Redcare Pharmacy NV
XETRA:RDC
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Redcare Pharmacy NV
Earnings Call Analysis
Q3-2023 Analysis
Redcare Pharmacy NV
In his first earnings call as CEO, Olaf Heinrich presented Redcare Pharmacy's third quarter results with great enthusiasm, noting both strong financial figures and advancements in their e-Rx strategy. He asserted that the timing was ideal for sharing the company's remarkable achievements.
Redcare Pharmacy experienced significant growth this quarter, with sales surging by 67% in Q3 and 45% year-to-date. Even when isolating figures to account for the impact of their strategic partnership with MediService, growth was impressive at 26% for Q3 and 24% for the year thus far. Non-Rx sales ascended with a slightly higher trajectory, revealing a 28% increase in Q3 and 27% over the nine months. Their client base expanded by 400,000 active customers in Q3, reaching a total of 10.5 million, a substantial gain from the previous year's 1.6 million. Furthermore, customer satisfaction remained a priority, with a Net Promoter Score consistently above 70, underscoring the company's focus on fostering loyal and content customers.
Financially, Redcare is on firmer ground, with a record adjusted EBITDA for Q3 at 3.2% and a year-to-date figure of 2.9%, marking a 4 percentage point leap from the preceding year. This positive performance extends across all components of the profit and loss statement, culminating in a solid cash position with a balance well in excess of EUR 200 million for the first nine months. Notably, the addition of MediService only marginally influenced EBITDA margins, which suggests the core business thrives independently of this consolidation.
Quarter three saw Redcare Pharmacy process a staggering 7 million orders, 1.4 million more than the previous year's Q3. A significant portion of these orders, 86%, originated from returning customers – a testament to the company's successful retention strategies. Such figures are a clear indication of an expanding recurring customer base that underpins the business's profitability and stability.
On the back of these solid results, Redcare Pharmacy has confidently reaffirmed its upgraded 2023 full-year guidance. Investors can anticipate non-Rx growth between 20% and 30%, net sales reaching between EUR 1.7 billion and EUR 1.8 billion, an adjusted EBITDA of 1.5% to 3%, and a free cash flow fluctuating from EUR -20 million to EUR 20 million. These projections underline a promising outlook for the year and reflect management's confidence in the company's operational success and strategic initiatives.
The adjustments made this quarter yielded a gross profit margin of 23% for the entire group, a 5 percentage point decline from the previous year. Yet, the company improved its selling and distribution (S&D) expenses, which now stand at 17%, signifying a 7.3% enhancement from 2022. These improvements contributed to the overall uplift in the year-to-date adjusted EBITDA, further bolstering Redcare's financial health and elevating expectations for future performance.
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Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Redcare Pharmacy Q3 2023 Earnings Release Investor Call. [Operator Instructions]. Our hosts today are Olaf Heinrich, CEO; and Jasper Eenhorst, CFO. I would now like to turn the conference over to Olaf Heinrich. Please go ahead.
Yes, very well welcome to everybody. As you know, it's my first time as CEO of Redcare, and I'm really looking forward to having this meeting together with you. And I think the timing is perfect because we have great numbers on the one hand, and we have also great development on e-Rx on the other hand. So looking forward, having a great Q3 presentation together with my colleague, Jasper.
So if we look into today's agenda, it's pretty straight forward. First, we would like to talk about financial performance and then give an update on business and strategy. And the focus here is on e-Rx and then outlook and guidance. Next slide. So if we talk about the financial performance, we can see in the 9 months great development across the entire P&L. If we start on the sales side, we can see fast growth, organic, but also non-organic. We have 67% in Q3 and overall year-to-date -- 45% year-to-date sales. If we exclude MediService -- you know MediService is the strategic partnership we launched in May of this year and fully consolidating. Since then, we have 26% in Q3 and 24% year-to-date, which shows Q3 has even been slightly better than the first half of the year.
If we look into the non-Rx we can see that's even a little bit higher. So we have 28% and 27% for the first 9 months of the year. If we look into the development of the customers, I mean, we are gaining active customers. We have done this over the last couple of years. But also in this quarter, we gained 400,000 additional active customers, ending up now on 10.5 million active customers. If you look year-on-year, we have added 1.6 million active customers. And at the same time, we kept the Net Promoter Score above 70.
But we are not only performing on the, let's say, customer or commercial side, but we are also happy to report a record EBITDA. Our adjusted EBITDA for Q3 is 3.2% and year-to-date is 2.9%, which is 4 percentage points up to the period last year.
And also important to say this happens across the entire components of the P&L. And of course, that leads to a solid cash position. We have for the first 9 months of the year of free cash flow and a cash balance well above EUR 200 million. We can confirm the raised guidance, which we raised already in mid of this year for the full year 2023. That means a non-Rx between 20% and 30%, net sales, EUR 1.7 billion to EUR 1.8 billion and adjusted EBITDA of 1.5% to 3% and free cash flow from minus EUR 20 million to plus EUR 20 million. And I think Jasper will elaborate a little bit more on that one.
The last point I would like to make is on MediService. I mean I mentioned that already earlier. It's our strategic partnership, and it's focused on the Swiss market. And here, everything is on plan, and we are really happy about this development. If we can go to the next slide, please.
Look -- I mean, we have double-digit growth across the group, as already mentioned. I mean there are 2 things I would like to point out. If we take out the MediService, you can see that in DACH, we have 24.4% sales, which I think is a really good outstanding number and even being talked by our international sales showing 28.7%. If we can please go to the next slide.
What we can see is the strong development on our number of active customers. Means 10.5 million is a really good starting point also when we think about going into the e-Rx. And what you can see is in quarter after quarter, we are adding a substantial number of new customers -- a number of active customers. It's 400,000 in this quarter, but also in the previous quarters had been a similar number. And it's not only building the customer file, it is also about having healthy customers. And therefore, we are really very proud of our NPS.
This is how we measure customer satisfaction for Q3. It has been 74. And at the same time, we were able to raise the basket and here, it's important to say that it's not because of MediService. That number is excluded MediService, therefore, I'm really happy that the basket is up again. So having said this, I would like to turn over to Jasper.
And it's a lot Olaf, So with all those new active customers, how many orders did we do -- at the right side of this graph, you see that in total, we processed in quarter 3, 7 million orders and 7 million orders is 1.4 million higher than the 5.6 million orders that we did last year. Of course, you see in the graph for all the year, the typical seasonality of an online pharmacy or at least of us where you see a very strong quarter 1 and quarter 4. And you see that Q2 and Q3 were, actually this year, only slightly lower than the first quarter.
So 7 million orders that we processed where actually, despite the already mentioned, a significant gain effect of customers that Olaf talked about already, but we're coming from 86% and that of course increased compared to the most recent quarters, 86% was coming from returning customers a reflection of apparently we do something that satisfies our customers. If we can go to the next slide, please, we go with all those orders, what are the numbers, to not repeat what Olaf said already at the start.
I would like to begin with the sales in quarter 3. So we increased our sales to EUR 476 million exactly in quarter 3 this year, which was an increase of 67.1%. Then immediately going to the adjusted EBITDA margin because quarter 3 is also the first full quarter of the full consolidation of MediService, which is impacting both the gross profit margin and adjusted selling and distribution expenses, and I will talk about that later, but first go to the adjusted EBITDA margin because actually the impact of MediService is only small. Actually, there is a smaller downward impact of MediService because MediService is operating at an adjusted EBITDA margin and [ EBIT ] margin between 2% and 3%.
So actually, despite the fact that that's the whole consolidation of MediService, we increased our adjusted EBITDA from 0.4% in quarter 3 last year to 3.2% this year. And we then go to the year-to-date number.
The adjusted EBITDA was minus 1% after 9 months last year and is plus 2.9%, so an increase of indeed 4 percentage points year-over-year. Then going to the absolute adjusted EBITDA. So one line lower. Last year Q3, EUR 1 million, this year EUR 15 million, an increase of, let's say, EUR 14 million progress. Last year, the first 9 months, minus EUR 9 million, an increase of 37 -- sorry, an increase to EUR 37 million of EUR 46 million adjusted EBITDA.
To us, this is the most important line as to profitability, the adjusted EBITDA but for full clarity's sake. There's also the fully loaded EBITDA as the bottom line of this table, and then you actually see that the year-over-year year-to-date increases of EUR 46 million, but it's even EUR 56 million, and that's because of the rapidly phasing out of the bookings because of the nonapplicability of IFRS 3 related to the business acquisitions we did in 2021.
I've seen the footnote saying business acquisition in 2022, but it should be 2021. So adjusted EBITDA, significant improvement, a very significant improvement and the fully loaded EBITDA even EUR 10 million, more improvement. Then in the gross profit margin and S&D and later more details about the drivers, but as Q3 is the first quarter where MediService is fully consolidated, and you see that our gross profit margin is standing at a 23% for the total group, which is 5 percentage points lower than last year. And the S&D is standing at 17%, which is 7%, 7.3% even better than last year. So all in all, the adjusted EBITDA, minus 1% last year after 9 months and plus 2.9% this year year-to-date. To the next one.
One additional slide here, not only talking about the year-to-date numbers that are already set for the total group from minus 1% to plus 2.9%, but also this slide to emphasize the segment that we report on always and all the details are also in the interim report as always. The DACH segment growing very fast, as Olaf explained already, improved from 1.4% to 5.2%. And actually, if you would strip out MediService, it will be even above 6%, so growing organically 24% in DACH, nonorganically 67% in DACH, but we're also improving our margin by 4 percentage points there.
And what is also something that makes us happy as a company at the moment is the execution of our international growth strategy where we are growing fast. And in the Netherlands, Belgium and France and Italy combined, we actually halved our negative EBITDA margin there, 40% lower adjusted EBITDA margin negative the year before from around minus 10% to minus 6%. Quickly to the next slide, please.
That's the growth of gross profit margin bridge in black. They're are the numbers, as I showed already in the table and are in financial statements. So the gross profit market after 9 months at 25.2%. No, sorry, I have to say -- yes, 25.2%. It's in the P&L and 23%. I quoted that number already in the third quarter. But then looking at the underlying developments of the -- excluding MediService business, and you see improved from last year after 9 months, 27.4% to 28.2% -- sorry, I'm quoting a lot of numbers, but the key on this slide is actually what we say, again, we were able to report improvements in our gross profit margin because on apple-to-apple base, we are 80 basis points better, and that is driven mainly by improving the product mix of the products that we are selling to our consumers. And the development in Q3 is comparable to the year-to-date so gross profit margin improvement. Let's go to the next slide.
The same setup here with a reported number in impact and then the apple-to-apple comparisons and here, what Olaf said already with improvement throughout the P&L. So it's not only the gross profit margin, but actually the majority is year-to-date. Just like it was in Q2 also in Q3 is coming from the improvement of the cost where we see an efficiency and effectiveness and also a significant impact of scale. So marketing improving lower as a percentage of sales compared to last year.
But then the other 2 blocks are also really noteworthy to point out. So despite the inflationary pressure on gas, on increasing labor costs, you see actually that we succeeded to have a lower last mile cost as a percentage of sales as a total company and also lower operational labor as a percentage of sales compared to last year. Very happy with the developments here. So that makes me come to the next slide, which is the cash flow bridge.
As always, this is including everything, also short-term deposits, et cetera. So cash and cash equivalents. If you look at that on the balance sheet, it's in cash and it is 95% of the other financial assets. But this is cash, at the start of the year, we had EUR 180 million. And at the end of the quarter, we increased this by EUR 46 million, to EUR 226 million. This is cash flow so that's some of the first 3 blocks is plus EUR 27 million year-to-date. That's the numbers. Then I'm happy to hand it over to you, Olaf.
Yes. Thank you very much. So now we would like to talk about business and strategy update. As I said earlier, a quick update on the branding, but in the majority of the focus should be on the e-script. Can you please go to the next slide. I mean, as you know, we successfully relaunched the brand on the corporate level so the Redcare Pharmacy brand, and we received a lot of positive feedback from all of the stakeholders. And as a consequence, we have done this now also on our web shops.
In Germany and Austria, incorporating a new look and field and at the same time, keeping the local hero names. And overall, we see there's also a positive feedback from our customers. And you saw the sales development in Q3. So overall, it looks very well, and it was very well received from our customers.
If you can please go to the next slide. Here, I would like to highlight 2 points. The one thing is we see an increased acceptance among healthcare professionals in Germany on the e-scripts. This is pretty clear numbers are going up. And the second message is e-scripts will be mandatory beginning of January 2024. So those are 2 really great messages. Let's look a little bit more into the details.
I mean, we saw that the number of scripts being issued by doctors are going up. Last week, we even had more than 100,000 scripts on 1 day. But to me, more -- at least equally important is that the number of doctors we are issuing scripts is going up. Right now, we are on 14,000. And if you look into where we have been by the end of Q2 -- we're talking about 4,000. So there's an additional more than 10,000 doctors within Q2 and Q3.
So that's very, very development. I mean on the pharmacy side, almost 16,000 are now filling scripts, but I mean, of course, we expected that it was -- that's the business of the pharmacy. So -- but really great development on the doctor side. And then the second topic, e-scripts being mandatory. I think it's important to point this out. we don't need any further regulation or something like this. So this is based on the PDSG from 2021 and has been reinstated by the Ministry of Health beginning of next year, e-scripts are mandatory in Germany. So that's very good news overall if we look into the market. If we can please go to the next slide.
Let's see what that means to our business model. Yes, as you know, there are different ways to redeem an e-script. We have from the online Gematik app. It's a digital solution, but it had one hurdle. You need to have the eGK, which is the German typical health care card plus your PIN. And as we are now almost nobody has the PIN. So it's an option, but it's a limited one. And then the second way to get it, it's really the paper print up, so you receive a print out from the doctor, and then you can use the QR code. And that's what you can do currently, scanning into our app and then we can fill the script. It's a nondigital solution. It happens on the request of the patient, but it works to date.
And then there's the third one, which we call the eGK plug-in solution. How does it work? I mean the patient after having been left the doctor has to go physically into the pharmacy and to present the same card they are using at the doctor site and have to plug it into the card reader of the local pharmacy. Here, you don't need a PIN, and therefore, that's a pretty good way to do the business for brick-and-mortar pharmacies. The only thing it is discriminatory for online pharmacies because as you can imagine -- mean you cannot plug in this card or you can't send in the card to us something like this.
So at the end of the day, this solution clearly takes away the patient choice, freedom of choice on a pharmacy level. And as you know, there is a fundamental in Germany, but also in most of the European countries as the free choice of pharmacy. And in this case, you cannot really use the online pharmacy.
So therefore, if you think about making to use cases, let's say, you are in mobile or online, then you can call your doctor and the doctor can even issue an e-script without seeing you, if that's fine with the doctor, but then you have to make your way to the pharmacy or if you look in rural areas, I mean sometimes it's 10 kilometers or more to find the way to the pharmacies. So it's really taking away freedom of choice. And that is something, of course, which is not acceptable. But the good news is if we please turn to the next page, we have developed a solution for that, a fully digital solution.
So we call it the eGK mobile solution, which is a digital twin of the plug-in solution for brick-and-mortar pharmacies. How does this work? So you download the app for pharmacy, can be a brick-and-mortar pharmacy, but of course, can also be an online pharmacy, then you present the same physical card in front of your mobile, the mobile reading the card via NFC technology and then the pharmacy sees all of the scripts in the app, and then you can -- as a customer, you can then choose different doses.
If you are with an online pharmacy, you can see in terms of if you would like to add something to the [ baskets ] or different delivery options, if it's a brick-and-mortar pharmacy, you can look into the product available or agree on a pickup or sometimes they will send. Overall, this is a solution which works for doctors. This is a solution which works for pharmacies -- for all pharmacies. And of course, it's a solution which works for consumers because by the end of the day, it's the real first application or, let's say, use case of the e-script in Germany, which is full digital and has added value.
If you think about what I explained earlier, if you're in mobile or if you are older or elderly or you live in the rural areas, you can call your doctor, your doctor can -- let's say, in the case of a repeat script, the doctor can issue the e-script either without seeing you or by having a video chat with you, then the e-script is on the e-server and then you can just attach the card to your smartphone and then you can choose all of the options, delivery from brick-and-mortar pharmacies else as well as our services as online pharmacy. It's a full digital way and works for everybody. I think this will really help also the acceptance -- on the acceptance on the e-script in Germany.
Let's look into the stages, where are we right now on this. The good news is no statutory changes on eGK. I mean this can all happen within the existing legal framework. We are in ongoing talks with Gematik, the Ministry of Health and other stakeholders on data security, for example. And by the end of the day, this is supposed to be a product of Gematik so that's the reason why we are in talks. Those talks are very positive because my understanding is anybody sees the value of this solution.
From a technology perspective, we are ready but again, we are in talks with Gematik. So purpose is that this becomes an official Gematik product. If we think about timing, our target launch date is the end of this year. And why is that? Because beginning of next year, e-script is going to be mandatory in Germany, and this is a discriminatory freeway for patients to act in the German market. So overall, very good development on Rx. And having said this, I would like to turn this over to Jasper.
Yes. Thanks, Olaf. And yes, after the clear explanation of the very good development we are seeing in e-Rx. Actually, if you can go to the next, yes, thank you. We are, at the same time, then here actually having the guidance for our current business, which is still excluding e-Rx. So e-Rx is at the doorstep but in the current year, we're actually also delivering numbers that we are very proud of to present to you.
On August 1, we increased our guidance for the year 2023, significantly a better numbers of today. It will be no surprise that we reconfirm those numbers. But to give a little bit of additional color, the non-Rx growth we raised from 10% to 20%, is all raised to 20% to 30%, and we are nicely totally on the midpoint of that performance over there. If we go to the total sales, where we had the guidance of EUR 1.7 billion to EUR 1.8 billion. With the visibility we have at the moment, we have the expectation that we will end at the very upper end of this guidance that we provided to you. And the same goes actually for the adjusted EBITDA, between 1.5% and 3%, we have in total, and actually we expect to end here also for the full year on the upper end of this guidance.
Free cash flow, the midpoint around 0, with the range because there are always significant fluctuations also working capital because we want to anticipate on stocking inventories where we think that it's a good moment. We have the limited of order at the end of the year with free cash flow. All I can say is that it is unlikely that we will end at the lower end of your guidance. Okay. Having said, I confirmed this guidance for actually the full year. I always repeat that -- and perhaps also with the indication of the numbers that we are achieving in that is giving you increasing comfort that we are confident that in the mid-term -- mid- to longer term, we have the business model with an adjusted EBITDA above 8%. That's actually everything on the numbers. I thank Olaf for this.
Yes. So are there any questions?
[Operator Instructions] Our first question comes from Alexander Thiel with Jefferies.
A couple of questions left from my side. I would like to take them one by one. My first one is on the current run rate of the OTC business. Is there any reason this should be lower in the fourth quarter? I mean, you already indicated you will be at the upper end of your guidance, but the fourth quarter is usually your strongest quarter and attached to that looking at the gross margin run rate in the third quarter, is this the new run rate going forward where we see now a full kind of consolidation of MediService for a full quarter? And also, in your financial income, there was a one-off effect, if you can touch on that for the first question. .
Yes, a strong quarter in Q4 in absolute terms, but last year also. So actually no impact on the growth percentage. Overall, top and bottom line, where we stand after 9 months, we are not aware of any significant one-offs that we had. And we're also not aware of any one-offs that we could have in Q4 at this moment. So I only stick to the full year guidance that we have and with non-Rx, we didn't say upper end but we said the midpoint in total of the growth, but the absolute sales indeed, we expect to end at the upper end of our guidance.
Because profit margin, indeed, if you take out some seasonality, which generally is more or less rounding, and then quarter 3 is the first quarter with the full impact of MediService so actually those not only gross margin but also expenses setups are good points, I think, to take a space and then to build on that one. Let me talk about the one-off in the financial expenses, indeed, yes, it was not a highlight to us despite that it's a significant gain of more than EUR 12 million.
But to me, that is actually mainly accounting. It's a noncash impact, but in this quarter, we had a trigger to reevaluate our conditional liability there related to the acquisition of GoPuls and at the moment, we released the discounted earnout. So basically saying, at the moment, we don't expect that we pay an earnout related to GoPuls. Of course, there is also a trigger to look at the total GoPuls acquisition, and we carefully did an impairment test and everything related to the assets we have and then we clearly go to a value which is higher than that we have in our books at the moment. So eventually, let's go the release of the discounted provision we had on our balance sheet, so the release is gone and nothing else has changed.
Okay. That's very clear. My second one is on the NFC solution that you have now provided a little bit more details on? Olaf, can you talk a little bit on how the negotiations are going with the BMG. I think in some articles in the newspaper you already stated that you would also roll out the solution without the approval of the BMG now with an official Gematik product, it sounds pretty good, in my opinion, founding a solution with the BMG. Maybe you can talk about [Technical Difficulty].
Well, I mean, I understand the question, but on the other hand, I would like to not really give any details into ongoing discussions with the Ministry of Health because that's not simply the way it works, yes. So -- but again, I can try to reinstate -- I mean, those talks are very positive because on the Gematik side and -- but also with other stakeholders, they see the advantage of that solution.
But again, it's -- by the end of the day, the idea is to -- that this becomes a product of Gematik, and there are certain rules and procedures. And we are following those and are in contact with the different stakeholders. And that's actually all I can say at this moment in time, sorry for that.
Our next question comes from Chris Johnen with HSBC.
So first, coming back to the eGK NFC solution. I understand that this is same the solution that DocMorris has. Do you have to pay anything for the use? Or is that not going to be a topic? That's my first question. And then on the first -- GoPuls performance. Maybe you can update us as to the performance versus initial expectations since you've acquired the asset so that we get a better idea on the sort of earn-out liability, whether this was always going to be driven by e-Rx. And this is -- basically 100% of the value here is supposedly coming from the e-Rx side of things and less from the OTC. Just a bit more color here would be great.
Maybe if I can start on the first question. I mean, I don't know anything about the DocMorris product. I mean, you clearly have to ask DocMorris. I mean what we have is an initiative of the European Association of e-pharmacies. And within this body, we are trying to convince the Ministry of Health of this eGK mobile solution. And here, we are making, I think, very good progress.
How -- and that is supposed to be a solution, which then becomes a product, hopefully, and then can work for all of the pharmacies, for online pharmacies as well as for brick-and-mortar pharmacies. So -- and then how the individual setup looks like, on our side or on the DocMorris side. I mean, DocMorris, I can't tell anything about and on our side, I mean, we are currently working on how we want to incorporate this solution into our product. We're already testing. This looks pretty good. But again, the approach to go to the Ministry of Health. Gematik is an approach via the association and it's an ongoing process. And second question, I would like to hand over to Jasper.
Okay, happy to take on that. Yes. No, Chris, thanks. And yes -- the whole acquisition and the whole business case of [indiscernible] GoPuls, is still to be related to e-Rx. And the fact that e-Rx [indiscernible] 1st of January 2022. And at the moment, it's starting to increase significantly, as Olaf said, but we are not on the level that we expected. That is all what was triggering and the reassessment of the earnout. Yes.
Our next question comes from Aisyah Noor with Morgan Stanley.
My first one is MediService. Given the sales results year-to-date are trending a bit better than our expectations. And you've now had a few more months to work with this organization. Do you have any new thoughts as to how the growth outlook for this business could be for -- if not next year, then maybe the midterm? And are you happy with the prior assumption for the previous business because of mid-single-digit growth rates? Or could we be looking at something higher for the midterm? I'll leave for that until the next one.
Yes. Okay. Aisyah, there are 2 things with MediService. The MediService product business, which is a nicely profitable, reputable, a very good ROE business that they're having. And there is this business that we expect from the cooperation from us being even more B2C in our proposition that we have in Switzerland. At the moment, we don't have any guidance on MediService besides the current year and that we expect what the sales are next year.
We expect on the second part of our cooperation. So combining their expertise, especially our expertise in the B2C marketing that, that can lead to do very nice results in the future. That's what we expect. But, Aisyah, we don't have any guidance there, so I cannot share it at the moment. But it's a solid business that existed already. We have also at new business. We are combining that. And in the new situation, we also have new opportunities to grow there, and that will be included probably in spring 2024 guidance point of view.
Okay. That's very helpful. And then the second question was also on the NFC eGK solution. How coordinated is this effort across the industry? And are you working on some standards as to how the solution will have? And what gives you the confidence in this 31st December launch date? Are you expecting some sort of approval, a sign-off or an announcement? Just trying to understand, given it's a new solution, how confirmed is that date? .
Well, I think that's a very good question. I mean, look, this solution, again, I mean, I was trying to explain that earlier. This is not our solution or DocMorris solution, something like this. By the end of the day, we hope that this becomes a product of Gematik, like Gematik has tons of other products. So that means also Gematik defines the rules together with the other stakeholders, for example, on data security and other stakeholders are involved as well.
And here, we try to work together with Gematik try to give some input on technology for example. But by the end of the day, we hope that this becomes a product of Gematik, which can be used not owned for online pharmacies, but also brick-and-mortar pharmacies can have an app and customers can attach the eGK to that one.
So therefore, that is pretty much -- sorry on that one. And as you can imagine, Gematik as well as the Ministry of Health and other stakeholders, they are working on a lot of products. So there is a pipeline like in all of other technology companies as well. Nevertheless, we think that we will have this ready by the end of the year and what makes me feel so comfortable is that beginning of next year, e-Rx will be mandatory.
And without that solution, the online pharmacies, also German online pharmacies will be discriminated. And therefore, we feel comfortable that this product will be ready by the end of December internally in terms of developing the technology we need, based on the standards and which have been said by their market. Internally, we are fine, and we feel very comfortable with the 31st of December.
Our next question comes from Volker Bosse with Baader Bank.
First of all, a warm welcome to Olaf, all the best way in your position, Olaf. First question would be, yes, in case that the e-script is going to be end up from January '24 on what we all hope. What does that mean on your planning in regard to marketing costs in percentage of sales, for example? Could you give us a bit of guideline how to look at marketing costs going forward in the case that the e-script is going to come?
And the second question is on the international business. I hope this is more DACH region ever. Is there any highlights on country-specific development in regard to sales or margin improvement, which you could share us to get a bit more granularity on the international performance?
Maybe shall I take the first question?
Okay. Yes. Yes.
I mean the answer to the first question is very simple. I mean we -- I think we will see a pretty deep increase in the number of e-scripts, not only in the remaining part of year, but also then once the e-script becomes mandatory. And then, of course, it's about question how to approach that market. And we have a solid customer base. We talked about our 10.5 million active customers.
We have a huge marketing budget, which we have already. So we are already in the market, running campaigns. Right now, more focused on OTC than probably later will be more on Rx. But how specific go-to-market strategy is going to look like we can, of course, not disclose this today to you. That doesn't really make a lot of sense. So we first need to see how the market is developing. We are able to react in a very fast way.
We have a lot of marketing budget out there. We have existing customers. But the rest, we really need to see and will not disclose in this meeting and will probably be then part of the guidance for next year. Sorry that we can give more details into the go-to-market strategy and on the Rx. And on the second question, yes, I would like to hand this over to Jasper.
Yes, I understand your question. You want to know something that is about one of the countries. You also know we share our business and we report into segments or we don't talk about individual countries. But well, you were answering -- I say there 2 things that I can still add some color there. First of all, it's a very nice quarter 2 we set up. We didn't make the stake in the quarter 3. It's the same.
We have been growing double digits in all of our 7 countries. So sometimes it's again and in this country, there is competitor or et cetera. In all other countries, we have been growing double digit, also in the first quarter so that's something I would like to add.
Something else, which is I think this is '21 because I recently had a presentation where I presented at our brands. We are market leader in Belgium with our brands, Farmaline. There was a survey and actually 93% of the Belgium people apparently know the name Farmaline. And we want to price with that, as our brand recognition was that high. So there was something nice about Belgium. And I think in the end, I heard that 1 out of the 4 households or people in Belgium are placed the order with Farmaline. So those are 2 nice brand things to shed some light on the development.
Our next question comes from Jan Koch from Deutsche Bank.
My first one is big picture question for Olaf. You have been with the company now for 3 months. In your view, what is Redcare doing very good already? And where do you see some improvement potential? And then secondly, on the eGK NFC solution once again. I understand that you are essentially waiting for an approval of Gematik. But in case that the Gematik would take too long to launch an own product, could you implement the solution in your app without a product from the Gematik?
Well -- okay, yes, well, very good questions. So the first question to me is it's always -- it's really difficult to answer because, of course, I do not really want to talk about the past, and therefore, comparison are always difficult. Well, my first impression is really, I mean -- but you can also see it in the numbers. It's a great company, and I I'm really happy that I have the opportunity to work together with this company and to lead the company into the future. So that is actually all I can say at the current moment.
The times are interesting, and that's also the reason why I return. It's a great company on OTC, DTC, also international, but we have also the e-Rx opportunity ahead of us. So maybe in a year from now or so, we will have a better view and then maybe I could give some more insights into this one. And then on the second question, yes, of course -- I mean, I understand your question, but I mean, we are really working hard in a very constructive and good way to try to implement this solution. And so far we are confident that we can reach the milestone 31st of December. And to discuss other options, I would prefer to follow Plan A rather than Plan B. So therefore, we are putting all of our focus into this one.
And then, of course, like always, like if you need to look into the options you have available. And our product works right now. We -- there are so many things that we can do. But I mean that's -- again, that's only Plan B, and we clearly focus on Plan A and are confident that we will have a solution up and running. I hope that answers your question, at least, to a certain extent.
Our next question comes from Gerhard Orgonas with Berenberg.
I have 2 questions, please. The first question on your cash flow. It looks like after 9 months, you're running well ahead of the free cash flow guidance for this year, partly because of this big increase in payables in Q2 already. Maybe you can come back to that and explain whether you expect any of this to reverse in Q4 or not? And the second question is you said that MediService is slightly impacting your group margin on the negative side. So is it -- is this a seasonality? Or is it around 3%? Is it just a tiny small impact? Or is it something that we should take into account season -- seasonally at MediService?
Free cash flow guidance, according to our definition, free cash flow year-to-date stands at a positive EUR 27 million. But we will indeed have seasonality. I mean I cannot predict the future, but we always have a very strong cash flow in quarter 1 and always remaining the same. We have stocking up of inventories to be ready for January and February in the fourth quarter. So free cash flow will most likely in the quarter itself in Q4 be negative and bringing the EUR 27 million slightly down. That's -- yes, so that's where we stand. So we are happy with the free cash flow guidance there.
MediService. Okay. Yes. The MediService is Rx. So what is -- what you see in the P&L is actually nothing different from what will happen when we have Rx business. So we have euros, very nice gross margin each time that we sell the package with Rx. Mathematically, the gross profit margin as a percentage of sales is lower. Luckily that's positive flip side but also your cost side for the order as percentage of sales. And that's all -- MediService.
So it's a very good business because the average order value is very high. But as a consequence of the very high average order value, the margin as percentage of sales is relatively low, but not in euros. And that's MediService and I'm not aware of anything one-off in numbers that is not happening in Q3. It is what it is and we are very happy with the strategic partnership that we have there now already, and it's only 1.5 quarters that we are cooperating.
Our next question comes from Christian Salis with Hauck Aufhäuser Investment Banking.
I have questions left from my side. First of all, on your EBITDA margin guidance. So in first 9 months, you generated 2.9% EBITDA -- adjusted EBITDA margin. But still you didn't raise your guidance at least to the upper half. So should we expect any negative impact on the margin side in Q4? Is that just conservative from your side?
And then secondly, on marketing costs, so a big chunk of the margin improvement in Q3, but also in the first 9 months is driven by more efficient marketing. So could you please talk about the reasons for this and how much of this improvement is basically also supported by the weakness of your major competitor?
Thanks for the [indiscernible] Christian on the adjusted EBITDA. But I repeat a little bit what I said a couple of minutes ago. In this 2.9% year-to-date adjusted EBITDA margin, there are no significant one-off impacts that we are aware of, and we also don't foresee any one-offs at the moment in quarter 4.
So that's what it is. But with our feasibility that we have on the fourth quarter results, we say we will end most likely in the margin range that we give from 2% to 3%, but I'll also repeat, what I said at the last slide of the presentation, our expectation at the moment is that we will end of this guidance range for the full year. So we don't expect that quarter 4 is higher than quarter 3. That's not our expectation. We only have guidance for full year, and we think we will stay to approach for the full year on the adjusted EBITDA margin, but not that we want to do there something else that we did in the other quarters.
Yes. No, the only thing I can comment on that, I think everything that we explained and also all of this related to our proposition loyal customers, happy customers, Improvements we made in our last mile performance. So across the whole P&L, I think that is leading to customer satisfaction and a satisfied customer is a returning customer, that's an impact. But what I haven't said yet it was also fair to say that last year, there was a significant amount of marketing as a percentage of sales that we needed specifically in quarter 1 and quarter 2, and we are also cycling that now, which is in part explaining that we are at a lower level at the moment.
Maybe I can add a little bit to this. I mean -- and we saw this also in the numbers. Net Promoter Score is pretty high. And the higher the Net Promoter Score, the better the customer satisfaction is. And we can clearly see a direct link to the repeat rates. So that means customers are happy and are returning. We saw earlier in the repeat order rate. I think it was even at [ 85 ] or something like this. So really high number in terms of repeat orders. Customers are very satisfied.
And again, there's a strong correlation between a very high Net Promoter Score and a good share of returning customers. So it look overall -- but that's what Jasper already pointed out the product we have is great, and we can see that it's driven by very happy customers. And because of that, we probably don't need to invest so much in marketing than having not so happy customers.
Yes. And the last one then to add to that is that you clearly see, Christian, the impact of scale -- so pure scale, higher sales because we're not reducing our marketing -- it's that...
Our next question comes from [indiscernible] Bankhaus Metzler.
Welcome to Redcare, Olaf. The first question relates to Q4. Perhaps you could comment on how Q4 started and whether you could give some insights on the demand that you're seeing in the DACH and the international region. And then the second question relates to the ways of redemption for the e-script. So as you showed very, very nicely in the presentation, there are 3 ways of redemption. Could you provide us with a breakdown of the percentage of the 3 ways of redemption? So how much percentage of people are using the paper print, how many are using the Gematik app, and how many are using the [ electronics or even touch content ]?
Would you like to start on the first one? Second clearly for you. Yes. No, nothing to comment on the start of Q4. There's nothing worth mentioning there.
And to give an answer on the second one, as you said, I pointed on the 3 different options. And if we look into the history of why we have a delay in the e-script, especially on the doctor side, then we all know that doctors don't like the print out solutions so much. That was one of the main reasons why we had a delay in the introduction of e-script. The other was then especially the systems in the doctors' places. We are not really to support technology. But nevertheless, I mean, we see since the introduction of the eGK plug-in solution that this is somehow the preferred solution not the doctors.
And therefore, we see -- I mean, that the number of scripts are going up. It doesn't mean that the patient cannot have the QR code. So you always have the right [ pass ] for the QR code. But since the introduction of the eGK plug-in, we saw a significant increase in a number of scripts.
I have seen a marked presentation where they are talking about that the majority is used, and the majority of the scripts are redeemed via the eGK plug-in solution. But again, this is on -- right now, we are probably at 7% to 10% of all of the scripts being digital. So that is just initial numbers. But again, going forward, I can foresee, we definitely need to have our digital twin to the plug in solution.
Our next question comes from Sven Sauer with Kepler Cheuvreux.
I only have one question left. I was just wondering how this new solution that you have presented goes hand-in-hand with a complaint that was filed against European commission. If I remember correctly, it was also linked to the allegation that the eGK redemption is discriminatory? And this -- of course, if this would be approved, this would improve that allegation or alleviated. So I was wondering if you could provide some comments on this, if you will continue with this complaint or if it will be pulled back?
I mean, I think that's a good question, and that is something we have to determine throughout the way. I mean we have to make sure that the online pharmacies are not discriminated, that is our job. And part of that is, of course, the legal part. And we are working on European law. We are working on the fundamentals of Europe. And therefore, we approached the European commission to really say, look at this, we have issues on the bonus. And we think we will have issues going forward if this eGK plug-in solution will actually then start to be used.
So therefore, that's why we filed a complaint. We need to keep all of our options open. And -- but how we want to handle that complaint? We then have to evaluate going forward. So far again, I can say we are very positive and constructive discussions with the Ministry of Health. But nevertheless, I mean, we need to ensure that we keep all of our rights and that's why we filed a complaint. We have so far not received any feedback so therefore, give us some more time. And with time, we will find solutions.
There are no further questions at this time. I hand back to Olaf Heinrich for closing comments.
Yes. Thank you very much -- first of all, thank you very much for all of the great questions. So I think it has been great discussions. You guys are really also into the details, understanding the business model. It also helps us, Jasper, I can say, so very, very good discussion. Thank you very much and again, I think we have -- especially when we talk about e-Rx, a good time ahead of us, how fast and I'm looking forward having -- working together with the company on this endeavor. Thank you very much for joining.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.