Working Draft Last Modified 26/04/ :02:50 PM AUS Eastern Standard Time Printed MEL-AAA The Business Agenda in Australia and New Zealand CONFIDENTIAL Discussion document This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA OBJECTIVE—UNDERSTAND THE THEMES OF CHANGE IN CORPORATE AUSTRALIA/NEW ZEALAND Objective Method Understand what is top of mind of Australian and New Zealand CEOs Identify key themes of change over the past 5 years Reviewed 42 annual reports of top 50 Australian companies and 14 of top 25 New Zealand companies for the years 2000 and 2005 Examined CEO and Chairman reports Recorded ‘mentions’ and ‘top priorities’ for each issue within 5 broad areas of focus—growth, corporate responsibility, performance execution, people/organisation and portfolio management

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA EXECUTIVE SUMMARY—4 KEY THEMES EMERGING Growth remains top of mindStep change in corporate responsibility Decreasing focus on costShift to human/behavioural organisational levers 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Percent of companies mentioning theme Corporate governance Regulation Community Risk management Environment Health and safety Change in mentions % Number of mentions % = Percent of total mentions Human/ behavioural Structural/ decision based

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THEME 1—GROWTH REMAINS TOP OF MIND Growth remains top of mindStep change in corporate responsibility Decreasing focus on costShift to human/behavioural organisational levers 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Percent of companies mentioning theme Corporate governance Regulation Community Risk management Environment Health and safety Change in mentions % Number of mentions % = Percent of total mentions Human/ behavioural Structural/ decision based

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA GROWTH IS THE MOST IMPORTANT THEME ON THE ‘STATED’ CORPORATE AGENDA Importance in 2005 Percent of companies mentioning theme Theme 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Top priority Source: 56 annual reports of Australian top 50 and New Zealand’s top 25 public companies

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA ALL INDUSTRIES BUT CONSUMER HAVE INCREASED THEIR FOCUS ON ORGANIC GROWTH Industrial Consumer Financial Primary Inorganic Organic Number of mentions What are the drivers of this change? Source: 56 annual reports of Australian top 50 and New Zealand’s top 25 public companies

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA ORGANIC GROWTH LEVERS DIFFER BY INDUSTRY Number of mentions 2005; Percent 30 Consumer 19 Finance 14 Industrials 20 Primary 83 Total 100% = Product service innovation Geographic expansion Investment for increased capacity Key organic growth lever Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA INORGANIC GROWTH ACTIVITY RECOVERED AFTER 2003 TROUGH TO ALMOST 2000 LEVEL Number of acquisitions in Australia and New Zealand; Percent , , , , , Consumer Finance Industrials Primary Source:Dealogic

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA HOWEVER, COMMUNICATED GROWTH INTENTIONS ARE NOT CORRELATED WITH MARKET GROWTH EXPECTATIONS Change in number of ‘growth’ mentions during 2000–2005 Change in market growth expectation during 2000–2005* IncreaseDecrease Increase *Average change in P/E ratio Source:Bloomberg; Datastream; 40 companies out of 56 annual reports of Australian top 50 and New Zealand’s top 25 public companies; Team analysis

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THEME 2—STEP CHANGE IN CORPORATE RESPONSIBILITY Growth remains top of mindStep change in corporate responsibility Decreasing focus on costShift to human/behavioural organisational levers 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Percent of companies mentioning theme Corporate governance Regulation Community Risk management Environment Health and safety Change in mentions % Number of mentions % = Percent of total mentions Human/ behavioural Structural/ decision based

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA CORPORATE RESPONSIBILITY HAS GROWN MOST IN IMPORTANCE Importance in 2005 Percent of companies mentioning theme Theme Change 2000 to 2005 Percentage points Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Top priority Mentions

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THE CORPORATE RESPONSIBILITY AGENDA EXTENDS BEYOND GOVERNANCE ISSUES Sector Percentage point changes to mentions InitiativeConsumerFinancialIndustrialPrimary Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Theme Key driver for sector Health and safety Environment Community Regulation Corporate governance Risk management

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA CORPORATE RESPONSIBILITY IS MENTIONED BUT NOT NECESSARILY A HIGH PRIORITY 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Ranking by mention Percent Ranking by top priority Percent Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies; McKinsey analysis 1. Growth 2. Performance execution 3. People and organisation 4. Corporate responsibility 5. Portfolio management Top priority Mentions

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THEME 3—DECREASING FOCUS ON COST Growth remains top of mindStep change in corporate responsibility Decreasing focus on costShift to human/behavioural organisational levers 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Percent of companies mentioning theme Corporate governance Regulation Community Risk management Environment Health and safety Change in mentions % Number of mentions % = Percent of total mentions Human/ behavioural Structural/ decision based

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA FOCUS ON PERFORMANCE EXECUTION HAS DROPPED SUBSTANTIALLY 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies; McKinsey analysis Theme Importance in 2005 Percent of companies mentioning theme Change 2000 to 2005 Percentage points Top priority Mentions

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA DECLINE IN PERFORMANCE EXECUTION DRIVEN BY DECREASED FOCUS ON COST Mentions Cost/operational Revenue/customer Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Theme

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA INDUSTRIALS ARE THE ONLY INDUSTRY INCREASING FOCUS ON COST Financial Primary Revenue/ customer Cost/operations Number of mentions Industrial Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies What are the drivers of this change? Consumer

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA Revenue of all analysed companies $ Billions Operating expense of all analysed companies $ Billions Operating margin Percent % % % Employees Thousands – Source:Bloomberg TRENDS IN OPERATING MARGINS – viz-a-viz COSTS AND REVENUE

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THEME 4—SHIFT TO HUMAN/BEHAVIOURAL ORG LEVERS Growth remains top of mindStep change in corporate responsibility Decreasing focus on costShift to human/behavioural organisational levers 5. Portfolio management 3. Performance execution 1. Growth 4. People and organisation 2. Corporate responsibility Percent of companies mentioning theme Corporate governance Regulation Community Risk management Environment Health and safety Change in mentions % Number of mentions % = Percent of total mentions Human/ behavioural Structural/ decision based

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA SHIFT FROM STRUCTURAL TO HUMAN/BEHAVIOURAL PEOPLE LEVERS Total mentions* % = Structural/ decision-making Human/ behavioural *Includes multiple mentions by each company Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies 1. Growth 2. Corporate responsibility 3. Performance execution 4. People and organisation 5. Portfolio management Theme

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA THIS SHIFT IS MAINLY DRIVEN BY INDUSTRIALS AND PRIMARY Number of mentions, Percent ConsumerFinancialsIndustrialPrimaryTotal Structural decision making Human/ behavioural

Working Draft - Last Modified 26/04/ :02:50 PM Printed MEL-AAA ORGANISATIONAL INITIATIVES DIFFER BY INDUSTRY SECTOR Percentage point change in mentions Sector Initiative ConsumerFinancialIndustrialPrimary Culture/ engagement Values People development Capability building Recruitment Succession Performance management/ accountability Incentives Organisational structure Human/ behavioural Structural/ decision making Main changes on initiatives by industry