Pharmacy sales rise fails to ease doubts

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LLOYDS Chemists, the pharmacy chain which acquired rivals Macarthy earlier this year, has revealed a 78 per cent rise in full- year profits, but the performance did little to soothe City doubts and its shares fell 10p to 202p.

A three-month contribution from Macarthy helped the group to a pounds 36.9m profit in the year to June, up from pounds 20.8m, on sales which more than doubled to pounds 509.4m. Acquisitions accounted for pounds 3m of the rise, with Macarthy contributing about half of that.

Allen Lloyd, the chairman, said that the group had carried out the major actions promised when it bid for Macarthy - including shedding 200 jobs, integrating its retail businesses and selling Rencare - but he added: 'There are further improvements still to be made' and it could take three years to achieve the full benefits.

The existing Lloyds chemists also made progress, achieving like-for-like sales growth of 9 per cent, while sales at its drugstores rose 4 per cent. Holland & Barrett, the health-food chain acquired last year, where sales had been falling by 12 per cent, is now showing improvement.

Margins in the chemist stores have suffered following the National Health Service discount inquiry, which has meant a slump in the price of generic drugs. That cost pounds 2m last year, which could rise to pounds 6m this, although Mr Lloyd said he expects to be able to mitigate the effect by increasing sales of own-label products.

Barclay Enterprise, the wholesale pharmacy and health food supplier, performed ahead of expectations.

Trading in the current year has fluctuated, largely because of the poor summer, but on average chemist and drugstore sales are 2 per cent ahead on a like-for-like basis, and Holland & Barrett 5 per cent up. Including Macarthy, sales are 43 per cent ahead of last year.

Earnings per share rose 20 per cent to 25.05p, reflecting the share element of the takeover. The final dividend is increased by a third to 4p, making a total of 5.55p (4.17p). Debt at the year-end was pounds 20.9m, about 22 per cent of net assets.

Lloyds shares have fallen from a high of 373p this year, touching a low of 162p, as the City worried about its ability to manage its rapid growth. Tony Cooper, an analyst with Carr Kitcat & Aitken, said he was encouraged by the figures, which were slightly better than expected. He is forecasting pounds 48m for the current year, giving earnings of 26.6p and a dividend of at least 7p. That puts the group on a multiple of 7.6 times earnings, well below the market average of about 15. Mr Cooper said he would expect the shares to be re-rated, but warned: 'It will take time.'