Walgreens 2012 Annual Report Download - page 7

2012 Walgreens Annual Report 5
This Boots flagship store on Oxford
Street in London is one of Alliance
Boots more than 3,330* health and
beauty retail stores in 11* countries.
Like Walgreens, the stores are unified
with one purpose: to help people
look and feel their best. Walgreens
completed its initial investment in its
strategic partnership with Alliance
Boots in August 2012.
*Figures include Alliance Boots associates
and ventures (including Galenica)
Meanwhile, Walgreens continued to expand its presence in the U.S.
market. This year, we purchased a 144-store regional drugstore chain
in the mid-South region, which includes USA Drug, Super D Drug,
May’s Drug, Med-X and Drug Warehouse stores.
Reinvent our cost structure through continuous improvement
and innovation:
After achieving our goal of delivering more than $1 billion in annual
pre-tax cost savings from 2008 to 2011, Walgreens continued process
improvement and innovation have become part of our corporate DNA
at the Company.
As we continued driving significant improvements in our cost structure,
controlling our expenses, and making surgical cost reductions as needed,
these steps helped our Company to weather the still-recovering economy
and the disruption to our prescription volume this year. They also helped
us free up investment capital for our strategic initiatives. Numerous
advances in operating efficiency – including energy-saving measures
that make Walgreens a retail leader in environmental protection –
also helped reduce costs.
The Walgreens–Alliance Boots partnership provides real cost-efficiency
opportunities, most significantly in four areas: 1) procurement synergies,
including purchasing prescription and over-the-counter drugs;
2) daily living products; 3) goods purchased not for resale; and
4) revenue synergies from introducing Alliance Boots product brands
to Walgreens and Duane Reade stores. We also expect revenue synergies
from sharing best practices, particularly in pharmacy operations,
health and wellness services and logistics.
Looking ahead
In fiscal 2013, management’s overarching focus will be on three major
areas: First, executing the Alliance Boots strategic partnership and
realizing the anticipated synergies and benefits as the first global
pharmacy-led, health and wellbeing enterprise. Second, expanding our
Well Experience stores and concepts throughout Walgreens. And third,
advancing the role that community pharmacy can play in healthcare
across the communities we serve every day.
We expect to make substantial progress in each of these areas with
a relentless focus on disciplined execution and pursuit of optimum
efficiency – all toward reaching our long-term goals of double-digit
growth in earnings per share, increasing return on invested capital,
and top-tier shareholder returns. Looking ahead, we believe we are
right on track to deliver.
On a more personal note, Walgreens steady and substantial progress in
our strategic transformation over the past several years stands in tribute
to the vision, leadership and steady guidance of Al McNally, our non-
executive chairman of the board from 2009 until this year, and who has
served on the board of directors since 1999. Al has played an instrumental
and indispensable role as Walgreens developed and advanced our trans-
formational strategies. Importantly, his mantra of disciplined planning
and execution has become hardwired throughout the management team
and company. As Al rotates from his role as non-executive chairman,
consistent with board policy, we are grateful that Walgreens will continue
to benefit from his service on the board.
In further changes to the Walgreens board, we welcomed new director
Janice M. Babiak, former partner at Ernst & Young LLP. Also, with the
completion of Walgreens initial investment in Alliance Boots in August,
Stefano Pessina, executive chairman of Alliance Boots, and Dominic
Murphy, director and member of KKR & Co. L.P., joined the Walgreens
board of directors, as several members of Walgreens most senior
management team joined the Alliance Boots board of directors.
This was a challenging year for our 240,000 employees. We asked a lot
from them. But with their usual determination, commitment and spirit
of service, fueled by the delight they provide customers and patients, the
Walgreens team stepped up, rolled with the changes, met the challenges
head on, and pulled closer together to deliver Well at Walgreens. Our
progress this year in advancing our transformation while achieving solid
results is a tribute to these remarkable men and women. It is also a
tribute to you, our shareholders, for your trust and confidence in our
Company, and we sincerely thank you.
James A. Skinner Gregory D. Wasson
Chairman of the Board President and Chief Executive Officer
October 22, 2012