Avicenna Retail, which operates community pharmacies across the UK, released its latest strategic report for the 2022/23 financial year on Companies House last week (January 11).

Avicenna’s community pharmacy arm posted some ostensibly positive results, including a 46% increase in sales – up from £115 million the previous year to £168m - and a rise in operational staff numbers by around 31% from a monthly average of 1,021 in 2022 to 1,337 in 2023.

But the report, which covers the financial year ending on July 31 2023, said that these were due to “hive-ups” over the past two years, as other parts of the greater Avicenna company were brought into its retail fold.

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According to the most recent data from the NHS Business Services Authority (NHSBSA), Avicenna Retail operated 137 community pharmacies across the UK last month.

But its financial report said that its forecasts contain an “assumption” that the company will dispose of “a number of non-core stores”, with these sales to reduce the group’s “leverage”.

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Avicenna Retail also posted a 17% increase in its adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) – growing from £9.2m in 2022 to £10.8m in 2023 – according to the report.

However, its gross margin declined by 2.5 percentage points from 29.1% to 26.6% due to “higher drug costs”, it said, adding that further drug price changes could “adversely impact” Avicenna Retail’s profitability.

 

“Starting to feel the squeeze”

 

Speaking to C+D yesterday (January 16), sales director for the Avicenna Group - covering both retail and its buying group - Brij Valla said that the retail arm’s year had been the “same as everyone else”.

He told C+D that while Avicenna Retail showed superficially positive figures in the annual report, the reality was that acquisitions in the previous year mean these were not like for like results and the underlying performance was more in line with the rest of the sector.

Mr Valla said that the five-year contract was “one of the biggest challenges” facing the sector, with the government clawing back medicine margin. “Like Avicenna Retail, many colleagues in community pharmacy are really starting to feel the squeeze,” he added.

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He worried that he had not heard any news from Community Pharmacy England (CPE) about the replacement to the five-year contract that is due to come to an end this year. An “extension of the current model” would lead to “significant closures” and be the “final nail in the coffin for many in the sector”, he told C+D.

“I don’t think independents can handle another 12 months in the way the current model works”, he said.

Mr Valla said that in his interactions with struggling independents, all he can advise is for pharmacies to lower their stockholding “to relieve some cash”.

If a pharmacy is offering commissioned services, “there’s little else they can do, other than offer more private services”, he added.

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Mr Valla said that pharmacies were being hit by a “triple whammy” of increased costs from inflation, the national living wage increase and continued clawbacks, alongside the ongoing impact of the fixed five-year deal that doesn’t take into account increased items and drug costs.

“If we've dispensed 10% more items, surely they should have increased that by 10%?” he asked, adding that contractors are “hardly making any money” on items dispensed due to the current levels of clawback.

He said the sector was being “penalised for more diagnoses” and the resultant increase in prescriptions dispensed in the last five years.

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Mr Valla also flagged that the rising cost of borrowing has led to people paying “substantial interest” on their loans. Even those who have paid off their pharmacies are “struggling”, he said.

“I don’t think anyone can spend at the moment,” he said, noting that he’s heard from some contractors who were so overworked that they had not yet applied for the £2,000 Pharmacy First sign-up fee.

 

CPE: Negotiations not yet begun

 

CPE pointed C+D to a blog published by its chief executive Janet Morrison yesterday (January 16), which reiterated that “negotiations have not yet begun on the 2024/25 contractual framework”.

It said that CPE is “working on the assumption that this negotiation will be for one year” and that while it hopes it “may be possible” to conclude negotiations ahead of April, this is “dependent on the government’s timescales”.

CPE warned that the 2024/25 contract will be subject to “financial constraints”, but stressed that it will push for an uplift on the core global sum and write-off of any historic margin over-delivery.

 

“Several risks”

 

The report also flagged “several risks” to Avicenna Retail’s business, including changes to drug tariffs and competition from other pharmacies such as other local independents and large national chains.

Nevertheless, Avicenna Retail said that its “excellent service” mitigated the competition risk.

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Furthermore, it added that its cashflow forecasts to the end of July 2025 assumed a growth in revenue partly based on “a decline in the number of pharmacies within the sector that will lead to an increase in footfall within the group’s stores”.

It also assumed “an increase in funding…both for existing services as well as further funding for additional services”.

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Avicenna Retail’s directors said that they were “confident” about achieving its forecasted cashflow and that “increased funding from the NHS should put the pharmacy sector on a sounder footing”.

In September, C+D reported that Avicenna head of membership services Tania Meagher estimated that pharmacies offering advanced services for 55 minutes a day had the potential to earn an additional £16,645 annually.