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.

Thank you Charlie. So turning now to our outlook on slide 33. We enter FY27 in strong position, with supermarkets having gained market share and significantly improved customer satisfaction scores over the past year. Sales growth for the first eight weeks of FY27 was consistent with fourth quarter FY26. In the first weeks of FY27, sales momentum was well ahead of fourth quarter FY26, with a temporary moderation during a Competitors Collectibles campaign in late July and early August. Following the end of the collectibles campaign, sales recovered quickly, back to levels consistent with fourth quarter FY26. Our differentiated e-commerce offer continues to be a significant driver of growth, with penetration increasing to 15.7% over the period. In liquor, the sales trajectory strengthened across the first eight weeks relative to fourth quarter FY26. Our convenience portfolio continued to deliver positive rates while performance in the warehouse portfolio also improved. And with that, I'd 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. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Caleb Wheatley with Macquarie. Please go ahead.

Good morning, Leah, Charlie and team. Just wanted to come back to the strategic initiatives you're calling out for major areas there. Yeah, I appreciate clearly there's a fairly meaningful step up in CapEx as you look to invest in those. But from a returns point of view, how should the market sort of think about the pathway for these investments and especially when we should expect these returns to start to be realised in a tangible sense?

Yeah, thanks for that question. It's a great question. Let's unpick those very, very quickly. Firstly, the ADC. I think you're probably pretty well versed on the ADC going forward. As you know, that'll come into train to FY29, FY30. This year's capex on that is $300 million. And then you know we've had a very disciplined way in terms of we allocate capital to those sort of programs. They are risk adjusted returns on our cost of capital and very clear how those drive benefits. If I think about the step up of the store programs, we're talking about 45 supermarkets over the next two years. That is taking our net space growth to well over 2%. That's a significant step up in increasing in terms of our capacity. We love investing in our stores. They are some of the best returning assets that we buy. Very strong returns on capital. If I look at the renewals, step up to 150. We did 71 in FY at 26. We are stepping up to 75, but the nature of this thing is really important in those 75, the 150, sorry, that we'll be talking about over the next two years. What we're looking at doing is increasing our online capacity and improving the customer experience in those stores. We know, Caleb, if you recall when we actually took the next day home delivery volume out of our Metro Melbourne and Sydney, when we freed up that capacity, it really did facilitate strong growth in our e-commerce business. So we're really excited about the growth that can unleash in e-commerce and in our stores, but also improve what we're doing. And what are we doing in those stores? So improving things like staging areas, refrigeration in the back of husks, really ensuring that these stores can really deliver and cater things like clicking, collect more, more bays, et cetera. So really driving that sort of growth. So again, we're really pleased with that growth. If you look at our performance on our capital, more importantly, We have been consistently investing at $1.1 billion extra transformation programs and what you can see over the last three years is our return on capital has improved over 80 basis points over that period. So I think a very strong returning set of capex.

Okay, great. And then I guess a bit of a follow-up. I appreciate this isn't necessarily kind of a CapEx item, but perhaps I'm a bit surprised that for the cold 360 or retail media hasn't been as much of a focus here. I appreciate it's not new. I appreciate... incomes up 55% as you called out over the past few years, but just sort of operationally and the sort of benefit you see that's driving on a go-forward basis. Can you just sort of understand where that's at, both from a capability point of view, from a sort of inventory point of view and then sort of how you're thinking about that as sort of an investment on a go-forward basis?

Yeah, thanks for the question, Caleb. I'll start and then I might get Michael to give us a bit of colour. I mean, I think we were quite pleased with double-digit growth in the Coles 360 space. We've continued to bring on more assets. We've improved our measurement capability through the year and really focused on ensuring that we're really listening to feedback on how we can lift ROI. That's been some big focuses over... the last 12 months and I think we're feeling like the business is really starting to get some momentum behind it. Maybe, Michael, you could give a bit of colour to that.

Yeah, happy to, Leah. I think the key word that both yourself and Caleb used is capability because this has been a year where we are continuing to build capability so that we can keep scaling the business into the future and Leah mentioned some of the areas where we're bringing in capability from a product aspect of whether that's ad server manager, whether it's reporting and measurement capability that we're being able to offer to suppliers because it's what they've been asking for. So it may be some improvements in that space. I think the other area where we've been building capability over this year that we haven't spoken a lot about is in the people space as well. Back in September last year, we completed quite a big insourcing exercise of some capability that previously sat externally and helped us scale the 360 business. through the initial phase of growth, but bring our capability in-house to have it closer to our planning, our technology is going to help us accelerate in this next phase of growth. So just to finish up on that, I would echo Leah's sentiment that growing WG in a year where we're still rapidly building capability, I think it's a good result. I think it positions us really well for continued growth into the future in what is a large and attractive market for us.

Thank you very much. Appreciate it.

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

Well, morning Leah and Charlie. My question is just on the July acceleration in the first few weeks. Is there a benefit from the Uber Eats exclusivity arrangement in that timeframe or if not, what's driven that acceleration? If I can just touch on that because I guess if it's the Uber Eats, benefit that should continue into the second quarter is the way I'm thinking about that.

Thanks. Again, I'll start and then maybe ask for a bit of colour from Michael. I think actually as we came into the back end of FY26, Peter, we actually saw probably a strengthening in the market. So June picked up again a bit versus where we've been in May. and then actually going into July we saw a further pick up again. So there's definitely strength in the grocery market at the moment and certainly that would align with some improvements that we've seen in consumer sentiment since April and May where it sort of hit some low points but also more and more customers telling us that they're eating more at home than they are out of home. So I do think that that is playing a role there. That being said, As we've gone through these first eight weeks, we have seen really strong strength in the online proposition. And I do think, and you will have seen we've called that out in the outlook, but I do think that that's starting to really highlight that we've got some areas of differentiation in there with regards to the deliver more offer through the customer fulfillment centers, but also through the Uber partnership, which is growing very strongly for us. Michael, did you want to just make a couple of comments on their deeper partnership?

Yeah, very happy to. We're very pleased with how the momentum in that offer continues to grow. If you're thinking about the sales impact of it, in terms of timing, I would think about it from the perspective of when we announced the deal, which is just prior to Christmas, because what that means is that through the second half, really from the start of this calendar year, we've seen sales through our immediacy offer and our partnership with Uber continue to increase steadily throughout second half. And that's a really good achievement when you think about at the start of this calendar year, when we went from two platforms down to one, we first had to recover the sales that we were losing from the second platform, which we did successfully very quickly and then continue to grow. So throughout the first half of this calendar year, we've continued to see benefits. and I think that's testament to what the strength of the partnership is because that expanded partnership with Uber we think gives us the market leading offer in what is a very high growth channel. Was it a market leading offer because from a customer perspective we think we've got the largest range in that space with over 17,000 SKUs where we're the partner of choice on the largest platform in that part of the market and this partnership that we've signed with them we're already seeing benefits from being able to plan marketing and promotional activity more effectively. So really pleased with how that's going, see room for further growth and it's certainly been a strong part of what's been helping us get to such strong growth rates in e-com as an overall business and as Leah said it's one of the differentiated offers that we've got in that space.

That's great, thanks guys.

The next question comes from Sean Cousins with UBS. Please go ahead.

Thanks. Good morning, Leah, Charlie and team. You've expanded your strategy to include everyday essentials, and I assume that appears to accommodate the interest that Coles announced about Green Cross. Can you provide some indications of the capability that Coles has in everyday essentials in a standalone format, big and small, rather than a supermarket format, as investors reacted negatively to Coles' interest in Green Cross, suggesting a lack of confidence in that capability, and there appeared to be a preference for capital management. So can you maybe provide, hopefully this is an opportunity for you to talk about the capabilities in everyday essentials as a standalone, please?

Well, why don't I start maybe talking a little bit about the thinking behind Green Cross and then I might get Anna to talk a little bit about the focus that we've got in Everyday Essentials, which really for us is the non-food components of our grocery offer. So, Sean, I think it shouldn't come as any surprise to anyone that we regularly assess opportunities which we think are going to complement or strengthen the business and ultimately create value for shareholders. And in general, we would be interested in looking at adjacencies that are quite close to the core areas of the business that we already run. And so something like specialty retail is a good – specialty pet retail, I should say, is a good example of this because we already have a substantial pet business that we run with supermarkets and I think if you go to the Green Cross opportunity, we were attracted to it as a segment because 70% of households have at least one pet and so it does make it a real stable component of a weekly budget and you're also seeing the impacts of pet humanisation and a focus on pet nutrition which is really encouraging customers to shop at pet specialty where they can get access to a different range and they can get access to advice and I think what many people don't appreciate about pet specialty is there's not a lot of overlap between pet specialty and grocery pets. About 90% of the range that you will find in a pet specialty retailer is not available in a cold and because of the supplier dynamics, that's unlikely to change and so you've seen us do the swaggle investments that we made, that certainly taught us a lot about how to play in that specialty space. It's an area we will continue to look at and assess opportunities going forward from an inorganic perspective, but I think given we ultimately weren't able to reach a point of agreement on value around green crops, we're now firmly focused on what we can do in the short to medium term around organic opportunities. And maybe I'll get Anna just to talk to that.

Yeah. Hi, Sean. Non-food, as you know, remains a really strategic priority for us. And we have made some really clear progress on establishing strength in that area last year. That's really following on from the reset of the portfolio around value, better range relevance and much stronger execution. Importantly and pleasingly, we've seen a real change in the trajectory of those categories. After more than two years of what I'd say is really consistent year-on-year pressure on share, we have returned to positive share momentum throughout half two, which gives us increasing confidence that the changes we're making are working. And there are a couple of things that have really been driving that. Health and beauty continues to strengthen, and we've seen really good share growth across many of the core categories, be that hair, dentals, vitamin soap and body wash. And that's been really deliberate around stepping up innovation in those areas and bringing in a much more differentiated range of both exclusive and different brands. Some of those in hair care might be Mimi or Dose Theory and many others that we're working through. But also alongside that, we've strengthened our everyday value proposition, making it much better for customers to find dependable value. And actually, as we exited Q4, Everyday value was the highest contribution we've seen out of those categories. The other area I would just say is driving the performance is the strong results from our own brand and the new bulk offer. So Cold Ultra, as Leah touched on earlier, delivered double-digit self-growth in the year and supported by very strong volume growth. And that was really about sharper value and innovation in the core categories that matter most. And then again, I think kind of a core category, but toilet paper, a really good example where we've invested in value, bulk, and price investment of both quality into the own brand business. And that really is driving both improved offer and share. But we're not stopping there on own brand. We're building on that momentum, taking it into new categories and key areas that matter most to customers. And an example of this has been the strengthening of the cub brand in baby. And we've gone into input food there in the last couple of months. and we've been really encouraged by customer response in that space. So I'd say overall we're really pleased with the momentum. We're pleased with the positive share growth but there is a lot to do. It is a very competitive market and we've got a clear plan and we've just got to execute against it.

Great. Thank you Anna and Leah. My second question is just around big box liquor sales. I think in the third quarter you called out that they were down some 20% in the that they were down 20%. Can you just maybe quantify what they were down in the fourth quarter as trading still remained sort of difficult there? And more generally, would you consider an exit of big box, possibly maybe at the end of lease, as it's unclear that ongoing investment in that business is sound and it seems as though convenience is the winning sort of channel, certainly for your business there. So maybe some more detail on big box trading and sort of outlook, please.

Yeah, so we did see the big boxes improve in Q4 relative to where we were in Q3. But overall for the total year, they still were in decline somewhere between sort of negative 15 and negative 20. We've done a full review now of the entire portfolio, not just the warehouses, but the entire liquor portfolio. And what I'd say is whilst the warehouses have underperformed significantly The performance is not uniform across all of the stores in the cohort. And so what we've done in the review is look at store by store basis very much at micro location, which makes a big difference here to performance. And what you're seeing in the strategic update that we've given today is on the back of that is the 30 store closures. which we're anticipating on doing in FY27 and I would say there is a disproportionate amount of warehouses that are in that group. However, for the warehouses that haven't got the closures coming, we have optimism around getting them into a growth position again and actually if you visited any of our stores even in the last couple of weeks, you'll start to have seen that there are some things that we are doing to really differentiate the range in the Kalam Warehouse from the rest of the network and we're very encouraged by the early performance of that.

Great. Thank you, Leah.

Your next question comes from Phil Kimber with E&P Capital. Please go ahead.

Go ahead.

Hi, Leah. Maybe to follow on on liquor, I was just interested... If I looked at the halves, the GP margins have gone up quite a lot in the second half for liquor. They're up 40 basis for the full year and 20-odd basis points in this first half. So it's sort of inclined 60 basis points in the second half. At the same time, sales are still negative, arguably deteriorating a little bit. It's just trying to understand the... the correlation there that, you know, in a market that we understand is incredibly competitive, why your GDP margins would be going up at the same time as your sales are going down.

Yeah, thanks for the question, Phil. I might ask Flex to answer this one for us.

Yeah, thanks for the question. Look, our gross margin has increasingly increased by 40 base points for a few reasons. Our strategic sourcing program has been really strong and improved in the second half. promotional optimisation activities, and also growth in alcohol 360 media income has improved half on half, and a really disciplined approach to price investment throughout the year. So they're the key reasons why growth margin has improved, acknowledging that sales are still challenged in some areas.

I mean, what about your... value sort of comparisons to the market? You know, have they weakened off? I know there's sort of two quite different trends going on in this business between the convenience side and the liquor land warehouse side, but just interested there as to whether you need to do a bit more work to further sharpen pricing.

It's a good question. I think we're comfortable with where our price indices are at the moment. As you can see, strategically, we're definitely moving to a stronger focus on the co-located stores with supermarkets, and by and large, that's our Liquorland and Liquorland Sellers format, and they remain very competitive in terms of their competition that they have in the market. and as I said, with regards to warehouse, what we are looking to do is to really start to differentiate the range there so that we've got an incremental offering for customers there.

Is that what you mean when you say grocery in the liquor stores?

It's a combination of things. There are definitely some grocery items that have gone into warehouses and They make a great incremental purchase when you're buying alcohol. Think things like mixes, soft drinks, chips, even things like Barocca, which you obviously need the next day. But we are also looking at differentiating range within the alcohol offer as well at both ends, looking at what we can do from a value perspective, but also bulk sizes and the more premium end as well.

Great, thank you.

Your next question comes from Adrian Leamy with Citi. Please go ahead.

Hi, good morning, Leah, Charlie and team. My first question was just on the trading update in supermarkets. It was better than we were fearing based on the supply feedback. Can I just ask, have you had to sacrifice some margin to sustain sales during this recent period, please?

Yes, sir. I think we're... quite pleased with where it ended up given... If you look at the two-year stack in particular, I mean it's an unusual shape but if you take consistent with Q4 and you stack it on where we were last year which was 4.9% or actually probably the more relevant number is the 7% extra back row, that's a very strong two year-on-year growth number even with that moderation that we saw from the collectible campaigns for three to four weeks in the middle. and as I said in the outlook, we're very pleased that the sales have recovered quickly post the Collectible campaign coming to an end. I think more generally, not even just talking about the first eight weeks, but I would say the competitive intensity right now is quite strong. That's not new, but we certainly are seeing many of our grocery competitors investing in in price, and we are responding to that to ensure that we remain competitive. And then we are also proactively investing in areas, particularly own brand, to ensure that we're giving the customers a basket that really is very value-oriented.

Thanks, Leah. And could I just ask on the balance sheet positioning, just pulling together a couple of things I think was said on the call, I think you mentioned that you would look to return surplus capital to shareholders and in the earlier question it was said that you're more focused now on organic opportunities in non-foods. So just pulling all that together, the gearing is down to 2.3 times it was up, we think, sort of over three times six years ago. So can I just ask, do you think you actually do have surplus capital at the moment? I guess that would depend on your acquisition outlook, but... Do you look to return that capital to shareholders over the next 12 months? I just wanted to get your thinking on that, please.

Adrian, great question. Thank you for that. Look, I think it all starts, Adrian, with our capital allocation framework that Leah took us through a little earlier. And really, we do take a very disciplined approach to how we allocate capital. And we take into account the things that you've highlighted, things like the strength of balance sheet, what our organic investment requirements might be, dividends, strategic flexibility and of course the relative returns from all those various areas that you could deploy capital which become really important. So we have been and as you know we've been paying out dividends of around 80% of our earnings in the form of dividends each year. That's been really consistent since the merger. This year we actually stepped it up to 13%. and where the fully frank dividend is $1 billion, which is quite an achievement. But in terms of surplus capital beyond our requirements, the Board is always going to consider the most appropriate way to deploy or return the capital and the objective is and will always be how do we generate the optimal returns for shareholders over the long term.

Thanks, Charlie.

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

Morning, Leanne and Charlie. Just on the renewal program, I just wanted to ask about the average store age at the moment, how, I guess, since it was either opened or last had a major renewal as opposed to a light touch renewal, where that is versus your target and whether these 150 renewals are... like incremental to sort of what you have been doing, which is, you know, 50 to 70 per annum in recent years. So just keen to understand sort of the magnitude of what you're doing here on renewing the store network. Thanks.

Yeah, no, thanks, Brian. Great question. Well, I think we've been pretty good with this. I think when we were renewing at a rate of about 50, I would say that our store fleet was getting older, right? And when we stepped it up in FY26 to 70, that's the point at which it's, gets younger and certainly going forward with the 150 renewals that we are indicating that we could see that our average fleet will get younger. going forward but it's a great reminder though of what are we spending the renewal amount on and I think we talked a little bit about and I talked a little bit about that it is going to look at how do we actually build capacity for growth and that's the important distinction. These aren't just normal renewals and we will get a younger fleet out of it but we'll more importantly increase the capacity to facilitate more online growth but also better experiences for our customers in store. And that's our focus with these 150 renewals over the next two years.

Right. Just to put that in context for us through numbers, is it possible to give us sort of an average spend per renewal in this 150 versus what you've been doing in recent years, which I assume is not as transformative for those particular stores?

I won't go into it in terms of breaking it down, but I think the best way to think about it is if I look at the sort of $300 million or the $150 million over each year for FY27 and FY28, 70% to 75% of that spend is really in relation to property, whether it's the new stores or the renewals. It's all about how do we actually grow. and augments our store network for growth.

Right. Okay. That's helpful. And then just on the new store openings, as you say, it's been a bit softer in recent years and you are looking to accelerate that, which is good to see. The 45 stores, I assume a lot of those have been in train for some time because these things don't happen overnight with the property planning approach, etc. Just wanting to understand how confident you are in delivering those 22 to 23 stores per annum for the next couple of years given you've been doing roughly half that pace in terms of store openings over the past three years or is there some chance of slippage given delays and all sorts of things with building and approvals, etc.? ?

Yes, so in relation to those 45, Brian, we are very confident. We wouldn't have called it out otherwise, so let me say I think we're very confident. It will always be things like weather and things that could impact the timings. What we are confident on firstly is these stores are firstly pre the merger law forms that the Act will see, so they are approved. We have line of sight. more through our Coles Property Group as well and we are in constant dialogue and constant monitoring with our developers that are working through to the extent their least developed stores. Brian, we're very confident of the 45 stores but there'll be other things like weather and things that I can't always predict but we're confident that the delivery is over 2% net space growth over the next few years.

I think it's probably also just worth touching on in the context of this question around the ACCC merger regime. We have been submitting proposals through that regime since it came into place in January. There's obviously been a lot of media coverage around Kalgoorlie, which is the one store that has been denied through that process so far. But we've actually received 10 approvals through the process as well. So we are proactively and actively participating in that process and successfully having stores approved.

Excellent. Great to hear. Thank you.

Your next question comes from Tom Jurras with Darren Dowie. Please go ahead.

Morning, guys. My question is just on your tobacco growth rate, I suppose, especially in July and August, because you're lacking some pretty tough numbers, obviously, when the legislation changed. But can you maybe just give us an update on what's happening in the trading update on tobacco? I just know it's quite volatile and you haven't given us a sales ex-tobacco growth rate there?

Yeah, so sales have remained relatively consistent now in terms of the dollar number for several months and that's really because we've cycled over that Q4 exit that we made of products last year related to the regulatory change and so you will have seen in the Q4 numbers there's very little difference between all the store number and the ex-tobacco number. That's what you should really expect going through now.

Yeah, okay, thanks. And then just secondly, on the gross margins, I think they only went up seven basis points in the second half. I would also be a bit more just with tobacco kind of coming down, especially in that third quarter. Is the right way to read it like more price investment or just some of the, I guess, higher costs coming through like... fuel prices, et cetera, that you couldn't kind of offset necessarily there?

Yeah, great question, Tom. So thank you for that. Look, right, so the gross margin, obviously, we did grow gross margin. That was across the year. But it was late to the first half. I think, not surprisingly, we called it out at the previous and earlier that with this tobacco market, led to the changes. So the tobacco, if you like, tailwind in terms of gross margin rate is very much first half related. But also what was in that first half as well is now very firmly the benefit that we got from the ABCs, right? So the ABCs, as we know, have been strong benefit programs that are delivering steps that we would all look at in the business case. Again, the way it did in the first half and the second half. There are lots of moving parts in gross margin. Our strategic sourcing, which is an always-on program, very successful. Our SSI, very much, the average was $311 million. I guess what's been different this year in SSI is traditionally a third of SSI has been in gross margin and two-thirds in CODB. It's probably more like 20% in CODB this year rather than a third. and we see that potentially maybe reverting back to a third, two thirds. So lots of moving parts but also tolls 360 in that as well. So lots of moving parts and I think that has allowed us to make the investments as well. We have been investing as we have called out. So I think going forward to back our tailwinds, if you will, etc., and the ADC now firmly in the base, they are very, very different going forward. That being said, I really do encourage you to look at the P&L top to bottom and things do move between GDP and CR. Maybe not that we've moved anything but with a mix of sales now and Ecom growing very, very strongly, and so what's really pleasing about the result here is the growth in the EBIT margin and the EBIT margin has grown strongly and you've seen our EBIT growth three times that of our sales growth.

And just, Tom, rounding out the answer, you specifically raised the fuel piece. We did call out in Q3 that we expected that to be 10 to 15 million of impact in H2 and it came in at the top end of that range and that will have gone into the GDP as well.

Tom, just in case I said it differently, what we said was this year 20% of the SSI was in GP, 80% in CODD. Just to be really clear, historically that's been one third to two thirds.

Got it. Great. Thanks very much, guys.

The next question comes from Michael Simotas with Jeff Rees. Please go ahead.

Good morning, everyone. Thanks for taking my questions. I've got one short-term question and one longer-term question. Firstly, on the trading update, appreciate there's a lot of moving parts and you've given us some colour on the cadence of sales through that period. Do you think that exit run rate of something similar to the fourth quarter is indicative of the underlying growth in the business or do you still think there is some ongoing drag from your competitors collectible program due to pantry stock and forward buying etc.? ?

It's a great question. So the collectibles campaign really came to an end 10 days ago. So it's, I think at this stage, probably a bit hard to say whether the full recovery has occurred in terms of it coming back up. But I think in general, as we look ahead for sales for the year, we're feeling very encouraged because of a number of factors. The first is this new space. that we've got coming on will help to drive our top line sales. The second piece would be the strength that we saw in online through those Thursday weeks because really it didn't miss a trick through that period and that strength that we've got in both Uber and the deliver more offer through the CSTs. We expect both of those to be good contributors to sales growth this year. And then the third thing I'd say is probably where I came back to when I was talking about the market. It's certainly feeling to us at the moment that many customers are choosing to eat more at home and that is really supporting a healthy growth rate in the growth tree area and very much that is led by volume which is a great place to be. Our inflation actually at the moment is still running pretty low and most of our sales growth is coming out of volume which is always where we want to be.

Okay, that's helpful. Thank you. And then the second one is on implementation costs for the Victoria ADC. So you've called out $35 million of implementation costs in 2028. How should we, without giving numbers, how should we think about the evolution of that as it comes through the P&L? Will it follow a similar shape to what you reported with the first two ADCs where it gets a little bit bigger in the years after the first year before it moderates and then turns into a tailwind for the P&L?

Yeah, Michael, thank you for the question. Look, it's probably a couple of things. We've given you obviously the FY28 number. today and that would keep with the other two programs. This will give you those numbers very much closer to in 12 months' time a little bit. There will be a step up on the 35. That will be fact but I won't give you the actual number today but as you're right, there will be some implementation costs. They will then fall away as they have done with these sort of programs. and that, you know, because these assets are really strong returning investments that we are making for the future.

Yeah, okay. So it sounds like if we use the shape of the first two of the guide, it's probably sensible at this stage.

Well, that's not really what I said, but, yeah, I won't tell you how to model this. I've given you a number there for 28 and, yeah, there will be a cap in 29 as these come along in 29.30.

Your next question comes from Craig Wolford with MST Marquee. Please go ahead.

Good morning Leo, Charlie and team. Just first one, you touched on there on inflation. It is interesting and good for the consumer that we haven't seen much movement in that inflation figure despite the volatility around Middle East. Can you just give some colour on what you're seeing? on the inflation backdrop and I'll be a bit cheeky if I say a second part of that which is what do you expect in the outlook on your EDLP versus high low mix?

Hi Craig, it's Anna. I might give you a bit of colour on that because there is a lot going on in the inflationary number. What I'd say at headline level it was broadly stable in the quarter but there was a number of moving parts. In the quarter, we received twice the number of CPIs we did versus Q4 last year. Fuel did account for the vast majority of those, but we saw additional pressure coming through from fertiliser, freight, shipping, packaging and utilities and labour. So there's a number of drivers behind that, but also some drivers at a category level. We're continuing to see inflation coming out of livestock, and we've been seeing that for some time, as well as dairy. and that includes, of course, kind of what we're seeing in milk and cheese and some of the pricing there. Bakery was also impacted by the global disruption costs as well, alongside some of the fuel-related pressures. But those increases we have seen offset by some very heavy deflation in produce as we cycled over the very tight supply and elevated pricing from last year, and that was particularly in sausage, such as tomatoes. We've also seen eggs moderate as we cycled over the avian flu shortages last year as well. This has also been coupled with really strong promotional intensity across a number of categories. In grocery, predominantly impulse and breakfast. And coupled on top of that, we're continuing to invest in price competitiveness. So you saw that reflected in some of the GP profit and that investment we expect to continue into the first half. If I flip into looking forward, there is definitely some upward pressure on inflation, particularly as produce cycles out of deflation, and more broadly as our suppliers face the inflationary costs. And we're also watching fuel, freight and packaging and the impact from global costs coming through very tightly, as well as both poultry and eggs from the avian flu position. So there's a lot going on there. I expect livestock to remain elevated and in NEAT we have been absorbing some of those increases for some time now to really minimise the impact on customers so the full effect has not flowed through into our inflation number. And I would say the offset there has been some of our sourcing programme as we continue to work with suppliers to continue to achieve competitive terms and identify more opportunities to invest for customers and we'll continue to invest really where it matters most to customers. So on balance, I do expect we are going to see inflation higher in the next 12 months than we have in the previous 12, although there is a number of different variables and it will depend a little bit on the competitive environment that we find ourselves in.

And just that ADLP, like what's the future of that ADLP mix in your business?

So you said that again, Sean? Yes.

The use of down-down and other EDLP mechanics versus high-low.

Yeah, I think that we've been for some time, as you know, Craig, both the foundations were really massive, but coupling that with the EDLP and we've seen really strong customer engagement through that and we're doing it on a category by category basis and actually we have extended the number of categories over the last quarter that are on EDLP and we're seeing that work particularly well. and importantly the suppliers we have are on the journey with us around the right path groups and the right categories and we're seeing that really drive benefits. So I expect it to continue and we are still absolutely strategically committed to driving trusted pricing where it matters most to customers.

Charlie, just to clarify your PAPEX comment earlier, the $1.55 billion you I think you said it's not going to stay at that elevated level. It sounds like there's two years of extra store openings and extra renewals and I would have thought the renewal rate is more where it should be rather than elevated.

So Craig, let me break down what that $1.55 is made up of. One of it is the $1.1 billion that we have been spending which has included 71 renewals for example. last year. That obviously is what, let's call it almost like core capex, but it does, it can flex down very, very, very clearly. On top of that $1.1 billion is $300 million relating to the Victorian ADC. And as we've previously called out, FY27 and FY28 are really the core years of that program. Remember, the program's an $880 million program. which we've spent $190 million today, $300 million this year in FY27 and we expect FY28 to also be a strong capex year for the ADCs. In relation to these very specific investments that we called out, both in terms of new stores and the uplift in renewals, they are very specific investments, not to be ongoing. and we've called them out for 27 and for 28.

Okay, thank you.

Your next question comes from Benjamin Gilbert with Jarden. Please go ahead.

Good morning, Leah and Faye. Just around cost. I'm just trying to understand how to think about the shape into fiscal 27 and specifically you've done sort of second half cost out for SSI of $180 million which is obviously a big step up on the first half so I presume we can annualise some of that into fiscal 27. You've got this Coles Capability Centre which you're taking below the line which I presume a bunch of those benefits will come above the line through next year because there's redundancies etc. Is it conceivable that you could have pretty benign C2B growth similar to 26 into 27 based on these benefits? Because it seems like there's a lot of cost to that to come out into 27 just based on second half fund rate and their capability set into it, which I think you said is additional to SSI.

So let me take it up there. So thanks for the question, Bursley. One of the things, let me just go back to FY26 and I think FY26 was a really good year for us obviously. We took out $300 million for SSI, a really important program which really assisted us in trying to keep CODB as a percentage of sales flat year on year. That's the target that we try and target as ongoing going forward, a really important number because obviously that assists in delivering the right earnings outcome. through that sort of environment. And more importantly, I think we've been able to do that with an ever-increasing Ecom penetration rate, which is pleasing. I think in relation to the Coles capability... And so, remember, the SSI program, what we do try and target is about $250 million, plus or minus every year. That's been really the focus of the program. So just to give you some numbers there, $876 million delivered over the last three years. The previous four years we delivered $1,047,000,000 through SmarterSelling and so we are on track to actually deliver over $1,000,000,000 through this program and obviously we're not giving any guidance beyond this program in that regard. Just to be really clear on the Capability Centre, we are forecasting that the run rate will build to FY29 of delivering annualised benefits of $100 million a year. And in order to achieve that, there will be one-off implementation costs and establishment costs of $119 million. And as we pulled out in our presentation in our release, it is our expectation that that 190 will be treated into significant items.

So, Joe, just to clarify, so the fact that the second half run rate, which is obviously a phenomenal number you guys have managed to do, 178 mil, we shouldn't necessarily think that that starts you off on a stronger run rate for SSI under 2017. And in the capability sense, that doesn't include redundancies, et cetera, for all the changes that have been announced more recently. That's part of SSI.

So the Capability Centre implementation cost is the all-inclusive of establishing and will include elements of redundancy in that as well, and our establishment costs. In relation to SSI, As we said, we target about $250 million a year, plus or minus. In terms of what we deliver in the second half, first half, there are programs that sometimes are, you know, timing of those between first half and second half can vary. So I wouldn't necessarily annualise a second half as an ongoing run rate or the first half as an ongoing run rate. I could take my guidance that we're typically around $250 million a year and it can vary between first half and second half. depending on the nature of the programs and projects that fall within that.

That's helpful. Thank you. And maybe, Leah, a final one for me, just sort of looking forward, if you sort of look forward on a three-year lens, and I appreciate it's probably touched on Australia as well, but What do you see Coles as? Do you see Coles as just a supermarket at its core and there's a few ancillary services around or is there a view to expand beyond that? Obviously we touched on Green Cross but you've closed Swaggle which surprised me if you wanted to keep leaning around these sorts of categories. Probably one of the few big retailers out there that doesn't have a marketplace capability and obviously you can do that in a low capex type environment or capability. is the focus just being a supermarket on a longer term lens and the images of these mencillaries around it or do you see yourself taking the bigger step looking at things like Green Cross or lending into marketplaces, these sorts of areas on the longer term lens?

I think the first point I'd make is we still see a lot of growth in the supermarket space and you seeing us today announce a set of initiatives that really help to set us up to go and capture that and it's fantastic to actually have a set of opportunities within the core business that does help us to drive that growth with good returns. So very pleased with that and you can expect to see us continuing to do that as we move forward. However, I do think that we will continue to look at are there adjacencies and I talked about that being close to the core so you should think about that as that potentially is moving into other consumer segments. The pet specialty is the one that we've discussed today, but it could also include doing more vertical integration like what we've done with MilkCo. and with Chef Fresh and even to some extent what we do with Rower, our meat processing facility. If that helps us to build strategic capabilities that enable us to grow our own brand going forward, then that can make a lot of strategic sense for us. And then I think the third area is probably in the digital space and are there non-organic options that we would have to build capability in that space overall. But all of that being said, we are very commercial. We are very financially disciplined around this stuff has to make sense from a value creation for our shareholders. And if it doesn't, we won't go down the path. And as I said, we've got lots of really good opportunities in the pool right now to continue to grow and continue to deliver strong outcomes and pivot and growth for the shareholder base.

Your next question comes from Richard Barwick. What's the LSA? Please go ahead.

Good morning, all. Unless I've missed it, I can't see any mention of stock loss or theft through any of the documentation other than theft gets a little bit of a mention in the risk section of the annual report. Certainly, if we watch the evening news, it looks like Victoria is the crime capital of Australia and there's been lots of negative publicity on the impact on the supermarkets. So what update can you give us there? It looks like things are getting worse from an outsider's point of view, but what are you seeing internally and is it making a difference?

Yeah, thank you for the question. You're right to say that it is a difficult operating environment in retail with regards to crime and loss and that's not just a calls or a seek market problem. I think we've all seen the media coverage and as such we stay very focused on the issue. We've got a series of technology solutions that we've deployed over the last couple of years and we continue to deploy those into stores where we can see a return and a requirement. And importantly, we stay very focused upon making sure that our teams stay safe because not only has there been a slight uptick in loss from our perspective, the threatening situations that our team members have to face, which are completely unacceptable, they've also increased. And so making sure that our team are protected and safe and fully supported is super important. The uptick that we're seeing at this stage isn't material in terms of our commercial performance, but I wouldn't want you to think that that means that we are deprioritising the issue. It is one of the top three things we're certainly focused upon and we will continue to not just work with our own team members and the retail industry but also police and government and pleasingly state governments are starting to really progress with some of the policy changes that we need to tackle these repeat offenders and so the sooner we can all work together to solve the problem the better but it's one we're definitely very very focused on.

And I'd probably just round that out Richard by saying that for FY26, our total loss overall was essentially flat. It didn't have the big shifts or the big benefits coming through that we saw in 23 and 24 and 25. Really, we put that down to we now have a very stable technology solution that we're applying to the problem. As Matt said, there has been a bit of an uptick industry-wide as we've gone into the end of the financial year, but our aspiration for FY27 would be to hold the total loss rates flat again, and we think in this market that would be a great result.

Yeah, okay. That's useful. Thanks, Leah. And then the last one, you obviously called out customer satisfaction scores improved across the five. key metrics, as you so call them out. It's interesting that price is clearly the weakest uptick that you've seen. So, yes, it's improved, but nowhere near to the extent of the others. How much of that is a reflection, do you think, of the negative publicity around the ACCC case, et cetera? And any comment you could add in terms of the way that you were seeing your relative price competitiveness Just trying to put that into context really, the 110 bits on price but obviously well over 200 on the other measures.

Yeah, I mean it's an interesting observation and I think it's probably very fair to say that just the amount of commentary that is out there does impact perception on that front. and I also think that it's a very pertinent issue that households are struggling with every day in terms of cost of living. So it's very, very front of mind and people have a high expectation around what you're going to deliver on the value front, which given the environment I think is fair. I think I would definitely say that we would say perception is half of the equation when you talk about are you delivering appropriate value. The other half of it is how are customers actually shopping and what are you seeing from a sales perspective and if you go back to the volume growth that we've seen and I'd sort of refer you to a 5.1% supermarket sales growth for the year versus a 1.2% inflation rate, the remainder of that differential is largely volume. That would say that we seem to be hitting the mark more times than not.

Okay. That's helpful as well. Thanks, Leanne.

Your next question comes from Nicole Penny with Rimmer Equity Research. Please go ahead.

Good morning, and thank you for taking my question. AI was innovated as part of the strategy today with opportunities outlined across customers, smart operations, and team productivity. Would you elaborate further on those opportunities and point to which one you see the largest source of economic value over the next two to three years? And perhaps secondly, where you are really starting to see material benefits come through?

Thanks for the question, Nicole. I mean, we have had AI use cases in the business for around a decade now. The vast majority of those are either machine learning, so predictive AI use cases, or AI Generative AI Use Cases, and they have delivered substantial value to us. So a few examples that I'd probably call out would be the Smarter Forecasting System, which drives availability as well as sort of sales matching for us to store. system, another one, so our source specific ranging tool for example is a machine learning tool and that has delivered substantial increases in sales but also gross margin outcomes for us as we've rolled that out and tailored stores in terms of their range, store by store. And then another example would actually be what we were just talking about with Richard on the death front. A lot of the tools that we have used in terms of skip scan and bottom of the trolley recognition, they are generative AI use cases, for example. So we have at scale AI use cases that have delivered substantial value in the business. Now, that being said, we're pretty excited about what comes next and the big difference that we're seeing now with the advent of Denning AI is just the pace of capability that you can access and where you can apply it. I might get Michael maybe to just touch really briefly on how we're thinking about it from a customer-facing perspective, but certainly in our sort of core operations, we think there's a lot of opportunity in terms of doing system optimisation end-to-end, particularly across the supply chain, where there is They're huge parts of our cost base that if we're able to even get small benefits there can actually result in quite substantial savings for us. But Michael, did you want to talk a little bit about the customer experience?

Yeah, very happy to, Leah. I think it's on a forward-looking basis, I think it's certainly one of our biggest opportunities from a product perspective. Now, that being said, whilst we want to move towards that quickly, we do have to balance that with the opportunities that sit across the rest of our product set. to be able to improve the customer experience. And I'll tell you why that's important. When we have our product teams working on enhancing the customer experience, which then drives more traffic, greater scale, better profitability within the e-commerce business, we've currently got teams across about 20 different digital products where we have them working in squads. And that's across everything from digital media to last mile fulfillment to in-store digital experiences, So it's really across many different aspects of what our customer experience is. We continue to make really good progress in terms of enhancing that customer experience. So AI Commerce is something that we see as a big opportunity. What we're focused on is making sure that we're able to get there before it becomes a really at scale opportunity for customers. We've got many different experiences that are currently in testing internally with product teams and we're going to be focused on releasing some of those across FY27 because we think it's a really important part of the offer going forward but it's only one part of what the opportunity is for us to keep improving our customer experience.

Thank you.

The next question comes from Michael Kroner with RBC. Please go ahead.

Hi, Kim. Thanks for taking my question. Just following up on Ben's question on SSI and the earlier question on AI, you know, it looks like you're very comfortably accepting $1 billion for SSI, and the two-half run rate is very strong, and I know you said not to annualise that. But has the evolution of AI capabilities throughout the term of that SSI program perhaps broadened the scope of potential efficiencies you can deliver? and has that had an impact on the stronger performance for SSI?

We're obviously very excited about what AI can do in various areas of business, whether it's productivity, efficiency and what it can deliver. I do want to reiterate, Michael, I will not annualise what we are seeing in the second half. It's not to say that we have a cap on our SSI savings. It's certainly not the discussion we have internally. Our target is $250 million a year and that's an important sort of part of where we go and it's been a successful formula. There will be programs and projects that go either side of a fiscal year or a financial year through that and we're certainly all focused on delivering more as well. So in that regard, but we are excited about what AI could do. to help and unlock more productive efficiency and as Leah pointed out, it's not a new phenomena for us. We've been using all forms of AI now in the business for at least a decade which will continue to generate better results for our customers, improve efficiency in our business and we'll continue to deploy those sort of tools going forward.

Okay, thank you and then following up on Richard's question on price perception, you've obviously built some very strong capabilities in distribution and online for which you deserve credit. But in that context, do you think there's an opportunity to use that cost leadership position to go harder on competitive positioning as opposed to sort of reacting to competitor activity, just noting that your relative margin position looks like it is quite strong relative to where it was a few years ago? Thank you.

Yeah, thanks for the question, Michael. I mean, we are proactively investing. We come into each year... and each quarter with a plan around where we will put value investment and we base that on where we think we can have maximum impact from a customer perspective. So we do have a very active and have done for many years investment program enterprise and I pulled out most recently we've made some strong investments into our entry tier of our private label. We've called Simply for example. and so that's an important part of what we do but the other side of it is we want to always ensure that we're competitive in the market every week and we're certainly seeing that with AI topic of conversation today, the advent of AI tools has meant that customers are using those to compare prices more than they've ever done before, particularly in young families and pre-families. so the younger part of our population. And so ensuring that we are competitive week in, week out for every set of offers that we have, that's really key for us. Some of that is proactive and some of that is reactive.

Great. Thanks so much.

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

Well, great. Thank you, everyone. In summary, we're very pleased with what we've delivered in FY26. We've strengthened our competitive position with supermarkets, gaining market share, strong earnings growth and further improvements in customer satisfaction. Our e-commerce business continues to scale profitably with e-com sales growing by more than 26% and our CFCs achieving positive EBITDA. And at the same time, we've continued to focus on productivity, delivering $311 million of SSI benefits, which is helping us to invest in value for customers while growing earnings ahead of sales. Importantly, we're entering FY27 with a strong platform. The investments we've made over the past three years have materially strengthened our business and our strong cash generation and balance sheet gives us the capacity to invest in this next phase of growth. We have a clear focus on expanding and renewing our store network, continuing to build our digital and technology capabilities, continuing the development of our Victorian ADCs, and improving the performance of liquor. Thank you and I look forward to speaking to you again in only just a few short weeks for our first quarter results in October. Thank you.

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