1. Working Draft Last Modified 26/04/2007 12:02:50 PM AUS Eastern Standard Time Printed MEL-AAA123-20070426- 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.

2. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 1 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

3. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 2 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 70 50 20002005 -29% Number of mentions 20052000 7481 100% = Percent of total mentions Human/ behavioural Structural/ decision based

4. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 3 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 70 50 20002005 -29% Number of mentions 20052000 7481 100% = Percent of total mentions Human/ behavioural Structural/ decision based

5. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 4 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 95 80 77 63 57 Top priority Source: 56 annual reports of Australian top 50 and New Zealand’s top 25 public companies

6. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 5 ALL INDUSTRIES BUT CONSUMER HAVE INCREASED THEIR FOCUS ON ORGANIC GROWTH Industrial Consumer Financial Primary Inorganic Organic Number of mentions 2000-2005 2000 2005 What are the drivers of this change? Source: 56 annual reports of Australian top 50 and New Zealand’s top 25 public companies

7. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 6 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

8. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 7 INORGANIC GROWTH ACTIVITY RECOVERED AFTER 2003 TROUGH TO ALMOST 2000 LEVEL Number of acquisitions in Australia and New Zealand; Percent 2000 35 41 13 37 38 11 14 979 03 29 42 11 18 1,170 04 24 1,588 13 19 1,423 2005 14 11 1,408 01 31 43 12 14 1,107 02 27 48 11 44 Consumer Finance Industrials Primary Source:Dealogic

9. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 8 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

10. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 9 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 70 50 20002005 -29% Number of mentions 20052000 7481 100% = Percent of total mentions Human/ behavioural Structural/ decision based

11. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 10 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 95 80 77 63 57 Top priority Mentions

12. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 11 0 5 5 26 5 13 0 -6 32 50 31 0 22 67 11 33 22 16 17 25 -17 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

13. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 12 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 95 80 77 63 57 Top priority Mentions

14. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 13 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 70 50 20002005 -29% Number of mentions 20052000 7481 100% = Percent of total mentions Human/ behavioural Structural/ decision based

15. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 14 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 -12 95 80 77 63 57 Top priority Mentions

16. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 15 DECLINE IN PERFORMANCE EXECUTION DRIVEN BY DECREASED FOCUS ON COST Mentions 128 2000 107 2005 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

17. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 16 INDUSTRIALS ARE THE ONLY INDUSTRY INCREASING FOCUS ON COST Financial Primary Revenue/ customer Cost/operations Number of mentions 2000-2005 Industrial Source:56 annual reports of Australian top 50 and New Zealand’s top 25 public companies 2000 2005 What are the drivers of this change? Consumer

18. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 17 Revenue of all analysed companies $ Billions Operating expense of all analysed companies $ Billions Operating margin Percent 125 2000 113 01 124 02 147 03 194 04 237 2005 13.6% 22.7 2000 23.1 01 21.1 02 20.5 03 20.7 04 24.4 2005 +1.5% 102 2000 90 01 102 02 121 03 160 04 188 2005 13.0% Employees Thousands – 806804755696723634 Source:Bloomberg TRENDS IN OPERATING MARGINS – viz-a-viz COSTS AND REVENUE

19. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 18 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 70 50 20002005 -29% Number of mentions 20052000 7481 100% = Percent of total mentions Human/ behavioural Structural/ decision based

20. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 19 SHIFT FROM STRUCTURAL TO HUMAN/BEHAVIOURAL PEOPLE LEVERS Total mentions* 20002005 7481 100% = 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

21. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 20 THIS SHIFT IS MAINLY DRIVEN BY INDUSTRIALS AND PRIMARY Number of mentions, Percent ConsumerFinancialsIndustrialPrimaryTotal 21 2003 16 2005 31 2003 34 2005 100 0 3 2003 15 2005 19 2003 16 2005 74 2003 81 2005 Structural decision making Human/ behavioural

22. Working Draft - Last Modified 26/04/2007 12:02:50 PM Printed MEL-AAA123-20070426- 21 ORGANISATIONAL INITIATIVES DIFFER BY INDUSTRY SECTOR Percentage point change in mentions Sector Initiative ConsumerFinancialIndustrialPrimary -16 0 0 -11 6 0 6 -6 19 6 6 -9 7 6 19 -18 -6 22 0 56 0 0 11 22 11 8 33 8 -17 -25 0 -17 17 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