“Transformational” is how Stefano Pessina describes Alliance Boots’ latest year of trading, with the 72-year-old executive chairman of the company now on track to turn it into the global business that he has always wanted to create. Things have certainly changed since Jesse Boot opened his first store in Nottingham in 1849, selling herbal remedies. The group now has 3,100 shops as well as 370 pharmaceutical distribution centres in more than 25 countries. This combination of retail and wholesale operations came about in 2006 with the merger of Boots Group and Alliance Unichem, the European pharmaceuticals company built by Pessina. A year later, he led a record-breaking £11bn deal that took Alliance Boots off the stock market, with funding provided by the private equity firm KKR and a consortium of banks. Although 2012-13 sales dropped slightly to £22.4bn, profits (before interest payments, tax and depreciation) rose by 5% to £1.5bn. Net debt was reduced by £1.1bn to less than £6bn. Growth in the UK was driven by sales of health and beauty products in its shops. Both the No7 and Botanics ranges benefited from brand makeovers. An increase in the sale of non-prescription medicines was partly due to more people catching colds. Boots Opticians continued to grow, and in February the company took a 49% stake in Sonova, which runs Boots’ 390 hearing care practices across the UK. The company’s pharmaceutical wholesale division accounts for nearly two-thirds of overall revenue, supplying healthcare products and services to 170,000 pharmacies, doctors, health centres and surgeries in 20 countries. It faces a number of challenges, however, as manufacturers begin to bypass distributors, taking their products direct to pharmacies. The UK accounts for 40% of group revenue, but Pessina is looking to emerging markets such as China to deliver future growth. The company already owns 50% of the Chinese pharmaceutical wholesaler Guangzhou Pharmaceuticals and last September it took a 12% stake in Nanjing Pharmaceutical. America also looms large in the company’s plans. Last year Pessina struck a deal with the Walgreens drugstore chain in which the American company acquired 45% of Alliance Boots for £4.2bn with the option to buy the other 55% by 2015. The partners cemented their relationship by striking a deal in March with the American pharmaceutical wholesaler AmerisourceBergen that will help the trio cut costs and drive expansion, with Pessina identifying Latin America as a target market. As Alliance Boots goes global, and with its headquarters in Switzerland, the group may start to feel distinctly less British. A £30m restructuring of its contract manufacturing business will lead to the loss of about 200 jobs in Nottingham, the old home of Boots. However, more than 8,000 staff will still be employed there, and the company insists investment in the UK is part of its global strategy.
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