Redcare Pharmacy : Transkipt Earnings Call Q1 2024 (Englisch)

Redcare Pharmacy NV

Interim Statement Q1 2024

25th April, 2024 | 11:00 CEST

Transcript

Speakers:

Olaf Heinrich

Jasper Eenhorst

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Olaf Heinrich	Thank you very much and good morning, everybody. A very
	warm welcome from my side. Let's have a look into today's
	agenda. We would like to first have the financial
	performance, then an update on business and strategy, and
	then by the end, outlook and guidance.
	Let's start with the financial performance first. Q1 2024
	highlights. We continue really strong. Very strong sales
	growth. Including MediService, we're up 51%. But also,
	organic growth excluding MediService shows a strong 90%
	growth. Also, if we look onto the non-Rx growth, we're at
	20%.
	For an online company and also an online pharmacy, it's
	always important to make the jump at the beginning of the
	year. That is always the quality of the customer file which
	has been built over the past plus our capabilities to bring in
	new customers at the beginning of the year. We are really
	happy that we achieved that jump up to 20%.
	As you all know, the E Act became mandatory beginning of
	2024 in Germany and we saw a great adoption rate of above
	75%, all of the scripts being e-scripts. Because of that, we
	already increased our marketing activities in Q1.
	We did this to make sure that in the transition from paper to
	e-scripts, we keep our existing customers and at the same
	time, of course, we also want to learn how to acquire new
	customers and convert also existing OTC and BPC
	customers. As a result of that, we ended up on a 2.1%
	adjusted EBITDA margin, being up 33% compared to last
	year.
	If we go to the next slide, you can see that our strong growth
	continues in both of our reporting segments. For sure we
	can see in DACH, that's driven by MediService, the huge
	increase, because we only consolidated MediService last
	year in May. But even if we look into the non-Rx, we can see
	strong growth in both areas and, again, international being
	a little bit stronger than the DACH region.
	Please keep in mind, we achieved this great growth despite
	the fact that this year we had an early Easter effect. We saw
	a slow-down of the sales development in the last week of
	March of this year. Nevertheless, we achieved those strong
	growth numbers.
	Can you go to the next slide, please? This is also reflected
	in the number of active customers. You can see here we
	added 0.4 million active customers in Q1 and now adding
	up on 11.2 million active customers.
	Also, if we look into the net promoter score, we are able to
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	keep this at 70. To us, this is not just a number. To us, this
	is the most relevant KPI we have in our company. Therefore,
	we are proud of that we can continue to be high on the NPS.
	Also very good news on the average basket size, it's up
	compared to the first quarter of last year. Of course, this will
	also help our P&L.
	If we go to the next slide, you'll see there's the jump up I
	referred to earlier. In fact, we also see it in orders here. Right
	now we are processing almost 100,000 orders per day from
	our warehouses on average and still we keep that very high
	NPS of 70. Also, again, the repeat rate is at 87%, so
	confirming our healthy customer file.
	I would like now to hand over to Jasper.
Jasper Eenhorst	Olaf, thanks very much and good morning to everybody also
	from my side. I'm happy to present the numbers of the first
	quarter of 2024.
	As Olaf already shared with you on the prior slides, we
	achieved new records as to the number of orders in quarter
	one. Quarter one was even up from the strong quarter four
	that we had and that's what we also see in column two, three
	and four of this table because that's the quarter-over-quarter
	comparison.
	The good thing is in both quarters MediService was
	included, but of course, comparing the first two and fourth
	quarter, each of our quarters is having its own seasonality,
	so it remains a bit of an apple and an orange. For example,
	the first quarter of the year is having fewer days than the last
	quarter of the year.
	But still, having said all, our sales in Q1 were up 5.4%
	compared the prior quarter, a continuation of the growth of
	our active customer base and our total number of orders,
	and even, very helpful, the slightly increased basket.
	It's a bit of an apple and orange because of seasonality, but
	still looking through it from a helicopter view, actually our
	gross profit margin was slightly higher than it was in the
	fourth quarter.
	Our total SD&A as a percentage of sales was slightly up.
	Seasonality, but also impact of what Olaf referred to already.
	Some additional communication after we saw that very rapid
	increase of e-Rx in Germany. We took that momentum. All
	in all, a 12 million adjusted EBITDA in the past quarter.
	If we then go to column four, five and six, the year-over-year
	comparison, Q1 last year compared to this year, from
	seasonality perspective, totally comparable, except for
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there's a slight shift in Easter, but that's going towards only rounding. But, of course, last year MediService was not included yet.

But the total growth of the company, including everything from P&L, 70 million last year, it was up to 560 million this year, an unrounded increase of 50.6%.

If we then look at the adjusted EBITDA margin, that was growing strong also this quarter despite the fact that we did some additional marketing and communication campaigns and ended at 2.1%, which was 0.3 percentage points lower than the prior year.

But with the fast sales growth and this margin, we generated a couple of million more adjusted EBITDA in absolute terms. So, 3 million up in adjusted EBITDA and for clarity's sake, as always, the fully loaded EBITDA also there and that increased even by 6 million, reflective of the fact that our adjustment went down from 4 to just slightly above 1 million this quarter.

The gross margin year-over-year, minus 4.3%. The cost performance, plus 4.1%. Simply said, it's only mixed because of MediService and for that reason, on the next slide we give this clarity.

Here you see the gross profit margin and on the left side you first see the 27.7% going down, but if you take an apple-to- apple comparison, then actually, and we're very happy with that, our core business actually improved by 0.3% compared to last year. So, the gross profit margin increased in combination with the very fast increase of our sales. So, very good. Much more gross profit in absolute euros.

You can go to the next slide. Here it's the same representation. The first two columns I made apple-to-apple, so that is excluding MediService of this year. You see there a slight increase only of around 0.3 to 0.4%. Totally explained by a slight increase in marketing because of the opportunity we saw in Germany and actually underlying something that we are very happy with.

Because we, as you see with many companies in the entire world, are also faced with inflation, for example, in minimum wage rates in Germany and in the Netherlands. But we as a company have been able to fully offset those cost inflations with structural efficiency, both in operations and in marketing. So, the year-over-year cost performance was more or less stable despite that situation.

Of course, there was also, and then I go to the cash flow slide, but you can keep the slide on, helped in the overall

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	P&L was not only efficiency, but also the slightly increased
	basket. It's very good to our unit economics.
	Cash flow here, very nice, an increase of 50 million. To
	already tell you the conclusion, it's mainly because of
	seasonality that we were benefiting from an increased
	payable balance as we generally see each quarter and last
	year even more than we were seeing this quarter, just
	because of timing differences.
	I'll walk through the bridge. It's the total of cash as you can
	find on the balance sheet and short-term financial assets, as
	well as our fixed deposits, which we also consider cash. It's
	slightly above 200 million.
	When we started the year, we had a positive adjusted
	EBITDA of, here from a cash perspective, 11 million. We
	have working capital improvements of 17 million, we have
	investments of around 9 million and we have financing,
	which also is including according to IFRS the lease
	payments that we're doing. Adding it all up, it's leading to a
	positive 15 million, ending at 219 million.
	With that, Olaf, it's going back to you.
Olaf Heinrich	Thank you very much. Let's have a look into an update on
	business and strategy. For this quarter we decided to focus
	only on e-Rx because we think that right now that it's the
	dominant topic.
	As already communicated, Tuesday this week we got
	approval for our solution from Gematik. We are really happy
	about that one and that we all know CardLink is the best way
	to redeem e-scripts fully digital.
	I think you are probably aware that in Germany right now,
	the eGK card has become the dominant way to redeem
	scripts. Therefore, we are really happy to present this
	CardLink solution to our patients and customers because
	they now can also use the eGK card without a pin to redeem
	their scripts at an online pharmacy.
	This way, we are back to a level playing field compared to
	brick and mortar when we look into the redemption rate of
	e-scripts. But, of course, also the two other ways still will be
	available, that Gematik app and the print-out of the QR
	code.
	If we go to the next slide, we will see that there's actually not
	a lot of new information because we all gave that information
	two days ago. I think important to point out is that this
	solution will be live for our customers early May 2024 and
	maybe there's just a couple of words to that, why early May
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	2024.
	Our intention is, of course, to bring a robust and scalable
	solution up and running and to do that, of course, as quickly
	as possible. But since we have never done it before and
	since partners are involved, like Gematik, we cannot give
	you a concrete date. But, again, it's about putting a robust
	and scalable solution up as quickly as possible.
	If we go to the next page, we can see what it looks like once
	our solution is up. We are not presenting here the entire flow
	in our app, just to give you an idea how this is supposed to
	work.
	Once you have an e-script which has been issued by your
	doctor, you cannot only use the QR Code, but from now on
	you can also use your eGK card. You simply then open our
	app and the app then will ask you to present your eGK card.
	Just attach it to the phone.
	The rear of the phone will read let's say the key which is on
	the card and then will retrieve all of the script data from the
	e-script server. All of the scripts which are still open will then
	be presented in our app and then as the customer you can
	simply continue to do the journey as you are doing it with
	OTC and Rx and, of course, you can also add then OTC
	products to your basket.
	That is pretty much the journey. Very convenient, fully digital
	and will be live early May. Having said that, I would again
	like to turn it over to Jasper.
Jasper Eenhorst	Again, thank you. It was only March 5th that we shared the
	full year guidance, so it will be no surprise that we reiterate
	the guidance today.
	I can't really, of course, and I'm happy to talk to you today, I
	really cannot overestimate the magnitude of the impact of
	having received approval only two days ago. That is really a
	milestone for us as a total company having achieved the
	approval for our NFC solution for e-Rx in Germany.
	At the same time, actually, our core business across the
	seven countries has continued, as we shared with you
	today, has continued to perform really very strongly.
	Being in that situation, we still cannot give e-Rx guidance for
	the months to come. Nobody knows. We're looking forward
	to it. We can't wait. But where we can give guidance to you,
	that's on this slide.
	For the total company, we think it's very likely that we're
	going to enter sales between the 2.3 and 2.5 billion as a total
	company. That is in this case mainly driven by the non-Rx
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	continued strong growth with a mid-point of 20% and a
	range of 15 to 25%. So, growing a lot of time more than 20%,
	around 20% on top of the 20% of the last year, on top of the
	20% of the year before.
	MediService we expect to continue to grow at mid-single
	digits. MediService is more let's say a normal company with
	a normal growth rate and not the exceptional fast growth
	rate we saw through all the elements as a company. The
	adjusted EBITDA margin, we reiterate our expectation that
	it's going to be between 2 and 4%.
	As always, at least each time we have the possibility, we
	reiterate the magnitude that we see in total Europe and also
	specifically in Germany for having a lot of growth in online.
	We see there a mid- to longer-term margin in excess of 8%
	and that is unchanged compared to all the statements that
	we have made over the past quarters and past years.
	That's our guidance for the full year. We're looking forward
	to start really to the new phase of e-Rx and, of course, we
	keep you posted on all the developments there.
	That was our presentation of today and we're looking
	forward if there are any questions from the audience.
Operator	We will now begin the question-and-answer session.
	Anyone who wishes to ask a question may press star and
	one on the touchtone telephone. You will hear a tone to
	confirm that you have entered the queue. If you wish to
	remove yourself from the question queue, you may press
	star and two.
	Participants are requested to use only handsets while
	asking a question. In the interest of time, please limit
	yourself to two questions. Anyone with a question may press
	star and one at this time.
	Our first question comes from CJ from HSBC. Please go
	ahead.
CJ	Morning, all. Thanks for the opportunity to ask questions.
	First one, given the slightly weaker margin in the first
	quarter, at least versus what the street expected, is it maybe
	possible to get a bit of colour on the running quarter?
	I understand last quarter marketing was a significant
	component. Is there any colour indication, whatever you can
	give on the size of the marketing spend in the current
	quarter, especially given the importance of the CardLink
	launch within your app in the coming weeks? Anything that
	helps us understand where within the range we could expect
	the EBITDA margin in Q2 to fall.
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	Then I know commentary around Rx is very premature and
	a lot of things can happen. I'd still be curious to hear if there
	is any sort of colour you can give following the Q1
	performance of Rx, which actually growing, was actually
	quite strong, whether there's anything you can give on that
	front. Thank you.
Olaf Heinrich	Would you like to do that or...?
Jasper Eenhorst	I'll do the first, you second then.
Olaf Heinrich	Yes.
Jasper Eenhorst	Okay. First off, good talking to you again. The margin of Q1,
	when we were seeing that, there was such successful fast
	penetration of e-Rx in Germany, we were able to anticipate
	on that, to act upon that immediately, so thanks for the
	compliment you were giving.
	Of course, the 7% growth is not the answer what we are
	looking for. Within the whole context we were very happy
	that we were able to achieve actually with the challenges a
	positive growth in the first quarter.
	We did so and, of course, a part of the marketing of Rx is
	particular because many chronically ill patients only order
	once every quarter, for example. It's not immediately
	conversion-driven that's reflected in the first quarter.
	I just reiterate about what our expectations for the full year
	are and they are not changed by this first quarter. It's the
	reiteration of the 2 to 4%.
Olaf Heinrich	Maybe I will try to answer the second question. If I
	understood it right, it's about to give some colour from what
	we learned in Q1. To me, Q1 has been exceptional because
	there has been a switch from let's say paper to e-Rx.
	We are really happy that we were able to keep our existing
	customers. That has been the main target. Because, as you
	know, it's new to the customers and in some cases the
	doctor is handing out a QR code, in some cases not. We
	had to make sure that our existing customers stay within our
	system and I think that worked off pretty well.
	Of course, we also saw some additional, let's put it this way,
	information or learning because we had some marketing
	activities and then we already saw that also new customers
	are responding, as well as we will be able to convert
	customers out of our existing customer file, so OTC or BPC
	customers into Rx.
	But I think it's by far too early to take any readings, learnings
	out of that. Therefore, please, we need more time to really
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	be able to substantiate any kind of let's say comments or
	learning. As you know, also the CardLink solution will only
	be live at the beginning of May. Therefore, it will take some
	time until we can give some more colour into the entire e-Rx
	topic.
CJ	Understood. Thank you.
Operator	The next question comes from JK from Deutsche Bank.
	Please go ahead.
JK	Good morning. Thanks for taking my questions. I also have
	two. The first one, given that the NFC launch comes slightly
	later than the market had expected, do you see any
	pressure on your 2024 guidance? I understand that you
	don't guide specifically on e-Rx, but any colour here would
	be helpful.
	Then secondly, could you elaborate a bit on the margin
	improvement drivers in your international business? Is that
	purely volume leverage or are there any other factors? And
	when do you expect this segment to achieve adjusted
	EBITDA breakeven?
Olaf Heinrich	I think, Jasper, will you go ahead on that one?
Jasper Eenhorst	Yes. The first one, actually, the answer is no. Some
	expected it earlier, some later. Not any impact. It's not
	having any impact on our guidance, where we stand.
	Major thing is this week, we have today the Q1 results, but
	the major event was of course that we got the approval for
	our solution. That's the major thing. Whether some people
	expected it a couple of days earlier, not any impact on the
	future, not any impact on the current year guidance.
	Maybe if I can add one thing to that, because I think the
	question refers to also why a little bit too late. If we look into
	the entire process, the entire process of establishing a new
	product within the market environment, that happened
	within a couple of months as opposed to usually that takes
	years.
	Therefore, overall this has been a very fast process, very
	successful and therefore I think you cannot really say it's too
	late or later than expected. I actually see it the other way
	around, quite successful.
	And it's a major step not only for online pharmacies, but also
	for brick-and-mortar pharmacies and for millions of patients
	in Germany. I think because of that also Gematik has really
	accelerated this process. We are really very happy with
	what we have achieved so far in terms of the NFC solution.
	Sorry. The other question...
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JK	That's very helpful.
Jasper Eenhorst	The second one, thanks, JK, for catching actually that
	development. You would almost forget about it, but we don't.
	It's a solid piece of our business, the huge opportunity
	across total Europe, not only in Germany. We've grown this
	year almost by one-third compared to quarter one last year
	and, indeed, at a significantly higher margin.
	To us, very clear what our strategy is there because we don't
	see a lot of differences compared what we already achieved
	in countries like Germany or, for example, in Austria. We are
	in those countries where we think we can achieve the same
	and then you've got efficiencies, you've got scale and then
	you'll improve your margins.
	In our case, it is always that we can balance how fast do you
	want to grow your margin and it is a well-balanced
	approach. Indeed, you see a structural increase not only
	compared to last year that we were growing relatively fast, I
	would say, towards let's say next year or also [00:23:27
	unclear?] will continue to grow very fast.
	It will never be a straight line. There will always happen
	things because of the opportunities we see or competition
	or other things. But actually, year-over-year it is an apple
	and apple. It's a comparison that is solid and in that solid
	comparison we've increased by one-third and we improved
	our margins. That's correct.
JK	Great. Thank you.
Operator	The next question comes from VB from Baader Bank.
	Please go ahead.
VB	Hello, gentlemen. Congratulations on the CardLink approval
	and the great results. I would have two questions. It's also
	on marketing expense.
	The short term, given that you have the CardLink solution
	now on hand and given that the main competitor received
	approval a bit faster, do you see any pressure to do
	incremental marketing expenditure in Q2 to catch up? Some
	indication in regards to volatility of margins throughout the
	year would be helpful.
	The second question. Any idea why the main competitor
	received the approval some date earlier than you? It does
	not move the needle at all. That's completely clear. But just
	your thinking and your looking on the situation. Did you
	apply later than the others or any reason, any speculation?
	Thanks.
Jasper Eenhorst	Olaf, I will try to answer the question. To be honest, I did not
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