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Boots Group PLC

Boots Group PLC. Preliminary Results 2004/05. 19 th May 2005. Sir Nigel Rudd. Chairman. Richard Baker. Chief Executive. Agenda. Financial Review Operational Review The next phase - clear priorities and focus . Jim Smart. Acting Chief Financial Officer. Group results. Group results.

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Boots Group PLC

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  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

  7. Group results

  8. Boots The Chemists 12 months to 31st March 2004 £m 2005 £m Like for Like Sales 4,479 4,651 +3.8% +2.4% Gross margin movement -30bp -80bp Operating profit 533 470 - 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 2004 2005 Underlying NHS items growth 3.5% 5.2% Counter Transactions growth • Total - 1.4% +3.0% • Like for like stores - 2.0% +1.5% Average Transaction Value £9.19 £9.21 • Growth +5.4% +0.2% 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

  14. BTC operating costs

  15. Capital expenditure

  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

  18. BHI Sales by Brand 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

  21. Working capital movements

  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. Strong Pharmacy performance Building strength in Beauty Neglected core strengths Competing better in commodity markets Losing customers Gross margin broadly stable Unsustainable prices More convenient and accessible stores Difficult to shop Outdated systems Inefficient operations Modern infrastructure 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 You’ll 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 • London’s 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

  46. Aggregate spend on modernising BTC in 2004/05 vs Original Plans communicated with preliminary results 2004

  47. Increase in operating costs as a result of revenue spend on modernising BTC

  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 2002/03 2003/04 2004/05 2005/06 Cumulative Savings BTC – Operating costs - 20 49 55 BTC – Cost of goods - 7 21 35 BHI - 4 13 21

  49. Incremental Effect of Getting in Shape on PBT

  50. Implications of IFRS • First IFRS reporting H1 2005/06 • Detailed impact to be provided in July

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