Dear Shareholder,

My purpose in writing to you is twofold:

First, to enclose details of our re-launched Shareholder Discount Plan, and secondly, to outline how the Board and Management are committed to taking Coles Myer forward to achieve growth in shareholder value.

1. Shareholder Discount Plan

Following extensive shareholder feedback, we have restructured our shareholder discount card arrangements. While existing cardholders can continue to use their cards, we have provided for both the entry of new shareholders and maintenance of the integrity of the plan in terms of overall shareholder value. A major change is the redesignation of each existing shareholder’s first 500 ordinary shares as Discount Card Shares to be traded separately on the Stock Exchange.

Enclosed with this letter is a statement setting out the number of Discount Card Shares and ordinary Coles Myer Ltd. shares held by you. Two booklets are also enclosed – one explains the main features of the relaunched plan, and the other sets out in full the terms and conditions of the plan including current discount rates.


2. Shareholder Value

After four consecutive successful years of sales and profit growth, we have communicated to the market that profit after tax (before once off/restructuring costs) for the current financial year could be in the order of 30% below last year. This has been due mainly to customer resistance to initiatives which had been pursued in the past with respect to merchandise ranges, store environment and service levels mainly in Target and Myer Grace Bros. We are committed to addressing these issues and also to ensuring that our inventories, and their valuation at the end of this current financial year, are in the best possible position to rebuild our very strong customer franchises. The rebuild project may also involve further up-front costs associated with the future savings to be realised from the project.

The profit downturn is also due to a very difficult and challenging economic and retail trading environment, further impacted by the introduction of a Goods and Services Tax. The GST and its implementation have severely influenced consumer buying patterns and profitability, mainly in our non-food general merchandise and apparel businesses. However, we expect more normal buying patterns to progressively emerge as we go past the anniversary of the GST.

In summary then, shareholders can be assured that we are working on many fronts to recover customer and consumer confidence in your company. These actions include:

  • the appointment of a successor to our current CEO, Dennis Eck, as a matter of highest priority;

  • the implementation of a major organisation and management restructure separating Coles Myer into two key business groups – Food & Liquor and General Merchandise & Apparel;

  • a very comprehensive and major rejuvenation and co-ordination program for our non-food business, in ways not previously contemplated, to increase customer acceptance and top line sales;

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  • an aggressive approach on many cost reduction programs and a focus on high return capital spending across the Group;

  • a strong focus on capital management across the Group.

The Coles Myer group has many strengths in terms of its brands and people. Our Food & Liquor business (Coles, Bi-Lo, Liquorland and Red Rooster) continues to perform well. We believe we have viable answers to the strategy, positioning and sales and profit growth of our non-food business. We also recognise that some investors support disaggregation of the group as the best way forward. This and other options are clearly before the Board as we focus on recovering profitability in 2002 and beyond.

This is a challenging period for not just Coles Myer, but for many retailers and their employees and suppliers in Australia and in overseas markets. We appreciate that we are testing the confidence of our shareholders and stakeholders as we recover from a very difficult period of trading and take the company forward. However, we believe the strategies and actions we are now pursuing will attain the outcomes we all seek.

Yours sincerely,

Stan Wallis

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