Q1 2021 Walgreens Boots Alliance Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Walgreens Boots Alliance, Inc. First quarter Twentytwenty One conference call. At this time all participants are in a listen only mode. After this speaks for presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone we ask that you. Please limit your questions.
Two one. Thank you. Please be advised that todays conference is being recorded if you're acquiring for their assistance. Please press star zero I would like to now hand, the conference over to your speaker today, Gerald Gradwell Senior Vice President of special projects and Investor ratio Relations. Please go ahead.
Good morning.
Welcome to our earnings call for the first quarter earnings for fiscal year 2021.
For Mccall with me today, Stefano Pessina, our executive Vice Chairman and Chief Executive Officer of Walgreens Boots Alliance.
James key global.
Global Chief Financial Officer on.
Good day growth.
Chief operating officer, Walgreens Boots Alliance.
Before I hand, you over to Stefano to make some opening comments I will as usual take you through the legal safe Harbor and cautionary decorations.
Certain statements and projections of future results made in this presentation constitute forward looking statements for the based on our current market competitive and regulatory expectations.
Subject to risks and uncertainties that could cause actual results to vary materially.
We undertake no obligation to update publicly any forward looking statement. After this presentation, whether as a result of new information future events changes in assumptions or otherwise.
Please see our latest form 10-K, and 10-Q for a discussion of risk factors as they relate to forward looking statements. A note in particular that these forward looking statements may be affected by risks relating to the spread an impact of the cobot pandemic.
In today's presentation, we'll use certain non-GAAP financial measures.
We refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information.
You will find a link to the webcast on our Investor Relations website at Investor Day, both Walgreens Boots Alliance Dot com.
Art this call the presentation and webcast will be archived on the website for 12 months.
Before I pass you on to Stefano Theres one change in definition, we use in today's earnings I would like to draw your attention to.
Moving forward comparable retail sales are now inclusive of our digital initiated sales as we believe this more adequately reflects our global omni channel retail strategy.
The full definition, an historical restatements can be found in the appendix tables for this presentation or in our 10-Q to be far latest day.
I will now hand, you over to Stefano.
Thank you Jay and welcome everyone.
We are delighted to be announcing a stock equity financially EPS is better than we had initially expected.
As you all are well aware.
Good day market the FC many ups and downs for over the past month.
Without commenting caving, causing infections in recent weeks.
Things have once again proved more challenging.
In this difficult conditions.
I am pleased to say, we have adapted well.
For their continued dedication of our people and as a result of war cutting investment that we have undertaken NVS NTS, Maine.
The improvements we have made up for this key infrastructure processes and systems in our businesses.
Is that effect in these cuts out.
The continued that effort to contain the spread of devices FC net valvoline passes globally at play for this three chance on populations and communities.
People have had to adjust to life under these new conditions, but.
Both in terms of day ahead at retail.
The availability of vaccinations at to provide a community with an element of protection from the volume.
We read outs in a return to more normalized social activity.
The coffee sales Walker, we have down there to build our capability to offer healthcare services via pharmacy is highlighted by their associates, we are able to bring to bear but.
Particularly in the USA to support the government initiative for provision of both Colby testing.
Vaccination for customer identification and co diamond told to scheduling, providing the service and offering a comprehensive for Rob.
The pandemic has demonstrated very clearly the importance of our one of our key strength.
In being a convenient health care provider.
In the heart of the community.
Our capabilities in this area.
Have been significantly enhanced by the investment that we have made to date index celleration of our digital strategy and expansion of our healthcare services.
We have come for the day time fast fracture of our businesses.
And combined it with announcement in our fulfillment capabilities.
As of assets, we now provide a modern and flexible customer offering.
That is both multi channel and a truly personalized service.
Total dynamic we have also materially improve the capacity of our systems.
Good day, a sizable amount of our business is transacted digitally.
Fulfilled by a pickup Ada in store I had to try to.
Via growth site collection for home delivery.
In the months to come you will hear a lot more for us about.
About our new digitally enabled products and services.
As we continue to invest in accelerating our program to update to our customer offering infrastructure and fulfillment capacity. We also continue to look at how we best focus our resources and assets to the greatest effect.
You have seen this clearly in some of our recent announcement.
We have just announced a significant transaction with our longstanding partner amerisourcebergen to sell them.
Our international healthcare distribution business Alliance healthcare.
This is a great transaction for both businesses.
Debt with high growth for each company without losing any of the benefits we have Deleveraged Ltd from our work together.
It significantly enhances the Rangers call for SK.
Of RBC snack flow.
In what is increasingly a business sales or even the by scale and reach.
While our alliance healthcare there was always a very important part of our company our focus must be on delivering against for the significant opportunity for we have in our retail pharmacy business.
The transaction positions Alliance healthcare Sq path of APC, a company dedicated to and focused on it and.
Our business and it's too expertise.
For that will be a relative both manage and time at facilities.
Which can be focused on and invested in further accelerating the development of our core retail pharmacy businesses.
Importantly.
The transaction for acute inner active multiple for a high quality business.
We will employ the proceeds to reduce debt and accelerate the development of our healthcare services.
We have been able to begin these work almost immediately using the some of the finance to accelerate our investment in village MD.
This will facilitate the significant acceleration of the growth of their own business, including faster deployment of clinics within our store.
Looking forward.
We are still early in the financial year.
However.
We remain cautiously optimistic for the year sales.
There is no doubt.
We have a mania opportunity side.
But these opportunities maybe impact tempered by their lease cost for the short term debt caption.
From Contv debt and new restrictions and lower down.
F. communities continue to toggle to contain at the spread our device sales and while vaccination program for take place.
Hi, all space however.
The issue for our short term and May impact the next few months.
While the opportunities we see stretch for award for years to come.
Overall.
The first quarter of the financial year as being a strong quarter for the group.
And an excellent start toward the has the potential to be a better year than we expected net.
With that I will ask James now for take you talked about.
Thank you Stefano and good morning.
Our first quarter performance was better than expected.
As we delivered improved operational performance across a number of fronts in particular, we.
We exceeded our expectations in boots, UK and boots opticians.
Adjusted EPS was $1.22 cents, 11.6% lower than prior year on a constant currency basis.
The year on year decline was entirely due to an adverse COVID-19 impact of 26 to 30 cents.
Overall, our markets encountered a widespread surge in COVID-19 incidences.
And as a result, we saw increased restrictions or lockdowns across those markets.
We estimate a COVID-19, a online and part of approximately $290 million to $325 million.
And this was worse than the guidance range of 250 for $300 million, we provided earlier.
Nevertheless.
The impact was much lower than the third and fourth quarters of last year.
In summary, we are actively managing the challenges and remain confident of delivering strong growth in the second half of the fiscal year.
Cash generation was strong in the quarter what.
For free cash flow of $763 million.
13% higher than prior year.
And finally, we are maintaining our full year guidance of low single digit growth in adjusted earnings per share on a constant currency basis.
Let's now look in more detail on the results.
First quarter sales were up 5.7%, including a currency tailwind of 0.5%.
On a constant currency basis sales advanced 5.2%.
Adjusted operating income declined 10.1% on a constant currency basis, reflecting higher than expected COVID-19 impacts of approximately $290 million to $325 million.
Offset in part by a stronger underlying business and good cost management.
Adjusted EPS was $1.22 cents for constant currency decline of 11.6%.
A higher tax rate negatively impacted EPS by around eight percentage points on.
And this was only partly offset by a 2.7 percentage point benefit coming from a lower number of shares outstanding.
GAAP EPS went from 95 cents and Twentytwenty.
To a loss of 36 cents and 2021.
Entirely due to a $1.73 cents charge within the company's equity earnings in Amerisourcebergen.
Now, let's move to retail pharmacy USA.
Sales increased 3.9% in the quarter with 5.9% growth in pharmacy, partially offset by lower retail sales.
Both retail and pharmacy continued to be adversely impacted by COVID-19.
Including lower foot traffic significantly lower flu incidence Ana.
And a reduction in new to turn repeat prescriptions.
Due to fewer doctor visits and elective procedures.
For Spider benefit from flu immunizations.
The overall negative revenue impact was approximately 100 basis points in the quarter.
Adjusted gross profit declined 1.8%.
Lower pharmacy reimbursement, partly offset by procurement savings and a higher retail gross margin.
Adjusted EPS Gls spend increased 1.4% in the quarter and was 17.2% of sales.
An improvement of 0.4 percentage points versus the prior year.
The increase in SGN day was driven by higher growth investments.
Uncovered 19 related costs of over $80 million.
Adjusted operating income declined, 14.4%, reflecting an adverse covert impact of $200 million to $220 million or around 18%.
Now lets look in more detail at us pharmacy.
Total pharmacy sales increased 5.9% versus prior year, reflecting lower generic utilization script growth and 13% growth in central specialty.
Comparable pharmacy sales were up 5% on comp scripts grew 2.7%.
COVID-19 negatively impacted script growth by around 210 basis points.
Doctor visits remain significantly lower than pre COVID-19 levels on a much weaker cough cold flu season led to a 25% decline in seasonal flu scripts.
Market share work for the quarter was 20.7% down 15 basis points versus prior year entirely due to our store optimization programs.
Adjusted gross profit decreased low single digit as the favorable impact of procurement savings and script growth.
It was more than offset by reimbursement pressure.
Turning next to our us retail business.
Total retail sales declined 2.2% in the quarter impacted by our store optimization programs.
Comp retail sales increased 0.4% and excluding tobacco and lease cigarettes comp sales were up 1.9%.
Income stores health and wellness grew 4.1%.
Excluding cough cold flu, which was a headwind of around 150 basis points on total retail store comps.
For health and wellness business was up 11.6%.
Beauty declined 13.1% roughly.
Reflecting the category that is heavily impacted by COVID-19.
Non comparable promotions on a high level of competitive intensity.
Gross profit declined slightly with lower sales, partly offset by an increase in gross margins of 70 basis points.
Driven by supply chain efficiencies and reduced seasonal clearance costs.
Turning next the retail pharmacy international.
And as usual I'll talk to constant currency numbers.
Retail pharmacy international continued to be negatively impacted by COVID-19 with higher incidence rates and additional lockdowns across a number of geographies.
Encouragingly despite renewed restrictions in November.
For business outperformed expectations and continued to deliver sequential performance improvement.
Sales declined 8.2% in the quarter, a good improvement on the for quarter decline of 15%.
And it shows our ability to adapt and respond to the latest market conditions.
Gross profit declined 11.5% with.
For the favorable NHS pharmacy timing benefit, partly offsetting lower retail revenue and higher fulfillment costs.
The gross profit decline was mitigated and flow by.
By decisive short term cost mitigation and the benefits flowing from the transformational cost management program.
This led to an adjusted operating profit of $84 million in the first quarter up 0.6% versus prior year.
For boots, UK and opticians performing well ahead of our expectations on all set in an estimated cost for the impact of $90 million to $110 million.
Let's now look in more detail at boots UK.
Footfall remains well below last year, particularly in the major high Street and travel locations for boots has a prominent store presence. This.
Despite a second national Lockdown in the for weeks of December 2nd retail store transactions improved slightly in the quarter down.
Down 40% year on year compared to a 47% decline in the fourth quarter lower.
Lower footfall is partly offset by bigger baskets.
Basket size up over 20% in the first quarter.
Comparable pharmacy sales increased 2.5% lower.
Lower demand for Scripps and services, reflecting reduced footfall, especially in city centres.
Was more than offset by favorable phasing of NHS funding.
Comparable retail sales declined 9.1% a sequential improvement from the 17.5% decline in the prior quarter Ben.
Benefiting from targeted marketing activities, our strong reputation on the UK High Street on an exceptional performance from boots stock comp.
Gross margin remained under pressure.
While we saw favorable phasing of NHS pharmacy funding it was not enough to offset higher retail fulfillment costs due to the substantial growth of boots Stockel low here again, we are pleased with the solid progress we have made this quarter.
The recovery in our UK opticians business has been faster than we originally expected.
Due to more flexible regulations and significant pent up demand.
Turning now to our priority initiatives.
As we said last quarter, one of our top priorities is to turnaround boots, UK and return it to profitable growth.
The strength of the boots brand is a central pillar in supporting our recovery.
On the boots UK team continues to take Swift and decisive actions.
On both sales growth and cost reduction.
Our store based online fulfillment portal, which we call hybrid stores is now operating in 121 stores and in November supported over 30% of all online orders.
This is an excellent example of leveraging our store a space to deliver a flexible timely and scalable distribution solution.
November online sales almost doubled year on year, our largest ever seasonal sales period.
And with sales growth of 106% in the first quarter Foodstar customer accounted for 23% of our total UK retail sales.
In store investments continue at pace and our targeted at enhancing the customer experience.
During the quarter, we rolled out new number seven counters and fixtures and almost 650 stores.
And launched a new photo offerings in more than 850 stores.
We continue to play a key role in the community, what our largest ever flu vaccination season.
And we have now completed over 2.1 million covered tests for the NHS.
Turning now for the pharmaceutical wholesale division, which I'll also discuss in constant currency.
Pharmaceutical wholesale delivered another strong set of results with sales up 16.3% versus prior year.
The completion of our joint venture transaction in Germany on November Onest boosted sales growth by eight percentage points.
But excluding this the sales growth was a healthy 8.3%.
Led by emerging markets and a onetime CPE contract in France.
Adjusted operating income increased 7.4%, mainly reflecting the strong sales growth.
On a higher contribution from Amerisourcebergen.
Turning next to cash flow.
Free cash flow was $763 million up $90 million on prior year.
For 13%.
Our key working capital initiatives are on track, we continue to remove excess inventory and extend payment terms for more optimal levels.
Let's turn now to our transformational cost management program.
We are well on track to deliver in excess of $2 billion in annual cost savings by fiscal 2022.
We have now closed 232 of the 250 Walgreens stores targeted for closure.
And we have completed 158 of the 200 boots UK stores.
We expect the store optimization programs to be mostly complete by the end of the current fiscal year.
On Smart organization.
Boots UK is ahead of plan.
Following the third quarter announcements to reduce the boots UK workforce by 7%.
We are on track with the implementation.
Now expect a workforce reduction of nearly 11%.
For 6500 positions.
We are quickly advancing our VP or partnership with Genpact.
Actively transitioning finance activities across a number of markets.
Our digital transformation initiatives are progressing well and we recently announced a strategic partnership with Verizon in the U.S.
For Ryzen will provide network as a service across all of our 9000 plus stores, enabling a more seamless and personalized customer experience.
On smart spend we re selected WPP as our global marketing and communications partner.
On the new agreement will unlock improved marketing capabilities and additional operational efficiencies.
On divisional optimization, we continued to gain momentum in key programs, such as pharmacy cost to fill.
We have created a new lower cost administrative role to remove routine administrative tasks from our pharmacists.
And we also rolled out systems enhancements to further automate electronic prescriptions.
In summary, we are aggressively tackling our cost structure and we continue to identify new opportunities to deliver savings across all areas of spend.
And that will free up the funds needed to invest in future growth.
Let's now turn to guidance.
When we provided fiscal 21 guidance back in October we clearly highlighted that the opportunity from vaccinations couldn't be required to counter balance the risk of the second wave of Lockdowns.
You have seen the sharp increase in incidences across most markets.
As such given the fluidity of the situation we are maintaining our prior guidance.
But we do recognize that our profile as now tilted more to opportunity.
While we are very encouraged by the strong start for the year, we do expect a weaker second quarter.
Due to higher COVID-19 impacts, including a significant decline in the cough cold flu season.
Nevertheless, we do expect our first half EPS delivery to be broadly in line with the expectations. We set back in October.
On a full year basis, the opportunity from the distribution of vaccinations is likely to be offset by COVID-19 related lockdowns on restrictions and by increased growth investments.
Given the strong start for the year, we are selectively ramping up growth investments across both omnichannel and healthcare.
In summary, a good starts for the year.
And we are confident that we will deliver strong growth in the second half of the year and deliver or exceed.
Our full year adjusted EPS growth target.
As you have seen in our press release yesterday.
We are selling our pharmaceutical wholesale business to amerisourcebergen.
This is a multi faceted transaction that.
That unlock significant value for both parties.
The transaction includes an extension of our existing us distribution agreement by three years.
And we have agreed to explore operational synergies between our respective us businesses.
Importantly.
We have secured an attractive exit multiple of 12 times adjusted EBITDA.
We expect the deal to be accretive to adjusted EPS in the longer term bottom.
Bought mildly dilutive to fiscal 2021.
Approximately two cents.
The cash proceeds will be deployed to boost healthcare investments and pay down debt.
Let me now, bringing it through the transaction highlights.
Gross proceeds or approximately $6.5 billion with the majority of the consideration in cash.
We expect after tax cash proceeds of over $6 billion and.
For one time after tax gain.
Of approximately $1 billion.
The business, we are divesting has sales of around $19 billion.
Non adjusted operating income of approximately $475 million.
The transaction perimeter excludes our newly formed German joint venture with Mckesson.
As well as all of our equity method investments in China.
For the deal perimeter does include small retail businesses in the Netherlands, Norway and Lithuania.
We expect the transaction to close later in our fiscal third quarter.
On the divested businesses will be reclassified as a business held for sale and our second quarter 10-Q line.
Let me now hand, you over to Alex.
Thank you Jade.
Before I highlight the progress on our strategic priorities and continued transformation I must express my sincere gratitude to the hundreds of thousands of Walgreens associates.
Across the country.
They continue to provide essential pharmacy services, and health and wellbeing products to their local communities share.
During what has been an extraordinary difficult time facing.
Facing challenges, we've never experienced before operating the safety for our patients and customers for.
Walgreens continues to provide clarity during uncertain times.
And this quarter's results show the strength of the Walgreens brand people on.
An organization.
Today I will update you on some of the significant progress we've made in modernizing our pharmacy.
To create a more customer focused on healthcare driven offerings are transforming our retail business all powered.
Our investment in digital capabilities.
I'll begin the pharmacy.
We are accelerating our investments to modernize our pharmacy operating model.
You start to unlock the benefits.
We are improving our processes I'm going increasing automation to free up our pharmacists tying.
Our inland to provide more value added health care services to our patients and customers.
This model will also reduce working capital or freeing up cash to further accelerate our transformation of Walgreens.
We have grown our pharmacy services rapidly since we last spoke to you further validating the future rule the pharmacy is complete.
Weve administered more than 2.8 million diagnostic covert tests.
Since testing began and we're well on our way to be able to all for Cobra testing over 3000 over stores.
By the end of this month.
We're also very excited to be part of the core with recovery and healing process.
As part of operation will speak.
On December 18.
We began administering vaccines to high risk elderly individuals and long term care facilities and medical care providers and we have plans in place to provide vaccines in over 35000 to long term care facilities and for United States as part of Phase one day of the National coverage response.
We're also well into the planning of phase one b with an anticipated in more states to cover the over 70 fives.
Essential workers and people with certain chronic health conditions.
Today, we have over 30000 qualified health care associates raise employee to the mass Qubic taxation program and.
And we're in the process of growing that number to over 45000 in an extreme ones.
We have the storage and infrastructure in place to facilitate our role in the mass Qubic vaccine program.
We have the capacity and we're ready to vaccinate tens of millions of Americans.
Our fine care platform, which connects patients to tally health providers has grown exponentially driven in part by the pandemic.
In the quarter traffic to the site increased 13 times versus last year to over 18.9 million visits.
We also continue to develop our physical health care locations alongside our digital offering to provide a broader range of healthcare services to our patients and customer.
In December we announced plans for 14, you village medical our Walgreens clinics to open by the end of the summer in Texas, Arizona and Florida.
And we have just announced that we are now accelerating our plans with village Andy to open our lease 600 village medical or Walgreens clinics in more than 30 markets.
You can see there is a huge amount going on in our pharmacies and Stefano mentioned in his opening comments you will hear a lot more about this in the coming months.
Turning next to our retail transformation.
As you know we are executing an extensive program of modernization across the company.
Driven by a holistic omni channel customer experience strategy.
We are unlocking the hundred million Walgreens loyalty members data for implementing new digital tools and analytical capabilities via Microsoft and Adobe We accelerated this process further during the quarter.
We are harnessing our data to develop a new way of marketing through our mass personalization strategy with already boosted retail sales by 155 basis points in the quarter.
And we are rolling out my Walgreens, our new loyalty program, redefining convenience and customer engagement.
We launched my Walgreens in November.
Is the most visible customer facing part of the strategy to date. It offers you loyalty benefits, our refreshed health and wellness focused brand with passion alliance products and services for our members.
Approximately 40 moving customers have already joined the program to date and we're actively driving membership further and Twentytwenty one.
Over time, we anticipate my Walgreens will become a vehicle for very targeted and personalized promotions and will play a key role in updating our customer proposition.
On the theme of convenience, we have active swiftly through the pandemic to give our customers access to Walgreens products online.
Orders placed for Walgreens dot com or via the App cannot be picked up in store I kind of site oil price through in as little as 30 minutes.
We believe this mix Walgreens, the fastest Cindy retail pickup on a national basis.
Over 1.7 million retail pickup orders were completed since launch in November.
Total retail digitally initiated sales were up over 40% as a result of all the progress we are making.
And we believe this will only continue to grow.
In summary, despite the tremendous challenges created by the pandemic.
Our team has worked tirelessly to adapt to the new market realities and ensure our patients and customers have access to health care retail products and services, where and when they need them online.
Ill now hand, you back to Stefano for his closing comments. Thank.
Thank you, Alex and James Sir.
As you have heard that it has been a very busy time for the company.
We have achieved a great deal already the year.
And the pace a walk east not slowing.
What we are doing is complete into farming of company.
To bring gas greater focus and to concentrate our investment of time NFL cities, where we can achieve more.
We are doing these without losing any of the financial benefits that we have delivered over the EPS in.
In terms of our efficiencies or synergies.
In a time when that there has been a much uncertainty and noise.
We have pursued at current assistant and deliberate plan to modernize our company our businesses and our customer offering.
What we are seeing the Hamas now.
As seen in recent months.
And the week see match them all in the coming months.
Eased out of a lot of our walk within the company.
But it was just the beginning in terms of our plans.
In both debt application of technology in our business and the delivery of a health services through our network.
I know there is an understandable interest in Hawaii will be ending over the whole of CEO, when and what day action debt person we've taken the company.
Despite the complexity debt three caffeine Pavel in communication have created debt in the recent months.
The board and been very active Endesa, Chile for the right candidate for this call.
And I am an awful.
We will have news to share with you about my successor soon.
It has been a huge premium to lead such great businesses.
And work.
Such a dedicated and talented team of people cash.
So many accounts and companies.
Of course.
I very much look forward to working with the new feel.
To ensure smooth and effective Andover.
And deliver long term growth and a prosperous future for the company.
I am pleased to be in a position to Andover domains and the companies facing so many opportunities and debt such positive momentum.
The progress that we have reported today and they walk, though we are down to modernize the company MB is there any impact actually teach both for Axiall and a robust nationally for me.
I will be ending the whole over at the time when my success. So we'll have all the tools they need.
As well as my for support.
And assistance to drive that business to deliver continued net reliable and consistent for growth looking forward.
Thank you, we'll now take your questions.
As a reminder to ask a question you need to press star one on your accounts.
John Your question, please press the pound or hatched.
We would also like to remind you if you could limit your questions to line only thank you. Please stand by we can pilot couponing roster.
First question comes from the line of Ricky Goldwasser from Morgan Stanley. Your line is now open.
Yes, hi, good morning, happy new year.
Mike My question is focusing on debt.
The divestiture of our ski wholesale segment, Inc.
Great question So line.
Is there any strategic rationales, keeping seems to market to Germany, Italy and China.
And then as we think about the new portfolio you have good relationship with sales can be and with Labcorp.
Are there any I guess for healthcare areas you are looking to invest in.
How important do you think is an anchor apparel relationship as you think about distress.
This strategy.
Well its day.
Finance here good morning in their happy new year.
Yes.
I have to say debt.
The strategic rationale.
You know we have added the very long.
Relationship with EMEA space, who are better again.
I have met the trio deal of the Hess, Chief Executive and probably we people you don't remember like Magnum out our DVD asta or now we'll of course.
Steve car lease and we have always discussed to doing something together.
The reality the first.
Tangible seasonal low debt that we were able to achieve a war.
Yielding how merger the merger of.
Boot Alliance boots, with Walgreens with Wal Greens day.
And agreement.
Debt.
What's allowing.
All we intend to take a stake in a B C.
And.
For worth granting JBC long term contract tenure contact for awarding sets.
This has been.
A year lease Uffizi.
Feel equally important the relationship we share has gone there are two very well.
And.
Our relationship.
Each whale's 80, really all day have become a better and better and the in Dcs, we have spoken many times for putting together, our selling business endo in the market debt.
Ahead here and there some teens.
And that we we have analyzed for all the possible the per.
For two more combination after paying them down by half of emerging growth.
And now we have come to a 12 point aware.
We.
That do but even and due to the acceleration of car fleet that we have for the early decided that debt.
Easter was at the right time to concentrate on our.
Coal business out of the pharmacy sales and too.
Two seller, our or selling businesses today, Matt and as Youre selling business EPS is severely will be in this hour for the beans or of course it has commanded a good day.
Hey, good pricing.
And.
And so.
I believe that now both of assets down a good deal that we have demanding net to repay some day to day added bubble to invest in.
Our.
Cobiz net particularly in a U.S., but also in UK and they have the possibility to get to get a global line.
Global business.
DCC.
The second question Davide DMD, we have out there.
Other targets, yes, we have added target of course, we cannot talk too much about it about.
Well for the reason why we are happy now to air for.
Additional cash is because we have a target and then of course food investor in our business as.
Alex for saying here before the end of May be we reiterate after but also we have targeted to buy.
The total question, we try and selling.
Germany.
Okay, Germany, Germany in Germany.
John It's an obvious question, Germany, we have a a joint venture we set.
Mckesson non so where we have done this deal.
Without talking to other people of course, the fact that the realities on east debt debt, Germany. The merger that we have done with Mckesson in Germany.
I will.
We delivered a lot a lot of synergy so.
Although we are talking of.
Uh huh.
Mainly mainly tend to median of synergies, we believe and so.
The the business that we laugh editor in value increase for full year for when we will have been able to deliver all the synergies and so of course, so we have to keep develop the synergies and after that we will see what to do.
Looking at our key on the anchor point.
We're still very open ecosystem working.
Working closely with all of our commercial partners Payors and of course, Pvms and I still our strategy at this point in time.
Thank you.
Your next question comes from the line of Robert Jones from Goldman Sachs. Your line is now open.
Great. Thanks for the question I guess, maybe just on the village MD strategy. Clearly this seems like the strategy to kind of transform a company more towards healthcare I know you talked about taking some of these proceeds and now targeting 600 700 over.
For years I believe the old target was 500 to 700 over three years I know, there's probably a lot of differences in cadence there can you share.
Just talking about the timeline of of the rollout and I guess more importantly.
How quickly can you get to enough stores, where you think it really could start to matter to the economics of the business. Obviously you have a.
Large store base beyond just hundreds of clinics and so just really curious kind of what pace, we should be thinking about and how this can really impact.
The overall financials of the company and anything just on a store by store basis to help us think about.
A walgreens with a valid village MD and what that could look like versus a walgreens without an average Andy thanks.
Yes, I'll take a shot streams here first.
I just want to put for some perspective on or around the deployment of funds I think yes.
It will principally be focused on health care.
Diligently is just the first example, we expect a number of moves over the coming weeks and months and we won't be measuring this for years will be measured in months.
Village MD, if you take it as a specific is it's got two dimensions to it its not just the contribution to the business where it is helps us to become relevant in.
As a as a as a location in reducing health health care costs over time, that's got one financial return and it's got an overall benefit of improving the ability of Walgreens influence how healthcare longer term. The other one is don't forget it's a financial investment as well and we are actually strongly encouraged by.
What we're seeing in the stores were hitting the NPS scores of 90% non.
As we stared at the performance we decided this was the time to accelerate the investment we fully believe village MD has just even as a financial investment of 30% is extremely attractive zone leads getting more attractive by the day. So we're inclined to view. This two ways. One is a financial investment for two was integral to the poor price.
Which is improving the customer hunter.
Yes, Hi, Robert and just one one building up pointers.
The cadence, we announced 40 address this year, so we'll increasingly cadence as we get going here.
And so therefore is is that the length of time. We're doing this will for has stayed the same so we'll clean up you know at that point is it's going to be 600 in the same line to time is a 500.
And beyond that are also remember, we're integrating digitally as well, particularly around the pharmacy business and the way the rule the pharmacy is walks with the doctors.
On extending the scope of practice for pharmacy is no no.
Total possibility and many states and we believe this model will be will be advantaged and not in our situation as well.
And the last thing I would say is that remember the time village MD also manage many risk based contracts.
For almost 20% I think it will be a bigger business and therefore, you can imagine working with them closely on risk based pricing.
Contracts as another opportunity in the future.
Non don't forget to also day to be less remedy is there also clinic for outside.
Total pharmacy said clearly they add to the clean day back because they are quite an aggressive buyer and of course. This is another synergy for us because as they are trying to.
Organized the call DNA.
Ladies.
These occur.
Clinics, they ever without pharmacies, even if they're not physically now pharmacy sales.
The lease Echo echoed the nation and.
Our total money that they have that will be used for sure to buy additional clinics overtime weve tied to.
Really low relocate.
As many as possible of deeply into our pharmacy, but the but even if they're not in Alabama that coordinated with our pharmacies.
Great Thats helpful. Thank you.
Your next question comes from the line of LNG debt Anderson from Evercore. Your line is now open.
Hi, good morning, guys.
Ladies and gentlemen down those assets generic.
Question on quite a bit I was wondering if you could provide a little bit more detail at high teens day, Ken gross margin growth and I think I'll pass the line I, maybe particularly in that aspect and for that sorry that as a whole Inc.
Hi, James or for.
First of all we were actually pleasantly surprised in the first quarter in the USA.
Margins were pretty robust on the pharmacy business for would say slightly better than we would have anticipated.
Now as usual, we'll some of that is always timing, but we had a pretty good start for the USA homes.
Correctly. So you highlight that were there will be a first half second half for mentioned here. So you could.
Look at the first quarter and second quarter is being the low points of the year in terms of margin in the second half the margins rising.
But you know the strength in Q1.
You've obviously seen is broad based non I do want to take this opportunity to highlight that we had over performance in all of the divisions at a moment. When additionally, the call that impacts across the business are higher than we anticipated and at the same time, we slightly increased the pace of the investments, we're making particularly in the USA.
Business.
So we're actually how we we I would say in the US retail was slightly weaker for the retail margins were better than we expected.
And then on pharmacy scripts were weaker because of all that but the margins were better. So I would say in general we were pleasantly surprised by the upside, particularly in the USA in Q1.
Okay. Thank you.
Your next question comes from the line of AJ Rice from Credit Suisse. Your line is now open.
Hi, everybody. Thanks for the comments on the vaccine.
Pursue that a little more I think you are saying that thats one.
Vaccine outlook is part of the reason why you're maintaining the low single digit outlook. In spite of the lock down is there you have updated thoughts on the economics of the vaccine to you.
Also maybe thinking about it in terms of right now you are mainly helping in the long term care facilities, but obviously at some point.
I assume there will be some administration in the retail.
You have any sense of timing on that and how that the economics of that versus what you go and in the long term care facilities.
Yes, Hi, let's now take a shot at that and you're right. Your first comment was debt on.
I mentioned we've seen.
For the impacts in Q1 about $50 million more negative than we expected.
And we expect to see the same in Q2.
We were actually we can't predict this but we expect overall core impacts mostly come into a tough cough cold flu to be about $200 million negative.
And we do expect to be offset by vaccinations and other opportunities. So the base business is also doing better just on the economics for goodness commercially sensitive, but we don't want to provide it but I'll give you one inside so in the second quarter. When you would expect the contribution from the acquisitions and we have a contribution.
We have no.
Profit upside coming from vaccinations, so the lease.
For the administration of vaccinations terrible, there's not particularly profitable business, it's extremely labor intensive and the cost for incremental for that part and parcel of what we have to deliver as per member of the healthcare community.
That being said the vaccines will be accretive so the profile in the second half for the year and Thats why were relatively we did change the tone of our guidance. If you like we confirmed low single digit for please don't lose the sentiment of the last part for that phrase was.
On the profile is two to two options.
So we don't have brilliant visibility to the availability of stock.
On on vaccinations for there is a large amount of uncertainty however, with the pieces of the puzzle. We know we believe we have opportunity in the second part for the year. So maybe relative if you will.
Sure Yeah, Hi, Julia I think Jesus said look we really invest our front here appropriately in my view to make sure that we are ready.
To get these vaccinations as fast as we possibly can.
And you saw a press release yesterday morning, we says that we for all of our cash long term care facilities.
No actually ready to be administered for the first tools.
Bye Bye, China 20 assets I think it is so we feel that we are we don't feel we know we're on track with what we committed to do.
We are also on track with Resourcing off their pharmacists and the pharmacy technicians and re trading a number of our farms submissions to able to administer doses and our teams are really motivated to get this done. So we really really solid shape to administer vaccines in a more complicated.
Long term care facilities.
Let me go by to be able to manage administer these vaccines insider for facilities, which happens in one b and that really starts about no.
We are very confident that we'll be able to speed and be able to keep up to date with demand on there for move forward. The whole program I believe will accelerate as we get through the spring pass all that we're hearing from the new administration in particular.
Our numbers in close contact with growth operation more speed and incoming by the administration to make sure that we are ready to do our job for America and also to make sure that we do in the most efficient way for our shareholders as well.
Okay, great. Thanks.
Your next question comes from the line as Michael Cherny from Bank of America. Your line is now open.
Thanks, So much for taking the question I think following up James on that last line of commentary regarding the way you view opportunity I'm hearing.
Clearly the potential if the vaccination process accelerates and a faster clip than expected, but how else do you think about the puts and takes of that of the drivers for opportunity and especially how do you balance them against the tradeoff, you're making in the growth investments versus the potential for any cost ramp down or cost adjustment.
It's tied to the current spend you have around corporate that's impacting the overall profitability.
Yes.
I think if you look at the the full year and just Simplistically say, you've got to a positive one is vaccinations.
And the second one is we had a really strong store for the year and it was largely driven by operational execution really strong in the UK Ireland opticians.
Net positive store for specialty to the pharmacy business in USA.
International wholesale came in above plan as well so we actually have everybody on all cylinders the big negative than the Big question, Mark and it's the reason why we basically maintain guidance is we actually have a lockdown in the UK right now that runs through the middle of February now, we think we're much better at managing through a lot.
Now, which is good but still it is a cloud in the future and then secondly, you see the large number of instances incidences in the USA not done pretty quickly drive true to lower medical visits. So in December month for medical visits are worse than they were on average in the first quarter.
So we're just being cautious in saying hey, the big opportunity the opportunity on vaccination will offset the negative non covered the really strong start to the year.
We are actually already reinvested some of that so were thinking when you think about the whole deal that was announced yesterday, it's a catalyst for accelerating change if you think about it. So we're going to we've accelerated some of the omni channel investments in the USA you've seen by Walgreens go out there youve seen us GAAP.
The curbside up and 9000 stores, we're driving at a pace that is quite fast I think over the next six months you will see increasing investments in healthcare, where there are probably a skew to tack on acquisitions focused on generating synergy with the pharmacy business and what a very tight.
For the logical and to it.
So there's going to be a lot of news on the way. So I think you have to balance vaccinations versus whole overall adverse impacts and then simplistically a very strong start for the year, which gives us additional confidence to increase investments in the coming months and it's as simple as that it's not any more complicated than that.
That's the way we're thinking about it.
We did add in to the overall guidance that skew to opportunity and I don't want for the lost to the community on the food.
Yes.
Your next question comes from the line of Eric furniture from National Research. Your line is now open.
Thank you building on that commentary can we speak to the day, you pharmacy and specifically the return to profitability was encouraging it sounds like much initiatives cost mitigation or cost management.
Clearly some NHS timing and benefit how should we think about that continued.
Contribution per minute NHS and I think that really comes down to is what we've seen this quarter sustainable moving through the year.
Yes, you know a day the overall impact of the NHS funding I think was just like us in the region of $15 million. It's it's not a huge number but active give a favorable margin contribution and in the quarter and that's a little bit there is always a timing issue on on when this stuff gets ranking.
He has been the piano so repaid it added about 15 of positive for the.
I think the biggest fund in the UK I think I get for look at the overall segment I'll give you two numbers. The gross profit was down 11% because football is still very weak and a lot of markets, but our E commerce business in general across in international is on fire. So the UK was up 106% and we make nice margins.
On our ecommerce business in the UK on an hour so.
So weve getting this and the second positive dimension is overheads in the first quarter were down 12%.
So as when you think about it this way a high fixed cost structure when covert hit us at the end of last year as a significant impact on the segment's profitability.
But as we start to recover from Covance.
A significant and quite debt.
Slice of cost reductions taken will dramatically improve the leverage going forward. So there will be a fairly I think Q2 is a wait and see kind of moment in the UK will be quite a level locked down and then when you get for the second half of the significant growth in the second half.
Well I think we told mentioned this before we see the recovery in the UK over an 18 to 24 month period and you could almost fall line straight line between the pre covered profitability and two years from now and estimate what the.
Segment will look like at the end of this year and we are adding up.
Capabilities.
To delever.
Air online now.
Yes.
Yes, so I always.
Also investing to create a.
Nothing new warehouse about doing to increase dramatically the size of their warehouse credit we had indicated to lease.
And so.
Overall, we will be able to follow the trend of day online and we see that debt.
Does it action that we have and the overall in sales.
NDC locked down that compare to the look down debt, we add a few months ago.
Now we are much better of course, we we.
We are having a better match.
Much less because they're a day IBT that we have two day to day lever.
On line that is definitely higher and we have also found their way.
Is that James was saying debt to have a decent margin on these sales.
Very good thank you.
Our next question comes from the line of George sales from Deutsche Bank. Your line is now open.
Hey, good afternoon guys.
Thanks for taking the question I have actually two quick questions and they're basically housekeeping questions.
Number one is could you quantify what use script growth would've been exclude vaccines and number two is can you remind us of the split of our pharmacy revenue versus non pharmacy revenue in the boots business. If I remember right. It tended to skew closer to 50 50 as opposed to the 70 525.
Split in the U.S. Thank you.
Well I can from from from and from memory, particularly I can take the second one is about two thirds have front end, one third pharmacy in the boots business.
And in terms of first question.
For the obvious, but it's been a really strong flu season.
Run at a 40% increase in flu, but it really is still in the core business that drives.
The scripts so the numbers that James gave in his prepared comments.
Other under the underlying comp growth for 2.7 is primarily driven by the core business.
Non and bottom line that the 2.7.
Is off for what we estimate a negative covance impact of 200 and.
10 basis points here, so I would almost asked the question a different way if you didnt have covered what would your script growth has been that it would have been in the for and a half to 5% range yes.
Good day, the vaccinations were stronger in Q1.
But it didn't have a material impact on the on the results.
Helpful. Thank you.
There are no further questions at this time I would like to turn the call back over to the presenters.
Thank you I'm aware that not everyone wants to go to ask a question ive ever we are out of time.
If anybody didn't get to ask question the IR team our haynesville. So please.
For the growth by email or phone and we'll be happy to answer for you. Thank you very much. Indeed, we look forward to be do you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Hi.
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