Boots plans £1bn drug arm sale

HEALTH and beauty retailer Boots is to sell off its over-the-counter medicines arm in a move likely to raise more than £1bn, most of it to be returned to shareholders.

News of the move came as chief executive Richard Baker issued another profits warning, this time for the current year, on the back of lower consumer spending and increased costs.

This latest profits alert comes just a month after Boots shocked the City by warning that profits at the core Boots the Chemist chain would fall some £30m short of expectations for the year just ended, citing a 'dramatic slowdown' in consumer spending.

He confirmed today that he expects the business to make £470m operating profit in 2004/05. For the group, the pre-tax, pre-exceptional profit will be £475m, also in line with the lower forecasts.

Now Baker says operating profits will also be hit in the current year, as sales growth remains subdued. Underlying sales for the final quarter of 2004/05 were ahead by 0.7% and Baker says he expects them to fall in a range of 0% to 2% this year.

There was some good news on margins. They are estimated to have fallen by 80 points in the year just ended, better than had been expected. The position will be broadly stable this year, Baker says, leaving room for continued price reductions.

Selling Boots Healthcare International, which is behind brands such as Strepsils, Nurofen and Clearasil, will allow the group to concentrate on reviving the core health and beauty business, Baker said. 'It's a good business and has been very successful but we need to focus on the re-engineering of Boots the Chemist and the disposal will allow us to do that.'

Sales on the healthcare side rose by almost 6% last year and its profits are expected to be slightly ahead of market expectations at about £85m.

Baker expects keen interest from potential buyers and that a deal will be finalised by the end of the year.

He said a significant proportion of the proceeds would be returned to shareholders, who have already been handed back about £1.7bn over the past three years.

The group also plans sale and leaseback deals on 300 smaller stores in a move likely to raise about £250m. The proceeds will be used to cut borrowings.

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BOOTS Healthcare International has been overshadowed by the retail side but is one of the fastest-growing self-medication companies in the world, behind brands such as Nurofen, Strepsils and E45.

It also owns the Clearasil acne treatment brand, which it bought from Procter & Gamble in 2000. The business has grown on the back of product development and the increasing trend towards over-the-counter medicines and treatments.

BHI employs more than 2,000 people worldwide and its products are sold in 130 countries. Profits have risen from £50m to more than £80m over the past four years and the business has 'significant potential', says Boots.