Alliance Annual Report 2013/14

Helping people look and feel their best Annual Report 2013/14 We are a leading international -led health and beauty group. Our focus is on helping people look and feel their best.

What’s inside Strategic review Our financial performance in 2013/14 01 Executive Chairman’s statement 02 Our mission, purpose and values 05 Our Group at a glance 06 Our activities 08 Group strategy and objectives 10 Our markets and business environment 14 Our financial record 16 Business review: Overview 18 Health & Beauty Division 20 Pharmaceutical Wholesale Division 28 Other activities 34 Financial review 36 Performance measures 42 We are launching innovative Our people 43 new products tailored to meet Corporate social responsibility 46 customer needs page 12

Governance Boots much loved brands are Board of Directors 50 increasingly available across Board report on corporate governance 54 the world page 26 Board report on remuneration 56 Audit and risk committee report 59 Risk management 60 Consolidated financial statements Directors’ responsibilities statement 62 Statutory auditor’s report 63 Group income statement 64 Group statement of comprehensive income 64 Group statement of financial position 65 Group statement of changes in equity 66 Group statement of cash flows 67 Notes to the consolidated financial statements 68 Additional information Principal , associates and joint ventures 120 Glossary of key terms 123

Alphega is expanding its Supporting the fight against pharmacy network cancer page 44 across page 32 Our financial performance in in 2013/14performance financial Our A glossary of key terms, including definitions of additional performance measures, is included on page page 123.on included is measures, performance additional of definitions including terms, key of associate. A glossary distributed the exclude measures underlying all and ventures joint and associates of share including profit trading and Revenue shareholders equity to attributable profit Underlying interests Less: non-controlling Underlying profit charge tax Underlying costs finance net Underlying ventures joint and associates of earnings post-tax underlying of Share Trading profit Underlying depreciation and amortisation EBITDA Revenue for year the 31 ended March 2014 increased by 18.5%. by increased Underlying profit attributable equity shareholders to Strategic review • Cash flow and net borrowings • Profit attributable equityto shareholders • Trading profit • Revenue − net borrowings down £842 million to £5,051 million cash generated− from operations: £1,544 million − statutory: up 32.4% to £936 million − underlying: up 18.5% to £840 million − including share of associates and joint ventures: up 7.7% to £1,382 million − reported: up 0.4% to £1,270 million − including share of associates and joint ventures: up 4.3% to £25.7 billion − reported: up 4.3% to £23.4 billion

£million 23,367 1,508 1,270 840 888 (238) (150) (311) (48) 79 set out below: out set is year the profit for statutory to profit underlying of A reconciliation shareholders equity to attributable the year for Profit interests Less: non-controlling the year for Profit credit tax Exceptional profit underlying in not Tax items on credit costs finance net within differences Timing tax before items exceptional Net associate distributed of earnings post-tax of Share Amortisation of customer relationships and brands Underlying profit

Alliance Boots | Annual Report 2013/14 Report |Annual £million 888 (100) 936 971 113 (35) 35 10 18 01 7

Additional information Consolidated financial statements Governance Strategic review 02 Alliance Boots | Annual Report 2013/14 Strategic review Executive Chairman’s statement

Another year of strong earnings growth. Executive Chairman

Stefano Pessina discusses ‘Our performance for the year’ online at allianceboots.com

Introduction These results have been achieved during Our strategy of creating the first global I am pleased to report that Alliance Boots has a period when considerable management pharmacy-led health and wellbeing continued to deliver strong earnings growth, time and other key resources have been enterprise in partnership with in a year where the markets in which we dedicated to our Walgreens partnership. is, I believe, widely recognised as being the operate were significantly more challenging This has covered many areas, including our right way forward. This is evidenced by the than I have experienced for a very long time. joint synergy programme, forward planning realignment of our industry that is starting In addition to increasing earnings, our strong and preparation for our anticipated full to quickly take place, as competitors seek to operating cash flow has enabled us to further merger, together with the burden of complex follow our lead. deleverage the Group, while at the same time reporting requirements. Delivering shareholder value year after investing in our future. year requires a strong and dedicated management team, with the leadership skills to execute strategy, while at the same time Underlying profit managing businesses in challenging and changing trading environments. While the attributable to equity shareholders composition of our profits can vary year by £million year, our consistently good performance over a sustained period of time is due to our ability to adapt to meet new challenges in a financially disciplined way, as so demonstrated in the year just ended. 840 709 634 579 559

09/10 10/11 11/12 12/13 13/14

A glossary of key terms, including definitions of additional performance measures, is included on page 123. ownership of both businesses. businesses. both of ownership (), full reach to Farmexpert () and Hedef Alliance in interests minority of acquisition the completed we with AmerisourceBergen. In 2013, October agreement joint our from benefits and Walgreens with partnership strategic our from by synergies largely compensated was This businesses. our of a number in profitability impacted significantly intensepressures, together with competition, economic other and Regulatory markets. challenging in what were particularly growth revenue good delivered similarly The Pharmaceutical Division Wholesale Pharmaceutical Division Wholesale competitors. UK our of many of performance the to favourably very compares which revenue, growing while margin, trading healthy our maintain to able were we a result, As Walgreens. with partnership strategic our from synergies and efficiencies cost through compensated we which margins, gross our retailselect categories, adversely impacted in competition price intense with together This, Europe. across pressure under be to rates for prescription continued offer. Reimbursement omni-channel Boots unique the of attractiveness the to success this We share. attribute market considerable already our grow organically to able nevertheless were we where UK the in particularly environment, trading led an increasingly competitive and promotion- during growth, revenue retail good delivered In 2013/14, Division &Beauty Health our Division &Beauty Health product brands. developingfurther and internationalising our and pharmaceutical while wholesaling, retailing and health beauty pharmacy-led both in footprint global our expand to continuing are we means This ways. other in maturerelatively whichcompensate we must are markets geographic traditional our of many that We recognise markets. emerging in M&A through expansion our accelerate dedicated considerable time to and energy have we Walgreens, with merger anticipated for our preparing and programme synergy 2013/14in joint our driving on been has focusWhile of adeal great management development Corporate global supply chain opportunities. collaboration with AmerisourceBergen on joint our from income generate to begun has Development Alliance Boots Walgreens In addition, network. store Walgreens the across brands product Boots select of out roll initial is as the planned, as progressing is Asia in hub Boots Alliance the utilising programme sourcing brand own joint The jointventures. and associates from income our in growth year on year substantial the in seen be can The benefits key suppliers. other and pharmaceutical with 2012 late in relationships global lead to in established we venture joint the Development, Alliance Boots Walgreens by made been has progress good Particularly target. of ahead tracking date to achieved synergies total programme, the of progress overall the with pleased are we stage, early an at still While future. for the vision joint accelerate and achieve our strategy our areas, business core our strengthen to us enabling while benefits, financial significant with us providing is increasingly Walgreens with programme synergy joint Our programme Synergy

Health & Beauty UK and Republic of Ireland of Republic and UK &Beauty Health Director, Managing Roberts Simon Director Finance Group Fairweather George Executive Chairman Pessina Stefano Wholesale and Brands Chief Executive, Barra Ornella Officer Chief Administrative & Counsel Legal Group Marco Pagni International &Health Beauty and Brands Director, Managing Murphy Ken right: to left From The senior executive team management market for pharmaceuticals. growing fast in this vast, presence significant a us give will China, in venture joint existing Guangzhou Pharmaceuticals Corporation, our with together This, approval. regulatory final the receive we when months, coming the in transaction this complete to We representation. expect management operational and Board with China, in one of themajor pharmaceutical wholesalers Nanjing Pharmaceutical Company Limited, a12% acquire to in approval stake China of People’s Republic Commerce Ministry of 2014, January in received we In addition, cosmetics ranges. and skincare renowned our as such brands, product Boots leading time first for the access to Chile and Mexico in for consumers opportunity the including acquisition, by this unlocked be will that generation value and growth for sustainable potential high the in We confident are for investment. areas priority our of one market, American Latin attractive the in presence amajor us give will This 1,400 over stores. operate together which Chile, in Ahumada Farmacias and Mexico in Benavides Farmacias networks, pharmacy retail major two comprises which Ahumada, Farmacias acquire to are we that announced have we end, year Since the Alliance Boots

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03

Additional information Consolidated financial statements Governance Strategic review 04 Alliance Boots | Annual Report 2013/14 Strategic review

Executive Chairman’s statement continued

During the year, in addition to our ongoing Following Alex’s secondment, we promoted technology and outstanding customer care. new product development programme, Simon Roberts to the new position of In wholesale, the future is about new and we have taken two key steps to further Managing Director, Health & Beauty UK and expanding international partnerships with accelerate the flow of innovative products Republic of Ireland and Ken Murphy to the global manufacturers, more innovative added into the Alliance Boots international retail new position of Managing Director, Health & value services and much closer integrated network. The first was establishing a Beauty International and Brands. This new links with our independent pharmacy specialised investment fund, B&B Capital management structure has been designed customers, who themselves are having Partners, to focus on small and medium to provide even more focus on product to adapt their own business models, in an sized consumer brand businesses within the , developing our product brands increasingly omni-channel marketplace. In health, wellness, beauty and personal care internationally and on global sourcing, while parallel, we are striving to deliver further sectors. In February 2014, the fund made at the same time continuing to develop our operational efficiency programmes, as our its first investment, acquiring Aromatherapy omni-channel pharmacy-led retail offer in our team have done so successfully on many Associates. For similar reasons, we have core markets. occasions in the past. All this results in our collaborated with BioCity, the UK’s leading two divisions and brand teams working bioscience incubation company, to establish Our people increasingly closely together, which we see as MediCity, a new focused On behalf of the Board, I would again like a fundamental competitive advantage. on health, beauty and wellness, based on our to thank people across the Group for their Being global is increasingly important in many Nottingham site. dedication and excellent work throughout business sectors including our own. The the year, in what has been particularly We have also recently recommenced steps taken by the Group over the last two challenging times. Our people continue to acquiring in the UK on a years, most notably our transformational be at the heart of everything we do and it is selective basis. partnership with Walgreens, our joint through clear leadership combined with great agreement with AmerisourceBergen, our teamwork that we are able to continue to Corporate social responsibility geographical expansion in Latin America profitably grow our Group, year after year. The Group continues its commitment to and Asia, and all the work we have done to corporate social responsibility, both in terms develop our brands, are enabling the Group Outlook of performance and reporting. Our objective to continue on its path to becoming the clear Looking forward, while we expect the of building a sustainable world leading group world leader in both retail pharmacy and overall trading environment in which we and making healthcare even more accessible pharmaceutical wholesaling. operate to remain challenging, as a result to the communities we serve is unchanged. of governments across Europe continuing In February 2015, the six month window Through partnerships we are able to further to seek to contain growth in healthcare when Walgreens can exercise its option to help the communities we serve every day, expenditure, a relatively slow retail consumer merge with Alliance Boots begins. Since including our Group partnership with the recovery in the UK and competitive Alliance Boots was formed eight years ago, EORTC Charitable Trust, to develop better pressures, we would expect to see some we have made huge progress developing treatments for cancer, and the Boots improvement, particularly in the latter part of our businesses across the globe, while at the partnership with Macmillan Cancer Support the coming year. same time creating substantial value for first in the UK. our public and then our private shareholders. In our industry, we are at the point in As in previous years, we will publish our As I have said on many occasions, I truly the cycle where we are reinventing our detailed Corporate Social Responsibility believe that we have the brands, intellectual business models, in order to deliver Report in September, which, as usual, will capital and, most importantly, the vision and sustained profit growth. In retail, this include an independent assurance report management expertise to continue to create translates into accelerating our rapidly issued by KPMG. value for stakeholders across the world in the evolving health and beauty omni-channel coming years. offering in an integrated way, with even Board and senior more differentiated products and services executive management tailored to meet rapidly evolving customer Stefano Pessina At the end of September 2013, Alex Gourlay, behaviours and expectations, be it in terms Executive Chairman Chief Executive, Health & Beauty Division, of choice, convenience or service. This 12 May 2014 stepped down from the Board to join means increasing the pipeline of new unique Walgreens as Executive Vice President, product brands, developed or sourced by President of Customer Experience and ourselves, while at the same time creating Daily Living. In this new role he leads market leading innovative services, to be Walgreens daily living business operation. delivered through a combination of new Alex’s contribution to the Group has been invaluable, in particular in our Health & Beauty Division, having spent over three decades with Boots. Our mission, purpose and values and purpose mission, Our Our core values are: we make to wellbeing the of communities the we serve. We believe in making adifference and are proud of contribution the values Our We deliver and services that help products people look and feel their best. purpose Our and become a significant player in many major international markets. beauty retailing and pharmaceutical wholesaling across world the We seek to develop our core businesses of pharmacy-led health and mission Our a winning spirit. a winning new challenges andhaving We are innovators, seeking more. achieve the business. Together we can and alliances, inside andoutside partnerships build through and value and working together. We create Includes understanding respect, Partnership Simplicity Trust and easy to business do with. and efficient, uncomplicated We are proud of being lean we deliver our on promises. business. We arebecause trusted The essence of way we the do

Service our customers andour people.our customers standards of care andservice, for We to hold ourselves high Alliance Boots | Annual Report 2013/14 Report |Annual 05

Additional information Consolidated financial statements Governance Strategic review 06 Alliance Boots | Annual Report 2013/14 Strategic review Our Group at a glance Alliance Boots is a leading international pharmacy-led health and beauty group delivering a range of products and services to customers. Working in close partnership with manufacturers and pharmacists, we are committed to improving health in the local communities we serve and helping our customers and patients to look and feel their best. Our focus is on growing our two core business activities of: • Pharmacy-led health and beauty retailing • Pharmaceutical wholesaling and distribution …while increasingly developing and internationalising our product brands.

Presence in more than 25* countries 25+

Over 108,000* employees 108,000+

Dispensing over 250* million items each year 250m+

Operating more than 3,150* health and beauty retail stores, of which just under 3,050* have a pharmacy

Owned businesses Associates and joint ventures 3,150+ ** Branded products and franchises

* Figures are approximations as at 31 March 2014 and include associates and joint ventures. ** Countries where Boots products are available for purchase or there are Boots franchises (other than those countries where there are owned businesses, associates or joint ventures). and hearingcare services in around 430* around in locations. services hearingcare and basis, afranchise 180* on around operate which of practices, optical 600* around We have also 370+ distribution centres wholesale pharmaceutical Operating more than 370* 4.5bn+ hospitals and centres health 180,000* pharmacies, doctors, units each year –to more than Delivering over billion 4.5*

Alliance Boots | Annual Report 2013/14 Report |Annual 07

Additional information Consolidated financial statements Governance Strategic review 08 Alliance Boots | Annual Report 2013/14 Strategic review Our business activities Pharmacy-led health and beauty retailing

Our stores are located in convenient locations and put pharmacists at the heart of healthcare. Our pharmacists are well placed to provide a significant role in the provision of healthcare services, working closely with other primary healthcare providers in the communities we serve. Our principal retail brand in the Health & Beauty Division is Boots, which we trade under in the UK, , the Republic of Ireland, The and Thailand. The Boots omni-channel offering is differentiated from that of competitors due to the product brands we own and ‘only at Boots’ exclusive products, together with our long established reputation for trust and customer care. is one of the leaders in the UK optical market with around 600 practices, of which around 180 operate on a franchise basis. Around 30% of practices are located in Boots stores with the balance being standalone optical practices. In addition, we have a leading position in the UK hearingcare market through our associate, Alliance Boots, including our associates and joint ventures, has Boots Hearingcare, which operates in around 430 locations across pharmacy-led health and beauty retail businesses in nine countries, the UK, almost all of which are within Boots stores or standalone each focused on helping people look and feel their best. Boots Opticians practices. Together with our associates and joint ventures, we operate more We recognise the special status of Boots as the UK’s most trusted than 3,150 health and beauty retail stores, of which just under pharmacy brand and continue to enhance our position as a 3,050 have a pharmacy, with a fast growing online presence. leading provider of healthcare, beauty advice and services in local In Europe, we are the clear market leader in pharmacy with stores communities. We do this by delivering expert customer care, in the UK, Norway, the Republic of Ireland, The Netherlands and through investment in existing stores, by selectively expanding . We also have pharmacies in Thailand and our associates our store portfolio and, increasingly, through developing our and joint ventures operate pharmacies in China, Italy and Croatia. omni‑channel offering. In addition, around 80 Boots branded stores operate in the Middle East on a franchise basis.

Our product brands

In our Health & Beauty Division, we have highly regarded and long We are continuing to internationalise our key product brands, established product brands such as No7, Soltan and Botanics, increasingly selling them through select retail partners, our own together with newer brands such as Boots Pharmaceuticals and and third party internet shopping sites, and independent pharmacies. Boots Laboratories. Product innovation and development, packaging In the US, where Boots product brands have been sold through Target and product marketing capabilities are key skills which enable us to for many years, we are, in addition, introducing No7 and other key develop new and existing brands. Boots product brands into the drugstore channel through Walgreens on a phased basis. In Asia, we extended our partnership with Dairy Farm to sell Boots product brands in their health and beauty stores in Hong Kong and Singapore. In Europe, our Boots Laboratories range is sold by independent pharmacies in five countries.

* Figures in ‘Our business activities’ are approximations as at 31 March 2014 and include associates and joint ventures. Pharmaceutical wholesaling and distribution wholesaling Pharmaceutical and exclusive products. exclusive and brand own popular most our of proportion asignificant manufacture to We sector. continue care personal and beauty wellness, health, the within businesses brand sized consumer medium and small in invest to fund investment aspecialist established have we recently, Most equity. brand future the in sharing basis, exclusive an on stores Boots in products their sell to owners brand party third of number aselect with partnerships term long have we In addition, Alphega. as rebrand to 950 members, around has which , in network 2014 March the pharmacy following vivesco vote by the significantly increase will This countries. seven in pharmacies 4,800 than more of amembership has Pharmacy Alphega pharmacies. for independent network pan-European our Alphega Pharmacy, of membership includes This businesses. own their develop pharmacists offer our customers innovative added-value services which help We also prices. competitive at reliability and timeliness accuracy, delivery availability, product delivery, of frequency of terms in pharmacists to levels service core high provide businesses Our 20 in countries. centres 370 than more from distribution hospitals and centres health doctors, 180,000 than more to pharmacies, services related and products healthcare other medicines, supply ventures, joint and associates Our pharmaceuticalbusinesses, wholesale together our with our range of patient care products, is sold in six countries. six in is sold products, care patient of range our Alvita, and five countries in is sold medicines, generic of our range Almus, associates, and Division Wholesale Pharmaceutical In our market consolidation. for potential the see we where and growing fast large, typically are which markets geographical new in or operate already we which in countries in areas business complementary or current in either are acquisitions These ventures. joint and associates in activities organically and through acquisitions, including investments distribution related and wholesale our grow to seek We continually operate. we in which countries individual the in three top the of one as ranks typically Boots Alliance Europe, in wholesaler/distributor pharmaceutical largest the being to In addition wholesaling. pharmaceutical in important is very scale engagement, local with Combined healthcare. related home including delivery specialised and pharmacies, to deliveries includeThese services andlogistics, pre-wholesale direct contract distribution, while at the same time outsourcing non-core activities. product their over control greater gain to seeking increasingly who are manufacturers pharmaceutical to services provide we products, healthcare other and medicines of wholesale the to In addition

Alliance Boots | Annual Report 2013/14 Report |Annual 09

Additional information Consolidated financial statements Governance Strategic review 10 Alliance Boots | Annual Report 2013/14 Strategic review Group strategy and objectives The Group’s strategy is to focus on its two core business activities of pharmacy-led health and beauty retailing and pharmaceutical wholesaling and distribution, while increasingly developing and internationalising our product brands to create a third dimension. Our strategy includes: • growing our core businesses in existing markets through service, value and innovation • continuing to deliver productivity improvements and other cost savings • pursuing growth opportunities in selective new high growth markets • launching our product brands in new markets • delivering synergies through our transformational strategic partnerships This strategy is underpinned by our continued focus on patient/customer needs and service, our work with governments to further their healthcare agendas, selective partnerships, and our strong financial disciplines.

brand businesses within the health, wellness, Making Boots more convenient Pharmacy-led health beauty and personal care sectors. We are and accessible for our customers and beauty retailing also increasingly taking advantage of our well We are continuing our programme of established sourcing capability, particularly in relocating, refitting and selectively opening Boots is the largest pharmacy chain in Asia, to procure new and existing products new Boots stores and optical practices to Europe with an excellent reputation for at attractive prices. All of this is significantly make Boots more convenient and easier differentiated health and beauty products enhanced by the scale that our Walgreens for our customers to shop and get their and customer care. partnership offers. prescription medicines. In addition, we have re-commenced buying community Our strategy is to develop Boots into the Providing customers with pharmacies on a selective basis in the UK. world’s leading pharmacy-led health and excellent value beauty retail brand, focused on helping We are providing customers with excellent Creating a compelling omni-channel people look and feel their best. value through offering trusted ranges health and wellbeing consumer offering The key steps we are taking in the of Boots products, executing strong We are continuing to develop and enhance UK to execute our strategy are: promotional offers and rewarding customer our profitable online offering, for both home loyalty with Boots Advantage Card points. and mobile technology, to make it easier Increasingly differentiating for Boots customers, wherever they live, our product offering Developing our people to be at to access our products and services in a We are continuing to develop and launch their very best for our customers convenient and timely manner, in a seamless innovative new health and beauty product Customer care is at the heart of everything way. This includes our increasingly popular brands, while at the same time enhancing Boots does. To achieve this we have ‘order by 2pm today, pick up from 2pm our long established product brands, comprehensive training programmes to tomorrow’ service, where customers can primarily through new product development develop product knowledge, including order products from the full Boots range for in key areas such as anti-ageing technology. regular e-learning modules, and we run a delivery to over 2,300 stores across the UK. In addition, we are working with new comprehensive leadership development In addition, BootsWebMD.com continues to and existing brand partners to develop programme. All are aimed at ensuring that offer comprehensive consumer health and other differentiated product ranges that we have the best people supporting and wellbeing information, complementing the are ‘exclusive to Boots’ and have recently developing our customer offer. In addition, advice we provide in our pharmacies. established a specialist investment fund to we recruit staff with a passion for customer invest in small and medium sized consumer care, including a substantial number of graduate pharmacists and optometrists. on a selective basis. aselective on opportunities franchising further consider to customer care. In addition, we will continue by excellent supported ranges, product beauty and health differentiated offering stores retail for pharmacy-led demand is growing there where markets geographical new major enter to We seeking are markets geographical new Entering needs. country local meet to developed formats trading using partner, franchise our through latter the East, Middle the and Ireland of Republic the Thailand, in primarily markets, existing in stores new open to We continuing are established well is already Boots where in markets stores retail beauty and health Opening UK. the outside international. through presence our online expanding are we In Europe, Dairy Farm. with partnering are we where Asia, and retailers, specialist of number Target in aselect sold and being to addition in stores, Walgreens into introduced being are products Boots where US, the are priorities market Current basis. aselective on stores partners’ in advisors beauty own our employing includes This presence. aretail have not do ourselves we where countries in pharmacies, independent and distributors sites, shopping internet through additionally and partners retail chosen carefully to products Boots selling No7, including brands, through key product our We internationalising are increasingly world across the brands through other channels Increasing product sales of Boots are: strategy our to execute markets beauty and health international our in taking are we key steps The boots.com to fulfil orders from from orders fulfil to boots.com just a on aday twice least at pharmacies to medicines prescription are delivering Typically we proposition. our of part service to all our customers is a fundamental core excellent an delivering Consistently customers to all our service core excellent deliver an to we continue that Ensuring are: our strategy execute to taking are we key steps The customers. manufacturer and for pharmacy topartnership provide added-value services in working products, pharmaceutical of the world’s and distributor wholesaler best is be to Healthcare for Alliance strategy Our reputation for service and reliability. pharmaceutical wholesaler, has an excellent , Europe’s largest distribution and wholesaling Pharmaceutical and related systems. systems. and related processes distribution and warehousing the development and harmonisation of include which programmes, practice best ongoing our through costs down drive and efficiency increase to We continuing are costs driving down and efficiency Increasing brand. Healthcare’ in ‘Skills the under forces sales our contract developing and direct renewing and winning contracts, wholesaler for selective preferred status achieving through this We doing are services new for customers and pharmacy manufacturer from demands meet changing to model business our Evolving consistently. this achieving to essential are reliable van deliveries within set time periods and picking of accuracy availability, In-stock pre provides Alloga which expanding concept, Pharmacy the Alphega as such developing innovative added‑ ‑ ‑ wholesale and contract logistics services andlogistics contract services wholesale in ‑ time basis to meet patients’ needs. needs. patients’ meet to basis ‑time to ‑ pharmacy distribution contracts, distributionpharmacy contracts,

value services value services partnership with AmerisourceBergen.partnership Walgreens) (with joint our from synergies deliver to beginning are we In addition, opportunities and innovative services. market new with them providing through achieved is being This world. the across and develop expand them their businesses pharmaceutical to manufacturers help branded and generic with closely working Walgreens, with partnership strategic our from synergies driving We increasingly are partnerships new strategic Driving synergies from our America. Latin and China are expansion international for further key priorities current our interest), equity a23%acquire minority to rights us gives together Walgreens, with AmerisourceBergen (which, in partnership with 2013March partnership joint new our of in announcement the Following found. be consolidation and the right management can healthcare expenditure, scope for wholesaler environments, large populations, growing regulatory stable where markets geographical new enter to We seeking are markets geographical new Entering of specialised healthcare services. range our expanding brand, our Alcura includinghomecare markets, through and medicine specialty growth high in the capabilities our extend to We seeking are markets homecare medicine/ specialty growth high into capabilities our Extending market. pharmacy for the designed specifically all products, beauty of range our Laboratories, Boots and products, care patient of range our Alvita, medicines, generic of range exclusive our Almus, developing further through pharmacies, independent to sold offering product our differentiate to We continuing are offering our product Further differentiating criteria. appraisal our investment meet which businesses complementary integrating and acquiring so,through do to able are we where including, markets, geographical existing in share market growing by efficiency improve to seek we Additionally, Alliance Boots | Annual Report 2013/14 Report |Annual 11

Additional information Consolidated financial statements Governance Strategic review 12 Alliance Boots | Annual Report 2013/14 Strategic review

We are launching innovative new products tailored to meet customer needs …such as our new serums, clinically proven to be even more effective at reducing the appearance of lines and wrinkles.

For more information about new developments across our Health & Beauty Division, go to our review on page 20 or online at allianceboots.com Alliance Boots | Annual Report 2013/14 13 Strategic review Governance Consolidated financial statements Additional information 14 Alliance Boots | Annual Report 2013/14 Strategic review Our markets and business environment Alliance Boots operates in highly attractive markets with potential for significant long term growth. We expect increasing life expectancy and product innovation to continue to drive demand for prescription medicines and related healthcare services. At the same time, we believe that a growing customer focus on personal wellbeing will drive demand for health and beauty consumer products and related services.

World pharmaceutical market World population forecasts (2013–2017) forecasts (2013–2017)* Population (millions) Value (US$ billions) 7,200 1,300

1,200 7,000 1,100

1,000 6,800 900

6,600 800 13 14 15 16 17 13 14 15 16 17

Source: IMS Market Prognosis Global 2013–2017, Economist Intelligence Unit * Constant exchange rates based on average rates for quarter 4 2012 as recorded by IMS Health Source: IMS Market Prognosis Global 2013–2017 Healthcare expenditure as a percentage of GDP (2007–2011) % 10.0

9.5

9.0

8.5

8.0 07 08 09 10 11

Source: OECD Health Data 2013 http://stats.oecd.org unparalleled acrossunparalleled the globe. alevel to capabilities and scale our increases further Walgreens with programme synergy joint Our trend. continuing this of advantage take to placed well us making products, for branded permit not does typically legislation which away in generics on margins cash better and prices lower typically secure We share. can market grow to capabilities uses scale its and international sourcing Our Pharmaceutical Division Wholesale costs. reduce to order in medicines generic more prescribe to doctors encourage to measures implementing are Governments medicines generic cost of prescriptions to belower increasingAn proportion medicines over time. oncuts established branded prescription price continuing Accordingly, we expect alternatives. cost lower or differentials price reimbursement prices when they identify cutting medicines, branded alternative of cost-effectiveness the at look and countries similar in prices benchmark Governments prescription medicines branded established on Continuing price cuts by nurses). injections (for example, patients to administration control) or handling (for example, temperature special require may medicines which These specifically include special continue to bedeveloped prescription medicines will New and innovative The key trends to andmarket over see developments wecoming the expect years are: developments market and Key trends of this continues to remain highly uncertain. uncertain. highly remain to continues this of timing The wholesale. alongside ownership multiple allow to countries, European more in ownership pharmacy of deregulation to lead to likely are governments on pressures cost that believe we term, long In the US. the in stage developed amore at are which of many services, such enhancefurther our capability to deliver will Walgreens with partnership Our rapidly. grow to services for homecare market the expect also we addition, In vaccinations. flu programmes, smoking cessation advice and medicine check-ups, weight management as such services, many provide to placed is well way. Pharmacy a cost-effective in community the in services healthcare more provide to seeking are Governments leadingbrands. for substitutes as trust customers which to develop better value product ranges healthcare Boots is expertise, also able its buy. to With products which to as pharmacist their from advice seek frequently Customers for aprescription. doctor their to going than rather ailments, for minor for pay to medicines consumers encourage to purchase for retail available of medicines number the increasing are Governments in more Europeanin more countries ownership to happen over time pharmacy of Deregulation community the to be provided in services healthcare More for retail purchase of medicines to beavailable An increasing number

across the world. across the industry the on pressure increasing put changes market and regulatory as time over consolidationfurther amongst wholesalers expect we wholesaling, In pharmaceutical AllianceHealthcare. as such wholesalers national of number aselect via selling or payments), collect and invoice customers product, the deliver to such asdistributors, Alliance Healthcare, few (using relatively pharmacies to direct topharmaceutical either selling wholesalers multiple via selling from by switching control and efficiencies further seeking are pharmaceutical manufacturers branded of number increasing An marketplace. beauty the of area select this in to focus our product development activities We evidence. continue by scientific validated are which products for beauty demand consumer latent the highlights serums ageing No7 anti- of the of success range huge The and distribution sector and wholesaling pharmaceutical the consolidation of Further channels distribution over control their further manufacturers to seek pharmaceutical Branded pharmaceutical benefits proven with products beauty for demand consumer Latent Alliance Boots | Annual Report 2013/14 Report |Annual 15

Additional information Consolidated financial statements Governance Strategic review 16 Alliance Boots | Annual Report 2013/14 Strategic review Our financial record

Alliance Boots continues to deliver higher profits year after year.

Trading profit including share of associates and joint ventures £million

1,382 1,238 1,283 1,118 998

09/10 10/11 11/12 12/13 13/14 Underlying profit attributable to equity shareholders £million 840

709 634 579 559

09/10 10/11 11/12 12/13 13/14 Health &Beauty Health Trading profit Contract Manufacturing & Corporate Costs &Corporate Manufacturing Contract Pharmaceutical Wholesale Share of associates joint and ventures Group Share of associates joint and ventures Share of associates joint and ventures Group EBITDA Manufacturing Contract A glossary of key terms, including definitions of additional performance measures, is included on page page on 123. included is measures, performance additional of definitions including key of terms, A glossary associate. distributed the exclude measures underlying all and ventures joint and associates of share including profit EBITDA trading Revenue, and Group Intra-group &Beauty Health Revenue for years31 ended the March results Financial to equity shareholders attributable Underlying profit Pharmaceutical Wholesale to equity shareholders to equity shareholders Profit for the year attributable Cash generated from operations Total equity –year end inDecrease borrowings net Total cash flow Net borrowings –year end 20,059 20,059 16,911 16,911 2009/10 2009/10 £million 10,626 10,626 4,340 8,389 1,233 (1,459) (1,459) 1,158 1,130 3,148 3,148 ,9 7,492 906 906 504 645 998 998 579 579 630 723 723 225 225 252 252 (42) (42) 75 92 92

19,428 19,428 21,983 21,983 2010/11 2010/11 £million 1,306 1,309 13,154 13,154 1,059 1,059 1,375 7,843 5,124 (1,603) (1,603) 1,118 1,118 2,555 2,555 ,2 7,624 546 600 559 559 573 253 332 332 763 763 (36) (36) 69 59 59

23,009 24,813 £million 2011/12 2011/12 16,828 1,440 1,238 1,493 1,601 5,701 1,192 7,017 (1,745) 1,804 7,671 Alliance Boots 826 634 782 571 255 810 414 (32) 46 53

22,406 24,627 | Annual Report 2013/14 Report |Annual 2012/13 2012/13 £million 16,378 1,648 1,505 1,265 1,283 5,893 1,532 5,671 1,105 (1,692) 1,124 2,221 7,482 709 707 865 238 435 (35) 27 18

25,685 23,367 £million 2013/14 2013/14 1,544 1,508 6,223 1,270 1,382 1,628 5,051 (1,682) 17,161 2,318 7,662 840 842 820 936 886 428 226 120 112 (44) 17

Additional information Consolidated financial statements Governance Strategic review 18 Alliance Boots | Annual Report 2013/14 Strategic review Business review: Overview

Key drivers of our profit growth were increasing synergies and related benefits from our major partnerships, combined with lower financing and tax costs.

Trading profit Underlying profit including share of trading profit attributable to equity of associates and joint ventures shareholders +7.7% +18.5% Performance by Division for the year ended 31 March 2014

Year on year growth Total Constant £million Reported currency Revenue Health & Beauty 7,662 +2.4% +2.5% Pharmaceutical Wholesale 17,161 +4.8% +4.8% Contract Manufacturing 226 -5.0% -5.0% Intra-group (1,682) Group 23,367 +4.3% +4.3% Share of revenue of associates and joint ventures 2,318 +4.4% +2.0% 25,685 +4.3% +4.1%

Trading profit Health & Beauty 886 +2.4% +2.4% Pharmaceutical Wholesale 428 -1.6% -0.8% Contract Manufacturing & Corporate Costs (44) Group 1,270 +0.4% +0.6% Share of trading profit of associates and joint ventures 112 +522.2% +523.0% 1,382 +7.7% +8.0%

Revenue and trading profit including share of associates and joint ventures and all underlying measures exclude the distributed associate. A glossary of key terms, including definitions of additional performance measures, and a list of principal businesses, associates and joint ventures are included on pages 120 to 123. In this review, the Health & Beauty Division results are further split between the UK and International businesses, given the relative size of our UK activities. to £6,223 million. to £6,223million. increased equity total and of £842 million, £5,051 reduction year on ayear million, were end year the at borrowings Net on acquisition related expenditure. £166 and million logistics, and projects technology information stores, retail our on largely expenditure, capital £253 on million year, the spent we £1,544at During million. strong was operations from generated Cash by 32.4% £936 to million. increasing shareholders equity to attributable year the profit for statutory million, £840 by 18.5% increased to shareholders equity to attributable profit Underlying by profit trading and 7.7%to £1,382million. by 6.3%EBITDA £1,628 to increased million basis, same 4.3% the £25,685 to On million. by increased jointventures, and associates of revenue of share our including Revenue, £1,270 currency. 0.6% up million, constant in basisto by 0.4%reported on a increased profit Trading currency. 0.3% up and constant in basis £1,508 areported 0.2% on up million, EBITDA basis. was currency constant and 4.3% £23,367 to areported both on million by year on year increased Revenue Financial highlights future. our in investing time same the at while rate, interest average our reduce and Group the deleverage further to us enabled has flow cash operating strong Our costs. tax and financing lower AmerisourceBergen, togetherwith with agreement joint our from benefits initial and Walgreens with partnership strategic our from synergies increasing were results the of Key drivers time. long for avery experienced have we than challenging more significantly was operate we which in environment trading the where ayear in growth, earnings strong In 2013/14, deliver to continued Group the

private placement for a total consideration of of consideration for atotal placement private a through made be will investment The Nanjing Pharmaceutical Company Limited. (MOFCOM) a12% acquire to in approval stake China of People’s Republic Commerce 2014, of In Ministry January received we site. Nottingham our on based wellness and beauty health, on focused incubator business a new incubation company, to establish MediCity, bioscience UK’s leading BioCity, the with collaborated have we reasons, For similar worldwide. outlets retail and spas hotels, premium through products aromatherapy Associates, which develops and sells Aromatherapy acquiring investment, first its 2014, made In fund February the network. retail international Boots Alliance the into products innovative of flow the accelerating further while businesses, their of potential growth the unlock them help to support financial,strategic and specialist commercial with entrepreneurs talented provide to is designed fund The sectors. care personal within thehealth,and wellness, beauty businesses brand sized consumer medium and small on focused Partners, Capital B&B established a specialised investment fund, new product development programme, we ongoing our to year, addition the in During pharmaceutical wholesalingbusinesses. these of ownership full (Romania) reach to (Turkey) Alliance Farmexpert and Hedef in interests minority of acquisition 2013, In October the completed we partnerships. strategic and acquisitions through markets, existing in presence our expand to and markets geographical new enter to strategy our corporate development in of support on focus We along-standing have development corporate Our

cosmetics ranges. cosmetics ranges. and skincare renowned our as such brands, product Boots leading time first for the access to Chile and Mexico in for consumers opportunity the including acquisition, by this unlocked be will that generation value and growth for sustainable potential high the in We confident are for investment. areas priority our of one market, American Latin attractive the in presence amajor us give will This 1,400 over stores. operate together which Chile, in Ahumada Farmacias and Mexico in Benavides Farmacias networks, pharmacy retail major two comprises which Ahumada, Farmacias acquire to are we that announced have we end, year Since the can. we where basis aselective on these explore to continue we but limited, more are markets geographical regulatory reasons, opportunities in existing Group’s capabilities, resources and scale. For the utilising through businesses existing to value add to scope see we where America, prioritise acquisition opportunities in Latin to continue we China, to In addition representation. management operational and Board with shareholder, largest second its be will Boots Alliance completion, On months. coming the in is expected approval regulatory Final China. in wholesalers pharmaceutical major the of is one Exchange, Stock Shanghai the on is listed which Limited, Company Pharmaceutical Nanjing approximately £56 million (RMB560 million). Alliance Boots | Annual Report 2013/14 Report |Annual 19

Additional information Consolidated financial statements Governance Strategic review 20 Alliance Boots | Annual Report 2013/14 Strategic review Health & Beauty Division

Boots UK delivered its best like for like retail revenue growth for four years.

Simon Roberts Managing Director, Health & Beauty UK and Republic of Ireland

Performance by business for the year ended 31 March 2014

Year on year growth Total Constant £million Reported currency Like for like Revenue UK: Boots UK 6,348 +2.2% +2.2% +1.3% Boots Opticians 349 +4.2% +4.2% +4.3% 6,697 +2.3% +2.3% +1.4% International: Norway 384 -4.2% -0.3% -1.1% Republic of Ireland 252 +8.6% +4.7% +1.8% The Netherlands 133 -1.5% -5.0% -5.5% Thailand 107 +8.1% +11.1% +5.2% Other 89 +30.9% +33.1% +35.0% 965 +3.2% +3.9% +2.2% 7,662 +2.4% +2.5% +1.5%

Trading profit UK 830 +2.1% +2.1% International 56 +7.7% +6.4% 886 +2.4% +2.4%

Trading margin UK 12.4% 0.0pp 0.0pp International 5.8% +0.2pp +0.1pp 11.6% 0.0pp 0.0pp unchanged at 11.6%. at unchanged remaining margin basis, trading currency constant and 2.4% areported both on up £886million, Tradingtotalled profit currency. 2.5% and basis constant in reported £7,662 2.4% a up on year on million, year totalled Division for the Revenue competitors. UK our of many of performance the to favourably very compares which revenue, growing while margin, trading healthy our maintain to able were we result, a As Walgreens. with partnership strategic our from synergies and efficiencies cost through compensated we which margins, gross our impacted adversely categories, retail select in competition price intense with together This, Europe. across pressure under be to continued medicines for prescription rates offer. Reimbursement retail channel omni- Boots unique the of attractiveness ongoing the to success this We attribute share. market considerable already our grow organically to able nevertheless were we where UK the in particularly environment, competitive and promotion-led trading increasingly an during growth, revenue retail good delivered Division &Beauty Health Our

Retail Health Retail Retail: not previously apply. did exemption entry ‘100the opening’ hour where Ireland Northern and Scotland Wales, in year on year increased volumes dispensing Like for like mature. openings competitor as year, previous the in than rate alower at albeit 2012), September in ended (which exemption entry ‘100 by the opening’ hour impacted be to continued England in pharmacies its in business prescription walk-in Boots 222 items. million totalling these like basis, like for and areported on volumes dispensing year, on year were as unchanged was Income &Related Dispensing from Revenue 3 2 1 Income &Related Dispensing 31 ended 2014 year March for the category by product UK revenue Boots reimbursement prices on generic medicines. lower from profitability dispensing lower despite profits, trading increased UK Boots 12.4%. ahealthy at maintained 2.1% was £830 to Trading margin million. by £6,697increasing profit trading million, by 2.3% increased to revenue UK, In the –UK Division &Beauty Health Lifestyle Beauty & ToiletriesBeauty including miscellaneous sales and other income. income. other and sales miscellaneous including categories, sub lifestyle other and seasonal electrical, Lifestyle comprises the baby, nutrition, photography, fragrances, accessories and toiletries sub categories. and cosmetics the comprises &Toiletries Beauty medicines and other health related products. Retail Health comprises sales of non-prescription 3 1 2

2,209 6,348 £million 4,139 2,253 950 936 +2.2% +3.4% on year year on growth +3.5% +3.4% +3.1% 0.0% Year Year

Boots Hearingcare.Boots associate, our through services hearingcare and Opticians Boots through eyecare with offer pharmacy our combining through and online, increasingly and in-store both advice, and services with sales product combining delivering an integrated omni-channel offer, means this Increasingly, all. to accessible and available more healthcare quality high making to committed remains Boots UK, the in pharmacy retail in leader the As pharmacies. 450 over at Boots available 2013, September in is now launched which was plan Plan’ Less ‘Smoke Boots a new In addition, tests. control 4,300over asthma disease pulmonary obstructive and tests approximatelyundertaken 5,300 chronic has To programme condition. the date, the from suffering those assist better to received having training pharmacists UK 4,000 Boots over launched, was programme 2013, In April date. to support asthma an 23,000 consultations have been conducted over where Service Awareness Risk 2013 Diabetes January the of launch initial the on building UK, the in families health conditionsimportant impacting consultation services focused on the most of range its extend to continues Boots end. year by the in England volumes dispensing 9% Boots of for around accounting quarter, final our in performance dispensing improved in akey enabler was for repeat attractive prescriptions, particularly is which service, This electronically. sent are prescriptions their which to pharmacy a nominates apatient where Service, Prescription NHS Electronic the 2of Release use to started England in of doctors number year, increasing the an During Alliance Boots | Annual Report 2013/14 Report |Annual 21

Additional information Consolidated financial statements Governance Strategic review 22 Alliance Boots | Annual Report 2013/14 Strategic review

Health & Beauty Division continued

Our transactional website, boots.com, Revenue in the highly competitive Retail Within beauty, sales increased in all product and our consumer health and wellness Health category, where Boots have been the sub categories. Premium beauty product information portal, BootsWebMD.com, market leader for many years, increased by sales were again particularly strong, which we continue to be two of the most visited health 3.5% to £936 million, mainly due to higher largely attribute to extending the distribution websites in the UK. The number of site sales in the positive healthcare of premium ranges in Boots stores, the full visitors again increased substantially year on sub category. We continue to develop year impact of brands launched in Boots in year, BootsWebMD.com receiving on average innovative new products for the growing the prior year, and the benefits from refitting around 3.5 million visitors every month. Boots Pharmaceuticals brand, an example around 120 in-store beauty halls in the last being the Boots Pharmaceuticals Cold & Flu two years. We will shortly trial a new automated Defence Nasal Spray, which has a clinically dispensing hub in the Alliance Healthcare Sales of No7, the UK’s leading skincare proven antiviral effect and is unique in being facility in Preston, initially serving around brand, again increased year on year, further suitable for children from one year and for 50 pharmacies. This is designed to free up demonstrating the strength of the brand. use during pregnancy and breastfeeding. pharmacists’ time to deliver our increasing In October 2013, we introduced No7 Restore Boots Pharmaceuticals continues to have the range of pharmacy services, while improving & Renew Day & Night Serum, which has been widest range of healthcare products of any efficiency in the preparation of repeat specifically formulated for more mature skin, brand in the UK, including therapeutically prescriptions. The final dispensing of actively targeting five key signs of ageing. proven medicines, natural alternatives, medicines will continue in the individual Sales of No7 cosmetics increased significantly vitamins and first aid products. pharmacies in the normal way. due to a combination of new product Following our acquisition in February 2013 development, most notably for lips, and Retail revenue increased by 3.4% to of a 49% associate interest in a UK based the full year impact of the brand re-launch £4,139 million, up 2.0% on a like for like basis, company of Sonova Group that operates in the previous year, which included more reflecting market share gains in what was an Boots Hearingcare, we have worked in contemporary packaging and new in-store increasingly competitive and promotional partnership to successfully expand the display units to better merchandise the trading environment. Revenue growth from business. By the year end, its number of evolving product range. boots.com was particularly strong, increasing locations had increased to 430, almost all of year on year by 30%. Like for like retail store Since the year end, in May 2014, we launched which are within Boots stores or standalone growth (which excludes boots.com orders No7 Protect & Perfect ADVANCED Serum and Boots Opticians practices. collected in store) increased by 1.3%, the No7 Protect & Perfect Intense ADVANCED highest growth rates being in our flagship and Revenue in the Beauty & Toiletries category, Serum, seven years after introducing our airport stores. Revenue growth was achieved where we have leading market positions ground-breaking No7 Protect & Perfect in all geographical regions, growth being and exclusive product brands, increased Serum. In rigorous clinical trials the new more evenly distributed than in the prior year, by 3.4% to £2,253 million, both beauty and formulations, which contain a higher the highest rate again being in London. The toiletries growing at a similar rate. Gross concentration of proven actives together key driver of retail store revenue growth was margin in beauty was however lower with a next generation peptide, delivered the an increase in average basket size, transaction due to changes in product mix within most impressive anti-ageing results No7 has volumes decreasing by around 0.4%, which skincare and higher promotional discounts ever seen. we estimate to be less than half the rate of for fragrances which were necessary to Fragrances sales returned to growth in the market footfall decline. combat strong competition online and important pre-Christmas selling period, from department stores. as a result of our ‘Lowest prices on the High Street’ advertising campaign and new display cabinets in 135 of our largest stores which better merchandise our expanding ranges. levels of accessibility and convenience for our for our convenience and accessibility of levels greater offer, bringing service and product Boots core our into boots.com integrating increasingly are we retailer, omni-channel an As margin. and revenue of drivers important very be to continue and competitors our of that from offering retail our differentiate to us enable Champneys, and &Glory Soap as such SEVENTEEN, exclusive together with ranges and Botanics Soltan, Boots Pharmaceuticals, No7, as such brands, product own Our occasions. for special packs gift and products new appealing introduce we as year coming the in enhanced further be will ranges gift Kong. Our Hong in based operation sourcing Asian our via sourced products including offer, gifting adifferentiated provide to We continue fourth. the being quarter strongest our overall, year for the than lower was growth like for like sales quarter Third consumers. conscious value increasingly as well as technology, as such sectors from and sector beauty and health the within from for gifts competition market, the across footfall lower of face the in resilient relatively Christmasimportant selling period was the in performance sales retail Boots by Walgreens. extensively used technology on offer, photo based a new launch will we months, coming In the decline. to continues market the where photography, in and category sub baby competitive highly the both in lower were margins gross and Revenue ranges. sushi and salad enhanced of introduction the and year prior the during relaunch their of impact year full the of result a as well particularly performed food ranges Delicious and Shapers Our programme. synergy our from income additional and beverages food and of sales higher products, beauty electrical of sales online in growth by 3.1%substantial £950 to reflecting million Lifestyle In the UK. the in Boots to exclusive are which of both well, performing Champneys and &Glory Soap with bathing, indulgent in achieved also was growth Good segments. haircare professional and mass the both in well performed we where haircare in and rainfall, lower with summer a warmer from benefited we where suncare, in strong particularly was growth sales In toiletries, category, revenue increased increased revenue category, We recruited almost 500 pre-registration pre-registration 500 almost We recruited improve. to continuing measures care customer internal our needs, evolving customers’ tosurveys better understand marketing to in-store responses customer 20,000 over analyse we week Each care. and service customer on focus passionate our to success Boots of much We attribute 2014. February in launched was magazine Beauty & Health Boots digital first The offers. personalised loyalty communications and with members Card Advantage Boots engage to year, the continued we Throughout UK. in the population female adult 60% the of around representing women, are members 90% active of around years, previous in As more per than transaction non-cardholders. 60% over average on spend who members, Card Advantage by Boots made are UK the in sales retail 60% Boots of Around members. active million one afurther has now programme Ireland Boots equivalent The UK. the in schemes loyalty valued most and largest the of one as position established 17.8well programme’s the reflecting million, 12 last the in totalled months) once least at card their used have who members as define we (which members Card Advantage Boots active of number the end, year At the offering. our of akey element be to continues date, alater at for redemption purchases on points earn customers where programme, The year. on year substantially increased again depreciation, including costs direct all after boots.com, of contribution net The points. 14 of increase year percentage on ayear store, in- collected were year the during orders online 59% all of aresult, As for as advice. as well 28,000 over access to products, technology tablet using increasingly staff store stores, smaller our in shop who those and presents for late relatively shop who those particularly period, trading Christmas important the during service was especially valued by our customers convenience The UK. the across 2,300 stores over from 2pm tomorrow’ from today, up pick ‘orderby to 2pm customers enables that offer enhanced an of launch the and orders customer by increased driven was growth This by 30%. year on year increasing revenue fast, very is growing boots.com aresult, As websites. mobile or full our accessing whether customers, loyalty Card Advantage Boots

on a franchise basis. basis. afranchise on 182 operate including which practices, 600 had Opticians Boots end, year At the ages. all of for customers test eye its of element astandard as photography retinal digital first multiple optician inthe UK to include 2013, the In August became Opticians Boots tightly controlled. be to continuing costs growth, revenue good the of result asa significantly increased profit 17 Trading afurther locations. in introduced being layouts year,practice the improved during completed was practices all in frames attractive of range abroader introduce to programme The lenses. contact of sales increased and spectacles, new buy to on going customers test eye of proportion agreater volumes, test eye in growth good to due by 4.3%. was This increasing practices owned from like for like revenue Opticians Boots format. pharmacy’ Boots ‘your local the to converted will shortly be which Midlands, East the in 17 pharmacies, based of achain Burrows & Close, acquired end, we year Since the store. of a Boots a10 drive within minute be to estimated is population UK 90% the of around aresult, As 2,385 included apharmacy. which of UK, the in stores beauty and 2,487 had Boots health end, year At the UK. the across streets high of regeneration the support to commitment our with line in centres, town in all refitted 115 stores,almost fully we In addition, stores. seven closed and pharmacies community two acquired wins, contract pharmacy hospital were three and relocations were nine of which stores, 25 Boots new year,the opened we buy. to During for customers convenient and accessible more products our making portfolio, store our in invest to We continue modules. e-learning including programme, training staff comprehensive developed our andpharmacists further graduatespharmacy and fully qualified Alliance Boots revenue increased by 4.2%, by 4.2%, increased revenue | Annual Report 2013/14 Report |Annual 23

Additional information Consolidated financial statements Governance Strategic review 24 Alliance Boots | Annual Report 2013/14 Strategic review

Health & Beauty Division continued

Good progress was again made in growing sales and profitability in North America and Asia.

Ken Murphy Managing Director, Health & Beauty International and Brands

Health & Beauty Division – Revenue by country In Norway, where our pharmacies are International for the year ended 31 March 2014 (£million) branded ‘Boots apotek’, revenue on a Good progress was again made in growing constant currency basis decreased by sales and profitability in North America and Other 89 0.3%, like for like revenue decreasing by 1.1%. Norway 384 Asia. This, together with a good performance This was due to dispensing volumes being Thailand 107 in the Republic of Ireland, more than offset impacted by competitor openings in the challenges in our continental European The current and prior years, which was partially Netherlands markets where our businesses were impacted 133 offset by like for like retail revenue growth. by pressures on dispensing reimbursement Profitability was adversely impacted by the rates and strong competition. Republic of lower sales and higher operating costs, which Ireland 252 were partially mitigated by a better retail Revenue in countries outside the UK totalled sales mix. £965 million, up 3.2% on a reported basis and 3.9% in constant currency. Trading profit of Stores by country In the Republic of Ireland, where we trade £56 million was up 7.7% on a reported basis at 31 March 2014 as Boots, revenue increased by 4.7% on and 6.4% in constant currency. A net 19 stores Number a constant currency basis. This was as a were added during the year, most of which Norway 153 result of new store openings in the current were in Thailand, bringing the year end total Republic of Ireland 76 and prior year and a 1.8% overall like for like to 573. The Netherlands 68 growth rate, good retail growth being partially Thailand 249 offset by lower dispensing reimbursement rates. In June 2013, we launched a new Lithuania 27 dedicated Irish website, boots.ie, selling over 573 26,000 products, many of which are not available in our smaller Irish stores. Our store portfolio was further strengthened through four store openings during the year, of which two were relocations, with a further three stores having opened since the year end. Trading profit increased substantially year on year, due to a combination of higher sales and gross margin, and productivity gains. non-cardholders. non-cardholders. than more 2.3 times average on spent who cardholders, to were year the during sales of 50% Over members. active million one over to year the during membership its increased market, Thai the for developed specifically was which programme, card loyalty Boots The growth. profit good deliver to business the enabled growth, like for like revenue with 249. to total end year together This, the year, the taking in added 24 were A net stores market. Asian East South the for specifically formulated ranges product new launch to We continue categories. all across strong being year, the of growth half second the in unrest political the of impact the despite by 5.2%, increased Like for likebasis. revenue by 11.1%increased currency aconstant on revenue chains, pharmacy beauty and health In Pharmaceuticals. No7 Boots including and products, beauty and health branded Boots of arange including pharmacy, Dutch typical a than offering retail stronger amuch have which apotheek’, ‘Boots as trading 25 stores year,the had we Throughout profitability. improved in resulting costs, lower and purchasing by improved offset than more was This policy’. ‘preference the as to referred medicines, generic price lowest the select to tenders of use continuing insurers’ healthcare Dutch by 5.5% alike reflecting for on like basis, decreasing basis, currency 5.0% aconstant on In Thailand The Netherlands , where Boots is one of the largest largest the of is one Boots , where , revenue decreased by by decreased , revenue owned by Walgreens. owned on drugstore.com™ and Beauty.com sold also are products Boots and products Boots 500 around of range awide buy can customers where shop’ a‘Boots has merchandising Walgreens.com units. also No7 latest in-store the and advisors beauty Boots by dedicated supported products, No7 of range full the York, sell now New and Arizona in stores larger the as well as stores, flagship Walgreens Thirteen end. year the by 23 completed which were of months, Yorkcoming New in the over stores Reade Duane 180 and around to Walgreens out rolled is being offering brand product Boots this results, FollowingArizona. encouraging across 189 in stores Walgreens launched were Champneys, range, spa exclusive our and Extracts Boots expert’, ‘Boots Botanics, No7, including brands, product Boots autumn, the in 7,200 In addition, stores. over in No7 available is now which Men, including online, US and the across stores Walgreens in launched was products Boots of range year, the select of a half first In the us.boots.com. website, consumer to direct own our on as well as 135 around in and stores, ulta.com College year, 20% over of the on in increase US, an 675 around in ULTA the across stores beauty online on target.com. In addition, No7 is sold and advisor, beauty aBoots have which of 1,800 350 around Target nearly in sold stores, be to continue products US, Boots In the distribution. widen we as Walgreens, in sales increasing with together locations, of number increasing an in sold being products our to due was which of part customers, party third in growth sales retail excellent $120 almost reflected This totalled million. US customers by our sales value, At retail East. Middle the and America North in strong particularly was growth sales product Boots basis. currency 30% aconstant over on by year on year increased revenue Other Lithuania. in pharmacies owned from revenue and income, franchise related and franchisees to US, sales the in Walgreens and countries of anumber in parties third to products Boots of sale the from Other revenue mainly comprised revenue

® , both , both

35 countries. over in available now are brands product Boots aresult, As results. early encouraging with 19 across countries, consumers to range boots.com the from products 24,000 over of delivery enabling website a new international international.boots.com, 2014, In January launched we 81. to Qatar and Bahrain Arabia, of Saudi Kingdom the Kuwait, Emirates, Arab United the in stores Boots of number combined the taking stores, six afurther opened partner franchise our East, Middle In the advisor. No7 beauty adedicated with many offering, product aBoots had Singapore in stores Guardian nine Kong and Hong in 24 stores end, Mannings year At the Singapore. in stores beauty and health their in No7 Botanics, including and products, Boots sell to retailer, pan-Asian aleading Farm, Dairy with partnership 2013,In our November extended we Balm. Recovery Shave Post Boots No7 Men ‘2014 Grooming for our Award’ Magazine aMen’s and Health products for No7 awards All-Stars’ Botanics and ‘Beauty Housekeeping Good three won We US. recently the in commentators beauty by recognised being influential increasingly is brands products Boots our of quality The Alliance Boots | Annual Report 2013/14 Report |Annual

25

Additional information Consolidated financial statements Governance Strategic review 26 Alliance Boots | Annual Report 2013/14 Strategic review

Boots much loved brands are increasingly available across the world …including now .

For more information about the internationalisation of Boots brands, go to our Business review on page 18 or online at allianceboots.com Alliance Boots | Annual Report 2013/14 27 Strategic review Governance Consolidated financial statements Additional information 28 Alliance Boots | Annual Report 2013/14 Strategic review Pharmaceutical Wholesale Division

Alliance Healthcare delivered good revenue growth in what were particularly challenging markets.

Ornella Barra Chief Executive, Wholesale and Brands

Performance by business for the year ended 31 March 2014

Year on year growth Total Constant £million Reported currency Revenue 3,775 -2.2% -5.5% Germany 3,715 +6.4% +2.8% UK 3,603 +6.6% +6.6% Turkey 1,451 -10.7% +0.7% 1,069 +4.8% +1.2% The Netherlands 841 +26.5% +22.2% Russia 774 +78.3% +90.6% 662 -6.5% +4.9% 446 -3.3% -2.3% Romania 434 +15.7% +11.5% Norway 307 -5.5% -1.3% Lithuania 44 -4.3% -8.2% Intra-group 40 17,161 +4.8% +4.8%

Trading profit 428 -1.6% -0.8%

Trading margin 2.5% (0.2)pp (0.1)pp market growth rate in terms of value. of terms in rate growth market the with line in was 2.5%, which around was growth like for like sales underlying accounting our more treatment, comparable for Adjusting to this differences. timing and payables on our balance sheet due receivables related the include to required are we although revenue, as network wholesale our through going goods these report not do we that means This basis. agency for an on account we Standards, Reporting Financial International which, under to pharmacies direct product distributing to switching held back by ethical branded manufacturers was growth like for like revenue published our years, previous in case the been has As year. prior the on decrease point percentage 2.5%, a0.2 was margin trading Overall date, based on the period end valuations. expiry their to period the over statement income our to accreted being these warrants, AmerisourceBergen on gains are profit trading in Included currency. 0.8% constant in and basis £428 1.6% down million, areported on by 1.9%. increased Tradingtotalled profit basis currency aconstant on for like revenue like disposals, and for acquisitions Adjusting basis. currency constant and areported on £17,161 totalled Revenue 4.8% up million, agreement with AmerisourceBergen. joint our from benefits and Walgreens with partnership strategic our from by synergies compensated largely was This businesses. our of number in a profitability impacted with intense competition, significantly together pressures, economic other and Regulatory challenging markets. particularly were what in growth revenue good delivered The Pharmaceutical Division Wholesale markets. wholesale largest five the of each in operations significant with in Europewholesaler and theonly wholesaler pharmaceutical one number is the Group Our Alliance from Healthcare our competitors. continues to significantly differentiate view, what our in is, team management experienced by our led year. approach, This after year Division, the throughout efficiency driving time same the at while model, implement our business new wholesale to countries individual in businesses most of future opportunities and supporting the making marketplace, the in changes anticipating on focus We ongoing an have few years. last the seen for have we as stable, broadly was Europe in market trade parallel the of level The overall Europe. southern in lower typically being still levels penetration markets, our all almost in increased again rates penetration Generic medicines. generic of penetration increasing and prices reimbursement lowering through costs, healthcare in growth constrain to Europe across measures government other and consumption lower by the offset partially was which shortages, product of impact the and markets certain in pressures inflationary reflected growth This revenues. wholesale our of basis the on weighted and currency constant in being 2.5%, growth by around grew markets our that estimate we terms In value packs. larger of number a smaller purchasing pharmacists to shift a in resulted which rules reimbursement in changes to UK, the in and, medicines for prescription demand in growth restrict to actions regulatory to due mainly was This volumes. wholesaling our of basis the on weighted 1% terms, volume in by around contracted operate we which in markets wholesale the that We estimate

our associates. our through four countries afurther in presence a and countries six in operations owned has Alloga basis. apan-European on hospitals to access pharmacies and wholesalers, andlogisticspre-wholesale contract services Alloga includemanufacturers thefollowing: pharmaceutical to offer we Services China. and US, Europe the in services offer to able being wholesaler other joint with AmerisourceBergen, partnership no our and Walgreens with partnership strategic our of aresult as strengthened further being are which world, the across manufacturers leading pharmaceutical relationships with strong and established We long have manufacturers. pharmaceutical for choice of partner the and leader market UK the as Healthcare Alliance established has network, logistics reliable and efficient highly our as well as requirements, changing their Our responsivenesswholesalers. in meeting selected of number asmall through only selling or distributors, as few wholesalers relatively using pharmacies to direct selling toall pharmaceutical either wholesalers via selling from switch the made have manufacturers of anumber where UK, the in pronounced most been has trend This market. this across distribution to approaches their changing and adapting increasingly are who pharmaceutical manufacturers, ethical branded of needs developing the to Alliance continues Healthcare to respond Alliance Boots , which provides manufacturers with with manufacturers provides , which | Annual Report 2013/14 Report |Annual 29

Additional information Consolidated financial statements Governance Strategic review 30 Alliance Boots | Annual Report 2013/14

Pharmaceutical Wholesale Division continued

Skills in Healthcare, our contract sales offering We further differentiate our wholesale In Germany, revenue increased by 2.8% on to manufacturers across Europe, which has a offering by continuing to develop the range a constant currency and like for like basis, presence in 10 countries. of services offered to independent pharmacy despite intense competition from certain customers. This includes membership of competitors similarly seeking to increase Alcura, which provides innovative and Alphega Pharmacy, which encompasses a market share by offering higher customer specialised healthcare services, covering comprehensive range of added-value services discounts. This action appears to have simply clinical homecare, medicine support, including branding, professional training reduced the overall profitability of the sector dispensing services, medicine preparation and and patient care, retail support services and in Germany. As in France, higher customer clinical trial support. First launched in the UK, supply benefits together with pharmacy and discounts were required to maintain our Alcura now has a presence in five countries, IT support. In November 2013, the members competitive position. This significantly following the rebranding of our offers in of our Kring-apotheek pharmacy network in impacted our profitability, which we partly France, Spain, The Netherlands and Germany The Netherlands voted to join the Alphega mitigated through lowering our cost base. during the year. network, 50 pharmacies being rebranded by In the UK, revenue increased by 6.6%, due Product brands and services we offer to the year end, with others planned. As a result, to a combination of further market share pharmacies include the following: Alphega Pharmacy now operates in seven gains and market growth. The increase in countries, including our associate in Italy, and Almus, our exclusive range of generic market share was mainly due to a strong has increased its membership to more than medicines, continues to provide marketing performance in generics, reflecting the 4,800 pharmacies. We expect membership and sourcing benefits aimed at offsetting the winning of a new multi-year manufacturer to increase significantly in the coming year impact of branded medicine patent expiries. contract and Almus sales increasing by following the March 2014 vote by the vivesco Almus further broadened its product more than 15%, and the full year benefit of pharmacy network in Germany, which has range during the year, now including over a contract to supply one the UK’s largest around 950 members, to rebrand as Alphega. 700 products. Almus is distributed in the UK, pharmacy chains which started in the prior Spain and France and through our associates In France, revenue decreased by 5.5% on a year. Alcura growth was particularly strong, in Portugal and in Italy. Total Almus sales constant currency and like for like basis. revenue increasing by more than 40%. increased year on year by around 15% in This was mainly due to regulatory measures, In addition, Alphega Pharmacy membership constant currency. which reduced overall consumption of in the UK reached 1,000 for the first time, as prescription medicines while increasing we continue to develop and expand services Alvita, our range of patient care products, market penetration of generics, and for our independent pharmacy customers is sold in six countries, total Alvita sales competitors offering higher discounts to gain and pharmaceutical manufacturers. Profits increasing year on year by around 2% in market share. Profitability was significantly increased year on year due to the expansion constant currency. impacted by the lower revenue and reduced of the business and further improvements gross margins, higher customer discounts in productivity. being required to enable the business to remain competitive in the market. These factors were partially mitigated through actions taken to reduce our cost base. by inflationary costs pressures. costs by inflationary offset being revenues increased unchanged, Tradingwas profit instability. political by ongoing constrained being growth market like for like and basis, currency constant In In 650pharmacies. 15% than by more over to growing Spain in membership Alphega business, the of aspects many across management margin and mix product improved to due year on year increased 25%. by over Profits products care patient Alvita 30% and than by more grew medicines generic Almus of Sales generics. of penetration market increased by offset partially was which perspective, aregulatory from environment trading stable more a reflecting growth to return like forour like and basis, currency constant In market. growing this in effectively more compete to it enabling business, the develop further to us allow will believe we which changes management key of anumber in resulted This members). family founding (and other Alliance Hedef of Chairman Executive by the held options put of exercise the following business, the 2013, of October ownership full acquired we In redundancies. management to and year, the during closed being warehouses satellite seven network, warehouse the of operating costs relating to a rationalisation by one-off extent, alesser to and, discounts customer increased rebates, manufacturer reduced by impacted significantly was profit by 0.7%. Trading increased revenue basis, like for like and currency aconstant On Lira. Turkish the of value the in year the of course the over decline significant the to due year on In In Egypt Spain Turkey , revenue increased by 1.2% a increased on , revenue , revenue increased by 4.9% a on increased , revenue , reported revenue was lower year year lower was revenue , reported business made a loss for the full year. full for the aloss made business the aresult, winter. As mild unusually an and co-payments of levels increased to due partly demand lower 18.8%, reflecting mainly by decreased alike revenue forOn like basis, 2012. November in re-acquired we which associate former our of ownership of year afull reflecting basis, currency a constant In apotheek. Alphega as network pharmacy Kring-apotheek the of rebranding the to relating costs included which costs, operating by higher impacted was Profitability perspective. aregulatory from market difficult aparticularly be to continues what in intense remains competition where traditional pharmaceutical wholesaling, from revenue by lower offset partially was This basis. exclusive an on hospitals Dutch all to manufacturers pharmaceutical of for anumber products certain supply to year prior the of part latter the in won contracts to like due for like basis, and currency by 22.2% aconstant on In Russia The Netherlands , revenue increased by over 90% on by90% over on increased , revenue , revenue increased increased , revenue

values, commences in January 2015. January in commences values, wholesale at annum per £400 million around worth contract, The four of years. minimum for a dispensing in-patient and pharmacies for hospital contract supply exclusive new 2014, asignificant won business February the In profit. impacted margins gross lower with Thistogether quarter. final the in performance impacted which particularly contract to supply multi-dose prescriptions agovernment of loss 1.3%, the to due mainly by decreased basis same the on revenue In Norway profits. increase to business the This together with gains productivity enabled share. market 11.5%, increased through mainly by 2013, increased basis same the on revenue October in interests minority the acquired In Romania manufacturers. pharmaceutical from income service higher and mix improved to due increasing profits like for like and basis, currency constant Czech Republic the in revenue markets, small other In our Alliance Boots decreased by 2.3% a on decreased | Annual Report 2013/14 Report |Annual , where we we , where , 31

Additional information Consolidated financial statements Governance Strategic review 32 Alliance Boots | Annual Report 2013/14 Strategic review

Alphega is expanding its pharmacy network across Europe …helping independent pharmacists grow and develop their businesses.

For more information about our Pharmaceutical Wholesale Division, go to our Business review on page 28 or our online Annual Report at allianceboots.com Alliance Boots | Annual Report 2013/14 33 Strategic review Governance Consolidated financial statements Additional information 34 Alliance Boots | Annual Report 2013/14 Strategic review Other activities

Contract Manufacturing & Corporate Costs

BCM, our Contract Manufacturing business, Corporate Costs increased year on year by manufactures consumer health and beauty £7 million to £39 million, mainly as a result products for internal supply and third of costs incurred in developing our evolving party brands, and also produces special partnership with Walgreens. prescription medicines for individual use. Total revenue decreased year on year by 5.0% to £226 million, internal demand being impacted by stock optimisation programmes and the timing of internal business orders. The trading loss increased by £2 million to £5 million, reflecting adverse mix of special prescription medicines together with lower pricing, which was partly offset by reduced losses from contract manufacturing. The programme announced at the end of last year to improve the efficiency and overall performance of the UK factory, including investment in new product technologies to enable greater flexibility and support the Group’s leading beauty and skincare product brands, is progressing in line with expectations. Associates and joint ventures joint and Associates £38 million to £49 to £38 million million. by increasing businesses these from profits trading of share total our Hearingcare, Boots from year’scontribution afull with together ventures, joint and associates principal our all in performances improved to due was £12 year. turnaround This prior the in million of a loss to compared £21 million, totalled ventures joint and associates other our of earnings post-tax underlying of share Our target. of ahead tracking date to achieved synergies total programme, synergy the of progress overall the with pleased are we stage, early an at still While with AmerisourceBergen. relationship term long strategic our from year the of quarter final the in income initial not-for-resale), and with for resale together (both services and goods of suppliers other pharmaceuticalwith and manufacturers agreements global of number a growing to Thisreflects £63increasing profit million. trading of share our million, £58 to £52 million by year on year increased key suppliers, relationships with pharmaceutical and other 2012 late in Switzerland global in lead to Walgreens with established we venture joint Development Alliance Walgreens Boots of earnings post-tax of share Our £85million. of increase year on ayear £79 million, totalled ventures joint and associates of earnings post-tax underlying of share Our Holdings. Acquisitions AB of associate an be to continues measures. performance underlying our from figures Galenica’s excluded have we aresult, As agreement. Walgreens the with accordance in Holdings, company, Acquisitions AB parent Galenica in interest equity our distributed we announced, 10 On May 2013, activities. previously as Group’s our of component important an be to continue ventures joint and Associates to the Group’s ultimate Group’s ultimate the to

, the , the and Slovenia. and Serbia Herzegovina, Bosnia in trades also which Croatia, in wholesaler a pharmaceutical Oktal and Algeria, in operator wholesale Pharm Hydra andlogistics contract jointwholesale venture, 2013, February in associate UDG an becoming since successfully very profits Boots HearingcareBoots include ventures joint and associates Other margins. better and revenue increased the to due improved Profitability market. pharmacy achallenging be to continues what in strategy segmentation customer and policy commercial asuccessful to due share, market and revenue increased significantly Alliance Portugal Healthcare prior year. the of half first the in experienced issues receivables and avoiding the operational in productivity, tightening controls over improvements corresponding delivering accounts, customer value low of number 18 months. This included reducing the last the in taken actions management of challenging market as aparticularly result a be to continues what in significantly Italia Alliance of Healthcare performance The acquisitions. targeted and growth operations through a combination of organic its expand to continues China, in wholesalers pharmaceutical major the of is one which business, The growth. profit and revenue 2007, well, very performed delivering good Corporation Pharmaceuticals Guangzhou In China, Alliance Boots , while still unsatisfactory, improved improved unsatisfactory, still , while , our joint venture established in in established venture joint , our , a leading pharmaceutical pharmaceutical , aleading | Annual Report 2013/14 Report |Annual , which has grown sales and and sales grown has , which again again , our UK pre- UK , our , 35

Additional information Consolidated financial statements Governance Strategic review 36 Alliance Boots | Annual Report 2013/14 Strategic review Financial review

We continue to reduce borrowings while investing for the future.

George Fairweather Group Finance Director

Cash generated Total Net borrowings from operations cash flow reduction £1,544m £820m £842m

Cash flow for the year ended 31 March 2014

£million Trading profit 1,270 Underlying depreciation and amortisation 238 EBITDA 1,508 Exceptional items (5) Net loss on disposal of property, plant and equipment 2 Net movement in working capital and provisions 82 Movement in net retirement benefit assets and obligations (43) Cash generated from operations 1,544 Interest (254) Tax (141) Acquisition related expenditure (166) Capital expenditure (253) Dividends 32 Other 58 Total cash flow 820 Income statement summary Income statement operations comprised the following: from profit within items Exceptional 32.4%. of increase year £936 (2012/13: million £707 million), on ayear was shareholders equity to attributable year (2012/13: £1,101 the profit for million)and was £1,327operations from profit million £1,132 (2012/13: million £1,054 million), was jointventures and before associates operations from profit basis, astatutory On 18.5% to million. £840 by year on year increased shareholders equity to attributable profit Underlying 7.7%. of £1,382 to rises increase year on ayear million, ventures joint and associates of profit trading of share our including when which currency), £1,270 to basis (up 0.6% million constant in by 0.4%Tradingreported on a increased profit Tax (charge)/credit costs finance Net associate in investment of Impairment of associates distribution and disposal on Gains jointventures and before associates operations from profit Within Other Call option for warrants ventures joint and associates before operations from Trading profit/profit 31 2014 March ended year for the Year on year increase shareholders to equity Underlying for profit/profit the yearattributable Underlying for profit/profit the year A glossary of key terms, including definitions of additional performance measures, is included on page page on 123. included is measures, performance additional of definitions including key of terms, A glossary company. parent Group’s ultimate the to distribution May in 2013 Group the of associate an be to its ceased following which Galenica, associate, distributed the exclude measures underlying All Less: non-controlling interests Net gains relating to associates to relating gains Net ventures joint and associates of earnings post-tax of Share £million 116 (34) 71 (38) (7) (4) which gave rise to again. to rise gave which 10 on Group May 2013 by the distributed was Accordingly, Galenica shareholders. selling the to value fair at Galenica in investment Group’s the transfer otherwise or distribute to made was acommitment Group, the in stake a45% acquire to equity Walgreens for Walgreens and company parent 2012 June in into Group’s ultimate the with entered Agreement Option and Purchase the of part As Galenica. in investment Group’s the to related mainly associates of distribution and disposal on gains The Group. the of activities underlying the of part forming as regarded is not option the to relation in cost associated the own, currently not do they that Group the of stake 55% equity remaining the acquire to option its exercises Walgreens if exercisable is only option call the As Group. the from warrants these purchase to for Walgreens Walgreens to option acall issued Group the Simultaneously, dates. future at AmerisourceBergen of equity 8%to the of up purchase to warrants receiving Group AmerisourceBergen which included the with agreements signed Walgreens with together year, Group prior the the During Underlying £million 1,270 1,349 840 840 888 (150) 131 (311) (48) 79 –

Amortisation Amortisation relationships of customer customer of and brands £million (100) (100) (69) 31 – – –

Exceptional £million (increase) decrease/ year Year on costs finance Net increased to 4.1x to increased profit (2012/13: trading 4.0x). costs, finance net underlying to profit trading of ratio the as cover, define we Interest which investments. on income finance by lower offset partially were which of benefits the borrowings, net lower of aresult as mainly £311 to by £9 year million on year million, decreased costs finance net Underlying costs Finance income Finance Net finance costs comprised the following: the following: comprised costs finance Net Net finance costs items 138 (38) 109 120 (53) 71 Alliance Boots –

Underlying Underlying Distributed associate £million

£million (311) (351) 40 9 7 – – – – 7 7

| Annual Report 2013/14 Report |Annual Exceptional £million differences items items (46) (53) (7) £million Timing Timing

differences 10 (3) 7 £million – – – – Timing Timing

10 10 – Statutory Statutory Statutory £million £million 1,132 (354) 1,327 (354) (387) 229 936 971 (90) 109 (35) 86 33 (2) 37

Additional information Consolidated financial statements Governance Strategic review 38 Alliance Boots | Annual Report 2013/14 Strategic review

Financial review continued

Exceptional items within finance income Tax analysis £166 million of cash was spent on acquisition mainly comprised prepaid financing fees Other related expenditure. This mainly related expensed on repurchase and repayment of UK countries Total Effective to the purchase of 20% equity stakes in acquisition borrowings, partially offset by a £million £million £million tax rate Hedef Alliance (Turkey) and Farmexpert fair value gain on the contract to acquire a Underlying (Romania) to reach full ownership of these 12% equity stake in Nanjing Pharmaceutical tax charge pharmaceutical wholesaling businesses, and Company Limited. Acquisition borrowings Current year (123) (56) (179) 18.7% Aromatherapy Associates, the first acquisition with a net value of £1,258 million were Adjustments by the specialised investment fund repurchased and repaid during the year. in respect of established by the Group during the year. prior years 13 16 29 In total, £3,678 million has been repurchased £253 million of cash was invested on capital and repaid since the programme began Total (110) (40) (150) 15.6% expenditure. Around three quarters of this in early 2009 at a cost of £3,402 million. Year on year investment was in our Health & Beauty The discounts on repurchase, net of (increase)/ Division, primarily in the UK where we related prepaid financing fees, have been decrease (4) 33 29 have increased investment in our retail accounted for as redemptions, reducing stores and in information technology net borrowings. (90) (51) Net tax paid (141) projects. Investment in our Pharmaceutical Exceptional items within finance costs mainly Year on year Wholesale Division was mainly on increase (26) (1) (27) related to the increase in the fair value liability upgrading its distribution network and on for the Group’s commitment to distribute or Net tax paid in the UK was lower than the information technology. otherwise transfer its investment in Galenica underlying tax charge, mainly due to a tax Dividends mainly related to receipts from up until the date of distribution. repayment following the resolution of prior Development, the Timing differences within net finance costs year computations. joint venture established in the prior year. comprise IAS 39 timing differences which On a statutory basis the accounting tax Other net cash inflows included repayment of relate to derivative financial instruments charge was £2 million (2012/13: £96 million). a £57 million loan advanced in the prior year partially offset by the unwind of discounts on Exceptional items tax credits of £120 million to a fellow subsidiary of the Group’s ultimate obligations to non-controlling interests. in the year related primarily to a net reduction parent company. in deferred tax assets and liabilities resulting Tax from the three percentage point reduction in Net borrowings The underlying tax charge was £150 million the rate of future UK corporation tax enacted At the year end, net borrowings were (2012/13: £179 million), equating to an during the year. This comprised a two £5,051 million, a year on year reduction underlying effective tax rate of 15.6% percentage point reduction applicable from of £842 million. (2012/13: 18.9%). April 2014 and the further one percentage Movement in net borrowings The year on year decrease of 3.3 percentage point reduction applicable from April 2015 in the year points was mainly due to an increase in taking the UK rate to 20%. In the prior year, non-taxable income, a one percentage point a one percentage point reduction in the rate £million reduction in the rate of UK corporation tax of future UK corporation tax was enacted. Total cash inflow 820 and profit mix. Repurchase and repayment of Cash flow acquisition borrowings (14) During the year the Group generated a Amortisation of prepaid strong operating cash flow, which was used financing fees (19) to fund investment in growth and reduce Capitalised finance costs (4) net borrowings. Finance leases entered into (5) Cash inflow from working capital (net of Currency translation differences and provisions) was £82 million as a result of our fair value adjustments on financial instruments 64 ongoing programme to further improve working capital efficiency. Decrease in net borrowings 842 Net borrowings at 1 April 2013 (5,893) Net interest paid of £254 million was lower than underlying net finance costs in the Net borrowings at 31 March 2014 (5,051) income statement, mainly due to the amortisation of prepaid financing fees and In accordance with International Financial premia paid on interest rate caps. Reporting Standards, fees incurred relating to the raising of finance were netted off the related borrowing. These prepaid fees are amortised over the term of the financing being provided, increasing net borrowings. Capitalised finance costs relate to the rolled up interest on the subordinated debt, which is payable when the debt itself is repaid. 31 2014 March at equity Shareholders’ 2013 1April at equity Shareholders’ equity shareholders’ in movement Net interests of non-controlling Purchase owners: with Transactions income comprehensive other in Tax recognised items on Other associate of distribution on Recycled differences translation Currency remeasurements Defined benefit schemes – net other comprehensive income: Income and expense recognised in equity shareholders to attributable year the Profit for interests Attributable to non-controlling the year for Profit year in the equity in shareholders’ Movement £6,186£686 to million million. by increasing equity shareholders’ end, £552 £6,223 to year million the at million by year the during increased Total equity Equity Company Limited. Pharmaceutical Nanjing in 12% stake equity a acquire to contract the and instrument acredit to relate mainly and value fair at carried are instruments financial Derivative and other obligations. law by restricted cash instruments, financial on collateral as pledged cash agreements, agency contractual under restricted 31 March 2014, consisted at deposits of and, operations day to day its in Group the of use for the available is not so and purposes for specific is restricted Restricted cash comprises cash which Borrowings instruments financial Derivative Restricted cash equivalents cash and Cash 31at 2014 March borrowings net of Analysis

(5,051) £million £million 6,186 (5,745) 5,500 686 971 (158) (182) 501 936 156 129 (35) (78) 27 37 12 Boots Pension Scheme. Pension Boots the to payments funding deficit to related mainly year the during contributions Cash 31 at 2014 March obligations Net retirement benefit 20131 April at obligations benefit retirement Net obligations benefit Net movement in retirement differences translation Currency remeasurements Net Cash contributions year for the profit within cost Net year in the obligations Movement in net retirement benefit Retirement benefit obligations Farmexpert. and Alliance Hedef in own previously not did Group the that interests remaining of the purchases committed contractual respective the to related interests non-controlling of purchase The Galenica. of distribution the to related associate of distribution on recycled amount The Krone. Norwegian Turkish and Lira the to relative year prior the to compared end year the at Sterling stronger the of aresult as exposures. These differences were mainly translation these hedge partially to drawn borrowings currency of net investments, and non-Sterling businesses denominated our of assets net the of retranslation the on arose differences translation Currency

£million (138) (174) (189) (36) 50 (1) 2 assessed as part of the 2016 the of part as valuation. assessed be will achieved, not are plan recovery the in assumed returns assets’ the if contributions additional make to required be may Group the which to extent The structures. partnership funding pension the from contributions the to addition in years, three next the of each in £53 million contribute will 2010 Group Accordingly, the the at valuation. agreed those above and over Group the from in no additional contributions being required triennial actuarial valuation. This has resulted 31 the 2013 March completed Scheme Pension Boots the of trustees the end, 31 at as 2010. March Scheme year to Prior Pension Boots the of valuation actuarial triennial the following agreed those to related mainly year the in contributions Other schemes. pension benefit defined UK for its benefits accrued of security term long ensure to plans Group’s ongoing the of part are initiatives funding These assets. plan of value fair the within included not therefore are and statements financial Group’s consolidated the of purposes for the assets as qualify not do partnerships the in Scheme by the held investments 19 the as IAS basis, accounting an on deficit the impact not does agreement the although basis, funding on a deficit the reduces partnerships the in interests Scheme’s The time. in point that at Scheme the in £156 of deficit funding any and million 2031 in made lower be the to will sum equal capital a addition, In years. five for afurther £1013 years, thereafter year with per million for afurther contributions annual similar make will partnerships The arrangements. leaseback and sale under properties of anumber £273 transferred and million worth partnerships in interests contributed Group the years, prior in which, under structures partnership funding pension by two made were £22 million totalling Contributions Alliance Boots | Annual Report 2013/14 Report |Annual 39

Additional information Consolidated financial statements Governance Strategic review 40 Alliance Boots | Annual Report 2013/14 Strategic review

Financial review continued

The Scheme has continued with its Treasury policies The Group’s core borrowing is provided investment strategy of targeting to hold 85% The Group’s treasury policies are reviewed through committed loan facilities originally of its assets in a diverse portfolio of high at least annually by the Board. set up in 2007 when Alliance Boots became quality bonds with the remainder invested a privately owned company. In July 2013, Group treasury has responsibility for the in equity and property assets backing longer the Group announced that it had completed Group’s funding and cash management and term liabilities. Interest rate and inflation rate a programme to repurchase and repay all manages the Group’s financial counterparty swaps are also employed to complement the outstanding under its Subordinated credit, interest rate and currency risks. It role of fixed and index-linked bond holdings Facility Agreement that it had not previously enters into financial instruments solely for in liability risk management. acquired. In addition, in March 2014, the the purpose of managing these risks. It does Group completed the extension of certain On an accounting basis, there was a net not act as a profit centre and is not allowed to existing private syndicated loan facilities remeasurements loss of £189 million which undertake speculative transactions. in accordance with the ‘springing maturity’ comprised a loss of £212 million from scheme Treasury risk management activities mechanism agreed with senior lenders assets, partially offset by a £23 million (principally interest rate risk and currency) are in December 2012. All committed loan decrease in scheme liabilities. The asset undertaken to protect the economic value facilities can remain in place post exercise of decrease was mainly due to a decrease in of the Group. Where possible, the Group Walgreens option. corporate and government bond values seeks to apply hedge accounting to financial invested in by the Boots Pension Scheme The Group’s net borrowings vary throughout instruments transacted for the purpose of in the UK, which is consistent with general the year in a predictable seasonal pattern, hedging underlying exposures. bond markets. subject to material acquisitions and disposals. Working capital requirements are typically Liquidity risk management at their highest in the autumn due to the Access to cost-effective funding is managed Our policy is to have an appropriately geared working capital requirements of Christmas by maintaining a range of committed and balance sheet. When considering appropriate trading. The Group continues to monitor uncommitted facilities sufficient to meet debt levels we take into account ongoing its net borrowings position on a daily basis anticipated needs, arranging funding ahead lease commitments and any unfunded against both budget and a rolling two month of requirements, and developing diversified pension liabilities. cash forecast. sources of funding. The Company’s objectives when managing The Group’s committed bank borrowing Group liquidity is optimised through cash capital are to safeguard the Group’s ability facilities require compliance with certain pooling and deposits with or loans from to continue as a going concern in order to financial and non-financial undertakings and Group treasury companies. provide returns for shareholders and benefits covenants. The principal covenant is a net for other stakeholders and to maintain an borrowings:EBITDA ratio. optimal capital structure to reduce the cost of capital. We finance our operations through a combination of loan financing, leases and equity including retained profits, to ensure that the Group has access to liquidity at all times and can fund itself in a cost- effective manner. Swiss Franc Swiss Lira Turkish US Dollar Euro follows: as were information financial of preparation the in used Sterling to relative rates exchange significant The exposures arise. where such derivatives contracts currency forward by entering exposures, offset by corresponding translation those than other exposures, transaction non-functional currency denominated material hedging of apolicy has Group The Euros. in were £1,285 Group’s borrowings net the of million end, year At the contracts. derivative exchange foreign with complemented currency, same the in denominated borrowings with exposures translation these on consolidation. The Group hedges partially exposure atranslation cause that investments and businesses significant owns Group The management risk Currency 2015. during mature for which hedges the rate, interest capped or fixed of form some to subject are borrowings Group’s the of proportion A significant swaps. rate interest and caps rate interest of a combination through hedged are Exposures Board. by the approved policy treasury the with accordance in risk rate interest manages Group The Interest risk rate management Krone Norwegian Russian Rouble Russian Average 2013/14 52.51 3.20 9.53 1.46 1.59 1.19

31 March 31 59.44 1.48 3.63 1.66 9.99 1.21 As at As 2014

Average 2012/13 49.20 2.84 1.58 1.23 1.49 9.13

31 March 31 46.98 8.86 1.44 As at As 1.51 2013 2.74 1.18

concentrations of credit risk. risk. credit of concentrations significant no were there end year At the regularly. undertaken are reviews debtor aged and annually least at reviewed are limits customer checked, credit are customers New businesses. our of each in functions control credit through is managed counterparties commercial to exposure risk Credit pricing. swaps default credit sovereign and counterparty as such indicators other monitors also Group The agencies. rating by major issued ratings to reference by are set Limits limits. sovereign setting by as well as groups, their or counterparties individual to exposure maximum the to limits based ratings by setting counterparties financial of failure from arising loss financial of risk the against itself protects Group The management risk Credit

Alliance Boots | Annual Report 2013/14 Report |Annual 41

Additional information Consolidated financial statements Governance Strategic review 42 Alliance Boots | Annual Report 2013/14 Strategic review Performance measures

Group

How fast we are growing Our profit performance Our profit performance The cash we are producing Revenue Trading profit Underlying profit Cash generated from including share of associates including share of associates attributable to equity operations and joint ventures and joint ventures shareholders £million £million £million £million 25,685 1,382 +4.3% 24,813 24,627 +7.7% +18.5% £1,544m versus last year versus last year 1,283 versus last year 1,238 1,601 1,648 21,983 1,544 1,118 20,059 840 998 1,309 1,130 709 634 579 559 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14

The cash we are investing Our total cash flow How fast we are reducing Health & Safety in our future our debt Cash investment Total cash flow Net borrowings Work related ‘greater than three day lost time accidents’ £million £million £million £419m £820m 1,105 down £842m down 121 versus last year versus last year 597 782 820 412 419 573 504 277 284 5,051 5,893 486 7,017 607 8,389 7,843 682 666 693 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14 09/10 10/11 11/12 12/13 13/14

Health & Beauty Division

How fast we are growing Our profit performance Revenue Trading profit +2.5% c. currency* +2.4% c. currency* +2.4% reported +2.4% reported versus last year versus last year

Pharmaceutical Wholesale Division

How fast our markets are growing How fast we are growing Our profit performance Market value Revenue Trading profit c.+2.5% c. currency* +4.8% c. currency* -0.8% c. currency* versus last year +4.8% reported -1.6% reported versus last year versus last year

* Constant currency Revenue and trading profit including share of associates and joint ventures and all underlying measures exclude the distributed associate. A glossary of key terms is included on page 123. Our people Our in the same job or a suitable alternative. asuitable or job same in the employment of continuity provide to made is effort every disabled, becomes people our of one Where disabled. the of training and employment the towards responsibilities our meet to is practicable We that all do origin. ethnic or disability, orientation, sexual belief, or religion age, sex, of regardless opportunities, equal We provide to aim this. achieve to policies employment our designed have so and diversity this nurture to continue we that success future our to It is critical talents. and nationalities different many of Group is adiverse Boots Alliance opportunities equal and Diversity, culture times. all at and patients for customers best their do to motivated feel people our that is ensure to This simplicity. and entrepreneurship service, trust, partnership, values: core our of reflective is that Group the throughout a culture We create to mission. aim our achieve to are we if talent retaining and developing attracting, of importance the We understand in more 25 than countries. employed over 108,000 people our associates andjoint ventures, At year the Group, the end including UKandmanyin the other countries. Alliance is Boots amajor employer representatives on issues. with consult and brief to Councils Works European two have and Europe around forums employee other and councils works with closely We communicate this. achieve to people our with partnerships meaningful in forging and are performing businesses our how on dialogue open We in believe with improved functionality. refreshed and relaunched during theyear was intranet Group The sites. intranet and video conferences, magazines, newsletters calls, conference events, networking briefings, team face-to-face regular include aims these fulfil to used Approaches businesses. our of spread geographical and diversity the reflecting channels, of variety a wide through people our with We communicate direction. future its and Group the about understanding their increasing while locally, business the of part their in engaged and about informed are people our all that is ensure to aim Our engagement and Communication year. the during scheme the joining apprentices 30 new around with programme apprenticeship advanced its develop to continues UK Boots year. the In addition, during programmes Group-wide assessment and development selective our in 3,300by over employees many forms, including global participation and develop additional skills. This can take learn to people our encourage and support we In addition, businesses. international our in 250 pharmacists around as well as 6,500, around to total the bringing UK the in pharmacists qualified fully and graduates pharmacy 500 under pre-registration just year, the recruited we During talent. best the retain and develop We attract, to aim Recruitment and development

of our people. of our and achievements commitment particular the celebrating excellence, reward and recognise to businesses our within schemes recognition other of anumber are There performance. individual and business to linked are that schemes reward through future Group’s the in people our of involvement and interest continued We encourage this. achieve to trust and commitment the fosters that Group the throughout We aculture create to care. aim and deliver great patient and customer service people enthusiastic and motivated that Our experience continues to demonstrate choice. of employer an as recognised be to seek we operate we wherever and people our of wellbeing the to committed We highly are efforts. their all appreciate greatly we and people, our of drive and passion loyalty, the of is aresult Group our of success the that We recognise reward and Recognition Alliance Boots | Annual Report 2013/14 Report |Annual 43

Additional information Consolidated financial statements Governance Strategic review 44 Alliance Boots | Annual Report 2013/14 Strategic review

Supporting the fight against cancer …our people are helping the European Organisation for Research and Treatment of Cancer Charitable Trust by raising funds and awareness.

For more information about our CSR activities, go to page 46 of our Annual Report or visit our online Annual Report at allianceboots.com Alliance Boots | Annual Report 2013/14 45 Strategic review Governance Consolidated financial statements Additional information 46 Alliance Boots | Annual Report 2013/14 Strategic review Corporate social responsibility

Serving our communities with care and commitment every day.

Ornella Barra Chief Executive, Wholesale and Brands Chairman of the social responsibilities committee

Alliance Boots is dedicated to Throughout the year, I was particularly For the third consecutive year, in April 2014, helping people look and feel their impressed by our people’s enthusiastic we achieved platinum status awarded by support for our long term charity Business in the Community as part of its 2014 best, corporate social responsibility partnerships, numerous volunteering and Corporate Responsibility Index. We are proud (CSR) being an integral and vital fundraising initiatives being launched for to be a leader within the responsible business part of our operations. Our the EORTC Charitable Trust. agenda and this accolade is testament to the combined efforts of our people. stakeholders, whether customers, Our partnership with Macmillan Cancer patients, suppliers or colleagues, Support continues to provide invaluable We also continue to look for ways to reduce and accessible support to those affected our impact on the environment. During expect a leading pharmacy-led by cancer in the UK, our Boots Macmillan the year, Boots commenced a major chiller health and beauty group to act as a Information Pharmacists offering advice to replacement programme to support its responsible corporate citizen, serving those in need. In addition, over 200 No7 commitment to reducing CO2 emissions. our communities with care and beauty advisors received training during We see this as an important step forward the year to provide tips on managing the in reducing energy consumption in Boots commitment every day. visible of cancer treatment. stores, while improving our food offer Our approach ensures that our business We also offer support to many other cancer for customers. charities across the Group, including the practices are socially, environmentally and The Group has no affiliation to any political Irish Cancer Society. economically sustainable across the Group. party or organisation and made no political The social responsibilities committee, which During the year, Marco Pagni, Group Legal donations. During the year, the Group made I chair, reviews and advises the Board on the Counsel & Chief Administrative Officer charitable donations totalling £1.6 million. Group’s policies and practices in the area and a member of the social responsibilities We will publish our dedicated and detailed of CSR. This includes issues related to the committee, continued his leadership of CSR Report for 2013/14 on our website in environment, health and safety, diversity the Reducing Reoffending Taskforce, in September 2014. The report will provide and equal opportunities, race relations, partnership with Business in the Community. a comprehensive overview of the Group’s employment of people with disabilities, The Taskforce, which comprises a number of CSR activities and will continue to be written charitable giving, ethical matters and the our key suppliers, achieved notable success following the Global Reporting Initiative Group’s values and standards. during the year, giving people with criminal guidelines and criteria. It will, as usual, include convictions the opportunity to access The committee closely reviews progress an independent assurance report by KPMG. through our Group corporate social employment and bringing about cultural change in member companies. Since the responsibility scorecard, which is split into Ornella Barra year end, Simon Roberts, Managing Director, four core areas: community, workplace, Chief Executive, Health & Beauty UK and Republic of Ireland, marketplace and the environment. Wholesale and Brands was appointed co-chairman of the Future Across these areas our businesses have Chairman of the social responsibilities High Streets Forum, which advises the UK key objectives and priorities, which are committee embedded into the daily activities of Government, continuing our support for local our people to ensure they understand high streets. the importance of our corporate social responsibility agenda. customers and patients. and customers to advice and information related tolocal programmes deliver health- –with network Pharmacy Alphega the as well as pharmacies franchise and owned our –through reach consumer To significant our of make use community. local its within people of wellbeing and health to improvethe activities supporting with organisations charitable with partnerships establish to business principal For each Trust. Charitable EORTC the with in partnership cancer colorectal for a‘biobank’ establish To million by 2016 over €5 raise to communities priorities Our that we serve. for 2013/14 were: that share of our values making adifference andour commitment to improving andwellbeing health local in the Objective: Community 2013/14. of our achievements Asummary against is these setbelow. out In our Corporate Social Responsibility 2012/13, Report we aseries set ourselves of objectives andpriorities for programmes inprogrammes place. businesses with employee volunteering To our of number the increase for priority Our we serve. 2013/14 was: Objective: To establish meaningful multi-year charitable with organisations partnerships and other stakeholders To our employees to support volunteer their time to make adifference communities in the that across all Alphega pharmacies. Alphega all across launched was campaign awareness adiabetes France, in and two, age to up children with mothers and women pregnant of concerns emotional and health addresses which Guide, Baby and Pregnancy its relaunch to pharmacies Alphega with worked Alliance Healthcare España check. eye Boots the in standard as check retinal adigital include now and locations, all in cameras retinal installed Opticians Boots activity. physical of importance the about teams pharmacy to talk to customers encourage to campaign Good’ Feel ‘Get Active, its launched UK 1,850. over to Boots total the In year, addition, the bringing during Pharmacists Information Macmillan Boots as trained pharmacists UK Boots 500 A further £255,000. over raised People, for Blind Action with partnership its through Opticians, Boots Additionally, £6.5 million. almost being raised total cumulative the BCM, and Opticians Boots in colleagues of help the with charity, £1 for the year,million around raising tenth for the Need in Children BBC supported Boots UK food for children. HIV-infected and shelter providing Foundation, BaanGerda with the partnership year athree has Thailand Nurses’. Boots Night Walk for Night ‘National the including €190,000 over year, raised the activities which during Society, Irish Cancer the with partnership Ireland’s Boots include Examples place. in activities supporting related and partnerships charitable year, had the 12During businesses our of €11,000. raising salary, their of aproportion donated 300 colleagues around where Italia Healthcare Alliance being example an programme, the in participated for –Ride Life’, £17,000. to over raised ‘London which the and also businesses Associate partners, of support £60,000 the over by foot by bike raise to or with Park London’sof Hyde ‘ParkLife2013’, as such events 2,905km 210 covering over involved sporting which colleagues included initiatives €1.9 to volunteering total and Fundraising cumulative million. the bringing In 2013/14, Trust, €0.9 EORTC raised for the Charitable million businesses Boots Alliance nature park. nature park. a at gardens up clearing and autism with patients in specialising home acare of gardens the renovating centre, ecological an at orchards and fields gardens, upkeep to volunteering ‘Give 2013’, in Day &Gain participated also employees Republic Czech Healthcare Alliance May in 2013. Ground Recreation Forest Nottingham renovating employees UK 200 Boots of recognition in Awards, Impact Local Midlands East Year the at the of Award’ Company Volunteering ‘Employee Community the in Business the of winner ajoint was UK Boots place. in programmes volunteering employee have all Republic Czech Alliance Healthcare and Opticians Boots UK, Boots communities. local their in volunteering opportunities employee in participate to encouraged are employees businesses our Across

Alliance Boots | Annual Report 2013/14 Report |Annual 47

Additional information Consolidated financial statements Governance Strategic review 48 Alliance Boots | Annual Report 2013/14 Strategic review

Corporate social responsibility continued

We continue to focus on improving health and safety at all levels for all employees.

Marco Pagni Group Legal Counsel & Chief Administrative Officer Director responsible for the leadership of Health & Safety

Environment

Objective: To reduce the Group’s like for like CO2 emissions. Our priorities for 2013/14 were: To achieve a like for like percentage decrease Progress against this target will be published in our annual Corporate Social in usage of energy (our largest category of CO2 Responsibility Report 2013/14 in September when the relevant data has been emissions), through increased awareness and collated and checked. During the year, Boots commenced a chiller replacement sharing of best practice methods across the programme, which involves installing over 2,500 new food and drinks refrigeration Group. cabinets and related refrigeration equipment in around 780 stores across the UK and the Republic of Ireland at a cost of just under £30 million. The replacement chillers are 40% more energy efficient, will help reduce food waste through better temperature controls and are easier and less expensive to maintain. Boots buildings in Great Britain, with the exception of power generated on the Nottingham campus and landlord supplies, are now powered by green (low carbon) electricity. In addition, Boots UK continues to be compliant with the Carbon Reduction Commitment Energy Efficiency Scheme and from April 2013 was re-accredited with the Carbon Trust Standard. To reduce the level of non-essential business Many of our businesses are making greater use of the Group-wide video travel through increased usage of the Group- conferencing systems, including the Group Board and related committees. This wide video conferencing system. is saving valuable management time and travel costs, as well as reducing carbon emissions. To help reduce the impact of essential travel, the Group’s new company car policy now includes more fuel-efficient cars and a prohibition on cars that achieve less than 40 miles per gallon on average. Objective: To reduce the Group’s like for like total waste levels and increase the proportion of waste that is recycled. Our priority for 2013/14 was: For each principal business within the Group to Progress against this target will be published in our Corporate Social Responsibility achieve a waste recycled level of 50% or higher, Report 2013/14 in September when the relevant data has been collated and where local facilities exist to enable recycling. checked. Across the Group, businesses have undertaken numerous initiatives to both limit the amount of waste produced and increase the proportion which is recycled. During the year, Farmexpert in Romania and Hedef Alliance in Turkey both launched awareness campaigns to encourage employees to separate their waste for recycling across office locations. BCM’s UK site continued to achieve zero waste to landfill. to setin out standards complyour Code the with ofandBusiness Conduct Ethics. for priority Our 2013/14 was: Objective: Marketplace responses developed. responses appropriate and management by senior reviewed are results that ensure and Group, the of parts major the across surveys, as such To introduce employee programmes, feedback appraisal anddevelopment plans. for priority Our 2013/14 was: Objective: expertise. service healthcare usingour Group, the across colleagues our To of wellbeing and health improvethe principal business. each within accidents’ time day lost three To than ‘greater of number the reduce appropriate training, education andincident management priorities Our practices. for 2013/14 were: Objective: Workplace strategy. usage water appropriate an develop and businesses To in UK-based our usage water review businesses. our of and impacts andsocial benefits environmental the review and To we understand that ensure Group. priorities Our for 2013/14 were: Objective: verification programme. supplier our through Ethics Business and Conduct of Code our with comply fully products, selected other and exclusive products, and brands owned our for partners business and suppliers that To to ensure aprocess implement To evaluate Group’s the andwork with major suppliers to that establish theyhave suitable processes in place To our employees engage with regular feedback through sessions localforms andthrough of employee To reinforce ofwith Group the supported thatandsafety arobust health in all parts regime exists To ensure that awareness an of, andfocus on, sustainability is across within our embedded activities the introduced a revised colleague feedback scheme, called ‘Listen Up’. ‘Listen called scheme, feedback colleague arevised introduced UK Boots and year the during surveys introduced Norge Boots and Romania in Farmexpert place. in programmes feedback employee have businesses our of Nine training. related and workshops included which programme, addition, Alliance ‘We launched its Netherlands Healthcare Care Your About Health’ In wellbeing. and health improving on ideas with booklet, Happen’ Make it ‘Let’s its of edition second the launched UK year, the Boots During importance. is paramount of Group the across colleagues our of wellbeing and health The employees.all for and levels all at safety improve to designed initiatives of arange overseen has Group, the across issues safety and health of leadership for the responsible Director the Marco Pagni, issues. safety and health on focus significant place to continue We Divisions. both in improvements with falls, or trips to related accidents these 121. of decrease accidents’,year of on time ayear lost majority day The three than ‘greater related employee 486 were There pharmacy. acustomer’s exited driver delivery our as abuilding from fell masonry where Egypt in Turkeyin other the and accident atraffic of In aresult as 2013/14, one fatalities, employee two were there methodology. sustainability using own our manufacturing, when consideration into is taken scarcity water that ensure to work to continues Boots In addition, operations. manufacturing its in usage water minimise to ways pursue actively to programme ongoing an has BCM is modest. Divisions Wholesale Pharmaceutical and &Beauty Health our in usage water that concluded review This Mark. Responsibly Working Business Community’s the in Business achieved Ireland Boots In addition, food products. in content salt regarding Deal Responsibility Health Public Health’s of Department the on Consortium Retail British the with work to continued also business The values. nutritional and labelling food including food ranges, its review to continued UK year, the Boots During products. selected other and products, exclusive and brands owned of suppliers for criteria assessment our of basis the forms which Ethics Business and Conduct of Code our with compliance for reviewing process our year, the developed we During

Alliance Boots | Annual Report 2013/14 Report |Annual 49

Additional information Consolidated financial statements Governance Strategic review 50 Alliance Boots | Annual Report 2013/14 Governance Board of Directors The Board comprises the Executive Chairman, three other executive Directors, three Directors representing KKR, four Directors representing Walgreens and four non-executive Directors.

01 Stefano Pessina 02 George Fairweather 03 Marco Pagni 04 Ornella Barra

05 Dominic Murphy 06 Mattia Caprioli 07 Sergio D’Angelo

08 09 Wade Miquelon 10 Thomas Sabatino 11 Robert Zimmerman

12 Nick Land 13 Chris Britton 14 Tony De Nunzio CBE 15 Etienne Jornod • • • The principal Board committees are: social responsibilities committee responsibilities social remuneration committee committee risk and audit of Scotland. of Accountants Chartered of Institute The of is amember George McLintock. KPMG Thomson and Procter & Gamble Group, for Dixons he worked his career in Earlier International. Dawson and Elementis of Director Finance Group was 2002. in he position Previously same in the UniChem Alliance joined 2006, having July in Boots Alliance of Director Group Finance appointed was Fairweather George Group Finance Director Fairweather 02 George 1977.in by profession. engineer is an He Italy in established he which group wholesale Santé, the Franco-Italian pharmaceutical Alliance with 1997 merged UniChem when in Board UniChem Alliance to the appointed was 2004. Stefano December until up years for three Executive its Chief been having previously UniChem, Alliance of Chairman Deputy he was Executive Boots Group, and UniChem of Alliance merger the to Prior Forum. Goods Consumer the of Board the of amember and Galenica of Director anon-executive is also he and Walgreens of Director anon-executive as appointed 2012, In August Chairman. was Stefano Deputy Executive its been previously having 2007, July in Boots Alliance of Chairman Executive appointed was Pessina Stefano Executive Chairman 01 Pessina • Stefano

Nottingham’s School of Pharmacy. of School Nottingham’s of University the at professor honorary is an and Italy in apharmacist as career her started She Generali. Assicurazioni of Board the of member independent an as appointed 2013, In April UniChem. was with Ornella 1997 in merged Board Santé Alliance when its to appointed been having responsibilities, affairs commercial and wholesale with UniChem Alliance of Director executive was she Group Boots and UniChem Alliance of merger the to Prior committee. responsibilities social the of is Chairman Ornella Brands. and &Beauty Health of International development overall the as well as Division she oversees thePharmaceutical Wholesale role, In her Director. Affairs & Commercial 2013), September Wholesale that, before and 2009 to (from January Division Wholesale Pharmaceutical the of Chief Executive been previously had She Brands. and Wholesale Executive, is Chief Barra Ornella Wholesale and Brands Executive, Chief • Barra Ornella 04 and Wales. England in Bar the to admitted being before University Oxford at lecturer alaw as career his started having Texasand Instruments, McDonalds in positions management senior 2003. in Marco held this, to position Prior same the in UniChem Alliance joined having Boots, Alliance of Secretary Company and Counsel July 2007. General was he Previously in Boots Alliance of aDirector appointed been having Officer, Chief Administrative & Counsel Legal is Group Marco Pagni Chief Administrative Officer & Counsel Legal Group 03 • Pagni Marco Alliance Boots

| Annual Report 2013/14 Report |Annual 51

Additional information Consolidated financial statements Governance Strategic review 52 Alliance Boots | Annual Report 2013/14 Governance

Board of Directors continued

05 Dominic Murphy • 08 Gregory Wasson 10 Thomas Sabatino • Walgreens Walgreens Dominic Murphy is a Partner of Kohlberg Gregory Wasson was appointed to the Board Thomas Sabatino was appointed to the Board Kravis Roberts & Co. (KKR). He is responsible of Alliance Boots in August 2012. Gregory of Alliance Boots in August 2012. Thomas is for the development of KKR’s activities in is President and Chief Executive Officer of Executive Vice President, General Counsel and the UK and Ireland, is head of its healthcare Walgreens having been appointed to its Corporate Secretary of Walgreens. Previously industry team in Europe and is a member Board in 2009. He joined Walgreens as a Thomas held general counsel roles with of the firm’s European investment and pharmacy intern in 1980 and has since held United Airlines, Schering-Plough Corporation, portfolio management committees. He was various roles. Gregory is a member of the Baxter International, and American Medical appointed to the Board of Alliance Boots in Board of Verizon Communications, the International. Thomas is also Chairman of July 2007 and in August 2012 was appointed National Association of Chain Drug Stores, the Association of Corporate Counsel, the as a non-executive Director of Walgreens. the Retail Industry Leaders Association, the of Corporate Pro Bono and a He is also a member of the Boards of Acteon Healthcare Leadership Council, the Consumer member of the Board of the International and Ambea. Since joining KKR in 2005 he has Goods Forum, World Business Chicago, the Institute for Conflict Prevention and played a significant role in the investments Midtown Educational Foundation in Chicago Resolution. Thomas is a member of the Bar in in Alliance Boots, Acteon, Ambea and and the British-American Business Council Massachusetts, Illinois and California. SBS Broadcasting. Dominic also serves International Advisory Board. Gregory is as a member of the Great Ormond Street a pharmacist. 11 Robert Zimmerman Hospital’s Corporate Partnerships Board and Walgreens the National Portrait Gallery Development 09 Wade Miquelon • Robert Zimmerman was appointed to the Council. Dominic was formerly a Partner at Walgreens Board of Alliance Boots in August 2012. Prior , a large European-based Wade Miquelon was appointed to the Board to his retirement from Walgreens in March firm and an investment manager with . of Alliance Boots in August 2012. Wade 2014, Robert was Senior Vice President is Executive Vice President/Chief Financial of International and International Chief 06 Mattia Caprioli • Officer and President, International of Administration Officer. He joined Walgreens Kohlberg Kravis Roberts Walgreens. Previously Wade was Executive in 1977 and worked in various financial and Mattia Caprioli is a Partner of Kohlberg Vice President and Chief Financial Officer corporate development positions, including Kravis Roberts & Co. (KKR). He is the head of Tyson Foods. Before that he worked Senior Vice President/Chief Strategy Officer. of its business services industry team in for Procter & Gamble in various finance Europe. He was appointed to the Board positions in Cincinnati, Singapore, Bangkok of Alliance Boots in July 2007 and is also a and Geneva. Wade is a non-executive member of the Boards of Avincis, Rignet and Director of Acadia Healthcare, a member of PontAventura. Since joining KKR in 2001, he the Board of the Chicago Shedd Aquarium has been actively involved in the investments and The Wood Family Foundation. He is in Alliance Boots, Van Gansewinkel, , also a member of the Dean’s Advisory Board Selenia, Toys ‘R’ Us, Avincis, Rignet and for the Sam M. Walton College of Business, PontAventura. Previously Mattia worked for University of Arkansas. Goldman Sachs International.

07 Sergio D’Angelo Kohlberg Kravis Roberts Sergio D’Angelo is a Director of Kohlberg Kravis Roberts & Co. (KKR). He was appointed to the Board of Alliance Boots in March 2008. Since joining KKR in 2005 he has been involved in the investments in Alliance Boots, SBS Broadcasting, Selenia, NXP (formerly Philips Semiconductor), ProSiebenSat.1 and INAER. Previously Sergio worked for BC Partners and Citigroup. and marketing positions. and marketing management Diageo ingeneral various for worked also he and Numico Royal of Division Food –Baby President and member Board Executive was he career his in Earlier Group. Findus the of Officer Executive Chief was that before and Kitchen Ella’s of Chairman non-executive was Chris Previously, food companies. owned privately of anumber of aDirector and DSof Smith Director is anon-executive he In addition, by Alliance Boots. established fund, investment aspecialist Partners, Capital B&B managed 2013, Since September has committee. Chris responsibilities social the of is amember non a as appointed was Britton Chris Non-executive Director 13 • Britton Chris Wales. and England in Accountants Chartered of Institute the of is amember He Board. Executive Global its of member a and &Young UK the in Ernst of Chairman and apartner was he Previously UKMEA. Dentons of Board the to advisor an and Alsbridge of Board Advisory the of member a Castle, Farnham of and Foundation Group Vodafone Trustees the of of Board the Group, Monitoring Guidelines of the Chairman is also He Council. Reporting Financial the and Group Ashmore Aviation, BBA Group, Vodafone of Director is anon-executive Nick committee. responsibilities social the of is amember and committee risk and audit the of 2008, March is in Chairman Director anon-executive as appointed was Land Nick Non-executive Director 12 • Land Nick ‑ executive Director in June 2008 and 2008 and June in Director executive

•

merger with Boots Group. Boots merger with its until for years six Alliance UniChem of Director anon-executive was He Assurances. Vaudoise of Director executive anon- and group, Swiss newspaper the of AG Neue Zürcher Zeitung, die für Chairman Galenica AG, of Chairman is Executive Etienne non a as appointed was Jornod Etienne Non-executive Director 15 Jornod Etienne Manchester Business School. of Board Advisory the of Chairman formerly was He positions. finance various in PepsiCo for , L’Oréal worked also He has and Officer. Financial Chief been previously having Asda, of Officer Executive Chief and Tony , to President Prior was matters. retail on KKR to Advisor aSenior is also Tony investment. asignificant hold funds KKR which in retailer UK alisted plc, Group non and investment asignificant hold funds KKR which in group retail international based DIY aNetherlands Group, Maxeda of committee. Tony is non-executive Chairman risk and audit the of is amember and committee remuneration the of Chairman non a as Tony appointed was Nunzio De Non-executive Director 14 Tony Nunzio De CBE • ‑ ‑ ‑ executive Director in March 2008. March 2008. in Director executive Home at Pets of Chairman executive 2008, is June in Director executive

• • • • social responsibilities committee responsibilities social remuneration committee committee risk and audit Alliance Boots | Annual Report 2013/14 Report |Annual 53

Additional information Consolidated financial statements Governance Strategic review 54 Alliance Boots | Annual Report 2013/14 Governance Board report on corporate governance

The Board considers that good corporate five regular meetings scheduled in the year, matters of relevance, and non-executive governance is an essential element of including one strategy meeting, with other Directors visit the Group’s operations achieving its overall objectives. The Group’s meetings convened as required. periodically. corporate governance policies and practices There is an approved schedule of matters continue to be reviewed by the Board on a Board committees reserved for decision by the Board with regular basis. This report, together with the There are three principal Board committees, related delegated authorities. These matters audit and risk committee report and the all of which operate within written terms of cover strategy and business plans, share Board report on remuneration, sets out the reference. Copies of the terms of reference capital and dividends, Board committees, governance structures adopted by the Board. are published on the Company’s website remuneration and employment benefits, at allianceboots.com in the corporate corporate reporting, capital and revenue The Board governance section. Details of the commitments, corporate governance, internal At 31 March 2014, the Board comprised the membership of committees are set out control and risk management, and corporate Executive Chairman, three other executive below. Only members of each committee social responsibilities. Directors, three Directors representing KKR, are entitled to attend committee meetings, four Directors representing Walgreens For all Board meetings an agenda is although each committee may invite other and four non-executive Directors. Alex established. For regular Board meetings Directors, managers and advisors to attend Gourlay, Chief Executive, Health & Beauty this generally comprises reports on the and frequently do so. Division resigned from the Board financial performance of the Group and on 30 September 2013 following his its Divisions, approval of major items of Remuneration committee appointment as Walgreens Executive Vice capital expenditure and acquisitions, and The Directors who are members of the President, President of Customer Experience significant policy issues. The Board receives committee are as follows: and Daily Living. reports from the committees of the Board • Tony De Nunzio (Chairman) to enable it to be informed of and supervise During the year the Board reviewed the • Stefano Pessina the matters within their remit. Appropriate composition of the Board and the balance of • Dominic Murphy papers are provided to the Directors in skills, knowledge and experience its members advance of each meeting. In addition, the The role of the committee and details of bring, and concluded that the Board has the Board considers at least annually the strategic how it carried out its duties are set out appropriate balance for the Company. plans of the Group and its Divisions and, from in the Board report on remuneration on Details of the executive Directors’ service time to time, Directors receive presentations pages 56 to 58. contracts are given on page 57 of the Board from management concerning key areas of report on remuneration. the Group’s operations. The Annual Report, Audit and risk committee which includes the consolidated financial The Directors who are members of the Biographies and other details of Board statements, is reviewed by the audit and risk committee are as follows: members are shown on pages 50 to 53. committee and approved by the Board prior • Nick Land (Chairman) Non-executive Directors are appointed for to publication. • Tony De Nunzio an initial term of three years which is then • Mattia Caprioli In the furtherance of their duties, the renewed and extended for not more than • Wade Miquelon Directors have full access to the services two further three year terms. Nick Land, of the Company Secretary and may take The role of the committee and details of how Tony De Nunzio, Chris Britton and Etienne independent professional advice at cost to it carried out its duties are set out in the audit Jornod were all first appointed to the Board the Company. In addition, each committee and risk committee report on page 59. in 2008 and reappointed for further three of the Board is entitled to take independent year terms in 2011. Following a review of their professional advice as appropriate. performance by the Executive Chairman, Social responsibilities committee The Company maintains appropriate The Directors who are members of the it was concluded that each continued to directors and officers in respect committee are as follows: contribute effectively and with proper of legal action against its Directors. • Ornella Barra (Chairman) commitment, devoting adequate time to carry out their duties. The Board approved The Company provides a tailored induction • Nick Land the recommendation that each of the programme for all Directors on appointment. • Chris Britton non-executive Directors be re-elected for a The induction programme includes details of • Marco Pagni further term of up to three years, the period Board and Group policies and procedures, • Thomas Sabatino being dependent on whether and when information and briefings by members of The role of the committee and how it Walgreens exercises its option to merge management on the Group’s businesses carried out its duties is summarised in the with the Group. and operations, and visits to retail stores, corporate social responsibility section of distribution centres, manufacturing facilities The Board has a programme which enables this report on pages 46 to 49. A more and other operations on a selective basis. it to discharge its responsibility to provide detailed description of the role of the leadership to the Company within a The Board is regularly updated on committee is included in the Corporate Social framework of prudent and effective controls developments relating to the Group’s Responsibility Report which will be published and to assess and manage risk. The Board has activities, corporate governance and other in September 2014 on the Company’s website at allianceboots.com. the corporate governance section. in allianceboots.com at website Company’s the on out set are controls internal of system Group’s the of key elements the of Details strategies. agreed the within business and Division their of performance and conduct for the accountable are business and Division for each responsible management executive The targets. key performance setting and plans and strategies business and approval of Division and individual review the includes This Group. the within businesses individual and Divisions the of for monitoring the conduct and operations responsibility have Board the of Members 61. and 60 pages on report of this section management risk the in out set are them, mitigate to necessary where take we steps the with together risks, significant our of details Further identified. weaknesses or shortcomings any remedy to needed action management for overseeing responsibility has also committee The Board. the of behalf on committee risk and audit by the annually reviewed is risks significant manage and evaluate identify, to process ongoing the of effectiveness The objectives. corporate its achieving Company the to fundamental be to reward and risk of balance managed actively an with framework control and management risk efficient an considers Board The or loss. misstatement material against assurance absolute not and objectives and can provide only reasonable business achieve to failing of risk the eliminate than rather manage to is designed control internal of system The effectiveness. its for reviewing and control internal and management risk of Group’sfor system the responsibility overall have Directors The Internal control the corporate governance section. in allianceboots.com at website Company’s the on published are documents Both Group. the within function corporate and business Division, by each upheld consistently be to required are which standards and principles ethics, the out sets Board, the and committee responsibilities social by the approved and an Anti-corruption and Policy, Bribery Ethics Business and Conduct of A Code committee. responsibilities social the under section governance corporate the in website Company’s the on published all are statements customer safetydiversity and testing, product charity, safety, and health Group’s environment, the In addition, which is ultimately owned by a family trust. by afamily owned is ultimately which Participations, Santé ofAlliance Directors also Company, are the of Board the on serve who Barra, Ornella and Pessina Stefano executives on the Company’s Board. D’AngeloKKR the are Sergio and Caprioli Murphy, Mattia Dominic sectors. retail and healthcare the in investments significant including US$485 of billion, excess in value transaction a total with investments equity 230 than private more completed has KKR US$74.9 31 December 2013. through billion capital commitments of approximately received have that funds 18 private equity sponsored and managed has KKR decades, three last the During firms. equity private experienced most and established longest world’s the of is one KKR L.P. PEI Investments KKR and Partnership FundII Limited European KKR Partnership, (KKR): 2006 Limited KKR Fund(Overseas) &Co. L.P. Roberts Kravis by Kohlberg advised vehicles investment equity private three and controlled by Alliance Santé Participations is jointly Limited Holdings AB Acquisitions shares. Company’s owns 55% the of Limited, a Company Gibraltar which Holdings Acquisitions AB of subsidiary 2008, in is adirect Switzerland in established company holding Company, aGroup The Company the of Ownership 14 and 15, 18 and 49 to respectively. 9, 8and 10 pages 11, on and report this of environment’, and ‘Business review’ sections business and markets ‘Our objectives’, and strategy ‘Group activities’, business ‘Our the in out set are performance, future our affect to likely factors the with together Group’s activities, the on information Further Report. Annual this in contained statements financial consolidated the for preparing basis concern going the adopt to continued therefore have and future, foreseeable for the operation in remain to resources adequate has Group the that consider Directors The Going concern are also described elsewhere in this report. environmental and community policies which employment, responsible from accrue that benefits the recognises Company The ethical matters environmentalSocial, and

12 May 2014 Company Secretary Frank Standish approval for the transaction. election, Walgreens would seek shareholder an such with In conjunction interest. 55% equity remaining the acquiring through combination, afull to proceed to elect to 2015, 2February on beginning period month six the during option, an has Walgreens US. the in chain drugstore largest the Walgreens, a US-listed company operating by owned are 45% shares Company’s the of Alliance Boots | Annual Report 2013/14 Report |Annual

55

Additional information Consolidated financial statements Governance Strategic review 56 Alliance Boots | Annual Report 2013/14 Governance Board report on remuneration

The remuneration committee consists of Executive remuneration comprises the Short term bonus amounts earned by three Directors, Tony De Nunzio (committee following key elements: each executive Director for the year ended Chairman), Stefano Pessina and Dominic • basic salary; 31 March 2014 are detailed in the Murphy. The committee is scheduled to • short term bonus scheme; emoluments section on page 58. meet once each year. The terms of reference • long term incentive plan; for the committee are published on the Long term incentive plan • pension supplement; and Company’s website at allianceboots.com The Alliance Boots 2012 Long Term Incentive in the corporate governance section. • other benefits. Plan (the ‘Plan’) was introduced for senior managers across the Group, including The main responsibilities of the committee, Each of these elements is described in executive Directors, with effect from which are set out in the terms of reference, this report. August 2012. Incentives comprise three are to: separate components, based on delivery of • determine and agree with the Board the Basic salary the following measures: remuneration policy for executive Basic salaries paid to executive Directors for Directors; the year ended 31 March 2014 are detailed (1) annual targets for trading profit (excluding in the emoluments section on page 58. • determine on the Board’s behalf the profit from the joint synergy programme individual remuneration packages for each Executive Directors’ salaries are reviewed with Walgreens); executive Director; and shortly after the end of each financial year (2) annual targets for profits from the joint • in relation to performance related pay and are set taking into account individual synergy programme with Walgreens; and schemes for executive Directors, to: performance, the size and complexity –– set appropriate performance targets; of the Group and market rates, which (3) Walgreens exercise of their option to –– approve amendments to performance are benchmarked by Towers Watson at proceed to a full merger. related pay schemes; and the market median of the UK FTSE 50 Two thirds of the cash payments under the –– consider and review the terms of new (excluding financial services and oil and Plan for the achievement of annual targets performance related pay schemes. gas companies). Basic salaries following are deferred until the third anniversary of the the latest review, which will be effective effective date of the Plan or upon completion Policy overview from June 2014, are as follows: of the merger, whichever is earlier, with one The philosophy of the committee is to: Director £ third deferred for an additional year. • provide a total reward package designed S. Pessina 600,000 The element conditional on Walgreens to retain executive Directors of the exercise of their option is payable only if and O. Barra 629,200 highest calibre; when this occurs through the delivery of a G. Fairweather 663,600 • set basic salaries at competitive levels in the predetermined number of Walgreens shares. relevant market to help ensure that the M. Pagni 565,950 All payments are conditional on individuals Company is able to attract and retain still being employed by Alliance Boots at executive Directors of the required Short term bonus scheme the time the payment is due, other than standard; and Stefano Pessina does not participate in the for certain factors such as retirement • set total remuneration at the market short term bonus scheme for executive or redundancy. median for sustained levels of good Directors. The short term bonus scheme performance and upper quartile for superior for other executive Directors in 2013/14 financial and personal performance. provided a maximum bonus potential of 150% of annual basic salary. 60% of the No Director is permitted to vote in respect bonus was dependent on Group trading profit of his or her own remuneration or to be and 40% on personal performance. For the present when his or her remuneration is element of bonus linked to trading profit the being discussed. bonus begins to accrue for achieving 92% of the target trading profit and maximum vesting would be delivered for achieving 102.5% of target trading profit. is paid in lieu of that benefit. that of lieu in is paid supplement cash a benefit, that take to not chooses but abenefit to is entitled Director a Where 58. page on section emoluments the in detailed are tax, income to chargeable year, the during expenses including serving Director each for benefits of these value The performance. to relate not does and practice market reflects these benefits of provision The Group. for the working while subsistence and accommodation work, from and to travel of cost the reimbursed are Barra Ornella and Pessina Stefano companies. major by other provided those to comparable benefits other and allowance car or car acompany to entitled are Directors Executive benefits Other Group. the of scheme pension any in participation active of lieu in salaries basic their of 40% to equal payments received each Gourlay Alex and Marco Pagni Fairweather, George Barra, year, the Ornella During Group. the from arrangement pension no has Pessina Stefano benefits Pension but are reimbursed travel, subsistence and accommodation costs. costs. accommodation and subsistence travel, but are reimbursed Non reporting. external for Walgreens prepared Boots Alliance on information to review committee the of frequency meeting and workload the reflecting of £20,000 annum, per fees Tony additional and receive Land Nunzio Nick De and committee risk and the audit for chairing afee £20,000 of annum per receives Land Nick In addition, £65,000 annum. per 31 2014 March ended year for the Director was non-executive each to fee paid basic The N. Land Jornod E. A. De Nunzio De A. C. Britton C. Director Pessina S. Director at office in 31 March 2014 Directors as are follows: executive of contracts the of Details contract. aservice has Directors executive the of Each contracts Service O. Barra O. G. Fairweather M. Pagni M. time commitment. commitment. time expected the out set also letters These notice. month’s one with party by either terminable Company, the with appointment of letter awritten has Directors non-executive the of Each Directors Non-executive Walgreens. representing Directors to paid are fees No Directors representing Walgreens is £65,000 KKR annum. per representing Director each to fee paid The Directors representing KKR compensation. into any account resulting taken in determining is loss their mitigate to Director for the requirement the Boots, by Alliance terminated being contract service any of event the in is that contracts service Directors’ executive of termination on policy committee’s The contract. aservice terminate to period notice the required of lieu in salary basic current of for payment contracts service the in provisions are There ‑ executive Directors do not participate in any pension scheme or bonus arrangements bonus or scheme pension any in participate not do Directors executive

1 January 20131 January 1 January 20131 January Date of contract 31 2006 July 8 May 2012 Initial appointment date Initial appointment 31 2008 March 31 2008 March 4 June 2008 4 June 4 June 2008 4 June Alliance Boots Notice period by period Notice Alliance Boots 1 year 1 year 1 year 1 year | Annual Report 2013/14 Report |Annual

Reappointment date Reappointment 12 May 2014 12 May 2014 12 May 2014 12 May 2014 Notice period Notice period 6 months 6 months 6 months by Director

1 year 57

Additional information Consolidated financial statements Governance Strategic review 58 Alliance Boots | Annual Report 2013/14 Governance

Board report on remuneration continued

Emoluments An analysis of executive Directors’ emoluments relating to salaries and fees, short term bonuses, pension supplements and other benefits for the year ended 31 March 2014 is shown in the table below:

Total emoluments excluding long term incentives Salaries Short term Pension Other and fees bonuses supplements benefits 2014 2013 Director £’000 £’000 £’000 £’000 £’000 £’000 S. Pessina 600 – – 20 620 671 O. Barra 564 446 226 21 1,257 1,280 G. Fairweather 623 493 249 23 1,388 1,333 M. Pagni 532 420 213 23 1,188 1,139 A. Gourlay* 278* 223* 111* 9* 621* 1,201 2,597 1,582 799 96 5,074 5,624

* Alex Gourlay resigned from the Board on 30 September 2013. Figures shown for him are for the period to 30 September 2013.

Tony De Nunzio Chairman of the remuneration committee 12 May 2014

Audit and risk committee report report committee risk Audit and financial experience. financial relevant recent have to is considered Accordingly, he Wales. and England of Accountants Chartered of Institute the of is amember and Council Reporting Financial the of Director is anon-executive transparency), and disclosure equity private (for Group UK Monitoring Guidelines The , Chairman of the on listed company alarge of committee audit the of Chairman 2006. isin currently He firm the from his retirement until up UK the in &Young Ernst of Chairman and apartner was committee, the of Chairman the Land, Nick available opportunity. next the at Board the to matters material reports committee the of Chairman the present. Following each committee meeting, Walgreens and KKR representing Directors the or management executive without auditors external the from representatives and Management Risk and Audit Internal of Director the meet committee the on Directors non-executive the meeting At each committee to answer questions. the of meeting any demand on to attend and committee by the made request any employees are directed to cooperate with and Directors all and duties its fulfil to requires it information any receive and seek to right the has committee Company. The the of Chairman Executive the and committee the to access direct of right the has Management Risk and Audit Internal of Director The prepared for reporting. Walgreens external Boots Alliance on information review to additional meetings taking place as required year, each four times least at meet to is scheduled year. committee the The during meetings attended Marco Pagni In addition, appropriate. as meetings attend to invited normally are auditors external the from representatives and Management Risk and Audit Internal of Director Controller, Financial Group Director, Finance Group Chairman, year. Executive the The throughout served Mattia Caprioli and Wade Miquelon who all Chairman), Tony (committee Land Nunzio, De Nick are members committee The Directors. committee Chairman, must be non-executive the half, including least at which of Directors, four of consists committee risk and audit The

businesses. of disposals or acquisitions potential with areas, and due diligence activities associated developments and/or complex or high risk recent matters, tax on advice includes This services. non-audit for certain engaged be may auditors external the confidentiality), and efficiency cost ensuring (therefore businesses its and Group the of understanding significant their to due that, agreed been has it policy this Under committee. risk and audit by the varied be may only services non-audit prohibited of list The committee. governance section under audit and risk corporate the in at allianceboots.com website Company’s the on is published services, non-audit permitted of list afull out sets which policy, this of Acopy basis. annual an on reviews it which auditor external the approval of non-audit services provided by for the policy aformal has The committee auditor, KPMG AG. external by the Group the to provided services non-audit audit and of extent and nature the review under keeps committee the remit, its of part As services non-audit on Policy • • • • • included: year the during reviewed committee the matters particular programme, work established its to In addition committee risk and audit the of Operation governance section. corporate the in allianceboots.com at website Company’s the on published are committee, by the annually least at reviewed are which committee, for the reference of terms The Terms of reference the Group. the across arrangements whistleblowing enhanced out rolling on progress and Divisions; both in solutions major new information technology introduce and upgrade to programme management; risk protection data with achieving Sarbanes-Oxley compliance; consistent controls, strengthen further to programme the on updates progress filings; Commission Exchange and US Securities their for including reporting, external information prepared for Walgreens

12 May 2014 committee risk and audit the of Chairman Land Nick Group. the of rest the across out rolled was Ireland of Republic the and by InTouch provided UK service the the in year the During resolved. are they until cases committee. The committee monitors these the to cases significant reports turn in who executives, including the Company Secretary, senior designated to provided are service this from reports Confidential matters. other or reporting financial in wrongdoing possible about have may they suspicions or concerns any report to opportunity an employees by InTouch operated gives service reporting year. confidential the The throughout Group the of behalf on Ireland of Republic the and UK the in services reporting confidential organisation, InTouch, operated 24 hour external An arrangements. whistleblowing Group’s the of effectiveness the of review a out carried committee the year the During Whistleblowing risk committee. governance section under audit and corporate the in allianceboots.com at website Company’s the on is published committee, risk and audit by the approved as auditor, external the of employees former of employment on Group’s policy the of A copy auditor. external the of effectiveness and under review the objectivity, independence keeps committee the remit, its of part As auditor external the of employees former of employment on Policy committee. the of Chairman the from sought is be to approval the frame, time appropriate committee meeting is scheduled within an no Where basis. by case acase on sought be to has services non-audit permitted for other year. Approval that of beginning the at year financial full for the sought be may approval diligence, due and for as tax such nature, in recurring be to considered are services such Where committee. by the advance in approved be to services non-audit permitted for fees these the requires policy The nature. contingent a of fees of prohibition and secondments staff any of prohibition total the were changes principal The work. their on rely could auditors Walgreens that so rules, Commission Exchange and US Securities the under independent be always would KPMG that ensure to reviewed was policy the transaction, Walgreens the Following Alliance Boots | Annual Report 2013/14 Report |Annual

59

Additional information Consolidated financial statements Governance Strategic review 60 Alliance Boots | Annual Report 2013/14 Governance Risk management

Our approach is to identify, monitor and Impact of regulation Competition assess all significant risks and take steps, Risk Risk where necessary, to mitigate them. Alliance Boots operates in regulated markets Changes in market dynamics or actions of and could be adversely affected by changes competitors or manufacturers, including Our risk management process to existing regulation, new regulation and/or industry consolidation, could adversely Our executive Directors and the Director of failure to comply with regulation. Businesses impact Alliance Boots. Internal Audit & Risk Management continue in our Health & Beauty Division could be to play the leading role, monitoring the overall Businesses in our Health & Beauty Division adversely affected by changes to licensing risk profile and regularly reporting to the have a wide variety of competitors, including regimes for pharmacies, prescription Board through the audit and risk committee. other pharmacies, supermarkets and processing regimes or reimbursement The process of risk identification is facilitated department stores. Businesses in our arrangements. Businesses in our by the use of risk registers for Alliance Boots, Pharmaceutical Wholesale Division face Pharmaceutical Wholesale Division are and for each business. In addition, the Board, competition from direct competitors and subject to a range of regulations relating to through the executive Directors, is responsible alternative supply sources such as importers such things as product margins, product for determining clear policies as to what and manufacturers who supply direct traceability and the conditions under which Alliance Boots considers to be acceptable to pharmacies. products must be stored. levels of risk. These policies seek to enable Mitigation employees to use their expertise to identify Mitigation In our Health & Beauty Division, our strategy risks that could undermine performance and We seek to control this type of risk through is to capitalise on the potential and strength to devise ways of bringing them to within active involvement in policy-making of our leading brands and the trust in which acceptable levels. processes, understanding and contributing to they are held, to build strong relationships government thinking on regulatory matters Where we identify risks that are not with customers and suppliers, and to enhance and building relationships with regulatory acceptable, we develop action plans to our buying and promotional activities. In our bodies directly and through representation in mitigate them with clear allocation of Pharmaceutical Wholesale Division, we relevant professional and trade associations. responsibilities and timescales for completion continue to expand the scope of our We also seek to mitigate the risk of regulatory and ensure that progress towards operations in response to a changing changes in any particular market by operating implementing these plans is monitored and marketplace, including entering into in many countries. reported upon. distribution agreements with manufacturers We continue to enhance our policies and who wish to sell direct to pharmacies. Our Following the formation of the Group’s procedures to counter the risk of fraud, successful development of own brand strategic partnership with Walgreens, an bribery and corruption. generic medicines and added-value service additional risk, “not achieving synergies”, was differentiates our offering to pharmacists and added by the Board on the recommendation Changes and trends in strengthens our competitive position. of the audit and risk committee. consumer behaviour Health, safety and environmental risks The risks we face Risk Alliance Boots could be adversely affected by Macro-economic and Risk changes in consumer spending levels, Alliance Boots could suffer reputational political environment shopping habits and preferences, including damage caused by a major health and safety Risk attitudes to our retail and product brands. or environmental incident. Alliance Boots could be affected adversely by the impact of the current macro-economic Mitigation Mitigation and political environment on key suppliers Our commercial skills and ability to respond We set standards throughout the Group and customers and by political unrest in flexibly to changing consumer demand are which are closely monitored and regularly certain countries in which it operates. highly developed. Our strategy is to continue audited. The health & safety and to enhance our market leading position in environment committee, which meets at Mitigation pharmacy-led health and beauty retailing in least six times a year, reviews the root causes We have a rigorous process for identifying the UK and to continue to develop our omni- of health and safety or environmental issues and monitoring all business critical suppliers channel capabilities, backed by differentiated across the Group, working pro-actively with and we develop appropriate contingency brands and expert customer service, and by businesses to address risks in advance. plans for suppliers we consider to be entering into strategic partnerships. Health, safety and environmental incidents vulnerable. We also have a rigorous planning are logged and analysed in order to learn process to assess the impact of macro- the necessary lessons. Any major incident economic and political developments is promptly reported to and investigated by in all countries in which we operate. the Group’s executive Directors. Marco Pagni, Group Legal Counsel & Chief Administrative Officer, is the Director responsible for the leadership of health and safety across the Group. manage lease negotiations in the UK. UK. the in negotiations lease manage to function management aproperty have and payroll as such costs operating control We carefully services. and goods purchase sophisticated procurement techniques to and professionals We procurement use Mitigation Boots. Alliance impact adversely could which businesses our of control the outside increases to subject be may costs Operating Risk costs Increased projects. key of strategic delivery the to relating programmes specific through and self-assessment through both processes, business core of control improve to seek business continuity plans and continually test and update regularly frameworks, control audited rigorously We operate Mitigation suppliers. party key of third systems operational or systems IT infrastructure, logistics and centres distribution its of failure by amajor impacted adversely be could Boots Alliance Risk failures business operational Major processes. approved follow pharmacies compliance reviews to ensure that individual dispensing regular conduct we and place in framework governance arigorous have we pharmacies, In our product. counterfeit of identification the for controls specific and supplier audit framework. This includes control product acohesive and suppliers developed contractual controls in relation to well processes, manufacturing and purchasing robust have we Group, our Throughout Mitigation provide. we services professional the to relating risks to exposed also are we pharmacies, our Through issues. and contamination or product mishandling products of re-labelling in errors chain, supply the into products of counterfeit infiltration the allowing from come could this particular, In services. inadequate of provision or products defective of supply by the impacted adversely be could Boots Alliance Risk risk Product/services we operate. which in currencies major the in denominated are borrowings that by ensuring mitigated partially are Translation exposures exposures. transaction report and manage to place in procedures and policies We rigorous have Mitigation Sterling. than other currencies in denominated assets net and profits translation currency exposures relating to We have also currencies. functional businesses’ than other currencies in goods of export and import the to relating exposures currency transaction has Boots Alliance Risk exchange Currency and conduct post-acquisition reviews. acquisitions new of performance business acquisitions team. We closely monitor and mergers by adedicated led processes acquisitions based on well established integrating successfully and making identifying, in experience We extensive have Mitigation Boots. Alliance of performance the impact adversely could markets, geographic new in are acquisitions where particularly Group, the into integrate and diligence prices,attractive conduct appropriate due at acquisitions suitable Failure select to Risk Acquisitions rigorously. monitored is benefits required achieve to progress which at meetings group steering and board programme regular including key programmes, all control to processes governance robust We place in have Mitigation Group. the throughout implemented being programmes transformation business various from benefits anticipated achieve to failure the by adversely affected be could Boots Alliance Risk management Change Boots. Alliance of Directors executive includes which Board by ajoint review ongoing to is subject and for accountable managers each workstream, senior office, management programme adedicated has programme synergy joint The Mitigation delayed. or achieved are not Walgreens with partnership strategic the from synergies if expectations below be could Boots Alliance of performance financial The Risk synergies achieving Not

complies with data protection legislation. protection data with complies by ourselves done processing all that possible, where ensure, to strive and Standards Security Data Industry Card Payment the to We committed are encryption. data and controls access controls, perimeter strong as such procedures and policies security information Group We rigorous have Mitigation lost. be to were data this of any if affected adversely be could and data business and personal confidential of volume asignificant processes Boots Alliance Risk protection Data strategies. investment asset on trustees pension with engage We actively also actuarial assumptions and sensitivities. investment advice and advise on appropriate investment performance, provide periodic review to actuaries independent We retain Mitigation of scheme members. expectancy life and/or increased returns investment fund pension expected than lower to due schemes pension benefit defined its of funding the increase to required be could Boots Alliance Risk Pension contributions borrowing. rate fixed and caps rate interest of use the including forecasting, and management treasury proactive through escalation rate interest against We protect acquisitions. and expenditure capital of approval the over place in are controls Tight forecasts. cash/borrowings term short and budgets to this comparing basis, adaily on Group for the and by business cash/borrowings actual monitor and We report reviewed. periodically are which Group the and business cash/ term long and short both We prepare Group. the of needs the meet to covenants appropriate with times all at place in funding have we that ensure to procedures and policies treasury We rigorous have Mitigation existing facilities. within requirements borrowing contain to by afailure or covenants banking to meet afailure expire, they when arrangements funding existing renew to by afailure impacted adversely be could Boots Alliance Risk risks rate Funding interest and Alliance Boots borrowings projections for each for each projections borrowings | Annual Report 2013/14 Report |Annual

61

Additional information Consolidated financial statements Governance Strategic review 62 Alliance Boots | Annual Report 2013/14 Consolidated financial statements Directors’ responsibilities statement

The Directors are responsible for preparing the Annual Report, which incorporates the consolidated financial statements, in accordance with Swiss law and regulations. In preparing consolidated financial statements, the Directors have: • selected suitable accounting policies and then applied them consistently; • made judgements and estimates that are reasonable and prudent; • stated whether they have been prepared in accordance with International Financial Reporting Standards; and • prepared the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for: • keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group; • taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities; and • the maintenance and integrity of the financial information included on the Company’s website.

are reasonableare thein circumstances. accountingmaking and estimates that applyingappropriate accounting policies furtherare responsible selectingfor and duewhether to error.or fraud Directors fromfree misstatement,are material consolidatedof financialstatements that controlsystem relevant to the preparation main and implementing Thisresponsibility includes designing, therequirementsand of (IFRSs) law. Swiss International Financial Reporting Standards financialstatements in accordance with preparationtheof consolidated DirectorsThe arefor responsible the responsibility Directors’ 2014.March 31 ended year the for notes related and inequity, Group stat position,Group statementof changes Groupincome, statementfinancialof Groupstatement of comprise theGroup income statement, statements Allianceof Boots GmbH, which accompanyingthe consolidated financial statutoryAs auditor, we auditedhave statements Report on the consolidatedfinancial Alliance BootsGmbH,Bern. general members’meeting of Statutory auditor’sreporttothe report auditor’s Statutory (pages 64 to 119) to 64 (pages comprehensive ement of ement cashflows taining internal an with Swiss law. Swiss with StandardsReporting (IFRSs) and comply accordancewith International Financial operations and thecash flows in financialthe of position,the results of fairview and 2014 true March a 31 give forstatements the year ended our In opinion,the co Opinion abasis for our audit opinion. appropriateand sufficient to provide is evidence obtained audit have we statements.financial that believetheWe presentationoverall theconsolidatedof estimatesasthemade,well evaluating as andused the reasonableness of accounting appropriateness the of policies accounting alsoincludaudit An controlsystem. entity’sthe internalof the effectiveness on thefor purpose expressingof anopinion appropriatethein circumstances, notbut order todesign auditprocedures that are the of financial consolidated statementsin entity’s preparationand presentationfair internal control system relevant to the assessments, the auditor considers the fraud to due or error. makingIn those risk consolidatedfinancial statements, whether risksthe materialof assessmentthe including judgement, of selecteddepend on the auditor’s financialstatements. The procedures disclosuresand in the consolidated audit obtain aboutevidence the amounts involvesaudit An performing procedures to misstatement. material statementsfinancial freeare from assurancewhether the consolidated theperform audit to obtain reasonable Thosestandards thatrequire we andplan InternationalStandards on(ISA). Auditing SwissStandardsAuditing as well as accordancein lawaudit Swiss with and conductedWe our on audit. based theseon statementsfinancial consolidated Ourresponsibility tois express anopinion responsibility Auditor’s misstatement of theof misstatement es evaluating the evaluating es nsolidated financial

2014 May 12 Switzerland Gümligen-Bern, Licensed Audit in Auditor Charge Expert Thomas Affolter Licensed Audit Richard Pinckard AG KPMG anyto other information. Ourresponsibilities do notextend consolidatedfinancial statements. inconsistenciesmaterial with the 1pages in to 62 areand not aware anyof theread We otherinformation contained approved.be statementsfinancial toyou submitted that recommend We ofinstructions Directors. financialstatements accordingto the thefor preparation consolidatedof system exists,haswhich been designed confirminternal we an 890, that control Standard Auditing Swiss and CO 3 item 1 withaccordance In independence.our with there are no circumstancesincompatible that (articleand independence CO) 728 theAuditor Oversight Act (AOA) and onrequirements lice legal the meet we that confirm We other on legal Report requirements Alliance Boots | Annual Report 2013/14 Report |Annual article 728a article paragraph nsingaccording to theconsolidated Expert 63

Additional information Consolidated financial statements Governance Strategic report 64 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Group income statement for the year ended 31 March 2014

2014 2013 Notes £million £million Revenue 4 23,367 22,406 Profit from operations before associates and joint ventures 4,5 1,132 1,054 Share of post-tax earnings of associates and joint ventures 16 86 39 Net gains relating to associates 6 109 8 Profit from operations 4,7 1,327 1,101 Finance income 9 33 109 Finance costs 10 (387) (373) Profit before tax 973 837 Tax 11 (2) (96) Profit for the year 971 741

Attributable to: Equity shareholders of the Company 936 707 Non-controlling interests 35 34 971 741

Group statement of comprehensive income for the year ended 31 March 2014

2014 2013 Notes £million £million Profit for the year 971 741 Other comprehensive income for the year Items that will not be recycled to the income statement: Defined benefit schemes – net remeasurements 34 (189) (72) Tax on items that will not be recycled to the income statement 33 16 (156) (56) Items that are or may be recycled to the income statement: Net exchange differences on translation of non-Sterling denominated operations (183) 28 Fair value movements on cash flow hedging instruments including amounts recycled 30 6 (2) Movements on available-for-sale investments including amounts recycled 30 7 5 Share of post-tax other comprehensive income of associates and joint ventures (1) 2 Amounts recycled on distribution of associate (78) – Tax on items that are or may be recycled to the income statement (5) (2) (254) 31 Total comprehensive income for the year 561 716

Attributable to: Equity shareholders of the Company 557 684 Non-controlling interests 4 32 561 716

Total equity Non-controllinginterests Shareholders’equity Otherreserves earningsRetained premium Share capital Share Equity Net assets Borrowings liabilities Non-current Net current assets Provisions liabilities tax Current Tradeandother payables Borrowings liabilities Current Liabilities Total assets andotherTrade receivables Inventories assets Current andotherTrade receivables Available-for-saleinvestments Investmentsin associates andjoint ventures Property,andequipmentplant Otherintangible assets Goodwill assets Non-current Assets 2014 March 31 at as position of financial statement Group financialDerivative instruments financialDerivative instruments Assetsclassified heldas for sale Currentassetstax Restrictedcash Cashand cash equivalents benefitassetsRetirement assetstax Deferred financialDerivative instruments Provisions benefitobligations Retirement liabilitiestax Deferred Otherpayables financialDerivative instruments Currentassetstax

Alliance Boots Notes 23 16 15 19 19 17 13 20 30 29 24 28 24 18 12 24 24 21 22 24 28 22 23 34 24 34

| Annual Report 2013/14 Report |Annual 17,477 12,357 £million £million (4,236) (5,444) (4,681) (6,573) 1,079 1,892 1,907 5,309 4,625 6,223 6,186 2,894 2,184 6,223 2,544 5,120 (301) (132) (174) (781) (158) 2014 318 156 501 439 (16) 67 29 37 16 78 13 11 29 (9) (3) 3 8 – – 19,133 13,228 (5,431) (6,519) (5,712) (7,750) £million £million 1,079 2,030 1,918 5,416 4,710 5,671 5,500 1,460 2,879 5,671 3,103 5,905 (152) (105) (976) (128) 2013 958 171 167 592 193 (24) (25) (98) 48 82 11 71 62 11 23 (4) 65 – – 5 8

Additional information Consolidated financial statements Governance Strategic report 66 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Group statement of changes in equity for the year ended 31 March 2014

Shareholders’ equity Non- Share Share Retained Other controlling Total capital premium earnings reserves Total interests equity 2014 £million £million £million £million £million £million £million At 1 April 2013 1,079 2,879 1,460 82 5,500 171 5,671 Profit for the year – – 936 – 936 35 971 Other comprehensive income for the year Defined benefit schemes – net remeasurements – – (182) – (182) (7) (189) Net exchange differences on translation of non-Sterling denominated operations – – – (158) (158) (25) (183) Fair value movements on cash flow hedging instruments including amounts recycled –––66 –6 Movements on available-for-sale investments including amounts recycled –––77 –7 Share of post-tax other comprehensive income of associates and joint ventures – – – (1) (1) – (1) Amounts recycled on distribution of associate – – – (78) (78) – (78) Tax on other comprehensive income for the year – – 32 (5) 27 1 28 – – (150) (229) (379) (31) (410) Total comprehensive income for the year – – 786 (229) 557 4 561 Transactions with owners Settlement of distribution obligation – (695) 695 – – – – Dividends paid to non-controlling interests – – – – – (7) (7) Purchase of non-controlling interests – – (47) 176 129 (131) (2) – (695) 648 176 129 (138) (9) At 31 March 2014 1,079 2,184 2,894 29 6,186 37 6,223

Shareholders’ equity Non- Share Share Retained Other controlling Total capital premium earnings reserves Total interests equity 2013 £million £million £million £million £million £million £million At 1 April 2012 1,065 2,795 1,561 47 5,468 233 5,701 Profit for the year – – 707 – 707 34 741 Other comprehensive income for the year: Defined benefit schemes – net remeasurements – – (72) – (72) – (72) Net exchange differences on translation of non-Sterling denominated operations – – – 30 30 (2) 28 Fair value movements on cash flow hedging instruments including amounts recycled – – – (2) (2) – (2) Movements on available-for-sale investments including amounts recycled – – – 5 5 – 5 Share of post-tax other comprehensive income of associates and joint ventures –––22–2 Tax on other comprehensive income for the year – – 16 (2) 14 – 14 – – (56) 33 (23) (2) (25) Total comprehensive income for the year – – 651 33 684 32 716 Transactions with owners: Equity share capital issued 14 84 – – 98 – 98 Dividends paid to non-controlling interests – – – – – (19) (19) Future distribution obligation – – (651) – (651) – (651) Purchase of non-controlling interests – – (101) 2 (99) (75) (174) 14 84 (752) 2 (652) (94) (746) At 31 March 2013 1,079 2,879 1,460 82 5,500 171 5,671 Owners comprise equity shareholders of the Company and non-controlling interests

Net cash (used in)/from investing activities activities investing in)/from (used cash Net Interestreceived Dividends received from associatesfrom received Dividends and venturesjoint Cashgenerated operationsfrom retirementin Movement benefit assets and obligations (Decrease)/increasepa in Decreasereceivablesin Net cash in used financing activities Disposalof otherassets and investments Decrease/(increase)inventoriesin Purchaseof non-controllinginterests topaid Dividends non-controlling interests ordinaryof Issue share capital Repayment capitalof element ofleasefinance obligations restrictedin Movement cash associatedFees activitiesfinancing with Repayment and repurchaseof borrowi Proceedsfrom borrowings elementfinanceInterest of lease obligations Loan repaymentsnet amountsof advanced Redemptionof profitparticipating notes Purchaseof available-for-saleinvestments Net cash from operating activities relatinggains Net associatesto goodwillof Impairment otherand intangible assets lossesNet on disposal property,of plant equipmentand goodwill Negative Depreciationand amortisation post-taxof Share ofearnings associates and joint ventures Adjustments to reconcileprofit from operations to cash generated from operations: Cash cash at and equivalents 31 March Currencytranslation differences Cashand cash equivalents April1 at year in the equivalents cash in and Net cash decrease paid Interest Financing activities Purchaseof property,plant and andequipment, intangibleassets Disposals businessesof and investment in associates Acquisitionsof businesses(net ofcash and ba activities Investing paidtax Net Profitoperationsfrom Operating activities 31 March ended 2014 year for the Group statement of cash flows yables provisions and ngs andderivativessettlementngs of nkoverdrafts), associates and joint ventures

Alliance Boots Notes 27 27 20 27

| Annual Report 2013/14 Report |Annual £million £million (1,335) (1,658) 1,544 1,403 1,327 (129) (130) (109) (143) (270) (253) (141) 2014 230 500 770 338 579 (43) (17) (19) (16) (86) (19) (18) (61) 35 49 17 16 57 (6) (1) 9 1 1 – – – – (1,646) (1,353) £million £million 1,648 1,534 1,101 (318) (200) (114) 2013 167 168 579 345 193 668 (66) (89) (55) (65) (29) (48) (39) (10) (92) 20 59 18 17 88 86 11 62 (8) (6) (4) (8) (1) 67 2 3 4

Additional information Consolidated financial statements Governance Strategic report 68 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements for the year ended 31 March 2014 1 General information Alliance Boots GmbH is a private company incorporated in Switzerland. The address of its registered office is Alliance Boots GmbH, Untermattweg 8, 3027 Bern, Switzerland. The principal activities of the Group are pharmacy-led health and beauty retailing and pharmaceutical wholesaling and distribution in many major international markets. The consolidated financial statements for the year ended 31 March 2014 were approved by the Board on 12 May 2014.

2 Accounting policies The principal accounting policies applied in the preparation of the consolidated financial statements are set out below: Basis of accounting The consolidated financial statements have been prepared in Sterling reflecting the denomination of the currency of the most significant proportion of the trade and cash flows of Alliance Boots GmbH (‘Company’) and its subsidiaries and their interests in associates and joint ventures (together referred to as ‘Group’) and have been rounded to the nearest £1 million. The consolidated financial statements have been prepared in accordance with the requirements of Swiss law and International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IFRSs’), as they apply to the consolidated financial statements for the year ended 31 March 2014. Had the consolidated financial statements been prepared under IFRSs as adopted by the European Union, there would be no material changes to the information presented in these consolidated financial statements. The consolidated financial statements have been prepared principally on the historical cost basis. Other applicable measurement bases applied in the preparation of the consolidated financial statements are identified in the accounting policies below. Certain amounts in the prior year financial information have been reclassified to conform to the current year presentation. The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the consolidated financial statements. The areas involving a higher degree of judgement, or areas where assumptions or estimates were significant to the consolidated financial statements are disclosed in note 36. Going concern The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future, and have therefore continued to adopt the going concern basis for preparing the consolidated financial statements. Changes in accounting policies and disclosures The following new accounting standards have been adopted by the Group with a date of initial application of 1 April 2013, and have had the following impact on the consolidated financial statements: • IFRS 10 Consolidated Financial Statements introduces new principles for control which focuses on whether the Group is exposed to, or has rights to, variable returns from its involvement with entities and has the ability to affect those returns through its power over those entities. In accordance with the transitional provisions of IFRS 10, the Group reassessed its control as at 1 April 2013 and has concluded there was no change in the classification of entities requiring consolidation from that date. • IFRS 11 Joint Arrangements focuses on the rights and obligations of the parties to a joint arrangement rather than its legal form in determining whether it is a joint venture or a joint operation. The Group has re-evaluated its involvement in joint arrangements as at 1 April 2013 and concluded there is no change in the classification and treatment of its joint ventures. • IFRS 13 Fair Value Measurement improves consistency by providing a precise definition of fair value and a single source of fair value measurement disclosure requirements for use across other standards within IFRSs. IFRS 13 does not extend the use of fair value accounting, but replaces and expands the disclosure requirements about fair value measurements in other IFRSs. The adoption of IFRS 13 has not had a material impact on the Group accounts. The following amendment to an accounting standard and new accounting standard have been adopted by the Group, with a date of initial application of 1 April 2013 and relate only to disclosure: • Amendment to IAS 1 Presentation of Financial Statements requires items within other comprehensive income to be grouped and presented on the basis of whether they may be reclassified subsequently to profit or loss. • IFRS 12 Disclosures of Interests in Other Entities expands the disclosure requirements for all interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. Comparative information has been presented in line with the new requirements. There have been no other changes in accounting policies during the year. During the prior year, the Group early adopted the revised IAS 19 Employee Benefits standard, with a date of initial application of 1 April 2012 and changed its basis for determining the income or expense related to defined benefit schemes. There are no other IFRSs or IFRS Interpretations Committee interpretations that are not yet effective that are expected to have a material impact on the Group. joint control,joint theandfinancial Associates are entities whichover the Grou ventures joint and Associates non-controllingto interests to equityto attributable shareholders. purchasedis from non-controllinga interest, an proportiamount are to,Subsidiaries whereexposed entities is theGroup or has Subsidiaries interestsin associates andjoint ventures. consolidatedThe financial statements as at and thefor year Consolidation transactionswith associates or joint ventur exchange ratesexchange theat date of thetransaction. Non-monetary it that aremeasured at historicalcost andare denominated in curr functionalentity’s currency at the year end Transactionswith non-controlling interests are treated as transact interests Non-controlling transactions,intra-group All balances unrealisedand gains on tr incomethestatementGroup in included are from toth or toability the affect those returns through its power theover en Associates jointand ventures are foraccounted equitythe using theto net assets theof entities, rather than rights to the exchangethe rates prevailing at datethe of thetransactions. Transactionsdenominated in currencies other thanan entity’s func transactions Currency Currency thereportingand of date the consolidatedfinancial statements. Adjustments arefor made the of effects transactionsand events concerned.Financial statements some of associatesand joint ve Operatingsegments are reportedmannera in consistent with the Segmental reporting partas theof gain lossor on disposal. a When non-Sterlingdenominated entity disposed,is the related translation reserve. differences Exchange fromarising translationthe theresultsof translatedare into atSterling the averag aretranslated into Sterling at exchange ra assetsThe and liabilities non-Sterlingof entitiesdenominated entities denominated Non-Sterling Exchangegains andlosses are reco otherthan an entity’s functional currencyare translated using is Division Wholesale pharmaceuti theHealthof Beauty activity & Division GroupThe has tworeportable segments, being theHealth Beauty& and objectives assessingthe performance theof operatingse chief The operatingdecision-makers,are who responsiblemaking for operating policiestheof entities. venturesJoint are whichin entities Group the hasjoint cal wholesaling and distribution.and wholesaling cal gnised in in gnised the is pharmacy-ledis health beautyand retailing,themain and activity theof Pharmaceutic e exchangee rate thefor year,approxwhich tesprevailing yearthe at end. The resu esare toeliminated the extent the of Gr p is in a position to position a in is p are translatedat theexchange rate thatat ruling date. Non-monetary assetsand comestatement. their assetsand obligation edate that control commences or ceases, as appropriate. ended 31 March 2014March 31 comprise ended Co the gments,beenhave theas identified Directors.executive , including, goodwill andfair valu Monetaryassets and liabilities theexchange ratesat the date when the fair value wasdetermin exercise influence significant rightsto, variable thereturnsitswith from involvemententit ansactionsbetween Group companie andnet assets of non-Sterlingdenominated entities are recogn tity.The results subsidiari of emsthat are measured at and value fair denominatedare currein enciesother than anentity’s onateto theinterest purchased transferredis from attr equity method.Unrealised profits and nturesare prepared for different reportingyears to that of th balance inbalance the translationreserv that betweenoccur the reporting of date associatean or joint ions withions owners in theircapacity as owners. When an equit internalreporting provided to tional currencytional are translated Division andDivision Pharmaceuticalthe resource decisionsallocation inthe attainment of strategi

s for their liabilities. for s liabilities. their ltsand cash flows non-Sterlingof denomina imates toimates the actualunderlying rates. oup’s interestoup’s thein associate jointor v es acquireddisposedduring es or denominated in currenciesin denominated other byparticipatin functionalcurrency aretranslate e adjustments e arisingconsoon the chiefoperatingthe decision-mak Alliance Boots into anentity’sinto cu functional e is recognised income is the e in lossesrecognised theby Group mpany and its subsidiaries and subsidiaries its and mpany s ares eliminatedconsolida on Wholesale Division. The mainThe Division. Wholesale g in,butwithoug | Annual Report 2013/14 Report |Annual controlandrights t controlt or enture the year y andy has lidation, lidation, liabilities liabilities tedentities than an rrencyat d usingd the al e Group. e y interesty ed. ibutable ised in the in ised statement c venture on ncies ers. ers. tion. their 69

Additional information Consolidated financial statements Governance Strategic report 70 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 2 Accounting policies continued Revenue Revenue shown on the face of the income statement is the amount derived from the sale of goods and services outside of the Group in the normal course of business and is measured at the fair value of consideration received or receivable net of trade discounts, value added tax and other sales-related taxes. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured reliably. Revenue from services is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of revenue can be measured reliably. The accounting policies for the major revenue categories by operating segment are: Health & Beauty Division Reimbursement of dispensing revenue and revenue derived from optical services is initially estimated because the actual reimbursement is often not known until after the month of sale. Consideration received from retail and optical sales is recorded as revenue at the point of sale less appropriate adjustments for returns. In respect of loyalty schemes (principally the Boots Advantage Card) as points are issued to customers the retail fair value of those points expected to be redeemed is deferred. When the points are used by customers they are recorded as revenue. Sales of gift vouchers are only included in revenue when vouchers are redeemed. Pharmaceutical Wholesale Division Wholesale revenue is recognised upon despatch of goods. When the Group acts in the capacity of an agent, or a logistics service provider, revenue is the service fees and is recognised upon performance of the services concerned. Other segments Revenue is recognised upon despatch of goods. Supplier rebates Certain suppliers offer rebates when purchases made in a period meet or exceed a predetermined level. Rebates are only recognised when there is clear evidence of this type of binding arrangement with the supplier and the rebate receipt is both probable and can be reasonably estimated. Rebates are recognised as a reduction in the purchase price. Warrants Warrants held by the Group linked to executory contracts are accreted to the income statement, net of the related call option, over the period to their expiry date, based on the period end valuations. Exceptional items Certain items are not regarded as forming part of the underlying trading activities of the Group and are therefore separately identified to allow users to understand the elements of and the trends in financial performance. Finance income Finance income comprises interest receivable on funds invested calculated using the effective interest rate method, net exchange gains relating to financing items, net interest on net defined benefit scheme assets, net fair value gains on derivative financial instruments used to hedge certain risks attributable to hedged items that are financing in nature, gains on derecognition of available-for-sale investments, fair value movements on cash flow hedge financing derivatives recycled from the cash flow hedge reserve, dividends received from investments and discounts on the repurchase of bank loans provided to the Group, which are accounted for as loan redemptions. Dividend income is recognised when the right to receive payment is established. Finance costs Finance costs comprise interest payable on borrowings calculated using the effective interest rate method, financing fees, net exchange losses relating to financing, net interest on net defined benefit scheme liabilities, the interest expense component of finance lease payments, net fair value losses on derivative financial instruments used to hedge certain risks attributable to hedged items that are financing in nature, fair value movements on cash flow hedge financing derivatives recycled from the cash flow hedge reserve, impairment of loan assets, impairment of available-for-sale investments and reassessment of obligations to and unwind of discount on non-controlling interests. Current/non-current classification Current assets include assets held primarily for trading purposes, cash and cash equivalents, restricted cash and assets expected to be realised in, or intended for sale or consumption in, the course of the Group’s operating cycle. All other assets are classified as non-current assets. Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group’s operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non-current liabilities. Business combinationsBusiness are accounted forIFRS under Comb Business 3 goodwill and combinations Business valueatthe date exchangeof of assets gi is acquisition consideration ex the in given transferred. Contingent considerationis share-for-share transactionexchange is accounted asfor a busine Group does Group not ownership 100% the acquire of Theacquired netassets areinitially recogn consideration recognised are itis not remeasured and settlement is accounted for within equity Pharmacy licences,Pharmacy being exclusivethe operateto right a as pharm licences Pharmacy are: assets intangible of in statement. recognised income is the Goodwillcomprises fairthe value theof co proportiontheof valuefair th of Intangibleassets are statedat cost or deemed costless any Other intangible assets and equity in attributed directly recognised differencesAny amountsbetween whichby non-controlling interest shareholdersequity and non-controlling interests adjustedare to Increasesin the ownershipintere costat less accumulated losses.impairment No amortisation is charged. costsThe integratingof and reorganisingacquired businesses ar consideration,the theof excess value is negative as recognised businessand are recorded in the localcurrency of that business. net identifiable differenceassetsacquired.Any carrthe between in achieved is combination business the if Customer relationships consist of relationships with customers es Customerrelationships recognition. Costs in relationto generatedinternally brands are notcapitalised. consistBrands of corporate and brandsproduct as acquired part businessof combinations thatmeet the criteria for separate Brands otherfrom identifiable assets thattogether form pharmacya business. Software thatSoftware is integralnot to an of item property, plant and Software meetthat the criteria for separate the useful life from the datethe from life useful the asset is Wherean intangible asset is considered to Amortisation maintenanceand costs,training researchand and development costsare expensed as incurred. stage.development The costsare amortised from assetthe when payroll costspayroll for devotingto employees time the projsoftware indirectand development costs associatedwith internallysoftware, developed includingcosts direct materialsof services,and • • andare tested for impairment at each year end. The useful alongcurrentwith market strength and developmentfuture plans. Those assets considered to have lifeindefinite an notare am areconsidered to have an indefinite life. Certain brands have income statement. income Gainsand losses on disposals are determined by comparingpr Amortisationperiods and methods are reviewed •

Customer relationships 10 – Brands 20to years; Software – 3 to 3 years.– 8 Software – 4 20 and – to years; in the income statement. in income the e acquired identifiableacquired assets.e net sts in subsidiariesin sts accounte are recognition, been have that ac Any goodwill and fair value adjustmentsAnyvalue goodwillfair and recorded are as thea assetsof and liabilities available for use. for Pharmacyavailable licences recogn recognised at fair value at value fair at recognised ven, liabilities incurred liabilitiesand ven, assumed or equi stages, the fairof the eq value existing changethefor identifiable assets.net This consideration anyincludes cash paid ised atdeemed ised is which costvalue fair have a finite life, amortisationalife, have finite is charged to incomethe statementona straight-li nsideration plusthe recognised amount anyof non-controlling interests thein acqui to equity shareholders of the Company. acquired company, acquired non-contro and appropriate.annually if adjusted lives for thoseintangiblefor assetslives with are: alife finite impairmentandaccumulated Theamortisation. principalcategories equipmentrecognisedis separately as intangiblean asset. Cer beenasidentified indefinitean having basedlife, ontheir li oceedswith carryingamounts. ects,are capitalised once the project has reached the applicatio goodwill and recognised in the in recognised and goodwill e chargede to thepost-acquisition statement.income Goodwilli dfor as equity transactions. The carryingamounts ofinteres Where the fair value fair id the Where of reflect the changesin their relativeinterests in the subsid quired in a business combination. business a in quired ying value and fairand pr value of ying value tablishedthrough contracts, or non-contractual customer relat ss combination,ss the cost acquof . Otherwise, subsequent. changes to the valuefair conting of acy, areacy, capitalised therewhere anis asset that becan sepa is forready use.Costs incurred theduring preliminary projec the acquisition date. If co If the date. acquisition s are s adjustedand fairthe considerationvaluethe of paid ar inations usinginations the me acquisition

lling interests are interests lling recorded eitheror value fair a at uity interestuity inless acquiree, the thefai in the consolidated fi consolidated the in ised as intangible a intangible as ised tyinstruments issued by the Group. Whe These areThese included the in ntingent consideration compri consideration ntingent entifiablenet assets exceeds e-existingin interest equity incomestatement immediately. Alliance Boots isition is the fairthe t is of isition value nancialstatements. ssetsdo expirenot thodof accounting. The cos | Annual Report 2013/14 Report |Annual r value of theof value r fe and fe history theacquiree iaries. andtherefore plusthe fair Where the the fairthe ne basisne over sesequity, tain direct heequity cquired ts of rated and and rea n ent ree, plus,ree, t stage,t s carried s ionships ortised ortised

e t their tof 71

Additional information Consolidated financial statements Governance Strategic report 72 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 2 Accounting policies continued Property, plant and equipment All property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses. Depreciation of property, plant and equipment is provided to write off the cost, less residual value, in equal instalments over their expected useful economic lives which are: Land and buildings • Freehold land and assets in the course of construction – not depreciated; • Freehold and long leasehold buildings – not more than 50 years; and • Short leasehold land and buildings – remaining period of lease. Fixtures, plant and equipment • Fixtures, plant and equipment – 3 to 20 years. Residual values, remaining useful economic lives and depreciation methods are reviewed annually and adjusted if appropriate. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. Impairment of assets The Group’s assets are reviewed at each year end to determine whether events or changes in circumstances exist that indicate that their carrying amount may not be recoverable. If such an indication exists, the asset’s recoverable amount is estimated. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, referred to as cash generating units. For goodwill and other intangible assets that have an indefinite life and assets not yet available for use, the recoverable amount is estimated annually or more frequently when there is an indication that the asset is impaired. Assets held for sale Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through sale rather than through continuing use. The asset or disposal group must be available for immediate sale and the sale must be highly probable and be expected to complete within one year of the year end. Where applicable, assets and disposal groups classified as held for sale are measured at the lower of fair value less costs of disposal and carrying amount. Impairment losses on initial classification as held for sale are included in the income statement. Gains reversing previous impairment losses or losses on subsequent remeasurements are also included in the income statement. Assets classified as held for sale are disclosed separately on the face of the statement of financial position and classified as current assets or liabilities with disposal groups being separated between assets held for sale and liabilities held for sale. No amortisation or depreciation is charged on assets, including those in disposal groups, classified as held for sale. Available-for-sale investments The Group classifies its listed and unlisted investments as available-for-sale financial assets and measures them at fair value. Gains and losses arising from changes in fair values and exchange translation are recognised in equity unless they arise from significant or prolonged declines in value, in which case impairment losses are recorded in the income statement. When an investment is disposed or derecognised, the related balance in the available-for-sale reserve is recognised in the income statement as part of the gain or loss on disposal. Trade receivables and other receivables Trade and other receivables are initially recognised at fair value and are subsequently measured at amortised cost, less allowances for impairment where appropriate. These are reviewed for impairment on an individual or collective basis, depending on the size of the receivable and the period for which it is overdue. Where the contractual rights to the cash flows from receivables are transferred to another party in transactions by which substantially all the risks and rewards of ownership of the receivables are transferred, then the receivables are derecognised. Cashand cash equivalents comprise cash in hand and shortterm de Cash andcash equivalents obsolescence, seasonalityand damage. isreducedinventory at and Retail valued prices appr retail by cost goods,of direct labour and thoseoverheads related to Division, cost is determined using the firs is the cost using Division, determined The GroupusesThe financialderivative instrumentsits tohedge expo Derivative financial instruments operations. Restrictedcash comprisescash restrictedis which specificfor cash Restricted asaincluded are component of cash and cashequivale are overdrafts wi Bank shown acquisition. Thecost ofraw materialsand packaging istheir purchase price. course business,of less the estimatedcosts necessary maketo the sale. Inventoriesare thecostandat of valued lower realisablenet va Inventories For cashFor hedges,flow other thanthose covered the by preceding affects loss. assumed or liability profit or acquired transactionaffects orTheprofit loss.partany ineffective of equityfrom recognisedremoved and in the incomestatement the in same period,or pe lossesand that recognisedwere inaredirectly equity reclassifi hedgedthe If forecast transaction subsequently results in the non-financialliability. is eq loss from or removed gain cumulative financialDerivative instruments recognisare includingstatement, purchaseequity commitments a no do that derivatives However, accordanceIn with its treasury policy,the Group notdoes hold operating,an financing or liability,or no hedgeisaccounting applie derivativeinstrumenta financial Where used is toeconomic hedge liabilities and assets monetary of Hedge gain unrealised loss cumulative or the accordancein thewith above policythewhen transaction occurs. butthe hedged forecasttransaction is stillexpected to occur, Whena hedginginstrument expires or is sold, terminatedor exer on disposal.on that non-Sterlingentity areremoved from the translation reserve a When non-Sterlingdenominated entity disposed,is the cumulati immediately recognised is denominatedentity that is determined beto an hedge effective Onconsolidation, the effective portiontheof gain or loss on aninstrument designated as a hedge investmentnet of ain non-S entities denominated non-Sterling in investment net of Hedge forecastthe When transactionsubsequently thereserve.in hedge cashflow highlyprobable forecasttransaction, the parteffective anyof derivativea financialWhere instrument designatedis asa hedge hedges flow Cash Hedges thenature on item the of being hedged. thein income statement. However, wherefo qualify derivatives d investing activities. investing d in the income statement.income the in t qualify for hedge accountinghedge aretfor accountedqualify for at recognised in equity is recognised is equity in recognised d and the ord on gain instru loss any hedging tin, first(FIFO) out Net method. estimated realisablethe is value price selling thin borrowings in current liabilities on liabilities th current in borrowings thin uityand included in theinitial cost or othercarrying amount of the non-financial a ed initiallyvalue,ed fair at movement with resultsthein recognition of non-financiala asset or non-financialliability a the ccountedfor asfinancial derivative instruments. nts for thefor nts purpose of the statement ofcash flows. manufactureand distribution based onnormal levels. activity opriatemargins to take into account factors assuch cosaverage gain or loss is recognised imme recognisedis loss or gain thecumulative gain or loss at that point remainsin equity and recognitionof a financial asset purposesand so notis fortheavailable use theof Group it in ed into profit or loss in the sa the in into loss ed or profit gainloss or on the derivative orderivative issue financial instruments for trading purposes. lue. With theWith exceptionretalue. of The cost inwork of progress r hedge accounting,hedge r recognition any of resultant lossor gain de is recognised directly in the in directly tr recognised is cised, orcised, the entity revokes designation theof hedge relations of the variability in cash flow cash in variability the of sure tosure currency translation and interest rate risksf arising and recognisedincomethe in aspartthestatement gain of or twopolicy statements,the associated cumulative gain or loss i ve currencyve gains or losses onthe instrumenthedging associate If theIf hedged transactionno is expected longer to take place ally the currencythe ally of translationexposure recognised a monetar positsmaturitieswith of threemonths or less thefrom date o immediately in theincomein immediately statement.

e statemente of financialBank position. fair value with movements takento the incom s on remeasurementrecognised immediately ment is recognisedis ment in stateme income the riods,during which the hedged forecast financialisinstrument recognis me period,or periods, during diately in theincomein diately statement andgoodsfinished comprises the or financialor ass the liability, s ofs recogniseda assetor liab anslation reserve. Theineffect reserve. anslation il inventory in the B in & inventory Health il Alliance Boots | Annual Report 2013/14 Report |Annual in ordinarythe ociated gains ociated which theasset ed directlyed overdrafts s day to day ility, or a or ility, rom eauty ssociated ssociated is recognised is .

t, t, ive portion ive sset or nt. hip purchase pends pends terling loss , s

f y asset e d with d 73

Additional information Consolidated financial statements Governance Strategic report 74 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 2 Accounting policies continued Trade payables Trade payables are initially recognised at fair value and are subsequently measured at amortised cost. Borrowings Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Amendments to existing borrowings are assessed on a qualitative and quantitative basis to determine whether they are considered significant modifications. Transaction costs attributable to non-significant modifications are deducted from the carrying values of borrowings and amortised over the remaining terms of the modified borrowings by recalculating the effective interest rate. Liabilities to non-controlling interests Commitments to acquire equity stakes from non-controlling interests, including put options, are recognised as financial liabilities when they are made, with corresponding debits recognised as a special reserve within shareholders’ equity. Commitments including put options are derecognised on acquisition with corresponding releases from the special reserve. Dividend obligations to non-controlling interests are recognised as financial liabilities when commitments are made, with corresponding debits recognised within equity attributable to non-controlling interests. Changes to estimates of amounts payable under these commitments and obligations are recognised as exceptional items within finance costs. Retirement benefits The Group operates a number of retirement benefit schemes under which contributions by employees and by the sponsoring companies are held in trust funds separated from the Group’s finances. Where a retirement benefits arrangement is unfunded, provision is made in the statement of financial position for the obligation. Defined benefit schemes A defined benefit scheme is a retirement benefit scheme that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation. The Group’s net obligation or asset in respect of defined benefit schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present value and the fair value of any scheme assets is deducted. The discount rate is the yield at the year end on AA rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. Scheme assets are valued at bid price. Current and past service costs are recognised in profit from operations. Net interest income/expense on net defined benefit assets/liabilities is determined by applying discount rates used to measure defined benefit obligations at the beginning of the year to net defined benefit assets/liabilities at the beginning of the year and is included in finance income/costs. All remeasurement gains and losses that arise in calculating the Group’s obligation in respect of a scheme are recognised immediately in reserves and reported in the statement of comprehensive income. Curtailment gains resulting from changes to the membership composition of defined benefit schemes are recognised in the income statement and as a reduction in the present value of defined benefit scheme liabilities. Settlement gains or losses resulting from scheme amendments transferring liabilities of defined benefit schemes are recognised in the income statement and as a reduction in the present value of defined benefit scheme liabilities. Defined contribution schemes Obligations for contributions to defined contribution retirement benefit schemes are recognised as an expense in the income statement as they fall due. Payments madePayments operating under areleases re in advance are treated as prepayments and ar or approximateor to, constanta periodic rate chargeof on the re finance The shown charge liabilities. as the with forpolicy the class of assetconcerned overthe period minimumthe of paymentsvalues lease is and outsourcedassets theheld for us exclusively Leaseswhichfor Groupthe assumes substantially all the risksan Leases a lease,a maywhateverthey take,form are credited to income the rentalPredetermined increases includedlease the in are recognised except toexcept the extent thatit relatesto items recogniseddirect on Tax the profitor forloss the representsyear the currof sum enttax deferredand Taxrecognised isintax. the staincome Tax theexpectedand netoutflows cash leasedWhere properties become vacant, a provision recognisedis is income Lease recognised on a straight-l Provisions are recognised are Provisions Provisions taxation authorityand the Group intends to settleit are liabilities and offset assets tax Deferred controlledtheby Group, in casewhich a recoverableon the temporary differences between the carrying amou statementfinancialthe of full using in provided is tax Deferred tax Deferred yearthe end, andany adjustments to tax payablerespectin previousof years. evernot taxableare liabilitydeductible.Group’s or The cu for itemsbecauseinco excludes statement of it Currentistax the expected payableon tax thetaxablefo profit tax Current comprehensiveincome. a pasta event, it is probable that an outflow ofeconomic bene measured reliably. If theIf effect reliably. moneythe measured of of is value time theat same time as thepayee recognises thepayto liability th incomeAdditional thattaxes arise re from thatprobable profit taxable sufficient utilised. be can carryingThe amounts deferredof assetstax are re A deferred tax asset is recognised only to the extent that it is assetsof amount and liabilities, amount The deferred tax basedof future. is foreseeable provided on the expectedma taxableandprofit differences investmentsrelatingto in subsidia init the from arising those basestax thecorresponding and th in used An incrementalAn shareissue cost oneis wouldwhich Incremental sharesdirectlynew costs attributableof the issue to • • as Group if: the equity by instrumentequity An is any contractwhich instruments Equity risks the to specific liability. the

ofits own equity instruments. theonlyby Groupsettled be a will exchanging which derivative instrumentthe eitheris a non-derivative which containsno cont terms;and isthere no contractual obligation deliverto cash otheror financial assets or to exchange financial assetsor liabilities on ial recognition of go of recognition ial in the statementfinancialpositionof therewhen is using tax ratestax using enacted or substantivelyenacted theat year end. of continuing with the lease. will be available to allow all or part of the asset to be recovered. to asset the of part or all allow to available be will elementcharged is rentals theincomeof to deferred tax liability is recognised in fu in recognised is liability tax deferred ine basisine over the periodtheof lease. ceipt of dividends from the Group’s subsidia Group’sceipt the from dividendsof in thestatement positionfinancial of theywhen relateincome totaxesb levied e computatione taxableof The followingprofit. temporary differences are not provide evidences residuala interestin the netas me thatexpense or oryearstaxable deductibleother andare itin further excludes e of Group. the The cost held assets of cognised in statement cognised income a the on stra e amortisede over pe the included within property,within included plantand equipmen odwill, the initial re initial the odwill, s currents tax assetsand liabilities on a netbasis. not havenot arisen sharesif had beennot issued. probable futurethat taxable lyin other comprehensive income, fits will be required to settleto required thfitsbe will material, provisions are discounted using a current pre-tax rat pre-tax current a using discounted are provisions material, rrentistax ratescalculatedtax using enacted or substantive e dividendrelated whereexcept maining balancemaining theof outstandin r theyear.Taxabler differsnet profit from profit as reported positionliability It is method. theexpectedtax payato be d rewardsd ownershipof are classified financeas leases, inclu ofThe lease. corresponding the riesto the extent itthat is notprobable that they rev will are shown as a deduction, net applicableof tax, thefrom pr cognition of cognition assetsliabil and onastatement ba straight-line fixedamount of cash orother financial assets, for afixed num viewed at eachat viewed year end and reducedto the thatextent i it ractual obligation to deliver a variable number of shares, or i or variable shares, a number of deliver to obligation ractual and measuredand of lower the theat cost terminatingof lease the on straight-linea Benefits basis. received as incentiv an riodtheof lease. nts of assets and liabilities in liabilities of and nts assets

a present legal or constructive obligation as a as obligation constructive or legal a present ll againstll thosedistributable reserves. statement throughfinance coststo produc under financeunder deemedis leases beto the sets of ansetsentity.Aof financial instrumen ries, associatesries, joint and areventures r nnerrealisationof or settlement theof ca ight-line overbasis the theperiodleaof profitsagainst available be will t.Depreciation is e obligatione and that obligation ities that affect neither a neither affect that ities thetheof timing payment is no obligationsunder theselease in which in it case recognised is sisover the periodtheof leas Alliance Boots g obligations. obligations. g Lease premiums paid the consolidated financial s provided in accorda in provided | Annual Report 2013/14 Report |Annual ccounting nor which the asset erse in the in erse ly enactedly at ble or ble unfavourable in income the y they same ethat reflects canbe e to e sign result of result t is t treated ding tement ecognised oceeds. slongerno in other s are are s present e. e. tatements s a items that items t e, ber rrying d for: d se. se.

nce 75

Additional information Consolidated financial statements Governance Strategic report 76 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 2 Accounting policies continued Additional performance measures The Directors believe that certain additional performance measures provide useful information to assist in understanding the performance of the Group. These measures, which are used for internal performance measurement, are not defined by IFRSs and therefore may not be directly comparable with other companies’ adjusted measures. The key measures are: EBITDA Trading profit before underlying depreciation and amortisation. IAS 39 timing differences Derivative financial instruments are used to hedge interest rate and currency exposures. IAS 39 dictates whether changes in the fair value of these instruments can be matched in the income statement by changes in the fair value of the item being hedged. Where they cannot be matched, or do not fully match, the unmatched amount represents a timing difference that will reverse over the life of the financial instruments. Derivative financial instruments are also used as credit instruments and changes in fair value which reverse over the life of these instruments similarly represent a timing difference. Net borrowings Cash and cash equivalents, restricted cash, derivative financial instruments and borrowings net of unamortised prepaid financing fees. Net finance costs Finance costs net of finance income. Share of underlying post-tax earnings of associates and joint ventures Share of post-tax earnings of associates and joint ventures (excluding distributed associate) before amortisation of customer relationships and brands, exceptional items, timing differences within net finance costs and related tax. Timing differences within net finance costs IAS 39 timing differences and the unwinding of the discount on obligations to non-controlling interests. Trading profit Profit from operations before amortisation of customer relationships and brands, exceptional items and share of post-tax earnings of associates and joint ventures. Underlying depreciation and amortisation Depreciation and amortisation adjusted to exclude amortisation of customer relationships and brands and depreciation and amortisation within exceptional items. Underlying effective tax rate Underlying tax charge as a percentage of trading profit less underlying net finance costs. Underlying net finance costs Net finance costs adjusted to exclude exceptional items and timing differences within net finance costs. Underlying profit Profit for the year (excluding share of post-tax earnings of distributed associate) before amortisation of customer relationships and brands, exceptional items, timing differences within net finance costs and related tax. Underlying profit attributable to equity shareholders Underlying profit excluding amounts attributable to non-controlling interests. Underlying tax charge Tax adjusted to exclude tax on amortisation of customer relationships and brands, exceptional items, timing differences within net finance costs and exceptional tax. Russian Rouble Russian Norwegian Krone Norwegian SwissFranc EBITDA and EBITDA tradingprofit/(loss) included as of certainof segments torelative otherenti Information theregarding resultseach of reportable issegment determining for oper reportable other All segments comprisetheof activities ContractManufact TheUK,Spain, Germany, Turkey, Eg Russia, Netherlands, TurkishLira measures are used to monitormeasures to used are performance as believesmanagement Comprisesof all pharmacy-led the health and beauty busi retail Health & Beauty Division comprisestheGroup operatingThe following segments: determinedon an arm’s length basis. resourceallocation decisions areby made executivethe Director Comprisesof all pharmaceutical the wholesal Division Wholesale Pharmaceutical TheNetherlandsIreland, of andThailand.Republic externallyGroup’s reportableThe operating segments reflect the 4 Segmental information Dollar US Euro Theprincipal exchange rates relative to rates 3 Exchange ating segments in 2014 or 2013. or 2014 in segments ating Sterling used in the preparation of theSterling of the preparation in used ties that operate within these industries. in the internal management reports that ing and distributionand ing businessesacross the ypt,Czech Republic, NorwayRomania, and Lithuania. nessesacross the Group.These businesses are located in theUK included within thisperformancenote.within Segment included measures reare uring and uring Corporate.These did not meet the threshquantitative s in thein s attainmentof strategic Inter-segment objectives. pri internalreporting structure of the Group, which is the basis that informationsuch is the most inrelevant theevaluating re

consolidatedfinancial statements were: 52.51 9.53 1.46 3.20 1.59 1.19 2014 2014 arereviewedthe byDirectors. executive Group. These Group. arebusinesses located in Average Alliance Boots 49.20 49.20 9.13 9.13 1.49 1.49 2.84 2.84 .8 1.58 1.23 2013 2013

31 March 2014 31 March2014 | Annual Report 2013/14 Report |Annual 59.44 9.99 1.48 3.63 1.66 1.21 At 31 March 2013 on which cingis These These France, , Norway, olds venue, Closing Closing 46.98 sults 8.86 1.44 2.74 1.51 1.18 At 77

Additional information Consolidated financial statements Governance Strategic report 78 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 4 Segmental information continued Definitions of the measures set out in the tables below are provided in the accounting policies.

Health Pharmaceutical & Beauty Wholesale All other Division Division segments Eliminations Total 2014 £million £million £million £million £million External revenue 7,655 15,599 113 – 23,367 Intra-group revenue 7 1,562 113 (1,682) – Total revenue 7,662 17,161 226 (1,682) 23,367 EBITDA 1,071 478 (41) – 1,508 Underlying depreciation and amortisation (185) (50) (3) – (238) Trading profit/(loss) 886 428 (44) – 1,270 Share of underlying post-tax earnings of associates and joint ventures 79 Underlying net finance costs (311) Underlying tax charge (note 11) (150) Underlying profit 888 Less: non-controlling interests (48) Underlying profit attributable to equity shareholders 840

Health Pharmaceutical & Beauty Wholesale All other Division Division segments Eliminations Total 2013 Re-presented £million £million £million £million £million External revenue 7,477 14,817 112 – 22,406 Intra-group revenue 5 1,561 126 (1,692) – Total revenue 7,482 16,378 238 (1,692) 22,406 EBITDA 1,049 484 (28) – 1,505 Underlying depreciation and amortisation (184) (49) (7) – (240) Trading profit/(loss) 865 435 (35) – 1,265 Share of underlying post-tax earnings of associates and joint ventures (6) Underlying net finance costs (320) Underlying tax charge (note 11) (179) Underlying profit 760 Less: non-controlling interests (51) Underlying profit attributable to equity shareholders 709 Share of underlying post-tax earnings of associates and joint ventures excludes Galenica Ltd. which ceased to be an associate of the Group in May 2013 following its distribution to the Group’s ultimate parent company. Comparative amounts are re-presented on this basis.

Profit for the year year the for Profit Exceptionaltax credits underlyingprofit in credit not Tax items on within differences financecostsTiming net exceptionalNet taxbefore items post-taxof Share earningsof distributed associate Amortisationof customer relationshipsand brands profit Underlying reconciliationThe underlyingof profit to statutoryprofit thefor was:year tax before Profit costsfinance Net Profitoperationsfrom relatinggains Net associatesto post-taxof Share ofearnings associates and joint ventures Exceptionalitems Amortisationof customer relationshipsand brands profit Trading reconciliationThe prof trading of Profitoperationsfrom associatesbefore and joint ventures it to it beforeprofit was: tax

Alliance Boots

| Annual Report 2013/14 Report |Annual £million £million £million 1,327 1,270 1,132 (100) (354) (100) 2014 2014 971 113 888 973 109 (38) 35 10 18 86 7 Re-presented £million £million £million £million 1,101 1,265 1,054 (105) (264) (105) (106) 2013 2013 741 760 837 (66) 38 45 24 45 39 79 8

Additional information Consolidated financial statements Governance Strategic report 80 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 4 Segmental information continued The Group’s reportable segment assets and liabilities at the year end were:

2014 2013 Assets Liabilities Net Assets Liabilities Net £million £million £million £million £million £million Health & Beauty Division 10,226 (1,279) 8,947 10,215 (1,205) 9,010 Pharmaceutical Wholesale Division 6,273 (3,266) 3,007 7,120 (3,883) 3,237 All other segments 82 (100) (18) 149 (99) 50 Eliminations (226) 226 – (236) 236 – Allocated segment assets/(liabilities) 16,355 (4,419) 11,936 17,248 (4,951) 12,297 Unallocated: Investments in associates and joint ventures 318 – 318 958 – 958 Future distribution obligation ––– – (657) (657) Available-for-sale investments 67 – 67 48 – 48 Retirement benefit (obligations)/assets – (174) (174) 62 (98) (36) Assets classified as held for sale 3–3 5 – 5 Net current and deferred tax 37 (913) (876) 30 (1,081) (1,051) Net cash/(borrowings) 697 (5,748) (5,051) 782 (6,675) (5,893) 17,477 (11,254) 6,223 19,133 (13,462) 5,671 Allocated segment assets at the year end comprised goodwill of £4,625 million (2013: £4,710 million), other intangible assets of £5,309 million (2013: £5,416 million), property, plant and equipment of £1,907 million (2013: £1,918 million), inventories of £1,892 million (2013: £2,030 million), and trade and other receivables of £2,622 million (2013: £3,174 million). Allocated segment liabilities at the year end comprised trade and other payables, excluding the future distribution obligation, of £4,394 million (2013: £4,902 million) and provisions of £25 million (2013: £49 million). Eliminations included inter-segmental trading accounts between subsidiary undertakings. Other information in respect of the Group’s segments was:

Health Pharmaceutical & Beauty Wholesale All other Division Division segments Total 2014 £million £million £million £million Amortisation of other intangible assets 78 75 – 153 Depreciation of property, plant and equipment 146 36 3 185 Additions to non-current assets: – other intangible assets 50 20 – 70 – property, plant and equipment 161 43 7 211

Health Pharmaceutical & Beauty Wholesale All other Division Division segments Total 2013 £million £million £million £million Amortisation of other intangible assets 73 79 – 152 Depreciation of property, plant and equipment 150 37 6 193 Impairment – 62 – 62 Additions to non-current assets: – other intangible assets 50 19 – 69 – property, plant and equipment 94 39 4 137

inassociates andjoin assetsof£5,309 million (2013: mill£5,416 Segment non-current, non-financial assets non-financial non-current, Segment Other Switzerland Germany France UK locationof theassets were: Segmentalnon-current, non-financial assets, excluding taxdeferred assets and retirement benefit assets, based theon geograph arising Revenue customers from Switzerland, country in Company’s domi the of Other Germany France UK externalGroup’s revenue The other All segments eliminationsand andWholesale Services Related Division Wholesale Pharmaceutical Other Optical Retail andDispensing RelatedIncome Health & Beauty Division TheGroup’s revenuesfor groups of similarproducts and services were: t ventures of £318 million (2013: £958 million). million). £958 (2013: million ventures £318 t of basedon the geographical location customersof was: ion), property, ion), plant of equipment and at the year end comprised goodwill of end goodwill year comprised the at

cile was £65 million (2013: £6 million). £6 (2013: million £65 was cile £1,907 million (2013: £1,918 million) and inv and million) £1,918 (2013: million £1,907 £4,625million (2013: £4,710 million), otherin Alliance Boots | Annual Report 2013/14 Report |Annual 12,159 10,052 23,367 23,367 17,161 17,161 £million £million £million £million (1,456) 1,438 6,756 3,735 3,799 9,077 7,662 4,633 2,593 2014 2014 2014 109 522 349 38 87 estments tangible ical 13,002 10,050 22,406 22,406 16,378 16,378 (1,454) £million £million £million £million 1,606 6,268 3,508 3,883 8,747 7,482 4,475 2,609 2013 2013 2013 118 557 335 671 63 81

Additional information Consolidated financial statements Governance Strategic report 82 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 5 Profit from operations before associates and joint ventures Before amortisation of Amortisation customer relationships of customer and brands, and relationships Exceptional exceptional items and brands items Total 2014 £million £million £million £million Revenue 23,367 – – 23,367 Cost of sales (18,458) – – (18,458) Gross profit 4,909 – – 4,909 Selling, distribution and store costs (3,137) (100) – (3,237) Administrative costs (502) – (38) (540) Profit from operations before associates and joint ventures 1,270 (100) (38) 1,132

Before amortisation of Amortisation customer relationships of customer and brands, and relationships Exceptional exceptional items and brands items Total 2013 £million £million £million £million Revenue 22,406 – – 22,406 Cost of sales (17,552) – (31) (17,583) Gross profit 4,854 – (31) 4,823 Selling, distribution and store costs (3,099) (105) (6) (3,210) Administrative costs (490) – (69) (559) Profit from operations before associates and joint ventures 1,265 (105) (106) 1,054

Reassessment distribution of obligation Reassessment obligationsof to non-controlling interests During the prior year, the Company entered 5 Other comprises net gains/(losses) on disposal of other assets and acquisition related costs, and in the prior year also incl 4 During the prior year, the Group announced efficiency a the restructuring improve to Contract programme within Manufacturing 3 ContractManufacturing restructuring programme Gain on acquisitioncontro on a Gain of investmentof Impairment associatein

Within profit from operations befo operations from profit Within Fair value movement of equity of commitmentmovement purchase value Fair Other

6 During the year, the Group repurchased and repaid acquisition borrowings with a net value of £1,258 million (2013: £1,124 mil £1,124 (2013: million £1,258 of value anet with borrowings acquisition andrepaid repurchased Group the year, the During 6 During the prior year, the Group recorded an impairment of g 2 During priorthe withyear, the Group an Walgreen together Co. 1 Exceptionaltax credits credit Tax exceptionalon items W of Impairment available-for-saleinvestment W Repurchaseand repaymentacquisitionof borrowings W Gaindisposalon distributionand associatesof optionwarrantsCall for W items 6 Exceptional

Impairment of goodwillof Impairment otherand intangible assets The exceptional credit in the year mainly relates to the net reduction in deferred tax assets and liabilities resulting from 8 During the prior year, the Group entered into a contract to ac 7

ithin tax tax ithin ithin finance costs ithin finance income operations from profit ithin AmerisourceBergen transactions, residual costs in relation to ot to relation in costs residual transactions, AmerisourceBergen business. Germany commitment since the beginning of the year to the date of distribution was £43 million. millio £115 of distribution on a gain recognising Ltd. Galenica in investment its distributed Group the 2013, On10May value. related dividend distributions or proceeds to the selling sharehol a 45% equity stake in the Group. As part of this agreement, th agreement, of this part As the Group. in stake equity a 45% currently own. ex Group, only the from warrants these purchase for Walgreens to which included the Group warrants receiving to purchase up to 8% from April 2015. The exceptional tax credits in the prior year mainly related to a one percentage point reduction in the rate rate the in reduction point percentage aone to related mainly year prior the in credits tax exceptional The 2015. April from 2014 and the April from applicable reduction point a two percentage comprised This enactedyear. the during tax corporation UK instrument was £7 million. repurchases and repaymen 4

8 ts were £13 million. million. £13 were ts

1

lling interest in an in associate interest lling re associatesre and venturesjoint a Purchase and Option Agreement with its pa its with and Agreement Option a Purchase 5

5

oodwill and other intangib quire a 12% stake in Nanjing Pharmaceutical Company Limited. T Limited. Company Pharmaceutical Nanjing in quire a 12% stake e Company made a commitment to distribute or otherwise transfer d its subsidiaries (‘Walgreens’) signed agreements with Ameriso with agreements signed (‘Walgreens’) subsidiaries d its her announcedpreviously exceptio 3 ders at a future date without any payment. The Group recogni

2 ercisable if Walgreens exercises its option to acquire the rema the option its to acquire Walgreens exercises if ercisable

of the equity of AmerisourceBergen at future dates. Simultane dates. future at of AmerisourceBergen equity of the 6 7

le assets relating to the Megapharm ope rent company, AB Acquisitions Holdings

nal projects and negative good the three percentage point reduction in the rate of future uded legal and other advisory costs for the Walgreens and of UK corporation tax applicable from April 2013. 2013. April from applicable tax corporation UK of n. The increase in the fair value of the liability for this valueliability fair of the the in The increase n. lion). Pre-paid financing fees expensed on these fees on these expensed financing Pre-paid lion). urceBergen Corporation (‘AmerisourceBergen’) he fair value gain in the year on this derivative financial sed this commitment as a liability measured at fair Alliance Boots rations within the Pharmaceutical Wholesale ining 55% equity stake of the Group that they do not and overall performance of the UK factory. factory. UK performance of the and overall will. further one percentage po further ously, the Group issued a call option to Walgreens Limited, and Walgreens for Walgreens Limited, for and Walgreens Walgreens acquire to its subsidiary’s investment in Galenica Ltd. and any

| Annual Report 2013/14 Report |Annual £million £million 2014 113 120 138 116 (38) (14) (34) int reduction applicable (46) (43) 71 (3) (7) (4) (7) 7 7 – – – – £million £million (106) 2013 (98) (16) (62) (13) (31) 13 28 28 38 50 12 (3) (6) 83 – – – 2 6 4

Additional information Consolidated financial statements Governance Strategic report 84 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 7 Profit from operations The following items have been deducted in arriving at profit from operations:

2014 2013 £million £million Amortisation of other intangible assets 153 152 Depreciation of property, plant and equipment 185 193 Impairment – 62 Net losses on disposal of property, plant and equipment 1 11 Operating lease rentals 391 389 Employee costs 2,009 1,970 An analysis of the total remuneration paid to the Group’s principal auditor is provided below:

2014 2013 £million £million Audit: – consolidated financial statements 0.1 0.1 – subsidiary financial statements 1.8 1.4 1.9 1.5 Other services for the Group: – transaction services 0.2 0.1 – taxation 0.1 0.1 – other 0.4 0.4 0.7 0.6 Walgreens reporting (reimbursed) 2.0 2.5 4.6 4.6

8 Employee costs The average monthly number of persons employed by the Group over the year, including Directors and part-time employees, was:

2014 2013 Number Full-time Number Full-time of heads equivalents of heads equivalents Health & Beauty Division 74,157 50,743 72,667 49,324 Pharmaceutical Wholesale Division 26,417 23,889 25,656 23,134 Contract Manufacturing & Corporate 2,180 2,137 2,231 2,187 102,754 76,769 100,554 74,645 Costs incurred in respect of these employees were:

2014 2013 £million £million Wages and salaries 1,700 1,661 Social security costs 219 218 Retirement benefit costs: – defined benefit schemes (current service costs) 2 3 – defined contribution schemes 88 88 2,009 1,970

–reassessment ofdistribution obligation reassessment– obligationsof to non-controlling interests when thewhen debt itselfsettled.The totalis interest fo expense loans bank on and Interest incl overdrafts ofimpairment – availabl Exceptionalitems: Otherfinance costs discountof Unwind on obligati non-designat on movements value fair Net feesFinancing interestcostNet on definednet schemebenefit liabilities Intereston bank loans and overdrafts costs Finance 10 of movement value fair – –repurchase and repayment of acquisitionborrowings Exceptionalitems: Otherfinance income interestNet income on net benefit defined schemeassets depositBank and other interest income 9 Finance income ofthis obligationup until the da Changesthein fair value theof Group’sobli financialon loss net The assets/liabiliti intereston bank loans and overdraftswithin finance in Interestincome/expense related financialinstrumentderivative to financingbeing provided. Financing(2013: £332fees million). includ e-for-sale investmente-for-sale equitypurchase commitment ons toons non-controlling interests te of distribution on 10 May 2013.May 10 on distribution of te es at fair valuelo fair or at profit es through udes £4 million (2013: £22 million) of rolledofmillion) £22 (2013:million £4 udes e £19 million (2013: £27 million) of amortise of million) £19 £27 e (2013: million ed derivative financial instruments financial derivative ed gation togation distribute equity its shareholdi comeand costsfinance respectively on grossa basis. r financial liabilities not at fa at not liabilities financial r s is included within bank depo bank within included is s ss was £10 million (2013: £13 million gain). million £13 (2013: million £10 was ss

ng in Galenicain ng aroseLtd. from reassthe up interest up mezza on d fees which are expensed over the ter whichthe fees over d expensed are ir valueir through profit or loss sitand otherinterest income a Alliance Boots nine debt which is which debt nine

| Annual Report 2013/14 Report |Annual £million £million £million was £282 million £282 was 2014 2014 387 341 267 (22) (14) 46 43 26 12 55 33 40 30 (7) 3 3 7 3 7 – essment payable m of the of m nd nd £million £million £million 2013 2013 373 377 322 109 (13) (57) 48 28 24 22 62 81 31 28 (4) 85 – 6 3 4 2

Additional information Consolidated financial statements Governance Strategic report 86 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 11 Tax An analysis of the tax charge in the year was:

2014 2013 £million £million Current tax Current tax charge for the year 177 184 Adjustments in respect of prior years (13) (15) 164 169 Deferred tax Impact of change in tax rates (113) (38) Deferred tax relating to the origination and reversal of temporary differences (49) (35) (162) (73) 2 96 The Group’s principal operations are geographically dispersed and therefore the appropriate standard rate of tax is the average of the standard tax rates in the countries of operation, weighted by the amount of profit before tax. The reconciliation of the expected total tax charge was based on this weighted average standard tax rate of 23.6% (2013: 23.6%). The reconciliation of the expected total tax charge to the reported tax charge in the year was:

2014 2013 £million £million Profit before tax 973 837 Less: share of post-tax earnings of associates and joint ventures (86) (39) 887 798 Expected tax charge at weighted average standard tax rate 210 188 Factors affecting charge for the year: – non-taxable gain on distribution of associate (24) – – non-taxable items and tax credits/non-deductible items1 (54) (47) – impairment of available-for-sale investment – 1 – unrelieved tax losses arising in the year 11 21 – recognition/utilisation of brought forward tax losses (1) (3) – current tax adjustments in respect of prior years (13) (15) – deferred tax adjustments in respect of prior years (17) (14) – other differences 3 3 – exceptional tax credits2 (113) (38) 2 96

1 Non-taxable items include tax credits arising from updates to tax base costs of the Group’s property and intangible assets, and other non-taxable finance income. 2 The exceptional credit in the year mainly relates to the net reduction in deferred tax assets and liabilities resulting from the three percentage point reduction in the rate of future UK corporation tax enacted during the year. This comprised a two percentage point reduction applicable from April 2014 and the further one percentage point reduction applicable from April 2015. The exceptional tax credits in the prior year mainly related to a one percentage point reduction in the rate of UK corporation tax applicable from April 2013. The effective tax rate, which is defined as the tax charge expressed as a percentage of profit from operations excluding share of post-tax earnings of associates and joint ventures, net of finance income and finance costs was 0.2% (2013: 12.0%).

Amounts recycledAmounts on dist Exceptionaltax credits withindifferences nettiming – finance costs associatesof and venturesjoint Sharepost-taxof other comprehensive income including amounts recycledamounts including Movementson available-for-saleinvestments Duringthe prior year,an impairment in relation to the Megaph At 31 March Currencytranslation differences of Acquisitions businesses April1 At Net book value 12 Goodwill instrumentsincluding recycledamounts hedging flow cash on movements value Fair non-Sterlingdenominated operations Netexchange differences on translation of benefit Defined schemesnet– remeasurements Other comprehensiveincome Taxcredit/(charge) on items taken directly to othercomprehensive income comprised: 18.9%). (2013: 15.6% was costs, underlying rate,The tax calculated effective –exceptional items amortisation– ofcustomer relationshipsand brands on:Tax charge tax Underlying exceptionalitems, timing differences within net finance costs an taxunderlying charge,The whichthe istax chargeadjusted to The cumulative impairment in the ca the in impairment cumulative The classifi and operations from profit within Impairment ribution of associateributionof rryingvaluegoodwillof at31Marc ed as an exceptional itemexceptional an as ed 6). (note as theunderlying tax asacharge percentage of tradinglessprofit underlying ne

Before tax £million £million 48 8(410) 28 (438) 13 3 (186) (156) (3) 33 (183) (189) 7)–(78) – (78) 1 (1) – (1) armoperations within Pharmaceutical Wholesale Germany was recogn 1 6 (1) 7 1 5 (1) 6 excludeon tax amortisationof customerrelationships and brands d exceptionald tax, reconciled to the chargetax in the year wa £million £million h 2014 was £192 million (2013: £196 million). million). £196 (2013: million £192 was 2014 h

Tax After tax £million £million 2014 2014

Alliance Boots Before tax £million £million 3) 4(25) 14 (39) 7) 6(56) 16 (72) 8 2 26 (2) 28 2 –(2) – (2) –– – – –2 – 2 –5 – 5

| Annual Report 2013/14 Report |Annual £million £million £million £million 4,625 4,710 £million £million (113) 2014 2014 150 (94) (31) Tax (7) 9 2 3 – t financet s: s: , After tax £million £million £million £million £million £million 4,710 4,751 2013 2013 2013 2013 179 ised (51) (38) (12) (34) 10 96 87 – 1

Additional information Consolidated financial statements Governance Strategic report 88 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 13 Other intangible assets Pharmacy Customer licences Brands relationships Software Other Total 2014 £million £million £million £million £million £million Cost At 1 April 2013 1,280 2,990 1,465 486 16 6,237 Acquisitions of businesses 3 8 4 – – 15 Additions – – – 65 5 70 Disposals – – – (49) – (49) Currency translation differences – – (57) (4) – (61) At 31 March 2014 1,283 2,998 1,412 498 21 6,212 Amortisation At 1 April 2013 – 31 535 245 10 821 Charge – 4 96 51 2 153 Disposals – – – (49) – (49) Currency translation differences – – (20) (2) – (22) At 31 March 2014 – 35 611 245 12 903 Net book value 1,283 2,963 801 253 9 5,309

Pharmacy Customer licences Brands relationships Software Other Total 2013 £million £million £million £million £million £million Cost At 1 April 2012 1,281 2,990 1,458 420 13 6,162 Acquisitions of businesses – – – 1 – 1 Additions – – – 66 3 69 Disposals (1) – – (2) (1) (4) Currency translation differences – – 7 1 1 9 At 31 March 2013 1,280 2,990 1,465 486 16 6,237 Amortisation At 1 April 2012 – 27 424 200 3 654 Charge – 4 101 46 1 152 Impairment – – 6 – 5 11 Disposals – – – (2) – (2) Currency translation differences – – 4 1 1 6 At 31 March 2013 – 31 535 245 10 821 Net book value 1,280 2,959 930 241 6 5,416 The amortisation charge was £153 million (2013: £152 million), of which £120 million (2013: £123 million) was recognised in selling, distribution and store costs, and £33 million (2013: £29 million) in administrative costs. The prior year impairment related to the Megapharm operations within Pharmaceutical Wholesale Germany (note 6). The cumulative impairment in the carrying value of customer relationships at 31 March 2014 was £6 million (2013: £6 million), and of other intangible assets was £5 million (2013: £5 million). There were no other accumulated impairment losses at the beginning or end of the year. Included within the carrying value of brands is the Boots brand which has a carrying value of £2,162 million (2013: £2,162 million). Internally developed software and software under development totalling £16 million (2013: £6 million) was included within additions during the year. • • long estimated termrates.growth The key assumptions are: • years five of takenapprovedfrom andbudgets three yearforeca theof recoverable amounts determinedThe are CGUs value-in from intangibleassets. Othercomprises individually non-significan Other UK– Wholesale Pharmaceutical Boots– UK Division Beauty& Health thetable below: accordingtheidentified countryto of operation Thosebusiness. and with significant amountsallocated at the yearend are sh Goodwill,pharmacy licences, brands and customer relationships have frequentlytheremore if ar Goodwill,pharmacy licences and brands which haveindefinitean useful life subjectare annualto testing,impairment or asare assets fixed intangible other and goodwill of testing Impairment 14 (2013: 2.3% and 4.2% respectively). For ot For respectively). 4.2% and 2.3% (2013: CGUs,thepre-tax discount rate was11.5% amounts significant with CGUs The recoverableamounts goodwill.of 1. from ranged used rates growth term long

Discount rates Discount forecastsand budgets andextern available rates growth average term Long beyond periods beyond by covered budg approved margins Gross operates.it are based on are past performance and management’s expectations development.market of improvementsNo to margins are calculated separatelyare each for an CGU eindicationsimpairment. of Goodwill Goodwill £million £million ,4 –5 311 76 801 58 – 2,963 414 – 1,283 – 2,905 4,625 1,140 1,283 1,044 2,441 areused to extrapolate cashflow of intangible assets intangible of Bootsare andUK the Pharma her discountpre-tax CGUs rates from ranged (2013: 11.0%), and the long term growth ra growth term long the and 11.0%), (2013: t CGUst comparisonin Group’sthe with total carryingamount goodwillof other and 0% to 14.2% (2013: 0.7% to 14.9%). A sens A 14.9%). to 0.7% (2013: 14.2% to 0% al longal datagrowth term for both the countryand sector of eachCGU. Pharmacy ets and forecasts haveforecasts assumed.and been ets licences £million dthenature reflect individual and specific £million £million Brands sts,and extrapolated cash flows for the periodsbeyond theseus -use calculations-use which discounteduse cashflows a for period s. These areThese determined s. with refe been totheallocated appropriate (‘C units generating cash relationships Customer

£million 2014 2014

ceutical Wholesaleceutical businesstheFor in UK. t tes were 2.4%were tes respectively 4.3% and itivity analysisasse itivity in performed been has 11.5% to 22.0% (2013: 11.0% to 23.0%), a 23.0%), to 22.0%to 11.5% 11.0% (2013: Goodwill £million £million ,2 5 398 87 930 50 – 2,959 445 – 1,280 – 2,909 4,710 1,225 1,280 1,044 2,441 Alliance Boots risks relatingrisks to the market in which Pharmacy rence bothto internal approved licences licences £million £million | Annual Report 2013/14 Report |Annual £million £million Brands sessed relationships own in own ssing the GUs’) GUs’) Customer nd the hese UK hese ing £million £million 2013 2013 89

Additional information Consolidated financial statements Governance Strategic report 90 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 15 Property, plant and equipment Fixtures, Land and plant and buildings equipment Total 2014 £million £million £million Cost At 1 April 2013 1,393 1,493 2,886 Acquisitions of businesses 1 – 1 Additions 18 193 211 Disposals (16) (97) (113) Transferred to assets held for sale (6) (1) (7) Currency translation differences (20) (24) (44) At 31 March 2014 1,370 1,564 2,934 Depreciation At 1 April 2013 194 774 968 Charge 29 156 185 Disposals (11) (93) (104) Transferred to assets held for sale (1) – (1) Currency translation differences (4) (17) (21) At 31 March 2014 207 820 1,027 Net book value 1,163 744 1,907

Fixtures, Land and plant and buildings equipment Total 2013 £million £million £million Cost At 1 April 2012 1,393 1,451 2,844 Acquisitions of businesses 1 3 4 Additions 23 114 137 Disposals (20) (80) (100) Transferred to assets held for sale (5) – (5) Currency translation differences 1 5 6 At 31 March 2013 1,393 1,493 2,886 Depreciation At 1 April 2012 177 675 852 Charge 31 162 193 Disposals (12) (67) (79) Transferred to assets held for sale (2) – (2) Currency translation differences – 4 4 At 31 March 2013 194 774 968 Net book value 1,199 719 1,918 Certain items previously classified as fixtures, plant and equipment, which predominantly related to leasehold improvements, have been reclassified as land and buildings, and amounts at the beginning of the comparative year have been restated accordingly. Included within the net book values were amounts in respect of assets held under finance leases of £13 million (2013: £14 million) in fixtures, plant and equipment. Property, plant and equipment with a carrying amount of £13 million (2013: £14 million) have been pledged as security for certain local borrowing facilities. Included within the net book values were assets in the course of construction of £6 million (2013: £5 million) in land and buildings and £14 million (2013: £14 million) in fixtures, plant and equipment. The depreciation charge was £185 million (2013: £193 million), of which £2 million (2013: £11 million) was recognised in cost of sales, £154 million (2013: £159 million) in selling, distribution and store costs, and £29 million (2013: £23 million) in administrative costs. At 31 March Currencytranslation differences Impairment Dividends Share of otherof Share comprehensive income interest Derecognised acquis on interest acquisitioncontrolling on a Gain of liabil Group’s contingent The of share post-taxof Share earnings Disposals distributionand an Acquisitions April1 At Movementsinthe carrying amounts of associatesand joint ventures were: Detailsof the Group’s principal associates andjoint ventures are providedin note35. in Investments associates 16 and joint ventures d investments investments d ition of controlling ition a ities of associates and joint ventures joint and associates of ities

Associates £million £million 60 (650) – (650) 3 8 318 186 132 0 5 958 155 803 1)(4 (24) (49) (14) (34) (10) (15) 27 86 74 12 7 (7) – (7) 1 (1) – (1) –55 ––– ––– ventures £million £million

Joint Joint was£4 million million).(2013: £38 £million £million Total 2014 2014

Alliance Boots Associates £million £million 0 15958 155 803 7 12911 132 779 1) 4 (18) (4) (14) 1 839 18 21 4 16 2 14 1 76 7 (1) 1 –(1) – (1) 3 –(3) – (3) –– – – –2 – 2 –6 – 6 | Annual Report 2013/14 Report |Annual ventures £million £million Joint £million £million Total 2013 91

Additional information Consolidated financial statements Governance Strategic report 92 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 16 Investments in associates and joint ventures continued Investments in joint ventures Walgreens Boots Alliance Development GmbH Set out below is the summarised financial information for Walgreens Boots Alliance Development GmbH which is considered material to the Group. The information reflects the amounts derived from the financial statements of the joint venture at 100% (and not the Group’s 50% share of those amounts) translated at the exchange rates sets out in note 3. The summarised statement of comprehensive income for the year ended 31 March was:

2014 2013 £million £million Revenue 130 17 Profit before tax 127 13 Tax (10) (1) Profit for the year 117 12 Total comprehensive income for the year 117 12 During the year, dividends received from Walgreens Boots Alliance Development GmbH were £27 million (2013: £nil). The summarised statement of financial position at 31 March was:

2014 2013 £million £million Current assets Cash and cash equivalents 50 5 Other current assets 165 52 215 57 Current liabilities (139) (41) Net assets 76 16 The reconciliation of the movement in the net assets to the carrying amount was:

2014 2013 £million £million At 1 April 16 – Investments – 4 Total comprehensive income 117 12 Dividends (53) – Currency translation differences (4) – At 31 March 76 16 Carrying amount at 50% (2013: 50%) 38 8 The Group’s share of total comprehensive income of other joint ventures was £16 million (2013: £12 million).

At 31 March Otherreceivables Loan assets Currencytranslation differences fairin Movements value Where tradeWhere receivables estimatedare to lessbe than their carryin Prepaymentsand accrued income impairment for Provision receivablesTrade Current Otherreceivables Loan assets leaseholdShort premiums receivablesTrade Non-current in write-downof The value carrying the in thein Included carryingaggregate value goodsFinished Workin progress materials Raw Inventories 18 securitiesUnlisted equity– Listed securities (pledgednon-equity – collateral)as Listed securities equity – Available-for-saleinvestments comprised: Disposals Additions April1 At 17 Available-for-sale investments be have million) million £37 of amount £27 carrying (2013: a with wasimpairment mi aggregate £46 associated the and million) £116 (2013: million £95 was estimated recoverableamounts. The aggregate carryinggross valu receivables other and 19 Trade be have million) million £23 of amount £43 carrying (2013: a with costThe inventoriesof expensed bothin years presentedwas not materially different to the cost salesof recorded(note 5). was £77 million (2013: £62 million) of invent million)of £62 (2013: million £77 was ventories to net realisable value, net of net ventoriesvalue, realisable net to en pledged as security for cert for security as pledged en cert for security as pledged en g values, provisions have been writehave to provisions made thesevalues, down g to t e of trade receivables which were either partiallyeither trade were of which e receivables im fully or

£8 million). million). £8 (2013: million £4 was year the in reversals oriesheld atnetrealisable value. llion (2013: £41 million). Trade receiv Trade million). £41 (2013: llion ain local borrowing local facilities. ain borrowing local facilities. ain Alliance Boots

| Annual Report 2013/14 Report |Annual £million £million £million £million £million £million 2,544 2,153 2,199 1,892 1,864 2014 2014 2014 2014 211 178 (46) 67 78 22 28 26 22 67 18 46 16 48 (2) (2) 2 7 2 6 3

Inventories paired ables heir heir £million £million £million £million £million £million 3,103 2,618 2,659 2,030 2,001 2013 2013 2013 2013 202 194 (41) 48 89 71 14 31 19 23 48 20 26 41 (2) 93 1 2 7 6 2 6

Additional information Consolidated financial statements Governance Strategic report 94 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 19 Trade and other receivables continued Included within the aggregate unimpaired trade receivables were £150 million (2013: £183 million) which were past due. These balances have been assessed for recoverability and the Group believes that their credit quality remains intact. An ageing analysis of these unimpaired past due trade receivables was:

Less than More than 1 month 1-2 months 2-3 months 3 months Total past due past due past due past due past due £million £million £million £million £million Carrying value at 31 March 2014 98 22 10 20 150 Carrying value at 31 March 2013 114 31 14 24 183 The movement in the provision for impairment of trade receivables was:

2014 2013 £million £million At 1 April (41) (38) Created (18) (9) Utilised 4 3 Released 7 4 Currency translation differences 2 (1) At 31 March (46) (41)

20 Cash and cash equivalents 2014 2013 £million £million Bank balances 196 294 Short term deposits 305 298 Cash and cash equivalents 501 592 Bank overdrafts (1) (13) Cash and cash equivalents in the statement of cash flows 500 579

21 Restricted cash Restricted cash at 31 March 2014 of £156 million (2013: £167 million) consisted of deposits restricted under contractual agency agreements of £70 million (2013: £92 million), cash pledged as collateral on financial instruments of £66 million (2013: £72 million) and cash restricted by law and other obligations of £20 million (2013: £3 million). made in the future. Unremitted earnings of these subsidiary undertakings subsidiary these of earnings Unremitted future. the in made futureavailabl that be taxablewill profits assetstax Deferred have onlybeen recognised ondeductible te liabilities and assets tax deferred Unrecognised 2013 March 31 At Currencytranslation differences Credited equityto (charge)/creditstatement Income Acquisitions of businesses 2012 April 1 At 2013 At 31 March 2014 Currencytranslation differences Credited/(charged)equityto statementIncome (charge)/credit of Acquisitions businesses 2013 April 1 At 2014 movementinThe deferred assetstax and liabilities duringthe year was: liabilitiestax Deferred assetstax Deferred 2013 March 31 At liabilitiestax Deferred assetstax Deferred At 31 March 2014 balanceThe of tax deferred assetsat andliabilities the yearend was: liabilities and assets tax deferred Recognised liabilities assets and tax Deferred 22 earnings certainof subsidiary undertakings since Groupthe has (2013: liabilitiesmillion tax £22 Deferred of of million this£34 amount million), £43 (2013: noutilised, recognised.be temporarybeen can the has difference asset potentialcapital expenditurefor capitalallowances. Where it is temporarydifferences. The assets are recorded reviewing after eagainst which the asset can be utilised, £32 million) have not been not for have recognised million) £32 Unrelieved Unrelieved tax losses tax losses tax Unrelieved tax losses £million £million £million (2013: £31 million) has no expiration date.expiration no has million) £31 (2013: £million £million 1)2 1)5 1 73 10 1 56 (10) 26 (10) 9(3 1)(2)(1 2 (765) 20 (21) (729) (11) (83) 59 2(9 5)(8)(5 3 (965) 35 (25) (882) (56) (781) (99) 16 62 (21) (731) (16) (84) 55 59 (83) (11) (729) (21) (21) (729) (11) (83) 59 8(9 5)(8)(5 3 (976) 31 (25) (882) (59) (99) 58 2(9 5)(8)(5 3 (965) 35 (25) (882) (56) (99) 62 1(2)(2 94 2) 3(1,053) 23 (26) (934) (62) (125) 71 2(9 5)(8)(5 3 (965) 35 (25) (882) (56) (99) 62 1 –10 – 162 – (12) 9 4 – 146 12 2 14 (1) (2) 1 4 4(1) 4 – (4) – – (1) 416 4 – 2 5 1 4 3–– 3 30 (2) (3) – – – – (2) 33 – – – – – 6–– 16 – – – 16 – – 4–3–– 411 2–––– (2)– Accelerated Accelerated allowances allowances Accelerated allowances £million £million £million capital capital £million £million capital not considered probable aga thatarise a taxablewill profit discretionover themanner and ti mporarydifferences, unused taxlosses or creditstax to the exte thefinancial forecasts theof Group’s position, depreciation a Retirement Retirement obligations obligations Unrecognised tax deferred Retirement obligations

totalled £232 million (2013: £232 million). million). £232 (2013: million £232 totalled £million £million benefit benefit benefit assets/ assets/ £million £million assets/ benefit orwhere these utilisedbe can against o Intangible Intangible thetaxthat would bepayable ontheu Intangible £million £million £million £million £million assets assets assets Alliance Boots ming of any distributions,any of ming if assets on losses were £45 mi £45 assets were losses on £million £million £million £million £million Rolled Rolled Rolled Rolled gains gains gains over over over

| Annual Report 2013/14 Report |Annual differences differences temporary temporary differences temporary £million £million £million £million £million Other Other Other 0(765) 20 thertaxable inst whichinst nremitted any, be to nd nd nt nt llion llion £million £million £million £million £million Total Total Total 95

Additional information Consolidated financial statements Governance Strategic report 96 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 23 Trade and other payables 2014 2013 £million £million Current Trade payables 3,401 3,725 Other taxation and social security 141 147 Accruals and deferred income 430 465 Liability to acquire equity stakes from non-controlling interests – 171 Future distribution obligation – 657 Future dividend obligations to non-controlling interests 6 11 Other payables 258 255 4,236 5,431 Non-current Future dividend obligations to non-controlling interests 73 67 Other payables 85 61 158 128 The liability to acquire equity stakes from non-controlling interests at the prior year end mainly related to Hedef Alliance Holding A.S. and Farmexpert DCI S.A., which were settled in the current year. The future distribution obligation at the prior year end related to the distribution of Galenica Ltd., which was settled on 10 May 2013.

Finance lease liabilities liabilities lease Finance Net borrowings financialDerivative instruments purchaseequity – commitment overdrafts Bank uncommitted – loans Other Trade receivables net of provision for impairment for provision of net receivables Trade • TheGroup’s principalborrowings at the yearend were: acquireto Liability stakesequity payablesTrade Loan assets investments Available-for-sale financialDerivative instruments currency– financialDerivative instruments intere – Restrictedcash equivalents cash of and net cash Total borrowings Cashand cash equivalents Total borrowings liabilities lease Finance committed – loans Other Loanssubordinated– facility Loans–senior facilities borrowings Non-current committed – loans Other Loanssenior– facilities borrowings Current carryingThe amounts financiaof liabilities and assets Financial 24 Net financial liabilities Net financial liabilities dividend Future obligations distributionFuture obligation arrangements. • Cashandcash equivalents includ •

Committed facilities – £5,697 million £5,697 – facilities Committed Uncommitted facilities – £35 millio £35 – facilities Uncommitted Finance leases – £13 million (2 –million leases £13 Finance − − − −

drawn and their aggregate carrying value at 31 March 2014 was £5was 2014 their March and carrying31 drawn aggregateat value Loans–senior facilities non-current borrowings: thesevariable £100 million (2013: £nil) of this facithis of £nil) (2013: million £100 currencies of 85% range with a in funding Loans – senior facilitiessenior – Loans current contractual maturity dates of dates maturity these contractual incurredloans. fees in the reported unamortised of are of respect and net revaluation currency Other loans: these loans totalling £548 mi loans:£548 totallingOther loans these denominated in Sterling, Euros, Czech Koin Czech denominated Euros, Sterling, CzechKoruna. repaya loans bank local and overdrafts Bank to non-controlling interests non-controllingfrom interests 013: £13million) 013: intotal. ed gross bank overdrafts of £80 £6 of (2013: overdrafts million bank gross ed l assetsl andliabilities were: this borrowings: cr revolving n (2013: £80 million) in total: in million) £80(2013: n (2013:million)£6,578 intotal: strate andcredit instrument assets lity was drawn as at 31 March 2014. drawnMarch was 31 lity at as facilitiesare between2015 and2018. andinterest rate instrument liabilities runa maturitiesTurkish major and withconcentratedLira between2014 and2017. llion (2013: £265 million) represent a mix of mix a represent million) £265 (2013: llion (2013: 83%) of the facilitythe of 83%) (2013: unti available ble ondemand. ble These are facilities denominatedTurkishin Lira, Russian and Rouble edit facility of £677 million ( million £677 of facility edit rateloans, which are denominated Sterlingin Euros,and f are ,049 million (2013: £6,313 million) £6,313 (2013: million ,049

8 million) which are offset under offset are cash which million) pooling 8 l Julyl 2016 andthe balance available toJu fixed and variable rate borrowings rate variable and fixed 2013: £577 million) provides accessprovides million) to£577 2013: Alliance Boots As at 31 March 2014, the 2014, March 31 at As including theimpact of

| Annual Report 2013/14 Report |Annual £million £million (5,244) (5,051) (5,444) (3,401) (5,745) (5,049) (6,281) 2,179 (301) (386) (162) (100) 2014 156 501 (34) (79) 11 29 67 (4) (1) (3) (9) 4 – – –

ly 2014. 2014. ly ully (5,893) (6,519) (3,725) (6,671) (5,916) (6,079) (7,743) £million £million 2,637 (152) (198) (397) (657) (171)

2013 167 592 (13) (67) (67) (78) 96 23 48 (5) (4) (8) 97 – –

Additional information Consolidated financial statements Governance Strategic report 98 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 24 Financial assets and liabilities continued The Group’s core borrowing is provided through committed bank facilities originally set up in 2007 when Alliance Boots became a privately owned company. During the year the Group completed the extension of certain senior facilities in accordance with the ‘springing maturity’ mechanism agreed with lenders in December 2012. Maturity profile of financial liabilities The table below shows the contractual maturities of financial liabilities on an undiscounted basis. Interest payments are calculated based on liabilities held at 31 March 2014 without taking account of any future debt issuance. Floating rate interest was estimated using prevailing interest conditions at 31 March 2014. Cash flows in non-Sterling currencies were translated using prevailing exchange rates at 31 March 2014. All floating rate borrowings re-price within three months of the year end.

Contractual cash flows Future interest payments 1 year and fee Carrying or less 1-2 years 2-3 years 3-5 years >5 years Total amortisation value 2014 £million £million £million £million £million £million £million £million Fixed Other loans – committed (2) (2) (3) (15) (5) (27) 4 (23) Finance lease liabilities (4) (4) (3) (3) – (14) 1 (13)

Floating Loans – senior facilities (310) (925) (231) (4,445) – (5,911) 762 (5,149) Other loans – committed (167) (9) (75) (303) – (554) 29 (525) Other loans – uncommitted (34) – – – – (34) – (34) Bank overdrafts (1) – – – – (1) – (1) Total borrowings (518) (940) (312) (4,766) (5) (6,541) 796 (5,745) Trade payables (3,401) – – – – (3,401) – (3,401) Total non-derivative financial liabilities (3,919) (940) (312) (4,766) (5) (9,942) 796 (9,146) Forward currency derivatives (3) – – – – (3) – (3) Total derivative financial liabilities (3) – – – – (3) – (3) Total financial liabilities (3,922) (940) (312) (4,766) (5) (9,945) 796 (9,149) In addition to the contractual maturities of financial liabilities presented above, the Group has an ongoing future dividend obligation in relation to the non-controlling interest in Boots Optical Investment Holdings Limited. The contractual undiscounted cash flows are £6 million within one year, £5 million between 1 and 2 years and £20 million between 2 and 5 years.

o-otoln neet (8) 15 1 (171) 14 thetermsUnder theof finance agreementslease entered into (185) oneBetween year and yearsfive Less thanone year – – (67) (4,330) – In 1 addition to the contractual maturities liabilitiesfinancial Total liabilities – (68) derivative Total financial inflows – outflows – (185) Interestrate – derivatives: liabilities financial Totalnon-derivative interests non-controlling (2) stakesequity from acquireto Liability payables Trade (2) (8) (56) Floating: liabilities lease Finance committed – loans Other Fixed: 2013 te on nomte (7 ––––(7 –(67) – (198) 8 (67) (206) – (5,916) – 946 – (6,862) (65) – – (1) – (4,889) (123) (1,482) (67) (17) borrowings Total (247) overdrafts Bank Otherloans uncommitted– (244) committed – loans Other facility Loanssubordinated– Loanssenior– facilities relation to the non-controlling interest in Hedef Alliance Holdin Hedef Alliance in interest non-controlling the to relation Finance lease liabilities liabilities lease Finance undiscountedcash flows£11 were million year,one within mi £4 375 ––––(,2) (3,725) – (3,725) – – – – (3,725) 9)(,0)(,5)–(161 114(10,567) 1,114 (11,681) – (5,452) (1,505) (396) (4,328) £million £million or less 1 year 48 (9)(1 (396) (418) 1) 1)()––(41) – – (6) (18) (17) 1) 1) (13) – (13) – – – – (13) 1) 1)(7 43 50 13(397) 143 (540) – (493) (17) (15) (15) 5 66––37 – – 6 16 15 2 ()–––() (4) – (4) – – – (13) (2) 2 (2) (15) – (3) (3) (3) (6)

of financial liabilities presented above, presented th liabilities financial of

1-2 years £million £million

38 155 542 1,8) ,1 (10,571) 1,114 (11,685) – (5,452) (1,505) (398) payments Minimum £million £million lease 2-3 years 4()13 9 (1) (1) 14 10 £million £million 4–4 bythe Group, no materialcontingent rents are payable. g A.S. and Boots OpticalBoots and A.S. Investme g 55 542 771 110(6,671) 1,100 (7,771) – (5,452) ,505)

llion between 1 and 2 years 2 and and 1 between llion Interest £million £million

3-5 years £million £million

e Groupe hadan ongoingfuture dividendob payments minimum £million £million value of Present lease 2014 2014 >5 years £million £million Contractual cash flows Contractual cash flows

Alliance Boots £14 million between 2 and 5 year 5 and £142 between million nt Holdings Limited.TheHoldings nt con payments Minimum £million £million £million £million lease Total 5 2 13 (2) 15 ()8 (1) 9 ()5 (1) 6

| Annual Report 2013/14 Report |Annual amortisation payments Interest £million £million £million £million and fee interest Future

ligation in in ligation tractual minimum payments Carrying value of £million £million s. £million £million Present 2013 2013 lease value 99

Additional information Consolidated financial statements Governance Strategic report 100 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 24 Financial assets and liabilities continued Carrying value and fair value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Carrying values and fair values of the Group’s financial assets and liabilities held to finance the Group’s operations were:

2014 2013 Carrying Carrying value Fair value value Fair value £million £million £million £million Liabilities held at amortised cost Loans – senior facilities (5,149) (5,176) (5,916) (5,965) Loans – subordinated facility – – (397) (405) Other loans – committed (548) (548) (265) (265) Other loans – uncommitted (34) (34) (67) (67) Bank overdrafts (1) (1) (13) (13) Finance lease liabilities (13) (14) (13) (15) Liability to acquire equity stakes from non-controlling interests – – (171) (171) Future dividend obligations to non-controlling interests (79) (79) (78) (78) Trade payables (3,401) (3,401) (3,725) (3,725) (9,225) (9,253) (10,645) (10,704) Liabilities held at fair value Future distribution obligation – – (657) (657) Derivative financial instruments – currency and interest rate instrument liabilities (3) (3) (4) (4) (3) (3) (661) (661) Loans and receivables financial assets Trade receivables net of provision for impairment 2,179 2,179 2,637 2,637 Loan assets 4 4 96 96 2,183 2,183 2,733 2,733 Financial assets held at fair value Derivative financial instruments – interest rate and credit instrument 29 29 23 23 assets Derivative financial instruments – equity purchase commitment 11 11 – – Available-for-sale investments 67 67 48 48 107 107 71 71 Cash and cash equivalents 501 501 592 592 Restricted cash 156 156 167 167 Net financial liabilities (6,281) (6,309) (7,743) (7,802) The fair values of bank overdrafts, other loans and trade receivables approximate to their carrying values due to either their short term nature or being re-priced at variable interest rates. The carrying value of the variable rate senior facility loans, were lower than the fair values of the instruments due mainly to the impact of unamortised fees included in the carrying value. The fair value of these loans has been estimated as level 2 in the fair value hierarchy.

plus a margin derivedmargin the a from plus current unde valuethe trading of rates. The valuefair derivativescredit calculatedof is by contractualthe forward priceand the currentavailable prforward option me an pricing using cashestimated flows andreceived paidbased on applicablethe ob The fair values ofvalues fair investmentsThe quoted are based currenton prices. bid investments Available-for-sale instru financial derivative for values fair calculatedbased on quoted market prices for equity instrument underlyingfinancial instruments attributable byusing suitable valuation techniques that do not make use of financialderivative The instruments thatthe Group holds are nottr instruments financial Derivative oninputs determined thatare notbased ondata. observablemarket 3: Level Level 2: quoted prices quotedinmarkets active for assetssimilar or 2: Level prices quotedinmarkets active for the sameinstrument. 1: Level follows: as defined theof hierarchylevels value The reflectfair the significance of Available-for-saleinvestments financialDerivative instruments interest– Financialassets: distributionFuture obligation financialDerivative instruments interestrate– liabilities: Financial 2013 Available-for-saleinvestments financialDerivative instruments purchaseequity – commitment financialDerivative instruments intere – Financial assets financialDerivative instruments currency– Financial liabilities 2014 li and assets financial of values carrying The are basedare either ordirectly indirectly on observable marketdata. thodology.currencyvalueforward fair of The cont mentsinclude appropriatean adjustment for own and counterpartycredit asrisk appr strate andcredit instrument assets rate and credit instrument assets instrument rate credit and abilities held value,abilities fair at as analysed tothehedged risks. fairof The value discountinganticipated flowscash using the applicableobservabl curve yield e liabilities or other valuation other or liabilities the valuation inputs used in entity-specificestimates orusing by inpr movements observable s adjustedthefor probabilityof rlying security. rlying valu Thefair ice for thefor ice residualthecontractof maturity using observabl servable yield curves. The fair value of interest rateinterest capsfairof The i value curves. yield servable adedanactivein Accordingly,their market. faira values

ractsestimatedis by discounting theb difference by the levels of the fair value hierarc value fair of the levels the by interestrate swapsis calculateddisc by £million £million Level 1 £million £million Level 1 techniques for which all signific all which for techniques 7– 67 107 11 – 29 – 67 67 making fair value measurements value fair making 82 –71 48 – – 23 – 48 48 e of the equity purchasetheequity commitmof e 1 11 (3) 11 (3) – – – (3) – (3) – – 9 29 – 29 – 67 – (657) – (657) – 3 23 – 23 – 61 –(661) (4) – – (661) (4) – – the occurring.acquisition All Alliance Boots £million £million Level 2 Level 2 £million £million Level 2 Level 2

| Annual Report 2013/14 Report |Annual £million £million Level 3 £million Level 3 hy,were: ant inputs ountingthe redetermined andare s calculateds opriate. computed e market e ent is ent etween ices for ices £million £million £million £million Total Total 101

Additional information Consolidated financial statements Governance Strategic report 102 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 25 Financial risk management Capital risk management The Group’s objectives in managing its capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure that reduces the cost of capital. The Group defines its capital employed of £11,274 million (2013: £11,564 million) as total equity of £6,223 million (2013: £5,671 million) and net borrowings of £5,051 million (2013: £5,893 million). The ability of certain Group companies to pay dividends, for ultimate distribution to shareholders, is restricted by the terms of the financing agreements to which they are party. Financial risk management – overview The Group’s trading and financing activities expose it to various financial risks that could adversely impact on future earnings and cash flows. Although not necessarily mutually exclusive, these financial risks are categorised separately according to their different generic risk characteristics and include market risk (foreign currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group is actively engaged in the management of all of these financial risks in order to moderate their potential adverse impact on the Group’s financial performance and position. Liquidity risk management Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Access to cost-effective funding is managed by maintaining a range of committed and uncommitted facilities, sufficient to meet anticipated needs, arranging funding ahead of requirements, and developing diversified sources of funding. Group liquidity is optimised through cash pooling and deposits with, or loans from, Group treasury companies. The Group’s core borrowings are provided through committed term loans. The carrying value of these loans, which are denominated in Sterling and Euros, at 31 March 2014 was £5,049 million (2013: £6,313 million) including the impact of repurchases, currency revaluation and reported net of unamortised fees incurred in respect of the loans. These loans mature between 2015 and 2018 with 86% (2013: 80%) maturing in July 2017 or later. The Group also has access to a committed £677 million (2013: £577 million) revolving credit facility, £100 million (2013: £nil) of which was drawn down at 31 March 2014, £98 million (2013: £101 million) of which was utilised in providing guarantees and letters of credit principally to the Boots Pension Scheme and £479 million (2013: £476 million) of which was available as at 31 March 2014. This facility provides access to funding in a range of currencies with 85% (2013: 83%) of the facility available until July 2016 and the balance available to July 2014. The Group’s net borrowings vary throughout the year in a predictable seasonal pattern subject to material acquisitions and disposals. Net borrowings typically peak in the autumn due to the working capital requirements of Christmas trading. The Group monitors its net borrowing position on a daily basis against both budget and a rolling two month cash forecast. The maturity profile of the Group’s financial liabilities at 31 March 2014 is shown in note 24. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, derivative financial instruments, cash balances, restricted cash and short term deposits. The maximum exposure to credit risk at the year end is represented by the carrying amount of each financial asset, including derivative financial instruments. Credit risk exposure to commercial counterparties is managed through credit control functions in each of the businesses. New customers are credit checked, customer limits are reviewed at least annually and aged receivable reviews are undertaken regularly. The Group considers the possibility of significant loss in the event of non-performance by a financial or commercial counterparty to be unlikely. At 31 March 2014, there were no significant concentrations of credit risk in respect of trade receivables. The maximum exposure to credit risk for trade receivables, net of provision for impairment and loan assets at 31 March by geographic region was: 2014 2013 £million £million UK 523 774 Other European countries 1,483 1,783 Other countries 177 176 2,183 2,733

The effect of derivative financial instruments effect financial The derivative to of were(2013: designated £680 million) (2013: £23 million) related to fi related derivative million) £23 (2013: total 2014, March exposures31 At of the agencies,rating major Standard Poor’sand (‘S&P’) deposits.The Group protects itself theagainst risk financof At 31 March 2014, £571 million (2013: £680 millio £680 (2013: million £571 2014, March 31 At currencyrisk. instruments,financial forwar specifically GroupThe has significantnon-Sterling denominated currency netin the of attributablerisk currency ca on recycledfrom thecash flow hedge reserve to the of attributabletr forecast risk probable currency highly on wasloss million recycledA £1 of the from reservecashhedge flow denominatedflows cash currenciesin other th GrouputilisesThe forward currency exchangederivatives to hedg cashas flow hedges or investmentnet hedges contracts. incurrencyMovements theforward all fairof value GroupThe uses currencyderivatives thein management exch of risk Currency accordancein thewith Group treasury was£3milliona liability(2013: £nil). of statement the 2014, March 31 At million). £273 (2013: million £400 notion total the 2014, March 31 At Other Euro Sterling riskMarket theis risk thatchanges marketin prices, assuch Market risk counterparty non-financial a financ derivative of £nil) (2013: million £11 predominantlyhave credita rating A- of deposits, restrictedcash, cash-in-transitand cash heldoperin fromeither S&P orMoody’s. Theremaining £260 million £369(2013: investmentsand the spreadremaining across numberqualit a high of Exposuresto financial counterparties, principally arisefrom the centrally by Group treasury, £305 million (2013: £297 million) of wh of million) £297 (2013: million £305 treasury, Group by centrally derivative of million) £413 (2013: million £426 million) £167 and (2013: equivalents million £156 exposure maximum in the to to limits based risks withinrisks acceptable parameters. The Group transactsin fina Group’sincome orthe value of its holdings

and £4 million (2013: £96 million) of ot of million) £96 (2013: million £4 and al amount al of exch currency forward outstanding financial position financial carryingGroup’ the of value as net investment net as hedges. pital expenditure projects (2013:projects expenditure £nil). pital policies approved by approved Board.policies the d currencyd exchange contractsand non-Ster or betteror eitherfrom S&P Moody’s.or nancial instruments, £501 million (2013: £592 mi £592 (2013: million £501 instruments, nancial Group to financial counterparties,was financial to Group ial assets relate to the an to of relate valuation assets ial of financialof instruments.The objective marketof risk ismanagement marmanage to dividualcounterparties or their groups. non-current assetsnon-financial in respec anfunctionalthe currency Groupa of entity. financial assets, cash and ca and cash assets, financial arereported directlyincomethe in statement. translationmanage risk on net borrowings was: was in was respect cash.restricted of n)ofnon-Sterling currency borrowin and Moody’sand Investors Serv £million £million hedging 137 0 (1,285) (3,792) 102 (103) (1,387) (3,689) 508 3 (5,051) (3) (5,048) Before currency exchange rates, interest ratesand equity prices will a ial loss arising from the failure the from arising loss ial 8()26 (2) 28 ationalbank accountsacross the Group counterpartieswith whom ansactions (2013: £nil). During £nil). (2013: ansactions exchangecontracts other than those that are designated and eff ncial instruments includingderiva instruments ncial usederivativeof financial instruments, cash balances and sh ange rateange exposures, currencywhichforward include exchange e significant committedsignificant and e future probable highly transactions instruments to costof respectin sales of contractsdesignated as cash ich are directlyare ich in deposited herloanslenttoare vestmentspredominantly in andin Euros usesaddition derivat – currency Derivative Derivative y counterparties,y whomof a all haveor creditA- of rating million) of cash of million) and eq cash financial £million £million Net borrowings 2014 2014 borrowings Net

sh equivalentsrestrict sh and ice Limited (‘Moody’s’). Limited ice purchase equity co £686 million (2013: £782 million) of which £29 which of million) £782 (2013: million £686 soutstanding forward cu ange contracts that the Group has committed was committed has Group the that contracts ange Limitsare set referenceby to ratings issu lingcurrency toborrowings hedge the non-S £million £million gswith fair valueof£571 million Total t of contractsof t designated cashas h flow unrated entities. llion) was in respect of respect in cash was llion) c and of financialof counterparties by the year, there were no gains no were there year, the

AAArated money market fund tives in order to order thes in manage tives Alliance Boots uivalents represents short term short represents uivalents mmitment provided to provided mmitment ed cash relate to balan to relate cash ed hedging 153 15(1,438) (4,437) 115 (90) (1,553) (4,347) 583 –(5,893) – (5,893) £million £million Before (5 (18) (25) 7 rrency exchange rrency contr | Annual Report 2013/14 Report |Annual instruments – currency Derivative financial £million £million Net borrowings 2013 setting ratings ffect the ffect or losses cesmanaged ortterm ash ed the by flow hedges e riskse better million million ective edges

ket ket

terling and acts £million £million ive Total 103

Additional information Consolidated financial statements Governance Strategic report 104 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 25 Financial risk management continued The table below shows the Group’s sensitivity to non-Sterling exchange rates on its non-Sterling financial instruments, excluding trade payables and trade receivables, which do not represent a significant exposure to exchange rates. A 10% (2013: 10%) strengthening of Sterling against the following currencies would have increased/(decreased) equity and profit for the year by the amounts shown below. This analysis assumes that all other variables, including interest rates, remain constant and that instruments designated as net investment hedges remain highly effective. In this table, financial instruments are only considered sensitive for exchange rates where they are not in the functional currency of the entity that holds them.

2014 2013 Impact on Impact on Impact on Impact on equity profit equity profit £million £million £million £million Euro 61 – 58 – Turkish Lira – (3) – (9) Swiss Franc – – 35 60 US Dollar – (1) – – Norwegian Krone – – 2 – A 10% (2013: 10%) weakening of Sterling against these currencies at 31 March 2014 would have had the equal and opposite effect to that shown above on the basis that all other variables remain constant. The movements in equity relate to non-Sterling borrowings used during the year to hedge Group assets denominated in those currencies. An appreciation in the value of the borrowing would be matched by a corresponding depreciation in the value of the related Group asset, which would also be recorded in equity. Exchange rate sensitivities on Group assets other than financial instruments have not been shown in the table above. Cash flow interest rate risk The Group manages interest rate risk in accordance with the treasury policy approved by the Board. Exposures are hedged through a combination of interest rate caps and interest rate swaps. The Group has a mixture of fixed and floating rate borrowings. Before the impact of derivative financial instruments, £36 million or 0.6% (2013: £80 million or 1.2%) of total borrowings were at fixed interest rates. The re-pricing risk of the fixed borrowings coincides with their maturity. The floating rate borrowings re-price within three months of the reporting date, based on short term borrowing rates for the relevant currency. The Group has interest rate swap protection on principal amounts of £2,000 million (2013: £2,000 million) to swap outstanding borrowings from floating to fixed rates at a rate of 0.52% (2013: 0.52%) until July 2015. At 31 March 2014, £2,000 million of these swaps (2013: £1,600 million) with an asset fair value of £3 million (2013: £2 million liability) were designated as cash flow hedges. The Group also has interest rate caps with notional principal amounts of £1,500 million (2013: £1,500 million) and €2,000 million (2013: €2,000 million) to protect the Group from rising interest rates on the corresponding amounts of borrowings until July 2015. The Group also has interest rate swap protection of €760 million (2013: €10 million) the majority of which matures in November 2014. After taking into account the impact of derivative financial instruments, £5,264 million or 92% (2013: £5,220 million or 78%) of the Group’s total borrowings were at fixed or capped interest rates. All other borrowings re-price within three months of the year end. The impact of a 1% increase and a 1% decrease in interest rates on 31 March 2014 on pre-tax profit are shown in the table below. This analysis assumes that all other variables are held constant.

2014 2013 1% increase 1% decrease 1% increase 1% decrease in interest in interest in interest in interest rates rates rates rates £million £million £million £million Gain/(loss) – derivative financial instruments – 1 13 (9) (Loss)/gain – variable rate financial instruments (31) 31 (45) 45 The impact on equity would have been a gain of £28 million (2013: £36 million) or a loss of £29 million (2013: £37 million) for a +/- 1% movement in interest rates. Equity price risk The Group is exposed to equity price risk through its long term holdings of listed and unlisted securities, which are classified as available- for-sale investments and held at fair value. The associated measurement volatility on these investments is recorded directly in equity, unless an equity instrument has suffered a significant or prolonged decline, in which case an impairment loss is recorded in profit or loss. The Group is also exposed to equity price risk through its equity purchase commitment to acquire a 12% equity stake in Nanjing Pharmaceutical Company Limited, a commitment recognised at fair value with the associated measurement volatility recorded in exceptional finance income. The potential impact on the Group’s equity resulting from the application of +/- 5% movement in the fair value of its available-for-sale investments would have been a gain/(loss) recorded in the available-for-sale reserve of £3 million (2013: £2 million). The potential impact on the Group’s profit resulting from the application of +/- 5% movement in the fair value of its equity purchase commitment would have been a gain/(loss) recorded in exceptional finance income/(costs) of £3 million (2013: £nil). activities£1of millionmillion)(2013: £19 Set out below is below analysisout an Set theof move revolvingcommitted facility. credit borrowings from millio proceeds £770 less of At 31 March 2014 movementson financial instruments Currencytranslation differences andfair value movements Non-cash Capitalisedfinance costs Amortisationof financingprepaid fees Financeleases entered into acquiredBorrowings businesseswith borrowings Repurchaseand repaymentacquisitionof anddebtdebt in financing Cashand cash equivalents outflow decreasefrom restrictedin Movement cash decreaseNet in cash and cashequivalents 2013 April 1 At 2014 andsettlement ofderivative financial in Cashand cash equivalents outflow decreasefrom debtin and debt financing comprised repayment and net repurchase ofborrowings borrowings AprilNet 1 at acquiredBorrowings businesseswith Repurchaseand repaymentacquisitionof borrowings restrictedin Movement cash decreaseNet in cash and cashequivalents is below reconciliationout a Set the of net decreasein ca borrowings net in movement of 26 Analysis Net borrowings at March31 Capitalisedfinance costs Amortisationof financingprepaid fees Financeleases entered into Movement in netin Movement borrowings resulting cashfrom flows Cashand cash equivalents outflow decreasefrom debtin and debt financing Currencytranslation differences andfair value movements on financial instruments Movementinnet borrowings in the year strumentsof£1,658 million (2013: £1,353 million mentin netborrowings duringthe year: and repayment of capital el capital of repayment and n (2013: £86 million). Proceeds from borro from Proceeds million). £86 (2013: n equivalents Cash and sh andsh cash to equivalents decreasethe innet borrowings: £million £million 0 5 31 544 3 (5,051) 37 (5,444) (301) 156 501 9 6 12 659 1 (5,893) 19 (6,519) (152) 167 592 cash 2)()2 1 464 24 41 23 (61) (2) – (22) – 8 – (69) 4 –(4) – (19) (5) (5) – – (14) – – – (4) (9) 121 – (19) 895 – – – (121) (6) – (14) – (5) – (5) – 950 – – – – – (49) – – – – – – – – – (9) – – ement of financeof ement lease £6 of (2013: obligations million Restricted £million £million

cash Borrowings liabilities £million £million current within wingsinclude funding provided bythe ), prepaidfinan ), with associated fees Alliance Boots non-current Borrowings Borrowings liabilities liabilities £million £million within within | Annual Report 2013/14 Report |Annual instruments Derivative Derivative financial £million £million £million (5,051) (5,893) 2014 825 895 842 (14) (61) (19) 64 (5) (9) (4) (5) £8million), cing borrowings £million £million (7,017) (5,893) £million £million 1,114 1,294 1,124 2013 Net (92) (27) (88) (22)

105 28 40 (9) –

Additional information Consolidated financial statements Governance Strategic report 106 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 26 Analysis of movement in net borrowings continued Borrowings Borrowings Cash and within within Derivative cash Restricted current non-current financial Net equivalents cash liabilities liabilities instruments borrowings 2013 £million £million £million £million £million £million At 1 April 2012 670 254 (153) (7,641) (147) (7,017) Net decrease in cash and cash equivalents (82) – (10) – – (92) Movement in restricted cash – (88) – – – (88) Cash and cash equivalents outflow from decrease in debt and debt financing – – 39 1,138 117 1,294 Discounts on repurchase of acquisition borrowings – – – 28 – 28 Borrowings acquired with businesses – – (9) – – (9) Amortisation of prepaid financing fees – – – (27) – (27) Capitalised finance costs – – – (22) – (22) Non-cash movements – – (15) 15 – – Currency translation differences and fair value movements on financial instruments 4 1 (4) (10) 49 40 At 31 March 2013 592 167 (152) (6,519) 19 (5,893) In the Group statement of cash flows, cash and cash equivalents included bank overdrafts classified as borrowings within current liabilities in the statement of financial position, which amounted to £1 million (2013: £13 million).

27 Movement in net borrowings resulting from acquisitions and disposals 2014 2013 £million £million Acquisitions of businesses (20) (3) Net cash/(borrowings) of businesses acquired: – cash and cash equivalents net of bank overdrafts 1 9 – borrowings (5) (9) Disposals of businesses – 1 Investments in associates and joint ventures – (16) Disposal of investments in associates 1 3 Purchase of non-controlling interests (143) (65) (166) (80) Duringtheprior year,21,686 newunits ofca andfullyIssued paid capital of CHF1,000: Units of capital 29 Share otherThe provision relates mainly longto service award Other properties.Thesub-let exac and vacantThe property provisionsrepresent recognition theof pres property Vacant in and UKDivision the Wholesale restructuringThe reorganisationand provis and reorganisation Restructuring Non-current Current At 31 March 2014 Created 2013 April 1 At 2014 Provisions 28 Limited, for £2 gavefor which Limited, ri million capita of units466 further A million. £82 of va Group. fair the The of subsidiary a in Currencytranslation differences Released Utilised t timing of utilisation of utilisationof timing thest parttheHealthof Beauty and & Division relate setoshare premiumof£2million. lue of the equity issued equity the was of lue ion relates primarily relates the ion to l of issuedl were Company’ CHF1,000 the to pital of CHF1,000 wereCHF1,000 of issued pital entitlements accruedon pr a e provisions will vary according vary will provisions e ent value of theof value costsent net expected from arising vacant propert £96 million and this gave rise gave this and million £96 restructuringannouncedprogrammes thein Pharmaceutica

in exchange for exchange ow in equity

reorganisation Restructuring d contractd manufacturing respectivelactivities ,2,5 ,7 1,079 2,120,152 Number £million £million of units of obability-weighted basis.obability-weighted s parent company,AB and 11 2 49 24 14 11 2 ()(11) (19) (9) (9) – (4) (2) (6) 0 25 9 10 6 3 0 25 9 10 6 3 3 – to thepropertiesindividual c Alliance Boots to the recognitionof sha £million £million property £million £million Vacant ned by a non-controlling in non-controlling a by ned 2014 2014 716 7 6 2 4 ()(1) (1) – 4 –

Acquisitions Holdin Acquisitions | Annual Report 2013/14 Report |Annual ,2,5 1,079 2,120,152 £million £million Number of units Other oncerned. re premium premium re y. ies terest gs £million £million l £million £million Total 2013 2013 107 9 7

Additional information Consolidated financial statements Governance Strategic report 108 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 30 Other reserves Other reserves movements within equity were:

Associates’ and joint ventures’ Available- Cash flow other for-sale Translation hedge Special comprehensive reserve reserve reserve reserve income Total 2014 £million £million £million £million £million £million At 1 April 2013 14 249 (2) (176) (3) 82 Net exchange differences on translation of non-Sterling – (158) – – – (158) denominated operations Fair value movements on cash flow hedging instruments ––5– –5 Fair value movements on cash flow hedging instruments ––1– –1 recycled to the income statement Fair value movements on available-for-sale investments 7––– –7 Share of post-tax other comprehensive income – – – – (1) (1) of associates and joint ventures Amounts recycled on distribution of associate – (82) – – 4 (78) Purchase of non-controlling interests – – – 176 – 176 Tax (1) (3) (1) – – (5) At 31 March 2014 20 6 3 – – 29

Associates’ and joint ventures’ Available- Cash flow other for-sale Translation hedge Special comprehensive reserve reserve reserve reserve income Total 2013 £million £million £million £million £million £million At 1 April 2012 9 221 – (178) (5) 47 Net exchange differences on translation of non-Sterling denominated operations – 30 – – – 30 Fair value movements on cash flow hedging instruments – – (2) – – (2) Fair value movements on available-for-sale investments 2 – – – – 2 Impairment of available-for-sale investment recycled 3 – – – – 3 Share of post-tax other comprehensive income of associates and joint ventures –––– 22 Purchase of non-controlling interests – – – 2 – 2 Tax – (2) – – – (2) At 31 March 2013 14 249 (2) (176) (3) 82 The nature and purpose of each reserve in equity is: Retained earnings The Group’s retained earnings reserve, which is presented in the Group’s statement of changes in equity, comprises the Group’s retained earnings, net of distributions made to equity holders, movements related to non-controlling interests purchased, together with remeasurement gains and losses on defined benefit schemes and related tax movements. Available-for-sale reserve The available-for-sale reserve comprises the cumulative net change in the fair value of the Group’s available-for-sale investments. Net fair value movements are recycled to the income statement if an underlying available-for-sale investment is either derecognised or impaired. Translation reserve The translation reserve comprises all currency exchange differences arising from the translation of the financial statements of non-Sterling denominated operations into the presentation currency of the Group, as well as from the translation of financial liabilities that hedge the Company’s net investment in non-Sterling denominated subsidiaries.

The negative goodwill reflected the value of netof value goodwillthe negative reflected The assetsemployed cash – by: Satisfied ex of value Fair acquisitionon arising goodwill Negative netidentifiable assetsTotal reserve cashhedge The flow comprises effectivethe portion of de reserve Cash hedge flow recycledfrom thecash flow hedge reserve either to theincome transactionsthat have notyet occurred.When forecasta transa andthe cumulative net change in the fair value ofcash flow he been £22,862 million and £729 and million £22,862 been Russiathe business since the acquisitiondate income consolidated for The statement the equityaccounted associate at acquisitiondate), whichwas recogn Group’sthe of existing interest49% result BusinessIFRS3 Combinationswith is includ The Group acquired businesses during the ye the during businesses acquired Group The 2014 endedMarch year 31 the during Acquisitions disposals and 31 Acquisitions associatesof income associates’The jointand ventures’co other income comprehensive other joint ventures’ Associates’ and interests.When the commitments derecognisare specialThe reserve comprises amounts recorded on the recognition Special reserve towhereaccording the underlying recorded.cashis flow year,intotaking accounttheir results prio The netThe assets acquired and the goodwillattributable were: anassociate.as main theThe of businessacquir activity Holdings Th Acquisitions AB Limited. of NovemberOn1 2012, theGroup acquired 51%a 2013 endedMarch year 31 the during Acquisitions million. £9 of with recognised million goodwill £11 isting interest isting and joint ventures. million respectively. million e Group had a pre-existing 49% interest wh interest 49% pre-existing Group a e had r to acquisition,to r and revenue for profit ed in a gain of £6 million (fair value of £3 million plus £3 million carrying carrying value million £3 plus million £3 of value (fair million £6 of in a ed gain mprehensiveincome reserve records the Group’s shareof post-taxother comprehensiv ed ined the income statementwithin operations.from profit The remeasurement to fair priormillion includes £434 year of revenue arforcash consideration to . If Russiathe business had abeen theof subsidiary theGroupfrom o beginning equity shareholding in Alliance Boots Alliance in shareholding equity ed, the amountsinitially recorded are reversed. ed is pharmaceutical wholesalin pharmaceutical is ed dginginstruments related to the hedgedrisks on highlyprobable statementor to the carrying a of va lue non-currentnon-financia ction occursction andthe riskhedged realised,is an appropriate am relative torelative the business’sRussia enterprisevalue,in and acc ised in the income statement wiin statement ised income the signated thevariabil of hedges of commitmentstoof acquire equity talling £20 million. The fair value of net of ident value assets fair The million. £20 talling

the combined Groupcombined the on forma pro wo a basis ich prior to 1 Novemberaccounted1 was to 2012 foprior ich Investments 1 Limited fromLimited subsidia 1 fellow Investments a and profitofand year in the million for £7 g and distributionand g Russia.in Alliance Boots ityin cash flows of recognised thin profitthin from operations. stakes non-controllingfrom | Annual Report 2013/14 Report |Annual of liability for liability of

ified was ified ordance f the prior the f uld have respect of ountis forecast liabilities l asset, Fair value value £million £million e r ry 109 10 (3) (4) 3 3

Additional information Consolidated financial statements Governance Strategic report 110 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 32 Operating leases At 31 March outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due were:

2014 2013 £million £million Less than one year 314 317 Between one and five years 914 901 More than five years 891 967 2,119 2,185 The Group leases a number of its properties under operating leases. The leases predominantly run for periods up to 25 years, with options to break the leases during the period and renew the leases at the end of the period. Lease rentals are increased at regular intervals to reflect market rentals. None of the leases include material contingent rentals. Rental income from sub-let properties was £19 million (2013: £20 million). Total future minimum sub-let income at the end of the year was £38 million (2013: £50 million).

33 Commitments and contingent arrangements Commitments Capital expenditure contracted for at the year end but not yet incurred was £39 million (2013: £24 million) in respect of property, plant and equipment and software. Contingent arrangements The Group had aggregate contingent liabilities of £55 million (2013: £63 million), including £10 million (2013: £17 million) for letters of guarantee provided to certain suppliers, a £17 million (2013: £17 million) guarantee provided by Alliance Healthcare Deutschland AG for certain of its customers and bank loans of £12 million (2013: £12 million) guaranteed by Hedef Alliance Holding A.S. for an associate interest of the Group, which were initially agreed in prior periods and are due to expire during the year to 31 March 2015.

34 Retirement benefit assets/obligations The Group operates a number of retirement benefit schemes in the UK and other countries including both defined benefit and defined contribution schemes. Defined benefit schemes UK schemes The Group’s principal defined benefit scheme is the Boots Pension Scheme in the UK, which is a funded final salary defined benefit scheme providing pensions and death benefits to members. The Scheme was closed to future accrual from 1 July 2010 with pensions calculated based on salaries up until the point of closure. The Scheme is governed by a trustee board, which is independent of the Group and is subject to full actuarial valuation on a triennial basis. At 31 March 2014, the Scheme liabilities of the Boots Pension Scheme represented 98% (2013: 97%) of the total liabilities for all of the Group’s defined benefit schemes. The Boots Pension Scheme cash contributions during the year mainly related to deficit funding payments. Contributions totalling £22 million were made by two pension funding partnership structures under which, in prior years, the Group contributed interests in partnerships worth £273 million and transferred a number of properties under sale and leaseback arrangements. The partnerships will make similar annual contributions for a further 13 years, with £10 million per year thereafter for a further five years. In addition, a capital sum will be made in 2031 equal to the lower of £156 million and any funding deficit in the Scheme at that point in time. The Scheme’s interests in the partnerships reduces the deficit on a funding basis, although the agreement does not impact the deficit on an IAS 19 accounting basis, as the investments held by the Scheme in the partnerships do not qualify as assets for the purposes of the Group’s consolidated financial statements and are therefore not included within the fair value of plan assets. These funding initiatives are part of the Group’s ongoing plans to ensure long term security of accrued benefits for its UK defined benefit pension schemes. Other contributions in the year mainly related to those agreed following the triennial valuation of the Boots Pension Scheme as at 31 March 2010. Prior to year end, the trustees of the Boots Pension Scheme completed the 31 March 2013 triennial valuation. This has resulted in no additional contributions being required from the Group over and above those agreed at the 2010 valuation. As a result, the Group will contribute £53 million in each of the next three years in addition to the contributions from the pension funding partnership structures. The extent to which the Group may be required to make additional contributions if the assets’ returns assumed in the recovery plan are not achieved, will be assessed as part of the 2016 valuation. The Scheme has continued with its investment strategy of targeting to hold 85% of its assets in a diverse portfolio of high quality bonds with the remainder invested in equity and property assets backing longer term liabilities. Interest rate and inflation rate swaps are also employed to complement the role of fixed and index-linked bond holdings in liability risk management.

corporate bondscorporate and wasmillion swaps £311 a bondindex-linked and holdingsfixed liab for European governments and are AA+ rated or higher. Interest rate Allassets,scheme except the swaps,quotedhave prices activein schemes– indeficit inscheme – surplus Analysed as: recognised amount Net other– scheme assets property – equities – corporate– bonds and swaps bonds government – Lessfair value of defined benefit schemeassets: of value benefit Present definedliabilities scheme priorthe During year,the Boots PensionScheme implemented a Pens on or after 24 September 2012 to elect for a for 2012 elect September to 24 after or on This change resulted in a reduction in th in reduction a in resulted change This The defined benefitdefined The schemes expose theGroup actuarialto risks, schemes non-UK and UK isand Ireland of Republic the in GroupThe has definedschemesbenefit in Germany, Franceand Guernsey.In the year, the Group closed definedits benefit schem schemes Non-UK scheme,and the Boots AdditionalPension Arrangemen in the UK which UK closed the werefuturein to a Retirement SavingsRetirement Plan whichto both employer employeeand cont Schemethe Since date,closure hasGroup the operated a contract recognised was priorthe within ye The netThe amount recognised respectin definedof schemesbenefit was: andmarket (investment) risk. TheGroup is not exposedto in thein process of transferring the toobligations thirda party. ar’s profit from operations as ar’s operations from profit ccrual from 1 July 2010, the Boots Supplementary Boots the 2010, July 1 from ccrual e estimated defined benefit sc benefit defined estimated e ility risk management. The fair value of value fair The management. risk ility higher initial pension in ex in pension initial higher liability (2013: £198 million liability). liability). million £198 (2013: liability t, whicht, a is securedunapproved arrangement. any unusual, entity specific or any specific entity schemeunusual, risks.specific a negative past service cost.service past negative a such longevityas risk, curren markets.The the of majority bondsgovernment areby issued and inflationand rate swaps are employed also complementto the roleof baseddefined contribution arrangement known as the AllianceB ribute. In additionribute. there are benefit defined smaller schetwo ion Increaseion Exchange schemeto heme liabilities at the date the at liabilities heme changeforforegoing certain rightstofuture pension

the interestthe rate alary salary final is funded which a Plan, Pension cy risk, inflation risk, interestrate risk Alliance Boots of implementation of £24 mi £24 of implementation of and inflation swaps in swaps inflation and allow Scheme members retiring members Scheme allow

| Annual Report 2013/14 Report |Annual £million £million (5,209) 5,035 2,699 1,500 (174) (174) (174) 2014 264 524 48 – cluded within increases. llion which llion (5,181) mes £million £million 5,145 2,579 1,789 e oots 2013 137 590 (36) (98) (36) 62 50 111

Additional information Consolidated financial statements Governance Strategic report 112 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 34 Retirement benefit assets/obligations continued The change in the present value of defined benefit scheme liabilities was:

2014 2013 £million £million At 1 April 5,181 4,588 Current service costs 2 3 Scheme administrative costs 2 2 Past service credit – scheme amendments 1 (24) Past service credit – curtailments – (1) Settlement (10) – Interest on defined benefit scheme liabilities 225 232 Net remeasurement losses – financial 44 561 Net remeasurement gains – experience (120) (19) Net remeasurement losses/(gains) – demographic 53 (1) Benefits paid (167) (163) Currency translation differences (2) 3 At 31 March 5,209 5,181 The defined benefit scheme liabilities are 1% (2013: 1%) in respect of active scheme participants, 54% (2013: 54%) in respect of deferred scheme participants, and 45% (2013: 45%) in respect of retirees. The weighted average duration of the UK defined benefit scheme liabilities at the end of the reporting period is 18 years (2013: 18 years). The change in the fair value of defined benefit scheme assets was:

2014 2013 £million £million At 1 April 5,145 4,539 Interest income on defined benefit scheme assets 225 230 Return on scheme assets, excluding interest income (212) 469 Settlement (6) – Employer contributions 50 70 Benefits paid (167) (163) At 31 March 5,035 5,145 The Group expects to contribute approximately £76 million to its defined benefit schemes in the year ended 31 March 2015. The net (expense)/credit recognised in the income statement comprised:

2014 2013 £million £million Current service costs (2) (3) Scheme administrative costs (2) (2) Settlements 4 – Past service (charge)/credits (1) 25 (1) 20 Net interest cost on net defined benefit scheme liabilities/assets – (2) (1) 18

Rate of increaseof Rate pensionsto before retirement

Rate of increaseof Rate to Assumed life expectancylife atAssumed ageof (rate 60 mortality) increaseof Rate pensionsto before retirement Financecosts Financeincome movements. As such a 0.25% increase inincrease As 0.25% a movements. such volatility reduce thein Scheme. Broadly BootsThe Pension Scheme has strategyhedging a place,in based on per5% at annum. ChangesRPIin increasesimpact to pensionsboth before retirementand in payment, themajority whichareof linked to RPI capp increaseof Rate to inflation of Rate (RPI) rate Discount analysissensitivity A principa the on characteristicsof thatof membership the arrangement. arra for pension members individual of each assumptions mortality The ad Female Male theFor Boots Pension Scheme, the projected life UK benefitthe defined in the liability As inflation of Rate (RPI) rateDiscount forbenefit defined scheme liabilities principalThe actuarial assumptionsat theyear end were: costsAdministrative costs store and distribution Selling, (expense)/creditThe wasthefo in recognised (2013: £88 million). million). £88 (2013: recognisedcost The schemes. operates Group numbercontribution The adefined of schemes contribution Defined resultsbeyond the sensitivity shownfigures may not appropriate.be membershipat and as assumptions profile relevant the valuedusing Scheme the for flows cash informationsensitivity The has derive been inflation in increase 0.25% woul a and pensionsin payment pensionsin payment opted as at 31 March 2014 have been have 2014 March 31 at as opted l assumptionsl toused measure the theschemeat liabilities year end is: d increase of d statement the financial is no longer linked to salary increa salary to linked longer no is theScheme has hedging that coversof 76% interestth reduce would rates d ford Bootsthe Pension Scheme, makeswhich ngement.These mortality assumptions vary llowing line items in the income the in statement:items line llowing expectancyassumed from the ageof 60 years was:

setto reflect theCompany’s best contractsswap overlayingthe bond portfolio, which toaims e statemente offinancial posi

ses, this is not a not ses, is this position deficit by aroundby deficit million. position £39 3.0% 3.0% 1.8% to 3.0% 1.8% to 3.0% 3.3% 1.8% to 3.3% 1.8% to 4.4% 2.9% to 3.3% 4.4% UK nraeb .5 Incr by 0.25% Increase nraeb er In Incr year by 1 Increase by 0.25% Increase Change in assumption assumption in Change nraeb .5 Incr Decr by 0.25% Increase by 0.25% Increase interest movements rate inflatio of 76% and Currently in the income statement wasin statement incomemillion £88the aged 45 by arrangement, each assumption reflectin 30.6 28.9 28.9 27.5 30.6 28.6 2014 the liability,of the majority the using up principalassumption. Non-UK 3.3% 2014 2014 31 2014. of March Extrapolation these Alliance Boots Currently tion deficit by m deficit £57 tion around aged 60 3.0% 2.0% to 3.3% to 2.0% 3.0% 3.0% 1.8% to 3.0% to 1.8% 3.0% 3.3% 1.8% to 3.3% to 1.8% 4.5% to 3.1% 3.3% 4.5%

estimate viewestimate expecta life of 2014 2014 Impact on scheme liabilities on schemeImpact liabilities crease by million crease £164

ease by million ease £154 ease by million ease £73 ease by million ease £141 ease by £230 million £230 by ease | Annual Report 2013/14 Report |Annual £million £million Currently aged 45 UK 2014 9728.2 27.4 29.7 27.8 2013 (1) (3) (1) 3 – projected illion illion Currently ed n Non-UK aged 60 £million £million ncies g the g 2013 2013 2013 2013 18 24 113 (4) (4) 2

Additional information Consolidated financial statements Governance Strategic report 114 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 35 Related parties Parent company and ultimate controlling parties At 31 March 2014, AB Acquisitions Holdings Limited was the immediate and ultimate parent company of Alliance Boots GmbH. AB Acquisitions Holdings Limited is incorporated in Gibraltar and its registered office is 57/63 Line Wall Road, Gibraltar. AB Acquisitions Holdings Limited is jointly controlled by Alliance Santé Participations S.A., and three private equity investment vehicles advised by Kohlberg Kravis Roberts & Co. L.P.. S. Pessina and O. Barra, who are Directors of Alliance Boots GmbH, are also directors of Alliance Santé Participations S.A., which is ultimately owned by a family trust. Key management personnel Key management personnel during the year comprise the Directors of Alliance Boots GmbH, the Directors of AB Acquisitions Holdings Limited and, from the date of their respective appointments as at 1 October 2013, the Managing Director, Health & Beauty UK and Republic of Ireland, and the Managing Director, Health & Beauty International and Brands. The remuneration of the key management personnel of the Group comprised:

2014 2013 £million £million Short term employee benefits 6 6 Long term employee benefits 3 2

Other transactions with key management personnel Together with other senior managers, certain key management personnel participate in a management equity plan which is designed to enable them, as investors, to share in the future financial success of the Group through an investment of personal capital. To assist participation, the Group provided loans under commercial terms and at 31 March 2014 the loan amounts outstanding in respect of key management personnel were £0.2 million (2013: £0.2 million). During the year, the Group paid £0.4 million to C. Britton as a fixed profit share for his services to the specialised investment fund established by the Group in the year. Prior to the fund being set up, the Group paid £0.3 million to a consultancy partnership of which C. Britton is a partner. S. Pessina and O. Barra each own one share, which is less than a 0.1% interest, in Alliance Boots Management Services MC S.A.M., a subsidiary of the Group. Alliance Boots Management Services MC S.A.M. did not pay or declare any dividend during the year or prior year. Key management personnel may purchase goods for personal and family use from the Health & Beauty Division businesses in the UK on the same terms and conditions as those available to all other UK employees of the Group. Two children of key management personnel were employed by the Group during the year. Their total remuneration was £109,000 (2013: £41,000). During the prior year, A. Gourlay, together with family members, redeemed £18,846 of outstanding loan notes which were issued by the Group in a previous year. During the prior year, S. Pessina received 277 shares and E. Jornod received 40,000 shares in Galenica Ltd. in lieu of fees for services as directors. On 10 May 2013, Galenica Ltd. was distributed, and at that date S. Pessina owned 1,592 shares (31 March 2013: 1,592 shares) and E. Jornod owned 47,261 shares (31 March 2013: 47,261 shares) in Galenica Ltd..

to the fellow subsidiary in respect of respect in subsidiary fellow the to costsrecognised inthein year,the During Groupthe repaidmillion£8.6 a from loan felloa liability. million £0.2 a was amount carrying fo into year, entered the Group During the A basis. summary theseof transactionsasis follows: Transactionssu withfellow Limited Holdings Acquisitions AB of subsidiaries fellow with Transactions equity45% a stakeacquire thein Group. a neta Investmentsreceivable Boots Alliance from andLimited 1 it its business, of wholesale company German priorthe During year,the Group theacquired entire non-contro20% togetherinterestwith receivablemillion. £0.2 of amount the 2013, March 31 At million). £0.5 (2013: million £1.2 Financetogetherinterest.£1.4 cumulative incowith of million During the year, the the from Group During million the repaymen £56.5 received Purchaseand Option Agreement entered into by the Company with distributedGroup the inve 2013, its May 10 On Transactionswith AB Acquisitions Holdings Limited (2013: £2.5 million) and(2013:administrative £2.5 million) cost the million), re £3.5 (2013: million £29.5 of Transactions(excludingwithWalgreens thos relatedparties. Transactionswith Walgreens were on an lengtharm’s basis. A summarytheseof transactionsis as follows: equi 45% a of acquisition Walgreens Following Walgreens with Transactions the table set out in this note. Othertransactions with associatestheof Group arewhich fellow receivablenet this to million. £2.3 was loanpre-existing anda interest receivable.Financeincome reco Russia business from a fellow subsidiary fo subsidiary fellow a from business Russia Duringthe prior year,the Group acquireda51% interest in Alli million. £0.4 was receiving warrantstoreceiving purchase up thetoequityof 8% Ameris of Duringthe prior year,the Group togetherwith Walgreens signed incomefinance relatingtowithin these shares wasmillion. £0.3 Ma 31 At plan. incentive term long Group’s year, the Group During sh the 446,070 purchased wereemployees seconded from Group the Walgreensto and from toWalgreens Group.the £2.0 (2013: Walgreens million from £4.3 were of remainingstake the equity acquire th 55% Walgreensto foroption to purchaseWalgreens thesewarrants from £17.7withmillion, the netmovement of£3.0 come statement relating to the lo come the to relating statement bsidiaries of AB Acquisitions Hold Acquisitions AB of bsidiaries the loan was £8.6 million together wi wastogether loan million the £8.6

r £3.0 million bringing the Group’s interestGroup’s £3.0 the r bringing million imbursement administrative of (inccosts £2.6 of secondments) million luding rward foreign currency exchange contracts rward exchange currency foreign s (including secondments) of £0.2 millio secondments) £0.2 (including of s rch 2014, the fair and carrying2014,th and rch of fair value the from a fellow subsidiary for fromsubsidiary fellow a e Walgreense subsidiaries thewhich a Group e Groupe that they do not currently own. million recognised million ot within million) and amounts due amounts and to million) ty stake in Alliance Boots GmbH in GmbH Augu Boots Alliance in stake ty stment in Galenica Ltd.. The distributiThe Ltd.. Galenica in stment ares in Walgreen Co. in Co. openWalgreen thein ares marketfor£14.7milli an were £0.4 million (2013: £0.7 million). At 31At March am the million). 2013, £0.7 were(2013: an million £0.4 ings are which Limited, anceBoots Investments 1 Limited, theUK parent of itsformerly owned me recognisedme thein income statement relatingto loanthe was ourceBergenfutureat dates.the Simultaneously, a issued Group withAmerisourceBagreements gnised in theincomein statement gnised thein prior year relating t to w subsidiary togetherinteressubsidiary cumulative w of withmillion £1.0 duefrom thefellow subsidiary subsidiaries of Acquisitions AB s subsidiaries, and finance incomefinance and subsidiaries, s the Group, exercisable only if lling interest ininterest Acquisitio lling AB AB Acquisitions Holdings Acquisitions AB Limite t of a loan from a fellow subsidiary advanced in the prior y prior the in fromadvanced loan subsidiary a fellow of a t consideration of £27.4 million£27.4 of consideration was offs which by settled

hercomprehensive income. Di thinterest payabl Walgreens were £0.2 million £0.2 were Walgreens n (2013: £nil). At 31 March 2014, amounts 2014, March 31 At £nil).(2013: n relatedparties theof Group, on were an length arm’s to 100%. Prior to the acquisition,the to Prior 100%. to the on was in relationmade in commitment was the on to e shares within available-for-sale invest available-for-sale within shares e with a fellow subsidiary. At 31 March 2014 At March 31 subsidiary. fellow a with st 2012, Walgreen Co. and itsand Co. Walgreen subsidiaries 2012, st ccounts asventures)for joint were revenu e of £0.5million. inrespect oftheloan was£56. included are Limited Holdings ergen which included the Group the included which ergen Alliance Boots ns UK Holdco 5 Limited,5 Holdco UK thens U Walgreens itsexercises option recognised inrecognised yea prior the d and Walgreens,and d Walgreensfor to onin connection with the (2013: £nil). During the During £nil). (2013: vidend income recognised income vidend | Annual Report 2013/14 Report |Annual Group had had Group ments was t. t. Finance he loan 5 million 5 due within r relatingr K parent K ountdue

ear ear year, etof are call to in the in , their

e 115

Additional information Consolidated financial statements Governance Strategic report 116 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 35 Related parties continued Transactions with other related parties Transactions with other related parties were on an arm’s length basis. A summary of these transactions is as follows: During the year, the Group paid £0.4 million (2013: £0.3 million) for accounting services to Avega S.à r.l., which is jointly controlled by W. Zettel who is a director of AB Acquisitions Holdings Limited. During the prior year, the respective designees of Kohlberg Kravis Roberts & Co. L.P. and Alliance Participations Limited each received an annual monitoring fee of £3.3 million. At 31 March 2013, £0.8 million was outstanding to each and these were paid during the current year. No other amounts were paid or accrued during the year. S. Pessina and O. Barra are directors of Alliance Participations Limited which is owned by a family trust. Walvis Verwaltungs GmbH, which is 100% owned by Alliance Santé Participations S.A., owns a 1.0% interest in Alliance Healthcare Deutschland Holdings 2 GmbH & Co. KG, a subsidiary of the Group, which in turn owns a 5.1% interest in Alliance Healthcare Deutschland AG, a subsidiary of the Group. Alliance Healthcare Deutschland Holdings 2 GmbH & Co. KG did not pay or declare any dividend during the year or prior year. During the year, Dascoli Finance S.A., of which S. Pessina is a director, sold its 15.1% interest in AB Acquisitions Luxco 5 S.à r.l., a subsidiary of the Group, to AB Acquisitions Luxco 2A S.à r.l., a subsidiary of the Group, for £2,718. AB Acquisitions Luxco 5 S.à r.l. did not pay or declare any dividend during the year or prior year. During the prior year, the Group acquired senior and subordinated facilities loans from Walvis Limited and Walvis 2 Limited, companies controlled by Dascoli Finance S.A., at the prevailing market price of £247.6 million, compared to the principal, which included rolled up interest due when the loans themselves were repaid, of £247.1 million. During the prior year, profit participating notes issued by Walvis Limited and Walvis 2 Limited respectively were redeemed for £193.1 million, including rolled up interest which is paid when the note itself was redeemed. The gain on redemption of £13.9 million together with interest relating to these notes of £14.1 million was recognised in finance income. The Group’s original investment in these notes was £154.9 million. During the prior year, the Group acquired senior facilities loans from AF Lux Finance S.A., of which S. Pessina is a director, at the prevailing market price of £29.5 million compared to the principal of £30.0 million. Finance costs recognised in the prior year relating to the senior facilities loans owned by AF Lux Finance S.A. were £1.1 million. The Group, in its normal course of business, transacts with other entities controlled or significantly influenced by Kohlberg Kravis Roberts & Co. L.P..

aholding company of theGroup’s principal subsidiaries, associates BCM Limited BCM As at 31 March 2014, the management equity pl March equity 31 management at the As 2014, operatingthein thecountrywhere UK incorporationof is Wales. England& respectiveThe countries inco of Profe Opticians Boots in interest owns a 100% which Limited Holdings Investment Optical inBoots a58%interest has TheGroup 1 OpticiansBoots ProfessionalServices Limited UK Boots Limited Health & Beauty Division Group’sThe principalsubsid asso undertakings, Subsidiary equity 55% the the of Companydoesit not currently own, this in Contract Manufacturing ArmilaUAB HealthcareA.S. Alliance Norge DCIFarmexpert S.A. s.r.o.Healthcare Alliance CompanyUnited Pharmacistsof S.A.E. OOOHealthcareAlliance Rus HealthcareAlliance Nederland B.V. HealthcareAlliance España S.A. EczaHedef DeposuTicaret A.S. Alliance Healthcare (Distribution) Limited (Distribution) Healthcare Alliance Alliance HealthcareAlliance Deutschland AG HealthcareAlliance France S.A. A.S.Norge Boots Pharmaceutical Wholesale Division Division Wholesale Pharmaceutical Limi (Thailand) Retail Boots ApotheekAlliance B.V. (Ireland)Retail Boots Limited ted iary were:undertakings rporationfor the principalsubsidiaries are the sametheas country operation,of for except t ciates and joint ventures ciates and joint ventures 1

an had a 2.7% non-controlling interest in interest had non-controlling an 2.7% a undertakings Percentage subsidiary subsidiary held by 97.1 Czech Republic Czech 97.1 00 Egyp 50.0 92 Spain 99.2 98 France 99.8 0 oai Pharma Romania 100 0 UK 100 0 Russia 100 100 Republic of Republic 100 100 Thailand Pharmacy-led healthand Pharmacy-led beauty retailing Thailand 100 Norway 100 UK 100 0 ihai Pharmaceut Lithuania 100 0 UK 100 0 Norway 100 Turkey 100 German 100 0 100 100 The Nether The 100 100 The Netherlands Retail pharmacy Retail operator Netherlands The 100 terestinisequity exchangedfor the Company tocompletiprior and joint ventures. If WalgreensandIf joint exercises ventures. its to option a

Country of operation Country ofoperation UK

t Pharmaceutical and wholesaling distribution y ad Pharmaceutical and wholesaling distribution lands Ireland Pharmacy-led healthand Pharmacy-led beauty retailing Ireland Pharmaceutical and wholesaling distribution AB Acquisitions Luxco 1 S.à r.l. which i 1which Luxco r.l. Acquisitions S.à AB Main activity activity Main

Pharmaceutical and wholesaling distribution Pharmaceutical and wholesaling distribution Pharmaceutical and wholesaling distribution Pharmaceutical and wholesaling distribution Pharmacy-led healthandPharmacy-led beauty retailing Pharmaceutical and wholesaling distribution Pharmaceutical and wholesaling distribution cy-led healthandPharmacy-led beauty retailing Phar Opticalpractices Contractmanufacturing maceutical and wholesaling distribution Alliance Boots ssional Services Limited. ceutical and wholesaling distribution ical and wholesaling distribution | Annual Report 2013/14 Report |Annual cquire hose s on. 117

Additional information Consolidated financial statements Governance Strategic report 118 Alliance Boots | Annual Report 2013/14 Consolidated financial statements

Notes to the consolidated financial statements continued for the year ended 31 March 2014 35 Related parties continued The Group’s principal associates and joint ventures were:

Percentage interest in ordinary share capital and voting rights Country of operation Main activity Associates Alliance Healthcare Italia S.p.a. 49.0 Italy Pharmaceutical wholesaling and distribution and retail pharmacy operator Alliance Healthcare S.A. 49.0 Portugal Pharmaceutical wholesaling and distribution Boots Hearingcare Limited 49.0 UK Hearingcare services Hydra Pharm SPA 30.0 Algeria Pharmaceutical wholesaling and distribution Oktal Pharma d.o.o. 49.0 Croatia Pharmaceutical wholesaling and distribution Joint ventures Walgreens Boots Alliance Development GmbH 50.0 Switzerland Development company to facilitate delivery of synergies Guangzhou Pharmaceuticals Corporation 50.0 China Pharmaceutical wholesaling and distribution UniDrug Distribution Group Limited 50.0 UK Pre-wholesale and contract logistic services The respective countries of incorporation for the principal associates and joint ventures are the same as the country of operation, except for those operating in the UK where the country of incorporation is England & Wales. The accounting reference dates of the principal associates and joint ventures are 31 December with the exception of Alliance Healthcare Italia S.p.a. and Boots Hearingcare Limited whose accounting reference date is 31 March, Walgreens Boots Alliance Development GmbH whose accounting reference date is 31 January and UniDrug Distribution Group Limited whose accounting reference date is 30 September. Transactions with associates and joint ventures, all of which are carried out on an arm’s length basis, were:

2014 2013 Joint Joint Associates ventures Associates ventures £million £million £million £million Revenue to 23 71 20 9 Other income receivable 1 4 – 1 Purchases from (28) (1) (33) (1) Other charges from (4) (1) (3) (1) Amounts due from 3 16 4 7 Amounts due to (1) (1) (1) –

The GroupThe has significantcarrying values goodwillof other and assets tangible and goodwill, including assets, intangible of Impairment estimationthe of cashfuture and flows th is one of the three largest three the retail of one is pharmac is Benavides Farmacias the million. £835 th acquisition The two comprises businesse main theyearto end,Subsequent the announcedGroup that it 38 year Events the after end Furtherondetail the risksfaced Groupthe by and the timescalesand for completion, ensureswhich that progresstowa executiveGroup’s Directors The theplay lead 37 assessment Risk op call its own exercise Walgreens will that measurementThe of the optioncall related to warrants thby held Warrants accountsuchof changes. placetake many years in future,the and th outflows from Actual differ can estimatestochangesdue in laws Estimatestheof amounts provisionsof recognised are based on subjectbe can which to change. canreasonablywhich be estimated. The timing recognitionof re itwhen recognised are Provisions Provisions discount rates. judgementsin relation to the estimation of future changes in IAScosts19, are assessed accordancein thewith indepeof advice TheGroup recognises and measures costs relating to defined benefit schemes in accordance with IAS 19 Employee Benefits. In ap Measurement of definedbenefit scheme liabilities thecashof value-in-use the of impairment estimationThe involve tests of Amortised impairment. for intangib annually su life intangibles, indefinite other and Goodwill relationships. Th liabilities. contingent and liabilities measurementfairThe of values aon busine Fair measurementvalue on a business combination predetermined periods whichover rebates are earned. recognitionThe rebatessupplier of may estimationrequire when rebates Supplier redeemedbe customers.will by which issued mattersdescribedThe judgements. consideredare below to be th preparingIn the consolidatedfinancial statements, the management 36 Accounting estima Where risksWhere are identified that are not acceptable, action plans Boardthe through the andaudit committee.risk addition,In th schemes, loyalty of respect In knownnot untilthemonth after sale. of Inthe Health & BeautyDivision, dispensing Revenue positionand cash flows. The Group’s acco thesepreparing in statements andthe uncert The transaction, which is which transaction, subj The to useto their expertise identifyto risks thatperf couldundermine policies clear as whatto the Group considers to acceptablebe le tes and judgements ect to expectedect is approvals, regulatory principallythe Boots Advantage Card, liabilities ar generating unitsgenerating towhich intangiblethe assets are allocated. becomes probable that there ou future a be will ekeyinvolved judgements the identifica are y chains in Chile wi Chile in chains y e selectionaof suitable discount rate. ereforethe carrying amounts of provisions unting policies are described in described note are 2. policies unting tion theover remainingstake equity 55% arerevenues initially becauseestimated th irdlargest retail pharmacy chain inMexico futurecash flows and theselection of suit ss combination requires the requires combination ss leand tangible assets are tested for impairmentwhere there are indications of imp aintiesthat couldtheimpact amounts reportedin the results operations,of financ ing internalin role controls, monitoring s,togetherwhich operateover 1,400 stores, combinedwith revenues aroundof internal control process is process controlinternal had signedan agreementto acquire FarmaciasAhumada. th around 400 stores. 400 around th salariesandinflation,mortality as aswell rates, and theselec chas pharmacylicences and certainbrands are held costat a aredeveloped to mitigatethem with clear allocationof respon intangibleassets, such as pharmacy licences, brands and custom e Di theexecutive through Board ormance and bringingacceptableto of within ways them devise vels of risk. These seekrisk. policies of people tovels enable throughout current legal and constructive requirements and price levels. levels. and price requirements constructive and legal current , regulations,, publicexpectatio rds implementingrds these plans monitoredis and reported upon. quiresthe application ofjudgem the reportingthe year ends are not coterminousthewith end of e Group requiresjudgement Group madea e be to regarding the probabil e mostimportante in understanding judgements the thatare invol ndentactuaries.qualified This of Alliance Boots GmbH is required to make estimatesand to complete in the in complete to recognitionand measurement theidentifiableof assets,

e recorded estimateto the proportion of the set out set on pages 61. and 60

tflow of funds resulting from pastfrom resulting funds of tflowoperations tionand valuation of intangible assets in thatGroup Walgreens the not does curre the overall risk profile andthe profile risk regularlyoverall r with around 1,000 stores, and Farmacias and stores, 1,000 around with able discount rates.discount able Theserequire es an e actuale reimbursements a forsales such are andreviewed regularly toadjusted ta thirdquarter of2014. ns, prices and conditions, and rectorsis responsibledete for Alliance Boots requires theexerciserequires of sig ent toent facts existing and circu | Annual Report 2013/14 Report |Annual which requirewhich eporting to tionof suitable ndtested points nificant the Group can timation sibilities re often rmining Ahumada ke ke mstances, orevents ial ial airment. ntlyown. er levels. ity plying ved 119

Additional information Consolidated financial statements Governance Strategic report 120 Alliance Boots | Annual Report 2013/14 Additional information

Principal businesses, associates and joint ventures

Health & Beauty Division

Boots UK Boots Opticians Boots Norge 1 Thane Road West 1 Thane Road West Maridalsveien 323 Nottingham Nottingham PB 4593 Nydalen NG2 3AA NG2 3AA N0404 Oslo United Kingdom Norway Tel: +44 (0)115 950 6111 Tel: +44 (0)115 950 6111 Tel: +47 (0)23 25 07 00 Web: www.boots-uk.com Web: www.bootsopticians.com Web: www.bootsapotek.no

Boots Ireland Alliance Apotheek Boots Thailand Unit 2F, Block 71A Pomphoekweg 1 9 Pakin Building, 8th Floor Parkwest Business Park 5222 BE ’s-Hertogenbosch Ratchadapisek Road Nangor Road PO Box 210 Dindang, BKK 10400 Dublin 12 5201 AE ’s-Hertogenbosch Thailand Republic of Ireland The Netherlands Tel: +66 (0)2 694 5999 Tel: +353 (0)1 778 0000 Tel: +31 (0)88 104 0211 Web: www.th.boots.com Web: www.boots.ie Web: www.alliance-apotheek.nl

In addition, Boots has a sales office in the US and Armila has a small number of pharmacies in Lithuania. Pharmaceutical Wholesale Division Pharmaceutical Wholesale Web: www.farmexpert.ro Tel: 21 +40 407 77 11 Romania 060859 Bucharest 6 District 7 Amilcar C.Sandulescu Street Farmexpert Web: www.alliance-healthcare.nl Tel: +31 (0)88 104 0211 The Netherlands 5201 AE ’s-Hertogenbosch 210 Box PO 5222 BE ’s-Hertogenbosch Pomphoekweg 1 Alliance Healthcare Netherlands Web: www.hedefalliance.com.tr Tel: +90 212 452 72 00 Turkey Istanbul 34530 Yenibosna 3 No:3 Kat ABlok Kavak Sokak Ser Plaza Yolu Ekspres Basin Hedef Alliance Web: www.alliance-healthcare.fr Tel: +33 (0)1 51 80 40 00 France 92230 Gennevilliers 222 rue des Caboeufs France Alliance Healthcare

Web: www.alliance-healthcare.no Tel: +47 85 64 03 00 Norway Ski 1402 3554 Box PO Snipetjernvegen 10 Norge Alliance Healthcare Web: www.alliance-healthcare.cz Tel: +420 310 800 101 Czech Republic 108 10 Praha 00 –Malešice TratiPodle 624/7 Czech Republic Alliance Healthcare Web: www.alliance-healthcare.es Tel: +34 93 739 72 00 Spain Barcelona 08820 Llobregat de El Prat Pol. Ind. Estruch 6 Av. Verge Montserrat de Alliance Healthcare España Web: www.alliance-healthcare.de Tel: (0)69 +49 7920 3-0 Germany 60486 am Frankfurt Main Solmsstraße 25 Deutschland Alliance Healthcare

Alliance Boots Web: www.alliance-healthcare.ru Tel: +7 (0)495 287 77 00 Russia 109383 Moscow 1–1B3. Building Peschanij karier Russia Alliance Healthcare pharmacists.com Web: www.unitedcompanyof Tel: +202 2529 56 00 Egypt Cairo Salam Al Dar Street Naby Al 4 Athar UCP Web: www.alliance-healthcare.co.uk Tel: (0)20 +44 8391 2323 Kingdom United 1SN KT9 Surrey Chessington 43 Lane Cox (Distribution) Alliance Healthcare Web: www.armila.com Tel: +370 (0)52 777596 Lithuania Vilnius LT –08303 str. 10Ateities Armila UAB | Annual Report 2013/14 Report |Annual 121

Additional information Consolidated financial statements Governance Strategic report 122 Alliance Boots | Annual Report 2013/14 Additional information

Principal businesses, associates and joint ventures continued

Contract Manufacturing

BCM D10 Building Thane Road Nottingham NG90 2PR United Kingdom Tel: +44 (0)115 968 6326 Web: www.bcm-manufacturing.com

BCM has three manufacturing facilities in the UK, France and Germany.

Associates

Alliance Healthcare Italia Alliance Healthcare Portugal Boots Hearingcare Via Moggia 75/a Rua Eng. Ferreira Dias 21 Trinity Square 16033 Lavagna (GE) 728, 3º Piso Sul Llandudno Italy 4149-014 Porto Conwy Tel: +39 (0)185 315 71 Portugal LL30 2RH Web: www.alliance-healthcare.it Tel: +351 22 532 24 00 United Kingdom Web: www.alliance-healthcare.pt Tel: +44 (0)1492 877 989 Web: www.bootshearingcare.com

Hydra Pharm Oktal Pharma 10 rue, Ibrahim Hadjres Utinjska 40 Beni Messous 16202 10020 Zagreb Algeria Croatia Tel: +213 21 93 43 00 Tel: +385 1 6595 777 Web: www.groupehydrapharm.com Web: www.oktal-pharma.hr Oktal Pharma also trades in Bosnia Herzegovina, Serbia and Slovenia.

Joint ventures

Walgreens Boots Alliance Guangzhou Pharmaceuticals UDG Development Corporation Amber Park Untermattweg 8 No. 97-103 Datong Road Berristow Lane CH-3027 Bern Liwan District South Normanton Switzerland Guangzhou 510410 Alfreton Tel: +41 (0)58 852 8300 Guangdong Province DE55 2FH Web: www.wbadev.com People’s Republic of China United Kingdom Tel: +86 20 8181 4966 Tel: +44 (0)1773 510 123 Web: www.gzmpc.com Web: www.udg.co.uk

In addition, Alliance Boots has a buying office in Hong Kong. Alliance Boots | Annual Report 2013/14 123

Glossary of key terms Strategic review

Constant currency Interest cover Timing differences within net Exchange rates applicable for the financial Trading profit divided by underlying net finance finance costs information for the year ended 31 March 2013. costs excluding net finance costs relating to IAS 39 timing differences and the unwind of the retirement benefit obligations. discount on obligations to non-controlling EBITDA interests. Trading profit before underlying depreciation Like for like revenue and amortisation. Revenue on a constant currency basis excluding Trading margin the impact of business acquisitions and Trading profit expressed as a percentage EBITDA including share of associates disposals, new store openings, closures and of revenue. and joint ventures major extensions. EBITDA including share of associates and Trading profit joint ventures (excluding share of EBITDA Net borrowings Profit from operations before amortisation of distributed associate). Cash and cash equivalents, restricted cash, of customer relationships and brands, derivative financial instruments and borrowings exceptional items and share of post-tax Exceptional items net of unamortised prepaid financing fees. earnings of associates and joint ventures. Items classified by Alliance Boots as exceptional in nature. These are not regarded as forming Net finance costs Trading profit including share Governance part of the underlying trading activities of the Finance costs net of finance income. of associates and joint ventures Group and so merit separate presentation Trading profit including share of associates and to allow stakeholders to understand the Restricted cash joint ventures (excluding share of trading profit elements of financial performance and assess Cash which is restricted for specific of distributed associate). trends in financial performance. purposes and so is not available for the use of the Group in its day to day operations. Underlying depreciation IAS 39 timing differences and amortisation Derivative financial instruments are used to Revenue including share of associates Depreciation and amortisation adjusted hedge interest rate and currency exposures. and joint ventures to exclude amortisation of customer IAS 39 dictates whether changes in the fair Revenue including share of associates and joint relationships and brands and depreciation and value of these instruments can be matched in ventures (excluding share of revenue amortisation within exceptional items. the income statement by changes in the fair of distributed associate). value of the item being hedged. Where they Underlying effective tax rate cannot be matched, or do not fully match, Share of underlying post-tax earnings Underlying tax charge as a percentage the unmatched amount represents a timing of associates and joint ventures of trading profit less underlying net difference that will reverse over the life of the Share of post-tax earnings of associates finance costs. financial instruments. Derivative financial and joint ventures (excluding distributed instruments are also used as credit instruments associate) before amortisation of customer Underlying net finance costs and changes in fair value which reverse over the relationships and brands, exceptional items Net finance costs adjusted to exclude life of these instruments similarly represent a timing differences within net finance costs exceptional items and timing differences timing difference. and related tax. within net finance costs.

Alliance Boots GmbH Underlying profit Copyright and trade mark notices Profit for the year (excluding share of All rights reserved post‑tax earnings of distributed associate) © Copyright 2014 Alliance UniChem IP Limited All content, artwork, trade marks and associated before amortisation of customer relationships BCM, BOOTS, BOOTS ADVANTAGE CARD, imagery are trade marks and/or copyright material of and brands, exceptional items, timing BOOTS APOTHEEK, BOOTS EXPERT, BOOTS EXTRACTS, their respective owners. All rights reserved. differences within net finance costs and BOOTS HEARINGCARE, BOOTS IRELAND, BOOTS Consolidated financial statements related tax. LABORATORIES, BOOTS NORGE, BOOTS OPTICIANS, This report is printed on Heaven 42 paper that BOOTS PHARMACEUTICALS, BOOTS THAILAND, has been independently certified on behalf BOOTS UK, BOOTS.COM, BOOTSWEBMD.COM, Underlying profit attributable of the Forest Stewardship Council® (FSC). BOTANICS, INTERNATIONAL.BOOTS.COM, NO7, to equity shareholders NO7 MEN, NO7 PROTECT & PERFECT ADVANCED SERUM, Printed at PurePrint, ISO14001, FSC certified Underlying profit excluding amounts attributable NO7 PROTECT & PERFECT INTENSE ADVANCED SERUM, and a CarbonNeutral® company. to non-controlling interests. NO7 RESTORE & RENEW DAY & NIGHT SERUM, SEVENTEEN, SHAPERS, DELICIOUS and SOLTAN Underlying tax charge are trade marks owned by The Boots Company PLC. Tax charge adjusted to exclude tax on ALCURA, ALLIANCE HEALTHCARE, ALLIANCE amortisation of customer relationships and HEALTHCARE CZECH REPUBLIC, ALLIANCE HEALTHCARE brands, exceptional items, timing differences DEUTSCHLAND, ALLIANCE HEALTHCARE ESPAÑA, within net finance costs and exceptional tax. ALLIANCE HEALTHCARE FRANCE, ALLIANCE HEALTHCARE ITALIA, ALLIANCE HEALTHCARE NETHERLANDS, ALLIANCE HEALTHCARE NORGE, ALLIANCE HEALTHCARE PORTUGAL, ALLIANCE

HEALTHCARE RUSSIA, ALLOGA, ALMUS, ALVITA, Design and production by Additional information FARMEXPERT, HEDEF ALLIANCE and SKILLS IN RADLEY YELDAR HEALTHCARE are trade marks owned by Alliance Registered office Unichem IP Limited. Alliance Boots GmbH ALPHEGA PHARMACY, ALPHEGA FARMACIA and Untermattweg 8 ALPHEGA APOTHEEK are trade marks owned by CH-3027 Bern Alliance Healthcare France Société Anonyme (AHF). Switzerland KRING APOTHEEK is a trade mark owned by Alliance Tel: +41 58 852 8299 Healthcare Nederland B.V. Website: VIVESCO is a trade mark owned by Alliance Contact: Healthcare Deutschland GmbH. [email protected] allianceboots.com Alliance Boots Annual Report 2013/14

For more information allianceboots.com

Registered office: Alliance Boots GmbH Untermattweg 8 CH-3027 Bern Switzerland

Contact: [email protected]