Australian Supermarkets - MacquarieMacquarie Wealth Management Australian Supermarkets 17 April 2015 2 The MICAWBER – March 2015 (3Q15) We have updated the MICAWBER (Macquarie Index

Please refer to page 11 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

WOW prices modestly reduced in March as Coles prices stands still…

Company data, Macquarie Research, April 2015

… WOW is becoming progressively cheaper vs. Coles…


… Coles actually reduced the frequency of promotion in March


17 April 2015 Macquarie Securities (Australia) Limited

Australian Supermarkets Slow and steady loses the race Event

We update the MICAWBER (Macquarie Index of Coles And Woolworths

Basket of Everyday Requirements), our price index of a basket of >100

products at Coles and Woolworths, for the March 2015 quarter (3Q15).

Impact

Woolworths price investment has begun, but still in early stages... We

estimate Woolworths was ~2.3% cheaper than Coles at the end of March,

after further reducing prices by 0.6% relative to Coles over the final two weeks

of 3Q15. This is the greatest difference recorded since Jan 14 and well below

our ~0.5% long run average.

... While it is business as usual for Coles. Coles has maintained their

average levels of number of products on promotion and depth of discount on

promotional products. Further, the Coles basket price over March has

remained stable despite the deflation seen across the WOW basket. This

stable approach from Coles indicates they are not seeing a material

competitive impact from WOW at this stage and are not likely to be

prematurely brought into a potential “price war”.

WOW value perception unlikely to be improved in the short term. The

slow start to price investment indicates WOW’s new supermarkets

management team is still finalising/implementing their strategy. We expect

price and value perception of consumers to materially lag any price

investment made by WOW, resulting in expected underperformance for an

extended period, with further potential downgrades to come.

More than just price cuts required to change perception. Of course,

cutting prices in isolation will not drive price and value perception. In order for

volumes to respond to lower prices, the price investment needs to be on

relevant products and marketed appropriately. Additional investment in

servicing (additional floor staff, shelf replenishments, etc.) is also required to

improve overall customer experience. In regards to advertising, Woolworths’

recent negative publicity around their ANZAC social media promotion and the

ineffectiveness of the recently launched ‘Cheap Cheap’ campaign indicates

that the marketing strategy is not performing to expectations and will require

significant further investment.

WOW established pricing consistency between online and in store. In

early March WOW reduced online prices to reflect prices offered in store,

effectively removing a historical ~2-3% differential. We are yet to see a

response from Coles who currently align prices of catalogue items and key

promotional items (multi-buy, EDLP etc) with in store prices; however, regular

grocery and Fresh items are priced differently online.

Outlook

Retain Underperform recommendations on both Woolworths and

Wesfarmers. WOW will present their strategy at their investor day on May 6;

however, risks are rising that WOW has far more to do in order to turn around

its underperformance. We downgrade WOW EPS by -4.0% and -6.9% in

FY16 and FY17, while reducing our target price by 6.1% as we reassess the

medium term outlook in F&L. Our preference remains WES over WOW.

105.1

100.7

102.6

98

99

100

101

102

103

104

105

106

107

108

24-J

an

-14

14-F

eb-1

4

7-M

ar-

14

28-M

ar-

14

18-A

pr-

14

9-M

ay-1

4

30-M

ay-…

20-J

un

-14

11-J

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14

1-A

ug

-14

22-A

ug

-14

12-S

ep

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14

24-O

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14

14-N

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4

5-D

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4

26-D

ec-1

4

16-J

an

-15

6-F

eb-1

5

27-F

eb-1

5

20-M

ar-

15

MICAWBER MICAWBER Coles

MICAWBER WOW

Adjusted MICAWBER

-4.2%

-2.3%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

3-J

an

-14

3-F

eb-1

4

3-M

ar-

14

3-A

pr-

14

3-M

ay-1

4

3-J

un

-14

3-J

ul-

14

3-A

ug

-14

3-S

ep

-14

3-O

ct-

14

3-N

ov-1

4

3-D

ec-1

4

3-J

an

-15

3-F

eb-1

5

3-M

ar-

15

WOW vs. Coles (%)

TOTAL - ex. Liquor and tobacco

TOTAL - ex. Liquor and tobacco (ADJ)

Colescheaper

WOW cheaper

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

31

-Jan

-14

21

-Fe

b-1

4

14

-Mar

-14

4-A

pr-

14

25

-Ap

r-1

4

16

-May

-14

6-J

un

-14

27

-Ju

n-1

4

18

-Ju

l-1

4

8-A

ug-

14

29

-Au

g-1

4

19

-Se

p-1

4

10

-Oct

-14

31

-Oct

-14

21

-No

v-1

4

12

-De

c-1

4

2-J

an-1

5

23

-Jan

-15

13

-Fe

b-1

5

6-M

ar-1

5

27

-Mar

-15

Avg. depth of promos (4-week

average)

% of basket under

promotion

(4-week average)

% of products - Coles

Coles promotional depth

http://www.macquarie.com/research/disclosures

Macquarie Wealth Management Australian Supermarkets

17 April 2015 2

The MICAWBER – March 2015 (3Q15)

We have updated the MICAWBER (Macquarie Index of Coles And Woolworths Basket of

Everyday Requirements), our price index of a basket of >100 products based on the prices on

their respective websites at Coles and Woolworths, for insight into price movements at the two

leading Australian supermarket chains, which when combined control ~70% of the Australian

supermarket market. [For MICAWBER methodology see Appendix 1]

WOW online prices now on par with in store... On the weekend of the 7th of March WOW

updated the prices of their online supermarket offering to be in line with the prices seen in stores;

previously the differential was ~2-3% across an average basket of goods.

... Coles yet to follow online price matching with in store. Our data suggests Coles are yet to

follow suit and have previously advised, without providing any percentages, that they align prices

of catalogue items and key promotional items (multi-buy, EDLP etc) with in store prices; however,

regular grocery and Fresh items are priced differently online.

Adjusting for the changes in WOW online prices the MICAWBER shows that online prices

at WOW have increased 2.6% while prices at Coles have increased by +5.1% since Jan 14.

We note that our index does not account for the volume shift towards products on promotion, so

overstates the level of price inflation (see fig 9 for promotional volume impact). As a result, we

focus on the relativities between WOW and Coles, rather than the absolute price increases.

Fig 1 WOW changing to consistent pricing skews MICAWBER - WOW still shows lower inflation

Fig 2 Price inflation calculated on a Quarterly index (average prices over 12-week period rather than 4-week)

Quarterly MICAWBER 3Q14 4Q14 1Q15 2Q15 3Q15 QoQ Chg

YoY Chg

WOW 100.0 101.5 103.9 101.5 101.0 -0.5 1.0

Coles 100.0 103.2 105.2 104.1 104.2 0.1 4.2

Difference 0.0 -1.7 -1.3 -2.6 -3.2

Source: Company data, Macquarie Research, April 2015 Source: Company data, Macquarie Research, April 2015

While meat & seafood and fruit have been the greatest drivers of inflation across both

supermarkets, the major point of differentiation has occurred through ‘other foods’ (snacks,

confectionary, condiments, spreads etc.) which have deflated in price at WOW and inflated at

Coles since the indexes inception in January 14.

Fig 3 Meat & seafood and Fruits are main drivers of inflation across both supermarkets...

Fig 4 ... with ‘other food’ illustrating the greatest differential between the supermarkets


105.1

100.7

102.6

98

99

100

101

102

103

104

105

106

107

108

24-J

an

-14

14-F

eb-1

4

7-M

ar-

14

28-M

ar-

14

18-A

pr-

14

9-M

ay-1

4

30-M

ay-…

20-J

un

-14

11-J

ul-

14

1-A

ug

-14

22-A

ug

-14

12-S

ep

-14

3-O

ct-

14

24-O

ct-

14

14-N

ov-1

4

5-D

ec-1

4

26-D

ec-1

4

16-J

an

-15

6-F

eb-1

5

27-F

eb-1

5

20-M

ar-

15

MICAWBER MICAWBER Coles

MICAWBER WOW

Adjusted MICAWBER

0.7

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

30-M

ay-1

4

13-J

un

-14

27-J

un

-14

11-J

ul-

14

25-J

ul-

14

8-A

ug

-14

22-A

ug

-14

5-S

ep

-14

19-S

ep

-14

3-O

ct-

14

17-O

ct-

14

31-O

ct-

14

14-N

ov-1

4

28-N

ov-1

4

12-D

ec-1

4

26-D

ec-1

4

9-J

an

-15

23-J

an

-15

6-F

eb-1

5

20-F

eb-1

5

6-M

ar-

15

20-M

ar-

15

MICAWBER -WOW WOW - Bread and cereal products WOW - Vegetables

WOW - Fruits WOW - Meat and seafoodWOW - Dairy and related products WOW - Other foodsWOW - Non-alcoholic drinks WOW - Household goodsMICAWBER WOW

5.1

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

30-M

ay-1

4

13-J

un

-14

27-J

un

-14

11-J

ul-

14

25-J

ul-

14

8-A

ug

-14

22-A

ug

-14

5-S

ep

-14

19-S

ep

-14

3-O

ct-

14

17-O

ct-

14

31-O

ct-

14

14-N

ov-1

4

28-N

ov-1

4

12-D

ec-1

4

26-D

ec-1

4

9-J

an

-15

23-J

an

-15

6-F

eb-1

5

20-F

eb-1

5

6-M

ar-

15

20-M

ar-

15

MICAWBER -Coles Coles - Bread and cereal products Coles - Vegetables

Coles - Fruits Coles - Meat and seafood

Coles - Dairy and related products Coles - Other foods

Coles - Non-alcoholic drinks Coles - Household goods

MICAWBER Coles


17 April 2015 3

Hidden inflation creeping into Coles basket. While the results in March are somewhat skewed

from the WOW price changes, it is interesting to note that Coles did experience some ‘hidden

inflation’ during March in which a couple of products were reduced in size yet the price remained

the same as previous weeks, effectively increasing the per gram price. From our basket this

occurred in Cadbury Dairy Milk Chocolate Block (reduced from 220g to 200g) and Smith’s Crinkle

Cut BBQ Chips (reduced from 175g to 170g). We expect these changes to eventually flow through

to WOW products in coming weeks as existing inventory rolls off.

Fig 5 ‘Other food’ at WOW has deflated in price since the index inception in Jan 14...

Fig 6 ... while hidden inflation creeping through at Coles from changing product weights


Comparing the prices at WOW & Coles

Each week we examine the price difference between Woolworths and Coles by comparing the 4

week average price of the goods in the basket from each supermarket on a weekly basis.

WOW online prices cheaper than Coles. Adjusting for the price changes by WOW in March, a

basket of goods from WOW was ~2.3% cheaper than Coles on a weighted basis.

Fig 7 Online price differential between Woolworths and Coles still showing materially cheaper prices at WOW, despite variance from WOW price adjustments in March

Price diff. at end of month Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15

Bread and cereal products -2.1% -5.1% 1.1% -5.5% -2.6% -7.0% -7.3% -0.2% -4.3% -5.8% -8.4% -10.4% -8.9% -5.9% -6.6%

Vegetables 0.9% -1.6% -2.5% -4.4% 6.7% 5.3% 0.9% -1.7% 5.9% 6.7% 15.6% 4.0% 0.9% -6.3% -4.5%

Fruits 1.3% 6.9% 6.2% 6.6% 0.8% 2.3% 7.5% -5.4% -5.5% 0.4% -3.2% -1.5% 7.0% -0.8% -4.5%

Meat and seafood 0.0% 3.7% -0.7% -0.4% -2.3% 1.0% 1.0% 4.4% -0.8% -4.3% -1.2% 1.9% 0.1% -0.6% 1.0%

Dairy and related products 6.5% 5.0% 2.6% 2.6% 2.0% 3.0% 1.0% 2.4% 5.2% 4.0% 3.3% 2.7% 4.7% 5.0% 1.1%

Other foods 4.2% -3.8% 3.3% 3.9% -5.2% -10.8% -7.6% -4.0% -1.4% 2.0% -2.2% -2.5% -3.4% -0.5% -12.3%

Non-alcoholic drinks -2.9% -2.8% -0.5% -3.5% 1.6% -3.6% 4.7% 0.4% 2.4% -5.9% 0.6% -6.0% 1.4% -3.7% -3.9%

Non durable household goods -0.4% 4.5% 4.5% -4.6% 4.2% -0.3% 4.0% -1.3% -0.3% 2.1% 2.6% 1.0% 2.4% 0.2% -2.9%

All products (weighted) 1.0% 0.5% 1.4% -0.1% -0.3% -1.6% -0.2% -0.5% -0.3% -0.7% 0.0% -1.6% -0.1% -1.8% -4.2%

Source: Company data, Macquarie Research, April 2015

80.0

85.0

90.0

95.0

100.0

105.0

110.0

24-J

an

-14

14-F

eb-1

4

7-M

ar-

14

28-M

ar-

14

18-A

pr-

14

9-M

ay-1

4

30-M

ay-1

4

20-J

un

-14

11-J

ul-

14

1-A

ug

-14

22-A

ug

-14

12-S

ep

-14

3-O

ct-

14

24-O

ct-

14

14-N

ov-1

4

5-D

ec-1

4

26-D

ec-1

4

16-J

an

-15

6-F

eb-1

5

27-F

eb-1

5

20-M

ar-

15

Index WOW - Other foods

Coles - Other foods

Divergence primarilydue to WOW matching

online to in store prices

94.0

95.0

96.0

97.0

98.0

99.0

100.0

101.0

102.0

103.0

104.0

3-J

an

-14

24-J

an

-14

14-F

eb-1

4

7-M

ar-

14

28-M

ar-

14

18-A

pr-

14

9-M

ay-1

4

30-M

ay-1

4

20-J

un

-14

11-J

ul-

14

1-A

ug

-14

22-A

ug

-14

12-S

ep

-14

3-O

ct-

14

24-O

ct-

14

14-N

ov-1

4

5-D

ec-1

4

26-D

ec-1

4

16-J

an

-15

6-F

eb-1

5

27-F

eb-1

5

20-M

ar-

15

Weighted growth (%) WOW - Cadbury Dairy Milk Block 220g

Coles - Cadbury Dairy Milk Chocolate Block 220g

Difference exaggerated from Coles substituting 220g blocks

with 200g blocks withough a price change during March

-4.2%

-2.3%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

3-Ja

n-1

4

17-J

an-1

4

31-J

an-1

4

14-F

eb-1

4

28-F

eb-1

4

14-M

ar-1

4

28-M

ar-1

4

11-A

pr-

14

25-A

pr-

14

9-M

ay-1

4

23-M

ay-1

4

6-Ju

n-1

4

20-J

un-1

4

4-Ju

l-14

18-J

ul-1

4

1-A

ug-1

4

15-A

ug-1

4

29-A

ug-1

4

12-S

ep-1

4

26-S

ep-1

4

10-O

ct-1

4

24-O

ct-1

4

7-N

ov-

14

21-N

ov-

14

5-D

ec-1

4

19-D

ec-1

4

2-Ja

n-1

5

16-J

an-1

5

30-J

an-1

5

13-F

eb-1

5

27-F

eb-1

5

13-M

ar-1

5

27-M

ar-1

5

WOW vs. Coles (%)

TOTAL - ex. Liquor and tobacco

TOTAL - ex. Liquor and tobacco (ADJ)

Colescheaper

WOW cheaper

Colescheaper

WOW cheaper


17 April 2015 4

It is important to note that a lower price does not necessarily directly relate to increased sales

volume. What is arguably more important is the customer price perception which is more a

function of effective marketing strategies. Each supermarket clearly recognises this and has

developed campaigns focusing on low prices and value with Coles ‘Down, Down’ campaign and

Woolworths’ recently launched, and somewhat similar, ‘Cheap, Cheap’ campaign.

Woolworths and Coles both measure price inflation/deflation (including liquor and tobacco) based

on average prices which includes the effects of promotions and volumes. Both major

supermarkets have been experiencing deflation since these measures were introduced in 1Q11

with Woolworths experiencing a consistently lower level of deflation over this period; however, this

measure does not give us an indication on the relative price levels before and after the

measurements were taken. We note that the extent of price deflation has been reducing over

more recent quarters.

Fig 8 Segment weights adopted in MICAWBER Fig 9 WOW and Coles reported inflation

Source: ABS, Macquarie Research, April 2014 Source: ABS, Company data, Macquarie Research, April 2015

Promotional strategies at Coles

Coles promotional strategy ‘business as usual’. Our data illustrates that Coles has maintained

their average levels of ‘number of products on promotion’ and the ‘depth of discount’. We expect

Coles to maintain the strategy that has been working for them without unnecessarily getting drawn

into a ‘price war’.

We have left out analysis relating to WOW due to the variability caused from the March price

changes; however, historically, WOW were seen to offer promotions on a greater number of

products while Coles offered deeper discounts. When weightings are considered the difference in

promotional depth between Woolworths and Coles is negligible.

Fig 10 Coles have reduced the number of products on promotion in March while maintaining the same level of promotional depth

Source: Macquarie Research, April 2015

20.6%

15.3%

15.3%14.4%

12.1%

10.3%

10.2%1.9%

Meat and seafood

Bread and cereal products

Other foods

Fruits

Vegetables

Dairy and related products

Non-alcoholic drinks

Non durable household goods

2.0%

3.5%

-0.9%-1.6%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Sep

-04

Dec-0

4M

ar-

05

Jun-0

5S

ep

-05

Dec-0

5M

ar-

06

Jun-0

6S

ep

-06

Dec-0

6M

ar-

07

Jun-0

7S

ep

-07

Dec-0

7M

ar-

08

Jun-0

8S

ep

-08

Dec-0

8M

ar-

09

Jun-0

9S

ep

-09

Dec-0

9M

ar-

10

Jun-1

0S

ep

-10

Dec-1

0M

ar-

11

Jun-1

1S

ep

-11

Dec-1

1M

ar-

12

Jun-1

2S

ep

-12

Dec-1

2M

ar-

13

Jun-1

3S

ep

-13

Dec-1

3M

ar-

14

Jun-1

4S

ep

-14

Dec-1

4

% Change

ABS Food Inf lation

WOW food Inf lation (standard shelf price)

Coles food & Liquor Inf lation (avg. prices)

WOW food & liquor Inf lation (avg. prices)

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

31

-Jan

-14

14

-Fe

b-1

4

28

-Fe

b-1

4

14

-Mar

-14

28

-Mar

-14

11

-Ap

r-1

4

25

-Ap

r-1

4

9-M

ay-1

4

23

-May

-14

6-J

un

-14

20

-Ju

n-1

4

4-J

ul-

14

18

-Ju

l-1

4

1-A

ug-

14

15

-Au

g-1

4

29

-Au

g-1

4

12

-Se

p-1

4

26

-Se

p-1

4

10

-Oct

-14

24

-Oct

-14

7-N

ov-

14

21

-No

v-1

4

5-D

ec-

14

19

-De

c-1

4

2-J

an-1

5

16

-Jan

-15

30

-Jan

-15

13

-Fe

b-1

5

27

-Fe

b-1

5

13

-Mar

-15

27

-Mar

-15

Avg. depth of promos (4-week average)

% of basket under promotion

(4-week average)% of products - Coles Coles promotional depth


17 April 2015 5

Appendix 1 – MICAWBER Methodology

The basket of items selected in the MICAWBER represents what we believe is a ‘typical basket’ of

products consumers purchase and considers each supermarket segment of material importance

(fruit, vegetable, meat, bread, dairy etc.). Each segment is weighted according to the most recent

ABS expenditure survey (2011), which provides the average weekly expenditure on each

segment. The individual products within each segment are then weighted according to our

assumptions on relative sales volume and dollar contribution.

The MICAWBER will be used to identify supermarket price inflation/deflation, highlight potential

price creeping in specific segments or products and measure the relative difference in prices

between Woolworths and Coles. However, we recognise that the inflation/deflation numbers

produced by the MICAWBER will be different to those reported by the supermarkets given their

general measure of price inflation/deflation considers the substitution and complementary effects

that promotional discounts and marketing may have on altering consumer preferences towards

particular products.

To provide the most accurate reflection of the impact of price differences on households each

segment is weighted according to the most recent ABS expenditure survey (2011), which provides

the average weekly expenditure across each product category. The individual products within

each category are then weighted according to our assumptions on relative sales volume and dollar

contribution.

Fig 11 Segments weights adopted

Source: ABS, Macquarie Research, February 2015

Our analysis contains weekly price data dating back to January 2014 with prices averaged over a

4 week period to smooth out the effects of material weekly promotional activity (e.g. half price

promotions) of individual products. Each product and category is then indexed to the starting 4

week average price (24 January 2014) and tracked, relative to the starting base, each week

(ending Friday).

Meat and seafood, 20.6%

Bread and cereal products,

15.3%

Other foods, 15.3%

Fruits, 14.4%

Vegetables, 12.1%

Dairy and related

products, 10.3%

Non-alcoholic drinks, 10.2%

Household goods, 1.9%


17 April 2015 6

Appendix 2 – MICAWBER breakdown at the segment level

The graphs below outline the price indices we are tracking across a basket of Coles and

Woolworths products at the segment level.

Fig 12 Breakdown of MICAWBER by segment


WOW - Vegetables, 94.1

WOW - Fruits, 108.0

WOW - Meat and seafood, 115.8

WOW - Dairy and related products, 98.3

WOW - Other foods, 89.5

WOW - Non-alcoholic drinks, 100.6

WOW - Household goods, 97.1

MICAWBER WOW, 100.7

WOW - Bread and cereal products, 92.3

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

24-J

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MICAWBER - WOW

Coles - Vegetables, 102.6

Coles - Fruits, 109.6

Coles - Meat and seafood, 114.1

Coles - Dairy and related products, 102.2

Coles - Other foods, 106.0

Coles - Non-alcoholic drinks, 100.2

Coles - Household goods, 104.9MICAWBER Coles, 105.1

Coles - Bread and cereal products, 94.9

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

24-J

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MICAWBER - Coles


17 April 2015 7

Appendix 3 – Quarterly index values by segment (weighted)

The table below represents the breakdown of the quarter index values by segment (based on 12-

week average prices) and illustrates the supermarket segments which are driving the total basket

movements.

Fig 13 Breakdown of weighted indices by segment

Segment 3Q14 4Q14 1Q15 2Q15 3Q15 QoQ

Change YoY

Change

WOW - Bread and cereal products 100.0 100.1 100.1 99.6 99.0 -0.7 -1.0

Coles - Bread and cereal products 100.0 100.7 100.2 100.7 99.8 -0.9 -0.2

Difference 0.0 -0.6 -0.2 -1.1 -0.8

WOW - Vegetables 100.0 99.8 99.7 99.6 99.5 0.0 -0.5

Coles - Vegetables 100.0 99.4 99.4 98.8 99.8 1.0 -0.2

Difference 0.0 0.4 0.2 0.8 -0.3

WOW - Fruits 100.0 100.5 101.5 101.1 100.6 -0.5 0.6

Coles - Fruits 100.0 100.6 102.2 102.1 101.3 -0.8 1.3

Difference 0.0 -0.1 -0.7 -1.0 -0.7

WOW - Meat and seafood 100.0 101.5 102.3 101.2 102.4 1.1 2.4

Coles - Meat and seafood 100.0 101.9 102.3 102.0 102.4 0.5 2.4

Difference 0.0 -0.4 0.0 -0.7 -0.1

WOW - Dairy and related products 100.0 100.0 100.1 100.2 100.1 0.0 0.1

Coles - Dairy and related products 100.0 100.2 100.3 100.3 100.3 0.0 0.3

Difference 0.0 -0.2 -0.2 -0.1 -0.1

WOW - Other foods 100.0 99.7 99.8 99.9 99.5 -0.4 -0.5

Coles - Other foods 100.0 100.4 100.6 100.1 100.5 0.4 0.5

Difference 0.0 -0.7 -0.8 -0.2 -1.0

WOW - Non-alcoholic drinks 100.0 99.9 100.4 99.9 99.9 0.0 -0.1

Coles - Non-alcoholic drinks 100.0 99.9 100.0 100.1 99.9 -0.2 -0.1

Difference 0.0 0.0 0.4 -0.2 0.0

WOW - Non durable household goods 100.0 100.0 100.0 100.1 100.0 0.0 0.0

Coles - Non durable household goods 100.0 100.0 100.1 100.1 100.1 0.0 0.1

Difference 0.0 -0.1 -0.1 0.0 -0.1

MICAWBER - WOW 100.0 101.5 103.9 101.5 101.0 -0.5 1.0

MICAWBER - Coles 100.0 103.2 105.2 104.1 104.2 0.1 4.2

Difference 0.0 -1.7 -1.3 -2.6 -3.2 -0.6 -3.2



17 April 2015 8

Appendix 4 – Quarterly index values by segment (non-weighted)

The table below represents the breakdown of the quarter index values by segment (based on

average prices of the quarter) and illustrates the supermarket segments which are driving the total

basket movements.

Fig 14 Breakdown of weighted indices by segment

Segment 3Q14 4Q14 1Q15 2Q15 3Q15 QoQ

Change YoY

Change

WOW - Bread and cereal products 100.0 100.7 100.6 97.7 93.4 -4.3 -6.6

Coles - Bread and cereal products 100.0 104.5 101.6 104.6 98.9 -5.7 -1.1

Difference 0.0 -3.9 -1.0 -6.9 -5.5

WOW - Vegetables 100.0 98.0 97.3 96.3 95.9 -0.4 -4.1

Coles - Vegetables 100.0 95.0 95.3 90.0 98.1 8.1 -1.9

Difference 0.0 2.9 1.9 6.3 -2.2

WOW - Fruits 100.0 103.2 110.1 107.7 104.0 -3.7 4.0

Coles - Fruits 100.0 104.0 115.1 115.0 109.1 -5.8 9.1

Difference 0.0 -0.8 -5.0 -7.3 -5.2

WOW - Meat and seafood 100.0 107.4 111.4 105.9 111.5 5.6 11.5

Coles - Meat and seafood 100.0 109.3 111.4 109.5 111.9 2.4 11.9

Difference 0.0 -1.9 0.0 -3.6 -0.4

WOW - Dairy and related products 100.0 100.4 101.0 101.5 101.2 -0.3 1.2

Coles - Dairy and related products 100.0 102.3 103.0 102.5 102.6 0.1 2.6

Difference 0.0 -1.9 -2.1 -1.0 -1.4

WOW - Other foods 100.0 98.3 99.0 99.3 96.8 -2.5 -3.2

Coles - Other foods 100.0 102.7 104.1 100.7 103.6 2.9 3.6

Difference 0.0 -4.4 -5.1 -1.4 -6.8

WOW - Non-alcoholic drinks 100.0 99.2 103.8 99.0 98.9 -0.1 -1.1

Coles - Non-alcoholic drinks 100.0 99.5 99.7 100.7 99.2 -1.5 -0.8

Difference 0.0 -0.2 4.1 -1.7 -0.3

WOW - Non durable household goods 100.0 98.9 101.0 103.7 101.9 -1.8 1.9

Coles - Non durable household goods 100.0 102.4 105.1 105.3 105.9 0.5 5.9

Difference 0.0 -3.5 -4.1 -1.6 -3.9



17 April 2015 9


Woolworths Limited Price: $28.53Group P&L FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Revenue A$m 57,063 59,564 61,195 32,680 30,053 62,733 34,027 31,467 65,493 68,319

Cost of Sales A$m -42,602 -43,781 -45,132 -24,088 -22,276 -46,322 -25,119 -23,375 -48,493 -50,640

Gross Profit A$m 14,461 15,783 16,063 8,592 7,777 16,412 8,908 8,092 17,001 17,680

CODB A$m -10,226 -11,164 -11,292 -5,928 -5,560 -11,531 -6,313 -5,789 -12,102 -12,594

EBITDA A$m 4,236 4,619 4,772 2,664 2,217 4,881 2,595 2,303 4,898 5,086

D&A A$m -884 -966 -996 -535 -507 -1,042 -549 -549 -1,098 -1,154

EBIT A$m 3,352 3,653 3,775 2,129 1,710 3,839 2,046 1,754 3,800 3,932

Interest expense A$m -284 -380 -260 -144 -139 -283 -168 -161 -328 -347

Minorities A$m -1 -5 -7 -4 11 7 0 13 13 2

Tax A$m -885 -914 -1,057 -598 -471 -1,069 -564 -478 -1,042 -1,075

Underlying NPAT A$m 2,183 2,354 2,452 1,384 1,110 2,494 1,315 1,129 2,443 2,511

Non-recurring items (after tax) A$m -366 -95 0 -104 0 -104 0 0 0 0

Reported NPAT A$m 1,817 2,259 2,452 1,280 1,110 2,390 1,315 1,129 2,443 2,511

Key ratios FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Adjusted EPS cps 177.7 189.4 195.6 110.0 87.5 197.4 103.4 88.5 191.9 196.1

DPS cps 126.0 133.0 137.0 67.0 70.0 137.0 62.9 70.8 133.7 136.6

FCFPS cps 171.7 152.8 210.2 83.9 77.8 161.4 122.0 78.3 200.0 205.5

PER x 16.1 15.1 14.6 13.0 16.3 14.5 13.8 16.1 14.9 14.5

EV/EBITDA x 9.2 8.5 8.2 14.7 18.1 8.2 15.4 17.6 8.3 8.0

EV/EBIT x 11.6 10.7 10.4 18.4 23.5 10.4 19.6 23.1 10.6 10.4

EV/Sales x 0.70 0.67 0.64 1.21 1.34 0.64 1.18 1.29 0.62 0.60

Dividend Yield % 4.4 4.7 4.8 4.7 4.9 4.8 4.4 5.0 4.7 4.8

Payout ratio % 70.9 70.2 70.0 60.9 80.0 69.4 60.9 80.0 69.7 69.6

Sales grow th % 4.7 4.4 2.7 1.9 3.2 2.5 4.1 4.7 4.4 4.3

EBITDA grow th % 2.5 9.0 3.3 3.6 0.7 2.3 -2.6 3.9 0.4 3.8

Underlying NPAT growth % 2.8 7.8 4.2 4.7 -1.8 1.7 -5.0 1.7 -2.0 2.8

EPS grow th % 2.4 6.5 3.3 4.2 -2.8 0.9 -6.0 1.2 -2.8 2.2

Cost of Sales / Revenue % 74.7 73.5 73.8 73.7 74.1 73.8 73.8 74.3 74.0 74.1

CODB / Revenue % 17.9 18.7 18.5 18.1 18.5 18.4 18.6 18.4 18.5 18.4

Gross Profit Margin % 25.3 26.5 26.2 26.3 25.9 26.2 26.2 25.7 26.0 25.9

EBITDA margin % 7.4 7.8 7.8 8.2 7.4 7.8 7.6 7.3 7.5 7.4

EBIT margin % 5.9 6.1 6.2 6.5 5.7 6.1 6.0 5.6 5.8 5.8

NPAT margin % 3.8 4.0 4.0 4.2 3.7 4.0 3.9 3.6 3.7 3.7

ROA % 13.7 16.1 16.0 16.0 13.4 14.7 15.6 13.0 14.3 14.0

ROE % 26.7 26.8 24.6 25.5 19.6 22.6 22.5 18.5 20.5 19.5

Australian Food and Liquor FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Supermarket sales A$m 30,949 32,831 33,771 18,000 16,516 34,516 18,309 17,009 35,318 36,340

Liquor sales A$m 6,600 7,200 7,400 4,200 3,496 7,696 4,410 3,671 8,081 8,485

Revenue A$m 37,549 40,031 41,171 22,200 20,012 42,212 22,719 20,680 43,399 44,825

EBITDA A$m 3,339 3,604 3,827 2,140 1,801 3,941 2,013 1,879 3,892 3,977

D&A A$m -521 -542 -548 -295 -260 -555 -286 -286 -573 -594

EBIT A$m 2,817 3,062 3,279 1,845 1,541 3,386 1,727 1,592 3,319 3,383

F&L Price grow th % -4.4 -2.9 -3.1 -1.8 -1.6 -1.7 -1.3 -1.1 -1.2 -0.7

F&L Volume grow th (ex space grow th)% 5.5 5.6 6.1 3.5 2.3 2.9 2.3 3.1 2.7 2.7

F&L Comp growth % 1.1 2.7 3.0 1.7 0.7 1.2 1.0 2.0 1.5 2.0

F&L Contribution from Space grow th% 2.7 2.0 1.7 1.7 0.9 1.3 1.3 1.3 1.3 1.3

F&L Sales growth % 3.8 4.7 4.7 3.4 1.6 2.5 2.3 3.3 2.8 3.3

EBITDA margin % 8.9 9.0 9.3 9.6 9.0 9.3 8.9 9.1 9.0 8.9

EBIT margin % 7.5 7.6 8.0 8.3 7.7 8.02 7.6 7.7 7.65 7.5

Supermarket sqm (est) sqm 2,034,506 2,110,932 2,206,361 2,253,517 2,272,552 2,272,552 2,321,123 2,340,728 2,340,728 2,410,950

Supermarkets (number) # 883 908 942 957 976 976 989 1,001 1,001 1,026

sqm per supermarket sqm 2,304 2,325 2,342 2,355 2,328 2,328 2,348 2,338 2,338 2,350

Supermarket sales per sqm A$ 15,212 15,553 15,306 7,988 7,267 15,188 7,888 7,267 15,089 15,073

Supermarket space grow th % 4.7 3.8 4.5 3.7 3.0 3.0 3.0 3.0 3.0 3.0

Supermarket productivity grow th % -2.3 2.2 -1.6 -0.7 -1.6 -0.8 -1.2 0.0 -0.7 -0.1

Liquor sqm (est) sqm 354,023 374,352 390,582 395,527 399,497 399,497 402,449 408,412 408,412 417,327

Liquor stores (number) # 1,313 1,355 1,402 1,426 1,434 1,434 1,450 1,466 1,466 1,498

sqm per Liquor store sqm 270 276 279 277 279 279 278 279 279 279

Liquor sales per sqm A$ 18,643 19,233 18,946 10,619 8,751 19,264 10,958 8,988 19,786 20,331

Liquor space grow th % 8.4 5.7 4.3 3.3 2.3 2.3 1.8 2.2 2.2 2.2

Liquor productivity grow th % 3.2 3.2 -1.5 1.7 0.5 1.7 3.2 2.7 2.7 2.8

Convenience FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Revenue A$m 6,714 6,794 7,065 3,306 3,321 6,627 3,502 3,518 7,020 7,426

EBITDA A$m 159 171 121 67 65 132 70 69 139 146

EBIT A$m 127 137.7 89.3 50.3 50 100 53 53 106 112

NZ Supermarkets (AUD) FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Revenue A$m 4,302 4,600 5,186 2,790 2,712 5,502 3,012 2,742 5,753 5,684

EBITDA A$m 309 322 368 203 204 407 220 205 425 420

EBIT A$m 225 236 271 154 150 304 167 152 319 314

Home Improvement FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Masters Revenue A$m 146 529 752 505 726 1231 631 1009 1639 2055

Danks Revenue A$m 682 710 775 483 616 1099 801 801 1603 2117

Total Revenue A$m 828 1239 1527 988 1341 2329 1432 1810 3242 4172

EBITDA A$m -80 -99 -111 -65 -35 -100 -24 -36 -60 27

EBIT A$m -97 -139 -169 -103 -101 -204 -92 -104 -196 -143

BIG W FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Revenue A$m 4,180 4,383 4,352 2,365 1,807 4,172 2,336 1,821 4,158 4,250

EBITDA A$m 261 285 247 157 79 236 159 85 243 254

EBIT A$m 178 191 153 110 33 142 111 37 147 156

Cash Flow FY12A FY13A FY14A 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Operating Cashflow AU$m 2,873.8 2,719.9 3,472.7 1,508.2 1,398.0 2,906.2 2,010.6 1,444.9 3,455.5 3,587.2

Investing Cashflow AU$m -2,080.3 -1,201.7 -2,031.4 -334.0 -1,215.8 -1,549.8 -1,081.1 -1,085.4 -2,166.4 -2,202.7

Financing Cashflow AU$m -1,469.2 -1,520.4 -1,371.9 -559.6 -182.2 -741.8 -929.6 -359.6 -1,289.1 -1,384.5

Net increase/ (decrease) in cash heldAU$m -675.7 -2.2 69.4 614.6 0.0 614.6 0.0 0.0 0.0 0.0

Balance sheet FY12A FY13A FY14A FY15E FY16E FY17E Valuation

Assets SOTP FY15 FY16

Cash and cash equivalents AU$m 833 849 923 1,550 1,550 1,550 Australian Food & Liquor 35,641 35,271

Trade and other receivables AU$m 870 969 926 1,031 1,110 1,191 New Zealand Supermarkets 3,560 3,722

Inventories AU$m 3,698 4,205 4,693 4,647 4,865 5,083 Big W 2,062 2,130

Property, plant and equipment AU$m 9,589 9,246 9,601 10,418 11,508 12,578 Home Improvement 0 0

Intangibles AU$m 5,282 5,784 6,335 6,462 6,523 6,583 Hotels 2,707 2,666

Other Assets AU$m 1,309 1,197 1,728 1,718 1,718 1,718 Other -563 -574

Total Assets AU$m 21,581 22,250 24,205 25,826 27,273 28,703 Enterprise Value 43,407 43,215

Liabilities - Net Debt -3,914 -4,111

Trade Creditors AU$m 5,242 5,390 6,006 5,520 5,779 6,038 Equity Value 39,494 39,103

Debt AU$m 4,750 4,452 4,356 5,464 5,662 5,800 Equity Value per Share 31.18 30.69

Other Liabilities AU$m 5,282 5,784 6,335 6,462 6,523 6,583 Target price

Total Liabilities AU$m 13,135 12,950 13,680 14,393 14,896 15,339 Capital return

Equity Dividend yield

Share Capital AU$m 4,337 4,523 4,850 5,064 5,263 5,467 Total Return

Retained Earnings AU$m 4,163 4,661 5,423 5,958 6,715 7,500 EV/EBITDA at target

Other AU$m -54 117 252 411 399 397 PER at target price

Total Equity AU$m 8,446 9,301 10,525 11,433 12,377 13,364 Div Yield at Target Price

30.94

15.9

4.4

8.8

8.4

4.7

13.1


17 April 2015 10


Wesfarmers Limited Price: $43.00Group P&L FY12 FY13 FY14 1HFY15 2HFY15 FY15E 1HFY16 2HFY16 FY16E FY17E

Revenue AU$m 58,079 59,832 62,348 32,084 31,708 63,843 34,059 33,431 67,490 71,280

Total Divisional EBITDA AU$m 4,544 4,729 4,909 2,657 2,298 4,955 2,773 2,480 5,253 5,789

Depreciation and Amortisation AU$m -995 -1,071 -1,123 -581 -548 -1,129 -583 -583 -1,166 -1,193

Adj. Equity accounted associates & non recurring itemsAU$m 40 -22 -65 -43 -35 -78 -43 -35 -78 -78

Adj. Equity accounted associates AU$m -16 48 65 43 35 78 43 35 78 78

EBIT from continuing opertaions AU$m 3,573 3,684 3,786 2,076 1,749 3,825 2,190 1,897 4,088 4,596

Non-recurring items AU$m -24 -26 364 18 0 18 0 0 0 0

Group EBIT AU$m 3,549 3,658 4,150 2,094 1,749 3,843 2,190 1,897 4,088 4,596

Net Interest Expense AU$m -505 -432 -363 -158 -147 -305 -161 -165 -326 -399

Tax Expense AU$m -918 -965 -1,098 -542 -481 -1,023 -609 -520 -1,128 -1,259

Minorities AU$m 0 0 0 0 0 0 0 0 0 0

Reported NPAT AU$m 2,126 2,261 2,689 1,394 1,122 2,516 1,420 1,213 2,633 2,938

Non-recurring Items (post tax) AU$m 17 18 -291 -13 0 -13 0 0 0 0

Adjusted NPAT AU$m 2,143 2,279 2,398 1,381 1,122 2,503 1,420 1,213 2,633 2,938

Key ratios FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Adjusted EPS cps 185.4 197.2 209.0 119.9 99.8 219.7 126.4 107.9 234.3 261.4

DPS (ex capital return) cps 165.0 180.0 200.0 89.0 126.6 215.6 93.8 136.9 230.7 257.1

FCFPS cps 244.9 264.9 205.6 162.8 68.9 231.7 180.5 74.6 255.1 282.5

PER x 23.2 21.8 20.6 35.9 43.1 19.6 34.0 39.8 18.4 16.4

Dividend Yield % 3.8 4.2 4.7 2.1 2.9 5.0 2.2 3.2 5.4 6.0

Payout ratio % 89.0 91.3 95.7 74.2 126.9 98.2 74.2 126.9 98.5 98.4

Sales grow th % 5.8 3.0 4.2 0.7 4.0 2.4 6.2 5.4 5.7 5.6

EBITDA grow th % 9.4 4.1 3.8 -2.0 4.5 0.9 4.4 7.9 6.0 10.2

Underlying NPAT grow th % 11.1 6.4 5.2 1.4 8.3 4.4 2.8 8.1 5.2 11.6

EPS grow th % 11.1 6.4 6.0 1.3 10.1 5.1 5.4 8.1 6.6 11.6

EBITDA margin % 7.8 7.9 7.9 8.3 7.2 7.8 8.1 7.4 7.8 8.1

EBIT margin % 6.1 6.1 6.7 6.5 5.5 6.0 6.4 5.7 6.1 6.4

NPAT margin % 3.7 3.8 3.8 4.3 3.5 3.9 4.2 3.6 3.9 4.1

ROA % 8.5 8.5 9.8 10.3 8.6 9.5 10.6 9.0 9.8 10.7

ROE % 8.4 8.8 9.3 10.7 9.0 9.8 11.3 9.6 10.4 11.6

Coles Food and Liquor FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Revenue AU$m 26,561 27,933 29,220 15,559 15,246 30,790 16,312 15,969 32,281 33,747

EBIT AU$m 1,232 1,368 1,536 821 829 1,650 871 890 1,761 1,874

F&L Comp growth % 3.7 4.3 3.7 4.2 3.8 4.0 3.7 3.5 3.6 3.3

F&L Contribution from Space grow th % 0.9 1.2 1.0 1.1 1.8 1.5 1.2 1.2 1.2 1.2

F&L Sales growth % 4.6 5.5 4.7 5.3 5.6 5.5 4.9 4.7 4.8 4.5

EBIT margin % 4.6 4.9 5.3 5.3 5.4 5.4 5.3 5.6 5.5 5.6

Supermarket sqm sqm 1,630,168 1,656,520 1,692,642 1,728,445 1,743,421 1,743,421 1,771,656 1,787,007 1,787,007 1,831,682

Supermarkets (number) # 749 756 762 771 779 779 785 793 793 808

sqm per supermarket sqm 2,176 2,191 2,221 2,242 2,237 2,237 2,258 2,253 2,253 2,268

Supermarket space grow th 1.9 1.6 2.2 3.0 3.0 3.0 2.5 2.5 2.5 2.5

Liquor sqm 190,247 199,178 205,179 209,293 210,040 210,040 214,252 215,017 215,017 220,111

Liquor stores (number) 792 810 831 853 851 851 873 871 871 891

sqm per Liquor store 240 246 247 245 247 247 245 247 247 247

Liquor space grow th 203 205 203 202 202 202 202 202 202 202

Coles Convenience FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 7,556 7,847 8,171 3,924 4,525 8,449 4,097 4,724 8,821 9,297

EBIT $m 124 165 136 74 59 133 61 95 156 183

Sales Grow th % 11.3 3.9 4.1 -6.0 13.3 3.4 4.4 4.4 4.4 5.4

Bunnings FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales (ex-property) $m 7152 7653 8533 4959 4670 9629 5688 5281 10969 12203

EBITDA (ex-property) $m 957 1028 1106 672 542 1214 763 608 1371 1514

EBIT (ex-property) $m 832 896 966 604 470 1074 688 533 1221 1359

Comparable grow th % 3.9 4.4 8.4 9.1 8.5 8.8 7.1 6.1 6.6 6.1

Contribution from space grow th % 2.0 2.8 3.3 2.7 5.6 4.2 7.6 6.9 7.3 5.1

Sales Growth % 5.9 7.2 11.7 11.8 14.1 13.0 14.7 13.0 13.9 11.2

Office Supplies FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 1481 1506 1575 802 885 1687 839 929 1768 1837

EBITDA $m 108 117 124 61 75 136 65 81 146 156

EBIT $m 85 93 103 50 66 116 55 71 126 135

Kmart FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 4055 4167 4209 2442 2015 4457 2577 2134 4712 4962

EBITDA $m 332 415 448 333 169 502 357 183 540 569

EBIT $m 268 344 366 289 125 414 311 138 450 476

Target FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 3738 3658 3501 1935 1510 3445 1899 1508 3407 3373

EBITDA $m 317 216 167 112 53 165 129 68 197 229

EBIT $m 244 136 86 70 22 92 89 28 117 148

Resources FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Revenue $m 2132 1539 1544 689 787 1526 731 754 1484 1700

EBITDA $m 589 299 290 108 146 254 72 92 164 305

EBIT $m 439 148 130 35 57 92 -9 11 2 141

Chemicals, Energy & Fertilisers FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 1786 1805 1812 810 1046 1856 856 1089 1945 2016

EBITDA $m 348 348 314 144 129 273 158 139 297 320

EBIT $m 258 249 221 95 80 175 109 90 199 222

Industrial and Safety FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Sales $m 1690 1647 1621 935 1009 1944 1046 1030 2075 2117

EBITDA $m 217 192 161 67 84 151 75 85 160 163

EBIT $m 190 165 131 50 69 119 59 69 128 131

Cash Flow FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17

Operating Cashflow AU$m 3,641 3,931 3,226 2,281 1,203 3,484 2,481 1,293 3,775 4,104

Investing Cashflow AU$m -2,169 -1,760 952 -1,012 -749 -1,761 -1,114 -1,114 -2,228 -2,164

Financing Cashflow AU$m -1,242 -1,965 -3,444 -1,831 -453 -2,284 -1,367 -179 -1,546 -1,941

Net Increase/(decrease) in cash held AU$m 230 206 734 -562 0 -562 0 0 0 0

Balance sheet FY12 FY13 FY14 FY15E FY16E FY17E Valuation

Assets SOTP FY15 FY16

Cash and trade receivables AU$m 3,511 3,674 3,651 3,149 3,238 3,333 Coles 23,525 25,080

Inventories AU$m 5,006 5,047 5,336 5,545 5,835 6,134 Bunnings 16,773 18,887

Property Plant and Equipment AU$m 9,463 10,164 9,952 10,679 11,864 12,958 Office Supplies 1,090 1,171

Goodw ill and other intangibles AU$m 16,097 16,151 14,510 14,590 14,590 14,590 Kmart 4,519 4,860

Intangibles 4,393 4,459 4,446 4,508 4,404 4,300 Target 1,486 1,773

Other Assets AU$m 3,842 3,660 1,832 2,297 2,297 2,297 Resources 2,201 2,201

Total Assets AU$m 42,312 43,155 39,727 40,767 42,228 43,612 Chemicals, Energy & Fertilisers 2,180 2,374

Liabilities Industrial & Safety 1,356 1,442

Trade Creditors AU$m 5,420 5,999 5,417 5,629 5,923 6,227 Other -541 -820

Short & Long Term Debt AU$m 5,502 5,779 5,065 6,690 7,621 8,401 Enterprise Value 52,589 56,967

Other Liabilities AU$m 5,763 5,355 3,258 3,295 3,375 3,457 - Net Debt -3,859 -5,185

Total liabilities AU$m 16,685 17,133 13,740 15,614 16,919 18,085 Equity Value 48,730 51,782

Equity Equity Value per Share 43.36 46.08

Share Capital AU$m 23,286 23,290 22,708 21,847 21,847 21,847 Target price

Retained Earnings & Other Equity AU$m 2,103 2,375 2,901 3,084 3,239 3,457 Capital return

Otehr Equity 238 357 378 223 223 223 Dividend yield

Total Equity AU$m 25,627 26,022 25,987 25,154 25,309 25,527 Total Return 9.1

44.72

4.0

5.1


17 April 2015 11

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe

Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or

down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 March 2015

AU/NZ Asia RSA USA CA EUR Outperform 48.99% 59.51% 49.30% 43.79% 59.59% 52.20% (for US coverage by MCUSA, 7.42% of stocks followed are investment banking clients)

Neutral 34.12% 26.62% 35.21% 50.29% 34.93% 31.32% (for US coverage by MCUSA, 5.68% of stocks followed are investment banking clients)

Underperform 16.89% 13.87% 15.49% 5.93% 5.48% 16.48% (for US coverage by MCUSA, 0.87% of stocks followed are investment banking clients)

WOW AU vs ASX 100, & rec history

(all figures in AUD currency unless noted)

WES AU vs ASX 100, & rec history

(all figures in AUD currency unless noted)

Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, April 2015

12-month target price methodology

WOW AU: A$30.94 based on a Sum of Parts methodology

WES AU: A$44.70 based on a Sum of Parts methodology

Company-specific disclosures: WOW AU: Macquarie Group Limited or one of its affiliates is currently providing non securities services to Woolworths Ltd for which it expects to receive or intends to seek compensation. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Woolworths Limited's equity securities. WES AU: MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Wesfarmers Ltd with investment advisory services in the past 12 months, for which it received compensation. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Wesfarmers Limited's equity securities. MACQUARIE SECURITIES (AUSTRALIA) LIMITED or one of its affiliates is acting as broker in relation to the DIP neutralisation for Wesfarmers Ltd. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Wesfarmers Ltd with investment advisory services in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Target price risk disclosures: WOW AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. WES AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.

Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 94 122 169 279, AFSL No. 318062) (“MGL”) and its related entities (the “Macquarie Group”) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.


17 April 2015 12

General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 58 002 832 126, AFSL No. 238947) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN 41 002 574 923, AFSL No. 237504) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Documents

Australian Supermarkets - MacquarieMacquarie Wealth Management Australian Supermarkets 17 April 2015 2 The MICAWBER – March 2015 (3Q15) We have updated the MICAWBER (Macquarie Index