A new coat of polish

27 May 2004

This big present to shareholders seems designed to reassure them that Boots is still gushing cash despite March’s shock profit warning. It is also aimed at buying newish CEO Richard Baker time to deliver a turnaround of the lacklustre group. He’ll certainly need it.

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Boots has announced that it plans to buy back up to £700m of its own stock over the next two years. The UK retailer wants to buy back £350m this year. The remaining half will depend on its performance and cash generation. Boots bought back £260m of its own shares last year and distributed dividends for £230m last year. Its net debt at yearend was £149m, on a market capitalisation of over £5bn.

Boots also said that it expects sales at its core Boots The Chemist business to grow by about 4.5% and operating margins to fall by about 1% this year. This implies operating profits will be lower in 2004 than they were in 2003. The retailer said that it expects sales growth to speed up in the following year, and gross margins to stabilise.

Boots shocked the market last March by announcing that it was going to invest £145m in improving revenues next year, £75m more than this year. It also said that its gross margin would be 1% lower than this year. It plans to take a £40m pensions charge, and said capital expenditure would increase to £250m. The shares fell by 13% on the day of the announcement.

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