Beauty products and cost cuts boost Alliance Boots

10/06/2008 12:36

By Mark Potter

LONDON (Reuters) - Cost cuts and strong sales of its No7 cosmetics brand helped Alliance Boots, the country’s biggest pharmacy chain, to defy a consumer downturn and post a 20 percent rise in profit in its first year as a private company.

The firm said its new owners, private equity firm Kohlberg Kravis Roberts and Executive Chairman Stefano Pessina, would forego a dividend in order to continue investing in the business and that it was moving headquarters to Switzerland to sit alongside other international healthcare groups.

KKR and Pessina’s 11 billion pound purchase of Alliance Boots in June last year was Europe’s biggest leveraged buyout deal and the first time a FTSE-100 company had been taken over by a private equity firm.

A year earlier, the group was created from the merger of British pharmacy chain Boots and pan-European drugs distributor Alliance UniChem.

"Since our year end, the group has continued to perform well," Pessina, the billionaire founder of Alliance UniChem, said in a statement on Tuesday. "We remain confident about our prospects for the year ahead, despite the weaker outlook for overall consumer spending in the UK."

Alliance Boots, which runs 3,200 shops and 370 warehouses delivering drugs to about 135,000 doctors and hospitals across Europe, said it made profit .....continued below

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before one-off items, goodwill and associates of 771 million pounds in the year to March 31.

Revenues rose by 4.8 percent to 15.3 billion pounds, including a 1.9 percent increase in like-for-like revenues.

PROTECT & PERFECT

In the UK, like-for-like retail revenues, which exclude its drug dispensing operations, rose by 5.7 percent, boosted by strong demand for the firm’s No7 cosmetics and skincare brand, led by its Protect & Perfect Beauty Serum range.

The robust performance contrasts with the difficulties being experienced by many British store groups as indebted shoppers cut back spending amid rising food, fuel and mortgage costs.

The British Retail Consortium said earlier on Tuesday that like-for-like UK retail sales rose 1.9 percent in May, while the country’s biggest retailer, supermarket group Tesco , said its like-for-like sales, excluding fuel, rose 3.5 percent in the 13 weeks to May 24.

Alliance Boots Finance Director George Fairweather told Reuters the company was continuing to benefit from its founding merger, making 68 million pounds of savings during the year.

He said capital spending was 285 million pounds last financial year, not including 184 million pounds spent on acquisitions, and that the firm would continue to invest heavily.

He declined to say how much it would spend this financial year, but said the focus would be on converting Alliance UniChem community pharmacies to the Boots brand.

Fairweather said the government’s taxation policy, which has come under fire from many businesses, played little part in the decision to move headquarters to Switzerland.

(Editing by Sue Thomas, Elizabeth Fullerton)

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