Earnings Release • Sep 29, 2016
Earnings Release
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30 SEPTEMBER 2016
Venlo, 23 November 2016
Dear Shareholders, Ladies and Gentlemen,
SHOP APOTHEKE EUROPE remains on a strong growth path in the fi nancial year 2016. The key factor in our successful strategy is our European market leadership in the online retail of OTC and pharmacy-related BPC (beauty and personal care) products, an area that is enjoying strong and sustainable growth.
Following on from the successful acquisition of FARMALINE – an online pharmacy with a broad-based presence in continental Europe – in September 2016, SHOP APOTHEKE EUROPE is now also expanding into Italy and Spain and is leading in all the relevant online OTC markets in continental Europe. The company's successful listing on the Frankfurt Stock Exchange (Prime Standard) on 13 October 2016 laid the foundations for strong international growth over the coming years and the capacity expansion that will be required to achieve this.
The Management Board of SHOP APOTHEKE EUROPE is looking forward to speed up the expansion of our business in continental European markets in order to generate long-term value growth for our customers, shareholders and employees.
The Management Board
| 2015 | 2016 | ||||||
|---|---|---|---|---|---|---|---|
| Performance indicators Group | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Site visits (in m) | 6.3 | 6.0 | 6.1 | 7.1 | 8.4 | 9.1 | 10.3 |
| Mobile site visits (in m) | 2.2 | 2.0 | 2.0 | 2.7 | 3.3 | 3.9 | 4.6 |
| Share of mobile visits (in %) | 35 | 33 | 33 | 39 | 39 | 43 | 44 |
| Number of orders (in m) | 0.7 | 0.7 | 0.7 | 0.8 | 0.9 | 0.9 | 1.0 |
| Repeat orders (in %) | 71 | 71 | 74 | 74 | 75 | 73 | 73 |
| Rate of return (in %) | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 | 0.8 |
| Active customers (in m) | 1.0 | 1.1 | 1.2 | 1.3 | 1.4 | 1.5 | 1.6 |
| Gross basket (in €) | 52.1 | 51.8 | 52.2 | 53.1 | 52.2 | 51.3 | 51.6 |
05
23
HIGHLIGHTS.
02
03
05
04
Consolidated cash fl ow statement.
€125m (+37 %) Revenue 9M 2016
1.6m (+37 %) Active customers
73 % Repeat orders
3.1m Average monthly visits
> 100k Available products
SHOP APOTHEKE EUROPE is one of the leading online pharmacies in Germany and Austria and a market leader in Continental Europe. Its business activities focus on non-prescription pharmaceuticals, so-called over-the-counter (OTC) medicines, and pharmacy-related beauty and personal care products. In its online shops, the founder-managed company off ers an extensive range of more than 100,000 products at attractive prices, accompanied by comprehensive pharmaceutical consultation services. A state-of-the-art, centralised logistics infrastructure means that SHOP APOTHEKE EUROPE can signifi cantly expand its business volume while benefi ting from economies of scale. All of the company's technological and logistics processes are already geared towards further growth.
More than 1.6 million active customers (as at 30 September 2016) already use the services off ered by SHOP APOTHEKE EUROPE's online shops.
SHOP APOTHEKE EUROPE has been operating from the Netherlands since 2010 as, in contrast to most other EU member states, Dutch law also allows legal entities to be pharmacy owners. The near-border location in Venlo (NL) not only makes distribution to Germany easy, but also off ers excellent conditions for the company's continued expansion thanks to its position at the heart of Europe.
The user-friendly online shops operated by SHOP APOTHEKE EUROPE are tailored to the local needs and requirements of seven European markets: Germany, Austria, France, Belgium, Italy, Spain, and the Netherlands.
Based on estimates by Sempora Management Consultants, the volume of the continental European market for non-prescription medicines and beauty and personal care products was €33 billion in 2015. In many continental European countries, the low level of online penetration of just two percent in this segment (outside Germany) is expected to increase signifi cantly over the coming years. As a fi rst mover, SHOP APOTHEKE EUROPE is a leader in its target markets, meaning it is already excellently positioned to benefi t from the growing shift from physical to online retail.
Demographic change, growing health awareness and the trend towards self-medication are also driving long-term growth in the market for OTC medicines and pharmacy-related beauty and personal care products.
Group structure and corporate governance practices.
The business activities of SHOP APOTHEKE EUROPE are managed by the parent company SHOP APOTHEKE EUROPE N.V., Venlo, Netherlands, a naamloze vennootschap (stock corporation) formed in the Netherlands and subject to Dutch law. The fi nancial year is the calendar year.
SHOP APOTHEKE EUROPE N.V. has a dual management structure consisting of a Management Board and a Supervisory Board. The Management Board is responsible for Group strategy and controlling. The Supervisory Board advises the Management Board and monitors its management of the company.
The Management Board and Supervisory Board work in close cooperation for the benefi t of the company. Their shared objective is the international expansion of the company's business and achieving a sustainable increase in its enterprise value. To this end, the Management Board reports to the Supervisory Board regularly, comprehensively and in a timely manner on all key issues concerning strategy, planning and business development, the risk situation, risk management and compliance issues.
The Management Board currently has fi ve members. In accordance with the Articles of Association, the number of Management Board members is determined by the Supervisory Board. They are appointed by resolution of the Annual General Meeting.
The by-laws of the Management Board determine the internal procedures and decision-making processes and the division of responsibilities between the members of the Management Board. In particular, they defi ne the catalogue of information and reporting duties and the matters requiring the approval of the Supervisory Board.
The Supervisory Board of SHOP APOTHEKE EUROPE N.V. currently has four members. The Annual General Meeting of the company is responsible for determining the number of members and their appointment. It is held within six months of the end of the fi nancial year. Unless otherwise prescribed by Dutch law or the Articles of Association, resolutions are passed by a simple majority. Each share grants the bearer one vote at the Annual General Meeting. There are no restrictions on voting rights.
The success of SHOP APOTHEKE EUROPE is reliant on the confi dence the company enjoys among consumers, customers, investors and employees. Accordingly, high standards of responsibility are set for the company as a whole and for each individual employee. The Code of Conduct and a Whistleblower Policy are intended to help employees to implement the key principles of the company and its values in their everyday working life. These and other policies can be viewed in the Corporate Governance section of the company's website.
The internal reporting structure at SHOP AOPTHEKE EUROPE is based on geographical segments. Activities in Germany are broken down further on the basis of sales channels. This results in the Germany, International and Germany Services business segments. The core segments Germany and International encompass the sale and distribution of medicines, pharmaceuticals and pharmacy-related beauty and personal care products, while the Germany Services segment reports the webshop services of the subsidiary Xsite GmbH, Düsseldorf, Germany. The business success of SHOP APOTHEKE EUROPE depends to a large extent on the company's international revenue growth and European market leadership. The results-oriented key fi nancial performance indicators used in managing the Group include gross profi t and segment EBITDA.
SHOP APOTHEKE EUROPE also uses the following key operating performance indicators in managing the Group:
As a performance indicator with a signifi cant impact on the growth of SHOP APOTHEKE EUROPE, the number of site visits is a central tool for company management. As a growing number of people are using mobile devices to access the internet, the number of mobile site visits is recorded separately. This indicator is also used to examine the success of the mobile websites and apps that SHOP APOTHEKE EUROPE is permanently developing and expanding specifi cally for this target group.
SHOP APOTHEKE EUROPE measures its business success based on the development in the number of customers. An active customer is defi ned as a customer who has placed at least one order within the past twelve months (from the reporting date).
The number of orders is an important growth driver. It is measured without reference to the shopping cart size.
In addition to the number of orders, there is a direct correlation between the average basket size and the development of consolidated revenue.
This shows the proportion of orders placed by existing customers and is an important indicator of customer loyalty. As marketing costs for existing customers are lower than for newly acquired customers, there is also a correlation with consolidated net profi t.
One key advantage of trading in pharmaceuticals and medicines is the negligible return rate. As returns are a signifi cant cost factor in e-commerce, there is a direct correlation with the company's earnings.
10
Trading in pharmaceuticals, medicines and pharmacy-related beauty and personal care products is subject to seasonal fl uctuations in some cases. In particular, demand for pharmaceuticals and medicines is higher in the fi rst and last quarters of the calendar year.
SHOP APOTHEKE EUROPE generated revenue of €124.7 million in the fi rst nine months of the current fi nancial year compared with €91.0 million in the same period of the previous year. This represents an increase of around 37 %. The Group recorded signifi cant revenue growth in the core segments Germany and International.
As the Belgium-based online pharmacy FARMALINE was consolidated on 14 September 2016, this acquisition will make a signifi cant contribution to growth in the revenue volume only in the fourth quarter of 2016, with the result that revenue growth is expected to be comparable to that recorded in previous years.
The upturn in revenue in the period under review is primarily attributable to the 37 % increase in the total number of orders to 2.8 million (previous year: 2.0 million). This development was accompanied by a signifi cant rise in the number of website visits. The steady growth in the proportion of mobile website visits to 44 % in the third quarter of 2016 also serves to underline the importance of retail using mobile devices.
customers (in m) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2015 2016 1.0 1.1 1.2 1.3 1.4 1.5 1.6
Share of mobile visits (%)
12
Gross profi t amounted to €25.6 million in the period under review after €19.2 million in the fi rst nine months of the 2015 fi nancial year and improved in all segments in Q3.
The positive development of consolidated revenue and gross profi t is attributable in particular to the signifi cant growth in the operating core segments Germany and International.
Revenue and EBITDA in the Germany segment increased substantially in the fi rst nine months of 2016. Revenue rose from €84.2 million in the fi rst nine months of the previous year to €105.1 million in the period from January to September 2016, corresponding to a growth rate of 25 %. Gross profi t saw above-average growth of 29 % in the same period, from €16.8 million to €21.6 million. Accordingly, the gross margin increased by 0.5 % to 20.5 % in the period under review after 20.0 % in the previous year. Adjusted segment EBITDA amounted to €3.0 million in the fi rst three quarters of 2016 compared with €0.5 million in the same period of the previous year.
The International segment made a signifi cant contribution to consolidated revenue thanks to a sharp upturn in the number of orders. At €18.4 million, segment revenue for the period from January to September 2016 was more than three times higher than in the same period of the previous year (€5.2 million). The above-average increase in gross profi t, from €0.9 million in 2015 to €3.1 million in the period under review, meant that the second core segment of SHOP APOTHEKE EUROPE also saw a substantial improvement in the gross margin from 16.5 % in the previous year to 17.1 %.
There was a signifi cant increase in the number of new customers on the back of the company's international expansion strategy. The considerably higher proportion of orders from new customers – accompanied by correspondingly higher acquisition costs – meant that adjusted segment EBITDA declined from €-1.2 million in the fi rst nine months of the previous year to €-3.2 million in the period under review.
Gross revenue in the Germany Services segment increased to €3.0 million in the fi rst nine months of 2016 after €2.4 million in the same period of the previous year. The fi gure for the period under review includes revenue from intragroup services of €1.8 million that is eliminated in consolidation.
Gross profi t also increased from €2.2 million in the previous year to €2.6 million in the period under review. Adjusted for intragroup services in the amount of €1.8 million (previous year: €0.7 million), gross profi t amounted to €0.8 million (previous year: €1.5 million).
With €0.7 million as at 30 September 2016, the segment EBITDA in Germany Services fell slightly short of the €0.9 million generated over the same period of the previous year due to investments in the own web shops.
Cash and cash equivalents increased from €3.5 million as at 1 January 2016 to €6.3 million at the reporting date.
Net cash from fi nancing activities amounted to €9.2 million in the period under review after €16.1 million in the same period of the previous year. In addition to interest expenses, this includes the capital increase with a volume of €10.0 million that was implemented in June 2016.
Net cash used in investing activities amounted to €4.4 million (previous year: €2.9 million). Investing activities included a cash component in connection with the acquisition of FARMALINE in September 2016.
Net cash used in operating activities improved by €4.0 million, from €6.0 million in the previous year to €2.0 million. This improvement was mainly due to optimisations in working capital management.
Working capital decreased year-on-year to €3.7 million as at 30 September 2016. Working capital is expected to increase in the fourth quarter as a result of increased inventories in connection with the expansion of the company's international business, as well as seasonal factors in the area of medicines and pharmaceuticals.
Including the acquisition of FARMALINE, capital expenditure amounted to €10.4 million in the fi rst nine months of 2016.
All in all, SHOP APOTHEKE EUROPE expects its operating performance indicators to continue to develop well in the 2016 fi nancial year, with a corresponding impact on revenue.
The Management Board expects growth in consolidated revenue to accelerate in the fourth quarter compared with the fi rst three quarters of 2016 thanks to the consolidation of FARMALINE with eff ect from 14 September 2016. At the same time, SHOP APOTHEKE EUROPE is seeking to improve its gross profi t margin at group level for 2016 as a whole compared with the previous year.
In the core Germany segment, the focus is on profi table growth. The substantial market share already gained by SHOP APOTHEKE EUROPE in Germany and higher online penetration compared with other international markets mean that this will be driven primarily by orders from existing customers in the medium term. In the company's international target markets of Austria, France, Belgium, Italy and Spain, the Management Board is anticipating signifi cantly higher growth thanks to the acquisition of new customers. An optimised pricing strategy, a more pronounced focus on higher-margin products and improved procurement conditions as a result of larger volumes are some of the factors that are expected to contribute to continued growth in the gross profi t margin.
SHOP APOTHEKE EUROPE is also anticipating further investment in its continued international expansion accompanied by a reduction in the ratio of operating expenses to revenue. This will result from planned effi ciency improvements in the area of marketing due to an increase in the number of orders from existing customers, as well as optimisations in customer relationship management (CRM) and general operational effi ciency improvements thanks to economies of scale and ongoing process automation. In light of these developments, the Management Board is forecasting a continuous improvement in the EBITDA margin at both segment and group level.
Long-term forecasts also provide for a constant improvement in working capital management, although inventories are expected to continue to rise as a result of the company's strong international expansion.
Capital expenditure over the coming years is expected to be concentrated on capacity expansion and additional automation in particular, as well as the expansion of the IT infrastructure. The proceeds from the IPO of SHOP APOTHEKE EUROPE N.V. in October 2016 will be used to fi nance the Group's international growth and capacity expansion.
16
On 13 October, the shares of SHOP APOTHEKE EUROPE were listed for the fi rst time on the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange under ticker symbol "SAE", ISIN NL0012044747 and German Securities Code Number (WKN) A2AR94. The issue price for the shares of SHOP APOTHEKE EUROPE was €28.00 per share.
In the course of the IPO, a total of 3,571,428 new no-par value bearer shares from a capital increase were placed with investors. The gross proceeds amounted to around €100 million. Up to 535,714 additional no-par value bearer shares held by the existing shareholders were provided in order to satisfy the greenshoe option. This option was exercised almost in full and ahead of schedule on 28 October 2016 for a total of 532,019 shares. Including the overallotment, the total volume of the share off er was around €115 million.
The capital increase implemented as part of the IPO means that the share capital of SHOP APOTHEKE EUROPE now amounts to €181,398, divided into a total of 9,069,878 shares. Around 45 % of the shares are currently in free fl oat.
Some of the proceeds of the IPO were used to repay shareholder loans with a nominal value of €27.1 million. The loans were repaid as scheduled on 31 October 2016.
A signifi cant portion of the proceeds of the IPO is earmarked for fi nancing the continued growth of SHOP APOTHEKE EUROPE, including investments in IT infrastructure, capacity expansion and additional automation. The fi rst phase of this programme has already commenced with the installation of a high-bay warehouse system at the central logistics centre in Venlo, Netherlands.
On 19 October, the European Court of Justice (ECJ) decided that the German system of fi xed prices for prescription-only medicines represents an infringement of EU law (Case C-148/15). This means that the uniform prices for German pharmacies are not binding for cross-border mail order medicine orders, and mail-order pharmacies in other EU member states may grant incentives to customers purchasing prescription-only medicines. SHOP APOTHEKE EUROPE broadly welcomes the ECJ judgement in the spirit of the free movement of goods and intends to implement the judgement for the benefi t of its customers.
| 30/09/2016 | GERMANY | INTERNATIONAL | GERMANY SERVICES |
ELIMINATIONS | CONSOLIDATED |
|---|---|---|---|---|---|
| € '000 | € '000 | € '000 | € '000 | € '000 | |
| Revenue Cost of sales |
105,132 -83,542 |
18,396 -15,250 |
2,986 -342 |
-1,826 0 |
124,688 -99,134 |
| Gross Profi t % of revenue |
21,590 20.5 % |
3,146 17.1 % |
2,644 88.6 % |
-1,826 | 25,554 20.5 % |
| Other income Selling & Distribution Adjusted S&D* |
1,346 -19,984 -19,961 |
232 -6,843 -6,625 |
21 -1,936 -1,936 |
0 1,826 1,826 |
1,599 -26,937 -26,697 |
| Segment EBITDA Adjusted Segment EBITDA |
2,952 2,975 |
-3,465 -3,247 |
729 729 |
216 456 |
|
| Administrative expense Adjusted AE** |
-5,054 -4,788 |
||||
| EBITDA Adjusted EBITDA |
-4,838 -4,333 |
||||
| Depreciation | -2,283 | ||||
| EBIT Adjusted EBIT |
-7,121 -6,615 |
||||
| Finance income Finance expense Net fi nance cost |
1 -1,912 -1,912 |
||||
| Result before tax Adjusted Result before tax |
-9,033 -8,527 |
* Adjusted S&D excludes one-off Farmaline integration cost
** Adjusted AE excludes one-off costs related to the IPO
| PERIOD ENDED 30 SEP 16 |
PERIOD ENDED 30 SEP 15 |
|
|---|---|---|
| € '000 | € '000 | |
| Revenue Cost of sales |
124,688 -99,134 |
91,043 -71,873 |
| Gross Profi t | 25,554 | 19,170 |
| Other income Selling and Distribution Administrative Expense |
1,599 -28,877 -5,397 |
758 -21,053 -4,413 |
| Result from operations | -7,121 | -5,539 |
| Finance income Finance expense Net fi nance cost |
1 -1,912 -1,912 |
591 -1,688 -1,097 |
| Result before tax | -9,033 | -6,636 |
| Income tax expenses | 4 | -37 |
| Result for the year | -9,029 | -6,673 |
| ASSETS | 30 SEP 16 | 30 SEP 15 | EQUITY AND LIABILITIES | 30 SEP 16 | 30 SEP 15 |
|---|---|---|---|---|---|
| € '000 | € '000 | € '000 | € '000 | ||
| Non-current assets | Capital and reserves | ||||
| Property, plant and equip ment |
2,256 2,370 |
Business Equity Equity |
8,054 | 6,492 | |
| Intangible assets | 21,815 | 13,233 | 8,054 | 6,492 | |
| 24,185 | 15,489 | Non-current liabilities | |||
| Current assets | Loan from related parties (shareholders) |
20,071 | 18,669 | ||
| Deferred tax liability Other liabilities |
2,560 3,000 |
2,572 | |||
| Inventories Pre-ordered stock |
15,452 6,151 3,414 4,554 |
25,631 | 21,241 | ||
| Trade an other receivables Other current assets |
7,440 2,692 6,271 |
4,020 2,476 |
Current liabilities | ||
| Cash and cash equivalents | 7,446 | Trade and other payables Amounts due to related parties |
16,096 2,030 |
7,190 | |
| Other liabilities | 7,643 | 5,212 | |||
| 35,269 | 24,647 | 25,769 | 12,402 | ||
| Total Assets | 59,454 | 40,135 | Total Equity and Liabilities | 59,454 | 40,135 |
| CASH FLOW FROM OPERATING ACTIVITIES | 30 SEP 16 | 30 SEP 15 |
|---|---|---|
| € '000 | € '000 | |
| Operating result – Depreciation and amortisation of non-current assets – Movements in working capital: |
-7,121 2,283 |
-5,539 1,525 |
| - (Increase)/decrease in trade and other receivables - (Increase)/decrease in inventory - (Increase)/decrease in pre-ordered stock - Increase/(decrease) in provisions - Increase/(decrease) in trade and other payables - Increase/(decrease) in amounts due to related parties Working capital movement |
-3,694 -5,040 2,239 -1 10,479 -1,173 2,810 |
-1,565 -1,559 978 -78 190 0 -2,034 |
| Cash generated from operations Interest received |
-2,028 1 |
-6,047 0 |
| Net cash (used in)/generated by operating activities | -2,027 | -6,047 |
| CASH FLOW FROM INVESTING ACTIVITIES | ||
| Investment for property, plant and equipment Investment for intangible assets Investment for acquisitions |
-526 -2,231 -1,650 |
-966 -1,893 0 |
| Net cash (used in)/generated by investing activities | -4,407 | -2,859 |
| CASH FLOW FROM FINANCING ACTIVITIES | ||
| Interest paid Net additional fi nancing from related parties |
-833 | -695 16,750 |
| Capital increase | 10,008 | |
| Net cash (used in)/generated by fi nancing activities | 9,175 | 16,055 |
| Net increase/(decrease) in cash and cash equivalents | 2,741 | 7,148 |
| Cash and cash equivalents at the beginning of the year | 3,529 | 297 |
| Cash and cash equivalents at the end of the year | 6,271 | 7,446 |
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