Boots to invest in pharmacies, 2,250 jobs to go

British health and beauty retailer Boots Group Plc will cut up to 2,250 jobs as it revamps its pharmacies and supply chain, the company said yesterday.

The cuts will come as Boots invests £250 million of the proceeds of its £1.9 billion sale last year of Boots Healthcare International (BHI), seeking to streamline its distribution network.

Boots, which has been given provisional clearance to acquire drugs distributor and retailer Alliance UniChem Plc, said in a statement that 700 of its smaller stores would receive substantial investment.

"Our small stores have been under-invested. We remain committed to local High Streets and to providing healthcare services wherever our customers want them," chief executive officer Richard Baker said.

As part of the three-year investment, Boots is to invest £70 million on a new automated warehouse in the English midlands city of Nottingham, where it has its headquarters.

The supply chain revamp will reduce stock holding, improve productivity and cut property costs, but will also eventually result in 2,250 job losses - the impact of which the company hopes to reduce through natural wastage and retraining.

Effectively, all of the cost of the investment will be taken from the £400 million already earmarked from the BHI sale. Of the remaining £1.5 billion, £1.4 billion has already been returned to shareholders. Consequently, the announcement should not affect analysts' pretax profit forecasts of around £380 million for the current year, a Boots spokesman said.

The changes to the supply chain and lower IT expenses will remove around £60 million of annual operating costs by 2010/11, it said, weighted towards the later years of the project - no savings are expected in the 2006-7 financial year.

The total cash cost of the changes would be £250 million, with a further £45 million of asset write-offs, the company said.

The capital investment would be about £120 million, with the first £50 million taken in 2006-7 and the remainder over the following three years.

In addition there will be what Boots called "revenue costs" of some £90 million taken in the current financial year, and a further £40 million in revenue costs to be taken over the following four years.

"These projects are independent of, but complementary to, the proposed merger with Alliance UniChem. The benefits of these changes are incremental to the £100 million synergy benefits previously identified as resulting from the proposed merger," Boots said.

The company said it had completed its IT infrastructure renewal programmes with IBM and Xansa and that contracts would be revamped to deliver lower costs in time.

Boots shares were up 1.7 per cent at 724-1/2 pence by 0953 GMT to value the business at £3.5 billion.