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Lloyds branch closures and UK 'challenges' factor in 2% revenue drop

McKesson: Recent "flat funding" agreement in England is "incrementally positive news"
McKesson: Recent "flat funding" agreement in England is "incrementally positive news"

The sale or closure of around 200 Lloydspharmacies over the past year has contributed to a 2% drop in revenue for the three months to September, according to McKesson.

The company announced that revenue in its European pharmaceutical solutions division – which includes Lloydspharmacy and wholesaler AAH – was $6.6 billion (£5.2bn) for July-September 2018, a 2% drop compared with the same period last year.

It follows a 9% year-on-year rise in revenue for the division for April-June, which the company attributed to its “restructuring programme”.

"Reduction in owned pharmacies"

In October 2017, Lloydspharmacy announced it would cease trading in around 190 “commercially unviable” pharmacies in England, “through a combination of store closures and divestments”. C+D has since identified 78 Lloydspharmacies that have closed, and 104 that have been sold.

The revenue drop in the three months to September 2018 was “primarily driven by the previously disclosed reduction in owned retail pharmacies and a challenging operating environment in the UK”, as well as “increased competition in France”, the company said in its latest financial report, published last week (October 25).

Speaking to journalists after the latest results were published, McKesson executive vice president and chief financial officer Britt Vitalone said the division’s operating profit after taxes was down 40% to $53m (£41.7m) for July-September.

This was “driven primarily” by the additional 17p-per-item category M clawback in July, “market conditions in our UK business, and increased competition in the French wholesale market”, he said.

“Facing a challenging market in the UK due to reimbursement cuts and declining prescription volumes, we took action last year to rationalise our store footprint and streamline our back office operations,” chief executive and chairman John Hammergren explained in the call.

“As these trends evolved in the UK, we continued to evaluate our footprint and cost structure, and our UK colleagues remain committed to stabilising the business and repositioning it for long-term profitability. All led by a newly appointed president [see below] with more than a decade of industry experience,” he added.

He admitted that the category M clawbacks “were in excess of historical levels and greater than we had planned for in our fiscal 2019 guide”.

“Difficulty predicting how cuts would affect us”

Also on the conference call, McKesson president and chief operating officer Brian Tyler said the company “continues to be in very active dialogue with regulators in the UK to champion” the sector.

“Community pharmacy plays an important role in the overall population health of the communities that they serve. And so we continue to evolve our model in that direction,” he explained.

“Clearly, the reimbursement landscape has been a challenging one for us, not just in the magnitude of the cuts we absorb, but in the difficulty of predicting when and how those cuts have hit us.”

Commenting on last week's funding announcement, Mr Tyler said he was “encouraged” that funding for pharmacies in England “will remain flat for the coming year, where the original intent had been to impose some more decline”.

“We view that as certainly incrementally positive news for us,” he said.

How have your earnings changed over the past year?

The fact that revenue has only fallen 2% even though operating profit for the pharmacy has fallen 40% shows how strong/dominant the wholesale market is these days. It was a similar story with the Boots results earlier in the year, the community pharmacy side dipped (not to the extent that Lloyds has mind) but the wholesale side more than made up for that.

Cod Fillet, Community pharmacist

Lloydspharmacy profits will continue to drop because of the way they treat their staff. Appalling staff retention, motivation or even knowledge. Every Lloydspharmacy I visit as a locum is chaotic and patients can notice that.

R A, Community pharmacist

The writing was on the wall 13 years ago that this would end badly for all concerned in the community pharmacy sector with the new contract. Sadly management deferred facing up to the harsh reality of the change in the sector by cutting wages and not investing in individual branches so they could make some profit.

Boots was the leader in this through its leveraged buyout with Lloyds Pharmacy and Co-op Pharmacy (now Well Pharmacy) in hot pursuit. For the last decade or so the staff paid the price so the sector could make profit leaving nothing but the bones. 

I wonder what these great business people will do as nothing is left to scrape off! I really feel sorry for all pharmacists and support staff.

Chris Locum, Locum pharmacist

I agree. The sign now at the bottom strategy (on a less than complete package - not all the details were announced initially) was an act of faith that was punished. Ultimately, the staff paid the price over the period. Community pharmacy had never had a proper career structure. Increasing numbers of pharmacy schools (without the requisite of supply and demand) and big-business lobbying have added to the destruction of professionalism in the community sector. Good luck to those who have to carry on for now. It is just a question of time before you see Government try again to push for no pharmacists on the premises.

Soon-To-Be Ex-Pharmacist, Superintendent Pharmacist

I genuinely feel sorry for all of the Lloyds pharmacists who will now be pressured so badly to make up that 2%. 

Alexander The Great, Community pharmacist

This is a massive company who's income is not just from dispensing, but also wholesaling too. Imagine the effects the cuts have on the little shop owners have who dont have such buying power.

Dave Downham, Manager

Are you mixing up revenue and profit here? Surely most striking statistic is 40% drop in operating profit. Would love to have just a 2% drop in profits!

Grace Lewis, Editorial

Thanks for flagging Dave.

Have amended the headline and standfirst for accuracy.

Kind regards,

Grace Lewis, C+D news editor

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