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Cuts and low prescription volume behind 53% Lloydspharmacy profit drop

Lloydspharmacy’s parent company has cited the funding cuts and low prescription volumes in the UK as two reasons for a 53% drop in profits across its European business.

Adjusted operating profit for McKesson’s European pharmaceutical solutions division – which includes Lloydspharmacy and wholesaler AAH – in the three months to June was $35 million (£28.9m), a 53% drop on the same period the previous year, it said in its latest financial report published yesterday (July 31).

This was mainly “driven by the weak retail pharmacy environment in the UK”, McKesson said.

In a conference call alongside its latest results, McKesson president and CEO Brian Tyler expanded on these comments, explaining that the UK was “impacted primarily by temporary, wide NHS underfunding…and to a lesser extent volume weakness”.

McKesson chief financial officer Britt Vitalone added that revenue for this part of the business was up 3%, once currency rates were taken into account, “driven by our market growth in the distribution wholesale business”.

Further cat M price increases expected

Mr Tyler said McKesson was “pleased” by the recent announcement that category M prices will increase by £15m a month from August, and it expects to see further increases later in the year.

“This should make up partially for any underfunding,” he added.

Contract is “incrementally positive”

The five-year funding contract for England that was revealed last week “brings greater clarity and long-term certainty” for the sector, Mr Tyler said.

“While certain elements of the funding allocation are yet to be fully defined and could evolve over the five-year horizon, we view this as an incrementally positive development for our European business.

“McKesson remains active in its support of and [in] direct discussions with the UK government on the future of community pharmacy and healthcare in the UK,” he added.

“Store rationalisation”

McKesson is “making solid progress towards further rationalising our store footprint and streamlining our back-office functions”, to address financial “challenges” in its European division, Mr Tyler added.

Mr Vitalone said the company had already taken action in the UK and across Europe to address falling profits, which included “further store rationalization and cost actions”.

“We continue to execute against these restructuring actions as we further evaluate our cost position,” he added.

When asked by C+D whether this means more Lloydspharmacies will close in the UK, McKesson said: “We need to operate our stores profitably to ensure we are able to provide the best levels of service for our patients, and where we believe this isn’t possible, we may decide to close a pharmacy rather than put these factors at risk.

“These decisions need to be made because of increasing financial pressures, including business rates and changes to pharmacy funding. We always prioritise the care of our colleagues through any change,” it added.

In 2017, Lloydspharmacy announced plans to stop trading in around 190 “commercially unviable” branches, in an effort to cope with the funding cuts in England. C+D has since identified 78 of these branches that Lloydspharmacy has closed, and another 104 that it sold.

Announcing its 2018-19 financial results in May, McKesson said it expected to close more pharmacies across Europe.

What do you make of the latest financial results?

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