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Green Cross bemoans discounting of govt prescription charge

By Jenny Ruth

July 30 (BusinessDesk) - Green Cross Health says it has had to sacrifice margin to combat increased discounting by “some large foreign retailers,” particularly of the government-mandated charge for prescriptions.

Chair Peter Merton will tell the annual shareholders’ meeting later today that over the last few years the company, which owns the 360-store Unichem and Life pharmacy franchised brands, 41 medical centres and provides home-based community health services, employing more than 3,000 support workers, has put its marketing emphasis on high-value customers to increase sales and loyalty card members.

“Margin has been sacrificed to some extent, but new initiatives should see that recover somewhat in the future,” Merton says in speech notes posted on the NZX ahead of the meeting.

“The discounting of the prescription fee has highlighted two main areas. Firstly, $5 – the prescription charge the government charges and we collect – matters to a lot of people and that can be extrapolated to it providing a barrier to access to medicines for many people,” he says.

“Secondly, there is something perverse that sees us collect a government tax, but being competitively penalised when others contravene government policy and decide not to charge it.

“We have been actively communicating that it is time government reviewed the prescription charge fee to ensure it is in line with their ‘equity of access’ to healthcare policies.”

Chief executive Rachel Newfield, who took up that newly created position in January (previously there were two business leaders, one covering the pharmacy and medical divisions and the other the community health division), says Green Cross is in “a rebuild and reshape phase.”

The company needs to focus on retail basics, including tightening its buying and selling processes and increasing its emphasis on costs and margin management.

“We have some work to do around our pricing strategy in particular. Competition is here and it is growing so we need to get our basics sorted.”

She says the company has scope to increase its pharmacy network, given that there are more than 1,000 pharmacies in New Zealand.

“We need to do that sensibly though, so we don’t undermine our existing franchisees. And, of course, optimising the store network will always be continuous,” Newfield says.

The medical division lacks scale so Green Cross will continue to look for acquisitions.

While the company overall lifted revenue 5.6 percent, earnings before interest, tax, depreciation and amortisation by 2.3 percent and bottom-line profit by 3.2 percent to $16.1 million for the year ended March, the community health division recorded an operating profit of only $100,000.

“That is disappointing. As Peter mentioned, the division has gone through most of the pain associated with legislation changes. We will need to work smarter to make a return in the challenging legislative environment,” Newfield says.

Green Cross shares traded recently at $1.16, up 1 cent from yesterday but they are down more than 20 percent on a year ago.

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