The Celesio Group’s earnings before interest and taxes fell by 29.1% to £265.8 million (€302.6m) between April 2016 and March 2017, compared with the same period the previous year, it said in a statement last Friday (June 23).
The "new funding structure" in England, along with the "reimbursement price cuts on prescription products", contributed to "a significantly worse than expected performance, as well as a lower outlook for [the] UK retail pharmacy business", the group said in its annual report.
In November 2016, Celesio predicted the group’s annual earnings for 2016-17 would fall "slightly below" the previous year's figures, after the Department of Health (DH) reduced category M payments by a total of £48m between June and September 2016.
The Germany-based company’s overall group revenue for 2016-17 was £18.1 billion (€20.6bn), a 2.6% drop on the previous year, which Celesio partly attributed to "devaluation of the British pound" and the sale of its Norwegian and Swedish businesses to its US-based parent company McKesson.
Celesio warned that "earnings will continue to be burdened" as the UK government implements its "second phase" of funding cuts in England – which will amount to a £95m drop across the sector in 2017-18.
The impact is expected to "carry on medium to long-term", the group added.
Celesio noted that the "ongoing optimisation of [its] portfolio" – including its acquisition of Sainsbury’s pharmacy business and its sale of 43 pharmacies last year – led to a "net increase of 227 pharmacies" across the group by March 2017.
Celesio now operates 2,140 retail pharmacies – over 1,800 of them in the UK – and this is not expected to "change significantly in fiscal year 2018", the group said in its report.
Impact on staff
Despite the funding drop in England, staff "headcount is expected to slightly increase" across the Celesio Group over 2017-18, it added in the report.
Speaking exclusively to C+D in February, Celesio UK managing director Cormac Tobin said he “won't make any commitments” on whether all of the company’s staff will keep their jobs as the funding cuts start to bite.
In response to a question last Friday on whether the latest financial results make it more likely any Lloydspharmacy staff will lose their jobs, the group told C+D: "The impact of the funding cuts is still being felt in the UK, but through Lloydspharmacy, Celesio UK continues to put the patient at the heart of everything we do."