Letter to Shareholders
The Zur Rose Group achieved its communicated objectives for 2019. Revenue growth of 30 per cent to CHF 1,568.7 million reinforced its clear number 1 position amongst e-commerce pharmacies in terms of revenue in Europe. It intends to continue on its growth trajectory and is stepping up efforts to leverage the opportunities presented as a result of the low online penetration in the pharmacy market and increasing digitalisation.
During the year under review, the Zur Rose Group once again kept up growth momentum, with revenue rising 30% to CHF 1,568.7 million (including medpex sales). The EBITDA margin was at the lower end of the forecast target range at minus 1.0 per cent. Several exceptional items affected the results. Integrating the apo-rot logistics activities at the Heerlen site was more complex than expected and required a move from two-shift to three-shift operations that will probably have to remain in place until the new distribution centre is operational. Initial expenditure for entering the French market, where the government is planning to allow non-prescription drugs to be sold by mail order in future, further weighed on profit. By contrast, transactions related to the two joint ventures set up with Medbase and the early termination of the earn-out for the founders of medpex had a positive impact. Adjusting for all exceptional items, operating profit (EBITDA) remained in line with last year at minus CHF 13.8 million. Net income declined from minus CHF 39.1 million to minus CHF 52.4 million due to increased write-offs in connection with the companies acquired.
Major growth in Germany
The Zur Rose Group boosted revenue including medpex sales by a substantial 45.4 per cent to CHF 976.0 in Germany. Construction of the hall in the logistics extension building at Heerlen in the Netherlands was completed during the year and fitting out and the installation of equipment has started. The new distribution centre is expected to come into operation as planned during the course of 2021. It will allow distribution for the German market to be centralised in Heerlen, generating considerable efficiencies. As part of the integration, the Zur Rose Group brought together apo-rot marketing, services and IT at Heerlen at the end of 2019 and the Hamburg site was closed. The positive effects of the synergies from this integration will kick in during 2020.
Proven proprietary e-prescription technology deployed in pilot projects
The launch of electronic prescriptions in Germany marks major progress towards a fully digital patient care process. During the year under review, DocMorris set up pilot projects with the German Association of General Practitioners, the German Association of Specialist Doctors (SpiFa) and telemedicine provider KRY. These projects involve using the proven proprietary technology of the Zur Rose Group and the associated app to network doctors, patients and pharmacies all the way through to billing. The cooperation with KRY also includes video consultation with a doctor via a smartphone app. The full acquisition of ClinPath GmbH and the joint venture eHealth-Tec GmbH, two small companies in digital healthcare solutions, should be seen in this light. The Group gained access to technical expertise as a result.
Market position in Switzerland strengthened through cooperations
Despite price cuts mandated by the regulator, Zur Rose was able to increase revenue in Switzerland by 5.0 per cent to CHF 553.7 million, well ahead of the modest 2.8 per cent growth in the market. Particular contributions to revenue growth came from the trend in new clients in the physicians business and new digital services providing added value to doctors’ practices. In the retail segment, Zur Rose and Medbase decided to extend their cooperation. Since the start of 2020 they have been running the shop-in-shop pharmacies in Migros branches and the webshop through two joint ventures: the two partners are continuing to roll out the shop-in-shop concept that has been successfully used in Bern, Basel and Zurich under the Zur Rose brand. In the second joint venture, Zur Rose and Medbase are deepening their cooperation in e-commerce: they operate zurrose-shop.ch, a joint webshop for consumer health, beauty and personal care products which offers customers the chance to collect Cumulus points on purchases. In the medium term the aim is to operate the webshop as a marketplace where other partners can offer their products. Zur Rose sees considerable potential for synergies by stepping up the strategic cooperation.
Ongoing expansion in core European markets
In the Europe segment, which groups together the marketplace business in Spain and France and around 20 further countries on a cross-border basis, PromoFarma likewise posted strong revenue growth of 48 per cent to CHF 39.7 million. In February 2019 the Zur Rose Group acquired the French marketplace Doctipharma, which has now been integrated into the PromoFarma platform. Zur Rose distributes around 140,000 consumer health, beauty and personal care products commonly sold in pharmacies from around 7,000 brands over the marketplace platform; these are provided and dispatched by over 800 partners, mainly pharmacies but also pharmaceutical manufacturers.
Seizing the opportunities in digitalisation
Digitalisation is changing the European healthcare sector. Given the launch of electronic prescriptions in Germany, the Zur Rose Group anticipates a considerable expansion in the market share of mail-order for prescription medicines over the next few years from the current level of just 1 per cent. In France too, Europe’s second-largest market for medicines, there are clear signs of a move towards liberalisation. In February 2020 the government announced its intention in a draft law on “Acceleration and Simplification of Public Trading” to make it easier to sell non-prescription drugs so online distribution would be possible in future. Both potential changes would bring about strong momentum favourable to the Zur Rose business model.
Digital transformation with three technology hubs
Zur Rose invested in technology early and is continuing to further extend its expertise at three technology development centres in Berlin, Winterthur and Barcelona. These tech hubs stand at the heart of the digital transformation of the company. In Berlin, DocMorris is putting its platform strategy into action and will be setting up an open and independent marketplace for healthcare service providers over the coming months. Interdisciplinary teams in the tech hubs are also working on developing digital healthcare services. The main focus is on creating a healthcare ecosystem networking qualified providers with products and digital services. The ambition of Zur Rose is to accompany patients and empower them to use products and digital services to optimally manage their own health.
As the strategic focus is shifting from pure OTC growth to eRx, management targets sales increase of around 10 per cent in 2020 (including medpex's total annual sales) and as a consequence overproportional Rx growth acceleration starting 2021. The aim is to break even in 2020 at the EBITDA level after adjusting for expenditure on additional growth initiatives, especially in electronic prescriptions and European opportunities. Any effect of the Covid-19 virus on the business is not reflected in the outlook. The medium-term target for the EBITDA margin after adjusting for growth initiatives is around 8 per cent, with revenue in excess of CHF 3 billion. Implementing the healthcare ecosystem will generate further relevant EBITDA potential over the long term.
In the context of the Covid-19 situation, securing the supply of drugs has top priority. In Switzerland, Zur Rose also has a special role to play as part of the federal government's "Continuity planning for pharmaceutical care". As a result of the current Covid-19 crisis the Zur Rose Group expects a much more rapid market acceptance of drug mail order and digital healthcare services.
In a competitive environment that remains challenging, we will continue to implement our operating and strategic initiatives and would like to thank our staff for their great personal commitment, skill and flexibility. A special thank-you also to our customers for their trust as well as to you, our esteemed shareholders, for your loyalty.
|Prof. Stefan Feuerstein |
Chairman of the Board
|Walter Oberhänsli |
Executive Director and CEO