Super Cheap Auto Group

Presentation to Macquarie Securities 2006 Australian Emerging Leaders Conference

Peter Birtles – Managing Director4 May 2006

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Super Cheap Auto Group

• 2006 Outlook

• Supercheap Auto – Medium Term Plans

• BCF – Medium Term Plans

Super Cheap Auto Group

Outlook for Full Year FY06

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Outlook for Full Year FY06 – per half year presentation

Supercheap Auto• Full year sales expected to be between $490m and $495m• Year on year savings in advertising expenditure in the 2nd half• AIFRS - Full year impact will be circa $2m additional occupancy costs• EBIT margin expected to be circa 6.8% for the full year (post AIFRS)BCF• Full year sales expected to be around $45m• Full year EBIT pre set-up costs expected to be between $2m and $3m –

better than initial projections• Set-up costs forecast at $5mDividend• The impact of BCF set up costs and AIFRS will be added back for

assessment of dividend paymentAnalysts’ Forecasts• Current market analyst forecasts for Group EBIT range from $29m to $31m

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Supercheap AutoMedium Term Plans

28th March 06

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Supercheap Auto – Medium Term Plans

• Brand Positioning and Customer Perceptions

• Brand and Marketing Development

• Store Format and People Development

• Range Development

• Medium Term Projections

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Brand Positioning and Customer Perceptions

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Customer Value Proposition

What do our customers truly value about Supercheap Auto NOW?

A lot of stuff for not much money, lots of gear in the store, not much service (but that’s ok because I like to look around).

I GET THE LOT FOR LESS!

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Supercheap Auto vs competitors

PRICE

Supercheap Auto

Kmart

Autobarn

Repco / Specialists

QUALITY

Repco / Specialists

Autobarn

Supercheap Auto/ Kmart

CUSTOMER SERVICE

Repco / Specialists

Autobarn

Supercheap Auto

Kmart

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Who is our Customer and who are we targeting?

Roy Morgan analysis was conducted, and based on “All people who have worked on their car in the last 3 months”, seven segments where identified:

1. “Barry” – the conventional family lifer/fairer deal who wants to save costs.

2. “Herb” – the traditional family lifer who considers himself a “tinkerer”. 3. “Amelia”- the look at me/young optimist, who wants to accessorise her

car.4. “Scott” – visible achiever who enjoys working on his car, he

considers it the smart choice5. “Luca”- the look at me/young optimist, “boy racer”.6. “Tim” – the something better who considers himself a “tinkerer”.7. “Maureen” – conventional family lifer, who shops for her household.

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Market Segment Size Estimates*

*Estimates from IdeaWorks (using Roy Morgan data) and Core Economics.

5%8%Maureen100%100%Total

15%5%Tim20%5%Luca10%12%Amelia10%15%Herb15%40%Barry25%15%Scott

Proportion of people currently working on their car (Australia)

Proportion of current Supercheap Auto shoppers

Customer

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Meet Barry (‘have to’ maintenance market DIY, 40% of our Business)

• 35 years old• Conventional Family Lifer looking for a Fairer Deal• Tradie, labourer (good with his hands)• Married with kids• Household income c$60k• No tertiary qualifications• Is renting or paying off a house in the outer suburbs.• Enjoys catching up with mates on the weekend over a

BBQ and a couple of beers• Recently cut down on his spending• Looks for deals• He drives a ute (for work) and his wife drives a 10 year old

Holden.• Chooses the cars with maintenance in mind• He looks after both cars (including servicing and general

maintenance) but considers it a chore. • If there is a job he can’t do, he knows someone who can

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Meet Scott (‘want to’, aspirational: upkeep market, 15% of current business)

• 45 years old• Looking for something Better a Visible

Achiever• Married with children • High household income c$100k (his wife Sal

works too) but also high debt (paying off home, sending kids to a private school)

• Believes quality is more important than price and so prefers well known brands.

• Two car family, first car is a late model Ford which is serviced at the dealership (it’s either a company car or still under warranty)

• Wife owns a small economical car which Scott maintains (either services it himself or sends it to a local mechanic)

• Enjoys looking after his cars (considers it a recreation) and washes them every week – it’s a matter of personal pride.

• Enjoys his time in auto accessories retail stores – it’s a bit of a playground

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Customer Value Proposition

What will our customers truly value about Supercheap Auto in the FUTURE?

The brands, the right stuff and the quality that I expect and the help that I need to do the job (DIY or DIFM)

plus the new and exciting stuff that I’ve always wanted

All at a super price

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Brand and Marketing Development

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Brand and Marketing Development : Objectives

1. Brand development (to change perceptions)Objectives

• Let the market know that thing’s are changing at Supercheap Auto

• Send a message to Scott – “Supercheap Auto is for you”• Reinvigorate relationship with Barry

2. Stimulate retail activityObjective

• Give Scott and Barry a tangible reason to come into Supercheap Auto

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Brand and Marketing Development: Mechanics

1. New Catalogue Presentation

2. New In-Store Ticketing, Collateral Material, POS,

3. New Media Campaign

4. Store signage, layout, fixtures and presentation• Concept store is the testing bed

5. Team Member knowledge and experience

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Older format from 2005 vs. updated format for 2006

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In-store theme tickets and POS

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SCA Media Direction

• Media campaign will have a brand building and a sales driving focus• To position SCA as the best value retailer• But to let customers know that SCA offers much more than just

price• To build the relationship with Barry and to attract Scott

• A new TV campaign is being developed

• Media activity will target a broader range of Scott and Barry’s interests – motor sport will be important but not the sole focus

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Store Format and People Development

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10 Years ago Today

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SCA Format looking dated

• The store design and brand logo is becoming dated, impacting on our brand image, market positioning and needs reinvention to keep the brand relevant in a tough retail environment

• Future capital expenditure should include keeping our stores “Fresh” and up-to-date to protect and grow our LFL sales and support our Brand

• Annual capital Budget needed for refurb program in stores that meet ROI hurdle rates

• Funds to be allocated based on review of sales performance, opportunity to improve sales as well as aged and underperforming stores

• Top 10 stores deliver 9% of total company sales

• The Chermside concept store will provide many learnings to take the business forward in this area

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Chermside Concept Store

• Continue the strong focus on “Value”

• Focus is on optimising rather than maximising the range

• Greater focus on quality products & a sharper store fitout

• More use of Brands

• More efficient processes to free team member time to focus on service

• Increased Team Member experience and expertise

• Easier layout for customers

• Concept store learnings will be rolled out to rest of the stores as part of the refurbishment plan

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Existing Chermside Store

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In Store Processes - Issues & Actions

• A full review of in store operational processes to achieve productivity gains will be conducted at the Chermside store

• Savings generated will be reinvested into improved customer service, team training and consistency of delivery

• To date a review of the production of advertising tickets has seen a time saving of approximately 16 hours per store per week

• Other areas of process enhancement opportunities requiring dedicated resource (allocated from May forward)– Out of hrs filling to allow greater focus on the customer and increase

productivity– Cash Routine processes– Deleted line processes– Stock Management disciplines & processes

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Hand written ticketing being replaced with printed tickets

Save $25

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Store Format Development

• Currently 231 SCA Stores in the current format – an updated market assessment indicates that there is potential for around 270 stores in this format

• The market assessment has also indicated opportunities for alternative formats:

• Smaller format for smaller regional areas and high cost suburban areas• Lower turnover expectation• Reduced range – lower inventory investment – focus on convenience• Lower operating cost

• Larger full scale model• New categories• Extended service offering

• Team developing alternative formats • Desktop analysis to prove up potential• Formats to be tested in 1st half of next year

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Range Development

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Ranging Opportunities

• Currently one size fits all ranging philosophy across all stores

• Category Planning• Quality• Housebrand development• Packaging• New Categories

• Regional Ranging

• Procurement and Supply Chain Opportunities

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QualityIssues• Housebranded products have been at the heart of our quality issues

• We have had 6 Product Recalls in the past 12 months, all Superworksbranded

• Product returns represent .85% of sales and the Top 20 lines represent 40% of returns

• There has been no Process to return products with quality issues to suppliers and give constructive feedback to improve

Categories with biggest opportunities:• Electrical • Tools• Batteries• Outdoor

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Quality

• Total review of end to end quality processes

• Suppliers communicated on quality focus and Expectations

• Improved Quality processes introduced in China and in Australia

• Product deleted with major quality issues

• Suppliers to fund future cost of recalling products

• Improving on-pack customer information and team product knowledge

• Use of National Brands to improve choice and quality perceptions

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Housebrand

• Housebrand sales represent approx 25% of total sales (opportunity to take this to around 35%)

• Housebrand strategy under review includes:• Branding • Marketing• Packaging & Instructions• Brand Charter & Values• Financial Targets

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Housebrand packaging

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SCA Packaging Standards

• SCA has developed new standards

• To ensure packaging suitable to move through the supply chain without damage and safely

• The majority of our packaging opportunities are from imported supply

• Presentation given to suppliers on our packaging expectations

• Category and Business Managers trained on new standards and expectations

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New Line Packaging Compliance by Vendor(sample of 55 vendors)

Compliance %

0%10%20%30%40%50%60%70%80%90%

100%

#1 #2 #3 #4 #5 #6 #7 #8 #9 #10

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Mid Point

Currently60%

Targeting 90% compliance on all new products by September 06

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Ranging Issues and Opportunities

• Clear direction given on range:• Core focus is Auto• Everything for the Shed, Garage

&Trailer • Great value “opportunity buys”• Not wavering from strategy

• New category opportunities being accessed

• Regional ranging opportunities under review• Competitive opportunities• Local demand demographics

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Procurement and Supply Chain Opportunities

• Continue to take advantage of our size to re-negotiate better costs, new supply and improved trading terms

• Annualised improvements in trading terms totaling $3.5m have been negotiated so far this year

• Some of this saving will be invested into lower retail prices

• Reviewing China arrangements• New supply chain arrangements in China established• Consolidation opportunity• Evaluating direct sourcing opportunities

• Reducing domestic logistics costs as a % of sales• Expanding New Zealand DC facilities will enable more local sourcing and

direct shipment of imports• Set up of Melbourne DC has reduced Australian freight costs• Technology driven productivity improvements

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Supercheap Auto Medium Term Projections

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Supercheap Auto - Medium Term Projections

• Sales growth will be driven by market share gains• SCA will gain market share through initiatives presented and new store rollout• Market share gains will be tempered by decline in some categories in the Auto

After Market

• Store numbers anticipated to grow to at least 300 over the medium term

• The current format has the potential of around 270 stores• A smaller format focused on regional locations and higher cost suburban

locations has a potential for at least 30 stores

• Target EBIT margin to grow to around 8% over the medium term• Gross margins to be maintained through continued procurement opportunities

and own brand development offsetting competitive pressures and mix changes• Cost of doing business to be reduced through supply chain initiatives, increased

focus on cost efficiency, scale benefits and lessening impact of store opening costs

• Target double digit growth in EBIT over the medium term (post FY 2006)

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BCF – Medium Term Plans

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Expansion of BCF Network

• Performance to date has reinforced confidence in potential for at least 60 stores

• 13 stores trading today• Will open between 10 to 15 new stores in 2006/07

– Skewed towards the 2nd half• New Stores will be targeted towards NSW, WA and Qld• Business will investigate acquisition opportunities if organic

opportunities do not crystallise• Anticipate $80m in sales in 2006/07 and EBIT of circa $5 to $7m pre

store set-up and brand launch costs of $5m

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116213TOTAL

311Regional NSW

1Darwin

LowHighVery highCertainty of delivery

3Sydney Metropolitan

33Perth Metropolitan

24Regional Queensland

12Gold & Sunshine Coasts

116Brisbane Metropolitan

Possible sites under negotiation

New Sites terms agreed – subject to lease terms and planning approval

New sites leased –subject to planning approval and/or construction

Current Sites

Summary of Current BCF Property Plan

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BCF Financial Model

• Stores trade at $4.5m to $4.8m in year 1 growing to $5.0m to $6.0m by year 3.

• Current gross margin 35% to grow to 38% over next 3 years through benefits of scale, efficiency and own brand development.

• Store operating costs (excl depreciation) at around 24% of sales in year 1 declining to around 22% by year 3.

• Head office support costs at around 7% of sales declining over time.

• Store set up and brand launch costs at $0.3m per store.

• Store fit out capital costs $0.5m per store.

• Store gross inventory investment at $1.3m per store.

• BCF should achieve EBIT margins of 8% over the medium term with a potential for further improvement over the longer term.

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Questions