AUSTRALIA ABC AU Price (at 08:02, 16 Aug 2012 GMT) Outperform A$2.90 Volatility index Low/Medium 12-month target A$ 3.10 12-month TSR % +13.0 Valuation A$ 3.18 - DCF (WACC 10.0%, beta 1.2, ERP 4.5%, RFR 6.3%, TGR 3.0%) GICS sector Materials Market cap A$m 1,848 30-day avg turnover A$m 5.0 Number shares on issue m 637.4 Investment fundamentals Year end 31 Dec 2011A 2012E 2013E 2014E Revenue m 1,100.4 1,114.7 1,192.9 1,305.7 EBIT m 223.4 227.1 246.3 278.3 Reported profit m 148.4 152.3 162.7 185.9 Adjusted profit m 148.4 152.3 162.7 185.9 Gross cashflow m 206.2 211.3 222.9 247.3 CFPS 32.4 33.2 35.0 38.8 CFPS growth % 0.8 2.2 5.4 11.0 PGCFPS x 8.9 8.7 8.3 7.5 PGCFPS rel x 0.97 1.00 1.18 1.17 EPS adj 23.3 23.9 25.5 29.2 EPS adj growth % -2.7 2.4 6.8 14.3 PER adj x 12.4 12.1 11.4 9.9 PER rel x 0.77 0.80 1.02 1.05 Total DPS 16.5 16.5 19.0 21.0 Total div yield % 5.7 5.7 6.6 7.2 Franking % 100 100 100 100 ROA % 16.0 14.5 14.0 14.2 ROE % 15.7 15.6 15.9 17.4 EV/EBITDA x 7.6 7.5 7.0 6.3 Net debt/equity % 25.9 30.5 28.4 23.2 P/BV x 1.9 1.8 1.8 1.7 ABC AU vs Small Ordinaries, & 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, August 2012 (all figures in AUD unless noted) 17 August 2012 Macquarie Securities (Australia) Limited The quiet achiever Event ABC reported 1H12 underlying NPAT of $67.5m, up 9.8% YoY (vs. Macq at $66.7m). Impact Sales and return metrics remain strong. Revenue of $550.3m was up 8.3% vs pcp, 1H12 EBITDA margin was 27.8% and EBIT margin 17.9%. ABC s 1H12 return on funds employed was 18.9%. Despite c50% of ABC s revenue exposure to residential and non-residential activity, it delivered a good 1H12 result despite difficult end-market conditions. FY12 guidance lower than market expectations. ABC has provided fullyear guidance net profit after tax to be in the range of $145m $155m (preresult consensus was A$156.6m). Commentary on end-market conditions highlighted continued weakness in residential and non-residential sectors, which combined contribute approximately 50% of ABC s revenue. Cement and clinker sales volumes are expected to be flat YoY. However, lime volumes are expected to increase and demand remains robust due to SA projects, WA and NT mining and resource projects. Operating cashflow improved vs pcp. 1H12 operating cash flow of $80m was a substantial gain on 1H11 operating cash flow of $50m. This result was assisted by higher operating earnings and lower tax payments. EBITDA/cash conversion at 87% also remained strong. Balance sheet remains solid. Net debt stood at $287.6m, which is up from $220.6m at the pcp, and gearing (ND/E) at 29.7%. ABC has a stated target gearing range of 25 45%, and it was communicated that the board are comfortable sitting towards the lower end of that range given the current point in the residential and non-residential construction cycle. 1H12 EBIT interest cover of c11.9x and Net debt/ebitda of c1x shows the prudent approach that ABC has taken with its balance sheet through the cycle. Earnings and target price revision FY12 EPS reduced from 25.4cps to 23.9cps, FY13 EPS reduced from 27.2cps to 25.5cps. Target price reduced from $3.25 to $3.10. Price catalyst 12-month price target: A$3.10 based on a Sum of Parts methodology. Catalyst: July building approvals 30 August. Action and recommendation We retain an Outperform. Although ABC s guidance update was marginally lower than market expectations, earnings remain robust despite depressed residential and non-residential activity. Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures.
Fig 1 ABC 1H12 result what we liked, what we didn t, what was interesting What we liked What we didn t like What else was interesting Recovery in the domestic macro broadly remains weak. Management noted that demand for cement in 2012 is expected to be similar to the levels seen in 2011. Robust infrastructure and non-res demand in South Australia, coupled with mining and resource projects in WA and NT, will be offset by continued weakness in the residential sector. We note that project work typically carries lower margins that residential projects. Continued weakness in the concrete masonry market is expected to continue into 2012 given the weakness in the east coast commercial and multiresidential sectors. YoY gains in revenue and NPAT. Revenue of $550.3m was up 8.3% vs pcp and NPAT of $67.5m was up 9.8% vs pcp. Return on funds employed was a healthy 18.9%, although we note that this is down slightly from 20.4% in 1H11. Cashflow strong, balance sheet in good shape. Operating cashflow of $80m (versus $50m in 1H11) was assisted by higher operating earnings and lower tax payments. 1H12 Cash conversion was also good at 87%. Net debt of $287.6m increased from $220.6m, while gearing (ND/E) at 29.7% compares to 23.9% at the end of 1H11. The mining and resources pipeline remains committed for the short-medium term. ABC indicated that they are seeing no pullback from projects committed to over the coming two years, despite the current commodity price declines. Lime earnings increased. Volumes were higher than the pcp due to resources sector demand, recovery in sales to a major NT customer and ABC had a price reset with a major WA alumina customer. Capex program progressing to plan. ABC has now spent $58m of its $94m investment program, with $36m to go. This is to improve efficiency, sustainability and environmental performance in the Cement and Lime division. Birkenhead expansion has attractive return metrics. The previously announced $60m upgrade will increase milling capacity by 750ktpa. ABC has indicated that this project is expected to deliver additional EBIT of $10m - $12m p.a. from mid 2013. Foundations are currently underway and the new ship loader has been completed. Munster environmental improvements assisting throughput. The $24m bag house filter project was commissioned within budget, and the $10m cooler bag house is due to be commissioned by the end of August. These projects will increase lime capacity by 100ktpa. Customer negotiations progressing. Supply negotiations with ICL have been agreed and are now subject to unit-holder approval. ABC also remains confident that a supply agreement to a major SA/WA cement customer for 2013/2014 will be renewed on materially similar terms. Source: Macquarie Research, August 2012 Import earnings softer due to weak Queensland demand. Import profitability declined by c$3m due to the higher cost of imported cement from its offshore supplier and a reduction in clinker imports to Sunstate cement. The reduced offtake by Sunstate Cement s 50% shareholder is expected to reduce 2012 NPAT by c$2m. JV earnings were down. ABC s share of earnings from ICL, Sunstate, Burrell Mining and Batesford Quarry showed poor performance when compared with ABC s. Sales were essentially flat, however EBITDA declined 13.8% to $22.5m and NPAT declined 13.3% to $14.4m. Guidance given for FY12. ABC has provided guidance for FY12 NPAT of between $145m and $155m, which was slightly below market consensus of c$156m. We note that in August 2011 guidance was given for FY11 NPAT of between $144m and $152m, with FY11 NPAT coming in at $148.4m. ABC calculate the cost of the carbon tax. ABC have indicated that the impact to group profit in FY12 will be $2.7m before mitigation. The mitigation that ABC is planning consists of increasing imports (ABC is the largest importer of cement and clinker in Australia) and increasing the use of alternative fuels and cementitous substitutes such as fly ash, slag and limestone. Increased imports by ABC. We believe that the long term end game for ABC will be that they become a much more import centric company than what we see today. Balance sheet capacity for acquisitions and organic growth opportunities. ABC has total debt facilities of $500m, with maturities staggered from 2013 to 2015, providing sufficient flexibility. ABC have a significant land bank. Management have forecast that they may be able to realise circa $100m over the next 2-10 years through land sales in WA, SA and Vic. 17 August 2012 2
Fig 2 1H12 result snapshot A$m 1H12 1H11 % change Revenue 550.3 507.9 8.3% Depreciation and Amortisation -30.9-26.9 14.9% EBIT Cement, Lime and Concrete 96.3 95.5 0.8% Concrete Products -0.5-1.2-58.3% All other segments 2.7-1.9-242.1% Total EBIT 98.5 92.4 6.6% Group EBIT margins 17.9% 18.2% Net interest -8.3-7.9 5.1% Profit before tax 90.2 84.5 6.7% Tax expense -22.7-23.1-1.7% Net profit after tax 67.5 61.4 9.9% Non-controlling interests 0 0.1-100.0% Net profit attributable to equity holders 67.5 61.5 9.8% Earnings per share (cents) 10.6 9.7 9.3% Total dividends per share - fully franked (cents) 7.5 7.5 0.0% Net debt (A$millions) 287.6 220.6 30.4% Net debt/equity (%) 29.7% 23.9% Source: ABC, August 2012 Balance sheet in good shape, operating cashflow stronger Gearing has increased from 23.9% in 1H11 to 29.7% in 1H12, however this remains towards the lower end of ABC s target range of 25-45%. Net debt has increased to $287.6m on the back of acquisitions (assets and property) and capital expenditure. Full-year guidance for capex is $110m - $120m (excluding any acquisitions). Operating cash flow for 1H12 was $80m, up $30m from operating cash flow of $50m in 1H11 due to higher operating earnings and lower tax payments. The table below shows cashflow conversion, or the proportion of EBITDA flowing through to cash. Cash conversion for 1H12 came in at 87%, compared with 80% in 1H11. We note that the 2H11 saw a solid improvement in this measure on 1H11, rising from 80% to 88%. Fig 3 Cash conversion still a strong feature for ABC FY08a FY09a FY10a 1H11a 2H11a FY11a 1H12a EBITDA 246 242 269 119 162 281 129 Operating cash flow 150 188 189 50 105 155 80 Tax Paid (+) 41 31 48 39 27 66 23 Net Interest paid (+) 32 16 13 7 10 17 9 Ungeared pre tax CF 223 235 249 96 142 238 113 EBITDA/cash flow conversion 91% 97% 93% 80% 88% 85% 87% Source: ABC, Macquarie Research, August 2012 17 August 2012 3
Guidance has been provided for FY12 ABC has provided guidance that FY12 NPAT will be between $145m and $155m. 2012 cement and clinker sales volumes are expected to be similar to 2011. SA demand remains robust due to infrastructure and non-res projects. WA and NT demand driven by mining and resource projects. Lime sales volumes are expected to be higher than 2011, with ABC benefiting from improved pricing to a major alumina customer in WA effective 1 July 2011. Concrete and aggregate pricing is expected to improve from price rises effective 1 April 2012. Residential and retail segments are softer, giving rise to continued weakness in the concrete masonry market. Meanwhile a high AUD will continue to be a positive for margins on imported Clinker but will likely constrain upside to domestic cement prices. Fig 4 Our A$3.10 target price for ABC is a blended average of a sum-of-parts and DCF EBIT multiple EBIT FY12e value FY13e value A$m Low High FY12e FY13e Low High Low High Cement, Lime, Concrete 9.0 10.0 225 244 2026 2251 2196 2440 Concrete Products 8.0 9.0 2 2 16 18 18 21 Total EBIT / EV 227 246 2042 2269 2214 2460 Net debt 306 306 297 297 Equity value 1736 1963 1917 2163 Shares on issue 637 637 637 637 Equity value per share $2.73 $3.08 $3.01 $3.40 Average value per share FY12 $2.90 $3.20 SOP (1/3 FY12, 2/3 FY13) $3.10 Source: ABC, Macquarie Research, August 2012 Our A$3.10 target price is a blended average SOP using 1/3 x FY12 valuation and 2/3 x FY13 valuation. We believe a 9-10x EBIT multiple is justified for the cement / lime / concrete operations given the positive market structure in cement as well as ABC s leading position in lime. ABC s exposure to stronger markets in SA and WA should not be underestimated, as this has enabled it to deliver above trend growth despite a tough domestic construction market. Concrete Products (Masonry) is a lower margin business with fewer barriers to entry and a greater exposure SE Queensland and the depressed non-residential market, hence the lower multiple (8-9x EBIT). Our FY12 / FY13 EBIT sum-of-parts (SOP) equity valuation range is A$2.90ps 3.20ps. The target price is calculated as $3.10ps. We retain the Outperform call with a A$3.10 target ABC continues to provide investors with strong leverage to domestic mining and resources, housing and infrastructure / engineering markets. In a relative sense ABC remains well positioned in the domestic market, with import margins assisted by the high A$ and a strong pipeline of work to come through in WA and SA. The balance sheet remains strong, with gearing (ND/E) of 29.7% towards the lower end of ABC s 25-45% target range and EBIT interest cover remaining strong at 12.6x for FY12e. We remain positive on the story and believe the stock commands a premium to its peers given: Favourable state exposures (nearly 50% of revenues from SA, WA and NT). Favourable end-market exposures (c50% revenue from Mining and Engineering Construction). A strong business model which is better able to withstand sustained weakness in cement volumes through winding back imports (keeps utilisation at higher levels in domestic manufacturing operations). ABC also see s import margins benefit from a higher A$. Solid balance sheet metrics (as noted above). Strong management team with a track record of meeting / exceeding market expectations. 17 August 2012 4
financial summary Profit and loss FY09a FY10a FY11a FY12e FY13e FY14e Balance sheet FY09a FY10a FY11a FY12e FY13e FY14e Revenue Current assets Cement 536.3 708.2 685.0 694.1 736.4 781.3 Cash & deposits 25.5 2.8 11.0 48.2 57.4 99.5 Concrete 157.8 185.9 232.0 210.5 225.0 239.7 Receivables 162.8 153.3 168.9 181.1 186.5 192.2 Masonry 138.0 131.5 120.2 121.9 131.6 141.5 Inventories 107.8 117.8 127.9 139.5 143.7 148.1 Lime 155.1 155.0 167.2 192.2 203.8 247.3 Other 12.7 0.2 0.0 0.0 0.0 0.0 Operating revenue - sale of goods 987.2 1180.6 1204.4 1218.7 1296.9 1409.7 Total current assets 308.8 274.1 307.9 368.8 387.6 439.7 Growth -3% 20% 2% 1% 6% 9% Non-current assets Operating revenue -services 0.0-107.7-104.0-104.0-104.0-104.0 Receivables 30.4 30.4 27.2 27.3 28.4 29.6 Total Operating revenue 987.2 1072.9 1100.4 1114.7 1192.9 1305.7 Investments 72.5 87.7 97.2 104.2 108.5 112.8 Total revenue growth -3% 9% 3% 1% 7% 9% Inventories 0.0 0.0 0.0 0.0 0.0 0.0 Swaps revenue 0.0 0.0 0.0 0.0 0.0 0.0 Total property, plant & equipment 774.3 760.6 851.0 990.7 1155.7 1320.7 Other revenue 0.0 0.0 0.0 0.0 0.0 0.0 Intangibles 169.0 179.1 183.0 181.3 174.1 167.2 Total Sales Revenue 987.2 1072.9 1100.4 1114.7 1192.9 1305.7 Other 0.0 0.0 0.0 0.0 0.0 0.0 Total non-current assets 1046.2 1057.8 1158.4 1303.6 1466.7 1630.4 Operating costs -745.2-803.9-819.2-828.6-886.5-966.1 Total assets 1355.0 1331.9 1466.3 1672.4 1854.3 2070.0 EBITDA 242.0 269.0 281.2 286.1 306.4 339.6 Current liabilities Depreciation -56.8-52.0-57.8-59.0-60.1-61.3 Creditors 106.1 105.4 98.5 115.6 119.1 122.7 EBITA 185.2 217.0 223.4 227.1 246.3 278.3 Borrowings 0.4 1.0 0.7 0.7 0.7 0.7 Amortisation 0.0-0.8 0.0 0.0 0.0 0.0 Provisions 24.4 21.6 21.7 24.5 24.5 24.5 EBIT Other 31.0 31.0 12.8 0.0 0.0 0.0 Cement 118.0 159.3 152.8 138.8 154.6 164.1 Total current liabilities 161.9 159.0 133.7 140.8 144.3 147.9 Concrete 10.3 10.2 13.9 14.7 18.0 19.2 Non-current liabilities Masonry 4.4 3.8 1.8 2.0 2.3 8.5 Creditors 0.0 0.0 0.0 0.0 0.0 0.0 Lime 53.6 54.1 58.5 66.1 71.3 86.5 Borrowings 200.5 150.2 258.7 354.0 354.0 354.0 Other -1.0-11.3-3.6 5.4 0.0 0.0 Provisions 29.9 32.6 35.0 33.1 33.1 33.1 EBIT 185.2 216.2 223.4 227.1 246.3 278.3 Other 65.7 55.8 81.7 139.2 276.0 436.0 Interest -16.7-14.0-17.0-18.5-21.8-21.8 Total non-current liabilities 296.1 238.6 375.4 526.3 663.1 823.1 NPBT 168.5 202.2 206.4 208.6 224.4 256.5 Total liabilities 458.0 397.6 509.1 667.1 807.3 970.9 Taxation -45.4-50.8-58.0-56.3-61.7-70.5 Net assets 897.0 934.3 957.2 1005.4 1047.0 1099.1 NPAT attributable to S/Hs 123.1 151.4 148.4 152.3 162.7 185.9 Shareholders equity growth 1.9% 22.9% -2.0% 2.6% 6.8% 14.3% Share capital 690.4 692.7 694.6 696.6 696.6 696.6 Reserves 2.9 2.6 2.3 1.4 1.4 1.5 Cashflow statement FY09a FY10a FY11a FY12e FY13e FY14e Retained profits 200.6 236.0 257.3 304.4 346.1 398.1 Operating cashflows Shareholders equity attributable 893.9 931.3 954.2 1002.5 1044.1 1096.2 EBITDA 242.0 269.0 281.2 286.1 306.4 339.6 Minority interest 3.1 3.0 2.9 2.9 2.9 2.9 Change in Working Capital 3.2-1.2-29.4-6.9-7.3-7.5 Total shareholders equity 897.0 934.3 957.1 1005.4 1047.0 1099.1 Interest received 3.1 2.3 2.4 3.0 3.0 3.0 Interest paid -36.9-13.5-19.4-21.5-21.5-21.5 Ratio analysis FY09a FY10a FY11a FY12e FY13e FY14e Income tax paid -34.5-47.5-58.0-56.3-56.3-56.3 Profitability analysis Other 11.2-20.6-21.8 0.0 0.0 0.0 Gross margin 24.5% 25.1% 25.6% 27.1% 27.1% 27.1% Net Operating cashflow 188.1 188.5 155.0 204.4 224.3 257.3 EBIT margin 18.8% 20.1% 20.3% 21.7% 22.0% 22.3% Cashflows from investing activities Balance sheet analysis Capex -43.1-51.7-91.3-110.0-110.0-110.0 Return on assets 13.7% 16.1% 16.0% 17.0% 16.7% 17.1% Disposals 4.1 4.5 0.0 0.0 0.0 0.0 Return on net assets 20.6% 23.1% 23.3% 26.7% 26.2% 25.6% Acquistions 0.0 0.0-47.6 0.0 0.0 0.0 Return on capital employed 16.9% 20.0% 18.4% 21.9% 21.0% 22.1% Divestments 0.0 0.0 1.6 0.0 0.0 0.0 Return on Equity 13.7% 16.2% 15.5% 18.0% 17.7% 17.3% Loans to related parties -2.1-0.1 3.2 0.0 0.0 0.0 Liquidity ratios Other 0.0 0.0 0.0 0.0 0.0 0.0 EBIT interest cover 11.1 15.4 13.1 12.6 11.6 12.9 Net cashflow from investing activities -41.1-47.3-134.1-110.0-110.0-110.0 Cash interest cover 10.3 11.6 8.0 8.8 19.0 22.0 Cashflows from financing activities Current ratio 1.9 1.7 2.3 1.9 2.7 3.0 Proceeds from issues of shares and other equity 113.5 0.0 0.0 0.0 0.0 0.0 Quick ratio 2.9 2.7 3.6 2.9 3.2 2.7 Proceeds from borrowings 0.0 0.0 109.0 45.0 0.0 0.0 Net debt to equity 20% 16% 26% 20% 28% 23% Repayment of borrowings -210.0-50.5 0.0 0.0 0.0 0.0 Dividends Dividends paid (net of DRP) -45.6-114.2-120.8-105.2-105.2-105.2 Dividend yield 4.6% 7.3% 6.4% 7.5% 7.9% 7.9% Other financing items -2.5 0.0-0.1 4.0 0.0 0.0 Franking 100% 100% 100% 100% 100% 100% Net cashflow from financing activities -144.6-164.7-11.9-56.2-105.2-105.2 Dividend payout ratio 66% 90% 71% 71% 70% 69% Net increase (decrease) in cash held 2.4-23.5 9.0 38.2 9.1 42.1 Cash at beginning of financial year 23.1 25.5 2.0 10.0 48.2 57.4 Effects of exchange rate changes 0.0 0.0 0.0 0.0 0.0 0.0 Cash at the end of the financial year 25.5 2.0 11.0 48.2 57.4 99.5 Source: Company data, Macquarie Research, August 2012 17 August 2012 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 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 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 2012 AU/NZ Asia RSA USA CA EUR Outperform 55.67% 61.00% 53.43% 42.58% 69.23% 46.60% (for US coverage by MCUSA, 9.05% of stocks followed are investment banking clients) Neutral 30.50% 22.11% 36.99% 52.41% 28.02% 33.69% (for US coverage by MCUSA, 8.14% of stocks followed are investment banking clients) Underperform 13.83% 16.89% 9.59% 5.01% 2.75% 19.71% (for US coverage by MCUSA, 0.45% of stocks covered are investment banking clients) Company Specific Disclosures: 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/disclosures. Analyst Certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 94 122 169 279, AFSL No. 318062) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 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. 17 August 2012 6