Walgreens 2012 Annual Report Download - page 4

Letter to Shareholders
Gregory D. Wasson (left)
President and
Chief Executive Officer
James A. Skinner
Chairman of the Board
2 2012 Walgreens Annual Report
Walgreens: Where health and happiness meet
Dear Shareholders:
We are excited to bring you up to date on the bold new direction
Walgreens is taking to help ensure market leadership, growth and
profitability well into the future.
Four years ago, Walgreens launched one of the most important strategic
and operational transformations since our founding in 1901, driven by a
series of growth strategies. As we continue to advance these strategies,
we have made substantial progress in our transformation. And fiscal 2012
was a breakthrough year in this transformation as we expanded globally
and digitally, turned drugstores into health and daily living destinations,
emerged as a leading force in community healthcare, and launched a
groundbreaking customer loyalty program called Balance™ Rewards.
Today, Walgreens is much more than a traditional drugstore – we’re fast
becoming a global pharmacy-led, health and wellbeing enterprise inspired
by a humble purpose: To help people get well, stay well and live well.
By pursuing our purpose, Walgreens seeks to own the strategic territory
of “well,” the place where health and happiness come together for our
customers. That intersection is both a physical place – with Walgreens
8,000 stores on some of the best corners in America – and also a virtual
place with constant advances in online and mobile access.
In short, by helping people to get, stay and live well “at the corner of
happy and healthy,” we can achieve our goal to become “My Walgreens”
for everyone in America, the first choice in health and daily living.
Creating the first global pharmacy-led, health and wellbeing enterprise
In fiscal 2012, Walgreens further crystallized and accelerated our strategic
transformation with dynamic new initiatives and disciplined execution.
Through this strategic focus, Walgreens has established a strong platform
for growth and long-term value creation, both globally and in expanded
lines of business.
The most powerful accelerant of our growth strategies this year was the
strategic partnership we announced in June 2012 with the Swiss-based
Alliance Boots GmbH, to create the world’s first pharmacy-led, health
and wellbeing enterprise.
The Walgreens–Alliance Boots partnership combines the strengths and
expertise of two iconic brands with complementary geographic footprints,
shared values and a heritage of trusted healthcare services dating back
more than 100 years. It also positions our Company for short-
and long-term growth in three major ways:
• Accelerates our key growth strategies. Bringing together the strengths
and expertise of each company will drive forward Walgreens strategies
to: 1) transform the traditional drugstore to a health and daily living
destination; 2) advance community pharmacy; 3) delight our customers
with an outstanding experience through enhanced employee engagement;
4) expand across new channels and markets; and 5) reinvent our cost
structure through continuous improvement and innovation.
• Creates an unmatched supply chain. Together, Walgreens and Alliance
Boots have the largest pharmaceutical wholesale and distribution
network in the world, including associates and joint ventures, with more
than 370 distribution centers, delivering to more than 170,000 pharmacies,
doctors, health centers and hospitals in 21 countries. We’ll also be the
world’s largest single purchaser of prescription drugs and one of the largest
global buyers of many health, beauty and other daily living products.
• Provides a platform for global expansion beyond the U.S. and Europe.
Walgreens is already the largest pharmacy chain in the United States,
and Alliance Boots is the leading pharmacy-led, health and beauty group
across Europe, with a fast-growing presence in emerging markets.
Together, the Walgreens–Alliance Boots global pharmacy-led, health
and wellbeing platform is positioned for selling and distributing products
in 26 countries through a supply chain unmatched in the industry.
The strategic partnership with Alliance Boots also is expected to unlock
significant economic value for shareholders, as Walgreens goal is for
the combined synergies across both companies to deliver $100 million
to $150 million in the first year and $1 billion by the end of 2016.
We also expect the transaction to be accretive to Walgreens net earnings
per diluted share in fiscal 2013 by roughly $0.23 to $0.27, excluding
one-time transaction costs.
While fiscal 2012 was marked by the Alliance Boots transaction and
other strategic breakthroughs, it also brought significant headwinds.
First, overall economic conditions remained weak, affecting consumer
spending. Second and more significantly, since January 2012, we made
a strategic decision that Walgreens would not participate in a major
pharmacy benefit network, Express Scripts, as we were unable to reach a
contract agreement that provided fair reimbursement for the pharmacy,
health and wellness services we provide. We said at the time that we
believed the long-term ramifications of accepting Express Scripts’ proposal