Boots Group PLC

1
Boots Group PLC

• Interim Results 2005/06

27th October 2005
2
Sir Nigel Rudd

• Chairman

3
Richard Baker

• Chief Executive

4
Agenda

• Overview Richard Baker
• Financial Review Jim Smart
• Operational Review Richard Baker

5
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

6
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

7
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 Europes 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

8
Jim Smart

• Chief Financial Officer

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Group results
6 months to 30th September 2005 (m) Sales TradingProfit
Boots The Chemists 2,196 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 profit 2,594 0.8 180 -10.0
Net financing costs (17)
Trading profit after financing costs 163 -9.6
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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
11
Boots The Chemists
Like for Like
2005 m
2004 m
6 months to 30th September
2,196
2,171
Sales
-1.3
1.1

• PPRS deflation reduces reported BTC sales growth
  by 1.3

-30bp
Gross margin movement
-180bp
6
12
Operating costs
164
202
Trading profit
-18.6
12
BTC transaction numbers
2005
6 months to 30th September
-2.9
Footfall
Counter Transactions growth
0.5

• Total

-1.8

• Like for like stores

8.83
Average Transaction Value
3.1

• Growth

13
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

14
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

15
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

16
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

17
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
18
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

19
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

20
Richard Baker

• Chief Executive

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Clear priorities for BTC
Healthcare First
Expert Customer Care
Only at Boots
Right Stores, Right Places
Boots for Value
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Healthcare First
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

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A strong and growing market
Healthcare First

• Demographic trends
• Greater life expectancy, people older for longer

135
130
125
120
115
Population 1976 100
110
105
100
95
90
1976
1986
1996
2006
2016
Total population
Over retirement age
Forecast
Forecast
Source ONS
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A strong and growing market
Healthcare First

• 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

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Growing our pharmacy business
Healthcare First

• 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

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A changing role
Healthcare First

• 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 changesignificant opportunity

27
Building differentiation
Only at Boots

• 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

28
Strong growth in Beauty
Only at Boots

• 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

29
Committed to value for money
Boots for Value

• Continual focus on fair prices
• 700 lines reduced by 11
• 200 new price reductions in Baby
• Promotions to inspire impulse purchases
• Xmas Mixnmatch 3for2
• Full range of price points
• Gifts for all
• More Xmas gifts at lower price points
• Biggest and most generous loyalty card
• Baby club

30
Clear property priorities
Right Stores, Right Places

• 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

31
Expert customer care
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

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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

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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

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Boots Group PLC

• Interim Results 2005/06