AUSTRALIA DOW AU Price (at 06:26, 01 Dec 2016 GMT) Outperform A$6.08 Valuation - Sum of Parts A$ 5.69-6.38 12-month target A$ 6.40 12-month TSR % +9.6 Volatility Index Medium GICS sector Commercial & Professional Services Market cap A$m 2,583 30-day avg turnover A$m 10.3 Number shares on issue m 424.8 Investment fundamentals Year end 30 Jun 2016A 2017E 2018E 2019E Revenue m 6,850.0 6,628.3 6,716.6 6,588.5 EBIT m 276.9 267.4 291.4 299.5 Reported profit m 180.6 171.7 190.9 196.4 Adjusted profit m 171.0 162.1 181.3 186.8 Gross cashflow m 439.3 424.4 415.5 421.1 CFPS 103.3 101.8 99.6 101.0 CFPS growth % -4.4-1.5-2.1 1.3 PGCFPS x 5.9 6.0 6.1 6.0 PGCFPS rel x 0.53 0.61 0.63 0.65 EPS adj 40.2 38.9 43.5 44.8 EPS adj growth % -13.5-3.4 11.9 3.1 PER adj x 15.1 15.6 14.0 13.6 PER rel x 0.82 0.98 0.91 0.91 Total DPS 24.0 24.8 27.6 28.4 Total div yield % 3.9 4.1 4.5 4.7 Franking % 100 100 100 100 ROA % 6.7 6.4 6.9 7.0 ROE % 8.3 7.7 8.3 8.2 EV/EBITDA x 5.0 5.0 5.1 5.0 Net debt/equity % 3.9-1.2-5.3-9.1 P/BV x 1.2 1.2 1.1 1.1 DOW 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, December 2016 (all figures in AUD unless noted) 1 December 2016 Macquarie Securities (Australia) Limited Two out of three ain t bad Event DOW has won the Sydney Growth Trains contract, valued at $1.7bn. The win is as we expected, Rail drives positive FY18 earnings outlook, but pleasing nonetheless. This makes it 2 out of 3 successful bids for the major local rail contracts up for grabs with DOW successful on $2bn High Capacity Metro trains (HCMT) contract in Victoria and UGL winning NSW Inter-city. The contract includes an order of 24 double-deck trains with options for up to 45 additional sets and maintenance of the trains for an initial period of 25 years plus two optional five-year extensions. Impact Good win. The long-term maintenance contract is the main prize for DOW. We estimate $30-40m of potential maintenance revenue pa at low double-digit EBIT margin so $4-5m pa once train is built (FY19). There are also likely to be upfront project management fees. While not material in isolation, it dovetails nicely with recent VIC and Newcastle Light rail wins, which give DOW s Rail business a solid foundation for growth going forward. Lower risk than original Waratah given build risk with CRRC and based on same design. We see this contract as much lower risk than prior Waratah contract. The nature of the contract is different as CRRC (China Rail) has primary build responsibility and the train is based on existing proven Waratah design (90% commonality of design and with the same major sub-systems). At its recent AGM, DOW re-affirmed existing FY17 NPAT guidance of $163m. This is after $7m of previously disclosed bid costs expensed on NSW Inter-city rail project. Sydney Growth trains also obviate need to expense $5m of bidding costs which can now be capitalised. Separately, the sale of Ausgrid (NSW power asset) provides a potential opportunity for DOW. This is via potential outsourcing of power/utilities maintenance in NSW similar to what have seen in Victoria. Earnings and target price revision FY18E and FY19E EPS +1.4% and 1.5%, respectively. Price catalyst 12-month price target: A$6.40 based on a Sum of Parts methodology. Catalyst: 1H17 results in Feb Action and recommendation O/P with $6.40 TP. This is up from $5.55 TP as we increase applied SoP multiples given sector re-rate and with increasing confidence of earnings growth beyond FY17. The stock has run-up strongly but we don t see valuation multiples as overly demanding and DOW remains at a discount to CIM/MND average valuation multiples. DOW continues to be in transition from resources into infrastructure; the recent FY16 result suggests this is close to bottoming out. Confirmed contract wins in rail (Newcastle light rail, Victoria and now SYD growth trains) create a more visible path for earnings growth for DOW in FY18, with growth in transport services, telco, utilities and rail more than offsetting oil & gas related engineering construction declines. Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Analysis Fig 1 DOW at a premium to the sector but a discount to CIM and MND on PE PER (x) EV/EBIT (x) EV/EBITDA (x) EPS growth (%) 2016 2017 2018 2016 2017 2018 2016 2017 2018 2017 2018 DOW 15.1 15.6 14.0 10.3 10.6 9.8 5.3 5.5 5.5-3 12 CIM 18.9 16.8 15.7 12.8 11.3 10.7 8.9 7.9 7.8 13 8 MND 15.3 17.9 17.8 9.1 10.7 10.5 7.4 8.5 8.6-14 0 UGL 15.6 10.5 9.5 9.0 6.5 6.0 6.6 4.8 4.6 48 10 WOR 13.6 13.8 12.6 10.6 10.5 9.8 8.2 8.1 7.8-1 9 Peer average 15.9 14.8 13.9 10.4 9.7 9.3 7.8 7.3 7.2 11 7 Peer average (CIM, MND) 17.1 17.4 16.7 11.0 11.0 10.6 8.1 8.2 8.2-1 4 DOW prem/(disc) -5% 6% 1% -1% 9% 5% -32% -25% -23% DOW prem/(disc) to CIM, MND -12% -10% -16% -7% -3% -8% -35% -34% -33% Source: Macquarie Research, December 2016, Share prices as of 30 Nov (DOW share price as of 1 Dec) At 15.6x FY17e PER, DOW is trading at a 6% PER premium to a broader contractor average and a 10% discount if we compare DOW with CIM and MND. Fig 2 MND close to 2.3pt PE premium (NTM consensus) to DOW 4.0 2.0 ppt 0.0-2.0-4.0-6.0-8.0-10.0-12.0 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 DOW less MND PE differential 10 yr average 5 yr average 2 yr average Source: Company data, Macquarie estimates, December 2016 DOW is currently trading close to a 2.3pt PE discount to MND on a NTM consensus basis, which is not too much below the 10-year average of 4pt discount (3.1pt discount ex 2010-11). Over the last two years, DOW s average discount has been 0.5pts. In a relative sense, DOW is less exposed to the resources capex cycle than MND. DOW s Engineering, Construction & Management division (EC&M) is 25% of revenue vs MND s construction business at 56% of revenue. DOW Mining is 27% of our FY17 revenue but we view this has less capex exposed and more volume/production driven. DOW also has more end-market diversity across its Services business via road maintenance, telco and utilities vs MND s maintenance revenue which is oil & gas centric at 52% and infra only 1%. 1 December 2016 2
Fig 3 DOW s PER discount to the market currently ~2% discount to mkt 18 16 14 12 10 8 6 4 2 0 30-Nov-06 30-Nov-08 30-Nov-10 30-Nov-12 30-Nov-14 30-Nov-16 1.40 1.20 1.00 0.80 0.60 0.40 0.20 Source: FactSet, Macquarie Research, December 2016 DOW NTM PE 0.00 01-Nov-06 01-Nov-08 01-Nov-10 01-Nov-12 01-Nov-14 01-Nov-16 DOW NTM PER At 15.6x FY17e PER DOW is currently trading at a 2% PER discount to the market (source FactSet consensus). Fig 4 Average FY17 SoP valuation yields $5.87/share FY17 Valuation FY17e EBIT Multiple- Low Multiple - High Value - Low Value - High DOW Infrastructure Aus & NZ 232 10.0 11.0 2320 2552 Mining 94 7.0 8.0 655 748 Rail 28 9.0 10.0 253 281 Corporate -86 7.0 8.0-604 -690 Total 267 9.8 10.8 2624 2891 Less: FY16e Average Net Debt 132 132 Less: ROADS (hybrid) 179 179 Value 2314 2581 Shares On Issue 417 417 Value per share $5.55 $6.19 Midpoint $5.87 Source: Company data, Macquarie Research, December 2016 Fig 5 Average FY18 SoP valuation yields $6.04/share FY18 Valuation FY18e EBIT Multiple- Low Multiple - High Value - Low Value - High DOW Infrastructure Aus & NZ 244 9.0 10.0 2198 2442 Mining 85 7.0 8.0 594 679 Rail 37 8.0 9.0 299 336 Corporate -75 7.0 8.0-525 -600 Total 291 8.8 9.8 2565 2857 Less: FY17e Average Net Debt 15 15 Less: ROADS (hybrid) 179 179 Value 2371 2663 Shares On Issue 417 417 Value per share $5.69 $6.38 Midpoint $6.04 Source: Company data, Macquarie Research, December 2016 In our FY18 SoP, we have applied average multiples of 8.8-9.8x EBIT. We have applied higher SoP multiples (up by 1.0x in FY18) given sector re-rate and with increasing confidence of earnings growth beyond FY17. Within this, we apply a higher multiple for DOW Infra Australia and NZ (9.0-10.0x) given high ROFE, cash flow generative nature and positive growth outlook for Services business (telco, utilities). We apply a lower multiple for Mining to reflect higher capital intensity. Our target price of $6.40 is based on upper end of our FY18 SoP valuation. 1 December 2016 3
Interim results 1H16(a) 2H16(a) 1H17(e) 2H17(e) Profit & Loss 2015A 2016A 2017E 2018E Revenue 3258.2 3591.8 3158.2 3470.1 Sales revenue $m 7019.9 6850.0 6628.3 6716.6 % ch -3% -2% -3% -3% % ch -5% -2% -3% 1% EBITDA $m 241.2 294.4 232.8 287.4 EBITDA $m 562.8 535.6 520.1 516.0 Depreciation $m 116.8 117.7 114.3 114.3 Depreciation $m 228.6 234.5 228.5 224.6 Amortisation of intangibles $m 11.2 13.0 11.2 13.0 Amortisation of intangibles $m 24.5 24.2 24.2 0.0 EBIT $m 113.2 163.7 107.3 160.1 EBIT $m 309.7 276.9 267.4 291.4 Net Interest expense $m 15.8 17.2 16.1 16.1 Net interest expense $m 29.9 33.0 32.2 28.1 Pre-Tax Profit $m 97.4 146.5 91.2 144.0 Pre-Tax Profit $m 279.8 243.9 235.2 263.3 Tax Expense $m 25.3 38.0 23.7 39.8 Tax Expense $m 69.6 63.3 63.5 72.4 Net Profit $m 72.1 108.5 67.5 104.2 Net Profit $m 210.2 180.6 171.7 190.9 Outside equity interests $m 0.0 0.0 0.0 0.0 Outside equity interests $m 0.0 0.0 0.0 0.0 Net Abn/Extra $m 0.0 0.0 0.0 0.0 Net Abnormals/Extra. $m 0.0 0.0 0.0 0.0 Reported Earnings $m 72.1 108.5 67.5 104.2 Reported Earnings $m 210.2 180.6 171.7 190.9 Adjusted Earnings $m 67.3 103.7 62.7 99.4 Adjusted Earnings $m 199.5 171.0 162.1 181.3 Gross Cashflow $m 259.6 207.1 208.8 215.7 Gross Cashflow $m 483.9 466.7 424.4 415.5 EPS (Adj/dil) c 15.7 24.6 15.0 23.8 EPS (adj/diluted) c 46.6 40.3 38.9 43.5 EPS growth % -24.6-4.5-4.5-3.1 EPS growth % -2.1% -13.6% -3.5% 11.9% CFPS c 41.6 63.7 47.0 55.5 PE (adj) x 13.0 15.1 15.6 14.0 CFPS Growth % -30.8 19.6 12.9-12.9 CFPS c 113.6 105.4 102.5 98.2 EBITDA/Sales % 7.4 8.2 7.4 8.3 CFPS Growth % -15.3-7.2-2.8-4.2 EBIT/Sales % 3.5 4.6 3.4 4.6 PGCFPS x 4.4 4.7 5.9 6.2 Earnings Split % 39.3 60.7 38.7 61.3 DPS c 24.0 24.0 24.8 27.6 Revenue Growth % -3.4-1.6-3.1-3.4 Yield % 3.9 3.9 4.1 4.5 EBIT Growth % -20.1-2.6-5.2-2.2 Franking % 100.0 100.0 100.0 100.0 Profit and Loss ratios 2015A 2016A 2017E 2018E Cashflow Analysis 2015A 2016A 2017E 2018E Revenue Growth % -4.6-2.4-3.2 1.3 EBIT Growth % -9.2-10.6-3.4 9.0 Pre-tax Profit $m 279.8 243.9 235.2 263.3 EBITDA/Sales % 8.0 7.8 7.8 7.7 Depreciation & Amortisation $m 253.1 258.7 252.7 224.6 EBIT/Sales % 4.4 4.0 4.0 4.3 Tax Paid $m -49.0-35.9-63.5-72.4 Effective tax rate % 24.9 26.0 27.0 27.5 Gross cashflow $m 483.9 466.7 424.4 415.5 Payout ratio % 54.5 59.6 63.7 63.4 Changes in working capital $m 104.7-31.1 3.1-5.8 EV/EBIT x 8.9 9.6 9.4 8.3 Other $m -102.1 12.2 0.0 0.0 EV/EBITDA x 4.9 5.0 4.8 4.7 Operating Cashflow $m 486.5 447.8 427.6 409.7 EV/Sales x 0.4 0.4 0.4 0.4 Acquisitions $m -371.6-2.0 0.0 0.0 Capex - Plant & Equip. $m -177.6-185.7-200.0-220.0 Balance sheet ratios Asset Sales $m 79.3 12.0 0.0 0.0 ROE % 10.5 8.8 8.1 8.7 Other $m -28.3-29.8 0.0 0.0 ROA % 8.8 7.6 7.4 8.1 Investing cashflow $m -498.2-205.5-200.0-220.0 ROFE % 14.9 12.7 12.5 13.8 Dividend (ordinary) $m -114.8-113.1-87.7-97.7 Net Debt $m 166.4 80.6-26.7-118.7 Equity raised $m -11.7-26.5-32.5 0.0 Net Debt/Equity % 8.2 3.9 < 0 < 0 Other $m 0.0 0.0 0.0 0.0 Interest Cover x 10.4 8.4 8.3 10.4 Financing cashflow $m -46.8-45.8-220.2-97.7 Price/NTA x 1.7 1.7 2.1 2.0 NTA per share $ 2.58 2.63 2.86 3.09 Net Change in cash/debt $m -138.2 102.7 107.3 92.0 EFPOWA m 428.1 424.7 417.1 417.1 Historical performance 2012A 2013A 2014A 2015A Balance Sheet 2015A 2016A 2017E 2018E Cash $m 372.2 569.4 576.7 668.7 Revenue $m 8055.5 8365.4 7360.1 7019.9 Receivables $m 1123.4 1124.3 1093.7 1108.2 EBITDA $m 592.5 665.1 607.5 562.8 Inventories $m 352.6 327.2 331.4 335.8 Depreciation/Amortisation $m 246.0 294.8 266.4 253.1 Investments $m 83.3 81.6 81.6 81.6 EBIT $m 346.5 370.3 341.1 309.7 Property, plant & equipment $m 1037.1 988.3 959.8 955.1 Net interest expense $m 69.0 67.2 43.1 29.9 Intangibles $m 919.0 969.9 945.7 945.7 Pre-Tax Profit $m 277.5 303.1 298.1 279.8 Other Assets $m 116.8 139.6 159.6 159.6 Tax Expense $m 82.0 87.7 82.1 69.6 Total Assets $m 4004.4 4200.3 4148.5 4254.8 Net Profit $m 195.5 215.4 216.0 210.2 Payables $m 1076.2 1023.6 1000.3 1013.5 Net Abn/Extra $m -82.5-11.5 0.0 0.0 Short Term Debt $m 62.2 45.5 45.5 45.5 Long Term Debt $m 476.4 604.5 504.5 504.5 EPS (adj/dil) c 43.0 48.3 47.6 46.6 Other Liabilities $m 354.3 438.2 458.2 458.2 EPS growth % 0.0 0.1 0.0 0.0 Total Liabilities $m 1969.1 2111.8 2008.5 2021.7 Ordinary DPS c 0.0 21.0 23.0 24.0 Shareholders Funds $m 2035.3 2088.5 2139.9 2233.1 EBITDA/Sales % 7.4 8.0 8.3 8.0 Minority Interests $m 0.0 0.0 0.0 0.0 EBIT/Sales % 4.3 4.4 4.6 4.4 Total Shareholders Equity $m 2035.3 2088.5 2139.9 2233.1 ROE % 12.8 12.5 11.4 10.5 ROFE % 18.1 18.6 17.1 14.9 Total Funds employed $m 4,004.4 4,200.3 4,148.5 4,254.8 Revenue 429.1 430.3 434.5 428.1 Divisional Information 2015A 2016E 2017E 2018E Reported Sales Revenue 7019.9 6850.0 6628.3 6716.6 Source: Company data, Macquarie Research, December 2016 Transport Services 88.3 103.7 113.2 127.6 Tech & Comms Services 25.7 29.9 32.2 34.3 Utility Services 34.0 41.5 41.8 46.5 EC&M 59.4 48.2 44.8 35.8 Total DOW Infrastructure Aus & NZ 207.4 223.3 232.0 244.2 Mining 132.6 130.0 93.5 84.8 Rail 27.5 14.4 28.1 37.3 Unallocated -57.8-90.8-86.3-75.0 Total EBIT 309.7 276.9 267.4 291.4 1 December 2016 4
Macquarie Quant View The quant model currently holds a strong positive view on. The strongest style exposure is Price Momentum, indicating this stock has had strong medium to long term returns which often persist into the future. The weakest style exposure is Profitability, indicating this stock is not efficiently converting investments to earnings; proxied by ratios like ROE or ROA. 21/351 Global rank in Comm. & Prof. Services % of BUY recommendations 29% (2/7) Number of Price Target downgrades 0 Number of Price Target upgrades 1 Fundamentals 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 (Comm. & Prof. Services) 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. 1.4 1.3-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -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. 1.4 0.1-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% 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. Sales to EV FY0 Price to Sales FY0 EV/EBITDA LTM Price to Cash NTM Capex Growth 3M Price Target Revisions Turnover (USD) 20 Day Relative Turnover Negatives Positives -40% -42% -24% -24% 39% 36% 33% 33% -60% -40% -20% 0% 20% 40% 60% 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 1.37 0.69-0.08-0.24-0.15 0.75 0.53 0.23-1.01 0.07-0.10 Percentile relative to sector(/351) Percentile relative to market(/423) 0 50 100 0 50 100 0 0 1 1 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) 1 December 2016 5
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 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 September 2016 AU/NZ Asia RSA USA CA EUR Outperform 47.26% 55.50% 38.46% 45.47% 59.09% 48.21% (for US coverage by MCUSA, 8.20% of stocks followed are investment banking clients) Neutral 38.01% 29.31% 42.86% 48.77% 37.88% 36.79% (for US coverage by MCUSA, 8.25% of stocks followed are investment banking clients) Underperform 14.73% 15.19% 18.68% 5.76% 3.03% 15.00% (for US coverage by MCUSA, 8.00% of stocks followed are investment banking clients) DOW 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, December 2016 12-month target price methodology DOW AU: A$6.40 based on a Sum of Parts methodology Company-specific disclosures: DOW AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 12-Sep-2016 DOW AU Outperform A$5.55 04-Aug-2016 DOW AU Outperform A$4.82 25-Jul-2016 DOW AU Outperform A$4.22 04-Apr-2016 DOW AU Outperform A$3.85 31-Mar-2016 DOW AU Outperform A$4.05 04-Feb-2016 DOW AU Outperform A$3.70 06-Aug-2015 DOW AU Outperform A$4.45 16-Jul-2015 DOW AU Neutral A$4.90 05-May-2015 DOW AU Outperform A$5.00 23-Feb-2015 DOW AU Outperform A$4.90 05-Feb-2015 DOW AU Outperform A$4.80 05-Aug-2014 DOW AU Outperform A$5.10 11-Jun-2014 DOW AU Outperform A$5.20 04-Feb-2014 DOW AU Outperform A$5.50 Target price risk disclosures: DOW 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. Risk is of a more aggressive market slowdown and margin pressure. 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. 1 December 2016 6
This publication was disseminated on 01 December 2016 at 09:53 UTC. Macquarie Wealth Management General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, 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 41 002 574 923 AFSL 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. Apart from Macquarie Bank Limited ABN 46 008 583 542 (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. 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 Macquarie Group 1 December 2016 7