edge. Our focus also lies on the integration of our very active acquisition track record. The different pillars of our integration strategy remain unchanged. Firstly, we are moving to a simplified brand structure to maximize marketing efficiency. This year, we will finalize our group-wide brand strategy. In the meantime, we have more than six brands out in Germany. We are already focusing.
Some of them are more growth brands, some of them are more brands, let's say, for price comparison and other brands we use to learn in different marketplaces. We just launched, two or three days ago, the presence of one of our brands on the Douglas marketplace. We use different brands for different purposes to learn more about how marketplace work going forward. Secondly, we are embedding a culture with the same DNA across the group. Here we have expanded our segment management team during H1, as we explained in the full year results call, and are currently streamlining the organizational structure, which I will explain further on the next chart. Thirdly, we are creating a single unified IT platform to ensure digital leadership in the coming years and are starting this with the launch of the eRX marketplace in Q4 of this year.
Finally, logistics, where we are developing an efficient and customer-centric strategy, taking the learnings from COVID-19, meaning it makes sense to be very close also to the customer on our business, but also the views of our new COO, Bernd Gschaider, into consideration. In 2020, we are working on the expansion of our existing Halle site while continuing to work on the ramp-up of our new DC2 in Berlin as well. As part of the integration efforts 2020, we are shifting to a fully centralized organization in Germany across all brands. All relevant functions, including marketing, tech, ops, and support, will be centralized in Berlin and Mannheim. On top, we only keep currently the logistics hubs in Bremen and Halle. We are evaluating currently the best logistics strategy going forward, as just mentioned.
Socially acceptable solutions in the form of severance packages to take adequate account of the interests of the 47 employees in total we laid off, in total who are affected, have been developed. We expect to realize synergies from these measures starting next year, getting us one step closer to the run rate margin that Marcel explained earlier. I want to end my presentation by highlighting another integration success. The Medpex team, which is now fully onboarded after the earn-out settlement we achieved by the end of last year, achieved great results in the first half of 2020. We are starting to see results from applying their leading know-how in the German OTC market to our entire OTC business within the German segment.
During the first half of 2020, Medpex achieved a growth rate of 38% versus last year, while increasing gross margin to an impressive 28.7%, close to three percentage points higher than last year and achieving an EBITDA margin of 4.4%. With these metrics, we have best-in-class growth, gross margins, and EBITDA margins under our roof, highlighting the potential of our business. The realization of synergies across the segments started at the beginning of this year with a focus on profitable revenue growth across all brands. With that, I would like to hand over to Marcel for the financial outlook. I'm looking forward to answering any questions you might have during the Q&A session.
Thank you, Olaf. The latest acquisition strengthened the market position of Zur Rose Group. Taking into account these revenues of Apotal, TeleClinic, and also medpex, the management expects growth of more than 10% for the full year 2020. Before expenses or additional growth initiatives, especially the discussed area of electronic prescription and European opportunities, the company aims to break even at EBITDA level in 2020. The group expects growth in the prescription medicine business to accelerate significantly from next year and confirms its medium-term sales expectation of over 3 billion CHF. The medium-term EBITDA target margin, adjusted for growth initiatives, is around 6%. The implementation of the healthcare ecosystem and especially the mandatory introduction of electronic prescription from 2022 on offer further relevant sales and earning potential.
As the developments are very dynamic and the Bundestag just passed the law in July, we need some more time to be able to quantify the impact on this RX online penetration going forward. Our actual medium-term sales outlook includes RX online penetration of only 5%. With that, I would like to conclude the presentation and open the Q&A session.
The first question is from Gerhard Orgonas of Berenberg. Your line is now open.
Yeah, good afternoon. I have some questions about the investments into growth and the integration costs. Could you give us a little bit more detail in the investments in growth, especially the European part, the CHF 6 million, what kind of investments this relates to? Second part to this question is, do you expect further M&A and integration and growth costs in the second half of this year, in 2021 as well?
Yes. To start with the investment in growth initiatives, we have our marketplace business in Spain and France, where we go with this 90% in the first half 2020. This CHF 6 million is related to this business to grow this and to increase growth in these European countries outside Germany. The integration costs, I think your question is more related to the second half of this year. There we just communicated the integration of Vitalsana and also integration of some service departments of other companies. These costs on this part is estimated in a lower single-digit million amount for the second half of this year. In terms of integration, your question was also about growth cost in the second half of this year.
This depends on the implementation of the electronic prescription and the marketing campaign we want to launch after we establish our e-commerce marketplace app in the fourth quarter. I think the starting point of this is this year. There will be some marketing expenses, but it also can be that we start with this more early next year.
Marketing expenses related to eRx. If you make a big push there, that would be a growth cost for you, yeah? Investment into growth initiative.
Into the electronic prescription, yes. That would be on this side.
Okay.
Your question was also about the M&A impact in the second half. You mean the already buy-up and closed acquisitions of Apotal and TeleClinic?
That's right, yes. These were in July and August. Is this already mainly in the H1 M&A cost of CHF 10.9 million, or is there more coming?
There is more to come because the closing was from TeleClinic end of July and for Apotal mid of August. These closing costs are not included in the first half of this year.
Okay. It says it's a share-based retention package. This is for the founders of Apotal and TeleClinic, basically, or?
No, that was the result in the first half of this year. These retention packages are for medpex and PromoFarma.
All right. Okay. Maybe just a second question on different topic. In TeleClinic, how many consultations do they carry out currently?
Marcel, do you want to say something, or shall I give an answer?
Yes, if you can.
I think we do not really want to give too many details on the TeleClinic. The one thing we can say, there's a strong growth, and this strong growth also continues after the COVID-19. The acceptance, like I mentioned earlier, we can see that in the numbers. Right now it's about bringing more and more doctors online. We see a huge demand and ongoing demand on this business.
Okay. Thank you.
The next question is from Olivier Calo of Cheuvreux. Your line is now open.
Yeah. Hi, Team. Thanks very much for taking my questions. I have a few, maybe one by one. First one would be kind of related to capacity utilization. I'm just wondering, a bit surprised, I mean, not totally surprised, but just still in the context of your main peer posting very good Q2 sales, could you comment on your capacity in Q2 and perhaps whether you were able to ship DocMorris orders from other warehouses than Heerlen as well, or Yeah, that would be the first question, please?
Olaf, would you provide an answer?
Yes, I will try to give an answer to this. As we pointed out, we are growing not on all of the brands, but on some we are growing very successfully. Medpex has clearly outgrown our competitor. We are focusing our marketing growth budget currently on DocMorris and on medpex. In both cases, we do not have, let's say, capacity issue. Yes. We can serve all of the orders generated by medpex from the medpex side and the orders generated by DocMorris from the DocMorris side. It's more about how much do we want to put into growth and, again, profitable growth. Our focus has not been very high growth rates, but also a combination of growth and gross margins, and we saw a great improvement on the gross margin side. It's a combination from both things.
Okay. Thanks very much. Just wondering about the marketplace you were talking about. Could you talk about your view on the commission levels that you would apply on RX in this business, or is it too soon or sensitive? Could you perhaps help us in our thinking about that level?
Yeah. Well, I think that's a very good question, and we, at this point in time, we cannot really, let's say, give a price list out there because this is a very sensitive topic, especially on the RX. Let's put it this way, on the OTC, we probably take what is market standard.
Yeah.
Yes. Then on the Rx, we have to find a model, which works from, let's say, a regulatory perspective and then also generates a win-win situation. How to generate this win-win situation, we cannot give any details at this point in time.
Okay. Would it be possible for you to think of a situation where you would just keep the customers in your ecosystem and make essentially no margin on those sales.
I think, this is not the idea. The idea is to provide an overall service to our partners. This is a service. We don't want to measure this service on an Rx script, because first of all, that's not allowed.
Yeah
from a legal perspective. Secondly, that's not the right thing to do. In this partnership, it's about generating win-win situations and for example, if a customer shows up in the brick-and-mortar pharmacy at one point in time and at the other point in time in the online pharmacy, and if all of those data are collected, let's say in one database. The brick-and-mortar pharmacist can use all of the data as well as we can use all of the data to provide better medication services. That is what I call a win-win situation.
Of course, based on that win-win situation, there has to be some kind of, let's say, split of the profits generated by this one. It's clearly not for an RX script.
Okay. Thanks. Thanks a lot. Just on the Swiss business, it's not usually the focus of this call, but I'm just wondering if you could please, perhaps Marcel, comment on the profitability levels that you still see there. Is this in line with the history that Well, we don't have any history for 2019, but past history in terms of EBITDA.
Yes, the Swiss business is still profitable. We do not disclose the EBITDA level on the segment. The assumption that we can improve the EBITDA margin in the Swiss business is true.
Okay. Thanks very much. Finally, just coming back on the TeleClinic acquisition. I'm just wondering, there's obviously this prohibition of forwarding a prescription by a doctor directly to a pharmacy. I'm just wondering to what extent this plays a role into your thinking? Do you view any risk at all that your initiative to, well, I don't know, market your DocMorris brand on the TeleClinic app or this kind of thing could go against German regulation on forwarding prescriptions?
Well, I think the idea is to build, let's say, a one-stop platform in terms of healthcare. By doing so, we think this becomes the most relevant. Our platform will become the most relevant platform in the market, meaning you bring down customer acquisition costs, retention is higher, and all of those things coming with this. We all know the advantages of having an integrated solution rather than looking into different pockets of solutions. Of course, on the flip side, we have to follow all of the German regulations, and it has been clearly laid out in the latest laws. There will always be the choice of the customer.
The customer will always have the choice to say, I want my script being forwarded to either DocMorris Pharmacy to one of our partner pharmacies, or I just want to receive it in a different app. That means we will strictly follow the regulation, but I think the advantage is really having it all in one click, and from a customer's perspective, simply makes the difference. Again, following all of those legal requirements.
Okay. Thanks very much.
The next question is from Michael Heider of Warburg Research. Your line is now open.
Yes. Hi, good afternoon, thanks for taking my questions. I have two questions. Can you help me a bit here on the Medpex growth you said is 36%? Are you here now just talking about the growth in the OTC business of Medpex, or how did you calculate that? Obviously you give us the figures, including and excluding Medpex, and I come to a much, much lower growth rate if I just take the Medpex figures by itself. Hence, maybe you can shed some light on this, please. Then I have a second question on the platform that is actually in relation to your sheet 26, where you said that 50% of pharmacies already today have the ability to connect to your pre-gematik solution. Can you explain this again, because is this like a technical issue here you're talking about?
Why is it that 50% of pharmacies that have already the ability to connect? On this one as well, you mentioned briefly that BARMER is also joining this pilot now. Did I understand that correctly? It's not only Techniker Krankenkasse, but it's also BARMER, and you also, I think, mentioned another Krankenkasse, so another health insurance joining that platform. Can you maybe give an update there? Thanks.
Maybe I can start with the Medpex growth. Part of the sales of Medpex are in the reported numbers, such as services or a part of product delivery, you cannot just take the difference between these two numbers. This 36% is on a sales towards customer basis, and with Medpex, it's purely OTC business.
I will try to answer the question number two and number three. What is meant by the 50% capability. Within the project of TK, which is Techniker Krankenkasse, the largest German payer, they are driving this e-script project in Germany as the most relevant one. We are providing the eRx technology within this project. That means we are connecting doctors and pharmacies via an e-script server. The pharmacies, the way we connect the pharmacies is we use their operating system. That means our solution and the eHealth-Tec solution is deeply integrated. It's like a socket. It's a socket that's deeply integrated into the operating systems of the pharmacies. This is all information you can also get from the Techniker press release.
Far, the technical integration has been achieved for the software of 50% of the pharmacies in Germany, meaning they have a convenient access to an e-script. The e-script comes in via our technology, and they see this in their screen, and they can serve it directly out of the screen. They don't have to retype it or copy it or scan it or anything like this. It's deeply integrated into their system. The payers, you ask about that one. The project is led by Techniker, and then, of course, right now it's gaining momentum. Other payers are joining this one, and you just mentioned a couple of names, and that is correct. They are joining that initiative of Techniker and are right now capturing up 35% of the entire German market. It's gaining momentum and it's getting bigger and bigger.
Who is this then, besides Techniker? It's BARMER, obviously, and did you mention other name or?
Yes, it's DAK-Gesundheit as well.
Okay. Thanks a lot.
The next question is from Alexander Thiel of Jefferies.
Good afternoon, Walter, Marcel, and Olaf. Three questions from my side. The first one regarding your gross margin. What has been the main driver of the 170 basis points increase, and would you say this level is sustainable? My second one would be on your sustainable strategic advantage derived from your pre-gematik system. For me, it is clear that you can start transforming your OTC customer base earlier and probably have a centric marketing approach. Could you give us more color on your thinking? That would be very helpful and a follow on for this one. How would you classify the risk of losing customer as they transition to DocMorris in terms of giving the permission? My last one would be on your midterm guidance.
My understanding is that you baked in 5% eRx penetration in your guidance with the PDSG law now in place and telemedicine providing further upside. Do you believe your midterm guidance of CHF 3 billion might be slightly outdated? Thank you.
Thank you. Maybe I can start with the gross margin, and that's because we are growing on the high margin business, B2C, and that's OTC in Germany as well as prescription drug in Germany or also the marketplace in Europe have higher margins. We expect also to increase the gross margin on group level over the next time. It's growing into the future.
Yes. I will try to answer the second question. I'm not sure 100% if I understood the question right, but my understanding is the question was about how can we utilize the customer base we have in the pre-gematic phase.
Yes
Yes, as I pointed out earlier, we have such a huge amount of active customers, so they reflect average population in Germany, meaning 20%-25% of those are chronic. Once we have our pre-gematik phase set up and we have medatixx doctors issuing script, then of course we will promote this service within all of our customer population. The good news is most of that customer population is based in Germany in the acquired companies, and they have right now an RX share of zero. That means we can offer to them an additional service right from the beginning, the right service, meaning an e-script and not a paper script. By doing so, we think we can convert already in the pre-gematik phase a lot of those customers. Again, it comes down to what I explained earlier.
If it's a two-step registration process, meaning they first have to register at the insurance company or the payer, then of course, that always brings down conversion. If it's the one-step registration process, meaning we have the general reimbursement scheme, then actually I see huge potential already in the pre-diabetic phase, because again, no RX share with those customers right now and 25% of those are chronic. The third question was on transferring customers into the DocMorris brand. We will finalize the brand strategy by the end of this year. Of course, then there will be a transitional phase. It's not that we will have a hard cut, but there are smart ways to transfer customers, and this is part of the brand strategy going forward.
An example could be, you have, let's say, Apotal, because it's a branch of DocMorris or whatever the brand strategy is going to look like. There are ways to convert customers, let's say, in the order process via opt-in so that you don't have a hard cut out there. We have some experience from the past on that one. We feel pretty comfortable that we are not going to lose a lot of customers by transferring into our one brand strategy.
The last part of your question about the midterm guidance. Of course, the latest development has strengthened our position and this temporary e-script from 2022 increases the plausibility to increase online penetration. As I mentioned, our assumption is 5% in this more than CHF 3 billion sales target. If you compare to Sweden with 10% within five years, or if you compare to the OTC market in Germany, where 20% online penetration is already the case, then of course the upside potential here is given. We just need more time to quantify this in an absolute number with our financial target. We decided to keep this more than CHF 3 billion, which also opens the number to more than CHF 3 billion or to more than 5% online penetration.
Okay, thank you very much. One follow-up, if I may, regarding the full reimbursement with the one-step registration. How confident are you that we will see this kind of change in the law already this year or end of this year? Thank you.
Well, that's a very good question. Just to clarify, there is no change of law required. The law clearly says, this is the law which passed last year in July. It clearly says there has to be a reimbursement scheme starting April of this year, but obviously there is no reimbursement scheme. It comes really down to how relevant is this for the different stakeholders. Again, the Selbstverwaltung item I explained earlier, they so far agreed on we will only start reimbursement scheme with once gematik is in place. On the other hand, again, we have this law clearly stating that it should have happened already this year, April.
You cannot really give a very good answer to this one right now, but we feel comfortable that based on the overall development and the market digital solutions are being pushed forward, COVID-19 is coming back, that we see there's a good opportunity to get this general reimbursement scheme. As a fallback option, we should not forget that as a fallback option, we have the, what I call the two-step registration process or the 140 contracts. This is reality. It can be done, so there will be e-scripts already in 2020, and that is a given. The only question is to which extent, and that is something that we cannot answer 200% right now.
Okay, thank you very much.
The next question is from Gonzalo Ardura of Barclays. Your line is now open.
Good afternoon. Thank you for taking my question. I've got two. First, can you help us understand your Q2 growth rate in Germany a bit better? You've said that you're not spending on marketing behind the paper script and RX. Are you able to tell us how much OTC revenues grew in Germany, excluding Medpex ? Second, looking at the marketplace app on the OTC side, how will you control pricing on the app, if at all? More broadly, will there be a conflict of interest between your first party e-commerce and local pharmacies on the app? If so, how will you manage that?
Marcel, do you want to answer the first question?
Can you start with the second one, and I come up.
Okay. Yes. Okay. I will try to give answer to the second question first. Yes, on the marketplace, of course, we also intend to sell OTC because, the idea is a full one-click experience. In the marketplace, there will be different pricing on OTC. That means all of the listed pharmacies, online pharmacies, and also brick-and-mortar pharmacies can offer different OTC price, and they will offer a different OTC price. Yes. Probably, but this is just guessing, I think, because the larger pharmacies, they have better negotiating power on OTC. They will probably have better prices on OTC, but this is up to the individual pharmacy, brick-and-mortar pharmacy. They can also compete on OTC if they want to. Of course, there's a contract on OTC.
As I explained earlier, on the OTC, it is more like a market standard kind of contract, meaning we will get some kind of commission for the OTC, which we sell on our marketplace and actually, which sellers sell on our marketplace. A standard kind of commission.
On the growth rate in Germany, the development was really impacted by COVID-19 with a very strong increase in March with the starting of the crisis, with the stock building from the customers and also attracting new customer. In the second quarter, there was a release of the demand and also that the customers with their stock at home first used these products. The second quarter was clearly weak. Now we see that it's coming back to normal, and this we see from the third quarter ongoing, that we grow just like before Corona on a slightly higher level because of a higher demand of online business.
Maybe in addition to that, we have switched also the go-to-market strategy in Germany based on the Medpex experience, more into a combination of growth and gross margin. We are increasing gross margin on OTC and still maintaining a good growth level on OTC. Then you pointed this out, the real focus going forward is the e-script and not the paper script. That's why we are focusing a lot of activities on making eRx happen.
Thank you.
The last question is from Nadja von pharma of Financial Press Agency, AWP. Your line is now open.
Hi. Thank you for accepting my question. I just wanted to know how you could explain the net loss in the first semester, because it was a bit unexpected, at least if we believe in the expectations that were published before. Can you explain it, and how do you consider managing it in the future for the rest of 2020 and next year? That would be my first question. Thank you.
We see our results of the first half year in line with our expectation and also in line with our communicated targets for the full year 2020. The loss is also because we have all the acquired businesses and not realized all the synergies which come out of integration. Together with our announcement today, we also announced further steps of integration and integrating service functions and reducing number of locations. As I tried to explain earlier, we see that we are on the way on our path to profitability and in line with our expectations.
Okay. Thank you very much. Are you at all concerned by a second wave of COVID? Can it impact your business in a positive or a negative way?
We expect to have a positive impact. The negative would be if physicians would close down their practices again, like in the first period of COVID-19. We do not see such a scenario for the second half this year. We clearly see an increase of the virus situation and therefore an increased change of online behavior or customer behavior towards online. For such reasons, we rather see a positive effect on the second half of this year.
Sorry, I didn't get the second part about the second half. That's why you are pretty positive?
Yes. That's the reason why the COVID-19 is again increasing. On the other hand side, we do not see the risk that physicians will have a shutdown again, like in the first period.
Mm-hmm. All right. Thank you very much.
A positive effect.
Okay, as time is advancing, we close the Q&A session for now, and I hand back to the speakers for the conclusion.
Okay, thank you very much for attending this call, and hopefully all the questions have been answered successfully. Yes, see you next time. Thank you very much.