Boots Group PLC

1
Boots Group PLC

• Preliminary Results 2004/05

19th May 2005
2
Sir Nigel Rudd

• Chairman

3
Richard Baker

• Chief Executive

4
Agenda

• Financial Review
• Operational Review
• The next phase - clear priorities and focus

5
Jim Smart

• Acting Chief Financial Officer

6
Group results
12 months to 31st March 2005 (m) Sales Profit
Boots The Chemists 4,651 3.8 470 - 11.8
Boots Healthcare International 523 3.6 88 8.9
Boots Opticians 183 - 8.6 4 - 67.4
Boots Retail International 48 12.3 (8) 21.2
Group other costs 37 -37.9 (46) 0.0
Discontinued operations 27 (7)
Group sales and operating profit 5,469 2.7 501 -8.7
Interest (20)
Profit before tax and exceptionals 481 -11.4
7
Group results
12 months to 31st March 2004 2005
Exceptional items 36m (54)m
Effective tax rate 30.9 29.6
EPS - Basic 52.8p 40.9p - 22.5
- Pre-exceptional 48.0p 45.7p - 4.8
Dividend per share 29.8p 30.1p 1.0
Dividend 226m 217m - 4.3
Share repurchase 260m 300m
8
Boots The Chemists
Like for Like
2005 m
2004 m
12 months to 31st March
4,651
4,479
Sales
2.4
3.8
-80bp
Gross margin movement
-30bp
470
533
Operating profit
- 11.8
9
BTC sales growth

• Total Sales up 3.8
• Lower prices and promotional activity reduced
  revenue by 4.8
• A further 2,000 lines reduced by 14 under LPYL
• Volumes up 4.6
• New space
• Extended opening hours
• Better value
• Mix of products sold contributed 4.0

10
BTC transaction numbers
12 months to 31st March
2005
2004
Underlying NHS items growth
3.5
5.2
Counter Transactions growth
3.0
- 1.4

• Total

1.5
- 2.0

• Like for like stores

9.21
9.19
Average Transaction Value
0.2
5.4

• Growth

19.3m
19.8m
Weekly footfall
11
BTC sales by category

• Health 1,863m, 5.0
• Strong items growth in Dispensing
• Vitamins and new OTC products
• Beauty Toiletries 2,055m, 2.9
• Continued strong growth in Beauty
• Toiletries remains very competitive but market
  share maintained
• Lifestyle 734m, 3.7
• Extended Baby ranges
• Food ranges re-launched
• Continued decline in Photo market

12
BTC gross margin

• Gross margin down 80bps
• 260bps impact of lower prices
• Pricing and promotions
• LPYL impact 150bps
• 180bps recovered through better buying,
  manufacturing efficiencies and mix

13
BTC operating costs
12 months to 31st March (m increase) 2005
Inflation 40
Volume 20
Productivity / GiS (90)
(30)
Pension 15
Existing stores/trading 45
IT Infrastructure/tills 35
New space/formats 35
YoY cost increase 100 7



14
BTC operating costs
12 months to 31st March (m increase) 2005 2006
Inflation 40 50
Volume 20 10
Productivity / GiS (90) (70)
(30) (10)
Pension 15 15
Existing stores/trading 45 40
IT Infrastructure/tills 35 25
New space/formats 35 30
YoY cost increase 100 7 100 6



15
Capital expenditure
12 months to 31st March (m) 2005 2006
Group
Capital expenditure 288 200
Depreciation charge 146 190

Boots The Chemists
Capital expenditure 225 150
Depreciation charge 100 130





16
Getting in Shape update

• Cumulative programme savings of 111m (05/06 vs
  02/03)
• Savings estimated at interims 132m
• Redundancies delayed to 06/07
• BHI actions cancelled
• Savings comprise
• BTC Head Office costs reduced by 55m
• Head count reduced by 1,200
• Manufacturing efficiencies of 52m
• BTC 35m
• BHI 17m
• BHI operating costs reduced by 4m

17
Boots Healthcare International
12 months to 31st March 2004 m 2005 m Local currency
Sales 505 523 3.6 5.8
Brand investment/sales 28 27
Operating profit 81 88 8.9 12.7
18
BHI Sales by Brand
12 months to 31st March 2005 12 months to 31st March 2005 Sales m
Nurofen 150 150 8.1
Clearasil 91 91 6.0
Strepsils 91 91 9.3
Dermo-cosmetics 48 48 -6.6
Other 143 143 5.8
Total 523 523 5.8
Sales growth relates to local currency
19
Update on planned sale of BHI

• Process on track
• Tax efficient disposal
• Completion within 05/06 financial year
• Significant proportion of proceeds to be returned
  to shareholders

20
Group cash flow
12 months to 31st March 2004 m 2005 m
Operating profit 550 501
Working capital (47) (118)
Capital expenditure (194) (304)
Depreciation 134 146
Operating cash flow 443 225
Disposal of fixed assets 150 21
Other items 0 (14)
Business cash flow 593 232
21
Working capital movements
12 months to 31st March (m) 12 months to 31st March (m) 2004 Weeks cover 2005 Weeks cover
Stock - Boots The Chemists (60) 11 (29) 11
- Other 6 8
(54) (21)
Debtors (43) (49)
Creditors - Redundancy provision 41 (32)
- Staff bonus - (10)
- Other 9 (6)
50 (48)
(47) (118)
22
Balance Sheet

• Maintain strong investment grade debt rating
• Share buy back
• 300m returned in 04/05
• Commitment to return remainder of 700m programme
  over 2 to 3 years
• 730.5m shares in issue at 31st March 2005
• Net debt 594m, an increase of 446m
• Sale and leaseback process on track to complete
  over the Summer

23
Planning assumptions for 2005/06

• Sales growth expected to remain subdued
• LFL growth 0 2
• New space contribution 2
• Stable gross margin expected
• Continued investment in price
• Cost of Goods improvement
• Costs expected to be up 6 due to infrastructure
  renewal and new space

24
Summary

• Group profits lower due to the cost of
  modernising Boots The Chemists
• Boots The Chemists made good progress in key
  markets
• BHI disposal process on track
• Committed to returning cash to shareholders
• Significant proportion of BHI sale proceeds
• Completing remainder of 700m share buy back
• Dividend a key element of delivering shareholder
  returns
• Full year guidance unchanged

25
Richard Baker

• Chief Executive

26
Agenda

• Financial Review
• Operational Review
• The next phase - clear priorities and focus

27
Substantial progress has been made
28
Strong pharmacy performance

• Dispensing 6.1
• Best performance for 5 years
• Investing in the core of the business
• 1,000 stores now have Smartscript
• 80 pharmacies upgraded
• Greater convenience for customers
• Prescription collection service 17
• Developing new markets
• Care home service 12

29
Building on the strength in Beauty

• Cosmetics Fragrance 5.3
• Investing behind key strength
• Successful re-launch of No7
• 24 new beauty halls
• New fragrance units in 178 stores
• Value for money
• Advantage card
• Competitive pricing in Fragrance
• Seasonal events better implemented

30
Competing better in commodity markets

• Market share maintained
• Lower Prices Youll Love
• 200m invested in 18 months
• Promotions
• Simpler, stronger offers
• Own brand innovation

31
Gross margin ahead of target

• Successful management of pricing/promotional mix
• 30m buying gains achieved in the year
• National brands
• Higher volumes
• Collaborative working
• Own brands
• Getting in Shape
• 3rd party sourcing

32
More convenient and accessible stores

• Stores open when customers want to shop
• Local hours to suit local needs
• 400 more stores open on Sundays and Bank Holidays
• Building space on the Edge of Town
• 23 new stores taking total to 112
• 15 of space now EoT
• LFL stores in second year show 22 sales growth

33
Modern infrastructure

• Renewal of IT infrastructure
• New tills in all stores
• 100 stores now have Radio Frequency technology
• 3 of 4 SAP Backbone phases now completed
• Store friendly supply chain
• 82 of lines delivered direct to shelf
• Lower stock holding in store
• Lower cost base in Nottingham
• 1/3rd fewer jobs in Head office
• Manufacturing

34
Our journey.
Thenext phase
Old Boots
Modern, Competitive, Efficient
The Health Beauty Expert
Too expensive Under invested
Building a Better Boots
35
The next phase clear focus and priorities
Healthcare First
Expert Customer Care
Only at Boots
Right Stores, Right Places
Boots for Value
36
Driving efficiency

• Continuous process
• Better buying
• Collaboration with suppliers
• Cross category sourcing
• Far East
• Supply chain
• Lower stock holding in store

37
Healthcare First

• Unifying feature, strong brand heritage
• 40 of sales, 50 of profits
• Strong long term growth opportunity
• Deregulation
• Increasing role for community pharmacy
• Electronic Transfer of Prescriptions

38
Only at Boots

• Market leading own brand beauty products
• No7
• 17 will be re-launched this year
• Market leading own brand toiletries
• Soltan 5
• Smile to be re-launched
• Range authority
• Premium cosmetics
• Exclusives on new launches
• 20 on sales from items less than 1 year old

39
Boots for value

• Continued investment in value
• Mitigated by sourcing gains and own brand mix
• Strong, simple offers
• Great rewards from Advantage Card
• 14m active card holders
• Invitation events
• Boots Parenting Club

40
Right stores right places

• More stores on the Edge of Town
• Good growth potential
• Modern stores
• Low cost model
• Londons best health beauty store
• Layout
• Signage

41
Expert customer care

• Trusted brand
• Expert people
• Differentiated, specialist offer

42
Summary

• Substantial progress against our plans
• BTC remains a successful and profitable business
• Challenging environment
• Building a better Boots
• The Health Beauty Expert

43
Boots Group PLC

• Preliminary Results 2004/05

44
Boots Group PLC

• Preliminary Results 2004/05 -Appendices

45
Sales Performance by category
2004/05 Sales Sales Growth LFL Growth
Health 1,863m 5.0 4.4
Dispensing 6.1
OTC Medicines 3.1
Beauty Toiletries 2,055m 2.9 0.9
Cosmetics Fragrance 5.3
Toiletries 0.1
Lifestyle 734m 3.7 1.6
Food 5.2
Baby 6.8
Photo -8.0
46
Aggregate spend on modernising BTC in 2004/05 vs
Original Plans communicated with preliminary
results 2004
Actual Actual Original Plan Original Plan
Year ended 31 March 2005 (m) Revenue Capital Revenue Capital
Modern
Convenience 27 8 19 7
Faster Pharmacy 8 11 12 21
Right Places 18 45 31 69
Right Stores 25 66 38 71
Competitive Only at Boots 8 30 10 26
Efficient
Making IT Easy 23 54 26 45
Store Friendly Supply Chain 7 11 4 11
116 225 140 250
47
Increase in operating costs as a result of
revenue spend on modernising BTC
m 2003/04 2004/05 2005/06
Revenue spend (per slide 46 for 04/05)
recurring costs 44 90 46
one-off costs 18 26 14
62 116 60
Full year impact of PY recurring costs 17 61
PY one-off costs not recurring (18) (26)
Increase in operating costs 115 95
Analysed in slide 14 as
Existing stores/trading 45 40
IT Infrastructure/tills 35 25
New space/formats 35 30
115 95
48
Getting in Shape
150
111
Cumulative Savings vs 2002/03 M
83
100
50
31
0
5
22
Costs in the year M
50
34
66
100
2005/06
2004/05
2003/04
2002/03
Cumulative Savings
BTC Operating costs
55
49
20
-
BTC Cost of goods
35
21
7
-
BHI
21
13
4
-
49
Incremental Effect of Getting in Shape on PBT
m 2004/05 2005/06
Getting in Shape Costs Savings (from slide 48)
Costs incurred in the year (34) (5)
PY costs not recurring 66 34
Incremental savings 52 28
Incremental Effect on PBT vs PY 84 57
Analysed as
BTC Operating costs (included in Productivity / GIS on slide 14) 64 19
BTC Cost of goods 14 14
BHI 9 8
Group other / exceptional (3) 16
84 57
50
Implications of IFRS

• First IFRS reporting H1 2005/06
• Detailed impact to be provided in July

Balance Sheet at 31.03.05 Balance Sheet at 31.03.05 Balance Sheet at 31.03.05 Operating Profit 04/05 m
Assets m Liabilities m Net Assets m Operating Profit 04/05 m
IAS 19 Pensions (117) (19) (136) (18)
IAS 17 Leases 46 (57) (11) 5
IAS 12 Deferred Tax 61 (65) (4) -
IAS 10 Proposed Dividends - 150 150 -
Other 4 1 5 2
Total Impact (6) 10 4 (11)