Transcript No Slide Title

Boots Group PLC
Preliminary Results 2004/05
19th 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
12 months to 31st March 2005 (£m)
Sales
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
Group sales and operating profit
5,469
Profit
(7)
+2.7%
501
Interest
(20)
Profit before tax and exceptionals
481
-8.7%
-11.4%
Group results
12 months to 31st March
2004
2005
Exceptional items
£36m
£(54)m
Effective tax rate
30.9%
29.6%
52.8p
40.9p
- 22.5%
48.0p
45.7p
- 4.8%
29.8p
30.1p
+1.0%
Dividend
£226m
£217m
- 4.3%
Share repurchase
£260m
£300m
EPS - Basic
- Pre-exceptional
Dividend per share
Boots The Chemists
12 months to 31st March
2004
£m
2005
£m
Sales
4,479
4,651
Gross margin movement
-30bp
-80bp
533
470
Operating profit
Like for
Like
+3.8%
- 11.8%
+2.4%
BTC sales growth
•
Total Sales up 3.8%
•
Lower prices and promotional activity reduced revenue by 4.8%
–
•
Volumes up 4.6%
–
–
–
•
A further 2,000 lines reduced by 14% under LPYL
New space
Extended opening hours
Better value
Mix of products sold contributed 4.0%
BTC transaction numbers
12 months to 31st March
2004
2005
Underlying NHS items growth
3.5%
5.2%
− Total
- 1.4%
+3.0%
− Like for like stores
- 2.0%
+1.5%
£9.19
£9.21
− Growth
+5.4%
+0.2%
Weekly footfall
19.3m
19.8m
Counter Transactions growth
Average Transaction Value
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
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
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%
BTC operating costs
12 months to 31st March (£m increase)
2005
2006
Inflation
40
50
Volume
20
10
(90)
(70)
(30)
(10)
Pension
15
15
Existing stores/trading
45
40
IT Infrastructure/tills
35
25
New space/formats
35
30
Productivity / GiS
YoY cost increase
100 +7%
100 +6%
Capital expenditure
12 months to 31st March (£m)
2005
2006
Capital expenditure
288
200
Depreciation charge
146
190
Capital expenditure
225
150
Depreciation charge
100
130
Group
Boots The Chemists
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
Boots Healthcare International
12 months to 31st March
Sales
Brand investment/sales
Operating profit
2004
£m
2005
£m
505
523
28%
27%
81
88
Local
currency
+3.6%
+5.8%
+8.9%
+12.7%
BHI Sales by Brand
12 months to 31st March 2005
Sales
£m
Nurofen
150
+8.1%
Clearasil
91
+6.0%
Strepsils
91
+9.3%
Dermo-cosmetics
48
-6.6%
Other
143
+5.8%
Total
523
+5.8%
Sales growth relates to local currency
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
Group cash flow
12 months to 31st March
2004
£m
2005
£m
Operating profit
550
501
Working capital
(47)
(118)
(194)
(304)
Depreciation
134
146
Operating cash flow
443
225
Disposal of fixed assets
150
21
0
(14)
593
232
Capital expenditure
Other items
Business cash flow
Working capital movements
12 months to 31st March (£m)
2004 Weeks
2005
Weeks
cover
(29)
11
cover
Stock
- Boots The Chemists
- Other
11
6
8
(54)
(21)
(43)
(49)
41
(32)
- Staff bonus
-
(10)
- Other
9
(6)
50
(48)
(47)
(118)
Debtors
Creditors
(60)
- Redundancy provision
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
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
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
Richard Baker
Chief Executive
Agenda
•
Financial Review
•
Operational Review
•
The next phase - clear priorities and focus
Substantial progress has been made
Neglected core strengths
Strong Pharmacy performance
Building strength in Beauty
Losing customers
Competing better in
commodity markets
Unsustainable prices
Gross margin broadly stable
Difficult to shop
More convenient and
accessible stores
Outdated systems
Inefficient operations
Modern infrastructure
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%
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
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
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
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
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
Our journey….
The
next phase
“Old” Boots
Too expensive
Under invested
Modern,
Competitive,
Efficient
The
Health & Beauty
Expert
Building a Better Boots
The next phase – clear focus and priorities
Healthcare
First
Expert
Customer
Care
Right Stores,
Right Places
Only at Boots
Boots for Value
Driving efficiency
•
Continuous process
•
Better buying
– Collaboration with suppliers
– Cross category sourcing
– Far East
•
Supply chain
– Lower stock holding in store
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
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
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
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
Expert customer care
•
Trusted brand
•
Expert people
•
Differentiated, specialist offer
Summary
•
Substantial progress against our plans
•
BTC remains a successful and profitable business
•
Challenging environment
•
Building a better Boots
•
The Health & Beauty Expert
Boots Group PLC
Preliminary Results 2004/05
Boots Group PLC
Preliminary Results 2004/05 -Appendices
Sales Performance by category
Health
2004/05
Sales
Sales
Growth
LFL
Growth
£1,863m
5.0%
4.4%
− Dispensing
6.1%
− OTC Medicines
3.1%
Beauty & Toiletries
£2,055m
2.9%
− Cosmetics & Fragrance
5.3%
− Toiletries
0.1%
Lifestyle
£734m
3.7%
− Food
5.2%
− Baby
6.8%
− Photo
-8.0%
0.9%
1.6%
Aggregate spend on modernising BTC in 2004/05 vs
Original Plans communicated with preliminary results
2004
Actual
Year ended 31 March 2005 (£m)
Original Plan
Revenue
Capital
Revenue
Capital
27
8
19
7
8
11
12
21
Right Places
18
45
31
69
Right Stores
25
66
38
71
8
30
10
26
23
54
26
45
7
11
4
11
116
225
140
250
Modern
Convenience
Faster Pharmacy
Competitive – Only at Boots
Efficient
Making IT Easy
Store Friendly Supply Chain
Increase in operating costs as a result of revenue spend
on modernising BTC
£m
2003/04
2004/05
2005/06
• recurring costs
44
90
46
• one-off costs
18
26
14
62
116
60
17
61
PY one-off costs not recurring
(18)
(26)
Increase in operating costs
115
95
• Existing stores/trading
45
40
• IT Infrastructure/tills
35
25
• New space/formats
35
30
115
95
Revenue spend (per slide 46 for 04/05)
Full year impact of PY recurring costs
Analysed in slide 14 as:
111
£M
vs 2002/03
150
83
100
50
31
0
£M
Costs in the year
Cumulative Savings
Getting in Shape
50
5
22
34
66
100
2002/03
2003/04
2004/05
2005/06
BTC – Operating costs
-
20
49
55
BTC – Cost of goods
-
7
21
35
BHI
-
4
13
21
Cumulative Savings
Incremental Effect of Getting in Shape on PBT
£m
2004/05
2005/06
(34)
(5)
PY costs not recurring
66
34
Incremental savings
52
28
Incremental Effect on PBT vs PY
84
57
• BTC – Operating costs
(included in Productivity / GIS on slide 14)
64
19
• BTC – Cost of goods
14
14
9
8
(3)
16
84
57
Getting in Shape Costs & Savings (from slide 48):
Costs incurred in the year
Analysed as:
• BHI
• Group & other / exceptional
Implications of IFRS
•
First IFRS reporting H1 2005/06
•
Detailed impact to be provided in July
Balance Sheet at 31.03.05
Assets
£m
Liabilities
£m
Net Assets
£m
Operating
Profit 04/05
£m
(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
(6)
10
4
(11)
IAS 19 Pensions
Total Impact