Boots’ operating profit for the year ending August 31, 2018 was £391 million, a £112m drop from the £503m recorded for the previous 12 months, the multiple said in its annual report published last Friday (May 10).

It recorded overall profits of £317m in 2018, a fall of 18.3% compared with 2017, while revenue fell 2.3% to £6.8bn.

The health and beauty giant explained in its report that its pharmacy sales and profits are impacted by category M clawbacks and the government “seeking to minimise increases in the costs of healthcare”.

Last month, Boots’ parent company Walgreens Boots Alliance said it would take “immediate action” in the UK – including a “store portfolio review” – to address financial results “much weaker than expected”.

In February, the multiple announced it was cutting up to 350 head office roles, in a bid to reduce costs by 20%.

Mitigating risks

Boots used its report to identify potential future risks to the company, including “changes to licensing regimes for pharmacies, prescription processing regimes or reimbursement changes”.

To mitigate the adverse effects of regulation changes, Boots said it seeks “active involvement in policy-making processes, understanding and contributing to government thinking on regulatory matters and building relationships with regulatory bodies, directly and through representation in relevant professional and trade associations”.

Boots could also be “adversely impacted” by “allowing infiltration of counterfeit products into the supply chain, errors in relabelling of products and contamination or product mishandling issues”, it said in the report.

However, the multiple has “specific controls for the identification of counterfeit product[s]”, “a rigorous governance framework” in all its pharmacies and “regular dispensing compliance reviews to ensure individual pharmacies follow approved processes”, it added.