BC97 Citi Fun 25

RNS Number:5734T
Coles Myer Ld
25 March 2002

Coles Myer Ltd. today announced the outline of its strategic review
including key initiatives identified to date to drive it forward over
the next five years.

Coles Myer Chief Executive Officer, John Fletcher, said: "The
strategy review is not the end game, but the culmination of a five
month assessment across all businesses. It has established our
priorities and direction for the delivery of significantly improved
financial performance.

"An integral part of the review was looking at ways of leveraging the
strength of Coles Myer as a Group. Fundamental is instilling a sense
of one team in all our 162,000 people, an attitude of Group First,
Brand Second - Both Winning.

"The foundation of our strategic direction is that the customer is
number one. Our cost reduction focus is designed to provide the best
value to all our customers day-in, day-out. Only by satisfying our
customers can we satisfy our shareholders."

GROUP CULTURE

* One team

* Clear accountabilities and milestones

* Performance management

* Aligned remuneration policies

Mr Fletcher said: "The most important platform from which to leverage
the strength of Coles Myer as a Group is building a sense of one
team, with the right people in place across the organisation,
challenged and accountable to deliver the right strategies."

Initiatives confirmed today include:

* simplified management and reporting lines, increasing the number of
CEO direct reports from four to nine to include human resources,
supply chain, corporate affairs, finance and information technology;
and

* a new Bonus structure based on both Group and Brand objectives
combined with non-financial hurdles such as Occupational Health and
Safety and succession planning.

Operation Right Now

* Group Continuous Business Improvement Program

* Initial focus on General Merchandise & Apparel Brands

* Now expanded to encompass Shared Services, Food & Liquor, Supply
  Chain, Occupational Health & Safety

Mr Fletcher said: "At last week's interim results we announced an
upgrading of cost savings to $300 million based on an annualised run
rate by end FY04, with a high proportion of these savings to be
reinvested to improve competitiveness and grow market share. This
includes the initial savings identified in September 2001 through
Operation Right Now."

This Continuous Business Improvement Program will continue beyond
FY04 with increasing benefits expected for stakeholders. As part of
the review, Operation Right Now has now been expanded to encompass
potential cost savings in the areas of Shared Services, Food &
Liquor, Supply Chain and Occupational Health & Safety, and includes
the following initiatives:

* Mandating the use of the Shared Services Model across all Brands.
Cost savings are to be generated through efficiency improvements by
all Brands using Shared Services, removing duplication, and
standardising IT systems and key processes. The revised Shared
Services Model will be implemented over the next two years with
financial benefits weighted to FY04.

* Implementation of an end-to-end Supply Chain strategy with common
standards, processes and platforms to optimise the capability of the
distribution network to leverage economies of scale and lower the
cost of operation to each Brand. Financial benefits are weighted to
flow in CY03 and CY04.

* The current implementation of a Group wide strategy in relation to
Occupational Health and Safety to improve the company's safety
record, reducing incidents and costs. Financial benefits are expected
to commence in FY03.

Mr Fletcher said: "A high proportion of savings in FY02 and FY03 will
be reinvested in lowering prices to improve competitiveness and grow
market share, particularly in the ongoing rebuild of GM&A."

LOYALTY REVIEW

* Shareholder discount program for existing cardholders continues
  until 31 July 2004 with progressive rate reductions

* Share ownership not required after 5 April, 2002

* Membership fees discontinued

* Savings reinvested to benefit all customers

Mr Fletcher said: "The prime objective for the Coles Myer Group is to
provide the best value to customers day-in, day-out.

"Continuation of the CML shareholder discount program in its current
format is not reflective of retail loyalty programs around the world,
nor is it in the longer term interest of all our stakeholders."

Coles Myer has decided to progressively wind back the Shareholder
discount program with a phased reduction ending in 31 July 04. The
first rate reduction will take effect from 31 July 02 with a further
rate review during 2003. Full details of the proposed changes to the
program are set out in the attached fact sheet.

"Underlying this decision is an understanding that loyalty programs
need to be equally accessible to all customers while at the same time
showing Coles Myer is committed to treating all customers,
shareholders and staff fairly," Mr Fletcher said.

"Line for line, quality for quality, our policy is already to be 100%
price competitive. The savings from reduced shareholder discounts
will be reinvested to the benefit of all customers through sustaining
price competitiveness, promotional activities, interest free offers
and enhanced Fly Buys and Coles Myer Card offers."

On-market entry to the scheme ceases as of close of business on 5
April 02 and existing cardholders will continue to retain benefits of
reduced discounts until 31 July 04 with continued share ownership not
required after 5 April 2002.

CMLC discount shares revert to ordinary CML shares on 12 April 02.

Shareholders who need further information should call 1300 368 368
(Australia-wide).


Food and Liquor

* Aggressive expansion strategy

* Continuous business improvement through Operation Right Now

* High single digit sales growth per annum to FY06 and double digit
  EBIT growth per annum to FY06

* 4% EBIT margin in FY05

Mr Fletcher said: "The strategic review has highlighted the strong
growth prospects for the Food & Liquor businesses.

"We will continue to aggressively expand Food and Liquor with annual
new store openings for Coles and Bi-Lo of 30 to 35 stores and
Liquorland of 20 to 25 stores and hotels.

"New store openings and an improved offer will continue to drive
solid sales performance for our Food & Liquor group with high single
digit sales growth expected per annum to FY06.

"Food and Liquor continues to focus on reducing its cost of doing
business and improving capital productivity. It is expected to
deliver double digit EBIT growth per annum to FY06."

Mr Fletcher also announced today Coles Myer had signed a contract to
sell its non-core Red Rooster business to Australian Fast Foods Pty
Ltd, a Perth-based company that owns and operates the Chicken Treat
fast food business.

The 244 Red Rooster stores and 50 franchise stores have been sold at
a small loss with completion of the sale expected by the end of May.


General Merchandising & Apparel

* Sustainable recovery led by Target, followed by Myer Grace Bros and
  Kmart

* GM&A Group return on investment achieving Coles Myer's weighted
  average cost of capital by FY04

* Mid single digit sales growth per annum to FY06

* GM&A Group EBIT margin of 4% by FY06.5

"In GM&A, our priority is the continuing 'fix' of the three key
Brands. We see significant opportunity to improve sales productivity
with a clear customer proposition now established for each Brand that
ensures minimum overlap," Mr Fletcher said.

Focus for the three key Brands can be summarised as:

* Kmart - the first choice discount department store for families
with the best range at lowest guaranteed prices in every market
served;   

* Target - a low cost differentiated discount department store
offering on-trend, high quality merchandise, with a house-brand
apparel, footwear and homewares focus, at very affordable prices;
and,

* Myer Grace Bros - a value driven department store being first to
market with a complete range of on-trend moderate to upper moderate
national and international brands.

Substantial progress has been made across all Brands to deliver
better merchandise assortments. Merchandising skills are being
rebuilt through recruitment of key personnel at all Brands.

"Our most important focus within GM&A is to close the execution gap
with the recovery being led by Target and followed by Myer Grace Bros
and Kmart. We have established some clear milestones for GM&A over
the next couple of years to monitor progress, including achieving
CML's weighted average cost of capital by FY04, mid-single digit
sales growth per annum to FY06 and a 4% EBIT margin by FY06," Mr
Fletcher said.


Capital Management

* Continuing strong balance sheet and cashflow

* Continuing review of refinancing opportunities

Mr Fletcher said gross capital expenditure is forecast to be fairly
consistent through to FY06 and be in the range of $800 million to
$900 million per annum.

The Sydney and Cairns properties have been identified for potential
sale and partial leaseback. 

The combination of strong improvements in balance sheet productivity
and improved operating performance is forecast to result in the Group
moving towards the higher end of its targeted fixed coverage ratio
(2.2-2.5x) by FY04.

Opportunities for further capital management initiatives to benefit
shareholders will be considered at that stage.


Coles Myer Financial Milestones

Mr Fletcher said: "The strategic review process has provided some
clear financial milestones for the Group, including:

* confirmation of around 20% Group profit growth in FY02;

* total cost savings of $300m annualised run rate by end FY04;

* the Group to achieve a return on investment of around 20% by FY04; and,

* high single digit Group sales growth to FY06."



Coles Myer Management Challenge

Mr Fletcher said the end result of "right team, right culture, right
strategy" is the potential for net profit to double by FY06 and at
the recent Coles Myer forum he had set this as a challenge for his
management team.

In conclusion, Mr Fletcher said: "I have been particularly pleased by
how quickly the team has become aligned with the strategy, values and
approach that will deliver long-term sustainable growth."


More information: 

Media:      Scott Whiffin  03 9829 5548 
Analysts:   Amanda Fischer 03 9829 4521



                         CML LOYALTY PROGRAM REVIEW

Key dates:

5 April, 02  Last date to purchase on market CMLC shares with a 
             discount card (min 500 CMLC shares)

8 April, 02  Discount card holders are no longer required to hold 
             shares 
             Ex-dividend date for CML and CMLC shares
             Deferred settlement trading commences (stock code CMLDA)

12 April, 02 Record date for interim dividend on CML and CMLC shares
             Record date for discount card
             CMLC shares revert to CML shares
             Deferred settlement trading in CMLDA shares ceases at 
             close of business 

13 May, 02   Interim ordinary dividend paid - no deduction of half 
             yearly service charge
             New discount cards mailed

31 July, 02  New discount card rates apply

2003         Further rate review

31 July, 04  Shareholder discount program terminates



INFORMATION MAIL OUT

* A comprehensive information pack will be provided to all qualifying
shareholders by mail with their dividend cheque/advice on 13 May
2002.

* Shareholders who would like further information should contact
1300 368 368.

                        CURRENT RATE    NEW RATE
                                        EFFECTIVE ON 31-JUL-02

Coles                     5.0%              3.0%
Bilo                      3.0%              0.0%
Liquorland                5.0%              3.0%
Kmart                     7.5%              5.0%
Target                    7.5%              5.0%
MGB-Other                10.0%              7.5%
MGB/Megamart-1            7.5%              5.0%
MGB/Megamart-2            5.0%              3.0%
Harris                    3.0%              0.0%
Officeworks               5.0%              3.0%

MGB/Megamart - 1 includes: CDs, Tapes, DVDs, Game Software, PC
Software, Office Furniture, Lounge, Dining, Bedding, Occasional &
Nursery, Furniture, Rugs, Lighting, Decorator and Curtains.

MGB/Megamart - 2 includes: Large & Small Electrical Appliances,
Electronic Game Hardware, Audio & Visual Equipment, Sewing Machines &
Accessories, Christmas CD, Food purchases over $5.00, Hampers & Gift
Food, Product cover 10% on Myer Cleaning Services and Grace Bros
Cleaning Services (Licensees). Discount not available at GoodBuy
Warehouse.


                      This information is provided by RNS
            The company news service from the London Stock Exchange

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