Boots Group PLCPreliminary Results 2004/05

19th May 2005

Sir Nigel RuddChairman

Richard BakerChief Executive

Agenda

• Financial Review

• Operational Review

• The next phase - clear priorities and focus

Jim SmartActing Chief Financial Officer

Group results

12 months to 31st March 2005 (£m) Sales Profit

Boots The Chemists4,65

1 +3.8% 470 - 11.8%

Boots Healthcare International 523 +3.6% 88 +8.9%

Boots Opticians 183 - 8.6% 4 - 67.4%

Boots Retail International 48 +12.3% (8) +21.2%

Group & other costs 37 -37.9% (46) 0.0%

Discontinued operations 27 (7)

Group sales and operating profit5,46

9 +2.7% 501 -8.7%

Interest (20)

Profit before tax and exceptionals 481 -11.4%

Group results

12 months to 31st March 2004 2005

Exceptional items £36m£(54)

m

Effective tax rate 30.9% 29.6%

EPS - Basic 52.8p 40.9p - 22.5%

- Pre-exceptional 48.0p 45.7p - 4.8%

Dividend per share 29.8p 30.1p +1.0%

Dividend £226m £217m - 4.3%

Share repurchase £260m £300m

Boots The Chemists

- 11.8%470533Operating profit

-80bpGross margin movement

+2.4%+3.8%4,6514,479Sales

Like for Like

2005£m

2004£m

12 months to 31st March

-30bp

BTC sales growth

• Total Sales up 3.8%

• Lower prices and promotional activity reduced revenue by 4.8%– A further 2,000 lines reduced by 14% under LPYL

• Volumes up 4.6%– New space– Extended opening hours– Better value

• Mix of products sold contributed 4.0%

BTC transaction numbers

£9.21£9.19Average Transaction Value

+0.2%+5.4%− Growth

+3.0%- 1.4%− Total

+1.5%

2005

- 2.0%− Like for like stores

Counter Transactions growth

200412 months to 31st March

Underlying NHS items growth 3.5% 5.2%

Weekly footfall 19.3m 19.8m

BTC sales by category

• Health £1,863m, +5.0%– Strong items growth in Dispensing– Vitamins and new OTC products

• Beauty & Toiletries £2,055m, +2.9%– Continued strong growth in Beauty– Toiletries remains very competitive but market share maintained

• Lifestyle £734m, +3.7%– Extended Baby ranges– Food ranges re-launched– Continued decline in Photo market

BTC gross margin

• Gross margin down 80bps

• 260bps impact of lower prices– Pricing and promotions– LPYL impact 150bps

• 180bps recovered through better buying, manufacturing efficiencies and mix

BTC operating costs

12 months to 31st March (£m

increase) 2005

Inflation 40

Volume 20

Productivity / GiS (90)

(30)

Pension 15

Existing stores/trading 45

IT Infrastructure/tills 35

New space/formats 35

YoY cost increase 100 +7%

BTC operating costs

12 months to 31st March (£m

increase) 2005 2006

Inflation 40 50

Volume 20 10

Productivity / GiS (90) (70)

(30) (10)

Pension 15 15

Existing stores/trading 45 40

IT Infrastructure/tills 35 25

New space/formats 35 30

YoY cost increase 100 +7% 100 +6%

Capital expenditure

12 months to 31st March (£m) 2005 2006

Group

Capital expenditure 288 200

Depreciation charge 146 190

Boots The Chemists

Capital expenditure 225 150

Depreciation charge 100 130

Getting in Shape update

• Cumulative programme savings of £111m (05/06 vs 02/03)– Savings estimated at interims £132m

• Redundancies delayed to 06/07 • BHI actions cancelled

• Savings comprise– BTC Head Office costs reduced by £55m

• Head count reduced by 1,200– Manufacturing efficiencies of £52m

• BTC £35m• BHI £17m

– BHI operating costs reduced by £4m

Boots Healthcare International

12 months to 31st March2004

£m2005

£mLocal

currency

Sales 505 523 +3.6% +5.8%

Brand investment/sales 28% 27%

Operating profit 81 88 +8.9% +12.7%

BHI Sales by Brand

12 months to 31st March 2005

Sales

£m

Nurofen 150 +8.1%

Clearasil 91 +6.0%

Strepsils 91 +9.3%

Dermo-cosmetics 48 -6.6%

Other 143 +5.8%

Total 523 +5.8%

Sales growth relates to local currency

Update on planned sale of BHI

• Process on track

• Tax efficient disposal

• Completion within 05/06 financial year

• Significant proportion of proceeds to be returned to shareholders

Group cash flow

12 months to 31st March 2004£m

2005£m

Operating profit 550 501

Working capital (47) (118)

Capital expenditure (194) (304)

Depreciation 134 146

Operating cash flow 443 225

Disposal of fixed assets 150 21

Other items 0 (14)

Business cash flow 593 232

Working capital movements

12 months to 31st March (£m) 2004 Weeks

cover

2005 Weeks cover

Stock - Boots The Chemists (60) 11 (29) 11

- Other 6 8

(54) (21)

Debtors (43) (49)

Creditors

- Redundancy provision

41 (32)

- Staff bonus - (10)

- Other 9 (6)

50 (48)

(47) (118)

Balance Sheet

• Maintain strong investment grade debt rating

• Share buy back– £300m returned in 04/05– Commitment to return remainder of £700m programme over 2 to 3

years

• 730.5m shares in issue at 31st March 2005

• Net debt £594m, an increase of £446m

• Sale and leaseback process on track to complete over the Summer

Planning assumptions for 2005/06

• Sales growth expected to remain subdued– LFL growth 0 – 2%– New space contribution 2%

• Stable gross margin expected– Continued investment in price– Cost of Goods improvement

• Costs expected to be up 6% due to infrastructure renewal and new space

Summary

• Group profits lower due to the cost of modernising Boots The Chemists

• Boots The Chemists made good progress in key markets

• BHI disposal process on track

• Committed to returning cash to shareholders– Significant proportion of BHI sale proceeds– Completing remainder of £700m share buy back– Dividend a key element of delivering shareholder returns

• Full year guidance unchanged

Richard BakerChief Executive

Agenda

• Financial Review

• Operational Review

• The next phase - clear priorities and focus

Substantial progress has been made

Neglected core strengths Strong Pharmacy performanceBuilding strength in Beauty

Losing customersCompeting better in commodity markets

Gross margin broadly stable

Difficult to shopMore convenient and accessible stores

Outdated systems Inefficient operations Modern infrastructure

Unsustainable prices

Strong pharmacy performance

• Dispensing +6.1%– Best performance for 5 years

• Investing in the core of the business– 1,000 stores now have Smartscript– 80 pharmacies upgraded

• Greater convenience for customers– Prescription collection service +17%

• Developing new markets– Care home service +12%

Building on the strength in Beauty

• Cosmetics & Fragrance +5.3%

• Investing behind key strength– Successful re-launch of No7– 24 new beauty halls– New fragrance units in 178 stores

• Value for money– Advantage card– Competitive pricing in Fragrance

• Seasonal events better implemented

Competing better in commodity markets• Market share maintained

• Lower Prices You’ll Love– £200m invested in 18 months

• Promotions – Simpler, stronger offers

• Own brand innovation

Gross margin ahead of target

• Successful management of pricing/promotional mix

• £30m buying gains achieved in the year

• National brands– Higher volumes– Collaborative working

• Own brands– Getting in Shape– 3rd party sourcing

More convenient and accessible stores• Stores open when customers want to shop

– Local hours to suit local needs – 400 more stores open on Sundays and Bank Holidays

• Building space on the Edge of Town– 23 new stores taking total to 112– 15% of space now EoT – LFL stores in second year show +22% sales growth

Modern infrastructure

• Renewal of IT infrastructure– New tills in all stores– 100 stores now have Radio Frequency technology– 3 of 4 SAP Backbone phases now completed

• Store friendly supply chain– 82% of lines delivered direct to shelf– Lower stock holding in store

• Lower cost base in Nottingham– 1/3rd fewer jobs in Head office– Manufacturing

Our journey….The

next phase

Modern,Competitive,

Efficient

TheHealth & Beauty

Expert

Too expensiveUnder invested

“Old” Boots

Building a Better Boots

The next phase – clear focus and priorities

ExpertCustomer

Care

Right Stores,Right Places

Boots for Value

Only at Boots

HealthcareFirst

Driving efficiency

• Continuous process

• Better buying– Collaboration with suppliers– Cross category sourcing– Far East

• Supply chain– Lower stock holding in store

Healthcare First

• Unifying feature, strong brand heritage

• 40% of sales, 50% of profits

• Strong long term growth opportunity

• Deregulation

• Increasing role for community pharmacy

• Electronic Transfer of Prescriptions

Only at Boots

• Market leading own brand beauty products– No7 – 17 will be re-launched this year

• Market leading own brand toiletries– Soltan 5*– Smile to be re-launched

• Range authority– Premium cosmetics

• Exclusives on new launches– 20% on sales from items less than 1 year old

Boots for value

• Continued investment in value– Mitigated by sourcing gains and own brand mix

• Strong, simple offers

• Great rewards from Advantage Card– 14m active card holders– Invitation events– Boots Parenting Club

Right stores right places

• More stores on the Edge of Town– Good growth potential– Modern stores– Low cost model

• London’s best health & beauty store– Layout– Signage

Expert customer care

• Trusted brand

• Expert people

• Differentiated, specialist offer

Summary

• Substantial progress against our plans

• BTC remains a successful and profitable business

• Challenging environment

• Building a better Boots

• The Health & Beauty Expert

Boots Group PLCPreliminary Results 2004/05

Boots Group PLCPreliminary Results 2004/05 -Appendices

Sales Performance by category2004/05

SalesSales

GrowthLFL

Growth

Health £1,863m 5.0% 4.4%

− Dispensing 6.1%

− OTC Medicines 3.1%

Beauty & Toiletries £2,055m 2.9% 0.9%

− Cosmetics & Fragrance 5.3%

− Toiletries 0.1%

Lifestyle £734m 3.7% 1.6%

− Food 5.2%

− Baby 6.8%

− Photo -8.0%

Aggregate spend on modernising BTC in 2004/05 vs Original Plans communicated with preliminary results 2004

Actual Original Plan

Year ended 31 March 2005 (£m)

Revenue Capital Revenue Capital

Modern

Convenience 27 8 19 7

Faster Pharmacy 8 11 12 21

Right Places 18 45 31 69

Right Stores 25 66 38 71

Competitive – Only at Boots 8 30 10 26

Efficient

Making IT Easy 23 54 26 45

Store Friendly Supply Chain 7 11 4 11

116 225 140 250

Increase in operating costs as a result of revenue spend on modernising BTC£m 2003/

042004/0

52005/0

6

Revenue spend (per slide 46 for 04/05)

• recurring costs 44 90 46

• one-off costs 18 26 14

62 116 60

Full year impact of PY recurring costs 17 61

PY one-off costs not recurring (18) (26)

Increase in operating costs 115 95

Analysed in slide 14 as:

• Existing stores/trading 45 40

• IT Infrastructure/tills 35 25

• New space/formats 35 30

115 95

Getting in ShapeC

um

ula

tiv

e S

av

ing

s

vs

20

02

/03

£M

Co

sts

in

th

e y

ea

r

£M

100

50

0

50

100

150

22

66

34

31

83

111

BHI

554920-

Cumulative Savings 2005/062004/052003/042002/03

5

BTC – Operating costs

BTC – Cost of goods 35217-

21134-

Incremental Effect of Getting in Shape on PBT

£m 2004/05

2005/06

Getting in Shape Costs & Savings (from slide 48):

Costs incurred in the year (34) (5)

PY costs not recurring 66 34

Incremental savings 52 28

Incremental Effect on PBT vs PY 84 57

Analysed as:

• BTC – Operating costs (included in Productivity / GIS on slide 14)

64 19

• BTC – Cost of goods 14 14

• BHI 9 8

• Group & other / exceptional (3) 16

84 57

Implications of IFRS

• First IFRS reporting H1 2005/06

• Detailed impact to be provided in July

Balance Sheet at 31.03.05

OperatingProfit 04/05

£m

Assets£m

Liabilities£m

Net Assets

£m

IAS 19 Pensions (117) (19) (136) (18)

IAS 17 Leases 46 (57) (11) 5

IAS 12 Deferred Tax 61 (65) (4) -

IAS 10 Proposed Dividends

- 150 150 -

Other 4 1 5 2

Total Impact (6) 10 4 (11)