operational and strategic review update

Wednesday 9 August 2006
For Immediate Release
OPERATIONAL AND STRATEGIC REVIEW UPDATE
Repco Corporation Limited (ASX Code: RCL) (“Repco”) today provided an update on the operational and strategic review of the Company. The review, initiated by the Board in May 2006, is now being led by Repco’s new Chief Executive Officer, Graeme Yeomans, who joined the Company on 3 July 2006.
Contrary to recent media speculation, the Company confirms it is operating within its banking covenants.
“My review of the business is well advanced and has leveraged off the work undertaken by Bain & Company. I’ve found both an excellent base on which to build a strong strategic direction and substantial opportunities to improve profitability in the short to medium term” Mr. Yeomans said.
“Repco is a large trade business with a growing presence in convenience retail. The Company’s trade business accounts for over 80% of its sales”.
The early opportunities identified by Mr. Yeomans and scheduled for immediate action include:
1. Reduce inventory: Inventory has been reduced by in excess of $20 million since 31 December 2005. It is anticipated that further inventory reductions of $20 to $30 million are achievable over the next two years.
2. Close or consolidate under-performing stores: Repco will close or consolidate stores which have been adversely impacted by the changed market and competitive environment.
3. Fast track low cost sourcing: Utilising Mr.Yeomans’ extensive experience in overseas procurement, a significant increase in sourcing of product from overseas will achieve material gross margin improvement whilst maintaining the high standards expected of Repco product.
4. Reduce overhead cost structure: Substantial savings in overhead costs are achievable.
At this stage, these and other stand-alone initiatives are expected to generate gross improvement in EBITDA of around $10 to $20 million per annum when fully implemented over a two year period.
“These key initiatives will improve the Company’s profitability and cash flow position. They are critical opportunities which once realised will provide a better return to our shareholders in the short to medium term” Mr. Yeomans said.
Repco’s market is consolidating towards larger customer groups, moving away from the do-it-yourself customers towards professional service (“do it for me”). This sector demands quality brands, advice and service. Growth opportunities exist in both trade and retail segments.
The Company’s future business strategy will address this changing environment, and whilst development of the strategy is ongoing, Mr. Yeomans anticipates the following key elements:
1. Focus on trade: Increased attention on the core trade business to leverage scale and service capability. Key elements include developing a service offer more tailored to customers’ size, a simplified pricing structure, and a parts offer tailored to local market needs.
2. Simplify the retail offer: The retail offer and positioning will be simplified by, for example, making better use of the current store footprints by utilising multiple formats and rationalising the showroom range.
3. Reduce working capital: Enhanced supply chain and category management processes will reduce working capital across the business.
4. Expand into new market segments: Enter new market segments to leverage Repco’s distribution infrastructure and national store footprint.
The process of developing this strategy is continuing, and the company will provide further detail in conjunction with the release of its 2006 full year results on 28 August 2006.
End
Further Information:
Graeme Yeomans
Chief Executive Officer
+61 3 9566 5401