Higher costs dent Phoenix’s profits

DRUG and surgical equipment supplier Phoenix Healthcare Distribution has seen higher costs knock earnings.

Turnover in the year to January 31 dipped 0.5% to £957.7m but higher distribution costs contributed to a 24% fall in pre-tax profits to £19.2m.

The Runcorn-based company, a subsidiary of Germany’s Phoenix Pharmahandel, said distribution costs rose by 17.5%, or £5.1m to £34.3m.

Phoenix, which supplies clinics, high street pharmacies, hospitals and medical centres with drugs and surgical equipment, increased staff numbers by 6% to 1,633 during the period.

In the accounts the group identified the ‘direct to pharmacy’ distribution system as a key risk. Previous reports have also seen Phoenix’s directors single out this style of distribution. It involves drug manufacturers signing exclusive deals with select wholesalers who deliver the drugs to pharmacies and doctors on a fee per pack basis.

Phoenix said the system reduces competition and customer choice but it has been given the green light by the Office of Fair Trading (OFT).

“It [the OFT] found, however, that any future widespread use of exclusive distribution arrangements might lead to longer-term competition concerns and it will monitor the situation with the prospect of future investigation, if appropriate,” said the directors.