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Boots Group PLCInterim Results 2005/06
27th October 2005
Sir Nigel RuddChairman
Richard BakerChief Executive
Agenda
• Overview Richard Baker
• Financial Review Jim Smart
• Operational Review Richard Baker
Performance headlines
• Continued sales growth in a tough retail market– BTC sales +1.1%– Continued progress in key health and beauty markets
• Dispensing volumes +5%• Beauty sales +7%
• Delivered against targets for margin, cost and working capital
• Group trading profit £163m, down 9.6% reflecting the cost of continued investment
• Interim dividend agreed at 9.1p
2 years of progress
• Strong retail brand operating in growth markets
• Significant progress towards a modern, competitive and efficient business– Prices re-positioned– 40 more stores EoT– Extended opening hours– New tills in all stores– Store friendly supply chain– One third less jobs in head office
Building a Better BootsThe
Health & BeautyExpert
Transforming the Group
• Proposed sale of BHI enables full focus on core chemist chain– Delivered full proceeds of £1.926bn– Stronger balance sheet – 200p special dividend for shareholders
• Proposed merger with Alliance UniChem accelerates our plans– Creates Europe’s leading pharmacy-led healthcare group
• Step change in UK pharmacy presence with 2,600 outlets• Pan-European buying scale
– Enhances international growth opportunities– Delivers substantial cost savings
Jim SmartChief Financial Officer
Group results
6 months to 30th September 2005 (£m) SalesTradingProfit
Boots The Chemists2,19
6 +1.1% 164 -18.6%
Boots Opticians 83 -10.5% (5)
Boots Retail International 28 +13.3% (2)
Boots Healthcare International 265 +8.5% 47 +28.1%
Group & other 22 +8.2% (24)
Group sales and trading profit2,59
4 +0.8% 180 -10.0%
Net financing costs (17)
Trading profit after financing costs 163 -9.6%
Group results
6 months to 30th September 2004 2005
Other operating income and expenses £1m
£147m
Effective tax rate 32% 9%
EPS - Underlying 17.1p 16.1p - 5.8%
Dividend per share 9.1p 9.1p
Share repurchase £178m £50m
Boots The Chemists
-18.6%164202Trading profit
-30bpGross margin movement
-1.3%+1.1%2,1962,171Sales
Like for Like
2005£m
2004£m
6 months to 30th September
-180bp
• PPRS deflation reduces reported BTC sales growth by 1.3%
+6%+12%Operating costs
BTC transaction numbers
£8.83Average Transaction Value
+3.1%− Growth
+0.5%− Total
-1.8%
2005
− Like for like stores
Counter Transactions growth
6 months to 30th September
Footfall -2.9%
Continued progress in Health
• Sales up 0.6% to £936m
• Dispensing volume +5.1%, in line with the market
• Dispensing sales value +0.3%– Price deflation
• PPRS reduces sales by 4.7%, annualises in Feb ’06• Generics reduces sales by 1.2%, annualised in Sept ’05
– New contract neutral in H1
• OTC healthcare sales +1.0%– Good growth in vitamins offset by lower hayfever sales
Continued progress in Beauty
• Beauty and Toiletries sales up 3.3% to £923m
• Beauty sales up 7.3%– Successful investment in own brands and new beauty halls– Premium brands +9%– No7 +12%
• Toiletries sales up 2.9%– Successful investment in own brands and
strong promotional support– Suncare +16%,– Skincare and Dental strong
• Electrical products down 5.9%
Difficult H1 for Lifestyle
• Sales down 2.8% to £337m
• Baby sales +5.3%– More space– Extended ranges
• Food sales -3.9%– Atkins launch in the comparative– Q2 London disruption
• Photo sales -10.2%– Gaining share in declining market– Continued growth in digital
Major changes in Boots Opticians
• Sales down 10.5% to £83m
• Driving efficiency through integration into BTC– Short term disruption
• Difficult market conditions– Affected by slower consumer spending
• Market expected to remain tough in H2– Contact lens deregulation
Group cash flow
6 months to 30th September 2004£m
BTC stock cover (wks)
2005
£m
BTC stock cover (wks)
Trading profit (before financing costs)
197
180
Working capital (280)
14.7 (29) 12.6
Capital expenditure (140)
(100)
Depreciation 79 92
Taxation and other items (59) (59)
(203)
84
Disposal of fixed assets - 296
Net cash flow after investing activities
(203)
380
Disposal of BHI
• Proposed sale to Reckitt Benckiser plc for £1.926bn, to be completed during early 2006
• £1.43bn (200p per share) to be returned to shareholders by special dividend
• Consolidation of shares to maintain comparability of share price and EPS
• EPS enhanced by the disposal
• £400m to be retained to strengthen the balance sheet and for future investment
• Long-term commitment to manufacturing in Nottingham – No adverse impact on Group costs
Balance Sheet
• Financial objectives– Strong investment grade debt rating– Adequate cash and earnings cover to dividend
• Position at 30th September 2005– 713m shares ranking for dividend – Net debt £500m, a decrease of £143m
• Position post BHI disposal– Zero year end net debt on balance sheet– Ongoing financing charge still expected– Capitalised operating leases of £1.5bn
• Property position post sale & leaseback– Remaining freeholds - 100 prime retail sites plus non retail property– NBV £400m, estimated market value at 31st March 2005 £650m
Richard BakerChief Executive
Clear priorities for BTC
ExpertCustomer
Care
Right Stores,Right Places
Boots for Value
Only at Boots
HealthcareFirst
Healthcare First
• Our biggest business– 40% of sales, 50% of profits– 100m scripts p.a.– The biggest category all year round
• A strong and growing market
• A key focus for investment– Smartscript in all stores– Additional capacity to serve care homes– Dispensing sales volume +5%
HealthcareFirst
A strong and growing market
• Demographic trends– Greater life expectancy, people older
for longer
HealthcareFirst
Source: ONS
90
95
100
105
110
115
120
125
130
135
1976 1986 1996 2006 2016
Po
pu
lati
on
19
76
=1
00
Total population Over retirement age Forecast Forecast
A strong and growing market
• Demographic trends– Greater life expectancy, people older
for longer
• Continual advances in treatment– Significant area of investment
• A priority for government– Healthcare spending as % of GDP
• 1997/98 4.2%• 2006/07 6.5% (Plan)
– New contract
HealthcareFirst
Source: ONS
9095
100105110115120125130135
1976 1986 1996 2006 2016Po
pu
lati
on
197
6 =
100
Total population Over retirement age Forecast Forecast
Growing our pharmacy business
• Improving convenience– 31 new pharmacy contracts– Boots.com
• Improving service– PCS– Care homes service– New contract services
• Improving efficiency– New pharmacy operating model– Professional time freed up for patients
HealthcareFirst
A changing role…
• New pharmacy contract– Funding shift to fees and services
• Enhanced services– Incremental funding from new sources– E.g Chlamydia testing
• Patient Group Directions– Private dispensing unique to Boots– E.g. Boots Weight Loss Programme
• Electronic Transfer of Prescriptions
• Significant change…significant opportunity
HealthcareFirst
Building differentiation
• Major own brands relaunched– No7, No1 cosmetic brand , +12% in H1– 17 +13% since relaunch
• Soltan 5* is the market leader
• New exclusive brands in store– Elle McPherson– Ted Baker
Only at Boots
Strong growth in Beauty
• Growing and attractive market– selected distribution– high service element
• Key area for investment– 28 new premium brands in 20 stores– 10 new beauty halls– new fragrance cabinets in 40 stores
• Beauty +7%– Cosmetics +13%– Fragrance +3%
Only at Boots
Committed to value for money
• Continual focus on fair prices– 700 lines reduced by 11%– 200 new price reductions in Baby
• Promotions to inspire impulse purchases– Xmas Mix’n’match 3for2
• Full range of price points– Gifts for all– More Xmas gifts at lower price points
• Biggest and most generous loyalty card– Baby club
Boots for Value
Clear property priorities
• Continue to add space on edge of town– 7 new Edge of Town stores– New stores +2.4% sales in H1
• Drive large store profit intensity– Reduce cost of unproductive space– Property solutions where possible
• eg. Brent Cross – Long term planning
• Bring small stores up to standard
Right Stores,Right Places
Expert customer care
• New uniforms for all Boots people in store
• Professional care and advice– 2,000 pharmacists in training for
Medicine Usage Review – 150 Accuracy Checking Technicians– 300 more trained Healthcare Assistants
• “Trust” based advertising
ExpertCustomer
Care
Driving efficiency
• Delivering against £70m productivity target– Store friendly supply chain– Continued benefit of Head Office reductions
• Better in store operations– New till based management information
• Further buying gains supporting margin– More Far East sourcing for Xmas– eAuctions for own brand products– Advanced negotiation training
Summary
• Two major transactions to transform the business
• Health and Beauty focus continues to deliver strong results
• Delivery against gross margin, productivity and working capital targets
• Good progress against clear priorities to build a better Boots
• Commitment, discipline and focus
Boots Group PLCInterim Results 2005/06