Beauty products and cuts boost Alliance Boots

10/06/2008 15:16

By Mark Potter

LONDON (Reuters) - Cost cuts and sales of its No7 cosmetics helped Alliance Boots, Britain’s biggest pharmacy chain, to defy a consumer downturn and post a 20 percent profit rise in the year of its move to private equity ownership.

Profit before one-off items, goodwill and associates reached 771 million pounds in the year to March 31 on a 4.8 percent rise in revenue to 15.3 billion, though after finance costs there was a pretax loss of 64 million.

In its core market, like-for-like retail revenue, which excludes its drug dispensing operations, rose 5.7 percent, boosted by strong demand for the No7 brand, led by its Protect & Perfect Beauty Serum range.

The company 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 whose net debt was 8.7 billion pounds.

KKR and Pessina’s 11 billion pound purchase of Alliance Boots last June 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 pharmacy chain Boots and pan-European drugs distributor Alliance UniChem. It runs 3,200 shops and 370 warehouses delivering drugs to 135,000 doctors and hospitals across Europe.

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The banks that provided around 9 billion pounds of funding for last year’s acquisition have struggled to sell on the debt since the credit crunch struck last summer, but Pessina said this had not affected the running of the business.

SO FAR SO GOOD

He was also upbeat on trading prospects as the company benefits from its founding merger and a revamp of its pharmacies, despite a downturn in UK consumer spending.

"There is a clear slowdown, but for the time being we are able to compensate (for) it," he told reporters on the sidelines of a news conference. "If I have to judge from the last two months, so far so good. We are for the time being quite well up."

Pessina, the billionaire founder of Alliance UniChem, said being a private company had helped by allowing it to speed up decision making and invest for the long term.

The group’s robust performance contrasts with the difficulties being experienced by many British store groups as indebted shoppers cut 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 said it made 68 million pounds of savings during the year and invested 285 million pounds, not including 184 million pounds spent on acquisitions.

Pessina said the company would continue to invest, though he declined to say how much, with the focus on converting Alliance UniChem community pharmacies to the Boots brand.

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