Profits surge in 'Transformational Year' for Alliance Boots

Date : 15 May 2013
Executive Chairman Stefano Pessina has hailed 2012/13 as a 'transformational year' in Alliance Boots' newly released annual report. Though group sales slipped slightly to £22.4 billion (-2.6%), trading profit was up by 6.1% to £1.3bn in the year to March 31st. Underlying profit surged by 12.7% to £805 million, lifted by strong performances by both Health & Beauty (+6.8%) and the pharmaceutical wholesaling division (+5.1%) together with a group-wide push to deliver operational efficiencies.

Here are our Top 5 takeouts from Alliance Boots results and priorities going forward.

1. Range differentiation is key

Innovative product launches, such as the No7 'Foundation Match Made Service' - a system that helps shoppers find the right foundation shade for their skin tone, have clearly benefited the business. R&D in anti-ageing technologies also presents much potential for new product launches. The business will also continue to work with branded suppliers to develop the 'Exclusive to Boots' initiative.

2. Strengthening the multichannel offer

Boots is committed to making its products and services much easier to access and over the next year, we expect to see a number of exciting developments announced, including new mobile applications. The Boots WebMD service will become more important as demographic changes and social pressures drive demand for increased healthcare information and services. Boots is also preparing to fulfil online orders outside the UK for the first time.

3. New stores in established markets

Boots will continue to open new stores in markets where it has an established presence. We expect to see further openings in the Ireland, the Middle East and Thailand where the company has announced an additional 30 stores bringing the total in the market to 257. It will also continue its programme of refurbishments to selected stores in the UK. As pharmacy deregulation permits, we expect to see Boots enter new markets.

4. Taking Boots brands to new markets and channels

One of the key benefits of the relationship with Walgreens, is the opportunity to introduce Boots retail brands into Walgreens stores. When the No7 range was launched in the Hollywood flagship store, the brand benefited from having its own aisle in store supported by a team of No7 consultants to help and guide shoppers through the range. But Walgreens is not the only channel for Boots products in international markets. Boots brands are now sold through 1,770 Target stores across the US, and in selected Mannings drugstores in Hong Kong, via its partnership with Dairy Farm.

5. Investing in pharmaceutical wholesaling and distribution

This is a key division within the business and has helped enable Alliance Boots become a global health and wellness company. The business will continue to focus on providing excellent customer service to pharmacies. As the needs of the sector change, so too, will the business model to ensure that increased demands are being met. The business will continue to differentiate its product offering and we expect more new markets to be entered.

Stefano Pessina, Alliance Boots' Executive Chairman, is known to want success in Asia that isn't possible without a major deal in China. The company has already bought a 12% stake in Nanjing Pharmaceutical Company, China's fifth largest pharmaceutical company, and a similar deal could well be on the agenda later this year. In addition, the signing of a distribution deal with Amerisource Bergen in America, should hasten progress towards an integrated supply chain, linking distributor and pharmacy in a move that will drive down costs and improve availability.

Relationship with Walgreens will change the face of Alliance Boots

There is a lot of activity taking place inside the both Alliance Boots and Walgreens as both business seek to deliver the synergies and cost benefits demanded by investors. We also expect to see a considerable amount of knowledge transfer especially from the UK business. The strategic relationship with Walgreens is something Alliance Boots is very proud to be a part of, and all eyes will be watching new developments come to fruition as the year progresses.

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