Half Year Results

1
Half Year Results

• 2002/2003

2
Steve Russell

• Chief Executive

3
First Half Year 2002/03

• Good progress in all major areas

• Strong sales growth in BTC BHI

• Profit before tax and exceptionals down 2.8 -
  planned investment - pension cost increase

4
Focus on Retailing Excellence

• Plans on track - Store Investment - On-Shelf
  Availability - Own Brand Sales - Shopping
  Experience
• Q2 sales up by 5.7 like for like in BTC

5
New Product Introductions

• No7, 17 - important additions
• Boots Brands Exclusives - new hair products
• Premium range of toiletries
• Improved Christmas range

6
Edge of Town Expansion

• Discussing edge of town joint venture with
  Sainsburys

• Accelerating own edge of town programme

7
Boots Healthcare International

• 12 like for like sales growth
• Good growth in Nurofen
• Line extensions in Strepsils
• Clearasil sales moving forward

8
Boots Retail International
9
Strategic Progress

• Sale of Halfords completed for up to 427 million
• Outsourcing of IT services
• Uniquely focused on Wellbeing
• Major reduction in annualised non-store costs of
  100 million

• Increased investment in the customer - Price
  - Stores - New products

10
Wellbeing Services

• Detailed review being completed

• January presentation

11
First Half Year 2002/03

• Encouraged by performance
• Confident of achieving higher sustainable profit
  growth

12
Howard Dodd

• Chief Financial Officer

13
Group
Financial Summary H1 2002/03
Turnover
2,617.3m
2.5
Profit (before tax and exceptionals)
279.6m
-2.8
Free cash flow
498.1m
175.0
Basic earnings per share (before exceptionals)
22.1p
-3.1
Interim dividend
8.4p
3.7
14
Agenda

• Business trading performance
• Operating costs and profitability
• Cash flow
• Financial impact of H1 actions

15
Boots The Chemists
H1 2002/03
1,993.3m
Sales
3.8
256.4m
Operating Profit
-6.1
16
Boots The Chemists
Sales Growth
growth
Q1
Q2
H1
H2
H1
H2
2001/02
2002/03
2000/01
17
Boots The Chemists
Like for Like Sales Growth
growth
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2000/01
2001/02
2002/03
18
Boots The Chemists
Variance Analysis on H1 Sales
sales growth
Mix
Price
Volume
Total
19
Boots The Chemists
H1 Average Sales Intensity
sales growth
SpaceChange
Intensity
Total
20
Boots The Chemists
Category Sales H1 2002/03
Health 6.6 (LFL 6.0)
Other -3.4(LFL -3.2)
324m
853m
816m
Beauty Toiletries 4.0 (LFL 3.2)
21
Boots The Chemists
Sales History
2000/01
1999/00
2001/02
2002/03
H1
H2
H1
H2
H1
H2
Growth
H1
Health
4.8
1.5
2.8
6.5
7.7
7.3
6.6
Beauty Toiletries
2.0
4.9
5.0
4.9
2.7
3.4
4.0
Other
-1.5
-18.9
-10.6
-10.1
0.2
0.4
-3.4
Total
2.4
-1.5
1.0
2.9
4.1
4.1
3.8
22
Boots The Chemists
Market Share (last 6 months)
Dispensing OTC Toiletries Beauty
-0.4pp -0.3pp 0.0pp 0.8pp
23
Boots The Chemists
Movement in Gross Margin
growth
0.6
0.4
0.4
0.2
0.5
-0.3
0.2
0
-0.2
-0.2
-0.4
-0.4
-0.6
97/98
98/99
99/00
00/01
01/02
02/03Half
24
Wellbeing Services
H1 2002/03
H1 02/03Sales m
LFL
Opticians and Eyecare
108.9
8.8
12.4
Dentalcare
10.9
63.7
Other Health Beauty Services
10.6
31.2
Total Sales
130.4
11.7
22.1
Total Profit / (Loss)
(16.1)
-1.3
25
Boots Healthcare International
H1 2002/03
218.0m
Sales
11.2
35.2m
Operating Profit
-3.3
Constant currency
26
Boots Healthcare International
Sales by Brand
Total  218.0m
57m
29m
42m
34m
Other 7
56m
Dermatitis 12
Clearasil 4
Strepsils 5
Nurofen 27
Comparable exchange rates
27
Boots Healthcare International
Sales by Region
Total  218.0m
63m
91m
21m
UK 28
43m
Rest of Europe -1
Americas 10
Asia Pacific 21
Comparable exchange rates
28
Boots Retail International
Sales
18.2m
-15.7
Closure of Japan
-16.2
Taiwan implants
7.9
Shop closures
-6.0
Other
-1.4
Total sales movement
-15.7
Operating loss
(7.7)m
- 38.3
29
Group
Operating Profit Movement
BTCRetailingExcellence
m
CostSavings
18
GrossMargin
BrandInvestmentin BHI
-28
BTCStorePayroll
-10
DWLWritedown
-15
63
Pensions
-7
Otherincl.Inflation
-13
Movementin OperatingProfit
-24
-16
Continuing operations
30
Group
New Cost Programme - 100m

• Completed 250m programme
• Next step to simplify and rationalise non-store
  activities - Manufacturing - Logistics -
  Head Office
• Full year savings of at least 100m by Year 3
• Some savings invested in price, stores and new
  products

31
Group
New Cost Programme - 100m
2003/04
2004/05
2005/06
Savings (cumulative)
40
70
100
Costs
40m
60m
32
Group
Cash Flow
H1 02/03m
H1 01/02m
Operating activities
253.4
238.4
Acquisitions/disposals
40.8
396.7
Capital expenditure
(81.8)
(69.9)
Tax paid
(37.1)
(69.4)
Dividends paid
(163.2)
(168.5)
Repurchase of shares
-
(264.0)
Net interest
27.9
73.2
Other items
5.8
2.3
Net cash flow
45.8
138.8
33
Group
Financial Impact of H1 actions

• Pension cost accounting policy
• Property lease hedging
• Sale of Halfords
• Purchase of 40 minority in Digital Wellbeing

34
Pension Costs
Retention of SSAP24
SSAP24
FRS17
02/03
01/02
02/03
01/02
m
Operating Profit
5
32
72
73
Financing
-
-
(12)
5
Profit before tax
5
32
60
78
April 01
March 02
314
170
Valuation Surplus
35
Treasury
Property Lease Hedging

• Policy change to cease hedging of property leases
  with swaps
• 1,315m swaps closed
• 100.6m credit accounted for as exceptional
  interest
• Remaining swaps m Interest
  rate 180 Index linked 200 Total 380
• Increases interest cost by 20m approx. p.a.

Back to back with pension fund
36
Sale of Halfords Limited

• Sold to CVC on 30 August 2002
• Proceeds 410m up to 17m depending upon
  2002/03sales out-turn
• Estimated loss on disposal 129m
• Share buy-back with net proceeds

37
Digital Wellbeing Ltd

• Purchase of 40 minority from Granada for 1
• Write-down of assets 6.5m and investment 5.1m
• Infrastructure provides channel to market -
  boots.com
• Consolidation within Boots The Chemists in New
  Year
• Substantial reduction in costs

38
Group

• Net debt at 30 September 2002 9.7m
  (146.3 at 31 March 2002)
• Share buy-back programmes
• - 300m completed 18 September
• - 400m Halfords buy-back will commence
  immediately

39
Summary

• Improved sales growth
• Profits down slightly due to investment and
  pension costs
• Next step cost programme to achieve 100m
• Resolved lease hedging, Halfords and Digital
  Wellbeing Ltd
• Interim dividend of 8.4p 3.7

40
Half Year Results

• 2002/2003