RNS Number:0038M
Alliance Boots plc
14 November 2006
Press release
14 November 2006
ALLIANCE BOOTS INTERIM RESULTS SHOW
MERGED GROUP IS ON TRACK
Interim results announcement
for the six months ended 30 September 2006
Alliance Boots plc, the international pharmacy-led health and beauty group,
today unveils its first interim results since its formation on 31 July 2006.
The results demonstrate that the Group is well positioned following the merger
with:
* Good trading in both the Retail and Wholesale Divisions - in line with
expectations.
* Progress on work to deliver the promised cost synergies on track.
Richard Baker, Chief Executive, said of the results:
"This has been an encouraging start to life as Alliance Boots. The Group has
performed well in the first half, in line with our expectations. Our Retail
Division traded strongly with the UK operations, our biggest single market,
benefiting from continued growth in healthcare and the warm weather. Meanwhile,
our Wholesale Division continued to perform well, reflecting the strength of our
geographically diverse portfolio of businesses.
"We have also seen good early progress on work to achieve the promised cost
synergies from the merger and are on track to deliver against our expectations
for the full year. We have a large group that is strategically well placed in
growing markets and we are confident about the opportunities both to strengthen
our existing businesses and to expand into new territories. We have made good
progress so far but there is much to do."
Group highlights - pro forma
To assist investors in understanding the performance of the Group, pro forma
financial information has been prepared to show the results from continuing
operations of the Group as if the two former groups had always been combined.
This information has been prepared for the six months ended 30 September 2006
with comparatives on the same basis for the six months ended 30 September 2005
and year ended 31 March 2006. The pro forma revenue and profit statement has
been prepared on an adjusted basis, which means for continuing operations,
before non trading items, amortisation of certain acquired intangible assets and
IAS 39 timing differences, all net of tax and before exceptional tax credits.
Detailed pro forma financial information, including the basis of preparation, is
set out in the "Additional pro forma financial information from continuing
operations" section of this report.
Revenue up 2.9% to #7,039 million (H1 05/06: #6,839 million)
Trading profit(1) up 2.7% to #267 million (H1 05/06: #260 million)
Underlying trading profit(2) up 5.1% to #267 million (H1 05/06: #254 million(2))
Adjusted earnings(3) up 10.3% to #193 million (H1 05/06: #175 million)
Adjusted earnings per share(4) up 10.4% to 20.1 pence (H1 05/06: 18.2 pence)
(1) Trading profit comprises profit from operations before non trading items,
amortisation of certain acquired intangible assets and share of associates' post
tax earnings
(2) Underlying trading profit is after adjusting the trading profit for the six
months ended 30 September 2005 to include a full six months rental charge on the
312 retail outlets which were sold and leased back in July 2005, so that the
trading profits for both accounting periods are on a comparable basis
(3) Adjusted earnings comprises profit for the period attributable to equity
shareholders before non trading items, amortisation of certain acquired
intangible assets and IAS 39 timing differences, all net of tax and before
exceptional tax credits
(4) Adjusted earnings per share comprises adjusted earnings divided by the pro
forma weighted average number of shares in issue during the period of 962
million (H1 05/06: 962 million)
Group highlights - statutory
The statutory financial results for the six months ended 30 September 2006
contain six months of results for the former Boots Group PLC businesses and two
months of results for the former Alliance UniChem businesses on an acquisition
accounting basis. The comparative figures for the first half of 2005/06 contain
only the results of the former Boots Group PLC businesses and include a one-off
#151 million pre tax exceptional profit on the sale and leaseback of 312 retail
outlets in July 2005.
Revenue - continuing operations #3,933 million (H1 05/06: #2,339 million)
Profit from operations - continuing #156 million (H1 05/06: #282 million)
Profit for the period attributable to equity
shareholders #135 million (H1 05/06: #273 million)
Basic earnings per share - total 21.8 pence (H1 05/06: 38.2 pence)
- continuing 19.0 pence (H1 05/06: 33.9 pence)
Key reconciliations between pro forma and statutory financial results are
provided after the "Additional pro forma financial information for continuing
operations" section of this report.
A glossary of key terms is provided in the information at the end of this
report.
The Alliance Boots plc presentation to City analysts will be webcast live at 09:
00 GMT on 14 November 2006 and can be accessed via the Group's website at
www.allianceboots.com. It will be available as an archive to replay via the
website from 12:00 noon GMT.
For further information, please contact:
Investor Relations Media
Gerald Gradwell/Chris Laud Donal McCabe
Tel: +44 (0) 20 7995 9618 (to 12:30 on 14 Nov 2006) Tel: +44 (0) 20 7995 9618 (to 12:30 on 14 Nov 2006)
+44 (0) 115 968 7080 (thereafter) +44 (0) 20 7138 1164 (thereafter)
Group overview
Introduction
Alliance Boots was created on 31 July 2006 through the merger of Alliance
UniChem Plc and Boots Group PLC. The merger took place by way of a scheme of
arrangement, Alliance UniChem Plc shares being cancelled, its shareholders
receiving 1.332 shares in Boots Group PLC for each Alliance UniChem Plc share
held. For statutory accounting purposes the merger has been accounted for as an
acquisition of Alliance UniChem Plc by Boots Group PLC. On completion of the
transaction Boots Group PLC was renamed Alliance Boots plc.
Pro forma financial results
To assist investors in understanding the performance of the Group, pro forma
financial information has been prepared to show the results from continuing
operations of the Group as if the two former groups had always been combined.
This information has been prepared for the six months ended 30 September 2006
with comparatives on the same basis for the six months ended 30 September 2005
and year ended 31 March 2006. The pro forma revenue and profit statement has
been prepared on an adjusted basis, which means for continuing operations,
before non trading items, amortisation of certain acquired intangible assets and
IAS 39 timing differences, all net of tax and before exceptional tax credits.
In the first half of the year trading has continued in line with the Board's
expectations at the time of the merger. The Retail Division maintained good
sales growth throughout the first half of the year, the UK Health & Beauty
business benefiting from warm weather in the summer and a continued strong
performance from the Health category. The Wholesale Division has continued to
perform well, reflecting the strength of our geographically diverse portfolio.
On a pro forma basis:
Revenue increased by 2.9% on the first half of last year to #7,039 million.
Trading profit (which comprises profit from operations before non trading items,
amortisation of certain acquired intangible assets and share of associates' post
tax earnings) increased by 2.7% to #267 million. This reflects an underlying
increase in trading profit of 5.1% after adjusting the trading profit for the
six months ended 30 September 2005 to include a full six months rental charge on
the 312 retail outlets which were sold and leased back in July 2005, so that the
trading profits for both accounting periods are on a comparable basis. Our
share of associates' post tax earnings increased by 9.5% to #23 million.
Underlying net finance costs (which exclude IAS 39 timing differences from
hedging interest rate and currency exposures) reduced by #19 million compared to
the first half of last year. Adjusted earnings (which comprises profit for the
period attributable to equity shareholders before non trading items,
amortisation of certain acquired intangible assets and IAS 39 timing
differences, all net of tax and before exceptional tax credits) increased by
10.3% to #193 million. Adjusted earnings per share increased by 10.4% to 20.1
pence based on pro forma weighted average number of shares in issue during both
periods of 962 million.
Key reconciliations between pro forma and statutory financial results are
provided after the "Additional pro forma financial information for continuing
operations" section of this report.
Statutory financial results
The statutory financial results for the six months ended 30 September 2006
contain six months of results for the former Boots Group PLC businesses and two
months of results for the former Alliance UniChem Plc businesses on an
acquisition accounting basis.
Profit from continuing operations was #156 million, compared to #282 million in
the first half of last year which included a one-off #151 million pre tax
exceptional profit on the sale and leaseback of 312 retail outlets in July 2005.
Within profit from operations in the first half of the year was #19 million of
non trading costs (of which #10 million was restructuring costs related mainly
to our French wholesale business and #9 million was costs related to achieving
the targeted merger synergies) and #7 million was for the amortisation of
certain acquired intangible assets (in the period being the amortisation of
customer related intangible assets following the 31 July 2006 fair valuation of
the consolidated assets of Alliance UniChem Plc). Net finance costs were #3
million compared to #16 million in the first half of last year. Total profit
for the period attributable to equity shareholders, including profit after tax
from discontinued operations, was #135 million compared to #273 million, and
total basic earnings per share were 21.8 pence, compared to 38.2 pence.
Earnings per share from continuing operations were 19.0 pence compared to 33.9
pence.
Dividends
As set out in the merger prospectus dated 5 June 2006, the Board has not
declared an interim dividend as merger dividends covering the periods up until
31 July 2006 were paid to the respective shareholders of both former companies
on 3 October 2006.
The Board intends to follow a progressive dividend policy which balances returns
to shareholders with the need to retain sufficient funds for investment in
growth opportunities. In setting its initial dividend the Board still expects to
target a dividend cover of 2.0 to 2.5 times adjusted earnings. The next
scheduled dividend to be proposed will be a final 2006/07 dividend covering the
period from 31 July 2006 until 31 March 2007.
Integration programme
Following completion of the merger at the end of July the integration programme
is underway with the initial focus being on implementing our new organisational
structure and on achieving the anticipated cost synergies. The top 100
management roles in the new Group were almost all in place from the day the
merger was completed and in September we held our first internal seminar. We
are very encouraged by the way in which our new teams are working together
across a number of key business areas.
A new corporate office has been established in London, utilising existing office
space above our Health & Beauty store in Oxford Street, the group finance and
treasury functions having been largely consolidated at the Wholesale Division
office in Brooklands, Weybridge. The buying teams in the UK are focusing on
harmonising buying terms. The team in Hong Kong has enhanced its Far East
sourcing capability to handle the Alvita wholesale brand which is used on
healthcare commodity products (such as bandages and cotton wool) with the first
shipments scheduled to take place before Christmas.
Work on a pharmacy 'best of both' programme is also proceeding well with a
number of pharmacist swaps having already taken place to share knowledge between
our retail businesses in the UK. Steps are being taken to introduce the Boots
pharmacy brand in our Community Pharmacy business, the necessary software
changes having now been made to enable rebranded outlets to accept the Boots
Advantage Card. Limited ranges of Boots brand products have also been sold in
over 800 of our Community Pharmacy outlets since the day the merger was
completed and Almus, our exclusive range of generic drugs, is being introduced
into the Boots pharmacies on a progressive basis. Our care homes service is
also now jointly tendering for new business.
Overall, the integration programme is continuing according to plan and we remain
confident of being able to deliver the synergies announced at the time of the
merger in line with our original plans, which were to deliver annual pre-tax
cost savings of at least #100 million per annum by the fourth full year
following completion. As previously announced, these savings are expected to be
delivered such that over 60% of the run-rate savings will accrue by the second
year following completion, and 100% by the fourth year.
Corporate developments
In the six months ended 30 September 2006, we strengthened our retail network
increasing our combined portfolio by 30 to 2,958 outlets, the total number of
retail outlets with pharmacies increasing by 37 to 2,634. A further 28 outlets
were relocated to new premises during the period and 152 were subject to major
refits. In addition, at 30 September 2006 our associates operated a further 132
retail outlets of which 127 were pharmacies.
The programme to sell 96 pharmacies in the UK, agreed with the Office of Fair
Trading at the time they approved the merger, is well underway.
In September, we completed the acquisition of the UK short-line pharmaceutical
wholesale business of Cardinal Health for approximately #43 million, the
business being subsequently rebranded "Cordia Healthcare". This has further
developed our wholesale offering to independent pharmacy customers in the UK.
In April, Hedef Alliance, our Turkish-based associate, exercised its option to
acquire control and majority ownership of its associate, UCP, a leading
pharmaceutical wholesaler in Egypt. In June, ANZAG, our German-based associate,
acquired 60% of Farmexpert, the third largest pharmaceutical wholesaler in
Romania. Following these transactions, at 30 September 2006, we had wholesaling
interests in 14 countries either through direct ownership or via our associates.
Outlook
These pro forma results demonstrate that we have performed well in the period,
in line with our expectations.
The second half of the financial year sees the key Christmas trading period, the
reduction in the reimbursement prices of generic medicines in England and Wales,
a stronger comparative period for UK retail and the possibility of further
government action in France to contain healthcare expenditure.
The organic performance of our businesses coupled with the benefits we expect
from the merger gives the Board confidence that we will be able to meet the
challenges of the second half, and deliver results for the year in line with our
expectations at the time of the merger.
Looking ahead we continue to see significant opportunities to grow and expand
our retail and wholesale networks, both within current territories and in new
geographical areas, to strengthen existing businesses and provide strong drivers
for future growth.
Pro forma operating and financial review
To assist investors in understanding the performance of the Group, pro forma
financial information has been prepared to show the results from continuing
operations of the Group as if the two former groups had always been combined.
This information has been prepared for the six months ended 30 September 2006
with comparatives on the same basis for the six months ended 30 September 2005
and year ended 31 March 2006. The pro forma revenue and profit statement has
been prepared on an adjusted basis, which means for continuing operations,
before non trading items, amortisation of certain acquired intangible assets and
IAS 39 timing differences, all net of tax and before exceptional tax credits.
Detailed pro forma financial information, including the basis of preparation, is
set out in the "Additional pro forma financial information from continuing
operations" section of this report.
Segmentation
New segmental reporting has been introduced to reflect the composition of the
merged Group, the two principal segments being the Retail and Wholesale
Divisions.
The Retail Division results have been further split in the pro forma operating
and financial review between the UK and International businesses, given the
relative size of our UK retail businesses. The UK retail businesses are now
referred to as "Health & Beauty", being the UK operation of Boots The Chemists
(incorporating Boots Opticians) and "Community Pharmacy" comprising the Alliance
Pharmacy business in the UK. Boots' retail operations in the Republic of
Ireland and Thailand are reported with the Group's other retail pharmacy
businesses outside the UK, the non-retail activities of the former Boots Retail
International segment being in Other Commercial Activities & Corporate Costs.
Certain Boots corporate costs have also been re-allocated to the Retail Division
to reflect the new organisation of the group.
The Wholesale Division results have been further split in the pro forma
operating and financial review between Northern and Southern Europe to reflect
the different regulatory and market dynamics typically encountered in these
regions.
Comparatives for the half and full year have been restated to reflect the new
segmentation.
A list of principal businesses by segment and a glossary of key terms is
included in the information at the end of this report.
Divisional highlights
for the six months ended 30 September 2006
Growth over first
half of last year
Trading
Revenue profit Trading
#million #million Revenue profit
Retail 3,125 208 +5.7% +4.0%
Wholesale 4,388 85 +1.0% +6.3%
Other Commercial Activities
& Corporate Costs 47 (26) +6.8%
Intra-group (521) -
Group* 7,039 267 +2.9% +2.7%
Share of associates' revenue
& trading profit 1,048 33 +7.2% -
8,087 300 +3.5% +2.4%
* Group trading profit comprises profit from operations before non trading items, amortisation of
certain acquired intangible assets and share of associates' post tax earnings
Retail Division
Performance overview
The Retail Division maintained good sales growth throughout the first half of
the year, the UK Health & Beauty business benefiting from warm weather in the
summer and a continued strong performance from the Health category. Revenue
totalled #3,125 million, an increase of 5.7% on the first half of last year,
trading profit increasing by 4.0% to #208 million. This reflects an underlying
increase in trading profit of 7.2% after adjusting the trading profit for the
six months ended 30 September 2005 to include a full six months' rental charge
on the 312 retail outlets which were sold and leased back in July 2005 so that
the trading profits for both accounting periods are on a comparable basis.
Trading margin decreased by 0.1 percentage points to 6.7%, an underlying
increase of 0.1 percentage point after adjusting for the sale and leaseback
transaction. On a constant currency basis, revenue increased by 5.6%, up 4.1%
on a like for like basis, and trading profit increased by 4.0%, an increase of
7.2% after adjusting for the sale and leaseback transaction.
In the six months ended 30 September 2006 we strengthened our retail network
increasing our total portfolio by 30 to 2,958, the total number of retail
outlets with pharmacies increasing by 37 to 2,634. A further 28 outlets were
relocated to new premises during the period and 152 underwent major refits.
Retail Division highlights
for the six months ended 30 September 2006
Growth over first
half of last year
Total
#million Total Like for like
Revenue
UK:
Health & Beauty 2,316 +4.7% +4.1%
Community Pharmacy 507 +9.5% +6.3%
2,823 +5.6% +4.5%
International:
Republic of Ireland 71 +4.4% +1.8%
Norway 134 +4.7% -1.3%
The Netherlands 68 +15.3% +1.5%
Italy 12 +9.1% +6.1%
Thailand 17 +6.3% -8.3%
302 +7.1% -
3,125 +5.7% +4.1%
Trading profit
UK 192 +3.8%
International 16 +6.7%
208 +4.0%
Trading margin
UK 6.8% -0.1pp
International 5.3% -
6.7% -0.1pp
Retail outlets
At 30 September 2006
With a pharmacy Without a pharmacy Total
UK:
Health & Beauty 1,309 252 1,561
Community Pharmacy 970 55 1,025
2,279 307 2,586
International:
Republic of Ireland 34 6 40
Norway 124 10 134
The Netherlands 73 - 73
Russia 3 - 3
Italy 20 1 21
Thailand 101 - 101
355 17 372
2,634 324 2,958
Retail - UK
In the UK total retail revenue increased by 5.6% to #2,823 million, like for
like revenue increasing by 4.5%. Trading profit increased by 3.8% to #192
million, trading margins decreasing as a result of the sale and leaseback
transaction. Adjusting for this, underlying trading profit increased by 7.3%
and underlying trading margin increased by 0.1 percentage points.
Our Health & Beauty business which comprises the UK operations of Boots The
Chemists (incorporating Boots Opticians) increased revenue by 4.7% to #2,316
million, like for like revenue increasing by 4.1% of which we attribute about
one percentage point to warm weather during the summer. Underlying trading
margin increased adjusting for the sale and leaseback transaction. Boots
Opticians made a trading profit in the first half of the year. As a result of
the good sales performance the Health & Beauty business increased its trading
profit compared to the first half of last year.
The Health & Beauty business added a net five retail outlets to its portfolio in
the first half of the year, the number of pharmacies (including pharmacies
within destination Health & Beauty stores) increasing by 19. A further eight
outlets were relocated to new premises during the period and 114 were subject to
major refits. At 30 September 2006 the Health & Beauty business operated 1,561
retail outlets, of which 1,309 had a pharmacy.
Our Community Pharmacy business, currently branded as Alliance Pharmacy,
increased revenue by 9.5% to #507 million. Like for like sales increased by
6.3%, this being higher than in our Health & Beauty business due to Community
Pharmacy's greater weighting towards the dispensing market. Although trading
margin was lower, trading profit increased due to the growth in revenue.
The Community Pharmacy business added a net eight pharmacies to its portfolio in
the first half of the year, this being lower than in previous periods due to
uncertainty as to what pharmacies we could acquire while the regulatory review
associated with our merger was ongoing and strong competition. We expect the
strong competition for pharmacies to continue into the second half of our
financial year. At 30 September 2006 the Community Pharmacy business operated
1,025 retail outlets of which 970 were pharmacies.
The programme to sell 96 pharmacies in the UK, agreed with the Office of Fair
Trading at the time they approved the merger, is well underway.
UK revenue by product category
for the six months ended 30 September 2006
Growth over first
#million Mix half of last year
Health(1) 1,549 54.9% +8.4%
Beauty & Toiletries (2) 792 28.0% +5.0%
Lifestyle(3) 482 17.1% -1.8%
2,823 100.0% +5.6%
(1) The Health category comprises the dispensing & related income and retail
healthcare sub-categories, the latter including sales of non-prescription
medicines and optical sales (including Boots Opticians)
(2) The Beauty & Toiletries category comprises the cosmetics & fragrances and
toiletries sub-categories
(3) The Lifestyle category comprises the baby, nutrition, photography,
electrical, seasonal and other lifestyle sub-categories (previously Boots
included seasonal beauty and electrical beauty in the Beauty & Toiletries
category)
Revenue in the Health category increased by 8.4% to #1,549 million with strong
performances in both our dispensing & related income and healthcare
sub-categories. Total dispensing volumes increased by 5.5% on the first half of
last year to 90 million items, our dispensing performance being particularly
strong in the care homes sector in which, following the merger, our two
businesses are jointly tendering for new business.
In England and Wales adjustments to the reimbursement rate in relation to
generic prescription medicines came into effect from the beginning of October
which we anticipate will slow market growth in the second half of the financial
year. This regulatory action was expected and we are taking steps to mitigate
the impact of these changes.
We continue to develop the role of retail pharmacists in the provision of local
healthcare services. During the first half of the year we stepped up the number
of Medicine Usage Reviews carried out in private consultation facilities in our
pharmacies, performing over 60,000 during the period. At the beginning of
October the Department of Health raised the fee rate for Medicine Use Reviews
from #23 to #25 per review and for pharmacies already carrying out such reviews
further increased the upper limit from 250 to 400 reviews per annum. The new
pharmacy contract was introduced in Scotland in April this year and we have
already signed up over 130,000 patients for the Minor Ailment Service which
became fully operational in July. We continue to upgrade our smaller pharmacies
with over half of our pharmacies in the UK now incorporating private
consultation facilities for the provision of healthcare services.
Further development of our service offering is ongoing and by the end of October
private chlamydia tests were available from an additional 300 of our pharmacies,
bringing the total we have providing private or publicly funded chlamydia
services to around 500.
The National Health Service is planning for electronic prescriptions to be fully
operational across all pharmacies in England by the end of 2007, the
introduction being planned in phases. The initial service, which we intend to
have approved and fully deployed into all our pharmacies in England by the end
of 2006, will enable pharmacies to scan barcodes on paper prescriptions printed
by doctors. This service, coupled with smart cards issued by Primary Care
Trusts to individual pharmacists who are registered users of the new system,
will enable pharmacies to claim an allowance of #200 per month for running the
system. Once the vast majority of doctors and pharmacies have the new system
operational, printed bar-coded prescriptions will be superseded by
electronically transferred prescriptions from the doctor to the patient's
nominated pharmacy.
Two central dispensaries were opened in the first half of the year which
dispense high volumes of acute and repeat prescriptions in a highly efficient
way to local pharmacies. This brings the total number of central dispensaries
to 12 at 30 September 2006. The changes being introduced by the Department of
Health, including the introduction of electronic prescriptions, mean that we see
an increasing role for such central dispensaries over the coming years, thereby
freeing up community-based pharmacists to spend an increasing proportion of time
providing services and advice to their patients, in addition to dispensing acute
prescriptions.
As the leading operator of retail pharmacies in the UK with significantly more
outlets than any other operator we remain committed to making high quality
healthcare more available and accessible and now provide pharmacy services up
until midnight in more than 20 pharmacies.
Retail healthcare revenue benefited from both the good weather and a step-up in
promotional activity including the launch of the Boots Health Club which enables
customers to receive targeted healthcare information and offers on specific
health issues on a periodic basis. Over one million people have joined our
Health Club since its launch. The Health Club particularly appeals to our older
customers with around 40% of its members being aged 60 or over who, as members,
are entitled to a 10% discount on our own brand products. This is an age group
who had previously not been highly represented in the Boots Advantage Card
loyalty scheme. The most popular topics for Health Club members are women's
health, vitamins and supplements and weight loss.
Revenue in the Beauty & Toiletries category in the UK increased by 5.0% to #792
million with good growth in both cosmetics and fragrances. Cosmetics growth
benefited from a buoyant market in self selection, additional premium accounts,
an improved offer on fashion brands and growth in our major own label brands.
No7, our leading cosmetics brand, continued to grow despite tough comparatives
following the brand relaunch in February 2005. In August we successfully
relaunched our Natural Collection range with its cosmetic products all priced
below #2. Fragrances growth mainly came from new product launches and the
introduction of fragrance cabinets into more Health & Beauty stores during the
period.
We continued to grow revenue in Toiletries, helped by strong growth in skincare
due to improved layout and merchandising, growth in gradual tanning products and
further price reductions in April which ensured that we continued to offer our
customers excellent value. Men's toiletries performed well, benefiting from a
new branded razor launch, and suncare revenues also grew, boosted by the warm
summer.
Revenue in the Lifestyle category (which now includes all seasonal sales)
decreased by 1.8% to #482 million. This reflected a continued decline in
photographic revenue despite market share gains in traditional photo products
and growing digital photo sales, which more than offset good performances in
nutrition, due to the warm weather in the summer and an extension of our
"Meal Deal" lunchtime offer to include more products, and in the baby
sub-category due to greater price stability in the market for consumables such
as nappies and wipes.
Our own brands and exclusive ranges continue to enable us to differentiate our
retail offer from that of our competitors and remain very important drivers of
revenue and margin. No7 and Soltan, our suncare brand, remain leaders of their
respective markets. 17, our cosmetic brand aimed at younger customers, has
achieved double digit sales growth in the 12 months since it was relaunched in
August 2005 and the niche "Soap & Glory" indulgent bathing range exclusive to
Boots was launched in August. Limited ranges of Boots brand products have been
sold through over 800 of our Community Pharmacy business outlets since the
merger was completed at the end of July and are proving a popular addition to
the range, particularly consumer healthcare medicines and our Basics range of
low priced toiletries.
The Boots Advantage Card loyalty scheme, where customers earn points on
purchases for redemption at a later date, remains a key element of our customer
offer in our Health & Beauty business. At 30 September 2006 the number of
active Boots Advantage Card holders (i.e. members who have used their card at
least once in the last 12 months) was 14.7 million. Boots.com sales, which are
allocated to the relevant product category, were #8 million in the first half of
the year.
Preparations for Christmas have gone well. Our Christmas seasonal merchandise
was delivered to our Health & Beauty stores and on the shelves quicker than ever
before and we have further strengthened our offer for this important period.
Christmas is being supported by improved in store presentation and strong
advertising.
Retail - International
Total retail revenue in countries outside the UK increased by 7.1% to #302
million, like for like revenue being flat compared to the first half of last
year. Trading profit increased by 6.7% to #16 million, trading margins being at
the same level as in the first half of last year. On a constant currency basis,
revenue increased by 6.3% and trading profit increased by 3.9%, like for like
revenue being stable.
17 retail outlets were added in the first half of the year, the number with
pharmacies increasing by ten. The major areas of expansion were the acquisition
of six retail outlets selling specialist surgical products in Norway and a net
five new Boots openings in Thailand. At 30 September 2006 we operated 372
retail outlets outside the UK of which 355 had a pharmacy.
In the Republic of Ireland revenue increased by 4.4% to #71 million, an increase
of 1.8% on a like for like basis. Trading margin was at the same level as in
the first half of last year, trading profit increasing as a result of the higher
sales.
In Norway revenue increased by 4.7% to #134 million, a decrease of 1.3% on a
like for like basis, market growth being held back by large price reductions on
generic products, community pharmacies selling a greater proportion of generics
than retail pharmacies located within hospitals. The total number of pharmacies
has also continued to increase in Norway, newer openings taking share from
existing outlets. Trading margin and profit was lower than in the first half of
last year, which was partially due to higher operating costs from new openings
in the last twelve months.
In The Netherlands revenue increased by 15.3% to #68 million, an increase of
1.5% on a like for like basis. Despite strong competition, trading margin and
profit increased on the first half of last year.
In Italy revenue increased by 9.1% to #12 million, an increase of 6.1% on a like
for like basis. Trading profit was at the same level as in the first half of
last year.
In Thailand revenue increased by 6.3% to #17 million, a decrease of 8.3% on a
like for like basis due to the difficult economic and political climate in the
first half of the year and a reduction in beauty sales due to clearance activity
ahead of the re-launch of No7 in October. Trading margin increased and trading
profit was at a similar level to the first half of last year.
Wholesale Division
Performance overview
The Wholesale Division continued to perform well in the first half of the year
reflecting the strength of our geographically diverse portfolio of businesses.
Revenue totalled #4,388 million, an increase of 1.0% on the first half of last
year, trading profits increasing by 6.3% to #85 million. Overall trading
margins increased by 0.1 percentage points. Adjusting for acquisitions and
disposals, on a constant currency basis, like for like revenue decreased by
0.8%, like for like trading profit increased by 8.0% and like for like trading
margins increased by 0.2 percentage points.
Markets
We estimate that our wholesale markets grew by around 2.5% in value on a
constant currency basis compared to the first half of last year, this growth
being weighted on the basis of our wholesale revenue. We expect a similar
overall growth rate in the second half of our financial year as we anticipate
that a small first half decline in the French market in the first half of the
year will be reversed in the second half and offset lower expected market growth
in the UK due to the adjustments to the reimbursement rate for generics which
came into effect at the beginning of October.
The growth in the market from the introduction of higher priced new
pharmaceuticals has continued to be partially offset by growth in market
penetration of lower priced generic drugs. This percentage is typically
significantly higher in our markets in Northern Europe than in Southern Europe.
Compared to the first half of last year, penetration of generics grew in all
markets in which we operate.
We estimate that the overall level of parallel trade in Europe was broadly in
line with the level in the first half of last year with manufacturers continuing
to seek ways to curtail these activities.
The continued growth of Almus, our exclusive range of generic drugs, is
providing marketing and sourcing benefits aimed at offsetting the impact of
patent expiries. The phased launch of Almus outside the UK commenced with
France and Italy in April and May respectively. The initial ranges of products
are being well received with more products expected to be launched by the end of
the financial year. The roll-out of Almus into other European countries is set
to continue on a phased basis. Almus is also being introduced into all the
Boots pharmacies in the UK which will greatly increase the brand's sales and
market presence.
Wholesale Division highlights
for the six months ended 30 September 2006
Growth over first
half of last year
Total
#million Total Like for like
Revenue
Northern Europe:
UK 932 - -
Norway 112 +1.8% +1.6%
The Netherlands 351 +6.4% +6.0%
Russia 89 n/a n/a
Czech Republic 119 +16.7% +9.7%
1,603 +8.8% +2.1%
Southern Europe:
France 1,839 -2.1% -2.5%
Italy 464 +2.0% +0.2%
Spain 519 +12.1% -
Portugal 1 n/a n/a
2,823 -2.3% -1.7%
Intra-segment (38)
4,388 +1.0% -0.8%
Trading profit
Northern Europe 49 +8.9% +7.8%
Southern Europe 36 +2.9% +8.2%
85 +6.3% +8.0%
Trading margin
Northern Europe 3.1% - +0.2pp
Southern Europe 1.3% +0.1pp +0.1pp
1.9% +0.1pp +0.2pp
Wholesale - Northern Europe
Trading profit in the Northern Europe geographical area of our Wholesale
Division totalled #49 million, an increase of 8.9% on the first half of last
year on revenue up 8.8% to #1,603 million. Trading margin was in line with the
first half of last year at 3.1%, like for like improvements being offset by the
lower margin business in Russia which was acquired in March. Adjusting for
acquisitions and disposals, on a constant currency basis, like for like revenue
increased by 2.1%, like for like trading profits increased by 7.8% and like for
like trading margins increased by 0.2 percentage points.
In the UK revenue was in line with the first half of last year at #932 million,
like for like revenue being flat due to the loss of several independent pharmacy
customers following their purchase by competitors. Service levels, trading
margin and profit increased, with productivity gains arising mainly as a result
of cost reduction programmes. In September an agreement was reached between
UniChem and Pfizer to become their sole logistics services provider for the
distribution of prescription medicines to pharmacies and dispensing doctors in
the UK commencing in March 2007. Also in September, we completed the
acquisition of the UK short-line pharmaceutical wholesale business of Cardinal
Health for approximately #43 million. This has further developed our wholesale
offering to independent pharmacy customers.
In Norway revenue increased by 1.8% to #112 million, an increase of 1.6% on a
like for like basis which was ahead of our estimate of market growth. Increased
synergies from running our Norwegian retail and wholesale businesses more
closely together resulted in increases in trading margin and profit.
In The Netherlands revenue increased by 6.4% to #351 million, an increase of
6.0% on a like for like basis which was ahead of our estimate of market growth.
Trading profit increased as a result of the revenue growth and enhanced trading
activities, trading margin being stable. The development of Kring, our virtual
chain of pharmacies, continued in the period with just under 300 pharmacies
participating in the Kring programme, including the 73 pharmacies operated by
our retail business in The Netherlands. In October Kring introduced a customer
loyalty programme for the first time.
In Russia revenue was #89 million, an increase of around 16% in local currency
on the comparable period last year when the business was under prior ownership
resulting in an improved profit performance. The integration of the business
into the division has proceeded according to plan.
In the Czech Republic revenue increased by 16.7% to #119 million, an increase of
9.7% on a like for like basis which was ahead of our estimate of market growth,
the business performing particularly well in the independent retail pharmacy
sector. Trading margin and profit increased due to the revenue growth and
improved cost ratios.
Wholesale - Southern Europe
Trading profit in the Southern Europe geographical area of our Wholesale
Division totalled #36 million, an increase of 2.9% on the first half of last
year on revenue of #2,823 million. Trading margin increased by 0.1 percentage
points to 1.3%. Adjusting for acquisitions and disposals, including Alliance
Farmaceutica in Portugal as an associate from the end of June 2005, on a
constant currency basis like for like revenue decreased by 1.7%, like for like
trading profit increased by 8.2% and like for like trading margin increased by
0.1 percentage points.
In France, revenue decreased by 2.1% to #1,839 million, a decrease of 2.5% on a
like for like basis which was slightly more than our estimate of market decline
in the wholesale sector, the proportion of product which manufacturers sell and
distribute direct to pharmacies continuing to increase.
We continue to counter the trend in direct sales within the French market
through actions such as the roll out of a more competitive generics offer and
the launch of Almus in France in April. As a result our generics revenue
increased by over 25% compared to the first half of last year. Other actions
underway to strengthen our commercial proposition in France include the
continuous development of our manufacturer services including pre-wholesaling
and contract logistics, transfer order facilities and contract sales forces.
Trading profit in France increased as a result of margin improvements and
actions taken to limit operating cost inflation. Following the completion of
our service offering review, some restructuring of the warehouse network is
underway which will improve operational efficiency and better position our
business to adapt as the market continues to evolve. Restructuring costs
associated with this two year process are being treated as non trading
exceptional items. These are estimated at around #10 million before tax, of
which #8 million was charged during the period. Looking ahead there is a
possibility of further government action in France to contain healthcare
expenditure in the second half of the current year.
In Italy revenue increased by 2.0% to #464 million, an increase of 0.2% on a
like for like basis. Trading margin and profit were lower than in the first
half of last year mainly as a result of strong competition in certain regions.
Good progress continues to be made in establishing our virtual chain of
pharmacies in Italy. In May Almus was launched in the Italian market followed
by Alvita, our own label range of healthcare commodity products, in July.
In Spain total revenue increased by 12.1% to #519 million and on a like for like
basis was in line with the first half of last year as a result of aggressive
local competition from wholesalers seeking to compensate for lower export profit
opportunities and to counter a continued increase in direct sales from
manufacturers. Overall, trading margin and profit increased compared to the
first half of last year on a like for like basis. During the first half of the
year the integration of Farmacen and CERFC was largely completed, two depots
being closed, common IT systems being introduced and administration centralised.
Revenue in Portugal of #1 million was from our owned pre-wholesale and contract
logistics business.
Other Commercial Activities & Corporate Costs
Total revenue from Other Commercial Activities increased by 6.8% on the first
half of last year to #47 million.
Revenue from contract manufacturing for third party health and beauty brands,
which utilises capacity in our three Health & Beauty manufacturing facilities,
increased by #7 million to #38 million. The profit contribution from contract
manufacturing is allocated to the Health & Beauty business in the UK, as in
prior periods.
Revenue from our own brand export business decreased by #4 million to #9 million
due to lower sales to Asia and North America, operating losses increasing by #6
million to #8 million.
Corporate costs totalled #18 million which was in line with the first half of
last year. These are expected to reduce as merger synergies are realised during
the second half of the year.
Intra-group
Intra-group revenue totalled #521 million, an increase of #17 million on the
first half of last year, of which #10 million was higher sales from our UK
wholesale business to our UK Health & Beauty retail business.
Associates
Our share of associates' revenue was #1,048 million, a 7.2% increase on the
first half of last year. Our share of trading profit remained in line with the
first half of last year at #33 million, our share of earnings increasing by 9.5%
to #23 million. Adjusting for changes in associate interests, including
Alliance Farmaceutica in Portugal as an associate from the end of June 2005, on
a constant currency basis like for like revenue increased by 5.0%, like for like
trading profit by 3.6% and like for like earnings by 11.5%. Earnings benefited
from an underlying tax rate on associates' earnings of 20.6%, a decrease of 10.2
percentage points on the first half of last year, which was mainly due to a
reduction in the Turkish tax rate.
Overall performance from our associate businesses was impacted by a more
difficult economic climate in Turkey where Hedef Alliance, which contributes
over half our associate earnings, is based and a 15% adverse change in the
exchange rate used to translate Hedef Alliance's results from Turkish Lira into
Sterling compared to the first half of last year. Despite this, Hedef Alliance
continued to grow, profits being impacted by higher interest rates.
Underlying net finance costs
Underlying net finance costs (which exclude IAS 39 timing differences from
hedging interest rate and currency exposures) were #18 million in the first half
of 2006. This was #19 million lower than in the first half of last year, of
which #5 million was due to higher net returns on our defined benefit pension
schemes, partially as a result of additional contributions into the Boots
Pension Scheme. The balance of the reduction was mainly due to lower net
borrowings following the disposal of Boots Healthcare International and related
special dividend, the sale and leaseback of 312 retail outlets in July 2005 and
working capital efficiency gains, partially offset by higher Euro interest rates
and acquisition expenditure. Interest cover (which we define as trading profit
divided by underlying net finance costs) was 14.8 times, compared to 7.0 times
in the first half of last year.
Underlying tax
The underlying tax charge (which excludes tax on non trading items, IAS 39
timing differences and exceptional tax credits) was #79 million, compared to #69
million in the first half of last year. The underlying tax rate, (which we
define as the underlying tax charge expressed as a percentage of trading profit
net of underlying net finance costs), was 31.7%. This was 0.8 percentage points
higher than in the first half of last year, mainly as a result of previously non
taxable income becoming taxable from 1 June 2006 following a change in tax
legislation. We expect to see a slight reduction in the rate for the full year.
Cash flow
Net cash generated from operations totalled #471 million. This included a net
working capital inflow of #132 million, which was mainly due to seven months of
prescription receipts being received in the first half, and a one-off pensions
outflow of #43 million, being the second and final instalment of the #85 million
of additional contributions which Boots agreed to pay into the Boots Pension
Scheme from the Boots Healthcare International disposal proceeds.
Net cash generated from operations was #151 million higher than in the first
half of last year which also benefited from the timing of prescription receipts,
the increase being mainly due to improved working capital management.
The net cash outflow on acquisitions and disposals of businesses and associates
was #23 million. This was mainly for the purchase of pharmacies and the first
instalment payment to Cardinal for their UK short-line pharmaceutical wholesale
business.
Net cash capital expenditure was #110 million of which #41 million was for
growth and efficiency projects. Around 80% of the net expenditure was incurred
by the UK retail division, the major cost being store investment programmes.
Overall, total cash inflow in the half year was #151 million, compared to an
inflow of #142 million in the first half of last year.
Financial position
At 30 September 2006 net borrowings (defined as borrowings, net of cash and cash
equivalents and derivative financial instruments) were #1,169 million and
shareholders' equity was #5,454 million.
Additional pro forma financial information for continuing operations
Basis of preparation
The Group completed the acquisition of Alliance UniChem Plc on 31 July 2006.
The statutory results for the Group for the six months ended 30 September 2006
therefore include trading of the former Alliance UniChem Plc businesses for the
period from 31 July 2006 to 30 September 2006.
To assist investors in understanding the performance of the Group, pro forma
financial information has been prepared to show the results from continuing
operations of the Group as if the two former groups had always been combined.
This information has been prepared for the six months ended 30 September 2006,
with comparatives on the same basis for the six months ended 30 September 2005
and for the year ended 31 March 2006. The pro forma revenue and profit
statement has been prepared on an adjusted basis, which means for continuing
operations, before non trading items, amortisation of certain acquired
intangible assets, IAS 39 timing differences, all net of tax and before
exceptional tax credits.
Pro forma combined Group revenue and adjusted profit statement for continuing
operations for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue including share of associates' revenue 8,087 7,817 16,123
Less: share of associates' revenue (1,048) (978) (2,027)
Revenue 7,039 6,839 14,096
Trading profit including share of associates' trading profit 300 293 674
Less: share of associates' trading profit (33) (33) (71)
Trading profit 267 260 603
Share of associates' post tax earnings 23 21 47
290 281 650
Underlying net finance costs (18) (37) (61)
272 244 589
Underlying tax (79) (69) (169)
Adjusted profit for the period 193 175 420
Attributable to:
Equity shareholders (adjusted earnings) 193 175 419
Minority interests - - 1
193 175 420
Pro forma combined Group adjusted segmental analysis for continuing operations -
primary segments
for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue
Retail 3,125 2,956 6,312
Wholesale 4,388 4,343 8,711
Other Commercial Activities 47 44 88
Intra-group (521) (504) (1,015)
7,039 6,839 14,096
Trading profit
Retail 208 200 472
Wholesale 85 80 169
Other Commercial Activities & Corporate Costs (26) (20) (38)
267 260 603
Pro forma combined Group adjusted segmental analysis for continuing operations -
primary segments (continued)
for the six months ended 30 September 2006
Retail revenue and trading profit
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue
UK:
Health & Beauty 2,316 2,211 4,764
Community Pharmacy 507 463 967
2,823 2,674 5,731
International:
Republic of Ireland 71 68 142
Norway 134 128 259
The Netherlands 68 59 123
Italy 12 11 24
Thailand 17 16 33
302 282 581
3,125 2,956 6,312
Trading profit
UK 192 185 437
International 16 15 35
208 200 472
Additional UK retail revenue analysis:
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
UK:
Health 1,549 1,429 2,941
Beauty & Toiletries 792 754 1,640
Lifestyle 482 491 1,150
2,823 2,674 5,731
Wholesale revenue and trading profit
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue
Northern Europe:
UK 932 932 1,841
Norway 112 110 223
The Netherlands 351 330 681
Russia 89 - -
Czech Republic 119 102 220
1,603 1,474 2,965
Southern Europe:
France 1,839 1,879 3,799
Italy 464 455 927
Spain 519 463 978
Portugal 1 93 94
2,823 2,890 5,798
Intra-segment (38) (21) (52)
4,388 4,343 8,711
Trading profit
Northern Europe 49 45 94
Southern Europe 36 35 75
85 80 169
Pro forma combined Group adjusted segmental analysis for continuing operations -
primary segments (continued)
for the six months ended 30 September 2006
Other Commercial Activities & Corporate Costs revenue and trading loss
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue
Contract manufacturing 38 31 63
Own brand exports 9 13 25
47 44 88
Trading loss
Other Commercial Activities (8) (2) (3)
Corporate Costs (18) (18) (35)
(26) (20) (38)
Pro forma combined Group adjusted cash flow for continuing operations
for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Cash generated by operations 471 320 770
Tax and interest (53) (113) (183)
Dividends (net) (144) (158) (1,671)
Acquisitions and disposals (23) (8) (90)
Capital expenditure (116) (136) (266)
Fixed asset disposal proceeds 6 299 317
Other investments (net) 12 4 (40)
Other (2) (66) (69)
Total cash inflow/(outflow) 151 142 (1,232)
The pro forma combined cash flow excludes cash outflows related to the merger,
which comprise capitalised transaction costs and costs in relation to merger
synergies.
Key reconciliations between pro forma and statutory financial results
for the six months ended 30 September 2006
2006 2005
Six months Six months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Revenue - continuing operations
Pro forma 7,039 6,839 14,096
Relating to pre acquisition (3,106) (4,500) (9,069)
Statutory 3,933 2,339 5,027
Trading profit/profit from operations - continuing operations
Pro forma trading profit 267 260 603
Relating to pre acquisition (92) (127) (267)
175 133 336
Non trading items (19) 149 33
Amortisation of certain acquired intangible assets (7) - -
149 282 369
Share of associates' post tax earnings 7 - -
Statutory profit from operations 156 282 369
Earnings/profit attributable to equity shareholders
Pro forma adjusted earnings - continuing operations 193 175 419
Relating to pre acquisition (69) (92) (199)
124 83 220
Non trading items (19) 149 33
Amortisation of certain acquired intangible assets (7) - -
IAS 39 timing differences (1) - -
Tax on non trading items, amortisation of certain acquired
intangible assets and IAS 39 timing differences 7 10 39
Exceptional tax credits 14 - 12
118 242 304
Discontinued operations 17 31 1,470
Statutory profit for the period attributable to equity 135 273 1,774
shareholders
Independent review report
to the members of Alliance Boots plc
Introduction
We have been instructed by the Company to review the Group financial information
for the six months ended 30 September 2006 which comprise the Group income
statement, Group statement of recognised income and expense, Group balance
sheet, Group cash flow statement, and the related notes. We have read the other
information contained in the Interim Report and considered whether it contains
any apparent misstatements or material inconsistencies with the Group financial
information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual financial statements except
where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the UK. A review consists principally of making enquiries of
Group management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the Group financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the Group financial information as presented for the six
months ended 30 September 2006.
KPMG Audit Plc
Chartered Accountants
London
14 November 2006
Group income statement
for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
Note #million #million #million
Revenue - continuing operations 4 3,933 2,339 5,027
Profit from operations before share of associates'
post tax earnings 4 149 282 369
Share of associates' post tax earnings 7 - -
Profit from operations 156 282 369
Finance income 124 89 187
Finance costs (127) (105) (207)
Profit before tax 153 266 349
Tax 5 (35) (24) (45)
Profit after tax from continuing operations 118 242 304
Profit after tax from discontinued operations 17 30 1,470
Profit for the period 135 272 1,774
Attributable to:
Equity shareholders 135 273 1,774
Minority interests - (1) -
135 272 1,774
Earnings per share - total 6
Basic 21.8p 38.2p 259.4p
Diluted 21.7p 38.2p 259.0p
Earnings per share - continuing 6
Basic 19.0p 33.9p 44.4p
Diluted 19.0p 33.8p 44.4p
Group statement of recognised income and expense
for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Currency net investments
- currency translation differences (net of tax) (29) 7 8
- currency translation differences recycled on disposal of Boots
Healthcare International - - (12)
Defined benefit pension schemes
- actuarial gain/(loss) 16 (55) (77)
- related deferred tax (charge)/credit (4) 17 23
Net gains on cash flow and net investment hedges
- fair value change deferred in equity (net of tax) 7 - -
Available-for-sale investments
- gains on revaluation deferred in equity (net of tax) 2 - -
Income and expense recognised directly in equity (8) (31) (58)
Profit for the period 135 272 1,774
Total recognised income and expense for the period 127 241 1,716
Attributable to:
Equity shareholders 127 242 1,716
Minority interests - (1) -
127 241 1,716
Group balance sheet
as at 30 September 2006
2006 2005 2006
30 September 30 September 31 March
#million #million #million
Assets
Non-current assets
Goodwill 2,196 - -
Intangible assets 1,761 162 147
Property, plant and equipment 1,654 1,283 1,268
Investments in associates 631 - -
Available-for-sale investments 45 - -
Deferred tax assets 4 53 55
Trade and other receivables 58 53 32
Derivative financial instruments - 4 2
6,349 1,555 1,504
Current assets
Inventories 1,408 766 594
Trade and other receivables 1,792 495 461
Current tax assets 4 1 14
Cash and cash equivalents 374 214 856
Derivative financial instruments 5 - 1
Assets classified as held for sale 105 676 1
3,688 2,152 1,927
Total assets 10,037 3,707 3,431
Liabilities
Current liabilities
Borrowings (385) (151) (183)
Trade and other payables (2,113) (639) (632)
Current corporate tax liabilities (82) (58) (56)
Provisions (53) (23) (62)
Derivative financial instruments (1) - (1)
Liabilities classified as held for sale - (319) -
(2,634) (1,190) (934)
Net current assets 1,054 962 993
Non-current liabilities
Borrowings (1,050) (579) (575)
Other payables (6) (7) (30)
Non current corporate tax liabilities - (1) -
Deferred tax liabilities (594) (113) (97)
Retirement benefit obligations (83) (137) (56)
Provisions (92) (12) (87)
Derivative financial instruments (112) - -
(1,937) (849) (845)
Net assets 5,466 1,668 1,652
Equity
Share capital 360 181 181
Share premium 2 2 2
Shares to be issued 11 - -
Capital redemption reserve 29 29 29
Employee share trusts (141) (119) (119)
Retained earnings 1,243 1,256 1,250
Translation reserve (31) 8 (2)
Hedging reserve 7 - -
Available-for-sale revaluation reserve 2 - -
Merger reserve 3,972 311 311
Shareholders' equity 5,454 1,668 1,652
Minority interests 12 - -
Total equity 5,466 1,668 1,652
Group cash flow statement
for the six months ended 30 September 2006
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
Note #million #million #million
Cash generated by operations 7a 281 221 501
Tax paid (2) (54) (69)
Interest paid (45) (28) (37)
Net cash from operating activities - continuing
operations 234 139 395
Net cash (used in)/from investing activities - continuing
operations 7b (19) 213 148
Net cash used in financing activities - continuing
operations 7c (835) (223) (1,705)
Net cash (outflow)/inflow from continuing operations (620) 129 (1,162)
Net cash inflow from discontinued operations 7d - 12 39
Cash flows arising from sale of discontinued operations (3) - 1,854
Net (decrease)/increase in cash and cash equivalents (623) 141 731
in the period
Cash and cash equivalents at 1 April 813 80 80
Currency translation differences - (2) 2
Cash and cash equivalents at end of period 190 219 813
Set out below is a reconciliation of the net (decrease)/increase in cash and
cash equivalents to the (increase)/decrease in net (borrowings)/cash. Net
(borrowings)/cash are defined by the Group as borrowings net of cash and cash
equivalents and derivative financial instruments.
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
Note #million #million #million
Net (decrease)/increase in cash and cash equivalents (623) 141 731
Cash and cash equivalents outflow from decrease
in debt and lease financing 7e 730 21 31
Decrease in net (borrowings)/cash resulting from cash
flows 107 162 762
Borrowings acquired with businesses (1,390) - -
(1,283) 162 762
Finance leases entered into (2) (17) (24)
Currency translation differences and fair value
adjustments on financial instruments 16 - 3
(Increase)/decrease in net (borrowings)/cash in the period (1,269) 145 741
Net cash/(borrowings) at 1 April 100 (641) (641)
Net (borrowings)/cash at end of period 8 (1,169) (496) 100
Notes to the financial information
for the six months ended 30 September 2006
(1) BASIS OF PREPARATION
The interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 31 March 2006,
except for the segmental analysis reporting and some presentational changes to
the cash flow statement. New segmental reporting has been introduced to reflect
the composition of the merged Group, with the two principal segments being the
Retail and Wholesale Divisions. This revised segmentation and cash flow
presentation will be followed in the financial statements for the year ended 31
March 2007.
The comparative figures for the year ended 31 March 2006 are not the Company's
statutory financial statements for that financial year but have been extracted
from them. Those statutory financial statements have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The report of
the auditor was unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying their report,
and did not include a statement under section 237(2) or (3) of the Companies Act
1985.
(2) EXCHANGE RATES
The significant exchange rates relative to Sterling used in the preparation of
the financial statements are as follows:
Average Average Period end
2006 2006 2005
Two Six Six
months months months 2006
ended ended ended Year ended 2006 2005 2006
30 September 30 September 30 September 31 March 30 September 30 September 31 March
Euro 1.476 1.462 1.469 1.464 1.477 1.467 1.445
Turkish Lira 2.804 2.834
US Dollar 1.880 1.852 1.809 1.778 1.872 1.761 1.734
(3) RECONCILIATION OF MOVEMENTS IN TOTAL EQUITY
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
At 1 April 1,652 1,621 1,621
Total recognised income and expense for the period 127 241 1,716
Share-based compensation
- charged to income statement (net of tax) 4 5 5
Dividends (149) (149) (1,640)
Shares issued 3,840 - -
Shares to be issued 11 - -
Fair value of own shares acquired on merger (31) - -
Repurchase of own shares - (50) (50)
Minority interests in businesses acquired 12 - -
At end of period 5,466 1,668 1,652
Notes to the financial information (continued)
for the six months ended 30 September 2006
(4) SEGMENTAL ANALYSIS - PRIMARY SEGMENTS
Revenue
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Retail 2,645 2,295 4,939
Wholesale 1,417 - -
Other Commercial Activities 47 44 88
Intra-group (176) - -
Continuing operations 3,933 2,339 5,027
Revenue from discontinued operations(1) - 255 444
3,933 2,594 5,471
(1) Revenue from discontinued businesses includes Boots Healthcare
International, the elements of third party manufacturing that were disposed of
with Boots Healthcare International and those relating to closed services
businesses.
Profit for the six months ended 30 September 2006
Other
Commercial
Activities &
Corporate Continuing Discontinued
Retail Wholesale Costs operations operations Total
#million #million #million #million #million #million
Trading profit 168 27 (20) 175 - 175
Non trading items
- costs in relation to merger
synergies - - (9) (9) - (9)
- restructuring (2) (8) - (10) - (10)
- profit on sale of property,
plant and equipment 1 - - 1 - 1
- other - (1) - (1) - (1)
Amortisation of certain
acquired intangible assets
- (7) - (7) - (7)
167 11 (29) 149 - 149
Share of associates' post tax
earnings 7 - 7
Profit from operations 156 - 156
Net finance costs(1) (3) - (3)
Tax(2) (35) 17 (18)
Profit for the period 118 17 135
Non trading items are those items classified by Alliance Boots as exceptional in
nature.
(1) Net finance costs included a #1 million cost in respect of IAS 39 timing
differences.
(2) Tax on non trading items, amortisation of certain acquired intangible
assets and IAS 39 timing differences amounted to a #7 million credit. Tax also
included an exceptional deferred tax credit of #14 million in respect of capital
losses which were previously not recognised, relating to continuing operations.
The tax credit for discontinued operations related to the release of a prior
year provision no longer required.
Notes to the financial information (continued)
for the six months ended 30 September 2006
(4) SEGMENTAL ANALYSIS - PRIMARY SEGMENTS (continued)
Profit for the six months ended 30 September 2005
Other
Commercial
Activities &
Corporate Continuing Discontinued
Retail Costs operations operations Total
#million #million #million #million #million
Trading profit 143 (10) 133 47 180
Non trading items
- profit on sale and leaseback(1) 151 - 151 - 151
- loss on sale of property, plant and
equipment (2) - (2) - (2)
- depreciation on assets held for sale - - - 3 3
- costs relating to disposal of Boots
Healthcare International - - - (5) (5)
Profit from operations 292 (10) 282 45 327
Net finance costs (16) (1) (17)
Tax(2) (24) (14) (38)
Profit for the period 242 30 272
(1) Profit on sale and leaseback of 312 stores in July 2005.
(2) Tax on non trading items amounted to a #10 million credit, relating to
continuing operations.
Profit for the year ended 31 March 2006
Other
Commercial
Activities &
Corporate Continuing Discontinued
Retail Costs operations operations Total
#million #million #million #million #million
Trading profit 352 (16) 336 85 421
Non trading items
- restructuring and refurbishment(1) (90) (34) (124) - (124)
- profit on sale and leaseback(2) 150 - 150 - 150
- profit on sale of property, plant and
equipment 5 2 7 - 7
- depreciation on assets held for sale - - - 5 5
Profit from operations 417 (48) 369 90 459
Net finance costs (20) - (20)
Tax(3) (45) (22) (67)
Profit on disposal of discontinued
operations(4) - 1,402 1,402
Profit for the year 304 1,470 1,774
(1) Restructuring and refurbishment costs related to the centralisation and
automation programme, costs associated with fundamentally restructuring
contractual arrangements with third party providers and costs associated with
the historic obligations under leases encompassed in the store investment
programme.
(2) Profit on sale and leaseback of 312 stores in July 2005.
(3) Tax on non trading items amounted to a #39 million credit, relating to
continuing operations. The tax charge also included a #12 million credit for
adjustments in respect of prior periods.
(4) The profit on the disposal of discontinued operations included an
attributable tax credit of #31 million.
Notes to the financial information (continued)
for the six months ended 30 September 2006
(5) TAX
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
UK corporation tax 24 34 58
Overseas tax 3 - 6
Deferred tax 8 (10) (19)
35 24 45
The underlying tax charge, calculated before non trading items, amortisation of
certain acquired intangible assets, IAS 39 timing differences and exceptional
tax credits, reconciles to the tax charge in the period as follows:
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Underlying tax 56 34 96
Tax on
- non trading items (5) (10) (39)
- amortisation of certain acquired intangible assets (2) - -
Exceptional credits (14) - (12)
35 24 45
(6) EARNINGS PER SHARE
Earnings per share is calculated by dividing the profit for the period
attributable to equity shareholders by the weighted average number of shares in
issue during the period. Diluted earnings per share is calculated by dividing
the profit for the period attributable to equity shareholders by the weighted
average number of shares in issue added to the dilutive potential shares
assuming they had all converted to issued shares at the beginning of the period.
2006 2005
Weighted Weighted
average average
number Earnings number Earnings
Profit of shares per share Profit of shares per share
six months six months six months six months six months six months
ended ended ended ended ended ended
30 September 30 September 30 September 30 September 30 September 30 September
#million million pence #million million Pence
Total operations
Basic 135 620 21.8 273 714 38.2
Potentially dilutive share
options - 1 (0.1) - 1 -
Diluted 135 621 21.7 273 715 38.2
Continuing operations
Basic 118 620 19.0 242 714 33.9
Potentially dilutive share
options - 1 - - 1 (0.1)
Diluted 118 621 19.0 242 715 33.8
Notes to the financial information (continued)
for the six months ended 30 September 2006
(7) GROUP CASH FLOW STATEMENT
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
(a) Cash generated by operations - continuing operations
Profit from operations 156 282 369
Share of associates' post tax earnings (7) - -
Depreciation, amortisation and impairments 109 87 180
Share-based compensation charge 4 5 5
Profit on disposal of property, plant and equipment (1) (149) (171)
Non cash movements (1) 1 (3)
(Decrease)/increase in inventories (45) (102) 65
Decrease/(increase) in receivables 184 75 (27)
(Decrease)/increase in payables and provisions (77) 12 130
(Decrease)/increase in retirement benefit obligations (41) 10 (47)
281 221 501
(b) Net cash (used in)/from investing activities - continuing operations
Acquisition of businesses (46) - -
Net cash of businesses acquired 78 - -
Purchase of property, plant and equipment and intangible assets (93) (94) (181)
Disposal of property, plant and equipment 4 295 308
Interest received 38 12 21
(19) 213 148
(c) Net cash used in financing activities - continuing operations
Interest element of finance lease obligations (3) (2) (4)
Dividends paid to equity shareholders (101) (149) (1,640)
Net (repayment of)/proceeds from borrowings (720) (9) 1
Repayment of capital element of finance lease obligations (10) (13) (12)
Repurchase of own shares - (50) (50)
Other cash flows from financing activities (1) - -
(835) (223) (1,705)
(d) Net cash inflow from discontinued operations
During the six months ended 30 September 2005, discontinued operations had cash
inflows from operating activities of #16 million, cash outflows from investing
activities of #5 million and cash inflows from financing activities of #1
million.
During the year ended 31 March 2006, discontinued operations had cash inflows
from operating activities of #67 million, cash outflows from investing
activities of #7 million and cash outflows from financing activities of #21
million.
(e) Cash and cash equivalents outflow from decrease in debt
and lease financing
Net repayment of borrowings 720 7 18
Repayment of capital element of finance lease obligations 10 14 13
730 21 31
Notes to the financial information (continued)
for the six months ended 30 September 2006
(8) ANALYSIS OF MOVEMENT IN NET (BORROWINGS)/CASH
Borrowings Borrowings
Cash within within Derivative
and cash current non-current financial Net
equivalents liabilities liabilities instruments (borrowings)/cash
#million #million #million #million #million
At 1 April 2006 856 (183) (575) 2 100
Decrease in cash and cash equivalents (481) (142) - - (623)
Decrease in borrowings - 397 324 9 730
Borrowings acquired with businesses - (457) (808) (125) (1,390)
Finance leases entered into - (1) (1) - (2)
Other non-cash movements - (2) 2 - -
Currency translation differences and fair
value adjustments on financial instruments (1) 3 8 6 16
At 30 September 2006 374 (385) (1,050) (108) (1,169)
In the Group cash flow statement, cash and cash equivalents include bank
overdrafts which are classified within borrowings within current liabilities in
the balance sheet which amounted to #184 million at 30 September 2006 compared
to #43 million as at 31 March 2006.
(9) NET CASH (OUTFLOW)/INFLOW ON ACQUISITIONS AND DISPOSALS
An analysis of the net cash (outflow)/inflow on acquisitions and disposals of
businesses in the period is shown below:
2006 2005
Six Six
months months 2006
ended ended Year ended
30 September 30 September 31 March
#million #million #million
Acquisition of businesses (46) - -
Net cash of businesses acquired 78 - -
Disposal of businesses (3) - 1,854
Net cash of businesses disposed - - (40)
Borrowings acquired with businesses (1,390) - -
(1,361) - 1,814
(10) ACQUISITION OF ALLIANCE UNICHEM Plc
On 31 July 2006 the Group acquired the entire share capital of Alliance UniChem
Plc for consideration, including costs, of #3.9 billion. The provisional
goodwill arising on the acquisition is #2.2 billion and the initial assessment
of the fair value of the intangible assets acquired, which predominantly
comprises pharmacy licences and customer related assets, is #1.7 billion.
Glossary of key terms
Adjusted earnings per share
Adjusted earnings divided by the weighted average number of shares in issue
during the period.
Adjusted earnings
Profit for the period attributable to equity shareholders before non trading
items, amortisation of certain acquired intangible assets and IAS 39 timing
differences, all net of tax and before exceptional tax credits.
Amortisation of certain acquired intangible assets
Amortisation of acquired intangible assets other than computer software.
IAS 39 timing differences
Derivative financial instruments are used to hedge interest rate and currency
exposures. IAS 39 dictates whether changes in the fair value of these
instruments can be matched in the income statement by changes in the fair value
of the item being hedged. Where they cannot be matched, or do not fully match,
the unmatched amount represents a timing difference that will reverse over the
life of the financial instruments.
Interest cover
Trading profit divided by underlying net finance costs.
Like for like revenue
Like for like revenue on a constant currency basis compared to the comparable
period in the previous year.
Net (borrowings)/cash
Borrowings, net of cash and cash equivalents and derivative financial
instruments.
Net finance costs
Finance costs net of finance income.
Non trading items
Items classified by Alliance Boots as exceptional in nature. In the reporting
periods these mainly comprised costs in relation to merger synergies,
restructuring and refurbishment costs, profit on sale and leaseback, profit/loss
on sale of property, plant and equipment.
Trading margin
Trading profit expressed as a percentage of revenue.
Trading profit
Profit from operations before non trading items, amortisation of certain
acquired intangible assets and share of associates' post tax earnings.
Underlying net finance costs
Net finance costs adjusted to exclude IAS 39 timing differences.
Underlying tax charge
The tax charge excluding tax on non trading items, IAS 39 timing differences and
exceptional tax credits.
Underlying tax rate
The underlying tax charge expressed as a percentage of trading profit net of
underlying net finance costs.
Shareholder information
2006/07 financial calendar
14 November 2006 2006/07 interim results
31 May 2007 2006/07 preliminary results and dividend announced
6 June 2007 Provisional final dividend ex-dividend date
8 June 2007 Provisional final dividend record date
4 July 2007 Provisional deadline for receipt of applications
to participate in the Dividend Reinvestment Plan
24 July 2007 Provisional deadline for receipt of proxies for
the Annual General Meeting
26 July 2007 Annual General Meeting
1 August 2007 Provisional final dividend payment date and
purchase of shares for the Dividend Reinvestment
Plan
Shareholder enquiries
Enquiries or information concerning existing shareholdings should be directed to
the Company's registrars, Capita Registrars, either:
- in writing to Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,
Huddersfield HD8 0LA, UK;
- by telephone from within the UK on + 44 (0) 870 162 3130;
- by telephone from outside the UK on + 44 (0) 20 7098 7837;
- by email to alliancebootsshareholder@capitaregistrars.com; or
- through the website www.allianceboots-shareholder.com.
You will need to register to use the above website which will enable you to
safely add or change your details, download forms or submit queries. You will
need your Investor Code which is shown on your share certificate.
If you have changed your address or lost your share certificate please notify
Capita Registrars as soon as possible.
Alliance Boots Share Account Service
Shareholders can hold their shares electronically through a dedicated nominee
service. Whilst still maintaining the benefits of being a shareholder, holding
your shares through the Alliance Boots Share Account Service has many advantages
over the traditional paper based procedures involving share certificates.
Further information is available from Capita Registrars.
Electronic shareholder communications
Shareholders can elect to receive shareholder documents, such as notices of
general meetings, electronically from the Company's website rather than a hard
copy through the mail. This has the advantage of improving the speed of
communication, reducing the administrative costs of printing and postage and
minimising the impact on the environment. To register for this service please
provide your email address online at www.allianceboots-shareholder.com.
Amalgamation of shareholding
If you have received more than one copy of this report, your shareholding may be
registered under more than one shareholder reference number. To amalgamate your
accounts please contact Capita Registrars, with details of the accounts
concerned.
Website
Press releases, the share price and other information on Alliance Boots are
available on the Company's website, www.allianceboots.com.
Annual Report and Summary Financial Statement
The Company will be producing an Annual Report following the announcement of our
Preliminary results for the year ended 31 March 2007 which will be made
available to shareholders in a number of different formats. Shareholders will
receive a summary version of the Annual Report incorporating an Annual Review of
its businesses and operations, as well as summaries of the Report of the
Directors and the Board report on remuneration, the Group income statement, the
Group balance sheet and the Group cash flow statement. It will also contain a
statement by the auditors confirming that the Summary Financial Statement
complies with the statutory provisions and regulations governing the content of
Summary Financial Statements, is consistent with the Annual Report and advising
whether the auditor's report on the full Annual Report is qualified. On its
own, the Summary Financial Statements do not contain sufficient information to
allow as full an understanding of the results and affairs of Alliance Boots plc
or the Alliance Boots group as would be provided by the full Annual Report. A
copy of the Annual Report will be made available for viewing on the Alliance
Boots website www.allianceboots.com. If you would like us to send you the
Annual Report in the future, please advise Capita Registrars. Alternatively you
can register to receive the document in either format online at
www.allianceboots-shareholder.com.
Dividend mandates
To avoid the risk of delay or loss of dividend cheques, dividends can be paid
directly into your bank or building society account. To register for this
service forms are available from Capita Registrars or from
www.allianceboots-shareholder.com.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan gives shareholders the opportunity to reinvest
cash dividends in Alliance Boots shares by becoming a participant in a special
low cost dealing arrangement. This is currently open to members of the Alliance
Boots Shareholder Account Service and CREST members. Please call our Capita
Registrars for more information.
Share dealing services
Details of special low cost dealing services in our shares may be obtained from:
Capita Share Dealing Services (telephone +44 (0) 870 458 4577 or visit
www.capitadeal.com)
Capita is regulated by the Financial Services Authority and is a member of the
London Stock Exchange and has approved the references to itself solely for the
purposes of section 21(2)(b) of the Financial Services and Markets Act 2000
only.
Hoare Govett Limited (telephone +44 (0) 207 678 8300)
Hoare Govett Limited is regulated by the Financial Services Authority and is a
member of the London Stock Exchange and has approved the references to itself
solely for the purposes of section 21(2)(b) of the Financial Services and
Markets Act 2000 only.
Share listing
Our shares are listed on the London Stock Exchange under EPIC: "AB."; SEDOL: "
B0P7Y25"; ISIN: "GB00B0P7Y252"
Unsolicited mail
We are obliged by law to make our share register publicly available and as a
consequence some shareholders may receive unsolicited mail, including from
unauthorised investment firms. For more information on unauthorised investment
firms targeting UK investors, visit the Financial Services Authority website at
www.fsa.gov.uk/consumer. To limit the amount of unsolicited mail you receive,
contact:
The Mailing Preference Service, FREEPOST 29 (LON 20771), London, W1E 0ZT, UK
or register online at www.mpsonline.org.uk.
Company details
Alliance Boots plc
Registered in England & Wales, number: 4452715
Registered office: Sedley Place, 4th Floor, 361 Oxford Street, London, W1C 2JL,
UK
Telephone: +44 (0) 1932 870550
Facsimile: + 44 (0) 1932 870555
Email: enquiries@allianceboots.com
Website: www.allianceboots.com
Principal businesses and associates
Segment Country Principal business
Retail - UK UK - Health & Beauty Boots The Chemists (incorporating
Boots Opticians)
- Community Pharmacy Alliance Pharmacy
- International Republic of Ireland Boots Retail (Ireland)
Norway Alliance Apotek
The Netherlands De Vier Vijzels
Italy Alliance Farmacie Comunali
Thailand Boots
Wholesale - Northern Europe UK UniChem
Norway Holtung
The Netherlands Interpharm
Russia Apteka Holding
Czech Republic Alliance UniChem CZ
- Southern Europe France Alliance Sante
Italy Alleanza Salute Italia
Spain Grupo Safa
Other Commercial Activities UK, France & Germany Boots Manufacturing
various Boots Retail International
Associates Turkey Hedef Alliance
Germany ANZAG
Switzerland Galenica
Portugal Alliance UniChem Farmaceutica
Egypt UCP
Romania Farmexpert
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FFAFMDSMSEDF
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