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Pharmacy2U credit rating raised to 'high risk' after posting £20m loss

The company attributed £14.4m of its losses to “exceptional costs” of acquiring Chemist Direct
The company attributed £14.4m of its losses to “exceptional costs” of acquiring Chemist Direct

Pharmacy2U made a £20 million loss in the past financial year – 10 times the loss it made the year before, its most recent financial accounts reveal.

Documents filed with Companies House in December show Pharmacy2U – which claims on its website to be the UK’s largest online pharmacy – “made a loss of £20,303,000 for the year ended March 31, 2017” – compared with a £2.4m loss for the previous financial year.

The documents show Pharmacy2U attributed £14.4m of last year’s losses to the “exceptional costs” of acquiring competitor Chemist Direct, which it bought in a £40m deal in July 2016.

Credit rating reassessed

Company reports by credit agencies Experian and CoCredo – seen by C+D – show they both reassessed Pharmacy2U’s credit risk rating – a proxy measure for the financial health of a company – to reflect the change in the internet pharmacy’s financial performance.

In January 2018, Experian moved Pharmacy2U’s rating from “below average risk” to “maximum risk”, noting: “There has been a very heavy trading loss in the latest accounting period.”

Similarly, CoCredo was rating Pharmacy2U last month as “high risk”, noting: “This company trades in an industry with a higher level of corporate failures.”

Pharmacy2U declined C+D’s repeated invitations to comment for this article.

“Investing in recruiting NHS patients”

The accounts filed by the Pharmacy2U group show that, in the 12 months to March 31, 2017, revenue increased by 52% to £25.8m, compared with revenue of £17m for the previous 12 months. Pharmacy2U attributed this “strong growth in revenue” to “investment in NHS patient recruitment”.

The accounts also reveal that revenue from ChemD Holdings – the parent company of Chemist Direct – produced £8.4m in revenue in 2016-17, but “also generated a loss of [£1.1m] over the same period”.

Of the £14.4m losses that Pharmacy2U attributed to buying this company, it tied £13.3m to “the exceptional write-off of goodwill arising on the acquisition”, £454,000 to “professional fees” and the remaining £557,000 to “restructuring costs post-acquisition”.

Pharmacy is a “difficult environment”

The “strategic report” submitted to Companies House along with the financial accounts acknowledged Pharmacy2U’s current financial challenges.

“The management of the business and the execution of the group’s strategy are subject to a number of risks,” it stated.

“The key business risks and uncertainties affecting the group are primarily considered to relate to competition from national and internet pharmacies and retailers, and to the difficult economic environment in which we are currently operating,” it added.

However, when it comes to its “future outlook”, the company stated: “The group is extremely well-positioned to deliver significant growth of the core NHS prescription business.”

Paying over the odds?

On reading the accounts, Milan Patel, managing partner at King & King chartered accountants, told C+D that Pharmacy2U had “paid more for [Chemist Direct] than the fair value of [the] assets they acquired,” a decision he described as “judgmental at best”.

“This is not unusual, because it is a business decision to do so…[and] they say this [investment] is to ‘accelerate growth of NHS business’.

“They have clearly taken a view that the intangible asset, created when one pays more than the value of assets acquired, has no ongoing value and that it should be written off. It remains to be seen whether this pans out to be true or not in the years to come.”

Read C+D’s in-depth analysis of Pharmacy2U’s financial situation here.

This week C+D is exploring the world of online pharmacies. Read all the coverage so far here.

13 Comments
Question: 
What is your take on Pharmacy2U's finances?

Chemical Mistry, Information Technology

3

Marc Borson, Community pharmacist

The problem is free delivery - some has to pay in the end and if the DoH are not careful it will be them.

Fire Walker, Community pharmacist

It's common for internet companies not to make a profit in the early years, it takes time for them to build up critical mass. 

It took 9 years for Amazon to make its first profit....go figure.

David Moore, Locum pharmacist

18 years?

Paul Dishman, Pharmaceutical Adviser

Wasn't this the model for Pharmacy that the Doh Chief Pharmacist thought would be the future?

Wrong once again Keith!

bhupendra lakhani, Community pharmacist

There goes public monies !

Good news for local Pharmacy  as big cat was trying to kill small but hard working Pharmacist Business

 

A Hussain, Senior Management

Accountancy smoke and mirrors I imagine.

Clive Hodgson, Community pharmacist

Very possibly. But if they are genuinely stressed financially they could well be receptive to a buy out by someone with very deep pockets. Like Amazon.

A Hussain, Senior Management

True.  But if you were Amazon, why would you buy a load of drugs and effectively give control over what you are going to get paid for them to a government hell-bent on austerity at any cost?  Well they might let you off paying taxes to soften the blow!

Adam Hall, Community pharmacist

Well, there are so many different ways to come at this news - please pick the one that suits you best

1. Well done to the DoH for pushing a company from below risk to maximum risk in the space of 12 months! Serves to highlight the remuneration situation in pharmacy

or

2. Given all the dodgy things going on with P2U (CQC reports, failure to deliver medication over Christmas 2016, advertsiing complaints etc) I won't be crying if they go bust

or

3. If (when?) they go under, will all their "I'm too busy to take responsibility for getting my medication"-types who signed up with them just stop taking their medicines (after all, they are too busy!) or will they get off their lazy back-sides and come to your friendly local pharmacy, where they can also access flu vaccinations, MURs and all sorts of other services - always assuming the desertion of said patient to P2U hasn't already forced it to close

Chemical Mistry, Information Technology

3

paul lisbon, GP

i'll be buying them for £1

Really? Wow, Superintendent Pharmacist

Welcome to the future! Mr Ridge... how many businessess can sustain a structural deficit of c.£6m pa on a turnover of £25m!

 

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