coca-cola amatil · coca-cola amatil industry headwinds strengthening event we analyse the outlook...

13
Please refer to page 12 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures . AUSTRALIA CCL AU Underperform Price (at CLOSE#, 17 Jul 2015) A$9.05 Valuation A$ 8.87 - DCF (WACC 8.9%, beta 1.0, ERP 5.0%, RFR 3.8%, TGR 2.1%) 12-month target A$ 9.43 12-month TSR % +9.1 Volatility Index Low GICS sector Food, Beverage & Tobacco Market cap A$m 6,911 30-day avg turnover A$m 20.2 Number shares on issue m 763.6 Investment fundamentals Year end 31 Dec 2014A 2015E 2016E 2017E Revenue m 4,942.8 5,063.0 5,353.4 5,514.3 EBIT m 651.5 659.2 690.8 722.5 Reported profit m 272.1 380.5 401.8 419.2 Adjusted profit m 375.5 380.5 401.8 419.2 Gross cashflow m 642.8 660.3 650.0 677.3 CFPS ¢ 84.2 86.3 84.6 87.9 CFPS growth % -14.9 2.5 -1.9 3.8 PGCFPS x 10.8 10.5 10.7 10.3 PGCFPS rel x 1.23 1.09 1.20 1.27 EPS adj ¢ 49.2 49.7 52.3 54.4 EPS adj growth % -25.4 1.1 5.2 3.9 PER adj x 18.4 18.2 17.3 16.6 PER rel x 1.14 1.08 1.08 1.17 Total DPS ¢ 42.0 42.0 48.5 50.4 Total div yield % 4.6 4.6 5.4 5.6 Franking % 75 75 75 75 ROA % 10.3 10.5 10.4 10.6 ROE % 22.0 22.1 22.1 22.0 EV/EBITDA x 9.5 9.4 9.5 9.2 Net debt/equity % 107.6 59.9 58.7 58.5 P/BV x 4.1 3.9 3.7 3.6 CCL AU vs ASX 100, & rec history 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, July 2015 (all figures in AUD unless noted) 17 July 2015 Macquarie Securities (Australia) Limited Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions, a cost out strategy to fund investment in marketing and products development. We transfer coverage from Craig Collie to Bryan Raymond. Impact Operational headwinds intensifying. The Australian CSD industry is facing a number of challenges, resulting in deteriorating sales growth. We see a risk that the beverages industry is likely to move into a period of negative volume and sales growth. As a result, we forecast a -0.5% volume decline and -1.0% price declines in Australia in FY15. This challenging environment is primarily being driven by: Price pressure from retailer competition in order to deliver value to customers. Supplier feedback suggests that WOW has now joined Coles in pushing back on any supplier initiated price increases. CSD volume declines driven by changing consumer preferences away from sugar and artificial sweeteners. Cost out and product development mitigating some downside. CCL is part way through a $100m cost out strategy in order to invest in marketing and product development (Coke Life), and is likely to be margin neutral. Coke Life to take share at a low ROI. Industry feedback at this relatively early stage suggests Coke Life has been underwhelming, however we expect CCL has taken market share as the ‘halo effect’ of the new product and intensive advertising program will drive overall sales above system rates. CCL has stated repeat purchase rates of 22% and unit sales above expectations after the first seven weeks. Valuation not compelling in light of headwinds. CCL is trading at a 14% PER premium to the market, almost one standard deviation below the three year average (19%) and well within the range seen over the past three years. In our view, this apparent valuation discount in part reflects earnings risks (MRE forecasts are 1.6% and 1.1% below consensus in FY15 and FY16). Earnings and target price revision EPS: FY15 -0.8%, FY16 -2.3%, FY17 -2.6%. TP -1.4% to $9.43. Price catalyst 12-month price target: A$9.43 based on a DCF methodology. Catalyst: 1H15 result 21 August Action and recommendation Downgrade to Underperform. CCL’s key categories are seeing both volume and price headwinds. While CCL is improving efficiency and investing in the business through additional marketing and product development, we consider the headwinds will outweigh the investment being made in the business over the next twelve months. In our view, price pressure remains to the downside through the supermarket channel, as WOW sharpens its view on pricing in what is a critical impulse category.

Upload: others

Post on 19-Jun-2020

10 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Please refer to page 12 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

CCL AU Underperform

Price (at CLOSE#, 17 Jul 2015) A$9.05

Valuation A$ 8.87 - DCF (WACC 8.9%, beta 1.0, ERP 5.0%, RFR 3.8%, TGR 2.1%)

12-month target A$ 9.43

12-month TSR % +9.1

Volatility Index Low

GICS sector Food, Beverage & Tobacco

Market cap A$m 6,911

30-day avg turnover A$m 20.2

Number shares on issue m 763.6

Investment fundamentals Year end 31 Dec 2014A 2015E 2016E 2017E

Revenue m 4,942.8 5,063.0 5,353.4 5,514.3 EBIT m 651.5 659.2 690.8 722.5 Reported profit m 272.1 380.5 401.8 419.2

Adjusted profit m 375.5 380.5 401.8 419.2 Gross cashflow m 642.8 660.3 650.0 677.3 CFPS ¢ 84.2 86.3 84.6 87.9 CFPS growth % -14.9 2.5 -1.9 3.8 PGCFPS x 10.8 10.5 10.7 10.3 PGCFPS rel x 1.23 1.09 1.20 1.27 EPS adj ¢ 49.2 49.7 52.3 54.4 EPS adj growth % -25.4 1.1 5.2 3.9

PER adj x 18.4 18.2 17.3 16.6 PER rel x 1.14 1.08 1.08 1.17 Total DPS ¢ 42.0 42.0 48.5 50.4 Total div yield % 4.6 4.6 5.4 5.6 Franking % 75 75 75 75

ROA % 10.3 10.5 10.4 10.6 ROE % 22.0 22.1 22.1 22.0 EV/EBITDA x 9.5 9.4 9.5 9.2 Net debt/equity % 107.6 59.9 58.7 58.5 P/BV x 4.1 3.9 3.7 3.6

CCL AU vs ASX 100, & rec history

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, July 2015

(all figures in AUD unless noted)

17 July 2015 Macquarie Securities (Australia) Limited

Coca-Cola Amatil Industry headwinds strengthening Event

We analyse the outlook for CCL ahead of the 1H15 result and in light of

challenging operating conditions, a cost out strategy to fund investment in

marketing and products development. We transfer coverage from Craig Collie

to Bryan Raymond.

Impact

Operational headwinds intensifying. The Australian CSD industry is facing

a number of challenges, resulting in deteriorating sales growth. We see a risk

that the beverages industry is likely to move into a period of negative volume

and sales growth. As a result, we forecast a -0.5% volume decline and -1.0%

price declines in Australia in FY15. This challenging environment is primarily

being driven by:

Price pressure from retailer competition in order to deliver value to

customers. Supplier feedback suggests that WOW has now joined Coles

in pushing back on any supplier initiated price increases.

CSD volume declines driven by changing consumer preferences away

from sugar and artificial sweeteners.

Cost out and product development mitigating some downside. CCL is

part way through a $100m cost out strategy in order to invest in marketing and

product development (Coke Life), and is likely to be margin neutral.

Coke Life to take share at a low ROI. Industry feedback at this relatively

early stage suggests Coke Life has been underwhelming, however we expect

CCL has taken market share as the ‘halo effect’ of the new product and

intensive advertising program will drive overall sales above system rates. CCL

has stated repeat purchase rates of 22% and unit sales above expectations

after the first seven weeks.

Valuation not compelling in light of headwinds. CCL is trading at a 14%

PER premium to the market, almost one standard deviation below the three

year average (19%) and well within the range seen over the past three years.

In our view, this apparent valuation discount in part reflects earnings risks

(MRE forecasts are 1.6% and 1.1% below consensus in FY15 and FY16).

Earnings and target price revision

EPS: FY15 -0.8%, FY16 -2.3%, FY17 -2.6%. TP -1.4% to $9.43.

Price catalyst

12-month price target: A$9.43 based on a DCF methodology.

Catalyst: 1H15 result – 21 August

Action and recommendation

Downgrade to Underperform. CCL’s key categories are seeing both volume

and price headwinds. While CCL is improving efficiency and investing in the

business through additional marketing and product development, we consider

the headwinds will outweigh the investment being made in the business over

the next twelve months. In our view, price pressure remains to the downside

through the supermarket channel, as WOW sharpens its view on pricing in

what is a critical impulse category.

Page 2: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 2

Challenging operating environment for CSD’s

The volume growth outlook remains challenging for CCL, with feedback from suppliers and

competitors in the grocery and convenience sectors suggesting demand growth is subdued as a

result of the ongoing shift away from CSD’s by increasingly health conscious consumers away

from both high and low calorie CSD’s towards water and natural beverages.

Overall beverages industry (which comprises CSDs, juice, water, energy drinks, cordial, sports

drinks, etc) growth has slowed markedly into 2014, with further declines towards zero expected

into 2015.

Fig 1 The total beverages market has moderated in recent years, with CSD’s pushing 2015 sales growth expectations towards zero

Source: Retail World, Macquarie Research, July 2015

Recent industry feedback suggests the declines in the Australian CSD segment, and cola in

particular, have accelerated over the past six months. The drag from Cola and other CSDs as well

as increased deflation in water is expected to accelerate in 2015, offsetting continued volume

growth in the water, sport and energy categories.

Fig 2 Drag from Cola and deflation in water are expected to accelerate in 2015, offsetting water volume growth as well as traditional growth categories (sport, energy)

Source: Retail World, Macquarie Research, July 2015

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Cold beverages) Price

Volume

Sales growth

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Beverages sales growth

Other

Sport

Energy

Water

Other CSD

Cola

Total

Page 3: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 3

Category price/volume analysis below highlights the headwinds facing the sector:

Volume declines in Cola and CSD’s more broadly, as well as accelerating price deflation in water

is weighing on overall beverages sales growth. We detail the key volume and price drivers of each

key sub-category below:

Fig 3 Total cold beverages market seeing declining volume and price growth…

Fig 4 … underpinned by CSD’s, which have experienced declining volume growth since 2013

Source: Retail World, Macquarie Research, July 2015 Source: Retail World, Macquarie Research, July 2015

Fig 5 … With Cola the largest contributor to soft CSD growth…

Fig 6 … offsetting double digit volume growth in water, which is also experiencing increased deflation

Source: Retail World, Macquarie Research, July 2015 Source: Retail World, Macquarie Research, July 2015

Fig 7 … Growth in Energy drinks has dissipated as the category matures…

Fig 8 … while sports drinks have seen a volume resurgence in 2013 and 2014.

Source: Retail World, Macquarie Research, July 2015 Source: Retail World, Macquarie Research, July 2015

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Cold

beverages)Price

Volume

Sales growth

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (CSD's)

Price

Volume

Sales growth

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Cola) Price

Volume

Sales growth

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Water)

Price

Volume

Sales growth

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Energy)

Price

Volume

Sales growth

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales growth (Sports)

Price

Volume

Sales growth

Page 4: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 4

Pricing pressure ramping up in supermarket channel

Coke (1.25L) experiencing increased promotional activity. The flagship 1.25L Coke SKU saw

a significant increase in Woolworths promotional frequency in recent months and also reached a

new low in its depth of promotion in the first week of May (~50% off RRP vs. previous promotional

level of ~30% off RRP). Following the increased WOW promotional depth, two weeks later, Coles

reached a new low in its promotional depth of the same SKU (~50% off RRP). While promotional

frequency has moderated recently, this highlights the price pressure on key CCL products and the

CSD category more broadly through the supermarket channel as Coles and Woolworths compete

for price leadership.

Fig 9 WOW promotional frequency increased in recent months with new low promotional price...

Fig 10 ... Coles also had a new promotional low price with a recent pull back in promotional activity

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

Premium water starting to be subject to promotional activity. Mount Franklin is considered

CCL’s premium water product and historically is not heavily discounted compared to private label

water, however, recently WOW have promoted the product at a new low price point. If WOW

continues to place Mount Franklin water on promotion we would expect that Coles will follow suit,

as seen with the promotional response 1.25L Coke (above) in which Coles promoted the new low

price 2 weeks after WOW had the product on promotion.

Fig 11 Water historically not a promoted product but WOW have a recent promotional low...

Fig 12 ... prices unchanged at Coles but may follow in the coming weeks (as seen with 1.25L Coke above)

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

1.0

1.5

2.0

2.5

3.0

3.5

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

3-A

pr-

15

3-M

ay-1

5

3-J

un

-15

3-J

ul-

15

WOW Price ($)Coca Cola Bottle 1.25L (weekly price)

Coca Cola Bottle 1.25L (4-week average)

New promtional low price

Increased frequency of promotion

1.0

1.5

2.0

2.5

3.0

3.5

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

3-A

pr-

15

3-M

ay-1

5

3-J

un

-15

3-J

ul-

15

Coles Price ($)Coca Cola Bottle 1.25L (weekly price)

Coca Cola Bottle 1.25L (4-week average)

New promtional low price

1.80

1.90

2.00

2.10

2.20

2.30

2.40

2.50

2.60

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

3-A

pr-

15

3-M

ay-1

5

3-J

un

-15

3-J

ul-

15

WOW Price ($)Mount Franklin 600ml (weekly price)

Mount Franklin 600ml (4-week average)

New promtional low price

1.80

1.90

2.00

2.10

2.20

2.30

2.40

2.50

2.60

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

3-A

pr-

15

3-M

ay-1

5

3-J

un

-15

3-J

ul-

15

Coles Price ($)

Mount Franklin 600ml (weekly price)

Mount Franklin 600ml (4-week average)

Page 5: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 5

While we note that there are hundreds of SKU’s which contribute to CCL sales, this analysis is

designed to provide an indication of supermarket pricing strategies on flagship products. At the

FY14 result, Management highlighted the price pressures facing the business:

Overall pricing trends: “I think there will continue to be pricing headwinds, but I think we'll

manage it much more effectively than in the past and we'll offset price discount promotions,

through volume upside.”

Narrowing price premium: “in the back half is and… in January is that the price premium

that we have enjoyed over the last number of years has begun to reduce. However, that's… to

do with our competitor taking place faster than we have as much as it is about us reducing our

price and gaining more sharper price points across our key packs.”

Pricing impacted by changing product mix: “we were seeing significant movements in

various packages which increased the overall price per litre. So I'll go back to glass, for

example, which is increasingly impacting on average price per litre. That's growing double-

digit. Some of our premium packs, higher prices are again growing double-digit and helping us

with both margin and also in terms of customer margin. So I think you're going to continue to

see price and coming in CSDs, in particular over 2015. It will be more targeted and it won't be

at the levels that you've seen in the past.”

Fig 13 Coke Life 1.25L bottle at Coles on promotion for first time since May... Fig 14 Coke Life 600mL not being discounted

Source: Grocery Cop, Macquarie Research, July 2015 Source: Grocery Cop, Macquarie Research, July 2015

Fig 15 Coke Life 10x375ml more consistently promoted ...

Fig 16 ... similar with Coke Life 4x330ml Glass Bottle packs

Source: Grocery Cop, Macquarie Research, July 2015 Source: Grocery Cop, Macquarie Research, July 2015

Page 6: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 6

Challenging revenue growth outlook countered by cost outs

Operating deleverage: With industry feedback suggesting sales growth has declined further

across the category in FY15, only two major levers can be pulled by management to protect

earnings: 1) the execution of Coke Life to gain market share; and 2) cost outs to reinvest in the

business. Management stated at the FY14 result: We're targeting to return to mid-single-digit

growth in EPS over the next few years with no further decline expected after 2014… [as] the

combination of revenue and cost initiatives we have underway will restore the business to growth.

Fig 17 Revenue growth turning negative Fig 18 Resulting in declining margins

Source: Company accounts, Macquarie Research, July 2015 Source: Company accounts, Macquarie Research, July 2015

Target remains for $100m of cost saves over 3 years... cost-reduction measures are beginning

to be implemented across the business with savings to be primarily driven by improved

procurement, streamlined support costs and driving greater efficiencies from the investment made

in the supply chain over the past five years.

... Impact not likely to be felt until 2H15. Given the timing of the cost reduction strategies

management expect the majority of the impact coming through in 2H15.

Cost-reduction activities to date include:

Ongoing active management and rationalization of CCL supplier base;

Supply chain network review delivering manufacturing efficiencies by shifting production to

higher speed and higher capacity lines as well as logistic benefits from lower freight costs;

Planned closure of our Bayswater facility which is targeted to close by end of 2015; and

Redundancy program for ~600 head count in the Australian business (~10% reduction in Aus

business) over the next three years, most of which is being implemented through 2015 and in

the first part of 2016.

Cost savings to be reinvested in business with impact expected to be margin neutral. A

significant portion of these savings will be directed to marketing and innovation initiatives in an aim

to strengthen CCL’s competitive position. As a result, there is expected to be a disconnect in

terms of timing as the benefits from the majority of cost saves will not be recognised until 2H15.

CCL have continued to invest in marketing in 1H15 particularly around the launch of Coke Life.

Indonesian headwinds set to offset Australian cost reductions. While the input costs related

to the Indonesian beverages division have increased substantially in recent years the pressure on

costs is expected to remain with the competition in the market limiting CCL’s ability to recover

earnings through increased prices.

Fig 19 Opex costs continue to increase... Fig 20 ... driven by selling and admin costs

Source: Company accounts, Macquarie Research, July 2015 Source: Company accounts, Macquarie Research, July 2015

-15%

-10%

-5%

0%

5%

10%

15%

20%

-2,250

-1,250

-250

750

1,750

2,750

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

Revenue growth (%)

Revenue ($m) BeveragesAlcohol, food and ServicesOtherRevenue growth %

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

Margin (%)Total underlying EBIT

Adjusted profit after tax

-10%

-5%

0%

5%

10%

15%

20%

25%

-360

-160

40

240

440

640

840

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

Opex growth (%)

Opex ($m) Selling costsWarehousing and distributionAdmin and otherOpex growth

-10%

-5%

0%

5%

10%

15%

20%

25%

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

Opex cont. (%) Selling costsWarehousing and distributionAdmin and otherOpex growth

Page 7: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 7

Gross margin outlook mixed

We estimate key commodity input costs (25% - 30% of COGS) have been largely flat in 1H15 in

AUD terms (ex hedging impact). In USD terms, sugar and PET have declined by 22% and 24% in

1H15 vs. pcp, while aluminium which is stable (+2%). As the average AUD/USD has declined by

15% over the same period, offsetting much of this commodity price benefit.

Fig 21 Aluminium price flat (+1.7%) in 1H15 Fig 22 Sugar price declined (-21.8%) in 1H15

Source: Factset, Macquarie Research, July 2015 Source: Factset, Macquarie Research, July 2015

Fig 23 Plastic price declined -23.6% in 1H15 Fig 24 AUD depreciation by -14.5%

Source: Factset, Macquarie Research, July 2015 Source: Factset, Macquarie Research, July 2015

Other COGS impacts (secondary packaging costs, indirect costs, etc) are expected to be flat, as

highlighted by management on the FY14 result call: “We'd expect to have another year of

relatively benign COGS and we're sort of thinking in the range of about 1% COGS increase,

excluding Indonesia. Indonesia with the cost inflations in that market, we'd expect to be probably

4% to 5%, but that's pre-mix and obviously mix can have a material impact on Indonesia… it's a

bit early to call where Indonesia might land.

0

500

1000

1500

2000

2500

3000

3500

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Aluminum (LME Cash $/t)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Sugar #11 (IFUS $/lbs) Continuous

500

750

1000

1250

1500

1750

2000

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Plastics Pet (Fibre Grade) Cfr India Spot Price ($/MT)

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

AUD/USD

Page 8: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 8

Coke Life driving market share gains at a low ROI

Coke Life ROI likely to be low. Despite CCL claiming a successful launch and competitor

feedback regarding CCL increasing their market share in CSDs, the high level of marketing spend

required in the launch of the new Coke Life product is, in our view, unlikely to provide an ROI

materially above the cost of capital.

CCL feedback post launch... CCL has claimed repeat purchases of Coke Life are higher than

Cadbury's popular Marvellous Creations chocolate bars, as 4% of grocery shoppers have tried

Coke Life, with a repeat purchase rate of 22%. This exceeds the 17% repurchase rate of

Cadbury's Marvellous Creations range, widely regarded as one of the most successful new

products launched in Australia for many years.

After its first seven weeks, sales volume for Coke Life is ahead of CCL expectations and in line

with those for Coke Zero, based on the number of packs sold rather than litres sold. While fewer

litres have been sold, this is due to CCL’s strategy to limit the initial range to smaller pack sizes.

CCL plans to launch larger Coke Life packs, including two-litre bottles and 24-can packs, over the

next few months. Volume has not been discount driven: “YTD average prices per litre are identical

to this time last year ... and there hasn't been undue discounting.”

Feedback suggests Coke Life has driven improved CCL market share. While feedback has

been mixed on the overall success of Coke Life, we expect CCL has gained market share in the

CSD category post the Coke Life launch, driven by the level of marketing investment.

Below are some key charts from a recent Macquarie survey regarding consumer’s attitudes

towards the new Coke Life product. A full copy of the research can be accessed here: Coca-Cola

Amatil - Life passes the taste test.

Fig 25 Blind taste test shows consumers prefer Life over Zero but Original still the favourite

Fig 26 85% of survey participants were not attracted to the concept of Coke Life

Source: Company Data, Macquarie Research, July 2015 Source: Macquarie Research, July 2015

48%

17%

33%

Original Coke Coke Zero Coke Life

15%

85%

Yes

No

Do you find the concept of Coke Life appealing?

Page 9: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 9

Valuation not compelling in light of demand outlook

CCL has de-rated as volume and price growth dissipated across the category post 2012. The

average PERel has declined from ~30% from 2010 – 2012 to 19% from 2013 – 2015. This has

coincided with lower revenue growth and declining earnings. This softer demand growth and

pricing outlook has been underpinned by changing consumer preferences towards CSD’s, and

supermarket pushback to suppliers in response to any proposed price rises respectively.

These headwinds are intensifying in our view, with industry feedback suggesting CCL’s key

categories are under increasing pressure in 2015, with further material volume and price

headwinds expected across the sector as supermarkets increase focus on price.

Given these headwinds, we do not consider the current valuation as compelling. CCL is trading at

a 14% PER premium to the market, one standard deviation below the three year average (19%)

and within the range seen over the past three years. In our view, this apparent ~5 PEpt valuation

discount in part reflects earnings risks (MRE expectations are 1.6% below consensus in FY15 and

1.1% below consensus in FY16).

Fig 27 Drag from Cola and deflation in water are expected to accelerate in 2015, offsetting water volume growth as well as traditional growth categories (sport, energy)

Source: Factset, Macquarie Research, July 2015

The share price declines in recent years have clearly been driven by earnings, with little PER de-

rating seen over the past 18 months despite a significant reassessment of earnings. Indeed, the

PER re-rate already began over the past six months as investors became more confident in the

outlook for Coke Life and the cost out trajectory.

Fig 28 The share price decline through 2013 and 2014 almost entirely earnings driven – CCL has not materially de-rated despite weakening conditions

Source: Factset, Macquarie Research, July 2015

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.00

1.10

1.20

1.30

1.40

1.50

1.60

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

PERel (12m fwdvs. ASX200)

PERel (12m fwdvs. ASX200)

+1 St Dev

Average

-1 St Dev

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

12m fwd PER (YoY % change)

12m fwd EPS (YoY % change)

Share price (YoY % change)

Page 10: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 10

Source: Company data, Macquarie Research July 2015

Coca Cola Amatil Ltd (CCL)

Year ended 30 June $m 1H14 2H14 2014 1H15e 2H15e 2015e 2016e 2017e

Profit and Loss

Sales

Beverages 2,051.4 2,256.5 4,307.9 2,091.6 2,331.2 4,422.8 4,708.4 4,864.2

Alcohol, Food & Services 312.2 382.8 695.0 315.3 386.6 702.0 709.0 716.1

Other 27.4 32.7 60.1 28.2 33.6 61.8 63.9 65.9

Total Sales 2,363.6 2,639.3 5,002.9 2,406.9 2,717.9 5,124.7 5,417.3 5,580.2

Total Sales grow th 0.8% -3.6% -1.6% 1.8% 3.0% 2.4% 5.7% 3.0%

Cost of sales 1,921.4 2,163.3 4,084.7 1,979.4 2,217.1 4,196.5 4,495.6 4,620.9

Cost of sales as % sales 81.3% 82.0% 81.6% 82.2% 81.6% 81.9% 83.0% 82.8%

EBITDA 442.2 476.0 918.2 427.5 500.8 928.2 921.7 959.3

Total D&A -131.4 -135.2 -266.6 -133.0 -136.4 -269.4 -231.5 -237.2

EBIT

Australia 226.5 218.9 445.4 204.0 237.6 441.5 441.5 448.2

New Zealand and Fiji 38.2 50.0 88.2 38.8 49.4 88.2 94.2 99.4

Indonesia & PNG 5.2 26.7 31.9 11.5 36.3 47.8 72.5 91.6

Other (incl. corporate) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Alcohol, Food & Services 46.8 39.3 86.1 40.2 41.1 81.3 82.1 82.9

Total EBIT 316.7 334.9 651.6 294.5 364.3 658.8 690.3 722.1

Total EBIT margin 13.4% 12.7% 13.0% 12.2% 13.4% 12.9% 12.7% 12.9%

Total EBIT grow th -15.3% -27.1% -21.8% -7.0% 8.8% 1.1% 4.8% 4.6%

Non-recurring items 0.0 -144.4 -144.4 0.0 0.0 0.0 0.0 0.0

Total EBIT 316.7 190.5 507.2 294.5 364.3 658.8 690.3 722.1

Share of income from associate/ JV -0.1 0.0 -0.1 0.2 0.2 0.4 0.5 0.5

Net interest -60.5 -61.4 -121.9 -58.7 -48.5 -107.3 -99.8 -101.1

Pretax profit 256.1 129.1 385.2 235.9 316.0 551.9 591.0 621.4

Tax Expense recurring -73.6 -79.8 -153.4 -68.8 -92.2 -161.1 -172.4 -181.3

Tax Non-Recurring 0.0 41.0 41.0 0.0 0.0 0.0 0.0 0.0

Total Tax Expense -73.6 -38.8 -112.4 -68.8 -92.2 -161.1 -172.4 -181.3

Tax rate 28.7% 30.1% 29.2% 29.2% 29.2% 29.2% 29.2% 29.2%

Net Profit after tax 182.5 90.3 272.8 167.1 223.8 390.9 418.5 440.1

Minorities -0.3 -0.4 -0.7 -2.0 -8.4 -10.4 -16.7 -20.9

Reported Profit 182.2 89.9 272.1 165.1 215.4 380.5 401.8 419.2

Adjusted profit after tax 182.2 193.3 375.5 165.1 215.4 380.5 401.8 419.2

Cash Flow Statement

Operating cash f low s

EBITDA 448.1 470.1 918.2 427.5 500.8 928.2 921.7 959.3

Change in Working capital -10.8 -49.6 -60.4 3.5 -211.3 -207.8 -54.2 -36.5

Less net interest paid -71.2 -58.1 -129.3 -58.7 -48.5 -107.3 -99.8 -101.1

less cash tax paid -109.5 -28.8 -138.3 -82.0 -73.2 -155.2 -166.1 -174.8

Net Operating Cashflow 256.6 333.6 590.2 290.3 167.7 458.0 601.7 646.8

Net Cashflow from Investing -245.2 -48.8 -294.0 -169.6 -169.6 -339.3 -342.7 -343.5

Dividends paid net of DRP -244.3 -152.7 -397.0 -153.1 -139.2 -292.3 -300.6 -349.7

Net Cashflow from financing -429.1 -497.0 -926.1 214.7 -139.2 75.5 -300.6 -349.7

Net increase/(decrease) in cash held -417.7 -212.2 -629.9 335.4 -141.1 194.3 -41.6 -46.3

Balance Sheet

Cash 1,012.4 818.2 818.2 1,153.6 1,012.5 1,012.5 970.8 924.5

Other current Assets 1,573.5 1,775.3 1,775.3 1,622.4 1,979.6 1,979.6 2,129.9 2,194.6

Current Assets 2,585.9 2,593.5 2,593.5 2,775.9 2,992.0 2,992.0 3,100.7 3,119.1

Non-current assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Investment in Joint Venture 26.3 26.3 26.3 26.5 26.7 26.7 27.2 27.6

Non-current Assets 3,502.2 3,446.3 3,446.3 3,488.6 3,517.0 3,517.0 3,630.1 3,737.2

Total Assets 6,088.1 6,039.8 6,039.8 6,264.5 6,509.0 6,509.0 6,730.8 6,856.3

Short term debt 436.6 325.3 325.3 325.3 325.3 325.3 325.3 325.3

Other current liabilities 1,142.8 1,368.9 1,368.9 1,224.9 1,365.8 1,365.8 1,463.4 1,492.0

Current liabilities 1,579.4 1,694.2 1,694.2 1,550.2 1,691.1 1,691.1 1,788.7 1,817.3

Long term debt 2,441.9 2,307.3 2,307.3 2,100.4 2,100.4 2,100.4 2,100.4 2,100.4

Other non current liabilities 390.4 351.6 351.6 338.5 357.5 357.5 363.8 370.3

Non-current Liabilities 2,832.3 2,658.9 2,658.9 2,438.9 2,457.9 2,457.9 2,464.2 2,470.7

Total Liabilities 4,411.7 4,353.1 4,353.1 3,989.2 4,149.1 4,149.1 4,252.9 4,288.0

Total Shareholders Equity 1,676.3 1,686.6 1,686.6 2,275.4 2,360.0 2,360.0 2,477.9 2,568.3

Financial Ratios

EV/EBITDA x 10.7 0.0 0.0 10.2 10.3 9.9

EV/EBIT x 15.1 0.0 0.0 14.3 13.7 13.2

P/E x 21.4 0.0 0.0 21.1 20.0 19.1

EPS $ 23.86 25.31 49.18 21.60 28.13 49.74 52.33 54.39

EPS Grow th % -25.4% 0.0% 0.0% 1.1% 5.2% 3.9%

DPS $ 20.00 22.00 42.00 20.00 22.00 42.00 48.45 50.35

Dividend yield % 4.0% 0.0% 0.0% 4.0% 4.6% 4.8%

GCFPS x 0.8 0.0 0.0 0.9 0.8 0.9

P:GCFPS x 12.5 0.0 0.0 12.2 12.4 12.0

Book value per share $ 2.2 0.0 0.0 3.1 3.2 3.3

NTA per share $ 0.5 0.0 0.0 1.4 1.5 1.6

P/BV x 4.8 0.0 0.0 3.4 3.3 3.2

Net Debt $m 1,814.4 1,272.1 1,413.3 1,413.3 1,454.9 1,501.2

ND:ND+E % 51.8% 0.0% 0.0% 37.5% 37.0% 36.9%

Net debt: EBITDA x 2.0 0.0 0.0 1.5 1.6 1.6

Interest Cover x 5.3 0.0 0.0 6.1 6.9 7.1

Page 11: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 11

Macquarie Quant View

The quant model currently holds a neutral view on Coca-Cola Amatil. The

strongest style exposure is Profitability, indicating this stock is efficiently

converting its investments to earnings as proxied by ratios such as ROE,

ROA etc. The weakest style exposure is Price Momentum, indicating this

stock has had weak medium to long term returns which often persist into

the future.

Displays where the

company’s ranked based on

the fundamental consensus

Price Target and

Macquarie’s Quantitative

Alpha model.

Two rankings: Local market

(Australia & NZ) and Global

sector (Food Beverage &

Tobacco)

288/472 Global rank in

Food Beverage & Tobacco

% of BUY recommendations 38% (3/8)

Number of Price Target downgrades 0

Number of Price Target upgrades 0

Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score

(higher is better).

For the comparable firms this chart shows the key underlying styles and their

contribution to the current overall Alpha score.

Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions

signal that favours analysts who have more timely and higher conviction

revisions. Current score shown below.

Breakdown of 1 year total return (local currency) into returns from dividends, changes

in forward earnings estimates and the resulting change in earnings multiple.

What drove this Company in the last 5 years How it looks on the Alpha model

Which factor score has had the greatest correlation with the company’s

returns over the last 5 years.

A more granular view of the underlying style scores that drive the alpha (higher is

better) and the percentile rank relative to the sector and market.

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])

Fu

nd

am

en

tals

Quant

Local market rank Global sector rank

Attractive

-1.2

-0.2

-0.1

0.0

0.1

0.4

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

Metcash

GrainCorp

Coca-Cola Amatil

Treasury Wine Estates

Woolworths

Wesfarmers

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

Metcash

GrainCorp

Coca-Cola Amatil

Treasury Wine Estates

Woolworths

Wesfarmers

Valuations Growth Profitability Earnings

Momentum

Price

Momentum

Quality

-0.4

-0.5

-0.7

0.1

-1.1

-0.4

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

Metcash

GrainCorp

Coca-Cola Amatil

Treasury Wine Estates

Woolworths

Wesfarmers

-70% -50% -30% -10% 10% 30% 50% 70%

Metcash

GrainCorp

Coca-Cola Amatil

Treasury Wine Estates

Woolworths

Wesfarmers

Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

-24%

-22%

-21%

-20%

20%

20%

22%

23%

-30% -20% -10% 0% 10% 20% 30%

⇐ Negatives Positives ⇒

Non-current Assets Inc.

Operating Accruals

EPS Growth FY1

Capex Growth

Asset Turnover

Price to Earnings FY0

Change in Cash FY0

PE Growth FY1

0 1

Technicals & TradingRisk

LiquidityCapital & Funding

QualityPrice Momentum

Earnings MomentumProfitability

Growth

ValuationAlpha Model Score

-0.22-0.02

-1.42 0.26

-0.15-0.42

0.20 0.27-0.36

-0.06-0.05

0 1

Normalized

Score

0 50 100

Percentile relative

to sector(/472)

0 50 100

Percentile relative

to market(/412)

Page 12: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 12

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 30 June 2015

AU/NZ Asia RSA USA CA EUR

Outperform 46.23% 58.36% 47.27% 44.20% 60.65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients)

Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients)

Underperform 16.10% 15.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients)

CCL 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, July 2015

12-month target price methodology

CCL AU: A$9.43 based on a DCF methodology

Company-specific disclosures: CCL AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Coca-Cola Amatil Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 23-Apr-2015 CCL AU Neutral A$9.70 30-Oct-2014 CCL AU Neutral A$9.20 21-Oct-2014 CCL AU Neutral A$8.40 20-Aug-2014 CCL AU Underperform A$8.80 09-Jul-2014 CCL AU Underperform A$9.10 11-Apr-2014 CCL AU Neutral A$10.30 19-Feb-2014 CCL AU Neutral A$12.15 13-Nov-2013 CCL AU Neutral A$12.71 05-Nov-2013 CCL AU Neutral A$12.76 20-Aug-2013 CCL AU Neutral A$12.98 07-May-2013 CCL AU Neutral A$13.24 19-Feb-2013 CCL AU Neutral A$14.40 22-Aug-2012 CCL AU Neutral A$13.99

Target price risk disclosures: CCL 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

Page 13: Coca-Cola Amatil · Coca-Cola Amatil Industry headwinds strengthening Event We analyse the outlook for CCL ahead of the 1H15 result and in light of challenging operating conditions,

Macquarie Wealth Management Coca-Cola Amatil

17 July 2015 13

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. 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.