Mckesson Europe – formerly Celesio AG – announced that its overall earnings before interest and taxes for April 2017 to March 2018 were €126.6 million (£112m), a 58% drop compared with the same period the previous year, according to its annual financial report uploaded on Monday (July 2).

Lloydspharmacy's earnings were “burdened” by “higher than originally expected” government reimbursement cuts in England, Mckesson said, and “lower prescription item volumes…weighed on revenues”.

“We have experienced slower growth of prescription volumes flowing through our pharmacies primarily due to [the] NHS designating some prescription drugs as over-the-counter, thereby reducing fee income at our Lloydspharmacies,” McKesson explained.

“These negative effects were largely offset by our acquisitions and strong performance in our homecare and wholesale business in the UK,” it added.

Long-term planning

The funding cuts have a “significant influence” on the company’s “long-term planning for the pharmacy business in the UK”, it said.

It expects the category M clawback – which contributed to Lloydspharmacy’s 29% drop in overall earnings which it reported last year – to continue to “negatively influence” the group’s medium- and long-term income planning, it added.

The Department of Health and Social Care’s (DH) “directive with regard to prescriptions of numerous disease patterns” led to a “reduction in prescriptions” and is “expected to have a medium-to-long term impact” on UK pharmacy profits, it said.

Selling “unviable” branches helped profits

Referring to its October 2017 announcement that Lloydspharmacy would cease trading in 190 “commercially unviable” branches, McKesson said 171 Lloydspharmacies had been sold or closed between April 2017 and March 2018, which contributed to “disposal” profits of €9.6m (£8.5m) during the 2017-2018 financial period.

“We sold and closed pharmacies as a result of a strategic review and restructuring of our pharmacy portfolio in the UK, driven by government actions negatively impacting our UK pharmacy profitability,” McKesson explained.

The business was also hit by changes in the UK exchange rate, as “the overall negative exchange rate effects amounted to €4m (£3.5m), mainly related to the British pound”.

Last week, Boots attributed its own 2.8% drop in sales in pharmacies on fewer prescriptions and cuts to funding.