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Citi Fun 25 | LSE:BC97 | London | Medium Term Loan |
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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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