Coles Group Limited

Thank you for standing by and welcome to the Coles Group Limited FY26 results. 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 Weckert, Coles Group CEO. Please go ahead.

Good morning and thank you for joining our four-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 Prost, our Chief Commercial and Sustainability Officer, Michael Courtney, our Chief Customer Experience Officer, and Claire Lorber, Chief Executive of Liquor. Moving now onto slide three. FY26 was another year of strong execution, where we strengthened our competitive position and grew market share in supermarkets. Excluding significant items, Group EBIT increased by 9.9% and MPAT increased by 13.7%. Digital was again a standout, with supermarket e-commerce sales increasing by 26.4%, and importantly, our customer performance centres delivered positive EBITDA in only their second year of operation. We delivered $311 million of Simplify and Save to Invest benefits, helping us continue to invest in value and the customer experience. And what is particularly pleasing is that our financial performance with the company by further improving customer satisfaction and our highest Everging Never Incasion score. We have also announced targeted investments in our next phase of growth. This is across new stores, online and technology, coupled with a clear strategy to improve the performance of amateur business. And I will talk to this in more detail in my presentation. Moving on to slide four and the financial highlights. We reported group sales revenue of $45.6 billion, an increase of 2.8%. As I just mentioned, excluding significant items, Group EBIT increased by 9.9% and MPAT increased by 13.7%. In supermarkets, sales revenue excluding tobacco increased by 5.1% and supermarkets EBIT increased by a very strong 12.2%, underpinned by top line growth and EBIT margin expansion of 43 basis points. Charlie will talk more to the financials in his presentation. Moving on to slide five. The common thread through these results is the consistent execution of our strategy. Our customer proposition is resonating. We have continued to invest in value, exclusive decodes are performing strongly and customer satisfaction has improved. Our e-commerce business is scaling profitably with strong e-commerce growth, positive CFC EBITDA and continued improvements to the customer proposition. Our productivity programs are allowing us to convert that growth into earnings. with the EBIT growth significantly ahead of sales. And our strong cash generation and balance sheet gives us the capacity to reinvest in the business and pursue the next phase of growth. During the year, we refreshed our strategy flywheel to reflect the increasing importance of non-food everyday essentials beyond food and drink and the growing role AI is playing across our business. The fundamentals of our strategy, however, remain consistent. Let me take you through the progress we've been making, starting with destination for food, drink and everyday essentials on slide six. We know value remains front of mind for Australian households and delivering value for our customers remains one of our higher priorities. During the year, we continue to strengthen our value proposition in a number of ways. We expanded our everyday value range with more than 5,600 products now providing customers with consistent value whenever they shop. At the same time, we have been simplifying our promotional program around fewer, bigger and more impactful offers. This is about making specials truly special and at the same time, making execution simpler for our customers and our team members. Our seasonal campaigns and continuity programs continue to resonate strongly and we are increasingly using slide lines and our digital capabilities to deliver more relevant and personalized values. Our Exclusive to Coles portfolio also remains a key differentiator for us, making shopping more affordable, and we saw growth ahead of the rest of stores. Importantly, we're delivering value across all price tiers, while continuing to offer the quality products our customers expect from Coles. Let's discuss this in more detail on slide 7. Exclusive to Coles delivers sales growth of 6.1%, with Coles signers continuing to perform particularly well. with sales increasing by 9.2%. Exclusive to Coles plays an important role in both our value proposition and differentiation. We want to make shopping more affordable for customers, and we also want to create a range of products valued for their taste or functionality that are only available at Coles, providing a reason for customers to choose to shop with us. That means focusing our innovation where we believe we can lead, and where there is an opportunity to offer something genuinely compelling. We see particular opportunities in health and convenience and saw strong momentum from our perform high protein convenience meals this year. We also saw strong growth in our ultra cleaning range in non-food. Quality and innovation remain at the heart of the portfolio and it was great to see our products recognised with 40 awards including 17 Product of the Year awards. We've also expanded our exclusive partnerships with leading brands including M&S, Grilled and Yammy. These partnerships together wear innovation, broaden our offer and give customers more reasons to choose Coles. Moving on to slide eight. As I said at the start, one of the outcomes I was most pleased with this year was the improvement we saw in our customer satisfaction metrics. It is great to have seen a step on in all of the important metrics of quality, range, availability, price, and store look and feel for the year. For me, the important takeaway is that customers are noticing the changes we are making. Our investments in value, quality and range, together with improvements in availability and execution in our stores, are translating into a better customer experience. There is always more we can do, but the breadth of improvement across these measures gives us confidence that our customer proposition is moving in the right direction. Moving on to slide nine and accelerated by digital. Our e-commerce business has another very strong year, with supermarket e-commerce sales increasing by 26.4% to $5.6 billion and penetration of 13.6%. We deliver double-digit growth across all our fulfillment channels and building a differentiated offer across the full range of customer shopping missions. Whether that be through our CFC, which provides our customers with our best online availability, guaranteed shelf life and a high quality next day and same day delivery proposition. And customers can even shop later at night now for delivery the next morning. Or whether it's customers looking for immediacy, our expanded partnership with Uber Eats gives them access to around 17,000 products. This is the largest grocery range available through an on-demand delivery platform in Australia. We also continue to expand windowless wrappers, click and collect, and saw strong growth in our Colt Plus and Colt Plus beta subscriptions, and we've also seen some very good improvements in click and collect wait times. Importantly, our e-commerce business is not only growing strongly, but it is scaling profitably. We have delivered this through improvements in pick and last mile delivery efficiency, as well as growth in our Colt 360 retail media business. We're also really pleased to report that our CFCs are EBITDA positive, which I'll talk to you now on slide 10. Customers are responding positively to our deliver more proposition, with strong volume growth and CFC NPS significantly ahead of total online NPS. Sales through the CFCs grew by more than 30%, ahead of overall e-commerce growth, as we expanded catchments and introduced same-day delivery. We also continued to improve the economics, with CFCs achieving positive EBITDA for the year. This was achieved through high volume, together with operational improvements, including on-grid robotic pick-ups, auto-frameloading and auto-bagging, which were all installed during this. This is an important milestone in only the second year of operation, and it demonstrates that we can deliver a better customer proposition while at the same time improving efficiency as the business scales. Moving now onto slide 11. Our Digital Assets and Slidebuys loyalty program give us an increasingly powerful ability to connect loyalty e-commerce and retail media. We know customer value offers that are relevant to them rather than simply receiving more offers. During the year, we continue to enhance our digital functionality and increase personalisation across the customer journey. Features such as New For You and My Weekly Specials are making it easier for customers to discover products and value that is relevant to them. At the same time, our customer data capabilities are helping us create more connected experiences across our apps, websites and stores. Code360 is becoming a more important part of the business. We know that retail media in Australia is a large and growing market. In store, that might be digital screens, COGS material or COGS radio. On site, it is banners, tiles and videos in the app and on our website. Off site, it could be YouTube and social media. The goal for us is to make the right value movable and help suppliers connect with customers in ways that are useful, relevant and trusted. And this is an important area of growth for us. Moving on to slide 12. and our Simplify and Save to Invest program. Our Simplify and Save to Invest program remains a core part of how we operate. We delivered $311 million in benefits in FY26, taking cumulative benefits since FY24 to $876 million. And we remain on track to exceed $1 billion of benefits by the end of FY27. If we look further back, we have now delivered around $1.9 billion of benefits since FY20. through SSI and our previous Smarter Selling Program. This demonstrates the consistency of our approach to productivity. These savings are important because they help us offset inflationary and other cost pressures while creating capacity to reinvest in value, our stores and our digital capabilities. And increasingly, data, technology, automation and AI are helping us identify new sources of productivity. Moving on to slide 13. AI is already well established across Coles and delivering value in many parts of our business. What has changed recently is the pace of capability and the breadth of where we can apply it. Coles has a unique combination of data and physical assets. Millions of customer transactions every week, more than 1,800 stores, 8,000 suppliers, 115,000 team members and 10.3 million active fly-by members. and we are increasingly bringing together those capabilities to improve outcomes for customers, our operations and our team members. For customers, AI is helping us to improve personalisation, product discovery and the relevance of our offers. The next way is conversational shopping and agentic commerce. Over time, we see the potential for customers to engage with us in a much more intuitive way, from discovering what they need through to transacting and receiving post-purchase support. Given the scale of our customer relationships, buy-bys and our digital channels, we think this is a particularly exciting opportunity for Coles. Across our operations, AI is already embedded in our decision-making in areas such as forecasting, space and rent optimisation and inventory and store decisions. We are building towards end-to-end optimisation across our supply chain, bringing together decisions across infantry, CCs, transport and replenishments so that increasingly we can optimise the system as a whole rather than individual decisions in silos. And for our team members, we are using AI to make everyday tasks simpler and more productive. The next opportunity is to move beyond individual productivity tools towards function-specific agents and AI embedded directly into everyday workloads. This will help our team members spend less time on repetitive tasks and more time on the work that creates value. Overall, we remain disciplined about where we will deploy AI. Our focus is on areas where it can meaningfully improve customer experience, availability, growth and efficiency, and we're excited about the opportunities ahead. Moving on to slide 14. Alongside our financial performance, we remain very conscious of the role that Coles plays for our team members, suppliers and communities. We achieved our highest ever team member engagement scores during the year, placing Coles in the top quartiles against the Australian benchmark for the third consecutive year. We continue to support our suppliers and growers with more than 97% of our fresh produce sourced from Australian growers and we awarded more than $3.5 million in grants through the Coles Nurture Fund during the year. Our community partnerships also remain an important part of who we are. Coles contributed $45 million in community support in addition to the equivalent of $40.9 million donated to Second Bite and Food Bank. and we continue to progress against our sustainability priorities, including an 82.6% reduction in scope 1 and 2 emissions from our FY20 baseline. These outcomes reflect the commitment of our team members right across Coles. Moving on now to our strategic update. Over the past three years, we have invested significantly in transforming Coles. As we look back at the priorities we set three years ago, we can see tangible evidence that the time and resources that we have invested is delivering outcomes. And over the past three years, we have materially strengthened the business. Starting with our customer proposition, exclusive to Coles has continued to grow and differentiate our offer, while Coles Finance has delivered particularly strong growth. We have enhanced value through the introduction of more everyday value products and reduced promotions, making it easier for customers to find value in stores. At the same time, we have seen customer satisfaction improving across all key metrics. In digital, we have significantly different business to where we were three years ago. E-commerce sales have more than doubled. Our two CSCs are now fully operational and delivering strong returns, and we have a market-leading immediacy offer and have made meaningful enhancements to our app and website to improve the customer experience. At the same time, we have transformed our supply chain. with our two ADCs now fully operational, which are delivering improvements in availability and cost efficiency and an optimized store network. So when we look across the business today, we have a stronger customer proposition, a much larger digital business and a more automated supply chain and a more productive operating model. Moving on to slide 17. Importantly, the strategic progress that we have made has translated into strong financial outcomes and improved returns. Since FY23, sales have grown at a compound annual rate of 4%. Over the same period EBIT has grown at 7.7% per annum. Return on capital has increased by around 80 basis points to 17.3. That is important as our objective has never simply been to grow the size of the business. We want to deliver sustainable earnings growth and attractive returns on the capital we invest. The combination of customer-led growth and disciplined productivity has allowed us to grow earnings faster than sales while continuing to reinvest in the business. And it has been underpinned by disciplined capital allocation, including consistent growth in dividends, which have increased from 66 cents per share in FY23 to 78 cents per share this year. Moving on to our capital allocation framework on slide 18. Over the past three years, we have on average converted more than 100% of earnings into cash, while investing around $1.1 billion a year in our core business across maintenance, growth and efficiency. At the same time, we have maintained a strong investment growth balance sheet, giving us capacity to invest through the cycle. That financial strength has enabled us to complete our major ADC and CSC investments, pursue strategic acquisitions, including our acquisition of Milco and several strategic property investments, and progressively increase dividends while retaining flexibility for further shareholder returns. Looking ahead, our approach will remain unchanged. Invest where we see attractive returns, maintain balance sheet strength and return surplus capital to shareholders. Moving now onto slide 19. With the transformation platform we've built over the past three years now well established, we're moving into the next phase of targeted investment. This isn't the entirety of our strategy and we are looking forward to sharing more at our investor day later in the year, but I wanted to provide some insights this morning on where we are investing for future growth. First, our Victorian ADC. The $880 million development remains on time and on budget. Once operational, it will have capacity to process 4.6 million cartons a week and complete the automation of our ambient distribution network across the eastern seaboard. Secondly, stores and technology. We plan to invest an additional $300 million by the end of FY28, supporting around 45 new supermarkets, largely in in-fill locations and high-growth corridors, and around 150 renewals. These investments will allow us to augment our store footprint, improve the customer experience, create more capacity for online fulfillment and make our stores more efficient. will also continue to simplify our technology and expand the use of AI-enabled capabilities. Thirdly, liquor. FY26 performance was below our expectations. We have completed a strategic review and have established a clear plan ahead. We will be focused on creating a more integrated food and drink experience across loyalty and e-commerce, optimising the store network with greater emphasis on supermarket co-locations, and simplifying the operating model. And finally, the Coles Capability Centre. Our expanded partnership with Accenture will give us access to work-life skills and technology at greater scale and pace. It will help accelerate technology delivery and create a more efficient operating model. Benefits are expected to begin in FY27 and build to an annualised run rate of more than $100 million by the end of FY29. Together, these investments are focused on improving our customer offer, creating capacity for growth and delivering productivity benefits and attractive long-term returns. We have a strong balance sheet and will remain disciplined in how we allocate capital while ensuring we continue to deliver a competitive offer that meets the needs of our customers. I will now hand over to Charlie who will take you through the financials in more detail.

Thank you, Leah, and good morning, everyone. I'll now take you through the group financial results in more detail. Overall, we are pleased with the financial performance of the Group and FY26. The result reflects continued sales momentum in supermarkets, strong operating leverage, disciplined cost management, while at the same time continuing to invest in value for our customers. Moving on to slide 21. We reported Group sales revenue of $45.6 billion, an increase of 2.8%. Excluding insignificant items, Group EBITDA increased by 17.1%. Group EBIT increased by 9.9% and NPAT increased by 13.7%. Importantly, earnings growth was well ahead of sales growth, reflecting the strong supermarket's performance, operating leverage and continued discipline across the cost base. The Board declared a fully franked final dividend of 37 cents per share, taking total dividends for the year to 78 cents per share. This represents an increase of 13% compared to FY25. Moving to the segment overview slide on 22. Starting with supermarkets. We had a very strong year with an increase of 12.2%, reflecting strong top-line growth coupled with 43 basis points of margin expansion. Sales revenue increased by 3.7%, successfully cycling the impact of the competitive industrial reaction in the prior corresponding period. and achieving market share growth for the year. Excluding tobacco, sales revenue increased by 5.1%. Our strong EBIT margin expansion was driven by improvements in both gross profit margin and cost of doing business as a percentage of sales. For the year, our GP margin increased by 37 basis points and CADB as a percentage of sales increased 6 basis points. The general result reflected the annualised benefit from our ABC program and a significant decline in tobacco sales following the legislative changes at the beginning of the year. Both of these were weighted towards the first half. Going forward, we would not expect to see material benefits to gross margin from tobacco given that we have reached a more stabilised level. We also continue to see benefits from strategic sourcing and SSI initiatives as well as the growth of 360 media income. Pleasingly, these benefits were able to successfully offset the meaningful investments we made in value throughout the year, including the red meat, as well as incremental fuel costs in the second half as a result of geopolitical tensions. In terms of cost of doing business, again, pleasingly, our SSI program went a long way offsetting our inflationary cost pressures this year, with $311 million in savings and a majority being CODB related. And we also benefited from major project implementation, dual running and transition costs falling away, which assisted both GP and CODB. We are pleased with the continued strong growth in e-commerce sales coupled with the ongoing positive margin outcome. Our ability to scale our digital business profitably is something we know you have been focused on and we have continued to deliver on this As Leah mentioned, over the last three years we have doubled our econ sales and grown our EBIT margin by motion basis points to 5.7%. This is a real achievement and reflects the significant benefits that our major transformation programs and continued focus on SSI have delivered. As we look to the year ahead, we will be continuing to work harder on SSI and continue to deliver the benefits from strategic sourcing and growing Coles360. We know these programs are more important than ever with value being a key focus for our customers and inflation still coming through the cost base. We're also keeping a close eye on retail crime given the current pressure on consumers as we know this remains an industry issue. In addition to the above, we are really pleased we have announced the extension and expansion of our strategic partnership with Accenture. to establish our Coles Capability Centre, which will support the enhanced digital and technology capabilities, greater operational efficiency and improved outcomes for the business. The strategic partnership is expected to deliver annualised cash benefits of over $100 million per annum by the end of FY29, with one-off implementation and establishment costs of $190 million in FY27. These costs are expected to be treated as a significant item. Importantly, this program is incremental to SSI with a really strong payback as this program will do much more than just save costs. It will accelerate our opportunities and strengthen our competitive position. Moving on to liquor, the sales revenue declined by 3.3% and EBIT declined by 47.8%. Sales were impacted by the cycling of the prior year benefits and competitive supply chain disruption, together with ongoing cost of living pressures and subdued consumer sentiment. Promotional activity across the sector was also elevated, particularly in the big box end of the market. Notwithstanding this, we completed our Simply Liquorland store conversion program and our convenience portfolio, representing more than 90% of our store network, delivered positive sales growth. Gross margin increased by 40 basis points, supported by strategic sourcing, promotional optimisation initiatives, growth in Coles 360 retail media and a disciplined approach to price investment. Liquor EBIT at $59 million was impacted by software top blind and at $20 million in one-off costs relating to simply legal and conversions. In other, revenue related solely to the product supply agreement we have with Viva Energy. The improvement in the other EBIT line primarily reflected lower corporate costs, partly offset by higher net property losses. Turning to operating cash flow on slide 23. Operating cash flow, excluding interest and tax, was $4.3 billion, with a cash realisation of 101%. Working capital was broadly neutral for the full year. Higher receivables were partially offset by increased payables, largely due to the impact from inflation on cost of goods, while industry remained broadly stable compared with the prior year. The movement in provisions and other primary reflects the flow provision, which is a non-cash but recognised in EBITDA. Moving to capital expenditure on slide 24. Gross operating capital expenditure on an accrued basis was $1.2 billion, a decrease of $76 million compared to the prior year. As you know, capital expenditure falls into four areas, store renewals, growth initiatives, efficiency initiatives and maintenance. Within renewals, we completed 212 store renewals across our network, consisting 71 in supermarkets and 141 liquor stores. Within growth, we opened 13 new supermarkets and 16 new liquor stores while also continuing to invest in our e-com business. Efficiency initiatives included investments in store front-end service transformation, liquor easy ordering at our Victorian ADC. Maintenance capex included ongoing refrigeration, electrical, store and technology, life cycle replacement programs. We continue to optimise our property portfolio with net property capital expenditure increasing by $162 million due to an increase in property acquisitions and developments and lower proceeds from divestments. Looking ahead, as Leah talked to, we are stepping up our capital expenditure this year to invest in a number of incremental strategic projects, including an additional $150 million in FY27 and FY28, in growth through opening 45 new supermarkets, delivering a net space growth well in excess of 2%. The renewal of 150 supermarkets, increasing online capacity, enhancing the customer experience and priority technology to both improve efficiency and accelerate AI capabilities. The increase is not an ongoing step up in spend but a big reset of specific growth investments. We're also making excellent progress with our Victorian ADC and the project is both on time and on budget and will complete the automation of our ambient distribution centres down in the Eastern Seaboard. The FY27 CapEx for the Victorian ADC is expected to be approximately $300 million. So overall, inclusive of our core CapEx program, we are expecting operating capital expenditure this year to be around $1.55 billion. Turning to balance sheet liquidity on slide 25. Our funding position remains strong. At year end our weighted average drawn debt maturity was 4.4 years with undrawn facilities of $2.5 billion while our lease adjusted leverage ratio further strengthened to 2.3 times. We continue to hold investment grade ratings of BBB Plus with S&P Global and BWA1 with Moody's. Combined with our strong balance sheet and cash generation This provides the capacity to fund targeted growth investments, maintain financial discipline and continue returning dividends to shareholders. As I said earlier, the Coles Board declared a fully franked final dividend of $0.37 per share, taking total dividends per year to $0.78 per share, a 13% uplift. As you can see on this slide, we have a healthy franked credit balance of approximately $550 million after payment of our final dividend. To summarise before I hand it back to Leah, FY26 was a strong financial year for the Group. We delivered earnings straight ahead of sales, strong cash generation and an improvement in balance sheet metrics. This puts us in a good step to farm the next phase of growth for Coles. I'll now hand it back to Leah to take us through the outlook and concluding comments.