1. Fresh – What’s Next? Tom Kierath – Morgan Stanley Equity Analyst since 2008 Australian Retailers and Beverages Sector Analyst Our current investment recommendations; Buy – Metcash Hold – Wesfarmers Sell - Woolworths

2. The Drivers of Slower Growth Supermarkets industry growth is slowing driven by; -Price deflation -Aldi’s moving mainstream -A Coles turnaround focused on value for money

3. The Aldi Impact Store rollout accelerating as it enters SA / WA Market share expected to increase from 6.3% to 10.2 by 2020 The Aldi basket size is far less than Coles / Woolworths Aldi pricing – on like products – is 23-27% cheaper than the majors

4. The Discounter Impact is Global Supermarket margins have collapsed in many Western markets as discounters have taken share The UK’s largest supermarket Tesco barely makes money! When profit margins rebase they rarely expand

5. Woolworths – Turnaround Time? LFL sales growth negative for four consecutive quarters Operating profit margins expected to move below 5% in 2017 from a peak of 8% Currently tackling in-store execution, new store rollout and pricing issues

6. Coles – On High Street LFL sales growth negative for four consecutive quarters Operating profit margins expected to move below 5% in 2017 from a peak of 8% Currently tackling in-store execution, new store rollout and pricing issues

7. Who’s Winning the Fresh War? Still Woolworths but only just – on a sales per store basis Coles strong fresh food performance underpinned by LT supply arrangements with Sundrop, Murray Goulburn and Norco Metcash Diamond Store accelerator program targeted to drive fresh sales

8. How will things look in 5 years time? Aldi’s success will cause nearly everyone exposed to the supermarkets industry to make less money – retailers, suppliers, logistics providers and landlords. Consumers will graduate to Aldi’s fresh food offer Coles / Woolworths will slow store rollouts down ending ‘The Space Race’ Supermarkets will lift their game in Fresh Food (Fruit and Vegetables) and value added food products to differentiate