Boots Group PLC Annual Results 200203

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Boots Group PLCAnnual Results 2002/03
John McGrath Chairman Chief Executive Officer
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Agenda

• Group results
• Driving profitable top line growth
• Investing for the future
• Refocusing on 2 core businesses
• Summary and cost progression
• Outlook for 03/04

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New leadership team
Date Appointed
Richard Baker Ann Francke Howard Dodd David
Kneale Paul Stoneham Paul Bateman David
Lister Andy Smith
Role CEO Strategic Marketing CFO COO - BTC
BHI Supply Chain/Properties IT Personnel
Experience Asda/Mars Mars/PG AstraZeneca/ICI
Waterstones Alberto Culver/PG PG Diageo/GSK
Mars/Pepsi Cola
Sep 2003 Feb 2003 Apr 2002 Jan 2002 Aug 2001
Jul 2001 Feb 2001 Jul 1997
Four new non-executive directors since 1999
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Howard Dodd Chief Financial Officer
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Group results
01/02 m
02/03 m
Sales Operating profit Pre-tax profit EPS
(pre-exceptional) EPS Dividend Share
re-purchase
5,328 609 596 49.9p 45.9p 27.4p 46
5,325 544 495 45.2p 36.0p 28.6p 463
-
-11
-17
-9
-22
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Profit growth reconciliation
01/02 m
02/03 m
4,800 609 (54) 8 16 1
580 - - -
Sales - continuing operations Operating
profit Halfords Pension costs Rationalisation Inve
stment Adjusted profit Exceptional items -
Halfords disposal - Wellbeing - Swaps

5,090 544 (22) 33 40 22
617 (123) (35) 92
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-11
6
shown as interest income
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Driving profitable top line growth

• Boots The Chemists

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Boots The Chemists
01/02 m
02/03 m
Sales 4,072 4,284 5 Operating
profit 605 569 -6 Operating
cashflow after 492 546
11capital spend
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BTC sales growth
half year growth ()
10.0
8.0
6.5
6.0
3.8
4.0

2.0
0.0
-2.0
-4.0
01/02
00/01
02/03
97/98
98/99
99/00
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Like for like sales growth by quarter
02/03
Q1 Q2 Q3 Q4 Year
0.8 5.7 7.5 4.1 4.8
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Driving frequency and footfall
Transactions
500
millions p.a.
450
00/01
01/02
02/03
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Driving frequency and footfall
Average Transaction Value
Transactions
500
8.50

millions p.a.
8.00
450
00/01
01/02
02/03
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Driving sales through

• Our store teams
• Breadth of range
• New ideas
• Christmas

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Driving sales through our store teams

• Help Advice
• 1,100 extra store staff
• Improved pay rates to attract retain key staff
• Increased training
• Mystery customer measures up 9
• On-shelf availability over 98on all lines
  including key lines

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Driving sales through breadth of range

• Increased distribution of premium own-label
  brands
• Product density increased in larger stores
• Reinvigorated Baby range with mini mode
• Expanded Christmas offer
• Increased choice in re-invigorated stores

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Driving sales through new ideas

• 31 of lines are new each year
• Own brand strength - No7 Intelligent Colour
  Foundation
• Line extension and promotion drive new brands
  - TONIGUY 34 - fcuk 76
• Launch partner of choice for proprietary brands
  - Gillette Mach III Turbo
• Proprietary brand sales up 6.7
• Own brand and exclusives sales up 2.4

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Driving sales at Christmas

• Major driver of footfall and halo sales
• Q3 sales up 7.5 like for like
• Incremental Christmas sales 70m
• Positive contribution to profitafter set-up costs

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BTC category sales growth analysis
5.1
1,716m Health

• Continued strong marketgrowth in Dispensing
• OTC 5
• Complementary health including vitamins -2

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BTC category sales growth analysis
6.8
5.1
1,716m Health
1,892m Beauty Toiletries

• Continued strong marketgrowth in Dispensing
• OTC 5
• Complementary health including vitamins -2

• Cosmetics Fragrance 11
• No7 14
• Skincare 6
• Premium Wash/Bath 12
• Sun preparations 14
• Haircare - no growth
• Dental -0.7

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BTC category sales growth analysis
6.8
5.1
1.3
1,892m Beauty Toiletries
1,716m Health
676m Other

• Seasonal 29
• Baby 5
• Food - no growth
• Photo -8

• Continued strong marketgrowth in Dispensing
• OTC 5
• Complementary health including vitamins -2

• Cosmetics Fragrance 11
• No7 14
• Skincare 6
• Premium Wash/Bath 12
• Sun preparations 14
• Haircare - no growth
• Dental -0.7

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BTC category sales history
00/01
01/02
Growth
02/03
cagr
Health
3.1
4.6
5.1
4.3
Beauty Toiletries
3.5
4.9
6.8
5.1
Other
-11.0
-10.3
1.3
-6.8
Total
0.3
2.0
5.2
2.5

• Market share held or grown in all counter health
  beauty categories

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Better value for customers

• Sales on promotion up 1pp to 31
• Delivering extra value
• Advantage Card relaunch - 1 million new card
  holders - 9 million active users
• 99p offers on key brands
• Strong events

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Lower Prices Youll Love

• Focused on Known Value Items
• Investing 40m in price cuts
• Supplier involvement
• Gross profit neutral
• Not EDLP

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BTC sales growth analysis
02/03 growth
5.2
4.7
-2.1
2.9
-0.3
Price
Mix
Growth
Volume
Space
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BTC gross profit

• Gross margin down 110bp - investment in
  price - largely offset by cost of goods
  savings - adverse mix - Pharmacy Christmas
  - prior-year stock adjustment
• Cash gross profit up c.2.5

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BTC gross margin history
100
80
60
-110bp
40
20
0
-20
00/01
01/02
02/03
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Driving profitable top line growth

• Boots Healthcare International

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Boots Healthcare International
01/02 m
02/03 m
Sales 407 460 13 Operating
profit 67 70 5 Brand
investment/sales 25
28 Operating cashflow after 68
56 -18capital spend
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BHI 02/03 Highlights

• 12.3 growth at comparable exchange rates
• Nurofen grew by 22
• Clearasil Total Control launched
• Brand investment up by 27m
• New product development up 42

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Delivery against Feb 2002 commitments
Commitment
02/03 Actual

• Sales growth 5-7 13
• NPD spend 30 42
• Brand marketing support 20 26
• 6 - 8 must have brands on track
• 100m profit by 05/06 on track

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BHI product sales growth - by brand
Sales m
YoY
Total 460 12 Nurofen 118 22 Clearasil
87 14 Strepsils 78 8 Derma-cosmetics
61 10 Other 116 7
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BHI product sales growth - by region
YoY
Sales m
Total 460 12 UK 130 20 USA
42 22 Europe 202 4 Other 86 18
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BHI brand investment

• Total spend 130m
• 28 of sales
• 27 growth on 01/02
• Main increases - Nurofen line extension
  - US, UK and Australia blue-line
  Clearasil - Clearasil Total Control
  launch

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Investing for the future
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Investing in our stores

• 239 completed stores - 163 in London
• Sales uplift - 4 months lag post refit -
  early stores 0.7 - local destination stores
  3.3
• 300 stores planned for 03/04
• New Edge of Town stores add 15,000 sq.m
• 5,000 touch screen tills in 360 stores by end
  03/04

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Investing in our stores

• Liverpool Street Station
• Space doubled to 1,200 sq.m
• Key elements - Broader product range incl.
  premium cosmetics fragrance - Product
  Beacons - Linear cash-taking - Carousel
  pharmacy - Improved environment
• Sales up 43 to 400k per week
• Now top 10 store

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Investing in pharmacy

• OFT enquiry
• Government rejected complete deregulation
• Update expected June/July
• balanced package to promote competition,new
  entry increased choice
• Investing in pharmacy
• 02/03
• 39 new style pharmacies
• 41 Smartscript systems
• 03/04
• 220 new style pharmacies
• 520 Smartscript systems
• Major review of healthcare market

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Investing for the future
02/03 m
03/04 m

• Investing in StoresRefitsEdge of TownPortfolio
  developmentTills
• Investing in PharmacyRefitsSystems
• InfrastructureBackbone
• Total investment
• of which Revenue
• Capital
• Group total capital spend

322112 47 36 9 12 68 22 46 149
5533406 134 1015 25 79 238 65 173 250
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Refocusing on 2 core businesses
Boots The Chemists
Boots Healthcare International
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Refocusing on 2 core businesses
Boots The Chemists
Boots Healthcare International

• Sold Halfords for 396m
• Exiting Wellbeing Services except Dentalcare
  Footcare
• Closing Pure Beauty stores
• Ended Digital Wellbeing joint venture
• 100m Getting in Shape cost programme
• Simplified Group structure

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Focused services offer
Profit/(Loss) beforerationalisation costsm
Rationalisation costs m
Sales m
Opticians and Eyecare (includes Lasik) Wellbeing
Services Dentalcare/Footcare
218 16 14 31
8 (1) (15) (21)
(35) (1)
6 84 116 57
rationalisation costs of 35m charged as
exceptional item
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Simple export model
Profit/(Loss) beforerationalisation costsm
Rationalisation costs m
Sales m
Boots Retail International
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(16)
(6)
-8

• 30 reduction in losses net of 6m
  rationalisation costs
• 7 LFL growth in Thailand
• 51 new implants in Taiwan
• 8 implants in Hong Kong

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Summary cost progression
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Summary
Group/Other
BTC
BHI
Wellbeing
BRI
Halfords
Total
m
m
m
m
m
m
m

• Turnover
• Operating profit
• Operating cashflowafter capital spend
• Investment costs
• Rationalisation

4,284 569 546 (22) (12)
460 70 56
263 (29) (7) (1)
37 (22) (10) (6)
48 (66) (71) (21)
235 22 32
5,327 544 546 (22) (40)
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Getting in Shape cost programme

• 100m savings by 05/06

m 100
100m
70m
50
40m
0
40m
60m
-50
02/03
03/04
04/05
05/06
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Getting in Shape cost programme

• 100m savings by 05/06
• Progress on track

100m
m 100
92m
50
31m
0
22m
23m
33m
-50
02/03
03/04
04/05
05/06
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Transforming our supply chain
Year 1
Year 2
Year 3
Availability
Supply chain
Store friendly

• 98 achieved

• manufacturing
• warehousing
• transport

• lower cost
• less stock
• best in class OSA

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Rationalisation costs
02/03
03/04
m
03/04 PLimprovementvs 02/03
OperatingCost
ExceptionalCost
TotalCost
OperatingCost
Business closure restructuring
(18)
(35)
(7)
(60)
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(22)
Getting in Shape
-
(23)
n/a
31
(40)
(35)
(30)
73
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Group Operating Profit Movement
m
CostSavings
BTCInvestment
OtherRetailingExcellence
-21
BHIBrandInvestment
50
-20
GrossProfit
BTCStorePayroll
-27
-32
Rationalisation
102
-24
Pensions
Otherincl.Inflation
Movementin OperatingProfit
-25
-33
-36
Continuing operations
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2003/04 outlook

• Continuing to drive top line growth
• Margins held steady
• Losses reduced in non-core areas
• Investing for the future - continuing to invest
  in BTC - higher investment in BHI brands
• Investment first half loaded

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Shareholder returns

• Strong free cashflow 353m
• Dividend up 4.4
• 1.6x dividend cover (pre-exceptional)
• Ongoing share repurchase programme

Dividends
191 m
700 m
209m
300m

Halfords repurchases to come
Total
Feb 02 programme completed
Halfords proceeds completed
excluding Halfords net cash consideration on sale
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Conclusion

• Profitable sales growth
• Investment to secure future growth
• Refocused on 2 core businesses
• 463m cash returned to shareholders
• New leadership team

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