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Boots Group PLC Preliminary Results 2004/05 19 th May 2005.

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Presentation on theme: "Boots Group PLC Preliminary Results 2004/05 19 th May 2005."— Presentation transcript:

1 Boots Group PLC Preliminary Results 2004/05 19 th 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 31 st March 2005 (£m)SalesProfit Boots The Chemists4,651 +3.8% 470 - 11.8% Boots Healthcare International523 +3.6% 88 +8.9% Boots Opticians183 - 8.6% 4 - 67.4% Boots Retail International48 +12.3% (8) +21.2% Group & other costs37 -37.9% (46) 0.0% Discontinued operations27(7) Group sales and operating profit5,469 +2.7% 501 -8.7% Interest(20) Profit before tax and exceptionals481 -11.4%

7 Group results 12 months to 31 st March20042005 Exceptional items£36m£(54)m Effective tax rate30.9%29.6% EPS - Basic52.8p40.9p - 22.5% - Pre-exceptional48.0p45.7p - 4.8% Dividend per share29.8p30.1p +1.0% Dividend£226m£217m - 4.3% Share repurchase£260m£300m

8 Boots The Chemists - 11.8% 470533Operating profit -80bpGross margin movement +2.4%+3.8% 4,6514,479Sales Like for Like 2005 £m 2004 £m 12 months to 31st March -30bp

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 £9.21£9.19Average Transaction Value +0.2%+5.4% Growth +3.0%- 1.4% Total +1.5% 2005 - 2.0% Like for like stores Counter Transactions growth 2004 12 months to 31st March Underlying NHS items growth 3.5% 5.2% Weekly footfall 19.3m19.8m

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 31 st March (£m increase) 2005 Inflation40 Volume20 Productivity / GiS(90) (30) Pension15 Existing stores/trading45 IT Infrastructure/tills35 New space/formats35 YoY cost increase100 +7%

14 BTC operating costs 12 months to 31 st March (£m increase) 20052006 Inflation4050 Volume2010 Productivity / GiS(90)(70) (30)(10) Pension15 Existing stores/trading4540 IT Infrastructure/tills3525 New space/formats3530 YoY cost increase100 +7% 100 +6%

15 Capital expenditure 12 months to 31 st March (£m) 20052006 Group Capital expenditure288200 Depreciation charge146190 Boots The Chemists Capital expenditure225150 Depreciation charge100130

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 Sales505523 +3.6%+5.8% Brand investment/sales28%27% Operating profit8188 +8.9%+12.7%

18 BHI Sales by Brand 12 months to 31st March 2005 Sales £m Nurofen150 +8.1% Clearasil91 +6.0% Strepsils91 +9.3% Dermo-cosmetics48 -6.6% Other143 +5.8% Total523 +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 31 st March2004 £m 2005 £m Operating profit550501 Working capital(47)(118) Capital expenditure(194)(304) Depreciation134146 Operating cash flow443225 Disposal of fixed assets15021 Other items0(14) Business cash flow593232

21 Working capital movements 12 months to 31st March (£m) 2004 Weeks cover 2005 Weeks cover Stock- Boots The Chemists(60) 11 (29) 11 - Other68 (54)(21) Debtors(43)(49) Creditors- Redundancy provision41(32) - Staff bonus-(10) - Other9(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 31 st 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 Neglected core strengths Strong Pharmacy performance Building strength in Beauty Losing customers Competing better in commodity markets Gross margin broadly stable Difficult to shop More convenient and accessible stores Outdated systems Inefficient operations Modern infrastructure Unsustainable prices

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 –3 rd 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 –1/3 rd fewer jobs in Head office –Manufacturing

34 Our journey…. The next phase Modern, Competitive, Efficient The Health & Beauty Expert Too expensive Under invested Old Boots Building a Better Boots

35 The next phase – clear focus and priorities Expert Customer Care Right Stores, Right Places Boots for Value Only at Boots Healthcare First

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 –N o 7 –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£1,863m5.0%4.4% Dispensing6.1% OTC Medicines3.1% Beauty & Toiletries£2,055m2.9%0.9% Cosmetics & Fragrance5.3% Toiletries0.1% Lifestyle£734m3.7%1.6% Food5.2% Baby6.8% Photo-8.0%

46 Aggregate spend on modernising BTC in 2004/05 vs Original Plans communicated with preliminary results 2004 ActualOriginal Plan Year ended 31 March 2005 (£m)RevenueCapitalRevenueCapital Modern Convenience278197 Faster Pharmacy8111221 Right Places18453169 Right Stores25663871 Competitive – Only at Boots8301026 Efficient Making IT Easy23542645 Store Friendly Supply Chain7114 116225140250

47 Increase in operating costs as a result of revenue spend on modernising BTC £m2003/042004/052005/06 Revenue spend (per slide 46 for 04/05) recurring costs449046 one-off costs182614 6211660 Full year impact of PY recurring costs1761 PY one-off costs not recurring(18)(26) Increase in operating costs11595 Analysed in slide 14 as: Existing stores/trading4540 IT Infrastructure/tills3525 New space/formats3530 11595

48 Getting in Shape Cumulative Savings vs 2002/03 £M Costs in the year £M 100 50 0 100 150 22 66 34 31 83 111 BHI 554920- Cumulative Savings 2005/062004/052003/042002/03 5 BTC – Operating costs BTC – Cost of goods 35217- 134-

49 Incremental Effect of Getting in Shape on PBT £m2004/052005/06 Getting in Shape Costs & Savings (from slide 48): Costs incurred in the year(34)(5) PY costs not recurring6634 Incremental savings5228 Incremental Effect on PBT vs PY8457 Analysed as: BTC – Operating costs (included in Productivity / GIS on slide 14) 6419 BTC – Cost of goods14 BHI98 Group & other / exceptional(3)16 8457

50 Implications of IFRS First IFRS reporting H1 2005/06 Detailed impact to be provided in July Balance Sheet at 31.03.05 Operating Profit 04/05 £m Assets £m Liabilities £m Net Assets £m IAS 19 Pensions(117)(19)(136)(18) IAS 17 Leases46(57)(11)5 IAS 12 Deferred Tax61(65)(4)- IAS 10 Proposed Dividends-150 - Other4152 Total Impact(6)104(11)

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