Boots Group PLCInterim Results 2005/06

27th October 2005

Sir Nigel RuddChairman

Richard BakerChief Executive

Agenda

• Overview Richard Baker

• Financial Review Jim Smart

• Operational Review Richard Baker

Performance headlines

• Continued sales growth in a tough retail market– BTC sales +1.1%– Continued progress in key health and beauty markets

• Dispensing volumes +5%• Beauty sales +7%

• Delivered against targets for margin, cost and working capital

• Group trading profit £163m, down 9.6% reflecting the cost of continued investment

• Interim dividend agreed at 9.1p

2 years of progress

• Strong retail brand operating in growth markets

• Significant progress towards a modern, competitive and efficient business– Prices re-positioned– 40 more stores EoT– Extended opening hours– New tills in all stores– Store friendly supply chain– One third less jobs in head office

Building a Better BootsThe

Health & BeautyExpert

Transforming the Group

• Proposed sale of BHI enables full focus on core chemist chain– Delivered full proceeds of £1.926bn– Stronger balance sheet – 200p special dividend for shareholders

• Proposed merger with Alliance UniChem accelerates our plans– Creates Europe’s leading pharmacy-led healthcare group

• Step change in UK pharmacy presence with 2,600 outlets• Pan-European buying scale

– Enhances international growth opportunities– Delivers substantial cost savings

Jim SmartChief Financial Officer

Group results

6 months to 30th September 2005 (£m) SalesTradingProfit

Boots The Chemists2,19

6 +1.1% 164 -18.6%

Boots Opticians 83 -10.5% (5)

Boots Retail International 28 +13.3% (2)

Boots Healthcare International 265 +8.5% 47 +28.1%

Group & other 22 +8.2% (24)

Group sales and trading profit2,59

4 +0.8% 180 -10.0%

Net financing costs (17)

Trading profit after financing costs 163 -9.6%

Group results

6 months to 30th September 2004 2005

Other operating income and expenses £1m

£147m

Effective tax rate 32% 9%

EPS - Underlying 17.1p 16.1p - 5.8%

Dividend per share 9.1p 9.1p

Share repurchase £178m £50m

Boots The Chemists

-18.6%164202Trading profit

-30bpGross margin movement

-1.3%+1.1%2,1962,171Sales

Like for Like

2005£m

2004£m

6 months to 30th September

-180bp

• PPRS deflation reduces reported BTC sales growth by 1.3%

+6%+12%Operating costs

BTC transaction numbers

£8.83Average Transaction Value

+3.1%− Growth

+0.5%− Total

-1.8%

2005

− Like for like stores

Counter Transactions growth

6 months to 30th September

Footfall -2.9%

Continued progress in Health

• Sales up 0.6% to £936m

• Dispensing volume +5.1%, in line with the market

• Dispensing sales value +0.3%– Price deflation

• PPRS reduces sales by 4.7%, annualises in Feb ’06• Generics reduces sales by 1.2%, annualised in Sept ’05

– New contract neutral in H1

• OTC healthcare sales +1.0%– Good growth in vitamins offset by lower hayfever sales

Continued progress in Beauty

• Beauty and Toiletries sales up 3.3% to £923m

• Beauty sales up 7.3%– Successful investment in own brands and new beauty halls– Premium brands +9%– No7 +12%

• Toiletries sales up 2.9%– Successful investment in own brands and

strong promotional support– Suncare +16%,– Skincare and Dental strong

• Electrical products down 5.9%

Difficult H1 for Lifestyle

• Sales down 2.8% to £337m

• Baby sales +5.3%– More space– Extended ranges

• Food sales -3.9%– Atkins launch in the comparative– Q2 London disruption

• Photo sales -10.2%– Gaining share in declining market– Continued growth in digital

Major changes in Boots Opticians

• Sales down 10.5% to £83m

• Driving efficiency through integration into BTC– Short term disruption

• Difficult market conditions– Affected by slower consumer spending

• Market expected to remain tough in H2– Contact lens deregulation

Group cash flow

6 months to 30th September 2004£m

BTC stock cover (wks)

2005

£m

BTC stock cover (wks)

Trading profit (before financing costs)

197

180

Working capital (280)

14.7 (29) 12.6

Capital expenditure (140)

(100)

Depreciation 79 92

Taxation and other items (59) (59)

(203)

84

Disposal of fixed assets - 296

Net cash flow after investing activities

(203)

380

Disposal of BHI

• Proposed sale to Reckitt Benckiser plc for £1.926bn, to be completed during early 2006

• £1.43bn (200p per share) to be returned to shareholders by special dividend

• Consolidation of shares to maintain comparability of share price and EPS

• EPS enhanced by the disposal

• £400m to be retained to strengthen the balance sheet and for future investment

• Long-term commitment to manufacturing in Nottingham – No adverse impact on Group costs

Balance Sheet

• Financial objectives– Strong investment grade debt rating– Adequate cash and earnings cover to dividend

• Position at 30th September 2005– 713m shares ranking for dividend – Net debt £500m, a decrease of £143m

• Position post BHI disposal– Zero year end net debt on balance sheet– Ongoing financing charge still expected– Capitalised operating leases of £1.5bn

• Property position post sale & leaseback– Remaining freeholds - 100 prime retail sites plus non retail property– NBV £400m, estimated market value at 31st March 2005 £650m

Richard BakerChief Executive

Clear priorities for BTC

ExpertCustomer

Care

Right Stores,Right Places

Boots for Value

Only at Boots

HealthcareFirst

Healthcare First

• Our biggest business– 40% of sales, 50% of profits– 100m scripts p.a.– The biggest category all year round

• A strong and growing market

• A key focus for investment– Smartscript in all stores– Additional capacity to serve care homes– Dispensing sales volume +5%

HealthcareFirst

A strong and growing market

• Demographic trends– Greater life expectancy, people older

for longer

HealthcareFirst

Source: ONS

90

95

100

105

110

115

120

125

130

135

1976 1986 1996 2006 2016

Po

pu

lati

on

19

76

=1

00

Total population Over retirement age Forecast Forecast

A strong and growing market

• Demographic trends– Greater life expectancy, people older

for longer

• Continual advances in treatment– Significant area of investment

• A priority for government– Healthcare spending as % of GDP

• 1997/98 4.2%• 2006/07 6.5% (Plan)

– New contract

HealthcareFirst

Source: ONS

9095

100105110115120125130135

1976 1986 1996 2006 2016Po

pu

lati

on

197

6 =

100

Total population Over retirement age Forecast Forecast

Growing our pharmacy business

• Improving convenience– 31 new pharmacy contracts– Boots.com

• Improving service– PCS– Care homes service– New contract services

• Improving efficiency– New pharmacy operating model– Professional time freed up for patients

HealthcareFirst

A changing role…

• New pharmacy contract– Funding shift to fees and services

• Enhanced services– Incremental funding from new sources– E.g Chlamydia testing

• Patient Group Directions– Private dispensing unique to Boots– E.g. Boots Weight Loss Programme

• Electronic Transfer of Prescriptions

• Significant change…significant opportunity

HealthcareFirst

Building differentiation

• Major own brands relaunched– No7, No1 cosmetic brand , +12% in H1– 17 +13% since relaunch

• Soltan 5* is the market leader

• New exclusive brands in store– Elle McPherson– Ted Baker

Only at Boots

Strong growth in Beauty

• Growing and attractive market– selected distribution– high service element

• Key area for investment– 28 new premium brands in 20 stores– 10 new beauty halls– new fragrance cabinets in 40 stores

• Beauty +7%– Cosmetics +13%– Fragrance +3%

Only at Boots

Committed to value for money

• Continual focus on fair prices– 700 lines reduced by 11%– 200 new price reductions in Baby

• Promotions to inspire impulse purchases– Xmas Mix’n’match 3for2

• Full range of price points– Gifts for all– More Xmas gifts at lower price points

• Biggest and most generous loyalty card– Baby club

Boots for Value

Clear property priorities

• Continue to add space on edge of town– 7 new Edge of Town stores– New stores +2.4% sales in H1

• Drive large store profit intensity– Reduce cost of unproductive space– Property solutions where possible

• eg. Brent Cross – Long term planning

• Bring small stores up to standard

Right Stores,Right Places

Expert customer care

• New uniforms for all Boots people in store

• Professional care and advice– 2,000 pharmacists in training for

Medicine Usage Review – 150 Accuracy Checking Technicians– 300 more trained Healthcare Assistants

• “Trust” based advertising

ExpertCustomer

Care

Driving efficiency

• Delivering against £70m productivity target– Store friendly supply chain– Continued benefit of Head Office reductions

• Better in store operations– New till based management information

• Further buying gains supporting margin– More Far East sourcing for Xmas– eAuctions for own brand products– Advanced negotiation training

Summary

• Two major transactions to transform the business

• Health and Beauty focus continues to deliver strong results

• Delivery against gross margin, productivity and working capital targets

• Good progress against clear priorities to build a better Boots

• Commitment, discipline and focus

Boots Group PLCInterim Results 2005/06