| Boots profits down 10% due to increased costs, high street slump |
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LONDON: Health and beauty products retailer Boots Group PLC reported a 10 percent drop in first half earnings blaming the decline on a £45m increase in operating costs, the slowdown in consumer spending and new accounting rules.
The group announced profits before tax at £163m for the six months to September 30, marking a 9.6 percent drop year-over-year. Comparable sales at its Boots the Chemist chain was lower by 1.3 percent while international sales had risen 13.3 percent. A break-up of the results showed a 2.8 percent drop in the lifestyle department’s sales while beauty and toiletries sales had risen 3 percent.
The retailer had invested £45m in revamping its 1,400-strong ‘Boots the Chemist chain.
Boots’ chief executive Richard Baker pointed out that six monthly comparable sales have grown at a slower rate than was planned for the full year. Referring to the continuing slump on high street, he said the company expected market conditions “to remain similarly tough through the rest of the year”.
The drugs retailer had earlier this month announced plans to merge with Alliance Unichem next year in a £7bn ‘merger of equals’ deal. The merger is expected to create a pharmacy giant – the largest drugs retailer and wholesaler in the UK - with a total of around 2,600 stores and a combined sales of £13bn.
Boots would gain from Alliance’s successful overseas presence and distribution network while the latter would benefit from Boots’ high street sites.
The merger is yet to receive an approval from both companies’ shareholders whose doubts have been reflected by analysts. Analysts say both the companies have not factored the increasing competition from supermarkets whose merchandise now includes drugs. This competition has contributed to the slowdown in overall sales.
Shares of both companies have been largely on a decline since the announcement in the first week of this month, suggesting doubts about the merger’s prospects. However, Baker expects shareholders to wave the green flag soon because he believes they have “started to get much more focused on the industrial logic” behind the deal and are trying “to understand the possibilities it creates”, he said.
As part of the overhauling effort the company, Boots will sell its Healthcare International division the OTC drugs maker to Reckitt Benckiser for £1.9bn.
Posted
on : Thu, 27 Oct 2005 18:50 GMT | Business News
By : Pippa Fielding
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