Coles Group Limited

Thank you for standing by and welcome to the Coles Group 1H26 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Leah Weckett, Managing Director and Chief Executive Officer. Please go ahead.

Good morning and thank you for joining us for our half-year results call this morning. Before I begin, I would like to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri peoples of the Kulin Nation. We acknowledge their strength and resilience and pay our respects to their elders past and present. I'm joined in the room today by Charlie Elias, our CFO, Matt Swindells, our Chief Operations and Supply Chain Officer, Anna Croft, our Chief Commercial and Sustainability Officer, Michael Courtney, our Chief Customer Experience Officer, and Claire Lorber, our Chief Executive of Liquor. Moving now to slide three. I'm pleased that we've been able to deliver another very strong set of results in what is a competitive operating environment. We delivered strong supermarket earnings growth with continued sales momentum. E-commerce was a key contributor again, with sales growing by 27%. Our automation programs are delivering tangible benefits and we delivered cost savings of $133 million through our Simplify and Save to Invest program. Of course, what matters most to us is our customers, which is why the improvements in our customer satisfaction scores across the business during the half was a key highlight for me. Finally, we completed our liquor lamb banner simplification program and while there are challenges in the overall liquor market, we are seeing positive growth across our convenience portfolio, which is really pleasing. Moving on to slide four and the financial results. We reported group sales revenue of $23.6 billion, an increase of 2.5%. Excluding significant items, group EBIT increased by 10.2% and MPAT increased by 12.5%. In supermarkets, adjusted for the competitive industrial action in the PCP and excluding tobacco, sales revenue increased by 6.1% and supermarkets EBIT increased by a very strong 14.6% underpinned by top line growth and EBIT margin expansion of 55 basis points. Charlie will talk more to the financials in his presentation. Moving on to slide five. During the half, we maintained a consistent focus on executing against our strategic priorities, which once again underpinned our performance for the period. Let's get into this in some more detail, starting on slide six with our first pillar, destination for food and drink. We know value remains front of line for consumers, and delivering on our value commitment to customers remains a priority for us. During the half, we strengthened our value proposition, expanding our range of everyday value products, We ran a winter and spring value campaign and our shop, scan, win European glassware continuity programs each delivered strong engagement with our customers. Our exclusive to Coles portfolio continues to perform well with sales growth of 5.7%. We launched more than 500 new products and the range was recognised with 17 product of the year awards. We know our own brand portfolio is a unique differentiator for Coles. These new products and awards underscore the momentum we are building in quality and innovation across the portfolio. We also entered into some really exciting exclusive partnerships during the half. One of these was with Marks and Spencer, where we brought a number of their iconic favourites to Australian homes. This included their well-known Percy Pig and Colin the Caterpillar lollies, which turned out to be our most successful lolly launch ever. Our partnership with Grilled also proved popular, particularly with the rising takeaway trend for those who want to recreate their restaurant or takeaway dinner in their own home. These collaborations broadened our appeal and helped ensure we remain a destination for inspiration and everyday meals. We were also pleased with how we executed over the Christmas period, starting with our Christmas range, which showcased more than 340 own-brand Christmas products and exclusive specialty drinks. We worked hard in the lead up to Christmas to ensure value was felt where customers needed it most. Our $1 seasonal produce lines in the week before Christmas were a simple but powerful example of that commitment. Operationally, we delivered our highest monthly default results since December 2020, an important sign of the progress we are continuing to make in availability and overall execution. This leads me to our customer satisfaction scores on slide seven. As I said at the start, the improvements in customer satisfaction scores were a real highlight with strong improvement across our key metrics of quality, availability, store look and feel and price. The big takeaway here is that customers are noticing the changes we are making. Improved availability, sharper value and better execution in stores are translating directly into stronger satisfaction scores and that gives us real confidence as we look ahead. There is always more to do but we are very pleased with the progress we are making. Moving now onto slide eight and the next pillar of accelerated by digital. We reported another strong half in our e-commerce business with 27% revenue growth in supermarkets, penetration now over 13% and double digit growth across all shopping missions, whether that be same day, next day, click and collect or our immediacy offering. We are focused on making sure we have a great offer across all online channels. We've made a lot of progress in e-commerce over the last few years and customers are responding to this. We know customers have different shopping missions throughout the week and the investments we have made allow us to provide them with exceptional service that matches their shopping mission. For example, our CFCs allow us to provide the biggest range, better availability and improved freshness for those customers who are looking to do their weekly shop. And our expanded partnership with Uber and our windowless click and collect rapid offer provides us with a leading immediacy proposition. During the period, we made investments in our digital assets and have seen particularly strong growth in our app metrics, with monthly active non-visitors to the app growing by 32% and the app share of e-commerce revenue now at 54%. Our CSC volumes increased in the half with sales growth again outpacing total supermarket e-commerce sales growth. Same day deliveries commenced in Melbourne in the first quarter and Sydney in the second quarter and we also had a major catchment extension to Geelong and the surf coast in Victoria. In terms of our immediacy offering, as I mentioned, we expanded our partnership with Uber Eats with now up to 17,000 products available to purchase through the Uber Eats app. And the windowless click and collect rapid was also expanded to 255 stores nationally. Overall, our online NPS saw a meaningful uplift, driven by improved availability, fulfillment and the overall digital customer experience. But one of the most important points to make here is that we were able to make all of these investments, grow our business, expand catchments and our immediacy offering, while driving efficiencies through technology, scale and a strong operational focus. We made further improvements to our picking processes in store, increased orders per van and installed two key automation technology features in the CFCs with on-grid robotic pick arms and auto frame loading. So it's been a very pleasing half in terms of e-commerce. Moving now to slide nine and loyalty. Flybuys remains an important driver of customer engagement across Colts as well as a key element of our overall value proposition. During the half, fly-bys exceeded 10 million active members, growing by 6.2%. This highlights the continued relevance of personalized value for our customers. We were also pleased to see strong growth in our Colts Plus subscriptions, with customers recognizing the additional benefits they've received by becoming part of Colts Plus family, including free deliveries, free rapid click and collect, and double fly-by points. Moving now to slide 10 and our Delivered Consistently for the Future pillar. Our SSI program remains a core part of our DMA. We know the importance of operational efficiency. Delivering consistent and sustainable cost savings through our SSI program enables us to help offset inflation and reinvest in the customer offer and we see the benefits of that both in our top line as well as our bottom line. This half we delivered cost savings of $133 million. This brings us to around $700 million since the beginning of FY24 We remain firmly on track to achieve more than $1 billion in benefits over the four-year program. Consistent with previous years, there were many initiatives across different parts of the business that contributed. Again, a common theme was the use of AI and other technology automation to improve the effectiveness and efficiency of our processes. This leads me to slide 11. We've been building and deploying AI for over a decade. What has changed recently is the pace of capability and the breadth of where we can apply it. For our customers, we are already scaling AI to drive more relevant offers and engagement through personalisation across the shopping journey. AI is helping us deliver more personalised and relevant experiences, which... ..tailoring... ..engine... is improving relevance, conversion and overall customer satisfaction. In parallel, we're also now moving into the next wave, agentic commerce, conversational AI and real-time personalisation, capabilities that will transform how customers engage with us over time. We are proving the relevance, timing and effectiveness of offers and rewards for customers and helping them to find value whilst improving our promotional effectiveness. In our operations, AI is embedded across operational decision-making with a clear focus on outcomes to improve availability, reduce waste and lift productivity. We're using AI in forecasting, demand planning and ranging to improve accuracy and availability. And in stores and in our e-commerce business, AI is helping optimise rostering, improve workflows, pick efficiencies and dynamic work. Across our supply chain, AI supports optimisation in transport and improved workflows. We're also using AI in stores for computer vision, for object recognition and loss technology. Now looking ahead, we're building an end-to-end optimisation capability across the supply chain, from automated DC pallet flows to transport to replenishment. So decisions are all made as one system and not in silos. A digital twin also lets us simulate scenarios before we change operations. Then we can apply this to execute the best plan in the real network. The result is improved availability, lower waste, lower cost to serve and faster response time to any disruptions. And we're also looking to optimise online fulfilment capacity across our stores, CFCs and DCs, helping us to decide where orders should flow, how much capacity to allocate and when to flex resources. And finally, for our team members, we're embedding AI tools that make work easier and more productive. Our knowledge assistant is helping teams quickly access policies and procedures, and we've rolled out AI productivity tools, including Chat, GPT, Enterprise, and Microsoft Copilot. And we're partnering with OpenAI on team training. So it's fair to say that AI is well and truly entrenched within our business, is delivering strong results, and has been for some time. But the pace of change is accelerating and we are really excited by the opportunities that are emerging, particularly in customer-facing adjunct AI and we will be talking about this more in the future as these start to scale. Moving to the next slide. Alongside our financial performance, we remain committed to the role we play in supporting our team members, suppliers and the environment. So beforehand, over to Charlie, I would like to cover off some of our achievements in this area. I will start with our team members. Through our November team engagement poll survey, we maintained our highest ever team member engagement score, remaining in the top four tile. This is a strong reflection of the culture and leadership across the business. Almost 70,000 team members provided their feedback and it was pleasing to see that delivering for our customers remains one of our strongest areas, with 90% of team members recognising our commitment to meeting our customer needs. We also continue to support the well-being of our team members, including through initiatives such as R U OK? Day, where our stores and distribution centres came together to reinforce our care and courage values. We recently launched Round 14 of the Coles Nurture Fund, continuing our long-standing commitment to supporting innovation, sustainability and growth within the Australian supplier community. And we celebrated excellence across our supply base in the 2025 Supplier Partner Awards, recognising achievements across each of our key trading categories. Our community partnerships remain a defining part of who we are. This half, we raised more than $1.6 million for Movember and more than $1.8 million for the Second Bite Christmas Appeal, helping to provide over 9 million meals for Australians experiencing food insecurity. And finally, we continue to make progress on our sustainability commitments. 87.7% of eligible packaging is now recyclable or reusable and we maintain 100% renewable electricity usage across our operations and we continue to divert more than 85% of solid waste from landfill. With that, I'm now going to hand over to Charlie who will take you through the financial results in some detail.

Great. Thank you Leah and good morning everyone. I'm now on slide 14 which details our group results. Excluding significant items, we reported group sales revenue of $23.6 billion, an increase of 2.5%, group EBITDA of $2.2 billion, an increase of 7.8%, and group EBIT of $1.2 billion, an increase of 10.2%. NPAT, excluding significant items, increased by 12.5%. Off the back of these results, the Board declared a fully franked interim dividend of $0.41 per share an increase of 10.8% compared to the prior corresponding period. This is a consistent progression of shareholder returns over time. Moving on to the segment overview on slide 15. Let's start with supermarkets. Sales revenue increased by 3.6% with our value proposition continuing to resonate with customers. If we adjust the competitor industrial action and excluding tobacco, sales revenue increased by 6.1%. even increased by 14.6%, reflecting the strong top line growth coupled with even margin expansion of 55 basis points to 5.8%, which was underpinned by a 65 basis point increase in gross profit margin. The strong gross profit result was achieved notwithstanding the significant investments we made in value due to the annualized benefits of our RPC program, strategic sourcing, SSI initiatives, and the growth of Coles 360. Lower tobacco sales also contributed 37 basis points to GP margin. In liquor, sales revenue declined by 3.2%. The liquor market remained subdued and competitive intensity increased through the period, particularly at the big box end of the market. During the half, we completed our simple Liquorland store conversion program and our convenience portfolio, representing around 90% of our store network. delivered positive sales growth. We are seeing a shift in customer behaviours towards convenience led purchases and pleasingly our stores are well positioned in this convenient space. There is some work to be done to optimise our Liquorland warehouses now that the conversions are complete. Overall liquor EBIT was impacted by a softer top line and $13 million in one-off costs relating to the Simply Liquorland conversions. In other, revenue relates solely to the product supply agreement we have with Viva Energy. As outlined in the results released, the PSA, which is due to expire in April, has been extended and is now due to expire at the end of November to allow Viva to complete the transition to New South Wales, WA and Queensland. The increase in other EBIT was predominantly due to the higher net property gains in the prior corresponding period. Turning to operating cash flow on slide 16. Before discussing the numbers, I want to highlight the timing impact. The half year ended on the 4th of January and similar to last year, it resulted in an additional payment run in the final week, creating an additional cash outflow of approximately $560 million. The timing effect impacted several metrics including cash realisation, working capital and net debt. These metrics will normalise in the second half. Operating flow excluding interest and tax was $1.5 billion. with a cash realisation ratio of 69%. Adjusting for these additional payment run, the cash realisation ratio was 94%. For the full year, we continue to expect cash realisation at 100% with the first half timing impact reversing in the second half. The working capital movement primary reflects increased inventory to support availability over the Christmas period and lower trade and other payables following the additional payment run. The movement in provisions and other largely reflects the FOA provision, which is non-cash but recognised in EBITDA. Now I'll now move to capital expenditure on slide 17. Gross operating capital expenditure on an accrued basis was $476 million, a decrease of $66 million compared to the prior corresponding period. We had a higher weighting towards store renewals and new stores across supermarkets, a lick of this hearth, as well as a lower spend in relation to our Victorian ADC and this was as a result of a milestone payment having been recorded in a prior corresponding period. Pleasingly, our Victorian ADC remains both on time and on budget. We also incurred lower capital expenditure in relation to our investments in lost technology. As you know, CapEx falls into four key areas, store renewals, growth initiatives, efficiency initiatives and maintenance. Within renewals we completed 160 store renewals across our network consisting of 35 supermarkets and 127 liquor stores. These included 122 simply liquor land conversions. Within growth we opened 6 new supermarkets and 11 new liquor stores. We also continue to invest in our e-comm business. Efficiency initiatives included investments in the Victorian ADC, store front end service and liquor-easy ordering. Maintenance capital included our ongoing refrigeration electrical replacement programs and lifecycle replacement of store and technology assets. We continue to optimize our property portfolio with net property capital expenditure increasing by $157 million, primarily due to an increase in property acquisitions and developments and lower proceeds from divestments. And to reiterate the guidance we provided at our FY25 results, We continue to expect capital expenditure of approximately $1.2 billion for the full year as we continue to invest in store renewals, digital technology and growth initiatives. Turning to funding and dividends on slide 18. Our funding position remains strong. At the end of the half, our weighted average drawn debt maturity was 4.4 years with undrawn facilities of $1.9 billion. As I said earlier, the Coles Board declared a fully franked interim dividend of 41 cents per share which is a 10.8% uplift versus first half 25 and shows a consistent progression of shareholder returns over time. We will also have a franking credit balance of approximately $600 million after the payment of our interim dividend. Finally, we retained a headroom within our rating agency credit metrics and a strong balance sheet to support growth initiatives our current published credit ratings of BBB Plus with S&P Global and BAA1 with Moody's. With that, I'll hand it back to Leah to take us through the outlook and concluding comments.

Thanks Charlie. So turning to the outlook on slide 26. In the first seven weeks of the third quarter, supermarket revenue increased by 3.7% or 5.3% excluding tobacco. We're pleased with the strong sales result as we can see through the market share data that it represents above market growth, continuing the sales momentum we have had for some time. It indicates that in Victoria, we have retained a portion of the customers that we gained as a result of our... ...to negative 2.5%. So continuing to deliver positive sales growth. As I said at the start, the focus of liquor this period is on leveraging our unified brand, simplifying our processes and improving the performance of our liquor land warehouse stores. So overall, I'd say we have had a strong first half and a good start to the third quarter and with that, I'll now hand back to the operator for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. And if you're on a speakerphone, please pick up the handset to ask your question. In the interest of time, we do ask that participants limit themselves to asking one question. To ask further questions, you are welcome to rejoin the queue. Your first question comes from Ben Gilbert from Jarden. Please go ahead.

Thanks for taking the question. Leah, I was about to ask you a few questions on the trading update, but just on your comments around market growth, do you think it's going to give us some colour potentially ex-Victoria and how within that trading update you think some of the key categories in terms of sort of your health, beauty versus fresh versus sort of the food category? Thank you.

Yeah, thanks for the question, Ben. So as I said, we're quite pleased with the first seven weeks. for two reasons really. One is that based on the market share data we can see that it's above market growth and that means we have retained a portion of those customers which means our Victorian sales numbers actually aren't that far off where we are from a national basis and then we have grown some share on top of that. The data point we received on Wednesday is entirely consistent with the market share data that we have which is that Our major competitor has also performed ahead of market, but that share is not coming from us, and we can see that it's coming from others. I think the second reason that we're pleased with that first seven weeks is that it just really showed consistency. For those seven weeks this year, we've got 5.3% ex-tobacco. Last year, it was 4.5%. The year before that, it was 6.4%. And that represents really strong sales growth year in, year out. And we are really focused on continuing to drive the firewall that we talk about, which is strengthen the top line, unlock your operating leverage, and then reinvest that back into the customer offer. So that's what we're intending to do. In terms of strength of categories, so food continues to be very strong for us. We've seen good strength across the fresh areas, and you'll see on the customer satisfaction scores that quality – is really stepping up that is actually directly related to our fresh categories and I would call out meat as one area where we are seeing out performance in the market in that space. In the non-food area, that's been a real focus for us and we would say we're quite encouraged by the emerging trends that we're seeing in that area. We have reconfigured categories in the half. to respond to some of the pricing dynamics that we are seeing in the broader market, which means that we have introduced a lot more lines onto EDLP. I mean, we know that we're a convenient destination to pick up many of these non-fruit products. You know, you think, yeah, cleaning products, your paper products, your baby products, it actually makes sense to grab those when you come into the grocery shops. But we're taking very much a category by category approach, so to maybe just give you a bit of colour on that. We've invested, for example, into our cub wipes and our ultra range in cleaning, so baby and cleaning, private label, and that has driven really strong volume growth for us in that space. We've also taken action on some of the proprietary lines in PET, for example, to be more competitive with some of the players in the market that have recently moved into that space and on the back of that we've seen double digit growth on those lines. So really encouraging in terms of where we're headed there and more to come.

Thank you. Your next question comes from David Errington from Bank of America. Please go ahead.

Morning Leah. Yeah, look, I'd like to pick up on that, particularly slide seven. It's a fantastic looking slide. It's brilliant in terms of customer resonance and you highlight it as one of your key highlights. But can you bring it to life a little bit? What does it actually mean? Like 330 basis points. Can you put it in context as how big a jump that is? Availability. I mean, they look really impressive but I don't know what to make of it and What does shine for me a little bit is price, up only 180 basis points. I don't know if that's good or not, but your gross margin was very powerful. Could you have gone a bit harder on price? Can you basically bring slide seven to life? Because that looks an incredibly powerful chart, great execution, great improvement in margin. Can you bring to life what drove that? And maybe, given that you are higher margin than your competitor, how much firepower that you've got going forward to maintain that sales momentum that you've got. A bit in that question but if you could have a go at it, that would be really appreciated.

Thanks David. We'll try and unpack it. I mean it was a highlight I think for all of us as a team because we do have a fundamental belief that if we're increasing customer satisfaction, it's one of the things that helps us to drive transaction and engagement in store. I think it is a real combination of the execution focus we've had, but also it's the benefits starting to flow through some of the transformational investments that we've made over a long period of time now. So I think the benefits we're getting from the ADCs, the CSCs, but also the step-up that we've made in terms of the renewal investment. Maybe I might ask Anna and Matt to give us a little bit of colour. We'll maybe just work through the slide in order of what the headings are. But to start with quality, do you want to cover that one?

Yeah. Hi, David. It's Anna. When it comes to quality, obviously it's important across the store, but very, very important in fresh. And we've been running a really big fresh transformation program. And that really has seen us take an end-to-end review of quality. So taking every touchpoint on where we might segregate that and how we would look to solve it. And actually just to give you a bit of a sense of what we've been doing. We've been working through our supplier base to make sure that we have the right suppliers that are fit for the future. And we've gone into deep end-to-end partnership with that. We've also coupled that with an upway in our technical resource to really work with those suppliers to really unlock quality and cost. We've really then also focused particularly meat around our manufacturing network to make sure it's actually closer to stores. So think WA to WA. Queensland, we've got a pork facility there now, which means that We're faster and we get fresher product to stores and then therefore give life to customers in store and we know that's how they measure quality when they see life at home. The other bit we've done is we've invested quite significantly in store team training and also central team training to really focus on quality. Coupled with the work that Matt and the team have been doing in supply chain around faster, fresher flows that mean we are flowing product from our supplier base to the stores in a very nuanced way that means we get better life. And on the back of that is probably to hand over to Matt to give a bit of flavor on that because reducing lead times has been a key priority. I might hand it to you before we then talk about availability as well.

Yeah, sure. Thanks, Anna. Morning, David. Look, it makes it easier when Anna and the team are super focused upon right supply, right range by store, and the right price and promo plans. And that does then set us up to leverage the changes that we've made around our supply chain operations and our store operations. And the game we're playing here is speed. So the faster we can move product, the fresher it will be, and importantly, the less waste and markdown we also get. So our faster fresh flows is essentially a shift away from bringing product in and racking and stacking to then wait to come and pick it later. We really are moving things through the supply chain as fast as possible and measuring in hours as opposed to days. And then simply tying that in with the store execution where we've got the right display space And the drivers all seem to really make sure that the product gets in front of the customer in the least possible time. I would also add we've now got a couple of years under our belts of our replenishment forecasting system. This is the relics implementation we did. And the final part of our integrated replenishment plans. And so they get better forecast too. So it's a number of parts that drive the difference in quality. In answer to your question around is 330 basis points a shift, it is a really big shift. And if I think about the 390 basis points we've then seen improvement in availability, that is at levels that previously we've not really seen. And so they are extremely good results. On availability itself, you probably think about this in three areas. So the first, and I've talked about this again in the past, we're quite focused on foundations. So this is where we've made the model changes. And we've got the commercial teams really focused upon range of supply collaboration. The supply chain team focused upon forecast and the logistics of moving products. And the store teams super focused upon replacement. But it's the consistency with which the teams now work together that's driving the difference. And so we've got a really solid base that we can build on. Importantly, our supplier inbound fulfillment, as I thought, is at a six-year high. And through the Christmas period where it traditionally falls away, we saw it maintain a level. So we've got stability, not just consistency there. The second part then that enables is to really drive investments as making the difference. So that's the ADCs that we had talked to and the CFCs. and we are putting more comms and more products through those ADCs to drive the benefit of not just efficiency but service. And we've also now rolled out our transport management system, which has enabled us to have better control and visibility of our fleet, and that means we are better at picking up from suppliers through cost collect, and we're better at delivering to stores as well. So those investments drive the difference. The final part, which I think is probably where we're going to see the next level, is really a shift from being reactive to being proactive. And this is where we're starting to use data and AI to look for gaps before they occur. So where can we see the problem before it becomes an issue in the store? And we're able to identify at a store skew level, potential out of stocks and target team members to go and manage the inventory closely so that we can then be proactive around availability and prevent any issues before they even occur. And I think That's then the next level. Foundations first, technology driving the difference, and then the AI and data really becoming proactive rather than reactive. That's setting us up for even further improving availability. So Anna, I might throw to you for the store look and feel, the third part.

Yeah, there's a number of key areas that go into the store look and feel metric. A couple of things I would say driving this certainly is our renewal programs. If I take you back to 22, we would have done 40 renewals. This year, we will complete 70. And actually, what we have done is maintain the blueprint now for some years to get the consistency. What that does is gives customer a consistency in every store they go into, but it's also enabled us to take the cost per renewal down to do more of those, so certainly a key focus. And we've really started to address what I would call some of the long-term under-invested stores as part of this program, and we're seeing really good progress in customer response there. The other bit that's in this metric is ease of shop, and we focus on the shelf edge through our range program and macro space. We've really stepped on both navigation of space and aisle. And the one big thing here, we've really thought about the integration of our omni-channel to actually remove the friction we see from customers in store through that, so good progress there. And the biggie is we fixed up our checkout space through the service transformation program. So that has been a real meaningful step on from a customer satisfaction. So I'd say there's lots of initiatives driving this. We are certainly focused on how do we continue to elevate this and how do we take it to the next level. So much more to do, but we're pretty pleased with where we are. And then if I come to the final one on price, funnily enough, actually, it is always the hardest metric to move. moving the slowest from a customer perspective. So we are really pleased with 180 basis points. And that's come from all the work that we've talked about before around fewer, deeper, more targeted promotions, removing the noise and making it easier for customers to shop. We're seeing the increase in EDLP in the right categories really driving that price satisfaction. And again, the work we have done not only on simplifying the range, but also tailoring the range to the store has made it easier for customers to find value and find the products they want on shelves. So a number of key things. Now, there's an awful lot more to do in here, and we're really focused around that, but it's pleasing to see that the work we've done over the last 18 months is really starting to come to fruition here. So they would be the big drivers, David, across those four.

Thank you. Your next question comes from Sean Cousins from UBS. Please go ahead.

Sorry, thank you. Good morning, Leah and Carly and team. Maybe just a question just on the first seven weeks. Sorry, you dropped out, Leah, when you were talking in your outlook. Do you think you were hurt by the cycling, the Jan 25 period in that Woolworths is now indicating that they were hurt in Jan 25? So did Coles benefit there and hence your cycling against a period there which... actually means that 3.7 could be a bit stronger in that you're getting some big industrial action tailwind. And my question is really more around liquor. Just in terms of like-for-like sales are down 2.5 to start the year. Oh, sorry. Yes, please. Sorry, your line's quite... We're losing you a little bit. Sorry, pardon me, the team, for a second here or there. So apologies for that. Sean, can you... You're in and out.

I'm going to go ahead and answer the question. Sean, are you hearing us okay?

Yep, we can hear you now.

Wonderful. Okay. So I might reiterate the points I made when Ben asked the question. So we are definitely still cycling over some disruption from the industrial action last year in the January period. We are pleased, though, with our first seven weeks of sales performance and there's really two reasons driving that. So based on the market share data, what we have reported today is above market growth and that means that we have retained a portion of the customers that came to shop with us last year and we have grown some share on top of that. What we received on Wednesday is entirely consistent with that market share growth, with that market share data I should say. So our major competitor has also performed ahead of market but that share is not coming from us and we can see in the market share data where that is coming from. So we feel that we have the right pitch in terms of customer at the moment because we are retaining customers and we are stepping it up. The second thing we're really pleased about on the result is just the consistency which is something we really prioritise. So if you look back in prior years, those first seven weeks We've reported 5.3% extra backhoe today. That was 4.5% last year, and it was 6.4% the year before. And so that represents really strong sales growth year in, year out that we are delivering, and we believe that is part of what we're managing to get to work through the strategy of the flywheel of strengthening the top line, unlocking the opportunity into the customer office. Did you get all that, Sean?

We lost you. We got most of that, and I think across the two answers, I think we've got it. My question is around liquor. Just in terms of your like-to-like to start the year is down 2.5%. Your earnings were down 37% in the first half. You've called out the aggression from Dan Murphy's. As Dan Murphy's remains aggressive on price and really tries to re-establish its sort of price leadership, which is quite existential for them, how does... Coles Liquor actually perform? Does your big box just continue to sort of suffer? I'm just curious around the outlook for earnings. Should we be anticipating earnings to be down another 30% again? You've got a fixed cost base there and a competitor that's quite aggressive. Just curious around the outlook there, please.

Well, we won't be giving any guidance on where the EBIT will go, but let me make a few comments. So first of all, We're pleased that we've completed the 222 liquor land conversions as part of the Simply Liquor Land project. And along with that, we have reset range and we have reset value mechanics in our stores. And ultimately, that entire program of work has really been about how do we attract customers into our offer. And what we're really encouraged by, and I have to say it's early days. We only finished this process in the middle of December. But early days, we're very encouraged by the NPS uplift that we are seeing. It is a very significant and material uplift that we are seeing in customer satisfaction and that tells us that those changes are really resonating, which is the first thing you have to achieve with your customers. Now, there is no doubt that the backdrop to all of that is the market is very challenging. We have a subdued market, which is a combination of a structural shift, which is generational around consumption of liquor, but you've also got the impacts in there of cost of living. And certainly in Q2, we saw an elevation in the competitive intensity in the market, and that disproportionately impacted our large box, so the Liquorland warehouse stores, which is only about 10%. of our network and so what we were really pleased about is even though those stores were impacted, the 90% of the network which makes up the convenience formats of Liquorland and Liquorland sellers, that component of our network was in positive growth. So you team that up with strong customer scores and positive growth in the heart of our network We think that that is actually really positive in terms of setting ourselves up longer term to lean into what we are seeing is quite a few convenience trends coming through in liquor purchasing. Now, that being said, we've got work to do on the warehouses and that's going to be a big focus for us over the next six to 12 months.

Thank you. Your next question comes from Adrian Lem from Citi. Please go ahead. Pardon me, Adrian, your line is now live.

Apologies. Oh, hi, Leah and Charlie. Just want to follow on in terms of the liquor commentary. So, you know, one of the things you talked to there is lower consumption of liquor, a structural shift. I'm just wondering, in supermarkets, oral GLP-1s seem to be coming down the pipe and may be cheaper, which could drive increased uptake in your customer base. How are you thinking about the impacts on demand across the supermarket store, particularly in impulse categories, please?

Yeah, so it's a great question and one we've been discussing quite a bit as a team. So, I mean, if I come off a level, we're actually seeing a huge trend from customers generally around healthful eating. And we're seeing that play up in our offers that we have in stores today. So, you know, things like the fact that coconut water is up over 30% on sales. The fact that we're getting big growth out of health powders and supplements. Even things like we've seen a shift even just in the last six months in the penetration of fresh produce that is hitting customers' baskets and you've got items, snacking fresh produce, items like baby cucumbers, snacking carrots, celery sticks, they're all in double-digit growth. And so we are looking at that customer and seeing this behavioural change as there is a shift, again, a bit of a generational shift into healthful eating. We're excited by that. We think that's a really big opportunity and actually plays to many of the strengths that we have in the fresh area of the business, but also the way in which we're leaning into our convenience business. So if you think about... Our ready meals, fresh ready meals that we have in the dairy section and frozen meals, our perform meals in particular are growing really, really strongly in that space and their dietician designs meals that actually tailor the nutritional content to nutrient rich and high protein. With that as a backdrop, we're already starting to make a shift with a lot of the product development that we're doing and also the ranging work that we do with suppliers to bring in more healthful options in every category. We look at GLP-1 and we're observing closely what's happening overseas. What we are seeing from those customers is actually what they're really looking for is solutions. They want to find nutrient-rich food. in the supermarket and the supermarket that helps them to navigate that as easily as possible. One of the pieces of feedback we hear is it's really hard to navigate your supermarket shopping as a GLP-1 user. They have the real potential to be a winner here and that's what we want to lean into.

Thank you. Your next question comes from Tom Kieris from Baron Joey. Please go ahead.

Morning, guys. Just got a question on the gross margin. It's up 65 bps, and I understand you've made some restatements there. But I guess I'm just trying to square away the comment that you're investing in price. Could you maybe just step us through the moving parts on the gross margin? It's obviously a pretty big move there, and I guess quite different to what was reported a couple of days ago.

Thanks, Tom. Firstly, I just want to kind of lead off with the restatement was a prior period restatement, so we didn't actually restate anything for this half. Look, we're really pleased with the progression in gross profit margin. As you'll note, 65 basis points. If we look at the drivers, what are the drivers that are actually sort of leading to that sort of growth? Firstly, we're actually seeing the annualised benefits of the investments we're making in the ADCs. Specifically this half, Kemp's Creek, if you recall, Kemp's Creek was in ramp up last year in the FY25, so what we're seeing at the moment is both the ADCs at business case in this FY26 year and we're definitely seeing benefits in the first half and we'll continue to see that in the second half. Strategic sourcing and SS side benefits, again, are two really important drivers in terms of how we look at gross profit margin. and SSI you would have seen that we delivered $133 million this half and a good portion of that goes into GP and in fact I think we're really pleased with that particular program. Coles 360 was actually in double digit growth for the half and that is on the back of a number of halves that are now double digit growth so we're pleased with how that sort of tracking And then we've also brought out previously the mixed benefits from tobacco. As you know, tobacco sales are lower. That contributes in terms of a gross profit margin benefit, not gross margin dollars, but gross profit margin. So we're actually really pleased with how they're sort of tracking. And the ADCs, obviously the implementation costs. So we successfully removed and unwound those implementation and dual running costs, and that created a benefit for the harvest. So look, at this time and as we did, we continue to sort of make these targeted investments in value and therefore we've been investing in value that's allowed us to do that, which is also driving that top line growth that you're seeing in our results.

Thanks. Can I just clarify the SSI benefit, like how much came through gross margin versus CADB of the 133?

Yeah, well, look, typically it's been, as you know, over a longer period of time, it's been a third, two thirds, a third in GP and two thirds in CODB. This half was a little bit more weighted to CODB, for example, so it's a little bit more weighted to CODB and more like a quarter in GP and three quarters in CODB.

Thank you. Your next question comes from Michael Simotas from Jefferies. Please go ahead.

Good morning, everyone. Could I just follow on from Tom's question on gross margin? I think the message here is that gross margin would have declined if not for MIX, CULT 360, SSI, the ADC benefit, et cetera. Can I just confirm that that is the case? And then you're investing in value for customers, which is great. Do you think you're getting enough support from the supplier base to continue to do that and justify what has been or reward what has been a period of very strong execution from Coles?

Maybe I'll start that question and Anna can talk to the supplier piece. But, I mean, we haven't done the add-up specifically on the gross margin. I think one of the biggest drivers in the gross margin expansion is the tobacco impact, which is the 37 basis points. So, you know, that obviously is a very significant mix impact in there and then you've got the initiatives that we've been doing that Charlie outlined like the ADEs, the Goal 360, strategic sourcing, etc. But we have made investments into value and so that is definitely an offset in that line and a big one during the half has been in the red meat space as we've seen costs increase in terms of cost of good on that. We know that's really important for customers so we haven't passed all of that through into retail. What I would say is it's a core job of ours as management to make sure that we're just managing that GP period to period. We put in place a plan that works to have a look at what do we think the impact will be and therefore what initiatives do we need to hit with the right degree of timing. to be able to get those benefits coming through. So we're pleased with the overall result that we've been able to get there. Anna, did you want to talk about the relationship with suppliers?

Yeah, happy to. What I would say, Michael, is that engaging with our supplier base more broadly to optimise the range and strengthen the customer offer is business as usual for us and we're incredibly focused on that and that won't change. I won't go into any specifics on the commercials because that wouldn't be appropriate, but what I would say is that we are incredibly focused on working collaboratively, taking a much longer-term view to drive a real meaningful change in our offer and our commercials collectively, and it's about getting further ahead together, taking a real end-to-end view of our businesses in a way that accelerates our true differentiation, and that's really where we've been focused and working with our supplier bases on, and that has taken... a fully collaborative cross-functional approach, not just a trading approach. We're taking it from a supply chain, from an in-store perspective and we're really looking cradle to grave as to how we think about that going forward. So yeah, more work to do but we're absolutely working with the supplier base on that.

And so Michael, what you're actually seeing is actually our 3D strategy actually in action. So that flywheel effect, right, where we're making very deliberate targeted investments in programs in GP. cost discipline in our CODV, allowing us to reinvest that back into the customer offer, drawing top-line sales and getting that operational leverage and efficiency because all through that, what you actually saw was also an expansion in our EBIT margin bottom line. So it's really our 3D strategy in action.

Thank you. The next question comes from Craig Wolford from MSC Marquis. Please go ahead.

Good morning Leah and team. I'm interested in the comments about the market share performance. It is a great result and interesting how it's played out for both Coles and Woolworths. I assume you're referring to supermarket market share. I'd be interested in how much work you're now doing on other definitions of the market if we look at results from James Warehouse or Bunnings or the strength in dining out more generally. Maybe the bigger question is how do supermarkets ensure they don't lose share from other retailers as well?

Yeah, thanks Craig. It did cut out in the middle but I think we've probably got the gist of it. So yes, we were talking about supermarket share when we were making those comments around the outlook growth but obviously it's much more competitive and broader competition market than it was 10 years ago. And so the likes of Chemist Warehouse, Bunnings, and I think we could probably, based on the comments that you've just made, also talk about things like QSR in that mix. And for us, the approach that we've been taking is to really break that down category by category. And so even within... the non-food space being very particular about how we think about the different categories in there and I'll let Anna maybe talk to that one. But certainly on the food front, we continue to expand our convenience options for customers and we actually introduce a number of new products into both the meat range but also into frozen and convenience dairy. over the half, which are really leaning into that. And I mentioned the grilled burgers. They're a great example of where we can actually bring shared back into the supermarket's channel by giving a product to customers that they feel like it's something that they might eat when they're out, but actually they can prepare it in their own homes. And we've seen fantastic growth in our convenience-based meals out of the freezer section. For example, that's an area that we've expanded significantly. So it is a focus area for us, those categories that we're talking about, they are in double digit growth for us so they're outperforming the rest of the supermarket. Do you want to talk a bit about non-food and how we think about the different competitors there Anna?

Yeah of course and Craig I think we've spoken about this quite a lot. It is a clear area of focus for us. What I am pleased is we're starting to see some real green shoots coming through in both sales performance and market share and when we look at that we look at supermarkets market share. But more broadly, we look at health and beauty and our pet business at a total market read because, as you said, our competition is far broader than the supermarket space. I think what we're pleased about, the progress has really been driven by a couple of things. I think sharpening our value and moving to a trusted pricing position through EDLP has made a marked difference. In the quarter, we moved 400 lines in that space and we made $1,900 more. value-based in-store really emphasize the value we have and we're starting to see that come through. We've really focused on range where it matters, so in pet and baby and in beauty incubation, that's really come through. We're using the CFCs very strategically to go deeper on range that really matters as well as a bulk strategy, which really means that we are competing with others outside of the supermarket arena in terms of both neutralizing the value but making sure that we keep the volume within our business. I think in Baby, we've talked about the importance of that, and Leah mentioned we've been really doubling down on Cub, our own brand, and actually we've invested in both value and quality, and we're seeing that now being the number one both volume and value line in those categories. And then on Pet, as we've said, we've done a lot of work on both value and bulk, and that is playing through. We ultimately know, as Leah said, we are the right convenience spot for customers to buy these categories, so we actually... We'll take a category-by-category approach and make sure that we are being really tailored where we need to put innovation in, where we need to deal with value, and where we need to deal with range. So certainly not a one-size-fits-all approach, and we're taking very much a total market view in these categories rather than the supermarket lens.

Thank you. Your next question comes from Caleb Wheatley from Macquarie. Please go ahead.

Morning, Leah and team. I wanted to follow up. I know this has been a bit of a discussion so far, but particularly around some of the forward-looking thoughts on the capacity to reinvest. I mean, as you've spoken about, JP margins are up fairly materially. EBIT margins are up fairly materially. I know there's sort of one-offs and things dropping out that are helping that, but I On a sort of go-forward basis, how are you thinking about now the sort of capacity to reinvest from an operational point of view? And I know prices has been a bit of a focus, but just sort of more broadly in the suite of options you have to reinvest from an operational point of view, whether it's kind of service or store ops or loyalty, how are you thinking about sort of your flexibility now? Do you have that margin expansion to reinvest and sort of where the more meaningful opportunities are from here, please?

Yes, it's a great question and I think the expansion that we have got in the margin does give us flexibility as we move forward. I think we've been fairly clear in all of our results presentations that we intend to maintain competitiveness and so we do continue to monitor very closely price and not just from one competitor but from a full suite of competitors depending on the category that we are talking about and we will continue to do that. However, we have even just in the last seven weeks been what I would say is nuancing our operating model and that's something that's just BAU for us which is we look at performance, we look at where we see some opportunities and we will put money in to help us to capture opportunities. A good example of that would be We've actually seen some real strength in our Sunday trade and as a result of that, we have made the move to invest more into store remuneration to help us to support that and from a category perspective in the store, investing into the online space because we can see that there's latent capacity there that we can access and we're not afraid to put some investment in to really capture that. and particularly through flybys and we will flex on that to get the right outcome that we want. I'm told that you might have missed because we're struggling with time clarity today. So I'll just reiterate that one of the things that we've noticed coming into the first seven weeks of the calendar year has been real strength on Sunday trade in our stores and we have, as a result of that, made additional investments into store remuneration. So our team had to help us to capture the upside of that and in particular in the online space.

Thank you, Leah.

Thank you. Your next question comes from Brian Raymond from JP Morgan. Please go ahead.

Morning, Leah and Charlie and team. Just mine's a bit of a follow-on actually around cost growth. On my numbers, excluding implementation costs, you had 6.6% cash CODB growth in the half. I know there's a lot of moving parts in there, but I just wanted to walk through it because it was a bit of a surprise on the upside to me, that cash cost growth. I acknowledge you've had a pretty big online channel shift. That would be a higher cost channel. You just talked Sunday trading and there's obviously loading there, labour hours in store. But given you had $100 million of SSI benefits, which is the three quarters of the 133 in the period in CODB, I'm just surprised that cost growth is running that high. So if you could help us understand sort of why that is and if that is the path that should continue or if there's some one-offs in there that we need to adjust more. Thanks.

Great. Well, Brian, thanks for the question. And look, as you know, when we look at COD being looked at cost generally, we look at it as a percentage of sales. And I actually think we are completely tight-banned over a number of years now in terms of as a percentage of sales, particularly if you exclude the sort of the DNA element of that. Cost discipline in our business is very much part of our DNA, right? And you've seen that through our SSI program. Leah mentioned earlier, to date, since FY24, we've actually delivered over $700 million for that. That's going to continue. We're going to continue delivering on that and we're going to continue delivering around that sort of $250 million a year in SSI benefits going forward. Look, we did successfully unwind and the implementation cost, as you did call out, that was a clear positive. But we have been making very deliberate and strategic investments in our customer offer. So including our CFCs, which are now fully embedded in our cost base. So our CFCs are fully embedded in our cost base. They're delivering results and in line with expectations. So you're seeing that result fall to the bottom line. We're actually making very deliberate investments in data and technology which is all about improving that customer experience and online growth and omnichannel growth really across the board. So with these investments, they are driving our top line and one of the things that I do sort of look at is I look at the P&L including GP and including our CODB and what we're seeing is these investments are driving not only either growth that margin growth in our business.

Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead.

Good morning Leah and team. I've got a question around the CFCs. You do mention that the CFC sales growth was ahead or outpacing your total online or e-commerce growth. Can you put some metrics around that just to give us a sense of how much better your New South Wales and Victoria would be doing online versus the rest of the country? And part of that answer just makes me wonder if you are outpacing online within Victoria, just why? So it sounds like it wasn't quite enough to get your Victorian sales growth ahead of cycling the industrial action because I think you did call out that Victoria was a little softer than the national rate of growth. He just sort of put those two pieces together for us.

So Richard, it's Michael here. I did get the first part of the question which was about CFC growth and then I missed the second part of the question. So maybe I'll answer the first part first and then maybe you can follow up and just clarify what the second part of the question was. So we're not giving specific growth rates for the CFCs, but if I take a step back and talk about proposition types, where we've got click and collect, where we've got same-day delivery, where we've got next-day delivery and where we've got immediacy, I think the really pleasing part was that all of those offer types were in double-digit growth throughout the first half. And then next-day delivery, which... obviously the CFCs form part of, is still by far and away our largest offer type. So to be still getting really strong growth through that with the CFCs being a driving factor is really pleasing for us. The proposition continues to ramp up and continues to get really strong customer feedback. And I think that when you look across the positive feedback that we're getting from customers across range, availability and freshness, It's great to see that the customers are seeing the differentiation that is in that offer. So we're getting really good growth. The operating metrics are in a really good spot in terms of Ocado partners globally where they're top performing partner on key operational measures. As Charlie mentioned at the start, we're continuing to invest in that proposition when you look at things like on-grid robotic pick. There's other efficiency measures. So we're getting really strong growth. It's becoming a really important part of our proposition. The NPS is growing but an important part also in that, as part of being an omnichannel retailer, is that we've seen as those volumes have come out of stores and gone into the CFCs, the NPS in store has also improved, which speaks to the benefit of the CFCs, not just as a sales driver but as a really key part of an omnichannel fulfilment network. Would you mind just clarifying the second part of your question?

Yeah and the second part was just reconciling that commentary with the comment that Victoria was not growing as quickly as the rest of the country. I realised that it was in part because of the industrial action but just trying to square those two pieces together and just as a little adjunct to that, at what point are you completely clear of any lingering sort of headwinds from last year's industrial action for Woolworths? when you're in sort of clear air there so we're no longer having to make adjustments for that issue.

Thanks Richard. I think that is the million dollar question. So as we shared, if we go back to when all this was unfolding last year, our big expectation was that there was going to be a cohort of customers that experienced the industrial action where they only came to us because It wasn't convenient to shop somewhere where there was really poor availability and it's likely that all those customers have just returned back. Then there was a cohort of customers making an active decision between us and our major competitor where the stores are quite closely located. And then there were our online customers that came to us. And it's really the two second buckets that we have been working over the course of the last 12 months to put together a plan to say, how do we make sure that now that we've had those customers come and shop with us, that we can retain them? What we're seeing in these first seven weeks of data is that we have been successful in retaining a proportion of them, but we are definitely still going over the top of some of the disruption for last year. I'm hopeful that we're past it. We aren't spending a lot of time trying to pull it out of the numbers, if I'm honest now. We're just cracking on with continuing to drive sales and do what we need to do. My expectation would be that Q4 in particular should be very clean.

Okay. That's the important one because obviously there's a lot of comparisons with your rate of growth versus Woolworths quarter by quarter and it seems like it's made a difference obviously for the first seven weeks. So that's going to impact the third quarter but effectively your answer is all clear in the fourth quarter. That's what's important.

That's my expectation and we're definitely... We didn't actually receive all the sales that were disrupted as part of the industrial action last year and I think you're seeing some very interesting reversions going on in the market share data because of that.

Thank you. Your next question comes from Peter Marks from Goldman Sachs. Please go ahead.

Good morning Leah and team. My question is just on WICAR again. I just wanted to touch on the gross margins. I guess surprised to see them up in the half. I think you had a 21 basis point headwind from range optimisation costs there as well. So I think underlying they're probably up 40 basis points or so if that's right and I think you would have been lapping like a strong period last year as well. So I guess have you managed to drive that improvement in the liquid gross margins in the half? Just wondering on your trading update, the sales down 2.5%, are you able to give any indication of whether you're losing share there, like what's your liquor market data showing in the first seven weeks? Thanks.

Thanks, Peter. The line was a bit garbled, so let me play back what I think we're answering here. The second question you had was around what's our viewpoint on market share, and then the The first part was around the expansion of the gross margin which I might get Claire to answer and maybe I'll just market share issue though. The data that we have available these days for market share in the liquor market post the changes that were made to the ABS data that's available to us is quite poor these days so it's actually difficult for us to have a view on that until we see our major competitor come out with their So at this stage, we probably couldn't give you a clear view on that one. On the gross margin, Clare, I might ask you maybe to cover that one off and how we've achieved expansion.

Yes, thankfully. Yes, so Q2 was obviously a heightened intense competition quarter. We were managing price and promotion intensely through the quarter with a focus to offer compelling offers for our customers. Despite the competitive intent, we were really pleased that we thought we struck the right balance between driving sales and managing margin with delivering the gross margin result of the 17 basis points improvement.

Thank you. The next question comes from Phil Kimber from E&P Capital. Please go ahead.

Hi, Rose. My question was just on the online business, Woody's called out that there'd been a step up in competition from all the various players in there. Is that sort of what you're seeing? I mean, your growth rates are very strong. Are you seeing sort of reactions now from a competitive point of view that are maybe higher than they were in the last three to six months? Thanks.

Yeah, thanks Phil. So firstly, in terms of our loan offer, when we look at whether it's customer acquisition or investment in the customer offer, we haven't increased the investment relative to the prior year. We've obviously had very strong sales growth, so the level of dollars that we're investing with customers has gone up, but that's a good thing based on the sales growth. as a percentage of our sales hasn't gone up, so I wouldn't say that we are investing more. In terms of competition, where I would say that there's been an increase in competition is probably on the immediacy platforms because depending on the platform, you've seen more competitors in the grocery space enter, which more competitors leads to more competition. But that's why we've taken a really proactive step of expanding our partnership with Uber. So that's something that will allow us to partner more closely with Uber, giving a better offer in terms of range, being able to partner more closely on things like loyalty and reach. That's something that's world first for Uber in terms of the way that we're partnering. We think it's something that's going to allow us to have differentiation in this market as it relates to immediacy and ensure that we have a leading customer offer with strong economics. So whilst there might be increased competition in certain parts of the market, I think we've taken some really proactive steps to ensure that we've got a winning offer.

Thank you. The next question comes from Ben Gilbert from Jarden. Please go ahead.

Thanks for the follow-up. Just another one on liquor. It sounds like obviously you're probably doing pretty well given the pricing competition is more so just across 10% of the portfolio. Do you see anything in how you're seeing the pricing deck across the residual 90, a smaller format where you think you're doing better? Because just anecdotally, your pricing probably seems much sharper than the market there. And I'm wondering if that's where the risk is if your competitors go after the smaller formats, which is probably being left alone a little bit at the moment.

Yeah, it's a great question, Ben. I mean, we're definitely seeing a good uptick in our customer satisfaction around value and price in the small format stores. And we have been very sharp on KBIs there. As we've said, we think that with the shift to convenience, building brand loyalty to LiquorLand in that convenient format will be really key going forward and The value proposition that we have in there is a really important part of that.

Thank you. Your next question comes from Adrian Lem from Citi. Please go ahead.

Thanks. Just one quick one, please. Just on tobacco, I think we've seen a bit of a crackdown in recent months on illegal tobacco shops. Are you seeing any slight improvement yet coming through in your tobacco performance? It's obviously still a big drag on sales.

Yeah, sales week to week are pretty consistent now for us and they have been for the last six months. We have seen some slight improvements week to week when we've seen a couple of the crackdowns, particularly in Queensland and WA, but I'd probably describe it as quite marginal and it doesn't tend to have longevity around it. So it can go for a matter of days or a couple of weeks and then we tend to see it revert back. That's why overall we're still in a similar position to what we reported at Q1.

Thank you. Your next question comes from Michael Simotas from Jefferies. Please go ahead.

Thanks for taking another one. Charlie, I just want to pick up on a comment that you made about the CFCs being embedded in the cost space. I don't understand exactly what that means. Last year, you called out $40 million of effectively start-up costs for the CSC model. How do we think about that going forward? And look, I'm not asking for specific numbers on that, but are there still some costs in the P&L that will come down over time, or has that flipped to a positive contribution and then just generally... What's the profitability of your online business look like right now, noting that your competitors disclosed margins and they effectively doubled year on year?

Yeah, so Michael, let me take that. Great question. So a couple of things. Firstly, let me go to the CFC side of that equation. We're really pleased with the financial performance of the CFCs. They're absolutely in line with our expectations. And, you know, as we said, the CFCs love volume. We've seen great volume growth, as Michael articulated a little earlier. And what we have seen now in financial performance is the second half of 25 is better than the first half and certainly... ..improvement, half on half and year on year on the CFCs. All the one-off implementation, any of those costs, they absolutely fell away. So there is no lingering costs from that perspective. All I've already mentioned when I mentioned that CFCs is that they're now in their prospects. It's actually part of our business going forward. They're fully in bed there. And I would just encourage, again, as I said earlier, there are elements that go into GP, there are elements that go into CODB, and that changes. For our e-com business generally, again, really pleased with the growth, a positive contributor to earnings. From that perspective, we're seeing the operating average actually drop to the line. You would have seen our e-commerce business now has grown at 27% this half. Last half, it was a similar sort of very strong growth rate and in that time, we've not only grown earnings but we've absolutely grown our EBIT margin through that perspective. That's the lens which I would look at in terms of the profitability of our business.

Thank you. Your next question comes from Craig Wolford from MSD Marquee. Please go ahead.

Hi Leah and Charlie. Just a follow-up on the inflation path. Without getting bogged down on the technicalities of how Woolworths and Coles measure it, it was surprising to see Coles measure accelerated in 2Q versus Q1, whereas Woolworths measure decelerated in 2Q versus Q1. So perhaps there's some elements in your basket you can talk to that may have added to inflation and yeah, what's your perspective on that inflation outlook over the next 12 months or so?

Yeah, thanks Craig. I mean we did see it accelerate 30 basis points this year. I probably would say that over time, ours has tracked quite closely to what we see in the CPI data, which gives us some confidence around how the reporting that we do actually aligns to that. The most significant areas of pressure for us from an inflationary perspective have been in the red meat space, so beef and lamb stock prices coming in. We haven't passed all of that through to consumers. but it is definitely some of it has moved through, particularly in the lamb space. We've also seen a bit of inflation in the dairy for chilled desserts and milk, some of that related to capacity constraints in the market around yogurt. But equally, there's been others on the other side of the ledger. So eggs have come off now that we're past the avian flu impacts. We've still got in quite a few of the non-food categories where there continues to be very intense price investment across the market.

Thank you. The next question comes from Tom Keareth from Baron Joey. Please go ahead.

Thanks. Just a quick one on depreciation and amortisation. I think before you had said it would rise by 115 mil this year and only went up by 46 in the first half. How should we kind of think about that for the second half, for the full year?

Yeah, well, look, thanks, John, for that sort of question. Look, we'd expect the second half to, you know, be around that sort of $50 million increase. So we're probably expecting, if you think about the full year, you know, these things are not always a precise science in terms of hours because they do vary on when capital investments and things land. The depreciation is probably more like $100 million or thereabouts for the full year of 26.

Great. Thank you.

Thank you. Your next question comes from Brian Raymond from JP Morgan. Please go ahead.

Thanks for taking the follow-up. It might be one for Anna. There's obviously an HCC case going at the moment. I don't expect you to comment on that specifically. Just wanting to sort of get your thoughts around value perception impacts that might come through from all the press coverage, but particularly how you're thinking about red versus yellow tickets longer term. This might be increasing a bit of distrust in some of those red tickets and whether you need to pivot a bit more to high-low. I'd just be interested in how you're thinking about the composition of your promotional program going forward. Thanks.

Yeah, thank you, Brian. I won't comment on the case, but I think that would be appropriate. I think that we remain really focused on how do we give our customers great value across the entire basket and making sure we've got the right mechanics in every category. And as we said, some categories we've had to move more onto EDLP. The program we've been running around actually doing fewer, bigger, bolder promotions and that into interconnectivity with EDLP seems to be really working for us and we can see that through some of those areas. I think that we're just really focused on actually using data and AI to work out how do we get the right promotions to meet the right customer cohorts and how do we do that longer term and actually what we are seeing is the work that's done in range is making it simpler for customers to find value and obviously our own brand growth in the quarter around really driving quality and value is another lever we have to really simplify that and ongoing levels. So that we're really focused, the outcomes will be the outcomes of where we are on the ACCC and we'll work through that, whatever that may be. But again, it comes back to making sure that we're doing the right thing across the basket, not in any particular category, but lowering the cost of shopping and giving customers the right value in the right way and in the right categories. I don't know whether you want to add anything, Lyn? I think that's a good answer.

There are no further questions at this time. I'll now hand back to Leah Weckett for closing remarks.

Great. Thank you for joining us this morning. In summary, we'd say we're very pleased with the financial results and the strategic achievements that we've delivered over the last half including strong supermarket sales and EBIT growth and strength in online. The fact that our automation and operational efficiency programs are now delivering really tangible benefits. the improved customer satisfaction scores and the completion of the Liquorland banner simplification. So we're seeking to be laser focused going forward on what really matters to customers both in the short term and the long term and we know that if we do that we will continue to move the dial in each period. We know that's what is going to drive our top line, translate to sustainable earnings and create long term value for our shareholders. So thank you for your time this morning and I look forward to speaking to you again at our third quarter results in April.

That does conclude our conference for today. Thank you for participating. You may now disconnect.