AB. Alliance Boots

RNS Number:8572T
Alliance Boots plc
28 March 2007

28 March 2007


                               ALLIANCE BOOTS plc

                     PRE YEAR END CLOSE PERIOD ANNOUNCEMENT



  * Full year results expected in line with management's targets
  * Delivery of cost synergies on track
  * Rebranding of UK Community Pharmacy announced
  * Outlook positive with Group well positioned



Alliance Boots plc is providing the following update on trading ahead of
entering its year end close period on 31 March 2007.



Commenting on current trading, Alliance Boots Chief Executive Richard Baker said
today:



"The Group is performing well in the fourth quarter and we are confident of
delivering full year results in line with management's targets.



"In a year of extraordinary change for the Group we have delivered against our
plans for bringing our businesses together, for continuing to grow them
successfully and for delivering the initial merger cost synergies.  This has
been achieved in the face of continuing strong competition and is a testament to
the dedication and expertise of all our people.



"We are announcing today a number of future initiatives which will enhance our
ability to deliver earnings growth over the medium term. In particular, I am
delighted to announce the biggest single expansion of the Boots brand in its
history with the rebranding of the majority of our UK Community Pharmacy network
under a new "your local Boots pharmacy" format.



"These plans, allied to our 2006/07 results, reaffirm the Board's view that, as
a leading international pharmacy-led health and beauty group with attractive
prospects, opportunities and synergies, Alliance Boots can drive sustained
growth in shareholder value."





Alliance Boots today

Our merger was completed in July 2006 and we believe that the combined business
offers shareholders attractive prospects, opportunities and synergies.  In
particular:



We view our pharmacy related markets as being particularly attractive:

-          they are typically large, have relatively stable growth rates and are
expected to continue to exhibit sustained long term growth as people live
longer, have higher levels of demand for medicines and spend more on looking and
feeling good

-          we believe that scale within countries and in terms of the overall
Group is becoming increasingly important in providing the range and quality of
products and services at competitive prices that manufacturers and governments
require

-          there is scope for continuing consolidation of operators in many
markets and, in certain European countries, there remains the prospect for
future deregulation of retail pharmacy.



We have strong and profitable positions in the major geographical markets in
which we operate:

-          we are the leader in pharmacy and beauty retailing in the UK and own
retail outlets in a further six countries

-          we have a leading European pharmaceutical wholesale and distribution
business operating in eight countries and through associates in a further four
countries

-          we have leading brands in the UK such as "Boots", "No.7", "Soltan"
and also our "Almus" brand for generic medicines, supported by a strong product
development and sourcing capability.



We believe that we have the management capability and financial resources to
capitalise on the significant potential we see in these markets:

-          experienced customer focused retail and wholesale management teams

-          proven capability in successfully identifying, acquiring, integrating
and profitably growing new businesses and associate investments in existing and
new geographical markets

-          strong balance sheet and cash flow to fund future growth.



We plan to continue delivering sustained growth in shareholder value through:

-          profitable organic revenue growth from our core retail and wholesale
operations

-          driving efficiencies from the Group's scale and reach, including the
exploitation of synergies between our businesses

-          value enhancing acquisitions and associate investments.



Current trading



Retail

In the UK on a reported basis like for like growth is expected to be around 1.6%
with trading margin to date for the quarter ahead of management's previous
expectations.  Our Health & Beauty business like for like growth is expected to
be marginally ahead of this figure while our Community Pharmacy business is
expected to be lower due to its greater proportion of dispensing income.



Our underlying like for like revenue growth in the UK in the fourth quarter,
which is adjusted to exclude the impact of the generic reimbursement rate in
relation to prescription drugs and the calendar effect, both outlined in our
third quarter trading update, is expected to be around 2.3%.



Trading margin to date for the quarter in the UK is ahead of management's
previous expectations, particularly in our Health & Beauty business, as a result
of improved stock management following recent infrastructure investments, better
buying (partially as a result of merger synergies) and better targeted marketing
programmes.



Sales have benefited from management initiatives which have delivered strong
underlying performances in both UK retail businesses in what continues to be a
highly competitive market.



In the Health category in the UK we have seen good growth in our dispensing
volumes in the fourth quarter. We continue to develop our service offering and
again increased the number of Medicine Use Reviews carried out across both
businesses. Our Health & Beauty sales benefited from a strong New Year "change
one thing" marketing campaign for the second consecutive year and the impact of
the programme designed to address historic under investment in smaller stores.



In the Beauty & Toiletries category in the UK, where we have leading market
positions and brands, our trading performance has again been strong, benefiting
from good revenue growth in cosmetics and fragrances as well as a successful
post Christmas sale. In January we launched the Expert range which has sold over
one million units to date and will be backed by a new marketing campaign in the
first quarter.



Our Health & Beauty business is on track with its systems rationalisation and
supply chain reconfiguration programme announced in March 2006. Of the #40
million exceptional costs before tax identified when this programme was
announced, approximately #22 million will be incurred in 2006/07. In addition
the business is to exit certain third party logistics activities in Nottingham
which will result in incremental exceptional costs before tax of approximately
#5 million in 2006/07.



Our international retail businesses have overall to date in the quarter traded
in line with our expectations.



Wholesale

Revenue in our Wholesale Division to date in the fourth quarter has continued to
grow in line with our expectations, with government price cuts and the trend
towards the increased use of generic medicines as in previous quarters holding
back market value growth but generally not impacting volumes.



In Northern Europe, revenue growth has benefited from the acquisitions of Cordia
Healthcare in the UK and Apteka Holding in Russia, both in 2006, and increased
intra-group sales to our Health & Beauty business. Trading to date in the
quarter has benefited, as we anticipated, from increasing merger related cost
synergies from harmonising buying prices.



In Southern Europe, following the additional healthcare tax levied by the French
Government on pharmaceutical wholesalers and distributors at the end of 2006,
trading has been within management's expectations in what remain competitive
markets.



In March, UniChem, our UK wholesale business, successfully commenced its
previously announced sole logistics services contract with Pfizer under which it
provides a delivery and related services  to all pharmacies in the UK.
Implementation of the contract was well planned and executed, resulting in high
service levels since its launch. We are aware that other manufacturers are also
contemplating whether to change their existing arrangements.



During the quarter the restructuring of our French wholesale network to improve
operational efficiency and better position our business has continued in line
with management's plan. As previously announced, this will result in an
exceptional charge before tax of approximately #10 million in 2006/07.



Other Commercial Activities

At the time of the #1.9 billion disposal of Boots Healthcare International in
February 2006, Reckitt Benckiser entered into certain contract manufacturing
arrangements with us.  They have recently served notice of their intent to exit
these arrangements at the beginning of 2008. To mitigate the impact of this
decision on the efficiency of our manufacturing operations we have announced the
need for around 300 redundancies in our Nottingham factory.



A review of our own brand export business has concluded that its activities
should be focused on our own international businesses and selected large export
markets.  Accordingly, we are withdrawing from a number of smaller markets in
Asia and Europe.



Together these will result in exceptional charges before tax of approximately
#25 million in 2006/07.



Net borrowings

Net borrowings for the Group at year end are expected to be slightly lower than
the #1,169 million reported at the half year.



Merger update



Phase one - cost synergies



The key focus for the first two years of our integration plan is delivery of our
cost synergy plan.



Good progress has been made against our initial integration priorities of
harmonising buying prices and reducing corporate costs and we are on track with
the longer term project to streamline our combined distribution network.  We
remain confident of delivering our target annual pre-tax cost savings of at
least #100 million per annum by the fourth full year following completion of the
merger with over 60% of the run-rate savings being accrued by the second year.
The one-off costs related to achieving these synergies are not expected to
exceed the #53 million estimate provided at the time of the merger, of which
approximately #20 million will be taken as an exceptional charge before tax in
2006/07.



Phase two - UK retail



The development of our UK retail offer commenced shortly after  the merger was
completed.  Following detailed work and various pilots we are now announcing a
major programme to capitalise on the pharmacy-led opportunities that we have in
the UK market:



*         "your local Boots pharmacy"

During the last four months we have successfully trialled a new "your local
Boots pharmacy" branded format for our community pharmacies. This combines a
strong Boots branded retail offer, including own label products and the Boots
Advantage Card loyalty scheme, with a tailored community focused prescription
and service proposition. Following the success of this trial, in which we have
seen substantial increases in both retail sales and dispensing volumes, we have
decided to roll-out this new format, investing around #65 million of capital to
rebrand and refit the majority of the Community Pharmacy network over the next
two financial years, starting in the summer.



*         Property optimisation

Since the merger we have reviewed our combined UK retail property portfolio to
identify opportunities to optimise our position in local markets to best serve
the needs of our retail and prescription customers.  This review has identified
around 100 localities where we will seek to relocate or, in a limited number of
cases, rationalise our portfolio over the next three years at a capital cost of
around #35 million.



*         Systems harmonisation

We have also decided to harmonise our UK pharmacy management systems over the
next three years utilising "Nexphase", a system originally co-developed by our
UK wholesale business for its customers and used in our Community Pharmacy
business.



The phase two projects will result in approximately #75 million of exceptional
costs before tax of which around #30 million will be in respect of non-current
asset write offs.  In 2006/07 these exceptionals are expected to total #2
million.



Phase three - international product offer



The third phase of our merger related plans is focused on opportunities to
internationalise the Boots brand and access new markets and territories
utilising the skills and resources of the combined Group.  While these plans are
at an early stage of development we remain confident about the potential
available to shareholders over the longer term.



Corporate developments



In January, we announced that we are to enter the rapidly growing Chinese
pharmaceutical market, currently the ninth largest in the world, through an
agreement, which is subject to regulatory approval, to form a 50:50 joint
venture in Guangzhou Pharmaceuticals Corporation, the third largest
pharmaceutical wholesaler in China. This follows our entry into Russia last year
with the purchase of Apteka Holding.



The programme to comply with the undertakings given to the Office of Fair
Trading at the time they approved our merger is now close to completion. Of the
96 pharmacies in the UK originally identified for disposal, the Office of Fair
Trading has said, that subject to consultation, it is minded to agree to the
withdrawal of two pharmacies from the agreed divestment list (after new
pharmacies were opened which alleviated local competition issues).  The OFT
consultation period closed without comment from third parties on 16th March
2007.  We expect, therefore, that the OFT will agree to withdraw two pharmacies
from the agreed divestment list.  Conditional contracts have been signed to date
to sell 89, of which 68 are expected to be completed by 31 March 2007 with the
rest in April. Active discussions are taking place for the sale of the remaining
five pharmacies. The exceptional profit before tax on those Health & Beauty
pharmacies is estimated at around #7 million.



While fulfilling the Office of Fair Trading requirements to dispose of these
pharmacies, our Community Pharmacy business has not acquired pharmacies at its
historical rate. This will reduce the contribution from pharmacy acquisitions in
the coming year. Since the beginning of 2007 we have stepped up the rate of
acquisitions in the UK, acquiring 16 pharmacies to date.



Outlook



Alliance Boots is an international pharmacy-led health and beauty group.  The
Board is convinced that the attractive prospects, opportunities and synergies
available can drive sustained growth in shareholder value.  It expects the good
trading performance it has seen in 2006/07 to continue into the next financial
year.





                                    - Ends -

Richard Baker, Chief Executive and George Fairweather, Group Finance Director,
will host a conference call for analysts at 08.00 UK time.



UK dial in number              020 8515 2305
International dial in number   +44 20 8515 2305



Quote conference title - Alliance Boots pre-close statement



A replay facility will be available for seven days:



UK dial in number              020 7190 5901
International dial in number   +44 20 7190 5901
Access number                  135367#







For further information, please contact:


Investor Relations                                  Media
Gerald Gradwell/Chris Laud                          Donal McCabe
Tel: +44 (0)20 7138 1167                            Tel: +44 (0)20 7138 1167







This announcement includes "forward-looking statements" under the United States
securities laws.  In some cases, these forward-looking statements can be
identified by the use of forward-looking terminology, including the terms 
"believes", "estimates", "plans", "prepares", "anticipates", "expects", "intends
", "may", "will" or "should" or, in each case, their negative or other
variations or comparable terminology.  Such forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results, performance or achievements of the Alliance Boots plc group ("
Alliance Boots Group"), or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.  Such forward-looking statements are based on
numerous assumptions regarding the Alliance Boots Group's present and future
business strategies and the environment in which the Alliance Boots Group will
operate in the future.  As a result, the Alliance Boots Group's actual future
financial condition, performance and results may differ materially from the
plans, goals and expectations set out in the Alliance Boots Group's
forward-looking statements contained in this announcement or any other
forward-looking statement it may make.  Except as required by the UK Listing
Authority, the London Stock Exchange, the City Code, or by law, Alliance Boots
plc does not undertake any obligation to update any of the forward-looking
statements contained in this announcement or other forward-looking statements it
may make.




                      This information is provided by RNS
            The company news service from the London Stock Exchange
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