What are cyclical trends in industry Relative to Peers? Accounting. Is industry structure stable or changing? Does growth create value?

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1 Returns Checklist Questions: Context Valuation Business Performance Management Performance What are Returns on Existing Capital? Are they sustainable? Are they attractive? What are the drivers? Measuring Existing Returns Sustinability of returns: Absolute level of returns? Returns driven by: Accounting Profits (NPAT, EPS, etc..) Relative to historic performance? Are returns due to competitive Operating Performance Accounting Returns (ROA, ROE, ROFE etc) Relative to peers? positioning or stage of cycle? Industry Trends Economic Returns (IRR, NPV) What are cyclical trends in industry Financial structure Decomposing Returns (Dupont Model) demand and capital flows? Relative to Peers? Accounting Comparative Analysis - v. historic performance - v. peers Changes to returns via: - current level v. historic trend Increased/decreased investment Quality of estimate v. True IRR Is industry structure stable or changing? Changes to margin cf. industry returns (good or bad) with company returns (good or bad). What are Returns on Incremental Capital? Does growth create value? How can capital be deployed? Is management allocating capital well? Measuring Incremental Returns Are returns > cost of capital? Organic Growth Incremental Accounting Returns & Marketing Organic Unit Level Incremental Returns How much capital is deployed? R&D Acquisition - SaaS and Customer Analysis Two stage valuation model PPE & Working Capital Shareholder Returns - Acquisition/Roll Ups Acquisitions Dividends - Operating Leverage v. Changed Returns Measured returns vs True IRR Return on Tangible vs. Buybacks Change in True IRR vs Change in ROE EPS v ROE v. IRR Acquired Goodwill Debt Reduction Is Existing or Incremental Capital more Important? Change of returns on existing capital + value What ability is there to invest? What management skills and incentives are best? Existing capital dominates: Apply Cyclical Framework High Returns Generally Bad Returns mean revert via increased competition and business cycles Duration of cycle Payback of investment Incentivised to optimise existing capital/shareholder returns? Incremental capital dominates: High Returns Generally Good Total Adressable Market Adopt Growth Framework Ability to create value via growth Unitised vs. Major Project Incentivised to maximise value creation through growth?

2 Measuring Returns - Existing Capital Accounting Measures of Capital Invested Accounting Measures of Return ASSETS LIABILITIES Formula Use Gross (GA) Total (A) Operating (Op. A) Cash Funds EBITDA ROGA Employed Payables & Gross - (Excludes Other Current non-interest Inventory Payables Liabilities EBIT(A) bearing ROA + - sources of Total Receivables Other Curr. funding.) - + Liabilities Interest Cash RO EBIT(A) Other Curr. Bearing Op.A Op. Net Work. Debt Property Capital EBIT(A) Funds Emp'd Plant Shareholders Equity EBIT(A) ROTFE & Equipment Tang. Funds Under Construction Intangibles Outside Equity Interest Long Term Liabilities EBIT(A) Gross FE ROIC or Taxed EBIT Non-Core/s - Non-Core/Inv. ROCE IC Accumulated Funds Employed (FE) Tangible Funds Em'd (TFE) Gross Funds Employed (GFE) Accumulated Net Debt Depreciation Depreciation NPAT ROE & Amortisation & Amortisation S/H Equity Invested Capital (IC) Equity ROFE ROGFE Large one off investment with long life. Eg. Toll Road, Port etc No detailed BS data provided/ cf. ROFE to analyse op. gearing. Adjusts IRR for assets under construction or otherwise non-core. Approximation of pre-tax, ungeared IRR to total capital. Approximation of IRR of operating business - ex acquisitions. As per ROGA - use with large one off, long life investments. Approximation of after tax, ungeared IRR to total capital. Approximation of geared IRR to shareholders. Accounting returns estimate underlying business IRR: Different measures of return: Note: Quality of this estimate various according to nature of business (long/short duration), quality of accounting etc e.g. ROE IRR where business duration is short, asset replacement is lumpy or depreciation replacement cost. - Highlight Drivers of IRR (e.g. leverage ROA v. ROFE. v. ROE) - Definitions are NOT standaridsed - Can be used when data is limited (e.g. ROA vs ROFE) - Estimate IRR differently (e.g. Gross Funds vs Net Funds). - Use materiality when measuring & interpreting returns - Answer different qns (ROFE company return; ROTFE asset return). - ROE IRR; ROE (IRR)

3 Measuring Incremental Returns Top Down Measurement: DuPont Model Drivers of Incremental Returns Current Return Incremental Return Short Term - Operating Leverage Asset 1 Turn EBIT % ROA EBIT EBIT Asset EBIT% ROA Δ T 1 T 2 Δ Comment Example Δ % Sls growth from cyclical factors. GP % 70% 70% 0% No Δ in underlying economics. Δ EBIT Gross Profit % Δ Fixed Costs % Overheads fixed in ST. EBIT % Δ ROA EBIT% 20% 28% 8% Leveraged impact on margins (and returns). Extra passenger; Extra widget Incremental Capital limited to working capital. Variants Medium/Long Term - Impacts of Scale 1. To avoid lumpiness: T 1 T 5 Δ Comment Example Measure over rolling average periods. (3/5 years) % Long Term Sls Growth Measure with lag to give investment time to take effect (.e. Δ EBIT T0 / Δ T-1 ) GP % 70% 75% 5% Gross Profit % High GP% from improved buying terms & efficiency. 2. Various sub measures: Fixed Costs % Other costs increase, but < than Δ EBITDA / Total Capex EBIT % sales (e.g. Overhead efficiency) Refer Measuring Returns Δ EBIT/Δ Tangible Funds EBIT% 20% 38% 18% Scale benefits to margin Extra plane; Extra machine. Incremental Capital may include PPE. Bottom Up - Unit Level Returns Return on Unit Lifetime Value of Unit Lifetime Value of Unit Free Cash flows from Unit $ Cost of Unit ARPU * GP% Churn Organic in Impact of incremental investment Example Marketing Incremental customers Saas/Online Retail R&D New Products Medical Drugs/Devices PPE New productive capacity Factory/Shop/Machine Acquisition of: Beach-head Bolt On New geography/product To existing beach-head For more detail, see Δ EBIT Scale Up Major additional capacity. Merger of equals. Unit Level Returns Δ PPE Avoid Capex In lieu of organic inv. e.g Purchase R&D Growth capex excludes capex required to maintain competitive positioning and unit output.

4 DuPont Model of Returns First (Proximate) Drivers of Returns (i) (ii) +ve driver -ve driver 1. Analysis of proximal drivers of returns: - Asset Turn Volume Volume x - Margins Unit Price Price - Leverage PPE 2. Framework for understanding: - Feedback effects Inventory Fixed - Ultimate/Systemic Causes Receivables + Work. Cap. Payables Asset 1 Turn ROA Asset Turn x EBIT % x ROE S/H Equity Unit Price Gross Revenue Second (Feedback) Effects Unit COGS Profit - COGS e.g. Lower Prices increases returns First Second x Tax Rate Decomposition of returns enables: e.g high returns with low margins e.g high returns with average business. NPAT S/H Equity Unit Selling Exp. Unit R&D Unit Overhead CODB /Mkting R&D/Admin EBIT % Price - Costs More Marketing Lower Prices 1st order linkages: (i) Higher volume lowers unit costs from scale/cost absorbtion. E.g. Analysis of Lower Prices Higher Margin Higher Volume (ii) Higher prices increase sales & GM% 1st Lower Asset Turn & Lower Margin Lower Returns Lower Unit Cost Note: can be restated as Funds Employed 2nd Higher vol., +ve sales feedback Sustainable Returns For more feedback loops see: Systems Frame

5 Unit Level Returns Business Type Incremental Unit 1 Lifetime Value 2 Incremental 3 Returns Calculation 4 Notes SaaS Customer ARPU * GP% Churn LTV LTV will be overestimated at very low churn; Churn unreliable at early stage growth; What costs are included in?; What is true GP%? Online Transactional Customer (GTV 1 + GTV 2 + GTV n ) * GP% LTV Is repaid in first transaction? Key value driver is repeat transaciton volumes. Bricks and Mortar Retail New Store per Store * EBIT Margin Inventory + Fit Out + Lease EBITR Use EBIT/(Fit Out + work capital) to measure returns post lease leverage. Incorporate start up losses in investment if material. Infrastructure Lane/Runway /Berth etc NPV(Concession Yrs * Δ EBITDA) Capex Δ EBITDA Capex Concession life a key driver of value. Is maintenance capex meaningful? Manufacturing Equipment /Machine per Unit * FCF Margin Capex + Working Capital FCF Free Cash Flow (FCF) EBITDA - maintenance capex. How much investment is maintenance of competitive position vs unit growth? Notes: Terminology 1. Incremental Unit ARPU Average Revenue Per User Bottom up analysis of individual economic units is an indicator of incremental returns. In all companies, there is a heirachy of units with different cashflows, costs and investment at each level of the heirachy. Returns on an individual incremental unit at the bottom of this heirachy will not directly translate to true incremental returns from the company as a whole. Churn% 1/Churn 2. Lifetime Value. GP% Gross Profit % Two considerations: (i) Duration of Unit - Customer life/asset life etc. Always an estimate. (ii) True gross profit - definitions vary by company; variable costs are often reflected in SG&A line. Incremental margins must be cross checked against ultimate margin potential. % of customers leaving each period Measured gross (total) or net (of upsells). Can refer to customer (logo) churn or revenue. Proxy for average customer life/duration GTV 1 Gross Transaction Value for Initial Transaction GTV n GTV for subsequent nth transaction 3. Incremental LTV Lifetime Value What is true incremental investment? E.g. Does include all marketing or just direct marketing. Does it include working cap investment etc? Ave. GTV * Probability of nth repeat transaction Subscriber Acqistion Cost (or CustomerAC) Calculations should use consistent: 4. Returns Calculation Time periods - e.g monthly/annual measures. Returns can be measured as ROI %, Total $ Value or Payback Period. Input/Output - e.g. lease expense/lease investment.