Anda di halaman 1dari 20

Booker

1 February 2010

Top line growth & margin enhancement BUY


Code BOK
Price c 46p close 29/1/2010
This has proven a management story par excellence in recent years. In
Market Cap £686.1m
our view, the re-rating has further to go on a 12 months basis.
Year End 31st March
 The recovery story. When Charles Wilson joined as CEO (in Nov 2005),
Net Debt £4.0m 11/9/09
revenues were contracting at 5.9% p.a. l-f-l, EBIT was in marked decline and
Shares in Issue 1,491.5m
net debt was £361m. By contrast, in H1 of FY10 l-f-l sales growth was 7.7%,
Next Results Finals May EBIT was up on this and net debt was only £4m. Actions pursued to restore
Booker’s fortunes (all discussed in detail within on pp6-8) have hardly been
rocket science but all of the accolades are justifiable for both the manner of
Share price Performance their implementation and the potential that still remains.
50 BOK BOOKER ORD 1P

 Current trading. Q3 revenue grew by 6.7% l-f-l reflecting Booker’s improved


45

40

35
choice, price and service to its customers. Profits and net debt were indicated to
30

25
“remain in line with management expectations”.
20

15
H1-2008 H2-2008 H1-2009 H2-2009
 Booker’s strategy. This is based on expansion of the top line organically via:
So urc e : F id es s a

‘Broaden’ actions which are upgrading customers’ cash & carry experiences;
Source: Fidessa
expansion of the Direct (National Accounts) business; and expansion in India.
Company Description
This should prove a lower risk strategy versus acquisitions-based expansion.
UK’s leading food wholesaler supplying  Valuation. On a 28% tax basis (the tax charge will remain below the standard
caterers, retailers & other businesses rate to FY12) the CY 10 PE of 16.5x is no bargain. However, we are of the view
Institutional Contacts that the improvement underway has considerably further to go, especially as
Analyst:
there is a margin mix benefit as tobacco products diminish in relative
Charles Pick 020 3207 3232
significance. We also consider a prospective CY 10 EV/EBITDA of 8.1x
cpick@finncap.com
attractive, particularly as Booker should remain strongly cash generative.
 Price Target. We set a PT of 52.6p on a 12 months basis which is based on
Corporate broking: 9.5x forecast CY 10 EBITDA. Upside scope of 14.3%.
Eddie Edmonstone 020 3207 3209
Tom Jenkins 020 3207 3263
Stephen Norcross 020 3207 3211
Joanna Weaving 020 3207 3248
Forecasts. NB, on 28% tax forecast EPS = 2.59p then 2.85p for PE’s of 17.8x then 16.1x
Brian Patient 020 3207 3225
Simon Starr 020 3207 3251 Year end 2007/08 2008/09 2009/10E 2010/11E
Data
Sales:
Michael Bell 020 3207 3264 Sales 3,078.2 3,179.2 3,398.6 3,534.5
Chris Jeffrey 020 3207 3221 EBITDA 62.3 72.5 80.3 86.0
Elizabeth Johnson 020 3207 3294
PTP 36.2 47.2 55.0 60.5
Dwight Burden 020 3207 3266
Rhys Williams 020 3207 3268 Tax Rate 17.7 16.9 17.1 17.0
Sales Traders: EPS (f.dil) 2.03 2.63 2.99 3.29
Mick McNamara 020 3207 3223
DPS 0.538 0.87 1.00 1.10
Mike Nally 020 3207 3224
Jeremy Smith 020 3207 3226 Ratios
Ben Tonnison 020 3207 3227 EV/sales n/r 0.2 0.2 0.2
Daniel Smith 020 3207 3210 EV/EBITDA n/r 9.8 8.7 7.9
P/e n/r 17.5 15.4 14.0
This research cannot be classified as Yield n/r 1.9 2.2 2.4
objective under FinnCap research policy.
Visit www.finncap.com Cashflow yield n/r 4.9 4.5 5.0
EPS growth 116.0 29.6 13.7 10.0
Booker 1 February 2010
Top line growth & margin enhancement

Investment case
This rests upon the following:

A prospective CY 10 • We accept that the prospective PE on 28% tax is mid teens for FY11 or
EV/EBITDA of c 8.1x is cheap 16.5 x for CY 10 (est CY EPS of 2.785p). Seemingly no bargain and ditto
the CY 2010 yield of 2.3%. However, a CY 10 EV/EBITDA of c 8.1x is
cheap in our view, although there are no quoted UK peers to Booker.
Actions being pursued are set to • Actions being pursued by the current management team have further to
generate further benefits go as regards top line and net margin growth. Our estimates are in Table
10 but following H1 l-f-l sales growth of 7.7%, and 6.7% in Q3, we have
assumed 6.9% for 2009/10 overall and 4% for 2010/11. An EBIT margin
of 1.93% has been projected (11 bps ahead) and then 2.00% for 2010/11.
• The development of additional non-tobacco product lines will have a
further favourable margin mix effect. Tobacco product sales should
continued to decline in proportional terms, whilst Booker is on record
that it earns some of its lowest gross margins from these (1.5-2% vs up to
20% from some non-tobacco products).
50% more trade could be • Management is of the view that 50% more trade could be
conducted at the existing cash & conducted via the 173 cash & carry outlets. This would generate
carry outlets considerable operational gearing benefits.
• Booker Direct has growth scope and is diversifying a customer base
traditionally centred on small businesses. It has already gained work in
the public sector and with leisure clients.
Indian expansion news has been • The expansion into India appears to have proven a success. There is
fine thus far scope to add extra branches in Mumbai over time given its 20m
population: management has mentioned the scope for 10 branches there.
Others could follow elsewhere in India.
Some funds may still be light in • As of July of last year, Booker moved from AIM to the main market. A
the shares due to the recent number of funds may still be lightly weighted in the shares.
nature of the move to the main • This is a mature group which should remain strongly cash generative: we
market project cash generation pre dividends and after excluding a £7.2m
interest swap cost of £64.8m for 2009/10 and 2010/11 combined.

Table 1: Booker’s l-f-l sales record


H1 H2 Yr H1 H2 Yr H1 H2 Yr H1 H2 Yr H1 Yr Yr
05/06 05/06 05/06 06/07 06/07 06/07 07/08 07/08 07/08 08/09 08/09 08/09 09/10 09/10E 10/11E

Total sales l-f-l -5.9 -5.9 -5.9 -2.5 n/a -0.9 0.4 n/a -0.3 1.1 4.3 2.6 7.7 6.9 4.0
Non-tobacco l-f-l -6.1 -6.0 n/a -3.0 0.3 -1.2 3.5 3.2 3.3 4.1 7.1 5.7 9.4 7.2 5.3
Tobacco l-f-l n/a n/a n/a -1.8 n/a -0.3 -3.9 n/a -5.4 -3.2 n/a -1.5 5.1 6.5 1.5
Caterers l-f-l -5.8 -4.1 n/a 1.4 3.9 -0.2 3.2 1.6 2.2 4.7 9.0 7.0 12.6 12.9 7.6
Retailers l-f-l -5.6 -4.5 n/a -2.7 -0.1 -1.1 -0.8 -2.1 -1.5 -0.5 2.3 1.0 5.5 4.1 2.2

Source: FinnCap based on Booker disclosures. The smoking ban in public places in England & Wales impacted mostly upon the retailers l-f-l numbers.

Valuation
We set a PT of 52.6p We target a prospective calendar 2010 EBITDA ratio of 9.5x which
gives a PT of c 52.6p* for upside scope of 14.3%. At this level, the
calendarised fully taxed 2010 PE would be 18.9x with the calendarised
2010 yield 2.0%. *9.5x forecast calendarised 2010 EBITDA of £84.58m = £803.5m which after
debiting calendarised 2010 net debt of £0.8m and dividing by 1,527.3m f.dil shares gives the 52.6p PT.

2
Booker 1 February 2010
Top line growth & margin enhancement

Overview
The UK’s largest cash and carry Booker is the UK’s largest cash and carry operator offering an extensive range of
operator branded and own label products. Whilst the majority of sales accrue from
customers collecting their own products at the group’s 173 branches, a free
national delivery service is available from 163 of these using the group’s own vans
(the other 10 outlets are too small to warrant it). Supply direct from the group’s 3
RDC’s (Regional Distribution Centres) located at Hatfield, Haydock and
Livingston, or from the Wellingborough-based NDC (where the HQ is located), is
also possible. Livingston is a shared site where logistics are sub-contracted. At
end March 2009 414,000 customers were being regularly supplied – mainly
restaurants and convenience shop retailers but including diverse other (mainly
small) businesses such as leisure outlets and pubs. Booker’s fortunes are
inextricably linked to those of its customers so a key aspect of its business
strategy is to improve their competitiveness via high availability levels of value for
money products. The past 30 months has witnessed considerable trading
difficulties afflicting many customers, including: the repercussions of the
smoking ban in public places in England & Wales on 1st July 2007; the effects of
recession; shrinkage in pub numbers; and pressures afflicting consumer
spending. Despite this, Booker’s results have been greatly improved.

Table 2: Booker customer numbers


End March 2008 % end March 2008 End March 2009 % end March 2009 D % 08/09 vs 07/08
Caterers 258,000 63.6 296,000 71.5 14.7
Retailers 72,000 17.7 72,000 17.4 n/c
Others 76,000 18.7 46,000 11.1 -39.5
Total 406,000 100.0 414,000 100.0 2.0

Source: FinnCap based on Booker Group Accounts

Operational analysis
The % of higher margin Recent customer/product/activity splits plus forecasts are summarised overleaf.
catering customer revenues is The majority of revenues derive from retailer customers and from non-tobacco
growing with the reverse products with sales to customers collecting products for themselves at cash and
generally true for low margin carry depots still predominating. However, the element of revenues arising from
tobacco products catering customers has been growing well whilst tobacco products (which carry
the lowest margins) are steadily diminishing in relative significance, albeit off a
high starting base. Tobacco product sales are largely made via retailers – often to
the classic small CTN-focused convenience shop. Deliveries from cash and carry
branches, or directly from the RDC’s or NDC, have been growing usefully of late.
The Hatfield RDC is the largest at c 409,000 sq ft, closely followed by the
Haydock unit at c 407,000 sq ft, with the Livingston facility c 284,000 sq ft. The
NDC at Wellingborough is c 168,000 sq ft. A notable contract win for Booker
Direct in 2008/09 (in conjunction with DHL, which is undertaking the logistics),
was with HM Prisons in England & Wales; this illustrates how Booker does not
merely supply private sector SME’s. Booker Direct is also now the largest supplier
of food and drink to the cinema industry which has enjoyed a ‘good recession’ as
Cineworld plc recently highlighted.

3
Booker 1 February 2010
Top line growth & margin enhancement

Table 3: Key facts


Revenue Revenue Revenue Revenue Revenue Revenue Est 10/11 vs
05/06 06/07 07/08 08/09 09/10E 10/11E 05/06 (%)
Caterers (£bn) 0.80 0.83 0.85 0.93 1.05 1.13 41.3
Retailers (£bn) 2.13 2.10 2.15 2.19 2.28 2.33 9.4
Others (£bn) 0.11 0.08 0.08 0.06 0.07 0.07 -36.4
Total (£bn) 3.04 3.01 3.08 3.18 3.40 3.53 16.1
Non-tobacco (£bn) 1.77 1.75 1.84 1.95 2.09 2.20 24.3
Tobacco (£bn) 1.27 1.26 1.24 1.23 1.31 1.33 4.7
Total (£bn) 3.04 3.01 3.08 3.18 3.40 3.53 16.1
Cash & Carry collect (£bn) 2.55 2.53 2.50 2.50 2.54 2.57 0.80
Cash & Carry delivery (£bn) 0.49 0.48 0.50 } 0.68 } 0.86 } 0.96 n/m
Direct (£bn) 0.00 0.00 0.08 } } } n/m
Total (£bn) 3.04 3.01 3.08 3.18 3.40 3.53 16.1
Caterers (%) 26.3 27.6 27.6 29.2 30.9 32.0 570 bps
Retailers (%) 70.1 69.8 69.8 68.9 67.1 66.0 -410
Others (%) 3.6 2.6 2.6 1.9 2.0 2.0 -160
Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 n/r
Non-tobacco (%) 58.2 58.1 59.7 61.3 61.5 62.3 410
Tobacco (%) 41.8 41.9 40.3 38.7 38.5 37.7 -410
Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 n/r
Cash & Carry collect (%) 83.9 84.1 81.2 78.6 74.7 72.8 -1,110
Cash & Carry delivery (%) 16.1 15.9 16.2 } 21.4 } 25.3 } 27.2 n/m
Direct (%) 0.0 0.0 2.6 } } } n/m
Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 n/r

Source: FinnCap. What became Booker Direct comprised the former Blueheath Holdings’ Internet-based wholesale supply business. Blueheath has though now been
fully integrated within Booker and sometimes direct revenues are cited at £0.5bn+ p.a. i.e. comprising all of the delivery based operations – a source of possible
confusion, although Booker Direct relates to delivered sales made from the RDC’s or NDC. N/m = not meaningful. In the Blueheath transaction circular information
was given on a different basis for 2006/07 and showed tobacco sales split £1.2bn retailers/£0.1bn caterers whilst non-tobacco sales were spit thus: food & drink
£1.7bn (retailers £0.9bn/caterers £0.7bn/others £0.1bn); and non-food £0.1bn (all caterers).

Booker owned and licensed Booker stocks 18,000+ product lines, including both branded and own label
brands: Chef’s Larder, grocery products spanning fresh and frozen food, beers, wines, spirits, tobacco
Lichfields, Euro Shopper etc and non-food items. Products stocked include familiar brands but also c 2,000
own label lines. The latter including Booker-owned own label brands such as:
Chef’s Larder (a catering brand); Lichfields Luxury portion packs (a brand for
packs supplied to hotels, b&b’s and pubs); Malt House Vintners and Chekov (used
for wines and spirits); Red Band (tobacco products) and Happy Shopper
(products for retail customers). Booker has also licensed the Euro Shopper brand
for UK use until 2017; this is used to sell certain products exclusively to
independent local shops at highly competitive prices. In October 2009 Booker
extended its Euro Shopper brand to include cornflakes, bleach, chewing gum,
noodle snacks and tissue with 30,000 retailers now purchasing Euro Shopper
items reflecting their popularity with consumers (sales are now £60m p.a.).

The cash and carry branches Booker’s cash and carry branches average 47,000 sq ft, although 4 are >100,000
average 47,000 sq ft sq ft and 12 are <20,000 sq ft. The 414,000 customers as of end March 2009 have

4
Booker 1 February 2010
Top line growth & margin enhancement

already been noted and in the H1 2007/08 analysts briefing (not repeated since)
there was a useful split to catering and retail customers reproduced below:

Table 4: The splits provided at the time of the H1 2007/08 results briefing for catering & retail clients
Catering Catering customers % split catering Retail categories Retail customers % split retail
categories customers customers
Public houses 38,000 14.7 Premier 2,000 2.7
Fast food 49,000 18.9 Club 2,000 2.7
Accommodation 29,000 11.2 Convenience 26,000 35.1
Other 143,000 55.2 Other 44,000 59.5
Total 259,000 100.0 Total 74,000 100.0

Source: FinnCap based on the 12th September 2008 analysts’ presentation then on www.booker.co.uk

Booker has become the largest Catering splits require no explanation, although note that a butchery service is
catering butcher in the UK offered in 160+ branches and Booker has become the largest catering butcher in
the UK. Sales here are £120m p.a. with a ‘prepared to orders’ facility option
available, all meat traceable and prices at least 30% cheaper than retail butchers.
A shortage of butchers in 2009 even led to Booker training 40+ of its staff to
ensure good service.

The near 2,400 Premier In the case of retail splits, Premier customers are independent parties who trade
customers are independent under this Booker owned brand name: the group subsidises the fit out of the
parties who use this symbol store’s fascia, signage and other imagery in return for specified minimum spend
brand contracts. Sales of Booker products into Premier branded stores were estimated
at circa £470m in 2006/07 (+10% and 15.6% of the group total then) although no
updated number in this format has appeared since. As of end March 2009 there
were 2,200+ Premier branded stores making it the 3rd largest symbol group in the
UK. Such symbol groups have become a major force in the convenience sector
(see Appendices) with the Premier brand created in 1994. Membership had
grown to 2,392 outlets at 13th October 2009. In 2009/10 Premier has been
relaunched with new classifications for medium and large stores plus a new fascia
called Premier Express for convenience stores (known as c-stores) of under 800
sq ft. The relaunch has been accompanied by improved IT. The Grocer on 5th
December 2009 cited how in the first 8 months of 2009/10 the Premier Express
fascia had gained 130 new stores versus the 100 Booker had expected for all of
2009/10. The sales director for retail was quoted as aiming to recruit 1,000+ new
Premiers in the next 3 years. Premier customers are also offered the option of
joining Booker’s Retail Club. This had c 1,850 customers at May 2007, when the
Blueheath Holdings transaction circular was published, with 2006/07 sales given
as £261m or 8.7% of the group total (a number not disclosed since). Belonging to
the Club enables members to participate in special promotions.

1,100 suppliers are dealt with 1,100 suppliers are used globally, the aim being to develop a mutually profitable
and Booker seeks to develop enduring partnership rather than continually changing sourcing. Suppliers range
long term trading relationships from multinationals to small local concerns. Products are accessed from 300
manufacturing sites located in 30 countries so handling supply chain
complexities is paramount. No products are stocked which could antagonise the
public, or arouse health concerns. E.g. no GM ingredients are accepted in own
label products and labelling guidelines for additives, nutrients etc must be met
plus legislative requirements, e.g. for tobacco products.

5
Booker 1 February 2010
Top line growth & margin enhancement

The recovery story in recent years


Table 5: The recent recovery story for Booker
Recovery phase FOCUS H1 DRIVE H2 DRIVE H1 DRIVE H2 BROADEN BROADEN BROADEN BROADEN BROADEN
& date period 05/06* 05/06* 06/07 06/07 H1 06/07 H2 06/07 H1 08/09 H2 08/09 H1 09/10
Sales change (%) -5.9 -5.9 -2.5 0.6 2.5 2.1 2.1 4.3 7.7
EBIT (£m) 13 9 20 16 24 22 30 28 35
EBIT change (%) -54 -44 54 78 20 38 25 27 13
Net debt (£m) 361 125 70 77 47 47 29 25 4

Source: FinnCap. Taken from the Booker 2009 Accounts but modified. * Results compiled under UK GAAP; all others compiled under IFRS. The ‘Focus’ phase
commenced in November of 2005, followed by the ‘Drive’ phase started in April of 2006 and the current ‘Broaden’ phase in April of 2007.

When Charles Wilson rejoined When Charles Wilson was appointed CEO in November 2005, as part of a new
Booker as CEO in November senior management team, Booker had just reported sharply declining EBIT
2005 matters were dire reflecting a weak top line situation. Net debt surpassed £360m. As he has wryly
commented (cf the 10th March 2007 edition of ‘The Grocer’), “Calls from the bank
manager were not something we looked forward to”. A new strategy was
formulated which came from listening to customers: “It wasn’t nice to hear, but
they told us that our range had got worse, our prices had gone up and our
service levels had gone down”. The key facets of the triple-phased (ongoing)
recovery plan are shown below. All have entailed getting the basics right and
enabling Booker to grow its market share – nothing has involved rocket science,
whilst many aspects of change in the Focus and later Drive phases have continued
in the latest Broaden phase. Essentially a series of initiatives are having a
cumulative impact, largely generating benefits to Booker via a growing top line
and better sales mix. A virtuous circle has developed e.g. Booker’s lowered prices
and enhanced products range meant that by November 2009 it was able to
publicise how caterers switching to its depots could save £20k p.a. via purchasing
12 key category products covering everyday items such as bread, butter, bacon,
milk etc; a significant sum for most cafes, fast food outlets, pubs and restaurants.

Table 6: The 3 phases to Booker’s revitalisation


Phase Aims Aspects

Focus A focus on cash & A new organisation with business simplified. Better stock management to aid cash flow and ensure availability,
on the customer lower HQ costs and supply chain costs cut by 20%. New customer promotions to increase branch traffic
Drive The Driving of the A 'Choice Up, Prices Down, Better Service' offering. Launched the Euro Shopper and Lichfields Luxury portion
Booker business packs ranges, enhanced the fruit & veg range, increased promotional efforts in the branches and stocked a range
via developing of 'Must Stocks'#. Also launched a 'Catering Price Check' to enable customers to check Booker list prices versus
increased customer those of some other food suppliers and in January 2008 a ‘First for Pubs’ range. Service upgraded via increasing
responsiveness. product availability and speed of service plus upgrading the role of the branch manager to give him/her more
responsibility and accountability. Regular customer surveys commenced in January 2007 (Booker now surveys
40,000 p.a.*) with the all-important question being “would you recommend Booker to a friend” with the YES
response rising from 78.2% in January 2007 to 79.3% in January 2008 and 83.9% in January 2009.
Broaden A broadening of Improving the 'cash and carry experience' via further branch refurbishments, growing Internet sales, new
the business base products and increased delivered services. The process of branch refurbishments commenced in 2006 but has
such that Booker been taken much further under the Broaden phase to convert existing branches to ‘Extra’ outlets which enjoy a
becomes the brighter and lighter environment with improved layouts, signage and ranges. Improved product availability
biggest and best commenced under the Drive phase but has been taken further whilst expansion of the Premier membership,
supplier to small Retail Club and catering sector has been pursued. The PRIDE programme has been used extensively to upgrade
business. staff service levels.

Source: FinnCap but all derived from Booker materials in the public domain. # Each ‘must stock’ item is given a special green ticket on the shelf and depot staff are
charged with ensuring that these are always available. * Customer insights are also gained from these surveys in what is a data rich business.

Fuller details on specifics By way of elaboration on these/other measures to improve customer satisfaction:

6
Booker 1 February 2010
Top line growth & margin enhancement

Everyday low prices for • The ‘Prices Down’ action has led to everyday low prices for customers.
customers Booker has also offered season-long pricing so that catering customers
know they can manage their menus ex price fluctuations. These are
largely de-risked by back-t0-back deals with suppliers who therefore
bear any risks. ‘Cheaper by the case’ deals were introduced on 33 lines in
March 2007 and the following month saw ‘every day essentials’ whereby
highly competitive pricing was provided for bread, milk etc. In the
Appendices we show how Booker’s pricing for catering and retail market
segments went from being above average to below average.
Branch refurbishments to • The ‘Extra’ branches have, in most cases, cost only circa £150k to convert
improve depot visit experiences and have generated a payback of sub 12 months via the extra sales boost.
for customers Before and after appearances for branches are dramatic, with non-
tobacco sales being boosted not only in the year after conversion
(typically by 3-5%) but also by a similar magnitude in Y2. By 11th
September 2009 the number of conversions was 81, with 95 the aim for
end March 2010. The Appendices include a chart of Extra conversions.
Sales of the Euro Shopper brand • The Euro Shopper brand was launched in July 2007, when it comprised
are now running at £60m+ p.a. a range of 33 lines allowing the independent retailer to benefit from the
growth of discount retailing. It complements Booker Basics which offers
entry price products for caterers. Sales of Euro Shopper products were
running at £300k+ per week by end 2007/08 (when 18,500 customers
were purchasing some of these) whilst by end 2008/09 sales were
surpassing £600k per week with £1m+ per week attained in H1 of
2009/10. Booker Basics sales were running at £400k+ per week by end
March 2008. Sales of Lichfields Luxury portion packs were running at
£200k per week by end March 2009.
Measures to boost pub trade • The ‘First for Pubs’ range has been highly successful, with 2,000+ kegs of
beer per week being sold by end March 2008 and 3,000+ per week by
end March 2009. The Pub Favourite Meal Deals for £2.50 launched in
January 2009 has also helped independent pubs to compete.
Why Booker is keen to grow its • In November of 2007 Booker launched price-marked packs of fruit & veg
fresh meat and fruit & veg for retailers and also introduced Butchers’ Market, a range of price
offerings marked fresh meat. Meat and fruit & veg are viewed by Booker as a
growth area due to rising demand for fresh products, with a focus on
growing these. Fruit & veg sales remain modest in the group context,
hence the 59% sales rise cited in the recent Q3 update (a case of growth
off a low base). Fresh products such as these generate good margins and
attract more custom to the branches which can boost other product sales.
Chef’s Larder sales must now be • Chef’s Larder sales have expanded. This catering brand had sales of
quite substantial £120m+ in 2006/07*, 4.0% of group sales then, although no updated
number has appeared since. *Given in the Blueheath transaction circular when it was
also disclosed that Malt House Vintner sales were £125m+ (4.2% of the total) in 2006/07. Again,
there has been no subsequent update.
Service improvement actions • Improvements to service have included extended branch openings and
e.g. PRIDE improved delivery. The PRIDE staff training programme denotes
measures to enhance the Parking, Reception, Internal, Delivery and Exit
experiences of branch customers. 6,500 staff had been trained by end
March 2009.
With free delivery since March • In March 2008 Booker launched free delivery (there is a minimum order
of 2008 whilst charges for card size which depends on whether a retailer or caterer is being supplied and
payments were also removed every branch manager also has some discretion here) and the prior
December removed charges for handling credit and debit cards. Both

7
Booker 1 February 2010
Top line growth & margin enhancement

actions have been well received by customers seeking ‘top up’ supplies.
Booker incurs costs of 1% for credit card transactions.
The increased catering business • Increased catering business especially has had a margin enriching effect.
is having a margin enriching In the 13th October 2009 analyst briefing Booker management
effect mentioned how whereas tobacco product gross margins are only 1.5-
2.0%, margins on some non-tobacco products can attain 20%.
• Extensions to the product range stocked are ongoing. In H1 2009/10 a
move was made into the chilled segment* via the launch of bacon, cheese
and cooked meats. * In December 2009 Booker reported it had doubled the size of its chilled
warehouse at the Hatfield RDC to 4,000 sq meters at a cost of £0.5m to ensure delivery of the
freshest possible products. Charles Wilson cited growth in chilled of 20% p.a.
Regular customer surveys are • Staff at each branch can be rewarded as a result of Customer Satisfaction
now a feature Scores: in 2007 the majority received a bonus for the first time since
2000. Customer surveys are also used to assess the performance of
product categories as well as branches. Customer ratings from a past
survey are included in the Appendices.
Internet sales have grown • An improved web-site (www.booker.co.uk) was launched in July 2007.
markedly (off a low base) The growth in Internet sales is charted in the Appendices. Booker won
although Booker does not ‘Online Retailer of the Year’ at the 2008 Retail Industry awards. 10% of
believe that this has boosted Internet customers were indicated to be new ones in the H1 2009/10
margins briefing. Most of the customers now ordering via the Internet ordered by
fax in the past and Booker do not feel there has been a margin benefit,
although parties using the web tend to spend more.
Booker Direct sales have been • Booker Direct sales were indicated in the 13th October 2009 analyst
upgraded in quality briefing to be going well and running at £60m-£70m p.a. This compared
with the c £80m p.a. disclosed in the 2007/08 Accounts (which included
only 43 weeks from Blueheath) but it was mentioned that some business
had been exited as better quality customers were secured. The list of
Booker Direct customers provided last October is included within the
Appendices. Booker Direct is all about developing a delivered wholesale
operation to complement the traditional cash and carry business
(including the free deliveries now provided to these customers).

25% of H1 2009/10 l-f-l sales The L-f-l data shown earlier demonstrates Booker’s success. 75% of the H1
growth was from new clients 2008/09 7.7% l-f-l sales growth was extra business with existing customers and
25% business with new clients. The catering wholesale market was flat/slightly
lower in the 12 months to early Sept 09 so Booker is outperforming notably here.
Tobacco l-f-l sales were impacted by: the extension of the smoking ban in public
places to England & Wales in July 2007; market decline from health and higher
excise tax issues; and increased smuggling. Impressively, tobacco l-f-l moved into
positive territory in H1 of 2009/10. See the Tobacco Manufacturers Association
(www.the-tma.org.uk) for data on declines in smoking, cigarette consumption etc.

The market size


Booker is the dominant player With revenues of £2.5bn p.a. from cash and carry collect, Booker holds a market
in UK cash and carry share of circa 26% and is the dominant player. It punches more lightly though in
food service/catering wholesale given its £0.93bn catering sales in 2008/09 and
is a modest player still in delivered grocery wholesale given its 2008/09 revenues
of £0.68bn from cash & carry delivered + Direct business. In the food service area
hotel food purchases alone are estimated at £1bn p.a. by Mintel.

8
Booker 1 February 2010
Top line growth & margin enhancement

Table 7: The UK market (£bn)


Splits 2005 2006 2008
Cash and carry 9.3 9.4 9.7
Delivered grocery wholesale 7.6 8.1 8.6
Food service/catering wholesale 6.5 6.6 6.7
Total UK grocery & foodservice wholesaling market 23.4 24.1 25.0

Source: 2008 data was based on an IGD report published in April 2009 and included within the June 2009 Admission to the Official List document. 2005 and 2006
data, also IGGD sourced, was included in the May 2007 Blueheath Holdings/Booker transaction circular.

Competition
The market is highly We have included abbreviated summaries of key rivals within the Appendices.
competitive and fragmented The market is both highly competitive and very fragmented.

Recent expansion into India


Management concede the logic Booker disclosed in April 2009 that it had secured a site for a cash and carry
of this move was limited but outlet in Mumbai. The logic was conceded as limited but in the UK Booker
there is a large Indian business supplies 4,100 Indian restaurants plus thousands of Indian owned businesses. A
element in the UK Booker team spent 1+ year assessing the market opportunity and decided that
Mumbai (population 20m with 0.4m+ target customers) was ideal for store No.1.
The new facility, developed at a cost of £1m, opened on the 26th of September
2009 with losses of £1m absorbed in the H1 2009/10 p&l. Mumbai looks much
like any other Booker outlet, although the range of products stocked inevitably
diverges (more pulses etc with no alcohol sold as a license is not held). Initial
visitor levels have been favourable, whilst there is a good range of local suppliers
(a major reason why Mumbai was chosen). Future expansion in India may be
conducted using a partner to aid planning and - over time - there may be scope to
grow the Direct operations in India too*. Management is of the view too that
Mumbai alone could sustain 10 cash and carry branches which would generate
purchasing economies – 1 branch only would be a management distraction. *Routes
to market for products are complex in India and in general there is not currently a wholesaler channel.

Financials
Strong cash generation Booker has generation cash strongly in recent years notwithstanding its slender
gross and EBIT margins. 5 financial points warrant mention:
The p&l tax charge will remain 1) The p&l tax charge will remain at modest levels (c 17%) out to the end of
modest near term 2010/11 as Booker continues to utilise tax assets not recognised in prior
years, trading losses from Blueheath etc. Last year a tax offset of £4.0m
was secured in respect of former overseas businesses – the key reason
why the effective rate was only 16.9%. Blueheath was accompanied by
£30m of tax losses. A progressive rise to 28% will be seen over several
years after 2010/11, i.e. there will not be an immediate surge.
Working capital and capex 2) Working capital ratios have been tightly controlled in recent years.
needs are very modest Booker’s overall ratio for working capital of 1.9% of sales is unusually
low, albeit aided by the cash payments made by many cash & carry
customers. Capex needs are similarly very modest – just 0.4% of sales in
2008/09.
Whilst pre and post tax returns 3) In 2008/09 the pre and post tax returns on average net assets were
on average net assets are good 18.2% and 11.5% respectively. This, in conjunction with low tax payments
and modest capital and working capital needs, is why Booker has been so
cash generative. Respective annualised returns were 30.4% and 19.1% in

9
Booker 1 February 2010
Top line growth & margin enhancement

H1 of 2009/10, although Booker’s results are slightly H1 loaded* (in


2008/09 47.1% of sales were recorded in the H1 period but 52.8% of
EBIT was earned then). * Booker has 13 trading periods of 4 weeks so in H1 (when there
are 6) 6/13 of annual overheads are accrued. Revenues are best in Spring/Summer when
consumers are eating out more, taking holidays which include meals out etc but H2 includes the
Christmas boost plus over-riders have a slight impact then as little is accrued here in H1.
Interest rate swaps were cut by 4) As of 12th June 2009, the terms of the interest rate swaps were amended
61.5% last June and will although its coupon remained at 4.98% p.a. The quantum of the swaps
disappear as of March 2011 was cut from £130m to £50m and will fall further to £40m as of this
March (when part expires) and to zero in March of 2011 (when the
residue expires). There was a cash cost of £7.2m for the early termination
fee to cut this liability, including £0.7m of accrued interest, plus £2.0m
of tax will be recouped limiting the true net cost to £5.2m. Booker’s
interest costs will decline further as the swaps expire.
Bank guarantees are covered 5) In 2008/09 £31.2m worth of guarantees* were provided by Booker’s
under the group’s revolving banks for some of its suppliers (e.g. Gallaher and Imperial Tobacco) and
credit facility insurers. These were covered via the group’s revolving credit facility
(RCF**). The peak RCF drawdown during 2008/09 was £72.5m which,
after allowance for the guarantees cited, left headroom of £42.3m given
its size of £146m. The RCF was £161m previously but was cut in
December 2008 when revised facilities were obtained (Kaupthing was
replaced then by Barclays). Aside from the RCF - supplied by HBOS and
Barclays and available to June 2012 - a £50m bank loan facility is also
available from these parties***. * The guarantees mentioned were £64m for Gallaher
and Imperial Tobacco alone back in 2005 so they have been cut by 51%+ since. **The bank loan
facility is costing LIBOR + 2.0-2.5% p.a. and the RCF costs LIBOR + 2.5-2.75% + a non-utilisation
fee of 1.25-1.375% on the amount not drawn. *** At any given point in the year Booker can utilise
its cash in hand, the senior debt of £50m and the RCF. The optimal time of the year is
Spring/Summer when cash and carry sales – generally paid in cash - are strongest. The worst
time is the end of the calendar year & January when c £70m can be drawn under the RCF due to:
higher stock levels pre Xmas; tax & lease payments due in Jan; and slacker Jan trading levels.

Current trading
H1 results
Table 8: Key numbers and trends for H1 2009/10
Revenue 7.7% actual and l-f-l. Comprised volume growth of 5%, price of 1.5%-2% and a modest mix plus. Pricing plus lower vs previously.
growth C £1bn of reported sales of £1.61bn non-tobacco products. Also disclosed caterers’ sales ahead by £100m in the last year.
GP & GM ros 12.9% ahead at the gross profit level with the gross margin 16 bps higher at 3.52%.
EBIT & EBIT 13.1% ahead at £34.5m with the margin 10 bps ahead at 2.14%. EBIT included £1.1m* of property profits in H1 of 08/09 vs
margin £0.8m** of listing fees in H1 09/10 so underlying growth was 20%. Allowing too for Indian losses, underlying growth was 23.5%.
PBT 12.1% ahead at £29.7m, despite the £1m Indian loss absorbed.
Tax 16.8% based on the expected rate of 17% for the year. To stay at 17-18% to end 2010/11.
Business Saw improved customer satisfaction ref choice, price & service. In-stock ratio 98.4% vs 96%, although in-stock %'s for Mondays
trends need upgrading. Happy 173 outlets, 3 RDC's & 1 NDC (as Direct business increases can undertake more via the branches). Macro
circumstances tough in H1 for customers with pub closures rising but Booker’s net churn rate no worse vs 2 years earlier, with
business gained from rivals (Brakes and 3663). Beers & wines toughest, reflecting some product sales by some parties ex duties.
Diluted EPS 10.2% ahead
Net debt £20.9m lower at only £4.0m at 11th September 2009, aided by a £18.4m working capital inflow. Indicated could be in the teens at
the financial year end though as some of the H1 working capital benefits enjoyed may unwind.
Outlook "Booker continues to trade in line with management expectations". Influenced the 20% higher H1 dividend of 0.24p per share.
Full year losses India to be no worse than in H1, with no one offs expected in H2.

Source: FinnCap based on the 13th October analysts’ briefing. *Included in admin costs so the £2.5m rise in these was less in reality. ** Included too in admin costs

10
Booker 1 February 2010
Top line growth & margin enhancement

The Q3 trading update


Recent Q3 l-f-l numbers were L-f-l sales below include Q3 2009/10 results recently reported. Q4 of last year
excellent, surprisingly so for saw marked non-tobacco progress so comparatives will be harder, especially as
tobacco products travel issues could have some knock-on. The Q3 update indicated that customer
numbers and average spend per customer continued to improve reflecting
Booker’s improved choice, price and service. Fresh departments were especially
good (fruit & veg sales +59% aided by good potato sales and meat +20%). The
tobacco number reflected consumers purchasing more UK duty paid tobacco plus
share gains*. Profits and net debt were “in line with management expectations”.
In India, customer numbers and spend levels were “good” with increased
confidence that Booker “can serve the Kirana** stores, street traders, caterers
and suppliers of India”. For the YTD (the first 40 weeks) and ignoring seasonality
issues (actual revenues for Q1 & Q3 are not disclosed) l-f-l sales growth will have
averaged 7.3% per week***. *Booker does not actively promote tobacco products which are low
margin but they require modest shelf space and are cash positive. Sales of tobacco products in the UK have
improved of late due to the effects of: lower interest rates; fewer consumers going abroad and purchasing
products overseas; the HMRC clamp down on smuggled products; and, possibly, more smoking due to the
recession. ** Kirana stores are owned and operated on a small scale, usually 500 sq ft or less. *** Despite the
Q3 l-f-l Booker are maintaining a cautious stance as consumers are becoming increasingly aware of how
they may be squeezed irrespective of which political party is in power after May 6th.

Table 9: Recent l-f-l sales data


Q1 08/09 H1 08/09 Q3 08/09 Q4 08/09 Yr 08/09 Q1 09/10 (12 Q2 09/10 H1 09/10 Q3 09/10
(14 weeks to (24 wks to (16 weeks to (12 weeks to (52 wks to weeks to (12 weeks to (24 wks to (16 weeks to
4/7/08) 12/9/08) 2/1/09) 27/3/09) 27/3/09) 19/6/09 11/9/09) 11/9/09) 1/1/10)

Total l-f-l n/a 1.1 2.7 6.4 2.6 7.8 7.6 7.7 6.7
Non-tobacco l-f-l 3.3 4.1 5.0 10.2 5.7 10.4 8.5 9.4 6.0
Tobacco l-f-l -4.3 -3.2 -0.9 1.2 -1.5 3.9 6.2 5.1 7.9
Caterers l-f-l n/a 4.7 n/a n/a 7.0 n/a n/a 12.6 n/a
Retailers l-f-l n/a -0.5 n/a n/a 1.0 n/a n/a 5.5 n/a

Source: FinnCap based on past Booker press releases.

Issues
Retirement benefits (see data table in Appendices)
Booker is paying £10m p.a. out At the end of the H1 2009/10 period the pension deficit of £32.2m represented
until 2015/16 to cut its deficit only 12.7% of net assets (see Appendices). An outturn aided by a high take up of
an offer made in December 2006 to deferred members to leave the Scheme
(2,700+ transferred out) plus the £10m* p.a. payment out to March 2016 that
Booker agreed with the pension trustees following the March 2007 triennial
valuation. The latter determined a £89m funding need and it is this that the
£10m p.a. contributions cited are addressing. The next triennial valuation is on
31st March 2010. * The £10m was £11m in the 2008/09 cash flow due to administration costs.

Lease costs
Lease costs – largely for land & An aggregate £46.9m in 2008/09 with 85.5% paid for land & buildings. Booker
buildings - are significant and leases all of its trading properties under operating leases which are typically of 5-
note too that most of Booker’s 20 years duration. Many resulted from a sale and leaseback deal covering 52
provisions relate to properties properties entered into in 2005. Note 25 to last year’s accounts detailing lease
costs disclosed that future minimum lease payments under non-cancellable
operating leases aggregated £654.7m at end March 2009 split thus: £46.9m
within 1 year; £181.7m within 2-5 years; and £426.1m due after 5 years. The

11
Booker 1 February 2010
Top line growth & margin enhancement

£654.7m total was pre a small offset via minimum operating sublease receipts
totalling £9.4m. Rental costs for the 3 RDC’s and the NDC are running at circa
£7.6m p.a. Most of Booker’s provisions (£39.7m at 27th March 2009) relate to
properties, including vacant ones or those sublet for less than the head lease.

Trends for convenience stores


“The growth of the UK food multiples and discounters has resulted in a decline
in the number of small independent retailers and in the value of sales made
through such retailers…consumers have been attracted to the brand offerings
and value offered………In addition, the major food multiples have now moved
into the convenience market, launching smaller store formats which compete
directly with the smaller retailers”.
P10 of the June 2009 Prospectus issued for Booker’s move to the Official List
highlighted this risk. It appears exaggerated: IGD Research on c-stores indicated
that whilst numbers have been contracting, revenue growth has still featured (see
Appendices). A c-store is defined as being sub 3,000 sq ft and stocking at least 7
of certain key product categories (alcohol, bakery, chilled food, confectionery, fast
food, fruit/vegetables, health & beauty household/non-food, lottery, milk,
newspapers/magazines, packaged groceries, snacks, soft drinks and tobacco).

Tesco has been the most Tesco has been most aggressive in c-store development, purchasing T&S Stores in
aggressive grocery major in c- late 2002 which owned 862 operating under the One Stop and Day & Nite fascias.
store development This aided the roll-out of Tesco Express stores (then only 100+ in number) with
many of the T&S Stores c-stores converted subsequently to Tesco Express outlets.
At 29/8/09 Tesco had 1,524 stores in the 0-3,000 sq ft size aggregating 3.0m sq ft
or 9.4% of its UK sq footage total, versus 1,458, 2.8m sq ft and 8.9% respectively
at 28th February 2009. One Stop shops at end August 2009 numbered 512 and
Express outlets 1,027 (sources: www.tescoplc.com).

Booker’s medium & longer term strategy


This is low risk, involving ‘more The pursuit of the current ‘Broaden’ improvement programme the development
of the same’ and acquisitions of National Accounts and expansion in India are all-important. These aims are
will only be pursued if an regarded by management as the cheapest and lowest risk expansion options. Top
exceptional value case exists line boosts should also generate valuable operational gearing benefits*. 173 cash
& carry branches is considered adequate for nationwide UK coverage, whilst it is
felt that 50% more trade could be conducted via these. * There could be some
logic to a consolidation move in the UK to boost sales via existing branches and/or grow the Booker Direct
business. However, the price would need to be outstanding since unlike organic growth acquisitions lead to
the inheritance of long leasehold properties, vehicles, possible pension issues, large debts etc when all Booker
really wants is the extra customers. By growing organically, the equivalent of a reasonably sized rival can be
added p.a. There is no desire to expand into Europe as the market is viewed as saturated and well-developed.

Forecasts
Internet-derived sales could These are detailed overleaf. L-f-l sales growth of 8% for tobacco and 4% for non-
grow to 15% in 2010/11 tobacco has been assumed for Q4 09/10 to give a composite 5.5% for Q4 and
hence 6.9% for the year overall. We have assumed 4% l-f-l for 2010/11 (a case
then of growth off a higher starting base) split as to 5.3% for non-tobacco
products and 1.5% for tobacco products. A gross margin rise of 6 bps has been
projected for 2009/10 and 8 bps for next year when the impact of non-tobacco
products comes through more fully. Internet-based sales should continue to grow
and could comprise 12.5% of Booker’s revenues in 2009/10, rising to c 15% next
year.

12
Booker 1 February 2010
Top line growth & margin enhancement

Table 10: P&L record and forecasts (£m)


H1 H2 Yr H1 H2 Yr H1 H2 Yr H1 H2 Yr Yr
2006/07 2006/07 2006/07 07/08R 2007/08 2007/08 2008/09 2008/09 2008/09 2009/10 09/10E 09/10E 2010/11E

Sales 1,430.3 1,579.5 3,009.8 1,465.4 1,612.8 3,078.2 1,496.9 1,682.3 3,179.2 1,612.6 1,786.0 3,398.6 3,534.5
Cost of sales -1,393.7 -1,534.4 -2,928.1 -1,421.0 -1,566.1 -2,987.1 -1,446.6 -1,630.4 -3,077.0 -1,555.8 -1,727.8 -3,283.6 -3,412.2
Gross profit 36.6 45.1 81.7 44.4 46.7 91.1 50.3 51.9 102.2 56.8 58.2 115.0 122.3
Gross margin (%) 2.56 2.86 2.71 3.03 2.90 2.96 3.36 3.09 3.32 3.52 3.26 3.38 3.46
Admin costs -16.2 -29.8 -46.0 -20.3 -24.7 -45.0 -19.8 -24.6 -44.4 -22.3 -27.2 -49.5 -51.8
EBIT 20.4 15.3 35.7 24.1 22.0 46.1 30.5 27.3 57.8 34.5 31.0 65.5 70.5
EBIT margin (%) 1.43 0.97 1.19 1.64 1.36 1.50 2.04 1.62 1.82 2.14 1.74 1.93 2.00
Net finance income -4.1 -3.1 -7.2 -3.5 -6.4 -9.9 -4.0 -6.6 -10.6 -4.8 -5.7 -10.5 -10.0
PBT 16.3 12.2 28.5 20.6 15.6 36.2 26.5 20.7 47.2 29.7 25.3 55.0 60.5
Tax -4.1 -11.7 -15.8 -3.8 -2.6 -6.4 -4.5 -3.5 -8.0 -5.0 -4.4 -9.4 -10.3
Tax (%) 25.2 95.9 55.4 18.4 16.7 17.7 17.0 16.9 16.9 16.8 17.4 17.1 17.0
Net income 12.2 0.5 12.7 16.8 13.0 29.8 22.0 17.2 39.2 24.7 20.9 45.6 50.2
Av basic equity (m) 1,343.8 1,342.8 1,344.3 1,432.8 1,492.8 1,462.8 1,488.4 1,488.4 1,488.4 1,491.5 1,491.5 1,491.5 1,491.5
Av f. dil equity (m) 1,343.8 1,342.8 1,344.3 1,436.4 1,498.6 1,467.5 1,492.9 1,492.6 1,492.6 1,527.3 1,527.3 1,527.3 1,527.3
EPS basic (p) 0.91 0.03 0.94 1.17 0.87 2.04 1.48 1.15 2.63 1.66 1.40 3.06 3.37
EPS diluted (p) 0.91 0.03 0.94 1.17 0.86 2.03 1.47 1.16 2.63 1.62 1.37 2.99 3.29
DPS declared (p) 0.0 0.0 0.0 0.0 0.5375 0.5375 0.20 0.67 0.87 0.24 0.76 1.00 1.10
Depreciation 8.1 9.3 17.4 7.7 8.5 16.2 6.7 8.0 14.7 6.5 8.3 14.8 15.5
EBITDA 28.5 24.6 53.1 31.8 30.5 62.3 37.2 35.3 72.5 41.0 39.3 80.3 86.0
EBITDA margin (%) 1.99 1.56 1.76 2.17 1.89 2.02 2.49 2.10 2.28 2.54 2.20 2.36 2.43
Exceptionals -0.8 -1.0 -1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
‘Dirty’ PBT 15.5 11.2 26.7 n/r n/r n/r n/r n/r n/r n/r n/r n/r n/r
Dirty' basic EPS (p) 0.85 -0.04 0.81 n/r n/r n/r n/r n/r n/r n/r n/r n/r n/r
Expected return 2.8 2.7 5.5 2.4 1.2 3.6 1.0 1.1 2.1 0.5 0.5 1.0 1.0
pension assets
Interest receivable 0.7 0.9 1.6 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0 0.0 0.0
Net gain int swap 1.4 2.2 3.6 0.0 0.2 0.2 0.2 -0.2 0.0 0.0 0.0 0.0 0.0
Discount debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.8 4.8 0.0 0.0 0.0 0.0
buyback
Sub-t f. income 4.9 7.3 10.7 2.4 1.4 3.8 1.2 6.1 7.3 0.5 0.5 1.0 1.0
Interest bank loans -6.7 -5.9 -12.6 -3.9 -5.5 -9.4 -3.2 -4.0 -7.2 -3.5 -3.1 -6.6 -6.1
Net loss int swap 0.0 0.0 0.0 -0.1 0.1 0.0 0.0 -5.1 -5.1 0.0 0.0 0.0 0.0
Other interest -0.1 -0.3 -0.4 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Unwinding discount -1.3 -1.3 -2.6 -1.1 -1.4 -2.5 -1.2 -1.5 -2.7 -1.0 -1.0 -2.0 -2.0
on provisions
Amortisation of -0.9 -1.4 -2.3 -0.8 -0.9 -1.7 -0.8 -2.1 -2.9 -0.8 -2.1 -2.9 -2.9
financing costs
Sub-total f. costs -9.0 -8.9 -17.9 -5.9 -7.8 -13.7 -5.2 -12.7 -17.9 -5.3 -6.2 -11.5 -11.0
Net finance costs -4.1 -3.1 -7.2 -3.5 -6.4 -9.9 -4.0 -6.6 -10.6 -4.8 -5.7 -10.5 -10.0
Net cash int costs -6.1 -5.3 -11.4 -3.9 -5.6 -9.5 -3.2 -3.6 -6.8 -3.5 -3.1 -6.6 -6.1

Source: FinnCap. All IFRS basis. 07/08 numbers included 43 weeks Blueheath worth £78.8m to sales (vs £98.2m if in all year).

Cash flow estimates are detailed below:

13
Booker 1 February 2010
Top line growth & margin enhancement

Table 11: Cash flow record and forecasts (£m)


Yr H1 H2 Yr H1 H2 Yr H1 H2 Yr Yr
2006/07 2007/08 2007/08 2007/08 2008/09 2008/09 2008/09 2009/10 2009/10E 2009/10E 2010/11E

EBIT 35.7 24.1 22.0 46.1 30.5 27.3 57.8 34.5 31.0 65.5 70.5
Depreciation 17.4 7.7 8.5 16.2 6.7 8.0 14.7 6.5 8.3 14.8 15.5
Profit sale property, plant etc 0.0 0.0 0.0 0.0 -0.7 0.5 -0.2 0.0 0.0 0.0 0.0
Share based payments 0.0 0.0 0.0 0.0 0.4 1.0 1.4 0.6 1.2 1.8 2.0
Working capital 26.6 18.5 -6.6 11.9 5.7 -8.4 -2.7 18.4 -23.4 -5.0 -5.0
Change in provisions -3.5 -1.4 -1.3 -2.7 -2.0 -3.4 -5.4 -1.1 -1.9 -3.0 -3.0
Contributions pensions -8.3 0.0 -9.7 -9.7 -5.5 -5.5 -11.0 -5.5 -5.5 -11.0 -11.0
Net cash flow ops 67.9 48.9 12.9 61.8 35.1 19.5 54.6 53.4 9.7 63.1 69.0
Net interest paid -7.5 -5.5 -3.7 -9.2 -4.9 -3.4 -8.3 -3.3 -3.3 -6.6 -6.1
Tax paid -0.1 0.0 0.0 0.0 0.0 -2.4 -2.4 -3.6 -5.8 -9.4 -10.3
Capex -6.0 -2.0 -9.0 -11.0 -4.0 -9.9 -13.9 -7.7 -8.7 -16.4 -18.0
Sale of property, plant etc 0.0 0.0 0.4 0.4 0.9 0.5 1.4 0.0 0.5 0.5 0.5
Acquisition 0.0 -11.0 0.0 -11.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dividends 0.0 0.0 0.0 0.0 -8.0 -3.0 -11.0 -10.0 -3.6 -13.6 -15.2
Part settlement interest swap 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -7.2 0.0 -7.2 0.0
Issue of shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0
Other items -5.8 -0.8 -0.9 -1.7 -0.8 2.7 1.9 -0.8 0.2 -0.6 -1.0
Overall flow 48.5 29.6 -0.3 29.3 18.3 4.0 22.3 20.9 -11.0 9.9 18.9
Opening net cash/(debt) -125.0 -76.5 -46.9 -76.5 -47.2 -28.9 -47.2 -24.9 -4.0 -24.9 -15.0
Closing net cash/(debt) -76.5 -46.9 -47.2 -47.2 -28.9 -24.9 -24.9 -4.0 -15.0 -15.0 3.9

Source: FinnCap

Appendices
Chart 1: Extra branch outlets
100 95
90 81
80 71
70
60 45
50 34
40
30 20
20
10 1
0
8

09
7
6

F
0
00

-0
-0

10
20

20
20

ay
n

/2

20
Ja

3/

9/
9/

M
9

3/
/0
/0

/0
/0

/0
28
14

11
12

31

Source: FinnCap based on past Booker disclosures

14
Booker 1 February 2010
Top line growth & margin enhancement

Table 12: Booker’s more competitive pricing based on the published list price of a basket of goods
2004/05 2005/06 2006/07 2007/08 2008/09

Booker's catering products 3.5 1.0 -1.9 -2.4 -2.2


Booker's retail products 3.0 0.5 -2.3 -2.1 -1.4

Source: Booker analysts’ briefing of 28th May 2009. The work was undertaken by IRI Research. Shows the degree of Booker’s under/over-pricing vs a basket of goods.

Chart 2: The growth in Booker’s Internet-based sales

270.0 250.0 12
11.2
220.0 10
180.8
7.9 8
170.0
6.4 6
109.0
120.0 96.0
4
3.5
70.0 44.0 2.3 2
1.5 33.9
20.0 0
8

0
Yr

Yr

Yr
/0

/0

/1
07

08

09
7

9
/0

/0

/0
20

20

20
06

07

08
1

1
20

20

20
H

H
Internet sales (£m ) % sales

Source: Booker disclosures. Internet sales were running at c £15m in 2005/06. The £109m in 2007/08 included £17m added via Blueheath (included for 43 weeks).

Table 13: Working capital numbers/ratios


Stocks Trade receivables Prepayments & Total for trade & Trade payables Total
net of doubtful accrued income other receivables
debts

2006/07 (£m) 176.2 23.6 31.4 55.0 -287.8 -56.6


2007/08 (£m) 184.7 27.9 26.4 54.3 -297.8 -58.8
2008/09 (£m) 196.8 28.9 34.7 63.6 -321.1 -60.7
2006/07 as % sales 5.9 0.8 1.0 1.8 9.6 1.9
2007/08 as % sales 6.0 0.9 0.9 1.8 9.7 1.9
2008/09 as % sales 6.2 0.9 1.1 2.0 10.1 1.9
2006/07 days ratio 21.4 2.9 3.8 6.7 34.9 6.9
2007/08 days ratio 21.9 3.3 3.1 6.4 35.3 7.0
2008/09 days ratio 22.6 3.3 4.0 7.3 36.9 7.0

Source: FinnCap and Booker Accounts. Note that the cash & carry side has a positive working capital profile as Booker is typically paid for its sales of stocks – almost
totally in cash – before it has to pay its own suppliers. By contrast, the Direct business involves offering 4-6 week credit terms to customers so this business is working
capital consuming. As the Direct business is (carefully) grown, Booker overall will be funding modest annual working capital needs.

15
Booker 1 February 2010
Top line growth & margin enhancement

Table 14: Booker Direct clients (National Accounts) (National Accounts)


Area Clients Comments

Leisure customers Apollo Cinemas, National Amusements UK, Odeon Booker is now No.1 supplier of food and drink products to
Cinemas, Reel, Storm Cinemas and Vue. the UK cinema industry
Public sector NHS, NAAFI, NOMS (National Offender Management Services) The prison supply contract where DHL undertakes logistics
Solutions Charles Wells, Henderson Group, M&S, Nicolas, Park, E.g. Booker Direct works with PepsiCo to aid its deliveries to
Peppermint Events, Pepsico, Robinsons, Sarova Hotels, customers
S&N Pub Enterprises, Supreme, The Hain Celestial Group

Source: 13th Oct 09 analysts’ briefing. According to National Statistics in 2008 the public sector spent £2.2bn on food & drink equating to 2.4bn meals

Table 15: Staff numbers and costs


2006/07 2007/08 2008/09

Branch & distribution 7,778 7,779 7,750


Administration 567 634 590
Total for average staff numbers 8,345 8,413 8,340
Wages & salaries 123.4 125.2 129.3
Social security costs 11.1 11.0 11.6
Share based payments 0.0 0.0 1.4
Other pension costs 3.1 3.0 3.1
Total staff costs (£m) 137.6 139.2 145.4
Total costs/sales (%) 4.6 4.5 4.6

Source: FinnCap based on Booker Accounts. Total costs (cost of sales + admin expenses) were £3,121.4m in 2008/09 so aggregate staff costs comprised 4.7% of this.

Table 16: A customer survey example for Booker


Factor Score Jan 2009 Change % versus Jan 2007

Branch Helpful staff 90.3 10.3


Speed of service 73.0 7.8
Availability 66.6 8.8
Delivery Driver 92.6 4.0
Punctuality 75.6 1.7
Accuracy of delivery 68.5 7.5
Overall Range 80.2 4.4
Recommend to a friend 83.9 7.3

Source: Slide 9 of the group’s 28th May 2009 analysts’ briefing. Based on an independent telephone survey of 8,700 customers undertaken at the dates indicated. The
survey is conducted 4x p.a. for every branch and every product category.

Table 17: Major shareholders (%)


Booker employees 14.00 Schroder Plc 6.31
Artemis Investment Management Ltd 9.97 AXA SA 5.40
Aviva Plc 8.93 Other Directors/Officers 3.31
Charles Wilson 8.28 Cazenove Capital Management Ltd 3.26
Lansdowne Partners Ltd 7.68 F&C Asset Management 3.12

Source: Fidessa as of 8/1/2010.

16
Booker 1 February 2010
Top line growth & margin enhancement

Table 18: Leading symbol groups in the UK


Retailer Number of stores Retailer Number of stores

Best In/Best One (Bestway) 1,900 P&H Retail: Mace 214


Costcutter 1,600 P&H Retail: Mace Express 272
Lifestyle/Lifestyle Express/Scandia (Landmark) 1,760 P&H Retail: Supershop 124
Musgrave Group: Londis 1,861 P&H Retail: Your Store 55
Musgrave Group: Budgens/Budgens Local 96 P&H Retail: Keystore 57
Nisa Today’s: Nisa 550 Premier (Booker) 2,250
Nisa Today’s: Day Today’s 650 Spar UK 2,557
Nisa Today’s: Today's 55

Source: IGD report of 4th August 2009 – see www.igp.com. We have included fewer symbol groups above: IGD also includes for instance WH Smith (Motto, Welcome
Break and Roadchef) data. IGD’s definition of symbol groups includes ‘franchise’ and ‘fascia groups’. NB, TNS Worldpanel published data on 11/1/10 showing
independents having 2.1% of the GB grocery spend in the 12 weeks to 27/112/09 (vs 2.3%) with symbols accounting for 0.7% of this (vs 0.8%).

Table 19: Recent pension liabilities data (£m)


At 31/3/05 At 31/3/06 At 30/3/07 At 28/3/08 At 27/3/09 At 11/9/09
Retirement benefit assets 0.0 0.0 0.0 9.8 0.0 0.0
Retirement benefit liabilities -135.2 -84.6 -27.3 0.0 -2.0 -32.2
Total as per balance sheet -135.2 -84.6 -27.3 9.8 -2.0 -32.2
Equities n/a n/a 272.9 197.1 170.6 n/a
Corporate bonds n/a n/a 315.9 315.2 265.0 n/a
Other n/a n/a 31.0 4.5 2.2 n/a
Total fair value for Scheme assets 544.1 626.9 619.8 516.8 437.8 512.7
Present value of Scheme liabilities -679.3 -711.5 -647.1 -507.0 -439.8 -544.9
(Deficit)/Surplus in the Scheme -135.2 -84.6 -27.3 9.8 -2.0 -32.2
Equities (%) n/a n/a 44.0 38.1 39.0 n/a
Corporate bonds (%) n/a n/a 51.0 61.0 60.5 n/a
Other (%) n/a n/a 5.0 0.9 0.5 n/a
Total for Scheme assets (%) 100.0 100.0 100.0 100.0 100.0 100.0

Source: FinnCap based on past Booker Accounts etc. NB: 1) The Booker Group Pension Scheme (a Direct Benefits version) closed to new entrants in October 2001; 2)
A revised investment strategy (50% equities and 50% corporate bonds) is being implemented in 2009/10.

17
Booker 1 February 2010
Top line growth & margin enhancement

Table 20: C-store numbers and revenue splits


Stores % stores D % vs Sales 2009 % D % vs Comments on trends
2009 2008 (£m) sales 2008
Co-operatives 2,416 4.8 0.3 3,300 11.3 7.9 Store numbers little changed but to be boosted by the Co-op's
takeover of Somerfield which will add 700+ net of divestments
Forecourts 8,641 17.1 0.1 4,105 14.1 5.1 Site closures have eased, with modern convenience formats growing
Multiples 2,812 5.6 8.0 4,338 14.9 12.7 Supermarket retailers now operate 1,713 dedicated c-stores (over half
of the segment) with high performing fresh food led store formats
Symbols 14,630 29.0 2.0 10,430 35.9 7.7 Numbers growing rapidly with almost 300 recruited in 2009 – growth
largely driven by wholesalers seeking to increase volumes via. Growth
scope exists as fresh food and sandwich offerings are expanded.
Non-affiliated 21,950 43.5 -5.0 6,911 23.8 -0.2 Some of the numbers decline represents transfers across to symbol
independents groups but also exits by weaker stores.
Total 50,449 100.0 -1.3 29,084 100.0 6.1 Value total = 20.5% UK food & grocery market. Value growth reflects:
convenience lifestyle & demographic factors; improved store formats; increased
provision fresh foods & food-to-go; keener prices. With more women
at work, a rise in single person households & increased consumption
of food-to-go, UK convenience market to be worth £39.7bn+ by 2014.
Joint ventures 1,698 8.8 n/a
Total ex j/v's 48,751 -1.6 29,084 6.1 Ex convenience multiples stores -2.1% but revenues +5.0%.

Source: FinnCap based on IGD Research reports – see www.igd.com. The IGD report was issued on 2/5/09 so presumably it related to the year to 31st March 2009

Some of Booker’s rivals


Bestway Cash & Carry (www.bestway.co.uk)

A private company. Acquired Batley’s in 2005. Based Park Royal, London. Bestway opened a £6m
redeveloped/enlarged central distribution warehouse at Coventry in Nov 2009 with c 250,000 sq ft; use
to supply 52 Bestway and Batley’s depots England, Scotland & Wales. 1,500+ independent retailers sell
its ‘Best-in’ product lines using the ‘Best-in’ shop fascia. Own label wines and pound lines added and
has 30,000 product lines. UK sales yr to end June 2009 rose by 5% to £1.92bn, PBT by 17% to £39.9m.
Brake Brothers (www.brake.co.uk)

Ashford HQ’ed concern delivering nationally fresh, frozen, ambient & non-food products. Deliver 6
days/week, usually next day. Products often designed exclusively for foodservice companies and offer
value. Own label brands (including Healthier Choices and Premiere collections) plus selected brands
are provided. Special monthly promotions feature. For caterers Brakes is synonymous with quality +
value, whilst 800+ non-food products cover all front/back of house needs. Clients include: business &
industry; educational establishments; event catering; healthcare; hotels; restaurants; & travel & leisure
operators. Online ordering possible. Via Pauleys fresh produce is provided, including exotic fruit.
Costco (www.costco.co.uk)

Cash & carry membership-based warehouses selling branded and own label goods. 21 UK outlets.
Makro Cash & Carry UK (www.makro.co.uk)

30 cash & carry outlets serving major cities: sales £1bn+, HQ Manchester. Part Metro Group
(www.metrogroup.de), the Dusseldorf retailer with 2008 sales of €33.1bn. Makro UK stocks 25,000
products with 400+ promotions/fortnight, whilst food & pack sizes are targeted at hotels, catering
businesses, trade & commercial needs. 1,000+ suppliers: both food and non-food items are stocked. Is
to launch 2 own label ranges (Aro in Jan 2010 & Fine Food in 2011) to take on Booker’s Euro shopper.
Matthew Clark (www.matthewclark.co.uk)

No.1 distributor wine for the on-trade, servicing all major UK regions; offers timed next day delivery
slots plus emergency deliveries. A j/v between Constellation Brands and Punch Taverns. Supplies
20,000+ outlets. HQ Bristol. Has 10 major distribution centres plus Forth Wines based in Scotland.

18
Booker 1 February 2010
Top line growth & margin enhancement

Musgrave (www.musgravegroup.com)

Private concern; sales €4.8bn. Partners food retailers and foodservice professionals in Ireland, the UK
& Spain, with HQ Cork. ‘One stop shop’ offered including: chilled & frozen goods; grocery lines;
alcohol; & non-food lines. 9 retail brands associated with; provides marketing/store development
support etc for retail partners who benefit from deals negotiated with suppliers. Brands are associated
with good deals by consumers. Budgens operates convenience stores through to large supermarkets
with Musgrave owning the brand since 2002. The Londis brand has been owned since 2004 and now
has 1,800+ independently owned members. In the UK has invested heavily to improve national supply
chain & product availability. In Ireland regards itself as the most innovative cash & carry wholesaler.

Nisa-Today’s (www.nisa-todays.com)

A mutual organisation HQ’ed Scunthorpe: provides benefits members so compete better vs


supermarkets. Ambient, chilled, fresh & frozen products supplied UK. Sales £1.2bn+ p.a. with
operations too ROI & Channel Islands. Members include Costcutter and Tuffins & Mills stores; former
comprises 1,600+ stores operated under a franchise system. Retail members belong to ‘Nisa’ and
wholesale members to ‘Today’s’, with 670+ Nisa retailer members operating 5,000+ stores and 240
Today’s wholesale companies with 270 depots. Members can use these names for store fascias (there
are 450 Nisa-branded retail stores and 50+ Today’s-branded stores) to benefit from recognised
imagery, standardised lay-outs etc. Has distribution centres for fresh & frozen products Harlow and
Stoke-on-Trent + a 625,000 sq ft £30m Scunthorpe facility opened 2005 stocking grocery & licensed
products. 12,000+ product lines delivered with Nisa members (all operate independent stores) enjoying
300+ product offers/week. Members gain rewards & rebates for loyalty and for adding extra volume.
Palmer & Harvey (www.palmerharvey.co.uk)

Nationwide distribution for independent c-stores, small multiples & larger customers (e.g. Esso, Shell
and large grocery multiples). Regular promotions, free delivery etc. 69,000+ product lines stocked. HQ
Hove, Sussex. Symbol concepts provided for all store types/sizes (e.g. Supershop for small CTN shops,
Mace Express for forecourts, Mace for full convenience outlets) with £’s assistance with shop fittings.
Recently offered 24 hour ordering for independent retailers via a new transactional web-site.
Spar (www.spar.co.uk)

A symbol group: allows independent members to enjoy collective buying & market power. 16,000 stores
34 countries with 2,600 UK where sales £2.7bn+ use 6 RDC’s providing 900 own brand lines. Retailers
benefit advice merchandising & marketing, promotion packages, store designs etc.
WaverleyTBS (www.waverleytbs.com)

UK’s largest independent drinks wholesaler - supplies 1 in 5 bottles sold in the on-trade via 20 depots.
3663 Foodservice (www.spiracle-3663.co.uk )

Sales £1bn+ p.a. Based High Wycombe. Customers include cafes & clubs, Government departments,
hospitals, pubs, restaurants & schools. Owned Bidvest Group (www.bidvest.com): JSE listed
multinational (2008/09 revenues R112.4bn). Bidvest Europe run from London had 2008/09 sales
R37.0bn (+9.8%) & EBIT R770m (-12.5%). 3663 underperformed necessitating “the closure and
reorganisation of certain operations”: 6 depots closed/roll-out IT system delayed. Bidvest acquired
Booker Foodservice 1999 and renamed 3663. Supplies frozen, fresh & chilled products from 1.84m sq ft
storage at 40 depots with 1,100 vehicles delivering to 50,000+ customers (include Burger King,
Compass & Prêt a Manager). 2,600+ frozen, 560 chilled, 200+ fresh meat & poultry products & 1,000+
non-food products which include wines, beers & spirits as well as cleaning chemicals, workwear etc (a
joint distribution service with Swithenbank Foods provides 330+ fresh fruit and vegetable lines).
Online ordering and next day delivery on a core range and branded & own label products supplied.
Service proposition = operates as a partner, not a mere supplier.

19
A marketing communication under FSA Rules, this document has not
been prepared in accordance with legal requirements designed to
promote the independence of investment research and is not subject to
any prohibition on dealing ahead of the dissemination of investment
research.

This research cannot be classified as objective under JMFinn Capital Markets Ltd research
policy. Visit www.finncap.com

The recommendation system used for this research is as follows. We expect the indicated target
price relative to the FT All Share Index to be achieved within 12 months of the date of this
publication. A ‘Hold’ indicates expected performance relative to this index of +/-10%, a ‘Buy’
indicates expected outperformance >10% and a ‘Sell’ indicates expected underperformance of
>10%.
Approved and issued by JMFinn Capital Markets Ltd for publication only to UK persons who are
authorised persons under the Financial Services and Markets Act 2000 and to Professional
customers. Retail customers who receive this document should ignore it. JMFinn Capital Markets
Ltd uses reasonable efforts to obtain information from sources which it believes to be reliable,
but it makes no representation that the information or opinions contained in this document are
accurate, reliable or complete. Such information and opinions are provided for the information
of JMFinn Capital Markets Ltd's clients only and are subject to change without notice. JMFinn
Capital Markets Ltd’s salespeople, traders and other representatives may provide oral or written
market commentary or trading strategies to our clients that reflect opinions contrary to or
inconsistent with the opinions expressed herein. This document should not be copied or otherwise
reproduced. JMFinn Capital Markets Ltd and any company or individual connected with it may
have a position or holding in any investment mentioned in this document or a related
4 Coleman Street investment. JMFinn Capital Markets Ltd may have been a manager of a public offering of
London EC2R 5TA
securities of this company within the last 12 months, or have received compensation for
Tel 020 7600 1658
investment banking services from this company within the past 12 months, or expect to receive or
Fax 020 7600 1659
Email info@finncap.com
may intend to seek compensation for investment banking services from this company within the
Web www.finncap.com
next three months. Nothing in this document should be construed as an offer or solicitation to
FinnCap is a trading name of JMFinn Capital Markets Limited, acquire or dispose of any investment or to engage in any other transaction. JMFinn Capital
registered as a company in England with number 06198898.
Authorised and regulated by the Financial Services Markets Ltd is authorised and regulated by the Financial Services Authority, London E14 5HS,
Authority. Member of the London Stock Exchange
and is a member of the London Stock Exchange.

Anda mungkin juga menyukai