Ladies and gentlemen, I cordially welcome you to the presentation of the Half-year results 2023. Exactly five months ago, at the Annual media conference, I summarized the 2022 results with this picture. A picture with the message: we continue our path and are far away from having reached our destination. Of course, the path only goes in one direction, upwards. As a follow-up, and to illustrate the Half-year results 2023, I have chosen the following image. The message, we continue our path and are far away from having reached our destination, remains unchanged. In the first half of 2023, however, we had to accept a short descent. A descent, a decline in results, which is due to one-off special factors. However, we are convinced that after this small step backwards, our path will continue to go in only one direction, upwards.
Before I present the results in detail, Marc will now share with you the highlights and strategic progress we have made in the first half of the year. At the end of our presentations, you will have the opportunity to ask your questions. With that, I would like to hand over to our CEO, Marc Werner.
Thank you, Felix. Dear ladies and gentlemen, also from my side, I would like to welcome you to our half-year call. We already communicated in advance some information on the 2023 half-year results at the end of July. Galenica posted strong sales growth in the first half of the year. A plus of 5.5% is really remarkable in the current market environment. This puts us at the upper end of our guidance of 3-6%, and we are sticking to this statement. I would say the Galenica engine continues to rotate at a high speed. That is, of course, very pleasing and makes us proud. Unfortunately, and we already communicated this in July, special factors are affecting our results, so we had to adjust our EBIT outlook for the year downwards.
Yes, that hurts, and yes, we are taking it very seriously, and yes, you can be assured that we will review the situation carefully in detail, and are taking the necessary measures and consequences from it. Nevertheless, the negative impact of the special factors in the first half of the year should not hide the fact that we have made good progress and achieved sustainable growth. Excluding the impact of special factors, our adjusted, adjusted EBIT would have increased by 5.2%, means fully in line with our previous guidance. With the new joint venture with Redcare Pharmacy, as the former Shop Apotheke Europe is now called, we have reached a strategic milestone. Following approval by the competition authorities in May, we were able to finalize the transaction.
This complements and refines our distribution network, or in other words, in addition to our physical pharmacies and our web shops, we are specializing even more for a very specific target group that we were not able to address so specifically with our usual channels. Means all those who only want to order online. We are doing this together with a strong partner who is an international leader in the pure online business, a great step forward in our omni-channel strategy. Of course, we also continue to work on the already existing distribution channels. The optimization of our pharmacy network also includes efficiency improvements. For example, we have decided to rebrand the few 10 Sun Store pharmacies in German-speaking Switzerland into Amavita pharmacies. Nine of these are already operating under the new name and with an adapted store layout.
In addition, we have further optimized our pharmacy network also with new locations. Demand for consultations and services in pharmacies rose again in the first half year of 2023. More than 70,000 patients, or an increase of 34%, strengthen our conviction that the role of the physical pharmacy in health consultation will become more and more important in the future. Additionally, more and more health insurers are offering their customers supplementary insurance models and remunerating the qualified services of the pharmacy. Accordingly, we are also working intensively on our projects on how we can implement consultation in a professional and patient-oriented manner in the pharmacy. The first pilot will be launched this fall at the Amavita in Zollikofen under the name Consultation Plus.
You, dear viewers and listeners here in the confrence call, you will also be able to test the consultation concepts in the Bahnhof-Apotheke in Zurich, which will be reopened at the beginning of November, after finalization of the major reconstructions. While we are on the subject of pharmacies, according to a study by addito, published at the end of last year, the top five ranking of missing specialists is topped by healthcare professions, followed by developers and analysts of software and IT applications. If you want to compete in the war of talent in healthcare, you have to invest in people, in the working environment, in working conditions, and last but not least, also in salaries. This is not a Galenica wisdom, it concerns all of us, including you, not only as an investor, but also as a customer or a patient.
For example, if you want to continue to promote the pharmacy as the first point of contact for health issues, if you want to further develop our ideas for consultation and healthcare services, then we also need employees who can and want to do this. Expanding the scope of duties and competences, giving them more responsibility. On the one hand, this means that the content of work in the pharmacy will become much more varied, diverse, and interesting, and this will also make Galenica more attractive as an employer. However, it also means that we will compensate for the additional work and larger responsibility. Salary measures, training and further education, and so on. We see all of this as an investment in our employees, and by that, an investment in our future.
Not only in the pharmacies, but also in other business areas where we want to grow and where we also need more people from different professional groups for development, setup, and operations. In early 2020, we formed a skills shortage task force with a focus on pharmacies. This task force was in place for four months and explored into various topics such as recruitment, assignment planning, or compensation, and proposed measures to address them. As a result, we invested a total of around CHF 15 million in salary adjustments for lower salaries in 2023, including CHF 9 million for pharmacy employees. However, the task force also provided us with many more far-reaching insights, and this has led to further ideas and measures. Today, we can measure the first successes of all these initiatives.
For example, we have been able to reduce staff shortage in the meantime, and I personally receive a lot of blind applications because people are interested in Galenica and want to work with us. That's a great signal. People want to join us. We are an attractive employer. Let's continue with our customers. The range of our own products is also becoming steadily more attractive. Here, too, we are investing in a targeted manner in new growth markets. Just last fall, we took over the distribution of Boiron products in Switzerland, the world's leading manufacturer and distributor of homeopathic medicines. This was shortly followed by the acquisition of Bahnhof-Apotheke Langnau, and with that, the acquisition of Cannaplant, the leading provider of formulations for medicinal cannabis preparations. This January, we integrated Padma into our Galenica network.
Padma specializes in the production and distribution of herbal formulations from Tibetan medicine. This allows us to offer even more variety in complementary medicine products, and at the same time, we have increased our portfolio of free reimbursed medicines. A few weeks ago, we had an extraordinary guest visiting us, His Holiness Penpa Tsering , the number three in succession of Tibetan Lamas, which is headed by the Dalai Lama. A great honor and a privilege for the company, and also great honor for the work done there, namely, to combine the tradition of Tibetan medicine with modern elements. Thanks to the various acquisitions in the past and the impressive growth of its own products, Verfora has developed great over the past years, and is today by far the market leader in the Swiss OTC market, with a market share of over 10% for the first time.
A really great achievement by the entire Verfora team and the entire Galenica Group, which has contributed to this impressive success story. Let's take now a leap to the wholesale business. The logistics and IT segment grew strongly in terms of sales in the first half of the year and in line with the market. We even gained market share with pharmacies. As I already mentioned, we unfortunately had to make extraordinary allowance to customer receivables, especially in the wholesale business with doctors. As part of our growth strategy for physicians, we have supported the establishment and further development of various medical centers in recent years. In this way, we are making an active contribution to ensuring basic medical care in Switzerland. Access to general medicine is becoming increasingly difficult, especially in rural areas. More and more medical practices are closing because they cannot find a successor.
Recently, Philippe Luchsinger the president of the Association of Family Doctors and Pediatricians, described the situation impressively in the media. He warns that already in the next two to three years, there will no longer be enough doctors available to care for the population. In the future, this leads to a waiting time of several months for an appointment with a family doctor or a clarification with a specialist. On this map, you can see in yellow and red those regions that are undersupplied or even severely undersupplied. Severely undersupplied means that there are fewer than 0.7 physicians per 1,000 inhabitants. This is in comparison to the light blue and blue-colored regions, which are well- to oversupplied, with just under 1 to >1 physician per 1,000 inhabitants. The structural change among physicians will continue.
Individual practices will close, and at the same time, there is a trend toward group practices, medical centers, and chains. We are continuing our strategy. We want to grow further in the physician market and will continue to support promising projects in the area of medical centers and make our contribution to basic medical care. However, we will also act more cautiously and risk-consciously, and focus very deliberately on high quality and sustainable growth. With these words, I will conclude my remarks and now hand over to our CFO, Felix. Floor is yours.
We are proud to announce the successful completion of the strategic partnership and joint venture with Redcare Pharmacy. Thanks to this transaction, we realized a high extraordinary profit of CHF 112.8 million. Most of this, CHF 86.5 million, resulted from a technical accounting effect, in particular from the revaluation of the Mediservice joint venture. The remaining CHF 26.3 million is the part of the increase in value of our 8% stake in Redcare Pharmacy, which was realized until the completion of the transaction on 16 May. By the end of June, the total increase in value amounted to CHF 35.8 million, calculated with the share price of EUR 94.8 at the closing date. Yesterday, the Redcare Pharmacy share was already trading at a price of EUR 111.
The total increase in value therefore rose to CHF 60 million. The future change in value of this strategic investment will not be recognized in the profit and loss statement, but directly in equity. Due to the transaction with Redcare Pharmacy, we have restated the figures for the comparative period of the previous year. Mediservice was deconsolidated, and net profit is presented as profit from discontinued operations below EBIT. For the group and the products and care segment, we will compare all figures with these restated prior year figures. Before I present Galenica's result, let's take a brief look at the market development. The entire pharmaceutical market, meaning the market with Swissmedic registered medicines from the lists A, B, and D, developed very strongly, with a plus of 6%.
A look at the volume growth of only 2.3% shows that the growth was once again realized, in particular with high-priced medicines. The strongest growth was achieved by the doctor's channel, with a plus of 8.1%. The local pharmacist channel also grew strongly with 6.4%. The trend towards high-priced medicines is best visible in the mail-order pharmacies. The growth in value of 3.7% was achieved with a decline in volume of 6.8%. In contrast to the medicines market, the non-medicines assortments in pharmacies and drugstores declined. This slide shows the development of the Swiss consumer healthcare market. This corresponds to the average assortment of Swiss pharmacies without prescription medicines. Thanks to a growth of 5.2% of OTC medicines, the overall market grew by 3.3%.
These market figures do not include the COVID-19 self-tests, which were still sold in large numbers in the first half of 2022. How did our business perform in this market environment? With a growth of 5.5% in consolidated sales, very good. Adjusted for the extraordinary sales related to COVID-19, growth of 6.6% even exceeded the growth of the entire pharmaceutical market of 6%. The products and care segment grew by 4.2% or 5.7%, adjusted for COVID-19 sales. With growth of 5.8%, adjusted for COVID-19 self-test sales at 6.8%, the logistics and IT segment developed quite dynamically. Accordingly, the wholesale business grew strongly by 5.6%. In the wholesale business with pharmacies, by far the largest customer segment, new customers and thus market shares were gained.
The growth of 7.9%, adjusted for COVID-19 self-tests, was clearly above the pharmaceutical market growth of 6.4% in the local pharmacies channel. Pleasing growth of 4.8% was also achieved with physicians. This was below the market growth of 8.1% in the doctors channel. Some doctor customers are struggling with financial problems, which is why we had to book allowances on the receivables. Mark has shown you that we want to continue to grow in the doctor segment, which is undergoing fundamental transformation. Based on this experience, we want to consciously take fewer risks, which may have a dampening effect on sales growth. The retail business area continued to grow solidly at 2.1%.
Particularly pleasing was the growth of 4.6% in the pharmacies at home sector, thanks to a strong development of Bichsel Homecare in the area of clinical nutrition at home. Due to the deconsolidation of Mediservice, the share of pharmacies at home in total retail sales decreased from 29% at the end of 2022 to 6% in the first half of 2023. With 3 acquisitions, 1 new opening, and three restructurings, we have further expanded and at the same time optimized our network of local pharmacies. The net expansion contributed 0.4% to the sales growth of local pharmacies. Adjusted for the extraordinary sales related to COVID-19, local pharmacy sales grew 3.7%. On the one hand, this growth is above the growth of the consumer healthcare market of 3.3%.
On the other hand, the pharmaceutical market in the local pharmacy channel grew stronger at 6.4%. In these market comparisons, it must be taken into account that at Amavita and Sun Store, we have an above-average share of sales with non-medication products, which were stagnating or declining in the market in the first half of the year. In addition, for efficiency reasons, high-priced medicines, which have driven market growth, are mainly not dispensed in our pharmacies, but through Mediservice. Overall, we estimate that we have developed more or less in line with the market in local pharmacies. With 19.8%, we again grew very strongly in the products and brand sector. On the one hand, thanks to the successful further expansion of the product portfolio with Boiron and Padma. Furthermore, organic growth is also very pleasing.
In exports, with an organic growth of high 40%, Perskindol and Anti-Brumm grew strongly. This exceptional growth is the result, on the one hand, of distributors building up their stocks, and on the other hand, of a catch-up effect after a corona-related decline. In the Swiss market, we grew organically by 6%. Part of the growth is due to a stock build-up at retailers and wholesalers. Beyond that, with 3.6%, the market sales growth of our products in pharmacies and drug stores is above the consumer healthcare market growth of 3.3%. The market share of our products in the Swiss consumer healthcare market increased from 9.8% at the end of 2022 to 10.2%. Let us now move from sales to the operating result.
Due to one-off special factors of CHF 9.8 million, the adjusted EBIT decreased by 5.1% to CHF 90.2 million. Firstly, HCI Solutions had to recognize an extraordinary expense of CHF 3.8 million for a ruling issued by the Swiss Competition Commission in 2017. This, although the case is still pending, and we are confident that we will win in the Federal Supreme Court. In addition, there were extraordinary allowances on customer receivables in the amount of CHF 6 million in the first half of the year. Adjusted for these one-off special factors, the adjusted EBIT would have increased by 5.2% to CHF 100 million. The logistics and IT segment in particular, would have performed very well without these special factors, with EBIT growth of 13.4% and an increase in the EBIT margin to 1.9%.
With EBIT growth of 3.2%, the products and care segment showed a slight decline in the EBIT margin from 9.2% to 9.1%. The reason for this development are higher costs, especially personal costs, with an increase of 10.5%. Mark elaborated in detail about our initial successes in the combat against the shortage of skilled staff. These successes have their price. Of the additional CHF 17 million in personal costs, compared to the previous first half year, about CHF 10 million come from local pharmacies. About half of this is due to wage increases, and the other half to staff expansion. The remaining CHF 7 million in additional personal costs relates to wage increases, and in particular, to expansion through new business activities such as Padma, Boiron, and Medinform.
We continue with our activities in the war for talents, we assume that we will be able to compensate for possible additional costs from personal expansion with a reduction in third-party costs for temporary staff. As already mentioned, we succeeded in improving the EBIT margin in the logistics and IT segment to 1.9%, adjusted for the special factors. The additional personnel and other costs mainly come from the strategic digitalization project and higher general IT costs. The strategic digitalization projects are also reflected in higher investments in intangible assets. In terms of total investments, we expect a comparable volume in the second half of the year as in the first, so that investments at the end of the year are expected to be roughly at the level of the previous year.
Several developments, which I would like to explain in more detail, leads to a lower Free Cash Flow than in the comparative period of the previous year, at -CHF 81.7 million. In addition to the lower result, due to the special factors, the operating cash flow before net working capital changes is burdened by higher payments of tax liabilities in the first half of 2023. Of the important increase in net working capital of CHF 109.4 million, around CHF 40 million is due to a normal seasonal increase in accounts receivable. This effect will be offset by the end of the year. Around CHF 30 million were invested in building up the inventory. This has improved the ability of our pharmacies, wholesalers, and Verfora to supply our customers.
Particularly with the Safety Stock initiative, together with Sandoz, investments were also made in the security of supply of medicines in Switzerland. The remaining approximately CHF 40 million increase in net working capital is mainly due to temporarily lower accounts payable. With a stronger focus on the payment terms, we also want to compensate for this cash outflow as far as possible in the second half of the year. Together with the seasonal effect on accounts receivable, it should therefore be possible to reduce the cash outflow from the increase in net working capital from CHF 109 million to at least below CHF 50 million at the end of the year. Of the CHF 30.5 million investments in participations, CHF 28.5 million relate to the acquisition of the additional 2% stake in Redcare Pharmacy as part of the completion of the strategic partnership.
The positive cash flow from financial assets of CHF 29.3 million comes from a repayment of loans from associated companies, Copitality and Mediservice. CHF 28.3 million was invested in M&A with the acquisition of three pharmacies and Padma. Despite the negative free cash flow, our balance sheet remains strong. Equity increased significantly to CHF 1.3 billion, thanks in particular to the completion of the strategic partnership with Redcare Pharmacy. Compared to the same period last year, leverage increased from 1.6 to 2.1. The temporarily higher net debt of CHF 500 million and the EBITDA, burdened with one-off special factors, leads to this increase in leverage. Before I conclude with the outlook, a short update on the developments in the regulatory environment. Short, because we have no real news to present. We expect that the most important regulatory initiatives continue to be delayed.
We are still waiting for a decision on the adjusted distribution margin. We do not consider a possible implementation to be realistic before mid-2024, at earliest. The draft law on mail-order sales of OTC medication, which was promised for mid-2023, has not yet been published. We expect a possible introduction of a new law in 2027, at the earliest. As already announced at the end of July, we have lowered the EBIT outlook for 2023 to be roughly at prior year level, due to the one-off special factors. Without the CHF 9.8 million extraordinary expenses, we would have confirmed our EBIT guidance with a growth between 4% and 7%. We leave the outlook for consolidated sales unchanged at +3% to +6%. We also confirm the outlook for the dividend, at least at previous year's level.
After our short descent in the first half of 2023, we continue unchanged and steadily on our way uphill. Thank you for your attention and your continued trust in Galenica. Now we are happy to answer your questions.
We will now open the Q&A. Please raise the hand if you want to ask a questions, I will afterwards open the line for you. First question is from Christoph Käditler, Credit Suisse.
Hello, Marc, Felix. Thanks for taking the question. First of all, you know, just wanted to ask, you know, we have, you know, this strong growth, you know, for GLP drugs, you know, kind of does this now have any impact on your business, you know? You know, was that, you know, visible in your wholesale business in particular, and how you're coping with that at all, you know? That would be my first question.
Hello, Chris, thank you for this question. Could you explain us, what do you mean with GLP drugs?
This, you know, Ozempic, you know, in particular, Trulicity, you know, this, kind of, you know, diabetes, you know, slash, you know, obesity drugs, you know, where obviously, kind of, you know, there is a strong demand, you know, out, there.
For chronic diseases.
Mm-hmm. Mm-hmm.
It's a, it's a big topic, you know, for example, in the U.S., you know, distributor-
Yes
... companies, for example.
To be very honest, this was not an.
Yes
... special impact or a special issue. We were even not aware in, in our business, so we believe it really didn't affect our business.
Okay.
As far as we know, so-
We can check it. Yeah.
I guess, you know, kind of it would have come to your attention, you know, otherwise.
Yeah.
Yeah, no.
Okay. Maybe just to come back on the personnel expenses, you know. Essentially for the second half, you know, we should assume, you know, kind of this level going forward, you know? Is this, you know, a good guide, you know, or is there any kind of incremental investment, you know, that you expect to come, you know, as mentioned by Marc?
It's clear, as Marc mentioned, as I explained, we have an increase, we had an increase in the first half with personal expansion, so staff expansion and salary increase. It's clear, in the second half, we will again see the salary increase compared to the second half of 2022. What we plan is to compensate for possible further staff expansion with a reduction of third-party staff costs. That's, that's the plan for the second half.
Okay, that would basically be, you know, that, you know, lowering your other operating expenses, and so on.
No, these, these third-party personal costs are also integrated in the staff costs, in the personal costs.
Ah, okay.
It's in this plus 10%, that's including the, the, the cost for temporary staff.
Okay. Got that. Thanks. Then, you know, just basically on your top-line growth guidance for this year, the 3%-6%, and you're running at 5.5%, and it doesn't look like, you know, there is not that much, you know, change in dynamic. You know, kind of what basically would, you know, kind of lead to you getting towards the lower end of that range? Because that would essentially, you know, require no growth, you know, pretty much, you know, for the second half.
Perhaps, two remarks from my side. You have to take into account that last year, December was extraordinarily strong months with an early and strong flu season. That's, that's one element, we expect for the second half, let's say, a normal, a normal December. That's the first point. The second one I mentioned in, in in, in products and brands, with this 19.8%, the strong growth in the first half, there we had included some stock build up at our customer, there we can't expect, let's say, the same extraordinary high growth in, in the second half. Overall, it's clear we assume that we can continue our positive growth and, and dynamic in the second half, we are confident that we will reach our guidance.
Yeah. Okay. I guess, you know, it's not the biggest business sales-wise, products and brands, you know, but.
No.
It's more important for EBIT margin than for sales. You are right.
Yes, I, I got the message. Thanks, you know, I, you know, just come back, you know, later on, also leave the floor for my colleagues. Thanks.
Thank you.
Thank you.
Next question from Gianmarco Vero at ZKB.
Yeah, hello, Gianmarco Vero, Kantonal bank. Three questions from my side, three questions from my side, sorry. First, also on personal costs. In the beginning of this year, you just guided for an increase of around CHF 15 million or around 3% increase year-over-year. I just want to get a bit more detail here. I mean, you, you explained already wage inflation, staff extension, wasn't that already visible by the beginning of the year? That's just the first part of this personal cost question. The other thing is, what do we need to expect for 2024? Do you think that wage inflation will also continue to increase, as especially the services in your pharmacies are increasing significantly?
I expect that there might be some trend of ongoing wage costs for you. Second question is also about the write-offs for the medical centers that you just announced recently, those CHF 6 million. Maybe can you give a bit more detail about the potential risk of further write-downs? Do you see some of your partner medical centers also facing potentially economic challenges? Just the last question is on your acquired Bahnhof-Apotheke Langnau and Cannaplant. I think the purchase price is quite a sturdy one, I would put it like this. Can you give us more detail about how excited you are about this acquisition, and also the potential you see about potential rollout of products in Switzerland?
Therefore, also a bit of synergies behind this big add-on for your company from a financial perspective. Thank you.
Thank you, Gianmarco. I start with answering the questions, Marc. Then compliment or correct me.
Of course.
I start with the staff costs. We announced already in late 2022 that we will increase salaries all over the group by around 3%, which represented for the whole group, CHF 15 million for the whole year. That was not at all a surprise, and we are fully on track with these salary increases. I mentioned this, the impact of these salary increases for the first half in the pharmacies, in the local pharmacies area with CHF 5 million. Mark mentioned, of the CHF 15 million salary increase for the whole group, about CHF 9 million was planned for the pharmacy segment, and let's say the CHF 5 million I mentioned was the impact for the first half. We can expect for the second half, another CHF 4 million-CHF 5 million impact of salary increases.
That's there we are in line with what we announced last year, and there we are on track in plan. What will happen in 2024? It's too early to answer your question. As Marc answered, it's clear that we continue to really take measures to remain and become even more an attractive employer. It's also clear that we will have a salary policy which corresponds, let's say, to this ambition, it's too early to give you an indication or a number. You ask for further potential risks regarding the disallowance we booked on the accounts receivables, mainly in the doctor segment.
We really looked carefully in all our larger receivables, and we believe that we don't have material further risks. You never know what happens in the future, but we believe that this CHF 6 million, let's say, provision on accounts receivable should be enough. The last question, if you are happy with the acquisition of the Bahnhof-Apotheke Langnau of Cannaplant, we are very happy. It was a very interesting acquisition, and integration so far passed very well, and we see important growth potential for the future in this interesting niche of medical Cannaplant. On top of that, we have interesting margins in this business.
Maybe just in addition to this point, one of the synergies you ask, Gianmarco, of course, the, the sales organization for physicians, when we acquire, and I guess it was two years ago, vitamin D, D3 from Dr. Wild, then we have started a sales organization for physicians. That means it's just about 18 months ago that we have started this organization, and we are building up this organization, a sales organization for physicians, and especially the, the, the cannabis business, because it's a prescription ordering business, for, for physicians to start for the business always with a physician. We have to, we have to, to increase, we have to professionalize the, the sales organization of our physicians, and that's, of course, one of the synergies we will see in the future in this business.
Okay, thank you.
Thank you, Gianmarco.
Next question from Jan Koch, Deutsche Bank. Jan, I guess you still are on mute.
Sorry. Can you hear me now?
Yes.
Great. Hi, Marc. Hi, Felix. Thanks a lot for taking my questions. I also have three, if I may. You mentioned in your prepared remarks that you don't expect an approval for OTC products in the online channel before 2027. Why has this been delayed, and does it have any implications on your strategy going forward? Secondly, on your primary care offering, great to see that you that more customers are taking advantage of your offering. Have you been able to convince more insurances to cover the costs? Finally, on your products and brands business, given that your international business is gaining further importance, could you elaborate on the margin profile of this business? Does it differ from the Swiss market, or do you have the same prices?
Maybe the first one, OTC online business, why it is delayed? Well, in fact, we would have asked the authorities and not myself. They, they promised that they're gonna launch the discussion in the parliament in summer 2023, a couple of months ago, or a couple of weeks ago, they announced that there will be a delay, and they're gonna start next year. If you know a little bit the processes, the political process in Switzerland, I guess they're not so different in other countries, then we know that it takes a couple of years till any new laws are implemented or whatever. That's why we assume that it will not be before 2027. The influence of our, of our business, honestly, is not huge. It's not so big because we are...
Of course, we are investing in digitalization of the customer experience, also for prescription drugs. The OTC, I would say, the OTC sales business is a small part of a digitalization business. That's why our investment goes further on. We have launched, a couple of months ago, the first experience for a customer with prescription drugs online, with e-prescription. All this business is going on. The OTC is just a part of this path. If it comes later, it comes later. It's not in our hands anyway.
Your second question was regarding the primary care offerings, if they are reimbursed, so or financed by the health insurers. First of all, in terms of regulation, we are convinced that somewhere in the future it will be clear that these services will be reimbursed by the mandatory health insurance. As for, as you see, for the OTC online distribution, this will take years. We are, we are prudent there. This will come after 2027. It requires a change in law, and this will take time. Somewhere in the future, we are convinced it will be normal that these costs are reimbursed.
Now, we nevertheless, even if it's not reimbursed by the mandatory health insurers, we work with insurances for alternative insurance models and for supplementary insurances, more and more, we find possibilities and agreements with insurance companies to integrate these attractive offering in their alternative or, and supplementary insurances. Your third question was regarding the margin profile of products and brands export.
Yeah.
In Switzerland, we sell our product with our own sales force, our own sales organization. In the export, we only work with local, strong local distribution partners outside Switzerland. It's clear they take a part of the margin, and that means on the export, we have a lower margin than in the Swiss market, in the products and brands business sector.
Makes sense. Thank you. One quick follow-up, if I may. Could you provide a sneak peek of your Investor Day in, in October? What can we expect here?
A little bit early. Early, it will be very interesting.
Very interesting.
It will be very interesting. An update on all the strategic progress and strategic initiatives. We will also give it is clear.
More, let's say, deep dive in our, in our exciting new strategic partnership and joint venture with Redcare Pharmacy. Perhaps, Marc, you have other ideas?
I guess it will be an interesting day. I hope you will be there.
Yes, sounds good. Thank you.
Okay.
Thank you, Jan.
Next question from Sebastian Vogel, UBS. Sebastian, you're still on mute.
Perfect. I hope you can hear me now?
Yes.
Great, thanks. My first question is on the pharmacy customers in the wholesale business, where you mentioned the decent growth that you have seen there. I was wondering how sustainable you see that going forward? I would ask my three questions one by one, if I may.
Well, there in, in the pharmacy wholesale business, we won the new customers, mainly in the western part of Switzerland, and we believe that we will do a good job and keep these customers. We believe that, yeah, we should continue to grow. We can't expect every half year or every year market share gains, it's clear. We don't see any reason that we, that we should lose market shares in the future.
Got it. The second question is on the net working capital side of things. You mentioned there are a lot of details. However, I assume overall, given particular focus on, on inventory, your net working capital sensitivity as % of sales will be a fair share higher by still by the end of 2023 compared to 2022. Is that fair to say?
Well, especially regarding the, the build-up of inventory, I don't believe that, that, that we can reduce this in short term, let's say. We really think that this should be now enough in terms of a increase, huh? We really work on optimizing these this new, let's say, level of of of inventory. There was a certain build-up to to really guarantee the supply, and this was important also for our businesses. It was important, let's say, for Switzerland, the the initiative we did with with Sandoz, but we think this level shouldn't further increase.
Got it. The third question is on, on the COVID initiatives in that regard, and to the reference you made there in your slide deck. Is it fair to assume that H1 was the last time where the comparable base is materially impacted? The second half will therefore have less of a COVID-related driven base in that regard, and therefore there will be less headwinds in that context.
Yes, it's clear the vast majority of last year's COVID-related sales was realized in the first half. In the first half 2023, this was more or less zero.
One follow-up to that, to the question, Does that mean sort of the, the less headwinds from, from the, from the COVID side is then sufficient to sort of offset the higher base from, from the flu season in the second half, if there's a sort of an ordinary or normal flu season as you have expected or as you're expecting?
As I mentioned, in the second half of 2022, our sales of COVID initiatives were already at a very, very very low level. There we really compare. The comparison, second half 2023 with second half 2022, is not materially impacted by COVID-19-related sales.
Got it. Many thanks.
Thank you.
Next question from Urs Kunz, Research Partners.
Yes, good afternoon. I have three questions. Maybe I also place them one by one. Maybe on local pharmacies, you had a organic growth of 1.5%, and you state that with all these special effects, in the end, you were in line with the market growth. Are you happy with this situation? Because I feel like your growth there is, is, is maybe not to a degree that the market growth is. You have also this high-frequency places where you should have some backwinds. You have the services that you sell in your local pharmacies that grow by 8%. Can you elaborate a little bit on that?
As I mentioned, the market comparison is quite difficult. I tried to explain it. We believe more or less we were in line, we developed in line with market. It's clear, it's always our ambition to outgrow the market organically. This we didn't. We weren't able in the first half. It's clear. We try to do better in, in the future to outgrow, to outgrow the market. It, it's not so easy also with our market share to outgrow the really, the market. That's my part of the answer. Perhaps, Marc?
No, we have, of course, as you mentioned it, of course, if we, if we, if we have the same growth as, as the whole market, then we're not really satisfied, and that's our ambition, to grow more. If you, if you look in detail at the market growth, at the market figures, with the with, with the high-priced medicine and stuff like that, then we really believe that we grow about, about as the market is, is, is growing. That's not, not our ambition. Of course, we're gonna we, we, we wanna do, we wanna do more in the second half of the year, that's for sure.
Okay, maybe another question on growth. At the home care pharmacies, you have an organic growth of 2.3%. In past, you had much higher growth rates. I mean, it's a growing market. Is that just a one-time low growth rate?
In pharmacies at home?
Yeah.
We had in the last years, extraordinary high growth rates because of the strong market growth of high-priced medications in the market with Mediservice. In the first half of this year, Mediservice grew between 3% and 4%. Not, not more than we grew with the remaining pharmacies at home sector. I always said these growth rates with the very, very high-priced medicines, that the volatility is very high, and we can't expect every year double-digit growth rates. Which was the fact over the last, let's say, two years. It normalized. Growth was 4%, and in the remaining pharmacies at home sector, mainly with Bichsel Homecare , we're really very happy with the growth and also the Cannaplant business there.
As I mentioned, we are very happy with the development. We, we look forward to, to further growth in this in this sector.
Thanks. The final question would be on the midterm margin target on products and care that you stated was over 8% before this Mediservice transaction. Now, I expect that, that you would maybe give us some, some new figure. Can we expect that at Investor Day or?
We already restated or adjusted the midterm guidance figure in the investor presentation. We stick to our midterm guidance, but we, let's say, restated or adjusted the 8% margin target for products and care with the new situation after the deconsolidation of Mediservice. This 8% corresponds, let's say, in the new world, to 9.5%. We stick to our guidance. It's just now 9.5%.
Mm-hmm.
the target for products and care, and not 8% anymore. That's just this, let's say, restatement after the deconsolidation of Mediservice.
Thanks.
Thank you.
One additional question from Chris of Redcare Pharmacy. Please unmute yourself.
Yes. Now it works. Okay, thanks. I have now two, two questions now. First, you know, with respect to the guidance, the EBIT guidance, no? You know, you mentioned, you know, kind of this, you know, approximately past years, prior, year level, you know. Is this, you know, kind of, in your view, equivalent, you know, to this 4%-7%, you know, earlier adjusted for the one-off effects? Because depending on how I calculate, I get to a slight downgrade, you know, but just wanted to hear your level of confidence, you know, that, this is now u-unchanged, adjusted or not, you know.
If my calculations were right, and if you take the average of the former, EBIT guidance.
Uh-huh
And then you, you reduce by CHF 9.8 million for the special factors, you should result more or less on, the restated prior year EBIT, more or less.
More or less. Yeah. Oh, okay. Yeah, I'm, I'm more or less there. I am probably more less, than more.
For us, it's clear. For us, it's a confirmation.
Mm.
That's what I said. We reduced the EBIT guidance because of these, one-off special factors. Otherwise, we would have confirmed it.
Okay, good. Yeah, no, clear. You know, the, the second question is just, you know, kind of on, on this physicians segment, you know. Could you talk a bit, you know, about the competitive environment, you know? You know, now you've taken, you know, this bad debt, you know, provision, you know. Is this basically an indication that, you know, there has been an intensification of, you know, competition, especially again, you know, obviously, you know, with, you know, Migros coming in, you know, is this basically becoming a more aggressive environment? I think you also mentioned that, you know, it could potentially impact, you know, your growth outlook, you know. Maybe could you, you know, go, go a bit more into detail about the, the significance of that comment, too? Thank you.
We don't see any changes in the market environment till till today. The competition was already quite tough before since many, many years, because the company you mentioned was already there as, as we were already there, we don't see any changes in the market environment. Of course, it's a tough market, and we gained market share in the last couple of years. Of course, we, the strategy is also to regain market share next couple of years. As we mentioned before, with, I would say, with a better view on, sustainable market growth and sustainable business and sustainable customers than maybe in the last couple of years. The market environment hasn't changed really since this transaction you mentioned.
Okay. Good. Thank you.
Are there any additional questions? If there are no additional questions, I hand back to Felix.
Thank you very much for your participation and interest in our conference call. We look forward to welcoming you at our upcoming Investor Day on October 24 in Zurich. See you there. Goodbye. Have a good afternoon.