Boots sees profits soar through the £1bn barrier

Alliance Boots reported annual profits of more than £1bn yesterday, becoming one of only three UK retailers to achieve the feat, but the privately owned pharmacy chain also warned that consumer demand across Europe is likely to remain muted for at least the next year.

The group, owned by the US private equity firm Kohlberg Kravis Roberts, said that trading profits for the year to the end of March reached £1.1bn, a 12.7 per cent increase on the previous year's results. Full-year pre-tax profits jumped to £475m, from just £13m last year. Only Tesco and Marks & Spencer in the retail sector have managed annual profits in excess of £1bn.

The high-street chain, which employs 75,000 staff in its 2,500 shops in the UK, pointed to its retail division, where revenues jumped by 5.2 per cent on a like-for-like sales increase of 3 per cent, as key reason for the impressive overall numbers. Profits in the division jumped by 8.5 per cent, to £730m.

Like last year, when the company also reported strong earnings despite the recession, Boots hailed the performance of its No 7 beauty range.

The company said that its pharmaceutical wholesale unit, which was known as Alliance UniChem before the merger of the two businesses, also helped the group's performance. The unit reported a 17.2 per cent profit increase, after a 10.3 per cent rise in revenues.

Andy Hornby, the company's chief executive, said: "Given the economic environment, this is very creditable performance. I think that the results certainly justify the decision to merge the two businesses three years ago."

The highly leveraged deal that saw KKR take control of the company was hugely controversial. The banks backing the deal struggled to sell about £11bn of leveraged loans in 2007 as investors got the first whiff of what later became the credit crisis. Boots yesterday said net borrowing had fallen by £645m to £8.39bn.

Typically private equity firms seek to offload investments between three and seven years after taking companies private. Mr Hornby declined to comment on when KKR may wish to sell the company, either to a rival or through an initial public offering (IPO), but stressed that the debt that backs the company does not need to be refinanced for at least five years.

The figures are the third set of annual results published since the former FTSE 100 group was taken private in the biggest-ever leveraged buyout in Europe.

"Since taking the company private, this is our third consecutive year of double-digit trading profit growth. Having invested more than £1bn over the period, we are confident that we are building a platform for sustained long-term growth," said Stefano Pessina, Boots' executive chairman.

Despite the strong numbers, Mr Hornby said that Boots, and other retailers, were facing another difficult year as governments across Europe impose stringent cuts on the public sector. He says, however, that the group is in a strong position, arguing that demand for its products have withstood the downturn.