M MR ANNUAL REPORT Walgreens Transformed by Megamerger DEERFIELD, 111. — The Wal• its way toward fulfilling its poten• tactical and strategic advantages markets and increase its foot• WALGREENS greens Boots Alliance Inc. (WBA) tial to become an "extraordinary that provide additional strength print and volume. But a market era is under way. and outstanding organization." to the group as a whole, he noted. is most enticing to the company With the finalization of the Combining two businesses will, "It is an extremely cash-gener• when it offers a route to harmoni• merger of Walgreen Co. and Alli• by definition, change both, he ative business that provides a ously combining two — or ideally ance Boots GmbH on December said. "The secret to capturing the common platform and true inter• all three — components of WBA's 31, a global pharmacy and drug true value of any such merger is national presence in a sector we business model in order to gain distribution power was born. recognizing this, expecting it, and scope for further consolidation." efficiencies; differentiation; and Its size and scope positions embracing it as it happens." Wholesaling is an "enabling clear, sustainable value. measures to generate consistent WBA to be nothing less than The three main parts of WBA's business" that allows WBA to The company will assess any execution. "one of the companies that helps business model are distribution, enter new markets more rapidly opportunity that may open a new "Over the holidays we saw shape the future of health care, brands and pharmacy-led retail• than retail, with cash flow that market for it, deciding whether some of the best execution we pharmacy and retail on a global ing. It will consider market en• provides financial scale and ef• to go further only after detailed have seen in years: great inven• basis," executive vice chairman tries "where we can see an oppor• ficiencies, he said. "It brings the analysis. It remains committed tory management, smooth sell- and acting chief executive officer tunity to operate any one of these mind-set of running a low-margin to vertical integration and de• through, product availability Stefano Pessina said this spring. elements well and at scale within business with all the rigors and votes extensive time and effort right through the busiest days, Already the company has a reasonable time," said Pessina. disciplines that it demands into to considering how markets have excellent customer feedback," achieved much, Pessina said, on "Frequently to date this has been the mix of the combined group's evolved, particularly in health said Gourlay. "All thanks to a through merger or acquisition." culture." Also, it is the basis of care, to ensure that it is growing fully developed customer plan." In wholesaling in particular, WBA's "world-class procure• in a way that aligns it even more Other efforts include leverag• such a move "is the easiest way to ment" of pharmaceuticals. closely with payers, said Pessina. ing the Balance Rewards pro• WALGREENS get to scale quickly," he said. Across all its businesses, WBA In the United States, said WBA gram, which will be enhanced The company's distribution can expand horizontally — add executive vice president and with additional ways for con• FINANCIAL RESULTS business gives it significant to its networks to access new Walgreens president Alex Gour• sumers to accumulate points and (8/31/14) lay, the company's mission is to earn rewards. With more than 80 make the chain "America's most million active Balance Rewards SALES: loved, pharmacy-led health, members, Walgreens can distrib• $76.39 billion (+5.8%) well-being and beauty retailer." ute more than 30 million person• NET EARNINGS: The mission will be accom• alized offers, he noted. $1.93 billion (-21.1%)* plished with "an integrated, "Our savvy customers have back-to-basics approach: phar• our app, their rewards informa• NET MARGIN: macy and front of store that del] tion and other details delivered 2.5% ultimate convenience, customer straight to their phone," he said. COMPARABLE-STORE SALES: loyalty and extraordinary cus- "And to bring our brand promise + 4.9% to life we are celebrating healthy lifestyles with Balance Rewards OPERATIONS for Healthy Choices, reward• The goal is to 'help ing customers with points for HEADQUARTERS: shape the future exercise activity, for adopting Deerfield, III. healthy habits such as regular FISCAL YEAR-END STORE of health care' blood pressure testing and for COUNT: eating right." 8,207 Walgreens is also intent on con• PRIOR YEAR-END STORE tomer care," he said. Supporting trolling costs, Gourlay said. The COUNT: that customer experience will be company committed last year 8,116 "a sustainable cost model that is to $1 billion in cost cuts by 2017, BANNERS: incredibly efficient." has instituted a corporate hiring Walgreens, Duane Reade, To strengthen its pharmacy freeze, and is changing policies Healthcare Clinic, drugstore, operation, Walgreens will have on travel and expenses and use com, beauty.com, VisionDirect. a robust online and mobile of management consulting and com, Skinstore.com, Community Management Team component, while bolstering its temporary labor. There has also Pharmacy, Pioneer, Corner W partnerships with payers, Gour• been a pay freeze for top U.S. lay said. The retailer will also executives. The savings target is Takes on a New Look eliminate unnecessary back-end now $1.5 billion, up from the ini• 5 in sales DEERFIELD, 111. — Dramatic officer. She will be responsible processes to free up pharmacists tial $1 billion. ' Earnings for fiscal 2014 include the personnel changes have ac• for the vision, leadership, strate• for patient counseling, while op• The moves are designed to cre• following after-tax items: an $866 million noncash charge to record the companied the lead-up to and gic direction and performance of timizing the clinic model. ate a sustainable cost model, company's loss on the amendment early days of Walgreens Boots all merchandising activities. In the front end, Walgreens Gourlay said, allowing Wal• and exercise of Its Alliance Boots Alliance, most notably the re• Filler had been president of has concentrated on efficient greens to reinvest in key areas call option, $238 million for acqui• sition-related amortization, $167 tirement of Greg Wasson as Wal• Claire's Stores Inc. Prior to that, retailing to expand margins. It — including information tech• million in Alliance Boots-related tax, greens president and chief ex• she was executive vice presi• is streamlining the supply chain nology, store formats, customer $54 million in acquisition-related ecutive officer. dent and chief merchandising to improve its in-stock position service support and personnel costs, $139 million for store-closure expense, and $40 million in other Stefano Pessina, who was exec• officer at Sam's Club, where she while driving inventory produc• training and development — to optimization costs, all partially off• utive chairman of Alliance Boots, also led the owned brand strat• tivity. Also in place are strong drive growth. set by a $351 million increase in became WBA's acting CEO, while egy. She also held executive vice the fair market value of warrants to purchase AmerisourceBergen's com• Alex Gourlay, who was president president positions at Walmart mon stock and a $6 million gain on of customer experience and daily and Kraft Foods Group Inc., the sale of Take Care Employer So• living for Walgreens, became the and leadership positions of in• lutions. Prior-year earnings reflected the following after-tax items: $241 chain's president. creasing responsibility at Hanes million of acquisition-related amor• Another major change was the brands for Sara Lee Corp. tization, $124 million in Alliance appointment of Richard Ash- Boots-related tax, $60 million in "Linda brings to Walgreens sig• other acquisition-related costs, $47 worth as Walgreens president of nificant experience in merchan• million in costs related to a settle• pharmacy and retail operations. dising, marketing and strategy in ment with the Drug Enforcement He is responsible for uniting all a variety of industries, and will Administration, $8 million stemming from Walgreens' transition to Ameri- the retailer's services across the be a great addition to our lead• sourceBergen Corp. as its prescrip• country. He had been director of ership team and our retail prod• tion drug distributor, and $24 million health care for health and beau• ucts division," said Gourlay. in costs stemming from Hurricane Sandy, all partially offset by a $110 ty, U.K. and Ireland, at Alliance George Fairweather, who was million gain on the increase in the Boots. He was responsible for the formerly group finance direc• fair market value of AmerisourceBer- pharmacy, opticians and hearing gen stock warrants, and a $13 mil• tor of Alliance Boots, is WBA's lion gain on the sale of Walgreens care teams while serving on the global chief financial officer. Health Initiatives Inc. Boots U.K. operating committee. Fairweather succeeded Timo• Also, Linda Filler was named thy McLevish, who was the ini• Walgreens president of retail tial global CFO of the combined products and chief merchandising companies. MMR/May25,2015 55