Zur Rose Group AG (OTCPK:ZRSEF) Q2 2022 Earnings Conference Call August 18, 2022 5:00 AM ET
Company Participants
Walter Hess – Chief Executive Officer
Marcel Ziwica – Chief Financial Officer
Conference Call Participants
Alexander Thiel – Jefferies
Christopher Johnen – HSBC
Gerhard Orgonas – Berenberg
Otto Sieber – Barclays
Jan Koch – Deutsche Bank
Operator
Good day, and welcome to Zur Rose Group AG 2022 Half Year Results Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Walter Hess. Please go ahead, sir.
Walter Hess
Good morning, and welcome to everybody. Marcel and I, we are very happy to present to you the half year results today. The world is facing many turbulences at the moment, resulting in uncertainties [Technical Difficulty] markets, whereas our business, pharmaceuticals, is hardly impacted by all of that. On the contrary, our key messages for you today are, that we have set all our key priority on achieving EBITDA breakeven already in 2023, and as a result, there is no additional cash needed for operational business. Our highly efficient distribution center in Heerlen is live and the medpex brand integration has started and with the rollout of the eRx in Germany, the digitalization of a EUR15 billion market with prescribed medication will take off now.
So let’s dive in these topics. Now by first giving you a business update followed by a deep dive in our breakeven program which that we have announced, and then Marcel will give you a financial update and then outlook before we come and move to the Q&A sessions.
Executing and delivering is of highest importance for us as a management team. Therefore, we are very pleased that we can report today that we have achieved all our targets in the first half of this year. The slight revenue increase of 0.4% is within expectations. We have improved our EBITDA already by CHF37 million by increasing gross margin by 0.6 percentage points by realizing first cost reductions and by improving marketing performance, and we have CHF200 million of cash on hand by end of June this year.
One of the most important objectives was to go-live of the distribution center, the new distribution center in Heerlen. On the picture, the upper picture on the right-hand side, you see in front, the new distribution center, we call it, DC2 and in the back, the previous existing distribution center, DC1. This target, we have successfully accomplished. For us, it is a strategic milestone as it is pre condition for the brand integrations. We expect the capacity increased from 12 to 27 million parcels per year, and with this unique infrastructure, with highly efficient and secure processes, we will now be able to fulfill the eRX demand ahead of us. The improvement of logistic cost per parcel is higher, is more than 30%, which will lead to a cost reduction of CHF10 million per year with first savings already in the course of this year.
The next big milestone for us is the operational integration of the medpex brand into the new distribution center in Heerlen. Stifts-Apotheke, this is the pharmacy of medpex will be closed by his owner by end of October this year. Yesterday evening, the 350 employees concerned have been informed about this step by the pharmacist. The location Ludwigshafen will continue and operate in the future as a logistic hub of the Zur Rose Group from non-pharmaceuticals and add a capacity of 7 million parcels per year. Therefore, we have offered shops to about 200 logistics and pharmaceutical employees from the Stifts-Apotheke in Ludwigshafen and in Heerlen. At Visionrunner, at Zur Rose Group company and service provider to the Stifts-Apotheke we will reduce 36 jobs. The employees concerned will get individual compensation packages of our responsibility, social responsibility. And all in all, the leverage of the synergies out of that and the reduction of complexity will lead to positive EBITDA impact of more than CHF8 million per year.
Let’s go now to the eRX. As of yesterday more than 154,000 eRX have been redeemed from the telematics infrastructure and all of them without any technical problems and most of them could already be built without any problems. Our share within this test phase on eRX is 3 times higher already than with the pRX, the paper prescriptions. This eRX test phase will now end successfully on August 31st this year. And then immediately, the German-wide phased eRX rollout will start on 1st of September. All stakeholders, and that’s very important are committed to this step and to this rollout and they have agreed commonly on success criteria for a mandatory rollout in the first two regions, which are Schleswig-Holstein and Westfalen-Lippe. This includes about 11 million inhabitants, which is equal to 14% of the German population and already relevant.
The success criteria they have agreed on are that all of the patients have to be informed by insurance companies, by doctors, by pharmacies. Second criteria is that 25% of all issued prescription, these prescriptions have to be issued electronically in a period, in a invoicing period of one month and the rate of patients returning to the doctor and asking for a paper prescription because they had a problem with e-prescript has to be below 3%. Once this criteria are fulfilled, these two region will turn into a mandatory rollout phase and the next six federal states will start the rollout phase as these two regions will start on 1st of September.
With regard to the redemption channels from eRX, there is the gematik head, the paper print out and the scan of the tokens already in place and broking without any problems. Further channels are under examination such as the use of the EGK, SMS email or third parties terms. We on our side, we support every redemption channel, which helps to speed up the eRX rollout nationwide.
With regards to the EGK, we are in close contact with the Ministry of Health, the BSI and the gematik together with the EAEP, the European Association of the E-pharmacies, to define and find a common solution, which is convenient and non-discriminatory for online pharmacies and for our customers. We are convinced, at the end of the day, there will be several redemption channels and patients will decide and the patients we choose which channel fits best for him and they certainly will choose the one with the highest convenience and the best value-added services and as in all other sectors, online will play a relevant and major role in that.
Let me remind you again on why eRX is really a once in a lifetime opportunity and is the game changer in Germany. As mentioned at the beginning, there is a CHF50 billion market, it is a growing CHF50 billion market, where now 500 million RX per year are getting digitalized within the next quarters. 80% of these 500 million prescriptions is for chronic demand where we, as a pharmacy, as an online pharmacy, have most convenient processes and best value-added services.
The online penetration as of today, Germany for Rx, is below 1%, whereas the OTC online share in Germany is already at 23%, which means and shows that the German’s are very online pharmacy sales. And to the most comparable market in Sweden, the online share there within six years went up to 13% already. We on our side, have already an eRX potential of more than EUR1 billion in our hands with our existing OTC active customer base. This comes out of studies which say that in Germany potentially 26% of the population are chronic patients. This will bring us up revenue potential that is already 4 times higher than the pRX revenue we have on hand as of today.
But also the unit economics and the KPIs of eRX are outstanding. An eRX customer and eRX patient with chronic demand has a 10 time higher customer lifetime value than a regular OTC customer. The basket of an eRX is EUR110 whereas a basket of an OTC order is at EUR40 only and the contribution margin of an eRX order is EUR14, whereas the OTC order is EUR4 only. So you see ERX and OTC is two completely different businesses. And we as DocMorris are really best positioned with the largest active customer base and the best brand awareness with an aided brand awareness of 68% recently and already an eRX awareness of 22%. And this all sum up explains and shows why and how much eRX will be the game changer in the German market.
So let’s come to our breakeven program now. Between 2017 and 2021, our focus was on growth, growth of revenue and growth on active customer base. A space for conversion of active OTC customers to eRX customers. Reinvested in best talents, in technology, in eRX readiness and in commercialization. With the result of the revenue CAGR of 20% for this period of time.
Now this year and next year, our clear focus is on achieving breakeven. Therefore, we have defined an accelerated breakeven program, which includes reduction of complexity, operational excellence and the focus on core businesses and core markets with the clear targets to get to breakeven EBITDA by next year. And then based on that, we will focus on eRX-led profitable growth and the further expansion of our digital health ecosystem. With our target to profitable double-digit growth and positive free cash flow.
Already in Q1 this year, we have started to implement the transformation program, which would have led us to a breakeven in 2024. Now we have extended this program and we have accelerated it to a breakeven program with a positive EBITDA impact of CHF130 million compared to 2021, which will bring us to the EBITDA breakeven in 2023. In order to realize as many as possible full year effects already in the whole year 2023, we have immediately started with executing the measures with an effect of a mid-single digit percent negative revenue in 2022. The program includes also a significant reduction on OTC marketing spend but also a relevant reallocation of the reduction to an eRX marketing budget. But very importantly and we really would like to underline that, the EBITDA breakeven 2023 will be independent on the eRX scaling.
We have set up full measurement plan with actions behind and all the measures are backed with clearly defined actions, they are quantified and there is a clear responsibility behind it. We have defined three clusters of measures, gross margin increase, performance improvements and structural synergies. In the cluster of gross margin increase, we have defined activities and actions for improving our purchasing conditions with the industry but also with the wholesalers, we have defined actions for selected price increases and product mix, we have further defined actions to extend our assortment but also to optimize our assortment and to go live with our advertising services now in Germany. In total, this will lead to an positive EBITDA impact of CHF25 million.
On the performance improvement cluster, we have defined activities and actions for productivity improvements, whereas the DC2, the realization now of the savings is of highest importance for productivity improvements. We have further defined actions to reduce direct logistic costs, for example, distribution costs, we have defined measures and actions to improve our marketing efficiency, and here very clearly, we will focus much more in the future on profitable orders and profitable customers and customers with the higher potential being converted from OTC customers to eRX customers and we have defined actions to reduce brand marketing costs. All of that in total will contribute with CHF60 million.
Then in the third cluster of structural synergies, we have clear defined action operational integration of brands, I’ve already told you before and explained to you before what we have started now with the medpex brand, we have further defined actions to consolidate and reduce brands, the number of brands, and we have defined more actions to reduce indirect costs including wild costs, contributing with CHF45 million, and in total, contributing to this CHF130 million EBITDA improvement, which we plan to achieve with EBITDA breakeven in 2023.
And all of that will result that there is no external cash required for our operational business breakeven. Based on the cash balance of CHF200 million we have on hand by mid of this year. The external financing needs are limited to refinancing of our upcoming maturities plus some additional headroom. We have prepared various financing options. We are actively monitoring the markets for a suitable environment and for the right moment.
And now, I would like to hand over to Marcel to continue with the financial update and with an outlook.
Marcel Ziwica
Thank you, Walter, and welcome everyone to the financial update. In summary, we can say that the half-year results are fully in line with our communicated targets. But let’s just dive into it starting with external revenue development. So Rose Group achieved a 0.4% growth in local currency. Converted at the current exchange rate, this results in a decrease in absolute numbers as you can see on the yellow bars.
In Switzerland, the acceleration of growth to 9.6% is mainly driven by the B2B development, which was extraordinarily strong. This is based on a normalization of the Swiss market after the pandemic. In Germany, the external sales decreased by 3.9%, this includes the continued decrease of paper prescription business upfront to the launch of electronic prescription and also reflects the optimization of OTC marketing in a lot of unique online market. And segment Europe achieved 2.9% growth, this already reflects the decided slowdown of the international expansion due to our stronger focus on earnings.
As Walter said, we have already started to implement measures on marketing efficiency and focus on high-quality customer cohorts. The development of our KPIs reflects these first results of this program already. The number of active customers came slowly down from 12.4 million to 11.7 million and is overall in line with H1 ’21. On the other hand, the repeat order rate increased to 76%, reflecting the focus on existing customers with higher loyalty and a certain reduction in new customer attrition, for example, via search engines.
Our average baskets for prescription drugs went up to EUR128. The combination with the increase on order frequency shows the improvement out of our marketing measures. On the OTC side, the development of baskets and order frequency remained stable. In terms of site visits, we saw an increase from 234 million to 255 million from June ’21 to June ’22, but a slight decrease compared to full year ’21.
The impact on half yearly EBITDA development is shown on this slide. In the second half of ’21, we increased our whole spendings in reliance on the introduction of electronic prescription, because of the delay, we have jump back this again and started this dedicated program to improve our earnings. The preparation and implementation started and will lead to EBITDA breakeven in ’23. Nevertheless, we are already seeing the first promising results from the measures that have been initiated. This leads to an improvement of CHF37 million compared to the previous period to minus CHF49.2 million adjusted EBITDA in the first half of 2022.
In the P&L view, we see a gross margin increase by 0.6 percentage points compared to the second half of 2021. This upside trend will continue and even accelerate. The insourcing of specific functions started with an overall positive impact. The increase on personnel spendings is overcompensated by reduction on other operating expenses. Marketing expenses still include one-off electronic prescription TV campaign in the first quarter of 2022, which could not be stopped on short notice.
Below EBITDA, we see a slight decline of depreciation and amortization but an increase of net financial results impacted by foreign currency. The actual figures show negative adjustments from the reported EBITDA of minus CHF43.1 million adjusted EBITDA of minus CHF49.2 million on the right graph on this chart. The CHF12 million adjustments for M&A are mainly driven by an earn-out valuation and related to the share price decrease of Zur Rose Group. The CHF5 million integration plus our adjustments are in connection with the initiated breakeven program and especially the brand integration of medpex.
Finally, our balance sheet remains in good shape with a solid cash position of CHF199.2 million. We could again successfully reduce the capital needs for networking capital by CHF13.6 million. The main impact came out of the reduction of inventories where we have implemented additional tools to increase efficiency. The management of networking capital and inventory restate in our focus, although positions of the balance sheet remain broadly in line with previous year.
With this, I would like to lead you to our outlook. Due to the strong focus on earlier EBITDA breakeven, including the concentration on more efficient sales channels and customer cohorts, Group external revenues 2022 are expected to decline in the mid-single digit percentage compared to previous year. The clear market leadership of Zur Rose Group remains untouched. The growth rate of our main brand of DocMorris is also impacted by these short-term priority on overall earnings. we still expect a positive growth rate on the DocMorris brand. Despite these lower sales, we are pleased to confirm the outlook on adjusted EBITDA level in 2022 in the range of minus CHF75 million to minus CHF95 million. As explained, we now target adjusted EBITDA breakeven already in the financial year 2023. According to our assessment, the inflationary impact will not be where its significant and we will be balanced out by throughout the whole income statement. Our mid-term EBITDA margin target is confirmed at around 8%.
Before we get into the Q&A session, Walter will conclude the presentation with a few final remarks.
Walter Hess
Thank you, Marcel. So let me highlight again on the key takeaways of today’s presentation. First, we fully focus on achieving EBITDA breakeven in 2023. Second, as a result, no additional cash is needed for our operational business and third, the digitalization of a EUR50 billion RX market in Germany takes of now.
So before moving to the Q&A, I have the pleasure now to introduce to you our new Head of Investor Relation, Daniel Grigat. Some or probably most of you already know him and you can address your question after the call already directly to Daniel. Christoph Herrmann, who did this job and function before, he will take on a new job within the Zur Rose Group.
And now, let’s move to the Q&A. Thank you for your attention so far and yeah please ask your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question today comes from Alexander Thiel of Jefferies. Please go ahead.
Alexander Thiel
Hi, good morning gentlemen. A few questions from my side and I would like to take them one by one. First on the new full year revenue guidance, which implies a potential double-digit decline, in the second half assuming a minus 5% of impact. Could you provide more color on the different markets. As I expect the Swiss market to perform strongly and paper RX seems to be very stable based on the conversation we had in the morning. So the two levers are OTC Germany and rest of Europe and I understand that Europe is not core at the moment. So what is your planning on OTC in the second half and is part of the decline also driven by the medpex consolidation with potential customer journey? Thank you.
Marcel Ziwica
Yeah. In general, you’re absolutely right. These are the two channels where we see the decline in Europe, as explained. We slow down actively because it’s not in the short-term focus and we have to prioritize on EBITDA. And then it’s about OTC Germany, where we optimize our marketing spendings, where we focus on high quality customer cohorts and also reduce some of the sales channels as price search engines or Google shopping in order to improve profitability, but all of that, under the clear target of keeping our clear market leadership position.
Alexander Thiel
Okay. My second question is on the e-script side, as we have heard from your competitor that EGK is the priority topic for the BMG. So my question is on your discussions with the BMG and BSI decline non-discriminatory solution for online pharmacies, could you provide more color where do you stand in your discussions and how likely you see an open solution for online pharmacies? Thank you.
Walter Hess
Sure. So the discussions are quite intensive. So we meet with quite large teams with all the three of them, almost on a weekly base. The discussions are very constructive, and we elaborate different options and work on different options. And at the moment, we are quite positive to find a common solution with them.
Alexander Thiel
Lastly on your marketplace strategy, we have seen a draft which is not in favor of for potential Rx strategy. So could you provide an update, is this too important for you and how many partner pharmacies you have at the moment on the marketplace side?
Walter Hess
Yes, sure. So first of all, the direction it goes now completely confirms the strategy we have chosen to build our ecosystem around our pharmacy at the pharmacy platform and not on a, let’s call it, the third party platform with no detachment to pharmacy. So this is confirmed. And so we are very happy that this is now also going into law.
Regarding the marketplace expansion, we have somewhat more than 200 pharmacies, between 200 and 250 already connected and we can cover with the demand we have now on orders roughly 50% of the regions, where people typing their postal code and are looking for a same-day delivery whereas the total number is already very low relative to the total number of orders, even then, the demand for a real same-day delivery is even much lower and in fact is below 1%. So therefore, the importance and relevance is not that high what we see at the moment. But nevertheless for us, it’s important to have it as a value-added services. Value-added service and is part of getting all of the share of wallet of a patient and the customers.
With regards to eRX. So we have set up the processes in a way that it’s never us a platform or a pharmacy who would handover or redeem an Rx and then forward it to a pharmacy. It is always the patient who decides and it is always the patient who has the token and who has the prescription on hand and then the patient decides in which pharmacy and when he would like to get his medication. So therefore, also there, the way we have chosen is confirmed by what we have seen so far in this draft and yeah, for us, it’s a favorable development.
Alexander Thiel
Maybe as a quick follow-up. Does this also impact your competitors on the platform side, so [indiscernible]. Are they still or are they still possible or are they not possible with the current draft?
Walter Hess
Well, we have a clear opinion on it as it is said, pharmacies, clinics, doctors are allowed so the healthcare providers have a direct connect to the gematik infrastructure and also applications with value-added services. The so called EGAS, but to qualify their platform and their service, I think we are not the right ones. We have a clear opinion about it, but for us, it’s important that our solution is exactly the right one and we have chosen the right strategy.
Alexander Thiel
Okay. Thank you.
Walter Hess
You’re welcome.
Operator
Thank you. We now move on to our next question which comes from Christopher Johnen of HSBC. Please go ahead.
Christopher Johnen
Yes, good morning, everyone. Thanks for taking my questions. I’d also like to do them one by one. First on your external financing needs. So you say no external financing needs except for refinancing plus some additional headroom. What us additional headroom mean here and how is that not external financing?
Marcel Ziwica
Yeah. First of all, we still have this CHF200 million on balance sheet and so no immediate need and the focus is on refinancing of the maturity of next year of the CHF115 million bonds. And the headroom for our operation business we see somewhere in the range between CHF50 million and CHF75 million, just to cover uncertainties. For the moment, we do not have any indication for this, but it’s, as you know, the responsibility of the management to prepare so far for such topics.
Christopher Johnen
Okay. And on the various financing options, let’s say, on the rollover of the maturities, does that include a potential capital increase or would you rule that out?
Marcel Ziwica
We have a range of transactions available for the decision on timing and installment, we will take into account the market environment and also the interest of shareholder/stakeholders and will decide at the relevant time.
Christopher Johnen
Okay, that’s clear. And then on the EGK, I understand you are quite convinced that there will be a discrimination free possibility, but discrimination free does not mean hassle free, right. We have the example with the paper script right now, it’s free from discrimination but it’s still a major pain to send that via post to the Netherlands. So what options are we realistically looking here, we hear a lot of things about digital token, but technicalities are not necessarily clear to me, so I’m curious how hassle free that will ultimately be? So is there any way for you to elaborate on what the, let’s say, most relevant options are?
Walter Hess
Well, we certainly hope that the hassle will not be as it is now for the paper script where you have to take an envelope and walk to postal box. It must be much more convenient. And as said, we are elaborating with them several options and we have already looked at other sectors handle such identification, not the video ident. This is not an option, it was not an option we were talking about with them. So this has no impact on our proposals to them, but I think it’s not the right place to go into details now, but I can assure you, there will be much less or much more hassle-free than the process that we have in place today.
Christopher Johnen
Okay, that’s understood. And one final maybe if I may on the 20% threshold for the eRX, that seems at least to me, like a very high threshold. What’s your view on that, is that realistic between 1st of September and December 2 to get such a high number done in the starting market, if you want to call them that?
Walter Hess
Well, we see it in 25%. So first of all, when we have seen the criteria, our first reaction was great because they have agreed it together, so they are all committed and stand behind it. So this, in our opinion, is first a very important fact to mention. Then the 25%, we said, that’s good because it is ambitious, what would you have asked us if this number would have been 5%, so no critical mess, no ambitions in it. So we felt that’s good because as everybody is on the radar now mainly in these two regions and we know that they’re preparing intensively, marketing materials are prepared by several participants in the market and that the patients have to be, this is important, that’s why I highlighted it in in my part, this number one criteria. So the patients have to be informed by the insurance companies, doctors and pharmacies about the eRX opportunity and therefore going up to 25%, is it possible within three months? We don’t know. I think it is ambitious, but frankly, if it takes one or two or even three months longer in the first two regions. So what we talk about the EUR50 billion market, which is getting digitalized now in the next quarters and if it takes one, two or three months longer, I think this is really not the factor. And what we can do and we can say is, we will do everything and we will also focus on these two regions to make it known to the 11 million people in these two regions. We will do take our part of the information and, for us, it’s anyway, it’s just a great move and so let’s start now with these two regions, let’s learn and if it is three, four or five months, frankly, it doesn’t matter for us at least.
Christopher Johnen
Okay, very clear. Thanks for taking the question.
Operator
Thank you. We now move onto Gerhard Orgonas from Berenberg with our next question. Please go ahead.
Gerhard Orgonas
Thank you. Also a couple of questions please. In 2021, your spends around CHF120 million on marketing on an absolute level by how much do you want to reduce the pure marketing spending by next year?
Marcel Ziwica
As you can see, the half year result, we are at about CHF38 million and we will do savings on the OTC side in order to have enough power for the eRX side. So overall, the marketing spendings between 2022 and 2023, we do not see a relevant difference on the absolute demand.
Gerhard Orgonas
And H1 is a good run rate, even though there was an extra TV campaign?
Marcel Ziwica
Yes, that’s good one right.
Gerhard Orgonas
And then second question is are you giving up any of the brands that you’ve acquired over the past couple of years, are you stopping any of them?
Walter Hess
Well, I can answer it from a business not the financial aspect but the business aspect. We have acquired on one hand brands and customers in order to be ready and having as large as possible active customer base then to convert them into eRX. And so our task now is to make this happen. And as I have said before, the precondition for all of that, whilst the new distribution center two in Heerlen, that’s why for us it’s such a strategic milestone and we are very glad to have delivered on time and we can ramp up now this DC2. And so this will help now to continue the strategy we have had with all this merger acquisition activities on the pharmacy side.
And then the other companies we have acquired they have added value either to technology platform or to added value services like telemedicine. And here, we do not change that the strategy, we stick with our strategy, we want to be and we will be the preferred health destination, digital health destination our customers and patients. And therefore, the services will be needed, the platform will be needed. And yeah, therefore, they remain strategic for us and, therefore, there is no plan whatsoever as you just mentioned.
Gerhard Orgonas
Okay. So there is no risk that in the consolidation of brands here, you would have to have a goodwill write-down?
Marcel Ziwica
No, we do not have any indication that this will need to write-off. We do this impairment test on a regular basis and also based on our breakeven plan, we feel comfortable that this does not lead to a reduction of goodwill amount in the balance sheet.
Gerhard Orgonas
Okay. Then a question on your financial costs in H1, minus CHF17 million, quite elevated the significant effects impacting there or any one-offs?
Marcel Ziwica
The usual, interest rates in it and a one-off if would call it like this is the change in currency rates during the first half of this year. This reduction also led to some financial expenses in the P&L.
Gerhard Orgonas
Okay. And my last question is on free cash flow guidance, do you have an idea where you’re going to end up this year and what would be the free cash flow if you end up on EBITDA breakeven next year, how much of our cash would you spend?
Marcel Ziwica
Yeah, in general, we’ve confirmed EBITDA guidance for 2022. So on the cash flow for ’22, there is no relevant change compared to the March presentation. There, we talked about roughly minus CHF150 million on free cash flow level and this way we significantly reduced next year due to the EBITDA breakeven about sales leads to cash needs for ’23, and in general, we see cash flow breakeven roughly one year after EBITDA breakeven.
Gerhard Orgonas
Okay, thanks so much.
Operator
Thank you. We now move onto Otto Sieber of Barclays. Please go ahead.
Otto Sieber
Good morning, gentlemen. Otto Sieber here from Barclays. Thank you so much for taking my question. I have one question and on the COGS improvement. So if I understand you correctly, you were guiding for CHF25 million improvement in COGS to get to EBITDA breakeven next year and your gross margin on external set was about 13% in 2021. So my question is what gross margin improvement on external set is doable by next year, especially given an adverse mix effect if Switzerland becomes a bigger part of the mix? And maybe a follow-up to that or correlate to that, how much improvement do you foresee from advertising that you mentioned? Thanks so much.
Marcel Ziwica
It’s not only talks, it’s about gross profit and there maybe have improvement of procurement, but we also have product mix and selected pricing increases. And of course, the gross margin in a percentage increased significantly and we are on several percentage points to achieve this CHF25 million increase of gross margin and gross profit.
Otto Sieber
Thank you so much.
Operator
Thank you. From Deutsche Bank we have Jan Koch with our next question. Please go ahead.
Jan Koch
Hello. Thanks for taking my questions. And I would also like to ask them one by one. Starting with your cost saving program, so why have you decided to implement this program now. So what has changed since the last earnings call back in March, is it solely driven by changes in the funding environment or is it also driven by a slower expected ramp up of the eRX rollout and online penetration?
Walter Hess
Well, maybe I can move the first part. No, it is not at all in connection with eRX, because as I’ve said, the achievement of the EBITDA breakeven next year is completely independent of the eRX scaling. We have already set up a program to come to EBITDA breakeven in 2024. I have informed about this transformation program already end of March and we have now just taken and enlarged and accelerated this program. And of course, this is also due to the changing environments and the need of becoming profitable for the future business faster or as fast as ever possible. And therefore, we decided to accelerate the program 2024 now into this breakeven program 2023. And the good thing is with distribution center two now running, we also have the base ready and in hand to also proceed faster than previously planned.
Jan Koch
Okay, very clear. Then one clarification. So thanks for providing your free cash flow expectations for the next few years on slide 15, I understand that, sorry, your adjusted EBITDA breakeven is not dependent on that eRx, but what are your assumptions on the eRx ramp up behind the free cash flow numbers on slide 15?
Marcel Ziwica
As explained for the breakeven for 2023, we can achieve this with or without e-script scaling. So there is no impact on this number. Of course we expect to have significant upsell on prescription docs in 2024 and there will be a positive impact out of this, but for the next 12 to 18 months this does not have any impact at all.
Jan Koch
Okay, great. And then finally two quick questions on eRx. So on the 25% eRx share, the market wants to see, I understand that the 25% share is based on the latest billing run, but how long this period. So do we have to reach the 25% on a daily, weekly or a monthly basis?
Walter Hess
It is a monthly basis. You build the first or second day of the month, the insurance companies. And this is for weekly turnovers.
Jan Koch
Okay, great. And then could you update us on the number of e-prescriptions you have processed so far. So based on your comments in the prepared remarks, it’s roughly 2,000 prescription is a better a fair assumption?
Walter Hess
Well, please understand that for competitive reasons, we would not like to give any numbers, just speak with what we have said that the share within this test phase and then you have to understand the test phase. So in this test phase, there was mainly a pairing of doctors and local pharmacies. And even under these circumstances, our share of electronic prescriptions compared to the 154,000 is 3 times higher than the paper prescriptions and the rest, sorry, I have to leave up to you for mentioned reasons.
Jan Koch
Okay, understood. But a quick follow-up, is it fair to say that the number declined since the latest update in percentage?
Walter Hess
The latest update was yesterday and the latest before was the day before yesterday.
Jan Koch
Sorry, your update in April, where you mentioned that your process took for about 350 which resulted in market share of 3.5%. [Multiple Speakers] assume that this?
Walter Hess
Yeah, I can’t give you a fair answer there. I would have to go back to the figures then to give you an answer to that.
Jan Koch
Okay, thank you.
Operator
Thank you. That will conclude today’s question and answer session. I would now like to hand the call back over to you Mr. Hess for any additional or closing remarks.
Walter Hess
Well, there are not many. It was a pleasure for Marcel and myself to have the chance to present to you. And finally, also to inform you about we are working on and what our plans are. And thank you for your time. Thank you for your attention, and have a good day. Thanks a lot.
Marcel Ziwica
Thank you.
Operator
Thank you. This concludes today’s call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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