Good afternoon, ladies and gentlemen. Welcome to the ROSA Half Year Results Conference Call. I am together with Marcel Silica, CFO, opportunity, integration and synergies. I will start with a strategy 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-nineteen virus. The biggest news for industry in the first half year actually came in on the 3rd 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 electronic prescription ahead of the mandatory rollout. In this context, we have signed a number of partnerships, most importantly with Technicol, Hand and Kase and Medabricks.
I will
explain this approach in detail later. The acquisition of German leading telemedicine provider, Teleklinic, 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 Our top line developed in line with guidance and with excellent organic growth on our Doctor. Morris and Metpack brands in the OTC segment. The acquisition of Aperdal instantly extends our leadership position by adding 1 point 1,000,000 Including Aputpal, 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 that 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 Q4 of this year.
Our financial position was strengthened by the issuance of convertible bonds as well as the capital increase on the 16th 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, Austin. Food sales increased by 19% in local currency as already communicated on the 16th July. This is in line with our expectation and with Q1 being more dynamic, while Q2 was lower due to COVID-nineteen effect in certain areas. Starting with Switzerland, we achieved H1 growth rate of 5.5%, which is in line with our strategy of sustainable growth in the mid single digit area. The stock billing in Q1 and the COVID related restrictions for doctor visits in Q2 balance each other.
In our largest segment in terms of sales, Germany, we were able to grow, including netbacks, by 80 point 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 netbacks as an example, sales growth came in at a very strong 36%, delivering best in class performance across the road. Part of our strategy has always been focused on achieving growth via asset base. Customers acquired via price search engines and Google Shopping, where we have acquired Aputal, the number 5 player in the German market, with sales of 170 €5,000,000 in 2019, extending our market share to 40% in Germany.
As communicated, we just closed the transaction and are expecting Apertar to be accretive in the second half. The revenues will, similar to Metpegs, not be fully consolidated in our reported numbers
in the beginning.
Wengman 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 minus 4.2%. 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 6,100,000 to 9,200,000, increasing by 51.2% compared to the 12 month period ending the 3rd June 2019. This was driven by a strong organic increase in customers of €2,000,000 and the customers added by the Abert Hall acquisition.
Due to higher growth in the German OTC as well as the marketplace business, which typically commands slightly lower the average overall basket size decreased from €59,000,000 to €54,000,000 The same holds true for 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 size visits, we saw an increase from 276,000,000 to 243,000,000 in the 12 month period ending 3rd 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 gross margin, which has improved from 15.7% to 17.4% on both levels. The largest contribution came from the improvements in the German OTC as personnel expenses and distribution. Marketing expenses were slightly higher as a percentage 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 francs euro exchange rate led to some foreign exchange losses. For transparency, we decided to define an adjustment 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 acquisition and integration. Last year, we had a reevaluation of thermal components, especially netbacks. And this year, the share based retention package for founders, which are included in the annual day bar on the right hand side of this chart.
With approximately CHF 2,000,000, the integration costs are on a similar level as last year. At the operating level, we see an improvement of CHF 8,900,000
compared to
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. And for H1 at CHF2.6 million, we are on track to achieve our profitability target for the full year. In our run rate analysis, we'd like to show what our profitability would look like assuming completion of the planned integration steps. On the first slide of the chart, you see our 2019 figures, including positive one offs of €29,000,000 we have reached an EBITDA margin of minus 1%. The second line shows our run rate base 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 SIO in the segment with our leadership team as well as from the realization of organizational synergies. The realization of this synergy 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 functions. Thirdly, we focused our marketing expenses on Doc Morris and Netpacks and are 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 decrease after the end of H1 in July further strengthened our equity base by EUR 2 30,000,000. On the other hand, the negative free cash flow of CHF 105,000,000 included the payment and closing of the netbacks earnout of roughly CHF 42,000,000 and temporarily increased inventories driven by COVID-nineteen and recurring investments of EUR 17,000,000 reduced to 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, and let me explain our plans for the second half of the year on our 3 key initiatives. With regards to our eHealth ecosystem ramp up, we are innovating to ease consumer health journeys via the acquisition of Tele the leading German telemedicine provider. We are also in negotiations with a number of digital solution providers 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 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 would be hold the player number 1 position in terms of active customers and are in full position ahead of the electronic prescription introduction, transferring our leading position in the OTC market with more than 8,000,000 active customers in Germany into electronic prescription is our target as soon as scalable electronic prescription pathway opens up. Our 1st 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 MadpEx team, which has taken over overall responsibility for this team, 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 with Dalsana and integration of further service functions through the rest of this year. The remaining locations will run as operational hubs. The group will be finalized during the second half of this year. Let me now give you an update on the digital health care ecosystem. As communicated during the last calls, we are in the progress in the process of building Europe's leading digital health care 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 9,000,000 on a group level as well as the highest brand awareness.
Our goal 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 the health care 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 along the way and primary access to products and services, thereby disrupting an 800 year old gated system. On this slide now, you can see a typical customer journey for the digital health care system. We are working on innovating consumer journeys from awareness to diagnosis to treatment to adherence by partnering with relevant providers of solutions along with 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 life for consumers. A chronically ill patient can track their fitness or heart rate with a connected device and even need to consult a doctor, raises directly access to 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, a knee script can be issued and redeemed as 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 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 of rates of telemedicine have increased significantly since COVID-nineteen outbreak, and tele Clinic has also seen a large uptick in usage rates. Based on the current experiences, we estimate that e script will be chart now demonstrates the momentum that telemedicine has gained over the past few months. According to Bitcon, every second user prefers video consultation over visits to the doctor since COVID-nineteen. Entrepreneurdot com titles that telemedicine is laying the road map for health care's future.
While data published in their own health reports that 62% of Germans are open to telemedicine. The 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 realized synergies.
Yes. Good afternoon to everyone, and thank you, Walter. I'm 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 includes a sentence that makes the e script mandatory format of scripts in Germany starting in 2022.
This is a big step. As before, East Coaststone introduced as an alternative format in which scripts could be issued. The mandatory introduction speeds up the adoption curve of the e skirt 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 telematics infrastructure.
We will be enabled to access e scripts on the national provide 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 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 mark is roughly $600,000,000 in size, which equals an online penetration of 1.4%, and 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 2,100,000,000 dollars a 10% a $4,300,000,000 a 20 percent, which equals the online penetration on the OTC side in Germany.
The online market would be €8,600,000,000 So it's we are talking about big pockets and there's a huge opportunity ahead of us. On the next chart, you can this shows our assumption of the absorption 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 and mortar pharmacy or an online pharmacy. This is something we can't determine. It's the choice of the customer.
And also this combines both makes. It's more likely that they will use a platform valve and continue to work straight to brick and mortar pharmacy. While we think that an e commerce only approach can also be successful, we strongly believe that our marketplace approach with value own approach towards the Rx. As you might know, the German focus of St. Moritz 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. And 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 and this results in what we call the 2 phase approach, shape and build pre Gemartic and then harvest within Gemartig. Let's talk a little bit about the pregemartig place. We are partner and pharmacies in Germany to connect to our ERX services via a deep integration into their primary IT
ops
7% of the German doctors access to our ERX services also via a deep technology into perspective and product perspective, we are best prepared to boost the business already in the premium market 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 2 step or one step approach for the new ERX service? In the 2 step scenario, customers first have to register with their insurance company. The legal term for that is called is a 140 contract just from a legal perspective.
And then afterwards, they have to register also with DocMiles. In the one step scenario, they can directly register with DocMiles. And of course, 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, current regulatory status determined by the Sveratung, we'll talk about Sveratung in a second, requires the 2 step The process.
So from a legal perspective, it looks all good. The one challenge ahead of us is this. This is a body consisting of the doctor associations and pharmacy associations and payers 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.
But 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 months and will then, of course, bring us into a pretty good starting position in terms of boosting the business prior to the Gemartic. In the Gemartic phase, we will, of course, then profit from our experience, especially on product and partner level and then we'll have whatever we have done in the last month. After talking about enabling the stakeholders to provide an access to this, I would now like to how the different apps will be connected during the 2 phases. In the pre game market 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 Tech basis app or not at all. Within the Gematrix framework, it is currently defined as only the Gematrix basic app will have direct connection to the implementation phase consists our road map for the implementation phase consists of launching our customer facing ERAS marketplace, which I talk about in just a minute and subsequently become the 1st mover in the ERX opportunity in the pregimarcic phase in 2020, but mainly in 2021. Here we see 3 opportunities. 1st day is test and learn if we have this 2 step approach via the 140 the the digital prescription service of Telekleenic, which I was talking about earlier, in which no contract no 140 contract is needed as there will be a paper Rx on the background. So that means from a customer perspective, it's a full integration fully integrated service.
It looks and feels like an e script, but in the back, there's a paper flow. And then the 3rd and largest opportunity, as just described, of course, if we can switch to the 1 step registration process, and then we can significantly boost based on the partner network we have set up the ERX business. After the implementation of piggymotic framework and the mandatory EastGroup implementation, we will focus on building our great starting position on the pragmatic phase and on leveraging our unmatched customer base of more than 8,000,000 customers in Germany with a clear distance to the number 2 and other competitors. And I think it's important to say that those active customers are not only OTC customers, but because of the size, those customers stay pretty much reflect the average situation in Germany, meaning we have 20% to 25% of those are chronically ill by definition. So it's a great, 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 e ecommerce pharmacies and local pharmacies. The customers will be able to choose between a number of delivery and pickup options and show whole range of Rx, OTC and VPC products within the app. Another key feature that we are developing is a repeat script function, through which the past customer can connect with his doctor to ask him
to issue a repeat script.
We also aim to combine the marketplace offering 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 market test technology from PumaPharma combined with our ERX know how from Ehealth Tech. And we are pretty much on track to launch the first version of the app in Q4 of this year. And also, of course, we will make use of the tech capabilities of teleclinic for combining all of those into this one marketplace will give us a competitive edge. Our focus also lies on integration of our very active acquisition track record.
3 different or the different pillars of our integration strategy remain unchanged. Firstly, we are moving to a simplified brand structure to out in Germany. We already are 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. So we just launched 2 or 3 days ago our market the presence of 1 of our brands on the DUKLAX market So 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 segment management team during H1, as we explained in the full year results call and are currently streamlining the organization of structure, which I will explain further on the next chart. Thirdly, we are creating a single unified IT platform to ensure digital developing an efficient and customer centric strategy taking the learnings from COVID-nineteen, meaning it makes sense to be very close also to the customer on our business, but also the views of our new COO, Bernd Scheider, into consideration.
In 2020, we are working on the expansion of our existing Helens side while continuing to work on the ramp up of our new DC2 in Helens as well. As part of the integration efforts in 2020, we are shifting to a fully centralized organization in Germany across all brands. All relevant countries, including marketing, tech, ops and support will be centralized in Harland and Mannheim. On top, we only keep currently the logistics hubs in Bremen and Halle. We're 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 interest of the 47 employees in total, we laid off who have in total who are affected have been developed. We expect to realize synergies from these measures starting next year, getting us one step closer integration success. The MET PAX team, which is now fully onboarded after the earnout settlement we achieved by the end of last year, achieved great results in the first half of twenty twenty. 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 twenty twenty, Medpac achieved a growth rate of 38% versus last year, while increasing gross margin to an impressive 28.7%, close to 3 percentage points higher than last year and margins and EBITDA margin under our roof, highlighting the potential of our business.
The realization of synergies across the segment 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 and A session.
Thank you, Horace. The latest acquisition strengthened the market position of the ROCE Group. And taking into account these revenues of Aprophase Daily face, daily clinic and also mid packs, management expect growth of more than 10% for the full year 2020. And before expenses for 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 $0.30 The medium term EBITDA target margin adjusted for both initiatives is around $0.06 The implementation of the health care 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 bunker start just passed the law in July, we need some time to be able to quantify the impact on this Rx online penetration going forward. Our actual medium term sales outlook includes RxOnline penetration of only 5 percent. With that, I would like to conclude the presentation and open the Q and A
session. The first question is from Gerhard Ogunes of Berenberg. Your line is now open.
Yes, good afternoon. I had 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 EUR 6,000,000? What kind of investments this relates to? And second part to this question is, do you expect further M and A and integration and growth costs in the second half of this year and 2021 as well?
Yes. To start with investment in growth initiatives, we have our marketplace business in Spain and France, where we go with this 90% in the first half twenty twenty. And this €6,000,000 is related to this business to grow this and to increase growth in these European countries outside Germany. Integration costs, I think your question is more related to the second half of this year. There, we just communicated the integration of with Tarzana and also integration of some service departments of other companies.
This costs on this regard is estimated in a lower single digit €1,000,000 amount for the second half of this year. In terms of integration, then your question was also about growth cost in the second half of this year. This depends on the implementation of the electronics prescription and marketing campaign we want to launch after we established our e commerce marketplace at in the Q4. And we start with this one early next year.
So marketing expenses related to ERX, if you make a big push there, that would be growth cost for you, investment into growth initiative?
Into the electronic prescription, yes, that would be on this side. Yes. Okay. And your question was also about the M and A impact in the second half. You mean already higher than closed acquisitions of Apertar and Telekrenic.
That's right, yes. And because these were in July August, is this already mainly in the H1 M and A cost of SEK 10,900,000? Or is there more coming?
There is more to come because the closing was in from teleclinic end of July and for Aperdal mid of August. And these closing costs are not included in the first half of this year. Okay.
And it's a share based retention package. This is for the founders of the Apocal and Teleklinic basically
or? No, that was the result in the first half of this year. So these retention packages are for netbacks and promo pharma.
All right. Okay. And then maybe just a second question on different topic. In teleclinic, how many consultations do they carry currently?
Mashel, do you want to say something? Or shall I give an answer?
Yes, if you can.
Well, I think we do not really want to give too many details on the Telekines. The one thing we can say, there's a strong growth. And this strong growth also continues after the COVID-nineteen. So the acceptance, like I mentioned earlier, we can see that in the numbers. And right now, it's about bringing more and more doctors online.
So we see a huge demand and ongoing demand on this business. Okay.
Thank you.
The next question is from Olivier Kasey of Kepler
Cheuvreux. I have a few, maybe 1 by 1. 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 the whether you were able to ship Doc Moist orders from other warehouses than Harlan as well?
Or yes, that would be the first question, please.
Ola, would you provide an answer?
Yes. I will try to give an answer to this. So as we pointed out, we are growing on not on all of the brands, but on some we are growing very successfully. So Metax has clearly outgrown our competitor. And so we are focusing our marketing growth budget currently on Doctor.
Morris, and on MedPEx. And in both cases, we don't do not have, let's say, generated by Metax from the Metax side and the orders generated by Doc Moroz from the Doc Moroz side. It's more about how much do we want to put into growth and again, profitable growth. So our focus has not been very high growth but also a combination of growth and gross margins, and we saw a great improvement on the gross margin side. So it's a combination from both things.
Okay. Thanks very much. Then 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?
Yes. 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 lift 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, yes?
And then on the Rx, we have to find
But 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?
Well, I think I mean this is not the idea. The idea is to provide an overall service to an overall service to our partners. And this is a service. This is not we don't want to measure this service on an Rx script because first of all, that's not allowed from a legal perspective. And secondly, that's not the right thing to do.
It's in this partnership, it's going it's about win situations. And I mean, for example, I mean, the 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 that, those 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. And 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. And of course, I mean, based on that win win situation, there has to be some kind of, let's say, split of the profits generated by this one. But it's clearly not for an Rx script.
Okay. Thanks a lot. And then 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 you well, we don't have any history for 2019, but past history in terms of EBITDA or
Yes. The Swiss business is still profitable, and we do not disclose the EBITDA level on the segment. But the assumption that we can improve the EVK margin in the Swiss business is strong.
Okay. And finally, just on coming back on the TeleClinic acquisition. I'm just wondering, I mean, there's obviously this about 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. Is this do you view any risk at all that your initiative to, well, I don't know, market your Doc Morris brand on the app or this kind of thing could go against the German regulation on forwarding prescriptions Or
Well, I think the idea is to build, let's say, a one stop platform in terms of health care. And 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. And of course, on the flip side, I mean, we will we have to follow all of the German regulation, and it has been clearly laid out in the latest laws.
So there will always be the choice of the customer. So the customer will always have the choice, say, I want my script being forwarded to a Doctor. Morris Pharmacy, to one of our partner pharmacies, or I just want to receive it in a different app. So that means, it 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 and 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 and thanks for taking my questions. I have two questions. Maybe on the can you help me a bit here on the MetPAX growth you said is 36%. Is this now are you here now just talking about the growth in the OTC business of MetPAX?
Or how did you calculate that? Because I mean, 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. And hence so maybe you can shed some light on this, please. And 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 schematic solution.
Can you explain this again? Because is this like a technical issue here you're talking about? Or why is it the 50% of pharmacies that have already the ability to connect? And then on this one as well, you mentioned briefly that Bama is also joining the this pilot now. Did I understand that correctly?
So it's not only Technikankenkaster, but it's also Bauma. And you also, I think, mentioned another kankenkasten, so another health insurance joining the platform. Can you maybe give an update there? Thanks.
Maybe I can
start with the MetFEX growth. This is part of the sales of MetFEX in the reported numbers, such as services or part of product delivery. And so you cannot just take the difference between these two numbers. And this 36% is on a sales towards customer basis. And with MedPEx, it's purely OTC business.
So then I will try to answer the question number 2 and number 3. Yes, what is meant by the 50% capability? So within the project of TK, which is a Technikak, the largest German payer. And they are driving this Efkut project in Germany as the most relevant one. And the one of our I mean, we are providing the ERX technology within this project.
And that means we are connecting on doctors and pharmacies via an e script server. And pharmacies, the way we connect the pharmacies is we use their operating system, yes? So that means our solution and the Ehealth Tech solution is deeply integrated into the it's like a socket, yes? A socket. It's deeply integrated into the operating systems of the pharmacies.
And so far, and this is all information you can also get from the technical press release. So 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. 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.
And then the payers, you asked about that one. So that was the project is led by Technica. And then, of course, right now, it's gaining momentum. And other payers are joining this one. And you just mentioned a couple of names, and that is correct.
They are joining that initiative of Technica right now, capturing up 35% of the entire German market. So it's gaining momentum and it's getting bigger and bigger.
So who is this then besides Technica? It's Bauma, obviously. And did you mention another name or
Yes. It's DAK as well.
Okay. Thanks a lot.
The next
say this level is sustainable? My second one would be on your sustainable strategic advantage derived from your pre start transforming your OTC customer base earlier and probably have a centric marketing approach. But could you give us more the transition to Doc Morris in terms of giving the permission? The transition to Doc Morris in terms of giving the permission? And my last one would be on your midterm guidance.
My understanding is that you baked in 5 percent ERX penetration in your guidance with the PDSG law now in place and Telemedicine providing further upside. Do you believe your midterm guidance of SEK 3,000,000,000 might be slightly outdated? Thank you.
Thank you. Maybe I can start with the gross margin. That's because we are growing on the high margin business B2C, and that's OTC in Germany as well as prescription drugs in Germany or also the marketplace in Europe have higher margins. So we expect also to increase the gross margin on group level over the next time. And so yes, it's going into the future.
Yes. So then I will try to answer the question 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 market phase. And yes, and I mean, as I pointed out earlier, I mean, we have such a huge amount of active customers.
So they reflect average population in Germany, meaning 20% to 25 percent of those are chronic. And once we have our preheumatic phase set up and we have medartic doctors issuing script. And of course, we will promote this service within all of our customer population. And 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 Xero. So that means we can offer to them an additional service and right from the beginning, the right service, meaning an e script and not a paper script.
And by doing so, we think we can convert already in the premium market phase a lot of those customers. Again, it comes down to what I explained earlier. If it's a 2 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 pregimatic phase because again, no Rx share with those customers right now and 25% of those are chronic. And the third question was on transferring customers into the DogMOS brand.
So we will finalize the brand strategy by the end of this year. And of course, then there will be a transitional phase. So 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. So an example could be, you have, let's say, Upper Road, it's a brand of Doc Mois or whatever the brand strategy is going to look like. So there are ways to convert customers in the, let's say, in the order process via opt ins so that you don't have a hard cut out there.
And we have some experience from the past on that one. So we feel pretty comfortable that there is not that we are not going to lose a lot of customers by transferring into a 1 brand strategy.
Then the last part of your question about the midterm guidance. Of course, the latest developments have strengthened our position. And this mandatory e script from 2022 increases the possibility to increase online penetration. And as I mentioned, our assumption is 5% in this more than €3,000,000,000 sales target. And if you compare to Sweden with 10% within 5 years or if you compare to the OTC market in Germany, where 20% on line penetration is already the case, then of course, the downside potential here is given.
We just need more time quantify this in an absolute number with our financial targets. So we decided to keep this more than SEK 3,000,000,000 which also opens the number to more than SEK 3,000,000,000 or to more than 5% online penetration.
Okay. Thank you very much. One follow-up,
if I
may, regarding the full reimbursement with the 1 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.
That's a very good question. And just to clarify, I mean, there's 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.
So it comes really down to what is how relevant is this for the different stakeholders. Again, these Epsilon, I explained earlier, I mean, they so far agreed on we will only start reimbursement scheme with once the Gamartig is in place. But on the other hand, again, we have this law clearly stating that it should have happened already this year, April. And you cannot really give, let's say, you cannot really give a very good answer to this one right now. But I mean, we feel comfortable that based on the overall development and the market digital solutions are being pushed forward.
COVID-nineteen is coming back that we see there's a good opportunity to get this general reimbursement scheme. And as a fallback option, we should not forget this as a fallback option, we have the, what I call, the 2 step registration process or the 140 contracts. I mean, this is reality. It can be done. So there will be e scripts already in 2020.
So that is a given. The only question is to which extent, and that is something that we cannot answer to 100% right now.
Okay. Thank you very much.
The next question is from Adhira Raul of Barclays. Your line is now open. Good afternoon. Thank you for taking my question. I've got 2.
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. So are you able to tell us how much OTC revenues grew in Germany, excluding Medex? And second, looking at the marketplace app on the OTC side, how will you control pricing on the app, if at all? And more broadly, will there be a conflict of interest between your first party ecommerce and local pharmacies in the app?
And if so, how will you manage that?
Marcel, do you want to answer the first question?
Can you start with the second one and then I'll come up with
Yes, yes. Okay. So then I will try to give answer to the second question first. Yes, on the marketplace, we of course, we also intend to sell OTC because the idea is a full so one click experience. And in the marketplace, there will be different pricing on OTC.
That means all of the listed pharmacies, online pharmacies pharmacies and also brick and mortar pharmacies can offer a different OTC price, and they will offer a different OTC price, yes. Probably, but this is just guessing, I think, I mean, 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, a brick and mortar pharmacy. They can also compete on OTC if they want to. And of course, there's a contract on OTC.
As I explained earlier, on the OTC, it's more like a market standard kind of contract, meaning we will get some commission for the OTC, which we sell on our marketplace and actually which sellers sell on our marketplace, so a standard kind of commission.
So then on the COVID-nineteen in Germany, development was really impacted by COVID-nineteen with a very strong increase in March with the starting of the crisis with the stock billing from the customers and also a the customers with their stock at home first used this product. And so that the Q2 was clearly weak. But now we see that it's coming back to normal. And this is we see from the Q3 ongoing we go just like before, corona on a slightly higher level because of the higher demand of online business.
Maybe in addition to that, I mean, we have switched also the go to market strategy in Germany based on the MET PAX experience more into a combination of growth and gross margin. So we're increasing gross margin on OTC and still maintaining a good growth level on OTC. And then you pointed this out, the real focus going forward is the e script and not the paper script. So that's why we are focusing a lot of activities on making ERX happen.
And the last question is from Nadezhda Srinivas of Financial Press Agency AWP. Your line is now open.
Hi, thank you for accepting my question. I had a question about well, I just wanted to know how you could explain the net loss in the 1st semester because it was a bit unexpected, at least if we believe in the expectations that were published before. How can you explain it? And how do you consider managing in the future for the rest of 2020 and next year? That will 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. And the loss is also because we have all the acquired businesses and not realized all the synergies which come out of integration. But together with our announcement today, we also announced further steps of integration and integrating service functions and reducing number of locations. And so 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. Regarding the are you at all concerned by a second wave of COVID? Can it impact your business in a positive or a negative
impact. So I mean the negative would be if physicians would close down in their practices again, like in the 1st period of COVID-nineteen. And so we're going to see such a scenario for the second half. But we clearly see an increase of the virus situation And therefore, we have increased change of online behavior or those behavior 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-nineteen is again increasing. But on the other hand side, we do not see the risk that physicians will have a physicians will have a shutdown again like in the 1st period.
All right. Thank you very much.
And this effect.
Okay. So as time is advancing, we close the Q and 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. And yes, we'll see you next time. Thank you very much.