Alliance Boots enhanced by anti-ageing cream

Alliance Boots was supposed to be the poster boy of private equity excess.

If the spread on its bonds at the end of last year was anything to go by, it was supposed to end its days sprawled across the floor after a debt overdose that would come to epitomise an era.

But this morning, Alliance Boots confounded the recession. Revenue up, profit up, margins improved. And, with the takeover of optician Dollond & Aitchison to look forward to, a further boost to earnings should be on the cards. So what went right?

First, the retail division, which is around 40 per cent of the business by revenue, is proving resilient. The much heralded lipstick effect may not be empirically proven – but the dynamic of women cheering themselves up with affordable cosmetics is plausible.

The buzz that surrounded its Protect & Perfect beauty serum would have been an incremental help. The Here Come The Girls advertising campaign has won awards – justifiably – for linking Boots with the (high-margin) purchase of beauty products for a night out - as well as the headache pills for the morning after.

The pharmaceutical wholesale business – the part of the group that derives from Alliance UniChem – is even more defensive.

But interest payments of £705 million – towering over the group’s residual profit – serves as a sobering reminder that it has not left its earlier excess behind.

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