Wesfarmers. Keeping the pressure on competitors A$41.50 AUSTRALIA. Event. Impact. Earnings and target price revision.

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1 AUSTRALIA WES AU Price (at CLOSE#, 24 Feb 2016) Outperform A$41.50 Valuation A$ DCF (WACC 7.3%, beta 0.9, ERP 5.0%, RFR 3.7%, TGR ) 12-month target A$ month TSR % +9.5 Volatility Index Low GICS sector Food & Staples Retailing Market cap A$m 46, day avg turnover A$m Number shares on issue m 1,126 Investment fundamentals Year end 30 Jun 2015A 2016E 2017E 2018E Revenue m 62,102 65,218 71,521 74,912 EBIT m 3,698 3,748 4,205 4,485 Reported profit m 2,440 2,461 2,715 2,906 Adjusted profit m 2,397 2,435 2,715 2,906 Gross cashflow m 3,616 3,730 4,085 4,302 CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x WES 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, February 2016 (all figures in AUD unless noted) 25 February 2016 Macquarie Securities (Australia) Limited Keeping the pressure on competitors Event WES reported NPAT of $1,393m, in line with our $1,390m forecast and +2.6% above pcp. The result was characterised by a strong performance from the retail businesses offset by a sharp decline in the Resources division. Impact Coles supermarket performance stellar: Coles has substantially grown volumes while improving price position, investing in labour and maintaining margins in an increasingly competitive environment, despite significant price investment from WOW. Coles supermarket comps accelerated to +5.3% in 2Q16 from +4.7% in 1Q16 with stable price deflation (-1.0% in 2Q16 vs. -1.2% in 1Q16) and positive volume indicators (transaction volumes, basket size and sales/sqm all increased). Coles doesn t appear complacent in the face of a more aggressive competitor, as they invest further in price, labour and fresh. Read through for Woolworths supermarket result: The strength of the Coles result increases downside risk to our WOW supermarket comp growth expectation of -2.5% in 2Q16 (-1.7% for WOW F&L) given Coles delivered +5.3% comp sales growth, well above industry sales growth of +3.8%. While investors remain focussed on the prospects for a WOW supermarkets turnaround on a 3 5 year view, we expect the perceptions around the level of investment required may increase and the starting point for their recovery may be lower and later than some expect. Other retail businesses all performing well. While supermarkets were the highlight (given the tough competitive environment), Kmart, Bunnings and Officeworks continue to deliver double digit sales and EBIT growth, well ahead of competitors. The turnarounds in Liquor and Target are continuing but are gradual. Resources disappointed as mining costs rose 10% despite lower volumes and headcount reduction. Lower unit mine cash costs at Curragh were more than offset by inventory drawdown due to lower production and higher port costs. WES stated resources was break even on a cash basis (EBITDA ex FX losses), but lost $118m in EBIT after $70m in FX losses and $74m of D&A. is expected to deteriorate further Earnings and target price revision EPS changes: FY16-5.6%, FY17-2.6%, FY18-6.9%. TP -4.2% to $ Earnings downgrades largely driven by updates to commodity prices, FX forecasts and operational downgrades in resources. Price catalyst 12-month price target: A$43.30 based on a Sum of Parts methodology. Catalyst: 3Q16 sales 21 April 2016 Action and recommendation Outperform. The WES share price had outperformed strongly in the three months heading into the result (+16.5% outperformance of the ASX100), indicating investor expectations were high. As the result broadly met market expectations, investors took profits, as WES underperformed by -2.6%. WES continues to be our preferred consumer staples retailer, trading below average relative PER valuations and with a 5%+ dividend yield. Please refer to page 11 for important disclosures and analyst certification, or on our website

2 Macquarie Wealth Management Fig 1 WES Result Summary The good The not-so-good The interesting Resources disappointed as mining costs Exceptional performance in most retail businesses, which in aggregate saw EBIT growth of +9.2% in, driven by: Coles (+5.6%) Bunnings (+13.4%) Kmart (+1) Target (+5.7%) Officeworks (+1) Coles has navigated increased price investment from Woolworths well to date. 5.3% 2Q16 comps and -1.0% deflation indicate Coles is seeing strong volume growth, with the impact from WOW price investment immaterial to date. Coles continues to win the battle for volume growth in supermarkets. While price investment has stepped up (-1.0% 2Q16 deflation despite tobacco and meat inflation), the volume return on this investment has been significant. F&L margins expected to be broadly stable in vs. pcp as Coles reinvests gains from operating leverage into price, labour and the overall customer offer. This indicates Coles is not becoming complacent around their competitive position and as a result are continuing to maintain pressure on competitors. Coles considers their relative price position to be the best it has been vs. competitors, indicating WOW will need to either invest further in price and/or invest in non-price factors in order to drive volume growth. Kmart remains the standout DDS in Australia. Kmart produced +9.5% comp sales growth in 2Q16, up marginally from +9.1% in 1Q16, while delivering 1 EBIT growth over. This has been produced as BIG W is expected to be seeing a moderation in sales growth declines as the SAP system issues are gradually resolved. Cash flow performance was strong, with improved rose 10% despite lower volumes and headcount reduction. Lower unit mine cash costs at Curragh were more than offset by inventory drawdown due to lower production and higher port costs. WES stated resources was break even on a cash basis (EBITDA ex FX losses), but lost $118m in EBIT after $70m in FX losses and $74m of D&A. Further downgrade to Resources volumes as Curragh s met-coal sales volume for FY16 is forecast to be in the range of 7.3m to 7.8m tonnes, ~11% lower than previously forecast (8.0m -9.0m) Target comp growth stepped down to +0.2% in 2Q16 (+1.4% in 1Q16) as the recovery continues but at a more modest pace than initially expected. A key driver of this slowdown in growth was Target s decision to not discount as heavily heading into the Christmas trading period. This had a positive impact on EBIT margins, which improved from 3.6% in to 3.8% in Kmart and Target consolidated into newly created Department Stores division: This will be headed by Kmart MD Guy Russo, with Target MD Stuart Machin moving on within WES following a handover period until July This is expected to streamline, coordinate and better align functions, which is expected to realise benefits for both Kmart and Target as well as the Group. Property was the primary area where better coordination is likely to result in benefits. Resources FX Hedges closed out. WES Resources FX hedging strategy is under review. While out of the money hedges continue into outer years, FY16 hedges have been closed out at an AUD/USD of 0.72 as WES has taken a view that there was more downside risk to currency. Interestingly, WES did not cash settle the hedge, but rather put in an equal and opposite hedge. Coles activated every available register during the pre-christmas trading period. Coles staff operated 2,600 additional checkouts every available register in the network in order to minimise queue times and deliver on customer service during the most important trading period of the year. Masters sites could be used as new or replacement Bunnings sites. WES stated that of the 100 properties controlled by Masters (63 of which have stores) they would be interested in ~15 sites which may be used to build new stores or as a replacement to existing stores. Operating cash flow: +5.4% YoY growth, ahead of EBITDA growth (+3.5%) Cash realisation: 118.3% (116.6% in ) driven by a further reduction in Working capital days (-2.1 days YoY to 10.5 days in ) Free cash flow benefited from a 12.3% decline in gross capex, as Coles, HIOS, Department Stores and CEF all saw declining capex requirements. Source: Macquarie Research, February February

3 FY15 EBIT Coles Bunnings Kmart Target Officeworks CEF I&S Resources Corporate FY16 EBIT FY16 EBIT Coles Bunnings Kmart Target Officeworks CEF I&S Resources Corporate FY17 EBIT $3,860 $3,822 $3,822 $4,205 EBIT Coles Bunnings Kmart Target Officeworks CEF I&S Resources Corporate EBIT $2,076 $2,110 Macquarie Wealth Management Group Analysis group EBIT growth was a combination of two very divergent trends: Exceptional performance in most retail businesses, which in aggregate saw growth of +9.2% in, as Coles (+5.6%), Bunnings (+13.4%), Kmart (+1), Target (+5.7%) and Officeworks (+1) all delivered strong growth. Poor performance in Industrial businesses. Resources drove an 87.8% decline in EBIT for the industrials divisions. While CEF was relatively stable, challenges persist in Resources and Industrial and Safety. Fig 2 WES group EBIT growth of +1.6% impacted by Resources Retail businesses saw growth of +9.2%, offset by industrial businesses -87.8% % 3.1% 1.4% 0.2% 0.4% 0.4% -0.7% -7.4% 1.7% Source: Company data, Macquarie Research, February 2016 We outline our forecasts for FY16 and FY17 EBIT below. FY16 EBIT growth now expected to be slightly negative (-1.0%) as 10.3% growth in the retail businesses is offset by resources losses escalating in. FY17 FY17 EBIT growth is elevated (+1) as retail businesses continue to perform well (+8.2% EBIT growth) and losses in resources moderate from -$245m in FY16 to -$146m in FY17. Fig 3 FY16 EBIT drivers broadly similar to, with resources offsetting retail Fig 4 As a moderation in Resources losses boost FY17 EBIT growth % % 1.2% 0.3% 0.4% 0.4% -0.3% % 0.5% 0.4% 0.3% -0.8% % -7.6% -2.4% % 25 February

4 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Macquarie Wealth Management Supermarket performance gap widening Coles supermarket performance stellar: Coles has substantially grown volumes while improving price position, investing in labour and maintaining margins in an increasingly competitive environment, despite significant price investment from WOW. Coles supermarket comps accelerated to +5.3% in 2Q16 from +4.7% in 1Q16 with stable price deflation (-1.0% in 2Q16 vs. -1.2% in 1Q16) and positive volume indicators (transaction volumes, basket size and sales/sqm all increased). Coles doesn t appear complacent in the face of a more aggressive competitor, as they invest further in price, labour and fresh. Read through for Woolworths supermarket result: The strength of the Coles result increases downside risk to our WOW supermarket comp growth expectation of -2.5% in 2Q16 (-1.7% for WOW F&L) given Coles delivered +5.3% comp sales growth, well above industry sales growth of +3.8%. While investors remain focussed on the prospects for a WOW supermarkets turnaround on a 3 5 year view, we expect the perceptions around the level of investment required may increase and the starting point for their recovery may be lower and later than some expect. The divergent performance, particularly around real growth (volumes) is clear from the two sales decomposition charts below Fig 5 Coles volume has reached highest level since September quarter of 2013 Contribution to Sales Growth (%) Coles CPI Real growth Contribution to Sales Growth (%) 1 Space/new business Total growth Source: Company Data, Macquarie Research, February 2016 Fig 6 Woolworths volume may turn negative in 2Q16 Contribution to Sales Growth (%) Woolworths CPI Real growth Contribution to Sales Growth (%) 1 Space/ new business Total Note: WOW changed its method for calculating average price increases (WOW CPI) from 1Q15. Source: Company Data, Macquarie Research, February February

5 1H07 2H07 1H08 2H08 1H09 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Macquarie Wealth Management Divisional analysis Fig 7 Food & Liquor metrics (41.1% group EBIT) Fig 8 F&L EBIT margin expected to remain stable Food and Liquor FY15 % Chg Sales (ex-property) $m 15,544 15,211 30,755 16, % Sales Growth % 5.3% 5.4% 5.3% 5.4% 7 bps Cost of sales $m 14,731 14,365 29,096 15, % EBIT* $m , % EBIT Margin % 5.2% 5.6% 5.4% 5.3% 6 bps Sqm $m 1,938 1,959 1,959 1, % Sales/sqm (annualised) A$ 16,210 15,613 15,947 16, % Cost/sqm (annualised) A$ 15,363 14,745 15,087 15, % EBIT/sqm (annualised) A$ % * EBIT is no longer provided at the F&L level, therefore FY15 & EBIT are estimates Sales/sqm EBIT Margin (%) 18,000 Sales/sqm (annualised) Forecast 7.0% 17, % EBIT Margin (RHS) 16, % 5.3% 5.2% 5.0% 5.0% 5.3% 5.5% 5.3% 5.5% 5.3% 5.5% 15, % 14, % 4.7% 5.0% 13, %4.3% 4.1% 4.5% 12, % 3.7% 3.4% 11, % 3.5% 10,000 1H09 3.0% Fig 9 Coles F&L comp sales growth improves Fig 10 Coles F&L deflation remains stable at 1.0% % Change YoY 1 WOW Food & Liquor Comparables Coles Food & Liquor Comparables % Change QoQ 1 1 ABS Food Inflation Coles food & Liquor Inflation (avg. prices) WOW avg price changes (new) WOW avg price changes (old) - 4.9% -1.0% % -1.0% Fig 11 Bunnings metrics (33.2% group EBIT) Fig 12 UK expansion expected to impact from Home Improvement FY15 % Chg Sales (ex-property) $m 4,959 4,575 9,534 5, % Sales Growth % 11.8% 11.6% 11.7% 10.9% -93 bps Cost of sales $m 4,287 4,131 8,486 4, % EBITDA (ex-property) $m , % EBITDA Margin % 13.6% 12.2% 12.9% 14.1% 56 bps D&A $m % EBIT (ex-property) $m , % EBIT Margin % 12.2% 9.7% 11.0% 12.1% -3 bps Store Number $m % Sales per store (annual) A$m % Cost per store (annual) A$m % EBIT per store (annual) A$m % Growth (%) Sales Growth (LHS) EBIT Margin (%) 4 EBIT growth (LHS) Forecast 1 EBIT Margin (RHS) 35.0% 13.0% %11.1% 11.3%11.3%11.5%11.6%11.8%11.8%11.8%11.8%11.8% 11.6% 11.4%11.4% 11.5% 25.0% 11.0% 1 2 Integration of 11.0% Homebase % bsuiness (UK) 9.8% 1 9.2%9.3% 1 5.0% 9.0% Fig 13 Bunnings growth drivers: Comps critical Fig 14 Bunnings EBIT per store in was ~$3.5m 1H09 Growth (%) 13.3% 14% Space growth 12.6% 12.3% 1 Comps growth 11.6% 12% 10.2%10.3% 10.6% 11.0% Sales growth 10.3% 10.3% 10% 8.5% 8.1% 8% 6.6% 6.7% 9.1% 10.3% 6.1% 9.4% 6.9%7.1% 8.2%9.8% 7.3% 8.2% 5.5% 7.7% 7.6% 6% 4.8% 4.7% 3.9% 5.5% 6.3% 4.3% 4.1% 3.5% 4.2% 4% 0.3% 2.4% 3.2% 2.5% 2.6% 2.9% 2% 3.6% 2.4% 2.6%2.6% 2.2% 2.3%1.7% 2.2%2.4% 2.7% 3.3%3.2% 3.3%3.2%3.0% 2.8%2.8%2.6% 2.6%3.4% 2.7% 1.2% 0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 EBIT per store ($m) % EBIT per store (12m rolling) Store growth Store growth 1 7.1% 6.1% 6.6% 5.4% 5.4% 5.0% 4.3% 3.8% 4.1% 3.7% 3.1% 2.6% 2.6% 2.2% February

6 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Macquarie Wealth Management Divisional analysis continued Fig 15 Kmart metrics (15.1% group EBIT) Fig 16 Kmart continues to outperform in DDS space Kmart FY15 % Chg Sales $m 2,442 2,111 4,553 2, % Sales Growth % 5.2% 11.8% 8.2% 12.6% 740 bps Cost of sales $m 2,109 1,968 4,121 2, % EBITDA $m % EBITDA Margin % 13.6% 8.9% 11.4% 13.4% -25 bps D&A $m % EBIT $m % EBIT margin % 11.8% 6.8% 9.5% 11.6% -23 bps Store Number $m Sales / store (annual) A$m % Cost / store (annual) A$m % EBIT / store (annual) A$m % Growth (%) 15.0% 1 5.0% -5.0% % Kmart comparable sales BIG W comparable sales Target comparable sales 9.5% 0.2% -8.10% Fig 17 Target metrics (3.5% group EBIT) Fig 18 Target growth remains relatively subdued Target FY15 % Chg Sales $m 1,935 1,503 3,438 1, % Sales Growth % -1.5% -2.1% -1.8% 1.9% 344 bps Cost of sales $m 1,823 1,439 3,262 1, % EBITDA $m % EBITDA Margin % 5.8% 4.3% 5.1% 25 bps D&A $m % EBIT $m % EBIT margin % 3.6% 1.3% 2.6% 3.8% 13 bps Store Number $m % Sales per store (annual) A$m % Cost per store (annual) A$m % EBIT per store (annual) A$m % Fig 19 Officeworks (2.8% group EBIT) Fig 20 EBIT margin continues to expand Officeworks FY15 % Chg Sales $m , % Sales Growth % 7.7% 9.9% 8.8% 9.1% 145 bps Cost of sales % , % EBITDA $m % EBITDA Margin % 7.6% 8.6% 8.1% 39 bps D&A $m EBIT $m EBIT Margin % 6.2% 7.5% 6.9% 6.7% 51 bps Store Number $m % Sales / store (annual) A$m % Cost / store (annual) A$m % EBIT/store (annual) A$m % Growth (%) EBIT Margin (%) Sales Growth (LHS) EBIT margin (RHS) 14.5% Forecast 12.8% 9.7% 8.4% 9.0% 9.5% 7.1% 6.2% 4.5% 3.6% 3.6% 3.5% 3.8% 4.3% 4.8% 4.5% 1.0% 1.3% 1.7% 2.2% 2.2% -0.8% -0.5% Fig 21 Convenience metrics (3.7% group EBIT) Fig 22 Comp fuel sales growth declines 5.7% in 2Q % 4.1% 6.3% 4.5% 6.3% 4.8% 6.6% 5.3% 6.9% 7.3% 5.6% 6.2% -5.5% -10.5% Growth (%) EBIT Margin (%) Sales Growth (LHS) 1 EBIT Margin (RHS) Forecast 9.0% 7.8% 8.2% 7.5% 7.1% 7.4% 7.0% 6.7% 5.0% 3.0% 1.0% Convenience FY15 % Chg Sales $m 3,924 3,493 7,417 3, % Sales Growth % % -9.2% -8.5% -245 bps Cost of sales $m 3,850 3,457 7,307 3, % EBIT $m % EBIT Margin % 1.9% 1.0% 1.5% 1.9% 1 bps Store Number $m % Sales per store (annualised) A$m % Cost per store (annualised) A$m % EBIT per store (annualised) A$m % * EBIT is no longer provided at the F&L level, therefore FY15 & EBIT are estimates Sale/sqm EBIT Margin (%) 1.5% 1.7% 2.2% 1.3% 1.6% 1.9% 1.4% 1.9% 1.0% 1.5%1.9% 1.0% % Comp fuel growth - Qtrs (LHS) - EBIT margin - Hlf (RHS) -3.0% % 25 February

7 Macquarie Wealth Management Divisional analysis continued. Fig 23 Resources metrics (-5.6% group EBIT) Fig 24 EBIT losses to continue in the medium term Resources FY15 % Chg Coal revenue $m , % Revenue Growth % -9.8% -12.2% -11.0% -13.2% -339 bps Mining costs & other $m Royalty costs $m % Cost of sales $m , % EBITDA $m % EBITDA Margin % 15.7% 15.6% 15.6% -7.4% bps D&A $m % EBIT $m % EBIT Margin % 5.1% 2.2% 3.6% -19.7% bps Sales Volume Curragh t 5,813 5,993 11,806 5, % Bengalla t 1,726 1,625 3,351 1, % Total Volume t 7,539 7,618 15,157 7, % Volume Growth % -1.7% -6.3% - 2.5% 419 bps Revenue per tonne $/t % Costs per tonne $/t % EBIT per tonne $/t % EBIT ($m) 1, H EBIT EBIT/tonne (RHS) Forecast EBIT/tonne ($/t) Fig 25 Chemical, Energy & Fertiliser metrics (4.9% group EBIT) Fig 26 Chemical, Energy & Fertiliser sales, volume and earnings metrics Chemicals, Energy & Fertilisers FY15 % Chg Chemical sales $m % Energy sales $m % Fertiliser sales $m % Total sales $m % Sales Growth % 4.9% -1.1% 1.5% -7.0%-1196 bps Chemical sales per tonne $m/t % Energy sales per tonne $m/t % Fertiliser sales per tonne $m/t % Total sales per tonne $m/t % Cost of sales $m , % EBITDA $m % EBITDA Margin % 17.8% 19.5% 18.8% 21.4% 360 bps D&A $m % EBIT $m % EBIT Margin % 11.7% 13.4% 12.7% 13.8% 208 bps Growth (%) EBIT Margin (%) Sales Growth (LHS) 4 Volume Growth (LHS) Forecast 3 EBIT Margin (RHS) 20.9% % 15.7% 14.4% 14.4% 12.8% 13.4% 14.1%14.2% 11.7% 13.4%13.8%14.1% 14.6% 15.7% 16.7% % % 9.5% 10.1% % 1.5% 5.0% Fig 27 Industrial & Safety (1.7% group EBIT) Fig 28 Industrial & Safety metrics H09-5.0% % Industrial & Safety FY15 % Chg Sales $m , % Sales Growth % 3.9% 14.7% 9.3% 11.0% 716 bps Cost of sales $m , % EBITDA $m % EBITDA Margin % 4.4% 6.1% 6.1% -188 bps D&A $m % EBIT $m EBIT Margin % 2.1% 3.9% -210 bps Growth (%) EBIT Margin (%) Sales Growth (LHS) % EBIT Margin Forecast % 1 5.0% -5.0% % 9.9% 9.4% 10.1%10.2%11.1%11.5% 11.0% 10.5%9.5%9.1% 7.6% 7.1% 1H09 3.9% 2.1% 2.4% 2.3% 2.3% 11.0% 1.0% % 25 February

8 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Macquarie Wealth Management Valuation remains favourable WES trading at a 20% premium to the market, below the historical PERel average of 1.25x Fig 29 WES 12 month forward PE multiple 17.98x, above the average of month fwd PER WES-AU 12-month Forward PER WES-AU 12-month Forward PER - Average 16.64x Source: Factset, Macquarie Research, February 2016 Fig month forward PE Relative to ASX200 is 1.2x, below the 5-year average of 1.25x 12-month Forward WES PERel to ASX WES-AU: ASX month Forward PE Relative WES-AU: ASX month Forward PE Relative - 5-year Average 1.25x Source: Factset, Macquarie Research, February February

9 Macquarie Wealth Management Limited Price: $41.50 Group P&L FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16E FY17E Revenue AU$m 58,079 59,832 62,348 31,970 30,463 62,447 33,462 31,989 65,481 71,521 Total Divisional EBITDA AU$m 4,544 4,729 4,909 2,643 2,335 4,978 2,749 2,331 5,080 5,575 Depreciation and Amortisation AU$m ,071-1, , ,295-1,370 Adj. Equity accounted associates & non recu AU$m Adj. Equity accounted associates AU$m EBIT from continuing opertaions AU$m 3,573 3,684 3,786 2,062 1,697 3,759 2,110 1,675 3,785 4,205 Non-recurring items AU$m Group EBIT AU$m 3,549 3,658 4,150 2,080 1,740 3,820 2,147 1,675 3,822 4,205 Net Interest Expense AU$m Tax Expense AU$m , , ,023-1,164 Minorities AU$m Reported NPAT AU$m 2,126 2,261 2,689 1,380 1,121 2,501 1,430 1,068 2,498 2,715 Non-recurring Items (post tax) AU$m Adjusted NPAT AU$m 2,143 2,279 2,398 1,367 1,091 2,458 1,404 1,068 2,472 2,715 Key ratios FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Adjusted EPS cps DPS (ex capital return) cps FCFPS cps PER x Dividend Yield % Payout ratio % Sales grow th % EBITDA grow th % Underlying NPAT grow th % EPS grow th % EBITDA margin % EBIT margin % NPAT margin % ROA % ROE % Coles Food and Liquor FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Revenue AU$m 26,561 27,933 29,220 15,559 15,225 30,784 16,496 16,049 32,432 33,935 EBIT AU$m 1,232 1,368 1, , ,765 1,846 F&L Comp growth % F&L Contribution from Space grow th % F&L Sales growth % EBIT margin % Supermarket sqm sqm 1,630,168 1,656,520 1,692,642 1,728,445 1,749,840 1,749,840 1,771,912 1,802,335 1,802,335 1,847,394 Supermarkets (number) # sqm per supermarket sqm 2,176 2,191 2,221 2,242 2,255 2,255 2,266 2,271 2,271 2,287 Supermarket space grow th Liquor sqm 190, , , , , , , , , ,556 Liquor stores (number) sqm per Liquor store Liquor space grow th Bunnings FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales (ex-property) $m EBITDA (ex-property) $m EBIT (ex-property) $m Office Supplies FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales $m EBITDA $m EBIT $m Kmart FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales $m EBITDA $m EBIT $m Target FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales $m EBITDA $m EBIT $m Resources FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Revenue $m EBITDA $m EBIT $m Chemicals, Energy & Fertilisers FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales $m EBITDA $m EBIT $m Industrial and Safety FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Sales $m EBITDA $m EBIT $m Cash Flow FY12 FY13 FY14 1HFY15 2HFY15 FY15 1HFY16 2HFY16 FY16 FY17 Operating Cashflow AU$m 3,641 3,931 3,226 2,281 1,510 3,791 2,404 1,587 4,063 4,115 Investing Cashflow AU$m -2,169-1, , , ,251-1,990-1,546 Financing Cashflow AU$m -1,242-1,965-3,444-1,831-1,418-3,249-1, ,018-2,569 Net Increase/(decrease) in cash held AU$m , Balance sheet FY12 FY13 FY14 FY15E FY16E FY17E Valuation Assets SOTP FY16 - Low FY16 - high Cash and trade receivables AU$m 3,511 3,674 3,651 2,174 2,230 2,384 Coles 23,320 24,547 Inventories AU$m 5,006 5,047 5,336 5,497 5,781 6,351 Bunnings 18,136 19,531 Property Plant and Equipment AU$m 9,463 10,164 9,952 10,205 10,877 11,200 Office Supplies 1,556 1,712 Goodwill and other intangibles AU$m 16,097 16,151 14,510 14,708 14,712 14,712 Kmart 4,883 5,458 Intangibles 4,393 4,459 4,446 4,601 4,517 4,379 Target 1,602 1,790 Other Assets AU$m 3,842 3,660 1,832 3,217 3,511 3,511 Resources Total Assets AU$m 42,312 43,155 39,727 40,402 41,627 42,537 Chemicals, Energy & Fertilisers 2,721 3,084 Liabilities Industrial & Safety Trade Creditors AU$m 5,420 5,999 5,417 5,761 6,059 6,656 Other Short & Long Term Debt AU$m 5,502 5,779 5,065 6,528 6,970 6,746 Enterprise Value 52,643 56,590 Other Liabilities AU$m 5,763 5,355 3,258 3,332 3,592 3,758 - Net Debt -5,817-5,817 Total liabilities AU$m 16,685 17,133 13,740 15,621 16,621 17,160 Equity Value 46,826 50,773 Equity Equity Value per Share Share Capital AU$m 23,286 23,290 22,708 21,844 21,937 21,937 Target price Retained Earnings & Other Equity AU$m 2,103 2,375 2,901 2,742 2,931 3,302 Capital return 4.3 Otehr Equity Dividend yield 5.0 Total Equity AU$m 25,627 26,022 25,987 24,781 25,006 25,377 Total Return 9.4 Source: Company data, Macquarie Research, February February

10 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a reasonably positive view on. The strongest style exposure is Quality, indicating this stock is likely to have a superior and more stable underlying earnings stream. The weakest style exposure is Profitability, indicating this stock is not efficiently converting its investments to earnings as proxied by ratios such as ROE, ROA etc. 56/161 Global rank in Food & Staples Retailing % of BUY recommendations 33% (4/12) Number of Price Target downgrades 1 Number of Price Target upgrades 0 Attractive Quant Local market rank Global sector rank 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 & Staples Retailing) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. Treasury Wine Estates 1.3 Treasury Wine Estates 0.9 Metcash 0.4 Metcash Coca-Cola Amatil 0.2 Coca-Cola Amatil J Sainsbury 0.1 J Sainsbury Woolworths -0.2 Woolworths Tesco -1.3 Tesco % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator 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. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. Treasury Wine Estates Metcash Coca-Cola Amatil J Sainsbury Woolworths Tesco Treasury Wine Estates Metcash Coca-Cola Amatil J Sainsbury Woolworths Tesco % -40% 10% 60% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Cash FY0 EV/EBITDA FY0 Net Buybacks to Mkt Cap Dividend Yield NTM DPS Growth FY1 Momentum 3 Month ROIC 12m Fwd FCF Yield FY0 Negatives Positives -24% -12% -15% -16% 28% 28% 26% 33% -40% -20% 0% 20% 40% How it looks on the Alpha model 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. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/161) Percentile relative to market(/394) 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 (cpg@macquarie.com) 25 February

11 Macquarie Wealth Management 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 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 % 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 December 2015 AU/NZ Asia RSA USA CA EUR Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients) Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients) Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients) 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, February month target price methodology WES AU: A$43.30 based on a Sum of Parts methodology Company-specific disclosures: WES AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Ltd with investment advisory services in the past 24 months, for which it received compensation. MACQUARIE SECURITIES (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Ltd in the past 12 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 19-Jan-2016 WES AU Outperform A$ Oct-2015 WES AU Outperform A$ Oct-2015 WES AU Outperform A$ Aug-2015 WES AU Outperform A$ Jul-2015 WES AU Neutral A$ May-2015 WES AU Neutral A$ Apr-2015 WES AU Neutral A$ Mar-2015 WES AU Underperform A$ Feb-2015 WES AU Underperform A$ Feb-2015 WES AU Underperform A$ Nov-2014 WES AU Neutral A$ Oct-2014 WES AU Underperform A$ Sep-2014 WES AU Underperform A$ Aug-2014 WES AU Underperform A$ Jan-2014 WES AU Neutral A$ Dec-2013 WES AU Neutral A$ Aug-2013 WES AU Underperform A$ Jun-2013 WES AU Underperform A$ May-2013 WES AU Underperform A$ February

12 Macquarie Wealth Management Target price risk disclosures: 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: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN AFSL ("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 , AFSL No ) ( 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 Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, 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 contains 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. 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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 Macquarie Group 25 February