The parent company of UK-based health & beauty retailer Boots has today reported a full-year 12.4 per cent rise in headline trading profit after a decent performance in its domestic market.
Alliance Boots revealed that in the year ending March 31st 2012 its total revenue grew by 18.4 per cent to reach £23 billion, helping its underlying profit after tax to total £693 million.
Total profits for the year actually fell to £572 million from the £615 million figure recorded in the previous full-year period, although this decline incorporates the losses made at its Russian business of which it sold 51 per cent of its share at the end of the period.
Stefano Pessina, Executive Chairman of Alliance Boots, commented: “Alliance Boots has again delivered double digit growth in trading profit while at the same time generating a strong operating cash flow to fund investment in growth and substantially reduce net borrowings.
“In the coming year, we expect the economic environment to remain difficult with continuing pressure on both consumer and governmental expenditure. This will generate both challenges and new opportunities for us.”
In the UK, Boots stores performed fairly resiliently despite the squeeze on consumer finances, particularly in its retail category where like-for-like sales rose 0.5 per cent year-on-year.
UK revenues related to dispensing income declined 1.6 per cent over the year however, meaning overall Boots sales fell 0.2 per cent in total and slipped 1.1 per cent LFL in the year.
Boots was hit by reductions by the government in generic reimbursement prices in its dispensing division, and a reduction in the number of ailments suffered by consumers over the winter months was blamed by the retailer for poor sales of off-the-shelf cold & cough medicines.
Matt Piner, Lead Consultant at retail analyst group Conlumino, suggests that in general Boots will be pleased with it performance considering the difficult trading conditions and also the increased competition from grocers and other competitors.
He suggests that the retailer would be rightly concerned though with the seemingly innocuous decline in its lifestyle division revenues of 0.1 per cent over the period, which may signal the need for a strategic overhaul.
“On its own this is not a particularly significant fall; but with products including photography and electrical beauty, the concern should be that this represents the beginnings of a longer term decline for the category,” Piner explained.
“For many of its ‘lifestyle’ products Boots lacks the range, store environment, specialist credentials and often price competitiveness of its rivals. Therefore, as overall demand slows, the worry for Boots is that it will find itself as the ‘soft spot’ that most feels the squeeze.”
Across its health & beauty division trading margin rose for the firm by 0.6 per cent both in the UK and internationally, while trading profit increased 5.2 per cent domestically and 14.5 per cent overseas.
Over the period Alliance Boots spent £262 million on capital expenditure, primarily on its retail stores, and the group has suggested that significant investment in international expansion will continue this year.