Financial Statements for the year ending 31st August 2013 www.avicenna.org

Malaria Travel ClinicInformationDocumentation

Vaccination Clinic Setup

Useful information

on clinic setup

InformationDocumentation

Delivering Local Healthcare

Selsdon House, 212-220 Addington Road, South Croydon CR2 8LD

Tel: 020 8651 9933 email: enquiries@avicenna.org

www.avicenna.org

4583_Chairmans report.indd All Pages 19/12/2013 15:52

Chairman's Statement

Avicenna and ACE+ are registered trademarks owned by Avicenna plc

Highlights of the year

Revenue £15.2m (2012: £12.6m), up 21%

Operating profit £2.0m (2012: £1.6m), up 22%

Proposed final dividend of 1.7p per share (2012: 1.6p) up 7%

Total shareholder return 9.8% (2012: 9.1%)

Shareholders’ funds £17.2m (2012: £14.8m), up 15%

13th Overseas Conference held in Dominican Republic

4th UK Conference held in Forest of Arden, near Birmingham

Acquired four pharmacies

Net assets per share 47.8p (2012: 45.2p), up 6%

Collaboration with Day Lewis

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Chairman’s report The Board is pleased to present the Financial Statements for the year ended 31st August 2013 and is delighted to report that for the first time pre-tax profits exceeded £2 million. The performance of the expanding Retail Group was a major contributor to this improvement.

The acquisition of four pharmacies during the year brings the total number of pharmacies to eight. The Board is keen to continue with the expansion of the retail sector with pharmacies that offer strategic and commercial value. At the same time the Board is also sourcing new investment opportunities that would add synergistic value to the Group.

In order to minimise the infrastructure cost of managing the pharmacies, the Group has entered into a collaboration agreement with Day Lewis (an independent family owned business with over 200 pharmacies) to assist with operational management. All consumer facing materials will be ours as are acquisition decisions. As part of this agreement, we will share knowledge of pharmacy services and development costs of new services. This will enable the Group to fast track our membership services package to all of our members.

Following the diversification of activities, a new wholly owned subsidiary company was formed, Avicenna Membership Services Ltd, and this Company will handle most of our traditional Buying Group business. This move is designed to structure the Group in a more efficient and manageable way.

Earlier this year, we opened a window for trading shares during which prospective buyers and sellers were introduced to each other. The outcome was that only two sellers applied to sell a total of 2,500 shares (the total number of shares in issue is 35million), whilst there were buyers looking to acquire a total of 500,000 shares. The Board viewed this as a major endorsement of confidence in the Company.

In line with the Board’s proposal to increase dividends each year, the Board is proposing a final dividend of 1.7p (last year 1.6p), representing an increase of 7% over last year. If approved by the shareholders at the Annual General Meeting, this will be paid during April 2014. As in previous years, the Board will offer shareholders the opportunity to convert this dividend into shares.

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Retail pharmacy

AMG Healthcare Ltd acquired one pharmacy in Bristol in February 2013 and a further three pharmacies in Bournemouth in August 2013, bringing the total portfolio to eight. The pharmacy market is strengthening especially at the lower end with huge demand from first time buyers. We refuse to be drawn into bidding wars and at all times exercise prudence and caution to get value. In the present market conditions, it would be unwise to set targets for pharmacy numbers to be acquired.

Following each acquisition, our emphasis lies in training and supporting our staff to deliver the best healthcare outcomes for our customers. Most of our branches are now delivering targets on Flu Vaccination, MURs (Medicine Use Review), NMS (New Medicine Service) and other services. Use of EPOS tills, promotions and merchandising is reversing the downward trend in OTC sales that is experienced by many pharmacies.

The recent new premises standards inspection report at one of our branches clearly indicates that all regulatory standards are met. We closely monitor our branches performance and take ownership of all strategic decisions.

Financial review

Summary in numbers: o Revenue increased by 21% to £15.2m o Operating profit increased by 22% to

£2.0m o Shareholder’s funds increased by 15% at

£17.1m

The decision to collaborate with Day Lewis on the operational management of the pharmacies has enabled us to contain our head office costs. The retail business is expected to be the key driver of future profits growth and the Group continues to search for acquisitions to further grow this business. Group cash balances of £10.5m at the year-end will facilitate the group to act quickly when opportunities arise.

Revenue in the Buying Group remained static but tight cost control led to a small increase in operating profits. We will continue to control costs in the Buying Group but the increasing demand for services and support from our members, all of whom have an increasing regulatory work load, will lead to pressure on costs in the future. The proposed dividend of 1.7p per share represents a return of 3.9% on the share price at the beginning of the year and, when added to the increase in shareholder’s funds gives a total return to shareholders of 9.8% for the year.

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Ace+ (Avicenna Club of Excellence)

It is very much in our strategic interest to strengthen the concept of a virtual chain. The departure of our previous Head of Membership Services slowed the progress, but a new Head and an additional qualified pharmacist as his/her assistant, will give a strong base to work and develop this concept. The Board has further increased investment and we believe it will take pressure off back office administration for our members, enabling them to deliver front line services which we are constantly developing.

Membership Support The multitudes of manufacturer and supplier schemes have made it very difficult for pharmacists to digest and analyse the net cost of generics.

To help guide members on generic margins and transparency we have introduced two tools to help with monitoring prices and calculating benefits. Additionally, we took the decision to invest more funding towards Avicenna’s ACE Profit Share scheme and this was revamped and re-launched during the year. As a result, Avicenna members now benefit from up to 5.1%

additional Profit Share on their generics purchases via our suppliers, over and above supplier prices.

The above changes have meant that Avicenna members have received a collective benefit in the region of £2.6 million in the past year.

Our entire sales team, both office and field based, are fully trained to give bespoke advice and solutions where necessary to members to ensure that they organise their purchasing correctly to avoid any unnecessary loss of margin.

Avicenna is looking at new opportunities to help members not only with purchasing margin but also increasing patient loyalty through manufacturer support schemes. To contain costs, we now have arrangements with new business partners who provide commercial insurance and debit/credit card merchant services - we believe this will save each member £1,000 annually.

v

Membership services

Every pharmacist knows that inaccurate PPD reimbursement is a major loss of income to pharmacists and this is referred to later in the report. The inappropriate endorsement of prescriptions by pharmacists can also be a major loss of income. We addressed this issue by holding a two part webinar on this subject.

During the year we also encouraged members to join in the National Awareness Campaign on Blood Pressure.

More prescriptions are going paperless (electronic), so we have launched a toolkit for our members not only to train them, but also to guide them in seeking opportunities that may present themselves.

To help with regulatory pressure, we revamped our entire Standard Operation Polices (SOPS) and the new list now comprises over 150.

Patient Group Directives (PGD) allow pharmacies who have undergone the required training to prescribe certain prescription only medicines under prescribed protocol. We think this is a great way to help patients by giving them easier access to treatment; it takes pressure off GP surgeries and they provide pharmacies with a new income source. Consequently, we are fully funding (free to members) certain PGD’s including Malaria and Erectile Dysfunction.

We hope that the launch of our successful Flu Vaccination training will lead to the formation of full travel clinics for our members.

In some publications there have been some adverse comments on the quality of services (e.g. MURs) provided by some pharmacists. We are addressing this issue, again fully funded by us, by a series of monthly webinars on clinical subjects. Participation in these also counts towards your mandatory CPD (Continuous Professional Development) requirement.

The annual Avicenna golf competition continues to grow in popularity and this year golfers took to the fairways at West Hill Golf Club in Surrey.

vi

Charity hike up Mount Kilimanjaro

On a more public spirited note, earlier this year saw Avicenna organise a charity hike up Mount Kilimanjaro for Against Malaria Foundation, to commemorate our 20th year of supporting independent pharmacies. All the climbers reached the summit - a fantastic achievement - and their total sponsorship collection was approximately £12,000.

Avicenna Conferences

The 13th Overseas Conference took place at the luxury Paradisus Punta Cana resort. Located right on the idyllic Punta Cana Beach the hotel location was perfect with the eternal summer climate, beautiful beach, extensive and comfortable facilities.

The purpose of these conferences is both educational, giving members an opportunity to share best practices, and to provide an excellent platform for networking. The most frequent comment we get is the friendliness of the conference environment which enables members to discuss any issues they may have. Even the shy participated in our member’s Fashion Show!

The 4th UK Conference took place at the Forest of Arden Hotel, near Birmingham. Feedback indicated that 97% of our members rated the overall programme from good to excellent. There was an excellent group of speakers at the UK Conference which included Sue Sharpe, CEO, PSNC; Mike Hamilton, Manager, NHS Prescription Services and Ash Soni, PEC Chair, NHS Lambeth.

Media Awards

Co-judged by Ash Soni, the 2013 Media Awards proved a great success. The Awards were held in the stunning Library at the Royal Society of Chemistry. We were honoured to receive a record number of guests from the wider world of pharmacy, including representatives from the Department of Health, Royal Pharmaceutical Society and General Pharmaceutical Council. The event is now well recognised with participation from all the pharmacy press.

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Public Relations

Our consistent campaigning for accurate reimbursement of prescriptions by the Prescription Pricing Department (PPD), finally started to achieve results. Past complaints were shuttled between various departments and organisations, none

of which were willing to take ownership of the problem. With the help of one of our members, the CEO took the case to Vincent Cable, the Secretary of State for Business and Innovation to discuss the Department of Health’s lack of action and its impact on small businesses. Vincent Cable arranged a joint meeting with Earl Howe, the Pharmacy Minister who promised greater transparency and, true to his word, the PPD for the first time accepted our invitation to address our members. Encouraging progress has been made but it remains to be seen if the problems of past under payments have been addressed.

We are also concerned about confusing messages about promotion of prescription services by some Internet Pharmacies. We have issued guidelines for our members to act upon this, should it continue.

Technology

Technology led initiatives, both externally and internally, has grown rapidly. Externally, technology is enabling Membership Services to expand rapidly, providing our membership with high quality webinar and training offerings, in collaboration with subject-expert partners. The Avicenna website has undergone a complete overhaul enabling the introduction of new services as opportunities arise. Internally, initiatives continue to provide improved and automated processing capabilities, i.e. orders management including, central invoicing system providing central repository for all invoices from Avicenna.

Team

Our staff continues to represent our most valuable asset and we appreciate their work in delivering these services and support to our members. We are strengthening our team in areas of Membership Services and IT. Our Board has been strengthened by the appointment of Steven Downs (Financial Director) and Shiraz Hirji (non-executive Director).

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After six years as Chairman, during which time the Group’s pre-tax profits have increased by 70% to over £2m and its trading membership has doubled, David Gration has decided to retire. The Group has commenced a search for a replacement and David has agreed to continue as Chairman until such time as a suitable person is found. At that time David will stand down. The Board, on behalf of the entire membership, expresses its deep gratitude for his excellent and invaluable contribution and wishes him a long and happy retirement with continued good health to pursue his passion for golf.

Future prospects

The NHS is under huge pressure to manage its budget and at the same time deliver high public expectation and is always under pressure to deliver cost effective outcomes. Over 85% of a typical independent pharmacy’s income is derived from the NHS, so these pressures will continue to be passed down to them to deliver a greater level of service for less money. We believe that Avicenna has an important role to play to provide back office support to our members. Opportunities will also lie for our members to take up the challenge from dispensing to patient service model.

For members, our innovation and increased investment will help them to navigate the complexities that lie ahead.

We believe that by making additional retail acquisitions and seeking other opportunities for the group we will continue to add shareholder value.

David Gration FRPharmS Salim Jetha FRPharmS Chairman CEO

Financial Statements for the year ending 31st August 2013 www.avicenna.org

Malaria Travel ClinicInformationDocumentation

Vaccination Clinic Setup

Useful information

on clinic setup

InformationDocumentation

Delivering Local Healthcare

Selsdon House, 212-220 Addington Road, South Croydon CR2 8LD

Tel: 020 8651 9933 email: enquiries@avicenna.org

www.avicenna.org

4583_Chairmans report.indd All Pages 19/12/2013 15:52

Financial Statements for the year ending 31st August 2013 www.avicenna.org

Malaria Travel ClinicInformationDocumentation

Vaccination Clinic Setup

Useful information

on clinic setup

InformationDocumentation

Delivering Local Healthcare

Selsdon House, 212-220 Addington Road, South Croydon CR2 8LD

Tel: 020 8651 9933 email: enquiries@avicenna.org

www.avicenna.org

4583_Chairmans report.indd All Pages 19/12/2013 15:52