Retail Pharmacy State of the Industry 2017 Rose Health incorporating an interview with Pat Rodrigues from Allfin Financial Services a multi award winning broker
Rose partners retail pharmacy pg 6 interview with Pat Rodrigues Allfin finance march 2017
1. R E TA I L
P H A R M A C Y
S TAT E O F T H E I N D U S T R Y
2 0 1 7
2. Contact us at Rose Partners
Level 5/ 150 Albert Road South Melbourne 3205
Tel 03 96907299 Fax: 03 96909538
Q. Does Retail Pharmacy face challenges?
A. Yes - but no more than other industries and probably less as a result of Australia’s ageing population
Q. Are Pharmacists capable of embracing change?
A. In almost all cases - Yes
Q. Do opportunities exist to improve your Pharmacy’s performance?
A. In almost all cases - Yes
ROSE HEALTH FAQ
Mr Peter Warren.
DIRECTOR HEALTH SERVICES
pwarren@rosepartners.com.au
Mr Michael Sojka.
PARTNER
msojka@rosepartners.com.au
Mr Benjamin Simon.
PARTNER
bsimon@rosepartners.com.au
Should you require to engage further in relation to this Summary, please do not hesitate to
contact our Health Services Division:
3. F R O M T H E D E S K O F
R O S E H E A L T H
STATE OF THE INDUSTRY
CONT. >
The past year has been a tumultuous one for the
Retail Pharmacy Sector. As a Pharmacist or Industry
Participant you can be forgiven for thinking the
Industry appears under attack.
Particular items that have been front and centre
in the minds of many interested parties are the
perceived threats, which include:
• The King Review
In recent times the Industry has been under the
menace of the ongoing Pharmacy Remuneration
and Regulation (King) Review which is reviewing
all parts of industry from a competition
perspective. This has included the regulations
around Approval Numbers for locations. There
has been no shortage of controversy regarding
the submissions made and the interim findings.
• Accelerated Price Disclosure
Accelerated Price Disclosure is also still an
ongoing threat with further price cuts every six
months.
• Reduced Scripts and PBS
Payments
As a result of changes in the 6CPA agreement
there has been a further reduction in scripts and
PBS payments to Pharmacy.
• The delisting of Panadol Osteo
• The rescheduling of Codeine
products
A script will now be required.
• Media Coverage
Even more recently, ABC’s Four Corners
program has placed Retail Pharmacy in the
spotlight over the Sale of Complementary
Medicines.
Retail Pharmacy conditions over the past year
have probably been tougher than previous years.
However, it would be unfair to review the above
in isolation without considering some of the other
positives along the way.
• While some understanding of the likely King
Review recommendations are circulating,
we maintain our view that major changes
would be considered unpalatable for the
Government to endorse. Further, if the
Government were to make wholesale
changes to the Location rules we would
expect there to be an accompanying
review of ownership rules or the Community
Pharmacy Agreement at the same time.
• Pharmacy proprietors and their banks
have been aware of the Accelerated Price
Disclosure for a long while now. You could
almost say it is the ‘new normal’. In the
4. meantime pharmacies have worked diligently
to adjust their Retail offering and banks have
worked hard to ensure there has been debt
reduction. No doubt Valuations have been
impacted, but this has been cushioned by the
reduced debt.
• The AHI Fee (Administration, Handling &
Infrastructure) which is paid to pharmacists for
each item dispensed, regardless of its value, has
been invaluable for effectively placing a floor
under pharmacist’s remuneration. The AHI fee
continues to be adjusted for CPI each year.
• The 6CPA has a risk share agreement built
in. We understand the Guild is currently
negotiating with the Government to cover
losses Pharmacies experienced as a result of
reduced Script Volumes.
• The effect of upscheduling of Codeine products
is unknown. Certainly it could put a strain on
doctors who need to prescribe. However,
there could be further remuneration available
in dispensing the script and/or selling an
alternative medication.
• Wholesalers and Banner Groups are providing
ever increasing services and support to their
members to increase trade and be competitive.
• The 6CPA has increased funding for services
built into the back end of the five years. We
expect this to assist pharmacies over the
coming years.
No doubt it is tough out there and there may
well be other unknown changes on the horizon.
Ultimately we can only work with what we
know now.
At Rose Health we have often said and seen that
the diligent operators continue to do well. The
operating environment is tough for all business,
particularly retail. However, those that work their
businesses hard and have avoided an over reliance
on debt have performed well.
STATE OF THE
INDUSTRY (cont.)
5.
6. Rose Health: What are the current issues facing
Pharmacists when it comes to borrowing from Banks
(and has this changed over the last 12 months?)
Pat Rodrigues: I have been involved in
pharmacy lending for about 19 years and it’s never
been as tough as it is today. In the last 12 months
the issues facing pharmacists that I have seen
include;
• A reduction in Pharmacy Gross Profit margin
caused by price disclosure is having a real impact
on cash flows and in turn pharmacy valuations.
This is resulting in pharmacy owners breaching
their bank covenants which are early warning
signs. This in turn is having a domino effect on
pharmacy valuations.
• Shopping Centre rents are continuing to increase
and in some cases making pharmacists “rent
hostages”. It appears that Shopping Centres
have not realised the negative impact that PBS
reform has had on their pharmacy tenants. We
tend to make introductions to professional lease
negotiators that are familiar with the industry to
assist pharmacists with this process.
• Some pharmacies still have legacy issues arising
from wholesaler forward charge. These are slowly
being worked out of the system.
• Banks still have an appetite to provide funding to
the pharmacy industry based on the $200m we
have placed in the last 12 months.
• We are seeing quite a number of pharmacy
owners wait too long before they correct
underperformance in their pharmacy. Banks tend
to raise this at quarterly or half yearly reviews or
when covenants are breached. When it gets to
this stage it becomes a problem.
• Some Banks have now come to the realisation,
through experience, that having a Mortgage over
a lease is not as essential as it used to be. This
has allowed for some smoother settlements as the
pharmacy landlords have not been required to
provide their consent.
Rose Health: Would a “well connected Pharmacist”
benefit from Allfin services? And, if so, why?
Pat Rodrigues: A well connected pharmacist
as a first point of contact must have a pharmacy
INTERVIEW WITH:
Patrick Rodrigues
Finance Manager
Allfin Financial Services is a Multi-award-
winning mortgage brokerage practice that
supports Australian health care businesses.
Their combined 105 years of banking
experience is invaluable when it comes to
assisting their clients. Rose Partners spoke
with Pat Rodrigues about risk management
& all things financial…
7. industry experienced accountant in his or her
corner such as Rose Health.
• At Allfin we believe in empowering the pharmacy
owner and to give him/her choice. We believe
in long term relationships with our customers. We
tender our customer’s loans to all the Pharmacy
banks and play no favourites. This ensures that our
clients get the best possible financing solution that
the market can offer be it price, structure, cashflow
impact, ease of covenants, etc.
• A pharmacist is at the center of everything we do.
If a customer has a finance requirement we can, in
most instances solve it, be it with the big 4 banks
or with second tier banks/finance companies. e.g.
SMSF purchases of pharmacy premises at up to
75% LVR over a 25 year repayment term.
• We have strong relationships with all the pharmacy
banks. We don’t just arrange home loans, leases
or pharmacy acquisition finance. We also solve
finance problems that pharmacy owners are
sometimes faced with. We assist clients and the
Banks to restructure loans so that the customer
can trade through any underperformance and
work closely with the customer, their bank, their
wholesaler and their accountant for a win/win
outcome. Ultimately our goal is to use our banking
experience to ensure all stakeholders in the
pharmacy industry win.
Rose Health: Can you please explain what
ongoing Covenant reporting is and its importance in
relation to funding?
Pat Rodrigues: Ongoing covenant reporting
in its simplest form is a means of monitoring the
financial performance of a pharmacy. The Bank
has made a loan to the pharmacist based on a set
of numbers at a given point in time based on the
pharmacy’s cashflow. The bank uses the covenant
reporting to ensure that the pharmacy business has
not deteriorated and that the Bank’s loan is safe.
• The covenant reporting is an important tool not just
for the Bank but also for the pharmacist to monitor
the performance of the business. Every pharmacist
should understand the covenants that they are
signing up to when they sign their bank loan
offer and precisely how it’s calculated and what
it shows. As an example most banks will have an
Interest Cover Ratio to be greater than 2 times.
This covenant measures that the pharmacy makes
enough money to service its interest on its loan and
has the ability to repay its principal.
• A covenant is an indicator or early warning sign.
As an example if a pharmacy is generating an
interest cover ratio of 3 times today, the Bank will
not set their covenant at 2 times as the businesses
profitability will have dropped one third before any
one has taken any corrective action.
• A customer breaching a covenant is a call to
action and a chance for a pharmacy owner
to formulate a plan to correct the pharmacy’s
performance and table this with the bank. It should
be noted a good pharmacist will know they’re
going to breach their covenants early and should
have already implemented corrective steps in their
business.
Rose Health: How many years’ experience
(combined) do the team at Allfin have in dealing
with the Health Care Sector?
Pat Rodrigues: The Allfin team have about 105
years of banking experience of which about 60
years of it is within the Healthcare Sector across
nabhealth/Westpac/CBA. We have dealt with
single owner pharmacists right up to the largest
pharmacy groups in Australia over those 60 years
Rose Health: Can you please let us have a
“great win/great outcome story
Pat Rodrigues: Allfin assisted one particular
client recently via our unique tendering process
to save $160,000 in interest/costs over 3
years. This involved the pharmacist splitting his
banking between two banks. The pharmacy
owners were extremely happy with the
outcome, to say the least.
8. The following is an article
written by Rose Partners in
1999 – it seems that everything
Old is New Again
The new financial year has
begun and so I thought this
would be a great time to ask
you to look at the performance
of your pharmacy team. The
word TEAM in our office is
understood to mean, Together
Everyone Achieves More, and is
just as important for you in your
pharmacy as it is for us.
Team Building is an essential
component of any pharmacy.
Most of us are aware of the
old adage, “a chain is only as
strong as its weakest link.” So it
would make sense that in the first
instance, a pharmacy is only as
good as the people who work
IN it. However if you take team
performance a step further, if you
are able to train and mature your
team, you end up with a team
that understands and works ON
your pharmacy.
Consider the calibre of your team
and then spare a few moments
of your time to answer some
simple questions. Here is a small
tip based on what we call each
other in our office. Explain the
interpretation of the word TEAM
to those people working in your
pharmacy whom you probably
refer to as a staff member and
then from a specific time in your
pharmacy fine someone 20cents
who uses the word staff member
rather than team member. You
will be surprised at the increased
self-esteem this creates in your
pharmacy. The way we speak
to each other has a vital role to
play in team building as it is a
reflection of what we think about
each other.
On with the questionnaire
• So you refer to your team as
s…f?
• Can you set your watch by
your team – in for exactly their
shift hours?
• Is “What’s in it for me?” the
most commonly asked question
in your pharmacy
• When did you last ask one
of your team if you could do
anything for them? Is it never?
• Can you identify any of the
following symptoms as being
common amongst your team?
- High Absenteeism
- Being critical of management
but never offering a solution
• Internal bickering or resentment
- Do you believe it would
be easier to do it yourself
rather than spending the
time explaining to your team
and then having the team
member do it to 85% of your
capacity
If you answered Yes to any of
the above questions, and this
list is by no means exhaustive,
then you really need to
consider running a Team
Building Exercise for all your
team.
It will:
1. Ensure that every person in
your pharmacy appreciates
your vision and where you
want to go.
2. Establish a set of performance
standards for you that ensures
smooth and efficient running of
all your procedures.
3. Help create systems which
will increase your team’s
productivity and your profits.
4. Show your team that even
the little things they do are
important to your customers
and to each other.
5. Ensure that the benefits of team
work remain ongoing, giving
everyone a sense of purpose
and pride in being part of your
team
6. Allow you the time to work On
your pharmacy not in it.
Where everything
TEAM WORK MAKES YOUR
BUSINESS WORK
9. Your team often know what
the problems are within
the pharmacy and more
importantly often they have
the solutions. In our sessions
we are able to facilitate the
process of identifying problems,
brainstorming solutions and
implementing action plans. Team
building becomes a continual
process, because once exposed
to the strategies involved in
team building you never look
at another Pharmacy or allied
health provider in the same way.
YOUR PHARMACY MUST BE A TEAM PLAYER ENVIRONMENT
Rewards can work well, but do
not presume anything. You need
to ask your team what strategies
they think will work and what
kind of rewards they would
appreciate.
Here are a selection of rewards
you might like to offer your team
to start them thinking:
SMALL BONUSES – this could
be some dollars in the pay, or a
voucher in the way of dinner for
two, or movie tickets for two.
TIME OFF – you can pick a quiet
time - your team will appreciate
time anywhere.
PROFESSIONAL DEVELOPMENT
– this is obviously a win-win
process when you send members
of your team to a training
afternoon or seminar, either
during work hours or after hours.
Working smarter achieves
far greater rewards. A team
that understands that Together
Everyone Achieves More is a
team going places and having
fun at the same time.
You’ll never know the ideas your
Team have if you never ask.
More importantly the team
has to be involved in the
implementation of some
of these ideas within your
pharmacy.
old is new again
10. Our Understanding
The Pharmacy profession is a constantly changing
environment that has developed and changed
significantly over recent years. It is no longer
enough to rely on NHS Sales. To be
successful, a Pharmacy must now consider
itself as part of the broader retail industry.
Rose Health not only understands the needs of
Pharmacies but derives knowledge from our many
years of working with franchises and other retail
businesses. We are more than happy to share this
experience with you.
We aim to build a relationship with our clients built
on trust. We invite you to take the time to meet with a
Principal of our firm to see if our experience and our
services can be of benefit to you and your business.
Our Experience
We have assisted our clients with:
• Discussions and consultations with major suppliers
• Acquisitions of Practices
• Sale of Practices
• Merger of Practices
• Analysis of Pharmacy performance
• Preparation of detailed forecasts and projections
• Practice Valuations
• Negotiations with major financial institutions and
assistance re: funding requirements
Our Pharmacy Division:
Rose Health have been involved in all aspects of Pharmacy
business for over 35 years.
11. Our Services
Rose Health provides a range of services for the
Pharmacy Profession:
VALUATIONS
We are Accredited Panel Valuers with all major
Trading Banks.
FINANCE ASSISTANCE
When it comes to raising funds to acquire or
refinance, we can help streamline the process.
We are able to prepare Valuations upon which the
Banks will rely.
Furthermore, we are in regular contact with all
major banks on a daily basis. We know which
bank to approach and who is most likely to fulfil
your requirements. As a result we can assist with
your finance requirements on a timely basis.
CONSULTING
Benchmarking and Key Performance Indicators.
Having analysed hundreds of Pharmacies over so
many years, Rose Health has collated substantial
data to paint an accurate picture of the state of a
range of Pharmacies throughout Australia.
Using this data we can benchmark your Pharmacy
against others in your geographic region or
Pharmacies of similar size.
SALES IMPROVEMENT
It isn’t enough to just look at the numbers. The vast
amount of experience at Rose Health allows us
to interpret what is going on in your business and
make realistic suggestions that will help improve
your profitability.
TAXATION & ACCOUNTING SERVICES
Accounting
At the core of any business is the need for accurate
and timely reporting in order to make effective
management decisions. If required, we can help
you improve the systems within your Pharmacy to
give you the information you require. We can also
produce reports for external parties such as banks,
financiers and suppliers.
Taxation
We have substantial experience with structuring the
taxation affairs of our High Net Worth clients, whilst
at all times remaining compliant within the Law.
Pharmacies are no exception.
OUR PEOPLE
Our team are able to provide assistance in all your
Accounting, Taxation and Business Management
requirements.
ROSE HEALTH NOT
ONLY UNDERSTANDS
THE NEEDS OF
PHARMACIES BUT
DERIVES KNOWLEDGE
FROM OUR MANY YEARS
OF WORKING WITH
FRANCHISES AND OTHER
RETAIL BUSINESSES.
12. S TAT E O F T H E I N D U S T R Y
YOUR GUIDE TO
BUYING A
P H A R M A C Y
Should you require a copy of our Guide To Buying a Pharmacy, please do not hesitate
to contact our Health Services Division:
email@rosepartners.com.au 03 9690 7299
Contact us at Rose Partners
Level 5/ 150 Albert Road South Melbourne 3205
Tel 03 9690 7299 Fax: 03 9690 9538
G
ET
YO
UR
FREE
CO
PY