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Boots Group PLC

Boots Group PLC. Interim Results 2005/06. 27 th October 2005. Sir Nigel Rudd. Chairman. Richard Baker. Chief Executive. Agenda. Overview Richard Baker Financial Review Jim Smart Operational Review Richard Baker. Performance headlines. Continued sales growth in a tough retail market

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Boots Group PLC

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  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. The Health & Beauty Expert Building a Better Boots 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 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

  8. Jim Smart Chief Financial Officer

  9. Group results

  10. Group results

  11. Boots The Chemists 6 months to 30th September 2004 £m 2005 £m Like for Like Sales 2,171 2,196 +1.1% -1.3% • PPRS deflation reduces reported BTC sales growth by 1.3% Gross margin movement -180bp -30bp Operating costs +12% +6% Trading profit 202 164 -18.6%

  12. BTC transaction numbers 2005 6 months to 30th September -2.9% Footfall Counter Transactions growth • Total +0.5% • Like for like stores -1.8% Average Transaction Value £8.83 • Growth +3.1%

  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

  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

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

  22. 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%

  23. 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

  24. 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 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

  25. 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

  26. 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 change…significant 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 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

  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

  32. 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

  33. 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

  34. Boots Group PLC Interim Results 2005/06

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