Boots: 64% of £ from prescriptions yet

[cremedelashite]

Just reading a Meme on Facebook about boycotting boots the chemist. The boycott is due to loss of tax revenue since they relocated to Switzerland despite apparently 62% of profits coming from NHS prescriptions. Was wondering if the ever knowledgable mumsnet crew would share any thoughts on this. Normally I like to retain a healthy scepticism about info on Facebook, but If it's true I think it's stinking. Boots play on being the British chemist. Anecdotally a friend who works for them says since the latest venture capitalists took over, they've become hard to work for. I always gain so much from the different perspectives on mumsnet so was wondering if anyone could pull this apart/ support it.

Cremedelashite

The short answer is its complicated, as since 2005 when Boots announced it was in a friendly merger with the international pharmacy and medical ‘stuff’ company Alliance Unichem (for the following financial reasons below), Boots has possibly had more partners that Katie Price – and there began its bigger problems as the now larger company was subject to a ‘Leveraged Buyout’ by a Private Equity company, which basically means a smaller entity borrowed up the ying yangs to take Boots over in June 2007 – just months before the Financial Crash began.

Oct 2005 ”Boots announces £7bn merger deal”

”Although an established household name in the UK, Boots has been struggling in the face of stiff competition from supermarket giants Tesco and Asda.”

”Boots, which began trading in 1849, has seen its sales fall in recent years as supermarkets have aggressively targeted the toiletries and over-the-counter medicines markets.”

The ‘leveraged’ borrowing structure of the purchase of the company known as Alliance Boots Plc came under huge pressure once the Financial Crash began late 2007 and into 2008, as even large AAA rated companies saw their interest rates on borrowing rocket UP, as most investors risk appetite died and they just bought government bonds – and as Alliance Boots was bought for over £11 billion, with over £9 billion of borrowing, loaning to the company was not an attractive proposition as the UK went into the great recession.

So expensive was the cost of servicing its leveraged debt, the Guardian reported;
“We calculate that Alliance Boots paid out £606m in net finance costs in 2007-08. But its profit in 2008 before interest was only £535m. The interest payments on the debt are so large that they have wiped out any profit in the UK and all the tax that used to go with it.”

So when Alliance Boots took the decision to move to Switzerland in June 2008, before the worst was to come from the financial crash, apparently it was for several reasons; clearly financially it was not doing well, it believed the UK had become a “less friendly business location”, and as it was an international healthcare company with operations all around the world, Switzerland was the ideal place to run such a company – denying the motive for the move was to reduce its tax liability, it wasn’t then paying, due to interest charges on its debt.

So in my opinion and based on the time line; Boots having had some financial difficulties in 2005 and might not have survived the late 2007 financial and economic kafuffle anyway, its move to Switzerland was due to big picture ‘events’, not some overt move to reduce its UK taxes, and due to its international size and complexity could not come back to the UK at this time even if it wanted to, due to the huge political risks here.

Meanwhile the UK gets the benefits of their employment, the taxes and NI they do pay, and presence on our High Streets I’m not sure any other company at this moment could fill.

Ideologically I’d suggest that we could find a reason, or two, why the UK should not do business with any big company (or country) in the world, never mind the UK, if we tried h-a-r-d enough.

Thank you for your input and time on that. Can I ask what you do to pull together this wee dossier so quickly?

Scandalous making some much profit from the NHS. I will be boycotting

The problem with Boots and other large companies diverting their tax revenue away from the UK is that that revenue needs to be made up from somewhere because without it the UK books don't balance. so all those tax dodging companies like Amazon ,Costa Boots and the rest add up to a massive hole in government revenue, yes they provide employment and some revenue from NI etc, but they are not contributing properly to the cost of their employees pensions,medical care, education provisions etc etc.

Clearly the British Boots of pre October 2005 was not the same Boots thereafter, and while some might have preferred Boots to go boobs up rather than merge and move its HQ to another country etc, once the crash began and its with its leveraged financing in place - it was lucky it survived a 2nd time.

When British Airways merged with Iberia, didn't their HQ go to Madrid?

I assume both pay some UK Corporate Tax, but I don't know as have little international tax knowledge and can't be 'asked' to bother looking into it as don't overly interest me.

Maybe those who think we can overly tax companies to sustainable economic growth and pay for all of public services, should.

P.S. Many company pension schemes, especially Final Salary schemes died after 1997, but that another story.

cremedelashite

Regarding Boots the company, like everyone else you kinda take note when a household name gets taken over, and while I remembered Alliance and some Swiss connection, I hadn’t realised that there was a Private Equity company takeover soon after, and then some large American pharmacy after that – so a memory of a rough Boots takeover timetable, slotted into a rough memory of a Financial Crash timetable, plus Google filling in the finer details.

It could be another one of those ‘dodgy dossiers’ based on my back of an envelope interpretation, but saw a non answered post and thought it might be interesting to look into it, after all I still use the store for some things, but not enough to bother finding my old loyalty card - so personally I’d rather it stayed open rather than potentially leaving a gap in our high street.

Too many of our brands went before and after the crash, and those employees can't all be employed at Coffee and Betting Shops, as thats all that seems to be growing.

Thea "Boots has had more partners than Katie Price" I am enjoying the mix of business analysis with casual burns

TuiMitcham

Unfortunately I sometimes write out loud (what I'm thinking), and it does get me in trouble sometimes, as coming across as sarcastic or worse.

I see the funny side of too many things, especially on some semi serious subjects, but lightening it my mind helps to keep my interest.

I really was surprised what happened to Boots take over wise after the first, and that was the first thing that came to mind, with apologies to Ms Price if she reads these boards.

Was a good read theasarrus. I too enjoyed the analysis with acid too 😄.

I suppose Boots is a case in point for how business is run in relation to tax. Noone's doing anything illegal however to the man on the street, it doesn't feel right. I was interested in the prescriptions stats because if most profits do come from them, then that would suggest that independents or whoever could sustain a dispensing business to fill the gap if the over leveraged boots went. But no, I don't want everyone to work in betting, coffee or charity shops either.

Boots have an insane business method - in the small town of Prestwick they have 3 shops all visible from each other

Is that the same Prestwick with 8 local branches of Hypochondriacs Anonymous?

Ask any retail pharmacist and they will tell you that NHS prescription dispensing generates almost zero profit. That's why they all sell loads of other stuff. It's ridiculous to boycott Boots because they dispense medicines - you might as well boycott Specsavers because they dispense NHS glasses.

The Boots merger with Alliance was about vertical integration because Alliance is a wholesaler and distributor. By combining they cut costs out of the logistics chain. Alliance Boots was then bought out / taken private by KKR in 2007, who moved it to Switzerland, and then partially sold on to Walgreens in 2012 (pretty typical exit timetable for a private equity buyout) with a full buyout in 2014. So it's now actually a subsidiary of Walgreens and headquartered in Delaware, not Switzerland. However, where the tax liability falls depends a lot on the cashflows of the company.

I'd be pretty surprised if Boots makes 64% of profits out of prescription dispensing because the margins are minute. It's 1 pound an item dispensed or something. Also "international retail" disclosed that its sales were 65% retail, 35% pharmacy, so again I'd be surprised if the profitability were the other way around.

64% from prescriptions?really? I find that hard to believe because the mark-up/profit on ibuprofen etc can't be that much.

Don't they make more from makeup?

But yes, publics view of businesses being run for tax, but it just not being 'right' is true.

The issue is that with increasing globalisation and more companies becoming international, offshoring of profits to favourable jurisdictions will become more of an issue but it's a very difficult issue for governments to solve. I approve of consumer power in this area as it's one way to benefit companies which do pay most of their taxes within the UK, whether by design or coincidence and to encourage others to do so. However, one can't base it on a third hand internet meme, with no citation as having (admitettedly) quickly flicked through the annual report for Walgreens, I cant find that information anywhere.

Agreed can'tseethewoods. I do think this type of information is what the public are hungry for, hence why factually limited meme's take flight. Perhaps a losing battle in the face of globalisation but if how much tax paid to where was more readily available and published then consumers could make informed choices about where they take their prescriptions and their £££.

Oblomov17

I wonder if that 64% from the NHS is just for prescriptions, as many Boots branches now invite you into a room to show their pharmacist any ‘bits’ of personal concern, that in theory could take pressure off GP surgeries - so I wonder do they offer that High Street service NHS gratis, and so just for the prospect of selling Boot’s over the counter wares, or for a fee?

Cantseethewoods

Thank you for bringing us up to date re Boot’s American ownership and HQ move from Switzerland to Delaware in the U.S., which is also considered a bit of a tax haven, but as far as I can see, is only advantageous to U.S. companies doing business in the U.S. – but as I read 64% of the Fortune 500 companies are registered in Delaware, I might be missing something.

So re your
”where the tax liability falls depends a lot on the cashflows of the company.”

So on the face of it, I gather even on such a global medical supplies etc company, a company like Boots would publish {?) its UK sales/earnings, and pay all its UK taxes due on those UK earnings, less any legal accounting ‘dark arts’ reductions – and what a now American multinational company globally earn, effectively is none of our business, is that about right?

On both your and cremedelashite concerns;
”The issue is that with increasing globalisation and more companies becoming international, offshoring of profits to favourable jurisdictions will become more of an issue but it's a very difficult issue for governments to solve.”

I think quite a bit was done on that several years back by the OECD, as I remember Cameron/Osborne were promoting a ‘global tax transparency’ conference in London back in 2013, ahead of a G8 Meeting in Northern Ireland, that had global tax evasion etc on its agenda, as that would then explain the following;

Oct 2014; “Noose tightens around global tax evasion as OECD countries sign new agreement”

“The OECD just took a step closer to fighting tax evasion on a global scale, with 51 territories agreeing to create “information exchanges” that will help track culprits down.”

“The first signatories to the dull-sounding "multilateral competent authority agreement" – which include the UK and Ireland – will launch their information exchanges by September 2017. Others will follow in 2018.”

That September 2017 ‘transparency’ reform could also explain over the past year some of the headlines I remember of the large U.S. Corporations playing ‘where to relocate our European HQ’, musical chairs e.g. McDonalds to the UK.

Now those legal accountancy ‘dark arts’ will still be around, but it looks to me that it will be much easier for the authorities in ANY country ‘to follow the (corporate) money’ trail, and more easily determine (and challenge) what was earned, and any taxes paid or evaded.

A globalisation problem with a large new light at the front of the tunnel?

When British Airways merged with Iberia, didn't their HQ go to Madrid?

IAG's operational head office is in London.

ILoveGrammar0

” IAG's operational head office is in London.”

And according to the Wikipedia link below, you are not wrong.

But as the subject of this thread is company tax affairs, and not which location is responsible for planes, or even prescriptions, getting somewhere on time, I believe it is where a company is incorporated and registered, that follows where its global balance sheet is ‘consolidated’ and domiciled for tax purposes - which under “Corporate Affairs” appears to be Madrid.

”IAG's operational headquarters, which controls the management of both its British and Spanish subsidiaries, are at the Waterside building in Harmondsworth, London.”

”IAG is incorporated in Spain as a Sociedad Anónima, where the company board meetings are held, and is domiciled in Spain for tax purposes.”

Now I’ll admit I have no idea why the IAG with several company names chose Madrid, it could easily be for administrative rather than tax reasons, but in reference to Boots or any UK company owned by foreign companies, my point was that the practice of being registered overseas, is not uncommon.