CEO'S STATEMENT

The challenges we face

Aligning our business to a sustainable way of operating has also posed some challenges. In this report, we discuss how we tackle some of the biggest challenges facing our business today. These include major community issues such as the lack of consistent and affordable flood cover in Australia and the impact of tort law reform on public liability insurance.

A supplier industry in reform

One of IAG's largest suppliers is the smash repair industry. This industry is currently at a crossroad with more than twice as many repair shops per vehicle in Australia than in the United Kingdom. For comparison, for every repair shop in Australia, there are 1,900 vehicles, as against nearly 5,000 vehicles per repair shop in the United Kingdom. This oversupply is exacerbated by fewer accidents and new, safer cars that are less likely to require repair work.

The sustainability of the smash repair industry is essential to our business. We have taken steps to help the industry along this road by investing $10 million over four years in the form of apprenticeships, traineeships, business management training and succession planning courses.

We recently introduced a new Care & Repair service in New South Wales. This service takes the stress and uncertainty out of organising smash repairs by allowing customers to take their damaged vehicle to one of our conveniently located assessment centres.

In states where this system has been operating for some time, we have seen improvements in customer satisfaction and the quality of repair work.

Unfortunately, there has been some uncertainty and debate with repairer groups about this system. We're trying to work through these concerns as we believe the new system will ultimately benefit repairers who are able to choose the repair work they want to bid for and to specialise in certain types of repair.

Performance against environmental targets

In this report, we also cover our performance against our corporate environmental targets. Although we have implemented some strong initiatives in this area, we have not met our targets for the 2005 financial year.

This is due to a number of factors including the challenge of balancing the need to reduce our environmental impact while growing our business. For example, we now know that decisions taken to benefit our customers through improved technology require additional computer servers, leading to an increase in CO₂ emissions.

We need to learn how to manage the added complexity required to make decisions that balance the needs of our various stakeholders while improving our environmental impact.

In the coming year, we will be taking steps to address our environmental performance by:

• improving our measuring and reporting processes;
• setting more tailored divisional targets;
• rolling out action plans to address high environmental impact areas; and
• engaging our people around improving our performance.

We are also targeting our single greatest contributor to CO₂ emissions - electricity - by developing and implementing an energy management plan for our major sites.

"True sustainability comes from an understanding of an organisation's purpose and achieving a balance between complex stakeholder priorities."

We acknowledge that our thinking in the area of sustainability is continuing to develop and mature as our understanding of our social licence to operate deepens and is enriched by dialogue with our key stakeholders.

I congratulate our people on the work done so far and I remain impressed by the passion and commitment of our employees to keep improving.

Managing a company well for the long term requires investment in customers, employees and the community. True sustainability and enduring shareholder value come from an understanding of an organisation's purpose and achieving a balance between complex stakeholder priorities.

In essence, it's just good business.

Michael Hawker
Chief Executive Officer

What sustainability means to IAG
Our succeses