Letter to Shareholders

Dear Shareholders
The growth strategy introduced by the Zur Rose Group at the end of 2016 is bearing fruit. Europe’s leading online pharmacy in 2017 increased sales by double digits to CHF 982.9 million. The dynamic growth is the result of the marketing campaign in Germany and an encouraging performance in Switzerland. For 2018, management expects further accelerated growth of more than 20 percent in local currency terms.

For the Zur Rose Group, the 2017 financial year marked a milestone in the company’s 25-year history. By raising funds under the IPO and the listing on the SIX Swiss Exchange, the company has created the capital base for implementing a dynamic growth strategy. The net proceeds from the IPO of CHF 215 million have enabled the defined growth initiatives to be pursued and the corporate bond of CHF 50 million to be repaid. With an equity ratio of 64.4 percent, the company is solidly financed and also has a stable anchor shareholder base.

Investments in the market are paying off — The Zur Rose Group in 2017 successfully continued the broad-based marketing campaign in Germany aimed at attracting new customers for the purpose of accelerated growth. Consolidated sales increased by 11.8 percent yearon-year to CHF 982.9 million. The growth momentum confirmed the effectiveness of marketing expenses at the expense of short-term profit performance. Profit was burdened as scheduled by around CHF 15 million due to further future-oriented expenses and non-recurring costs in connection with the IPO. The reported operating result (EBITDA) is minus CHF 21.2 million and net income /(loss) is minus CHF 36.3 million. Adjusted for the aforementioned extraordinary expenses, EBITDA would amount to minus CHF 6 million.

Cooperation and innovation boost the Swiss business — In 2017, Zur Rose succeeded in strengthening its strong market position by further  developing innovative services and partnerships with Migros, Medbase and health insurers. With sales up 6.3 percent to CHF 500 million, Zur Rose in Switzerland grew well above the market average. In the doctors’ segment, the company increased its market share by 0.6 percentage points to 23.6 percent. The partnership with Medbase, Switzerland’s largest service provider in basic outpatient medical care, was launched in 2017. Zur Rose exclusively supplies all Medbase centres with drugs. The retail business grew for the first time again since the Federal Court ruling of 2015 restricting the mail-order dispatch of over-the-counter drugs (OTC). Both the realignment of the specialty care business and the two new inpatient pharmacies in Bern contributed to this. The successful launch of the shop-in-shop concept as part of the cooperation with Migros has prompted the company to open two more in-store pharmacies in 2018 at the Migros branches Claramarkt Basel and Limmatplatz Zurich. Additional locations are under consideration above all in cantons without medical self-dispensation. Zur Rose combines its in-patient presence with the e-commerce business as part of an omnichannel strategy, thereby enabling its customers to access drugs across all channels at the same preferential rates as via the online channel.

Strengthening of market leadership in Germany — The Zur Rose Group in 2017 also further expanded its leading market position in Germany. Due to the increased marketing activities of DocMorris targeting both chronically ill patients with a regular need for medication and OTC customers, sales of the Germany segment increased by 18.1 percent to CHF 483.2 million. With an increase in sales of 38.7 percent in the mail-order business with non-prescription drugs, DocMorris once again grew significantly faster than the market as a whole in local currency terms, making it one of Germany’s leading mail-order pharmacies in the OTC sector. The proportionately larger prescription drug business (Rx) increased by 10.2 percent in local currency terms. As a result of the marketing offensive, the number of active DocMorris customers increased by 32 percent to 1.8 million in the year under review.

Synergies through the bundling of mail-order activities — In 2018, the Zur Rose Group will complete the integration of Eurapon and Vitalsana, acquired at the end of 2017. The sales of the two companies with a sustained impact on the Group would have amounted to EUR 85 million in 2017. The mail-order volumes handled in Heerlen from mid-2018, which are the result of the realignment of the Halle site, and the integration of Vitalsana will generate sustainable synergies. In the medium term, the mail-order business of Eurapon will also be handled in Heerlen.

Aftermath of the ECJ ruling — The coalition agreement between the CDU/CSU and SPD includes a passage on the implementation of a ban on mail-order sales of prescription drugs. It states: “To strengthen local pharmacies, we are committed to a prohibition on mail-order trade in prescription drugs.” Prohibitions were rejected by politicians in 2008 and 2012 for constitutional reasons. Both European and constitutional arguments against a ban were significantly strengthened by the ruling of the European Court of Justice in 2016. In the past legislative period, a draft bill for a corresponding law failed because of opposition from a wide range of stakeholders. A recent report commissioned by the Federal Ministry for Economic Affairs and Energy came to the conclusion that a ban on the mail-order business was not justified in the light of nationwide coverage. The Zur Rose Group is therefore observing and analysing all developments and if need be will take all necessary legal and operational steps against a possible ban in the interest of patients both in Germany and at the European level.

Outlook and thanks — The Zur Rose Group intends to continue on its path of growth and also in the coming years to consistently utilise the long-term market developments marked by an ageing society, steadily rising cost pressure in the healthcare sector and online penetration lagging behind the consumer goods industry for the benefit of its business model. This also includes an active role in consolidating the OTC mail-order market through appropriate acquisitions. Based on continued double-digit organic growth, management expects sales growth of more than 20 percent in local currency terms in 2018 and aspires to break even at the EBITDA level adjusted for exceptional items. To this end, taking advantage of profitable growth opportunities in the medium term is preferred over short-term profit improvements.

We look forward to tackling these challenges with the energetic support of our motivated employees, to whom we owe much in 2017 thanks to their tireless dedication and high level of expertise. 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

Stefan Feuerstein (left)
AND Walter Oberhänsli.