Metcash Limited

Good day and thank you for standing by. Welcome to Mathcash 2026 Half Year Results Briefing. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask your question during the session, you'll need to press star 11 or your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Doug Jones, CEO. Please go ahead.

Thank you, operator, and good morning, and welcome to the Metcash Limited FY26 half-year results presentation. As noted, my name is Doug Jones, Group CEO, and I'm joined this morning in Sydney by Deepa Sita, Group CFO, Grant Ramage, Food CEO, Kylie Walbridge, Liquor CEO, and Scott Marshall, CEO of the Total Tools and Hardware Group, as well as Steve Ash, EGM Investor Relations. Before I go any further, you'll no doubt be aware that this morning the ASX has a technical issue uploading certain documents to their public site. This affects all companies and not just us. We lodged all of our release statements, our financial report, our dividend declaration and our presentation this morning just before 9am. All of those, except for the presentation, were released by the ASX. on their side shortly thereafter. We have confirmed with the ASX that because all price-sensitive information is in the market, we may proceed with this call. I'd like to begin by acknowledging the traditional custodians of the land from which we're all connecting today. I'm in Wala medical country and I pay my respects to elders across country, past, present and emerging. As you know by now, our purpose guides our strategy and is an integral part of our culture. As I said at year end, the contribution to communities by independent retailers across Australia is well documented and is something we're all proud of. The idea of making a meaningful difference in the communities our networks serve and operate in is part of our DNA. At the same time, we're energized by the opportunity to win alongside independents. This is a great time to be in partnership with independents, and we recognize the advantage of strategic positioning that this provides to support sustainable and meaningful value creation for our shareholders too. It's also a good time to reflect on our updated aspiration, purpose, and values that encompasses the strong, balanced partnership that we enjoy with independent retailers. And on this basis, I'm pleased to share that our new purpose statement, winning with independence, is now live, as well as our updated aspiration and values. We believe these reflect the nature of that partnership and our ambitious vision for the future. We continue to hold dear the belief that independence are worth fighting for, and we have developed, in consultation with our engaged teams, an updated set of values that underpin that aspiration. Everything we do is focused on driving our flywheel. It remains the manifestation of our competitive advantages and of how we create value for independent customers, shareholders and suppliers, more and more of whom are selecting us as their route to market partner. Our flywheel is also the heart of the platform from which we can grow our services to independent businesses across Australia. And it forms the foundation from which we can move closer to the shopper and through the value chain. These results are what I would call solid, but behind our own expectations. But that simplistic view belies the many, many moving parts that make them up, including the trading conditions that you've heard about from many of our competitors. This year, we've maintained good momentum in the core of our business, and despite the challenging conditions, our independent networks remain healthy and confident. And the strategies of each of our pillars is delivering the results that you'd expect in those markets. Food is now a highly diversified and resilient business and has again delivered strong earnings growth. Once again, liquor has won market share. While improvements in hardware and tools continues, we are seeing sustained signs of market recovery. TTHG earnings, excluding once-off strategy and integration costs, were in line with last year. Strong earnings and EBITDA leverage has been founded on disciplined operational and strategic execution as evidenced by our core operational metrics, those being delivery and logistics performance measures, which are high and trending in the right direction. As you know, the tobacco decline has accelerated, fueled by emboldened illicit operators and even more changes to the regulations. That said, we are starting to see a ramp up at state level in both practical legislation and enforcement. It's certainly too early to claim any sort of victory, but it's pleasing to see at last some concerted effort by state authorities. In the face of all this, costs and working capital were well managed, and as I noted earlier, we're continuing to win new suppliers into the Metcalfe distribution networks. I'm delighted to have delivered the first ever cross-pillar consumer-facing program this year in big family, big prizes. Not only did this drive engagement with shoppers across our brands, it provided our suppliers a new campaign and trade marketing tool and galvanized our own team and network of independent retailers who were incredibly positive about being part of a network of over 3,000 family-founded stores. The family-founded concept with its associated logos and brand iconography is now firmly launched and available to support further executions. In Horizon, I'm pleased to share that we've completed the core solution build phase, and we're now into testing with the first deployment of the solution scheduled for June next year and completion by the end of 26. We continue to balance carefully between cost, time, risk, and quality, prioritizing the last of these. As of right now, the sorted platform on an annualized basis is almost a 4 billion B2B digital marketplace. This follows the migration of all ALM states except New South Wales and Queensland onto the platform. Once those two states migrate in January next year, on an annualized basis, Sorted will be doing around $6 billion, representing over 30% of group revenue. This is a significant and material modernization and transformation of our wholesale business, and one that offers exciting new growth opportunities. At the same time as delivering on our core business priorities, we remain well-positioned with attractive growth prospects. We've made good progress in the integration of both Total Tools and Hardware Group, as well as the Food Service and Convenience Business Unit, with a high-caliber TTHG leadership team already in place. The recovery in the building market remains an attractive opportunity that we're well-placed to take advantage of. Our localised retail media build-out is on track, In summary, we remain well positioned for continued structural growth within food and liquor, the essentials part of our portfolio, and for the recovery we see coming in tools and hardware, the more cyclical part of our portfolio. And we have the balance sheet flexibility to pursue our growth plans. As I noted a moment ago, there are many moving parts in our business, and to understand where we are in the journey requires we step back a moment and take a longer view. The reality is that this has been another period of disciplined execution and strategic progress, But it's also true that this operating discipline and focus on our core business imperatives, together with the strategic decisions taken over the last few years, have not only improved that core business, but have put us in a position to take advantage of where we think the market will be in the next few years. The improvements in the core are free proof points, and I'd start with the improvement of 22% uplift in EBIT and 34% uplift in cash earnings using EBITDA as a proxy. The food pillar is a great example of a business that is of a higher quality at its core, as well as being bigger and more diversified with more growth options. In the face of a massive and unprecedented decline in our largest category, earnings have grown consistently. This is down to both strong execution of core wholesale and logistics functions, as well as the choices to diversify the business. by not only improving the IGA value proposition and reducing reliance on tobacco, but at the same time reinvesting in Campbell's and Convenience to create the market leader in the petrol and convenience market and entering the food service market through Superior. The results of the consistent improvements in the core means that despite the most competitive grocery market in years, IGA itself is more competitive and relevant than ever, and at the same time we are diversified and more resilient than ever. I receive many questions about liquor consumption patterns in my meetings with investors, and I respond the same way each time. The LM Channel strategy of a diverse, balanced focus on our banner retail, contract, and on-premise customers provides unmatched scale and a natural hedge. And our strategy of reinvesting in our flywheel to keep our customers competitive and improving the shopper value proposition means that today our strategic advantage is as strong as ever. And this is why I believe there remains further growth potential. The evidence of the network's competitiveness and relevance is in the market share gains. The addition of new customers to our networks and the choice by new suppliers to come into our DCs. The current earning headwinds are the result of margin and cost pressures in a competitive market where volume growth has to be earned. The growth of the hardware and tools pillar has been delivered through a strategy that saw Metcash acquire Total Tools Holdings and then implement the plan honed in IHG of investing in retail alongside our independent partners. Though the tailwinds of the pandemic undoubtedly helped, Total Tools is now a $1.3 billion leader in a category ideally positioned to serve the tradie in a market that needs to build a million homes in the next five years. While we're seeing early signs of market improvement, as I said in June when we announced the formation of the Total Tools and Hardware Group, we're not waiting for the clouds to part. We're trying to make our own weather. The business is in better shape than ever and is ready for the uplift in market conditions that many believe is inevitable. Project Horizon is moving forward with deliberate and concrete steps and we have good plans in place to get it done. We're further modernizing and strengthening the core through the expansion of Sorted, which, as I said, by early 26, when the two final ALM states are migrated, will be one of the largest B2B marketplaces in the country, if not the largest. This should support growth in our core and adjacent markets and talks to our digital leadership in the B2B space. Finally, the Metcash Retail Media Network build-out continues on plan. We're installing assets at pace and steadily building the supporting tech stack, and have already executed more than 270 campaigns. Before leaving this slide, I also want to point to the improvements inside which aren't always visible to the observer. Our operating discipline, our teamwork, and our alignment are stronger than ever. As I talk about our portfolio through the lens of sector participation, I want to again remind you of the strategy of steadily rebalancing the portfolio of revenue and value drivers. At year end, I said that Metcash is often a misunderstood business and that assessing it as purely a wholesaler materially underestimates both the quality of the business and the opportunity. It's most helpful to understand the balance of the group as a wholesaler, retailer, distributor of food and liquor to the on-premise and out-of-home market, and more recently, as a franchisor. and secondly, through a deeper understanding of how the shape and balance has changed in recent years, and as you can see, continues to change. In the first half of this year, the contribution to total revenue from wholesaling has continued to moderate and now stands at 72%, down from 74% last year. We continue to think about the idea of winning with independence through the lens of operating businesses alongside them. We've done this for a long time now in hardware and total tools, and we've signaled our intent to do the same in food and liquor. Each revenue model lets us tap into new markets and allows us to broaden our business goals beyond wholesaling. And as I said then, at the heart of our flywheel is our logistics capability, and at the heart of our business as a platform to support and win with independence is our wholesale business. But neither of those are the full extent of the Metcash Group, nor of our ambition. Turning to the financial overview, excluding tobacco, sales grew by a pleasing 4.5% in the half, and were still positive 0.4%, even including tobacco, to a total of $9.6 billion. As I noted earlier, EBITDA was strong, up 2%, or 4.3%, excluding the one-off integration and strategy costs, which we called out at the recent AGM, and which are included in underlying earnings. The group delivered $240.2 million of EBIT and $126.7 million of underlying earnings, or 11.5 cents a share. Cash performance was again strong, as headlined by the almost 60% increase in operating cash flows leading to debt leverage ratios at the lower end of the target range and underlying the strong balance sheet. The board has declared a fully frank dividend of 8.5 cents per share. Turning to the pillars now, It's pleasing to see revenue growth excluding tobacco in all pillars, sustained in food excluding tobacco and in liquor, and accelerating in hardware. Remember that Superior was included for just five months of last year. I noted the cash performance earlier, and it's good to note EBITDA up 2%. Excluding $8.3 million of one-sort integration and strategy costs, group underlying EBIT for the half was up 1%, and group EBITDA up 4.3%. Before I talk to the food slide, the keen eye among you will notice that there's less data and information and more focus on the core strategic points that we want to make on these slides. You can rest assured that all the data that we've always provided is available in the appendices at the end of the slide pack. As we did at year end, we've also provided updates on important strategic initiatives including Horizon, Retail Media and Sorted, as well as further information on our ESG progress in these appendices. But back to food now. I'd really do want to highlight the continued competitiveness and relevance of the IGA offer. The market hasn't gotten easier and competitive intensity has, if anything, increased. Despite that, our price competitiveness has continued to improve and this has underpinned an improved rate of growth in the second quarter. The targeted extra specials promotional program, which is focused on large stores and which recently expanded from 75 to 95 stores, is showing strong results. Average shelf prices across all 249 large IGA stores are now at or below the majors. I'm sure you'll appreciate the significance of this, more so in the current environment. Both Campbell's and Convenience and Superior continue to grow. In Campbell's and Convenience, we're winning new customers and growing our business with existing customers. I described it as a reinvigorated business in the end results, and we're seeing continued evidence of this. This business is actually growing tobacco sales as the preferred route-to-market partner for tobacco suppliers. This is the manifestation of a desire to control what we can, not waiting for someone else to change our fortunes. The growth in Superior increased through the half in a highly competitive market, and I'm pleased to have won the Coffee Club contract, which started at the beginning of the second half. Food earnings grew by 9.8% at the EBITDA level and 3.6% at the EBIT level. Higher depreciation and amortization is driven by the new DC and Chaganina, as you would have seen in the second half of last year, as well as the amortization of superior customer contracts and right-of-use assets. EBIT growth was 6.1%, excluding one-sort strategy and integration costs. EBIT margins were up 10 basis points on the back of an improved product mix away from tobacco and an increased contribution from food service and convenience, even including those one-sort costs. The liquor market has been described as lumpy in the half, with the weather in New South Wales not helping things, and is also characterized by an increased retail competitive intensity that we had expected. The IBA and ALM contract retail customers continue to deliver a competitive, relevant, and convenient offer that differentiates them in the market and has allowed them to continue to take market share from their more formal competitors. It's pleasing that we've seen an acceleration of sales to on-premise customers too. There have been several key wins with our customers in this half in the renewal of the LiquorStax contract and the conversion of the Red Cape Group from contract to the IBA banner group, which are standouts, and reflect the confidence that those important partners have in our ability to help them win in the market. In terms of key strategic initiatives, the Platinum Growth Program continues to deliver results and we've recently completed the acquisition of Steve's Liquor Warehouse Group, and these sales and earnings will be included from the second half. I spoke earlier about Sorted, which is now live across all ALM states, except New South Wales and Queensland, which will be transitioning in January next year. Earnings are impacted by $1.5 million of once-off integration and strategy costs, flat sales volumes in a declining market, inflationary cost pressures not offset by volume growth, margin pressure in low inflationary environment, and DNA related to the Chaganina DC and digital investments in our supply chain. We're responding in all areas, including through disciplined cost and productivity programs, continued IBA growth, winning share of shopper wallets in the retail market, and bringing more suppliers into the network. EBITDA is a proxy for cash earnings. Excluding one sort of cost shows a very small decline and highlights the impact of the steps we've taken. I'm pleased with how the team has both managed costs and still gained share in challenging trading conditions. During the half, we announced the merger of the Independent Hardware Group and Total Tools to form the Total Tools and Hardware Group. I'm pleased and grateful for the way in which our team members have continued to deliver for their customers through these changes. They've continued to operate with discipline and trade with hunger in difficult markets and times of change. In our business, we prize the ability to hustle, and these teams have certainly done this. As you can see, both hardware and total tools are in growth, and this has accelerated in the second quarter. It's pleasing to note that building supplies, builders' hardware, and timber are categories that are now in growth, and that total tools delivered growth in all three of their key models, franchise, exclusive brands, and retail store sales. Earnings in the pillar are most impacted by trading conditions in Victoria, New South Wales, and Tasmania. Again, you'll be interested in what actions were taken. We have a high caliber leadership team in place and continue to refine our offer through range and pricing reviews in both hardware and tools to meet the needs of our core trade and professional customer in both businesses. Mitre 10's low prices nailed down promotional program is now well settled and delivering pleasing results. We've refocused our private and exclusive brands program and we see more upside here. The cost-off programs that have been in place for a few years remain, and we continue to balance this with making sure we have the capacity to serve our customers. We're also seeing that some of the improved market trends were sustained into the half, and I'm pleased that housing starts have now returned to growth at a national level, with sustained strength in WA, South Australia and Queensland. The Frame and Trust pipeline is full in Queensland and building in other states. EBITDA, excluding one-sort costs, was up 2.5%, underpinned by the improved sales performance. I'm particularly pleased that excluding these one-sort costs, the business returned to positive EBIT growth and leverage in the second quarter. I'll now hand over to Deepa for her financial review.

Thank you, Doug, and good morning, everyone. I'll start by presenting a high-level overview of the financial performance for the first half. Disciplined execution continues to drive strong cash generation and sustained profitability, despite the ongoing market pressures. Maintaining robust operational and financial management remains central to the strategic framework, ensuring we are well positioned to adapt to changing external conditions. The group's robust cash performance is evidenced by a three-year rolling cash realisation ratio of 106%. Given the timing and seasonal effects of period-end CRR results, the three-year rolling measure remains the most meaningful indicator. While certain working capital timing differences are anticipated to reverse in the second half of the year, we project that the three-year CRR will remain at the upper end of the previously guided range of 80% to 90% by year-end. Balance sheet flexibility is maintained, with the debt leverage ratio positioned at the low end of the guided range of 1 to 1.75 times. As Doug mentioned, the Board has declared a final dividend of 8.5 cents per share, reflecting a moderate increase against the annual target payout ratio. The dividend reinvestment plan remains in place, with no discount applied. The row fee at 20% reflects the short-term impact of business acquisitions, ongoing investment in long-term enablers, as well as the softer earnings. Turning to capital management, this half's outcome reflects a consistent and disciplined application of the capital management framework. The operating cash flow for the half amounted to $262 million, underpinned by effective cost control and diligent working capital management. Capital expenditure and M&A investments amounted to $104 million, with a portion allocated to the acquisition of Steve's Liquor. The remaining funds were allocated towards reinforcing core business operations and advancing key priorities, including technology upgrades, network expansion, and growth initiatives. The year-on-year variance mainly reflects last year's $400 million investment in business acquisitions, most notably the purchase of Superior Foods. The $126 million decrease in net debt primarily reflects robust operating cash flows and timing of investments as the business continuously evaluate potential investment opportunities. The interim dividend of 8.5 cents per share reflects a payout ratio of approximately 74% underlying impact. The key dates for the dividend and DRP are provided in the appendix section of the presentation. The moderation of ROFI was expected, and as mentioned, is primarily due to the short-term impact of business acquisitions, continued investment in long-term enablers such as technology and supply chain, and a softer trading environment. This slide provides an overview of the group's P&L performance and other key financial highlights. Revenue and EBITDA have remained steady, supported by a diversified business model. Excluding tobacco, revenue growth has been achieved across all pillars. EBITDA growth is reflective of solid underlying cash generation and operating leverage within the group. The depreciation and amortization for the first half of FY26 is in line with the second half of the prior year. The increase relative to the first half in the prior year reflects the addition of new assets such as the Traganina DC, which became operational mid-period in the prior year. Additional uplift also arose from the Superior Foods acquisition and new leases, noting that Superior Foods was only consolidated for five months in the first half of last year. As highlighted at the year end, the finalization of the Superior Foods purchase price allocation in the second half of FY25 also increased customer-related amortization. Notwithstanding the increase in depreciation and amortization, EBIT before strategy and integration costs reflects a modest year-on-year improvement and underscores the company's continued emphasis on cost management as well as operational efficiencies. The net finance cost for the half amounted to $60.1 million. The year-on-year increase is attributable to the timing of the Superior Foods acquisition during the first half of last year. Looking ahead, we anticipate the higher average debt utilization in the second half, which will align with peak trading periods as well as planned investment activities. Assuming interest rates remain unchanged in the second half, we expect the full year finance costs to remain in line with previous guidance of between $120 and $125 million. Significant items are of the same nature as those disclosed in the prior years, and further details are available on the slide as well as in the financial report. The year-on-year change in underlying EPS at 11.5 cents is largely attributable to the one-off integration and strategic costs which are reflected within EBIT. Excluding these costs, underlying EPS is broadly in line with the prior year. Strong operating cash flows combined with considered capital investments reflect Metcash's disciplined approach to cash management, enabling ongoing expansion and growth while preserving the group's financial resilience. Capital expenditure continues to be carefully evaluated in line with our capital management framework. FY26 capital expenditure, excluding acquisitions, is expected to remain in line with previous guidance of approximately $200 million. As in the prior years, we will provide future CapEx guidance at the year end. The group retains balance sheet flexibility and remains well within the parameters of its capital management framework. Networking capital closed at $430 million, with the increase in inventory levels supported by favorable supplier funding ratios. The increase in inventory was primarily driven by the strategic uplift in tobacco stock, which is fully funded through accounts payable and supplier trade finance at no cost to Metcash. Average working capital days remain low at 13.2 days, reflecting our ongoing focus on working capital efficiency and performance. Metcash maintains a healthy, well-balanced and carefully managed debt maturity profile with total facilities of $1.56 billion. Undrawn facilities of approximately $860 million provide the flexibility required to manage net working capital fluctuations throughout the year, both intramonth as well as seasonally. Closing net debt was approximately $600 million, resulting in a DLR of 1 times, which is in line with our target range of 1 to 1.75 times. Given the fluctuation in net working capital throughout the year, closing net debt should not be viewed in isolation. Therefore, in line with previous reporting periods, we've again shared the average net debt position to offer a clearer picture of our financial leverage. The average net debt during the first half was approximately $800 million, remaining generally consistent with the preceding two reporting periods. This corresponds to a DLR of 1.32 times. The weighted average debt maturity is at 3.2 years. The facility maturities are strategically staggered within our syndicated structure, enhancing resilience throughout business cycles. The weighted average cost of debt is lower than the prior year, benefiting from the RBA interest rate cuts earlier this year. $295 million remains hedged at a favorable rate of 3.69%. In conclusion, our balance sheet remains strong, with leverage well within target parameters. Our cash-focused culture continues to deliver, with operating cash outperforming expectations and working capital discipline remaining a hallmark of our approach. I'll now hand back to Doug for the group trading update and outlook.

Thanks, Deepa. Growth momentum excluding tobacco has continued into the second half of FY26. We're seeing an uplift in growth rates across supermarkets and total tools, with broadly sustained performance in food service and convenience, hardware and liquor. In supermarkets, the business has maintained its competitive edge despite heightened price competition. The increased growth rate observed in Q2 has continued, driven by our differentiated and localized offer, as well as the success of the extra specials promotional program in large stores. Strong growth continues in Campbell's and Convenience, supported by investments in the sorted order portal and distribution center upgrades. These initiatives underpin our leading position in the petrol and convenience market. Notably, we've secured more large P&C customers as part of our tobacco mitigation strategy, with the tobacco supply to BP commencing mid-December and representing approximately $60 million per annum. In Superior, sales growth remains robust, buoyed by customer expansion, including the Coffee Club contract win, which began in late October and is valued around $55 million per year. Liquor sales are flat to start the half, reflecting the effectiveness of the multi-channel strategy in a challenging market. We've seen accelerated sales to on-premise customers, while sales to IVA and contract customers in Australia reflect that more subdued market. The total tools and hardware group sales growth has strengthened compared to the improved first half, with total tools showing particularly strong underlying growth. This is a tribute to improved operational performance, an earlier start to Black Friday promotions and continued store growth. In hardware, growth has been sustained in the subdued market thanks to strong execution. We're also seeing early signs of market recovery. The frame and trust pipeline, as I noted, remains at capacity in Queensland and is building in other states. While this is only a four-week period, the start to the second half has been pleasing and we're planning for positive sales momentum for the remainder of the half. The business is well positioned due to an increased diversity and resilience and with a continued focus on disciplined execution of our strategy. Before I hand to the operator, I do want to make a comment on Horizon and I'm recognizing that we are in this unique situation of not all the appendices in your hands. There's been an immaterial increase in the total investment over the full life of the program And some savings that we've made in the last 18 months, which will be spent and invested over the next 12. But as I say, a very, very small, I'd call it immaterial increase, which I think is a strong result. All right, I'll now hand over to the operator who will take questions.

As a reminder, to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. Our first question comes from Andrew Lemme from Citi. Please go ahead.

Good morning, Doug, Peter and team. Look, I had a question on liquor. It's really good, obviously, to see share gains in what is a very tough market. Obviously, your competitors are trying to address their share losses and it has gotten more competitive. Are you planning to support your retail partners to hold share? And if so, should we expect further margin decline, please?

Yeah, thanks Adrian. I'll make a few comments and then I'll invite Carly to make some comments about the market and our plans. I think what you've seen, as I noted, is that the earnings pressure is fundamentally a function that you've seen in all of our competitors of a much lower inflation environment and flat volume in our business, which means that absorbing and offsetting CODB inflation is just that much more difficult. Absolutely. You've heard me say, and I think you're probably all sick of hearing me say, that our flywheel is the most important thing for us. And making sure that we keep our retailers competitive is how we keep that flywheel spinning. That said, we haven't invested over and above. in pricing for our retailers. Those are the programs that are in place. And so that margin compression is not because we're giving away more margin to them. It's because of the relationship between volume and inflation. I'll invite Kylie to make a few comments about the market generally.

Yeah, I will thank you for the question and I would echo Doug's comments that our margin impact isn't as a result of upgrading, increasing pricing activity in the market. In fact, our investment in our network is around improving that shopper proposition, the quality of that experience and the quality of those programs in partnership with our suppliers. We are the second largest customer for most of our supplies. And in fact, in some categories, we're actually the number one customer for the largest supplies in the market. So that partnership without investing over and above in price and resulting in market share gains, I think speaks to longstanding quality and the service proposition.

Thank you very much, Doug and Kylie. That's very helpful. If I may, I'll ask just a second question, just more broadly on the strategy costs that have been incurred this year, mostly in the first half. Can you just confirm, yeah, you are not planning to incur those costs in 27, and now that the work's mostly been completed, what do you see as being the benefits of this investment, please?

Yeah, so I'll make two points there. The first is that we told you that we were looking at $12 million for the year of integration and strategy costs. We've incurred 8.3 in total, and so you can do the math. There will still be some in the second half, and I can confirm that we don't see any more coming in the following year. I do want to just reassure that the bulk of those costs are in integration costs.

Right. Okay. Okay. Thanks very much, Doug. Thank you.

Thank you. Just a moment for our next question, please. Next, we have Craig Wolford from MSD Marquis. Please go ahead.

Good morning, Doug. Just two questions back in. The first one, just on your total tools performance, it does look quite a strong period. I'm just wrestling with how you want us to interpret 9.8% versus, say, a trend of 3% to 4% in the first half, 26%. How much do you think is Black Friday? How much is an underlying consumer? What would you say about the competitive environment in the bulls segment?

Yeah, sure. I'll make a couple of comments and then invite Scott to add, hopefully not correct. So we have had – we're cycling new stores and we've had a few more stores. Black Friday, when we talk about going early on Black Friday, that was our competitors who went early and we responded. I'm really pleased and grateful for the way that the team responded quickly and with precision. And we're very comfortable with that. It's very difficult, Craig, you'll know, to attribute how much of it is to a particular promotion. And just remember, it's four weeks. But certainly, I think that the underlying trend is strong. And we did point to a strong second quarter as well. Scotty, you want to add anything?

No, I think that's broadly right, Doug. And Craig, look, if you look at the growth for the half in total, we only added three stores. We're quite happy with the underlying performance and we are working really hard with our customers. So where you've got our loyalty programs, we're very focused on our direct engagement with them and running the right promotions at the right time. So there's been a lot of work in resetting range and repositioning ourselves.

Okay, thank you. And you just talked right at the start of the presentation, Doug, you talked about the independence in healthy shape and also looking to be more involved in retail in food and liquor. What exactly does that mean? Is there any examples you can give us of what you've done or what you would like to do?

Yes, I mean, I can be very specific about what it means is that, and we've told you guys this before, that we see ourselves owning retail stores in the future. We're very cautious about how we deploy that capital. We're not going to overpay. I mean, obviously I won't talk to any specifics, discussions or engagements that we've had, but other than that that we've closed, which is Steve's thicker warehouse, you know, $50-odd million of turnover and $3 to $4 million of EBIT. You know, that's what it means, and, you know, we're in progress.

Okay. Thank you. Thank you.

Thank you. Just a moment for our next question please. Next we have David Errington from Bank of America. Please go ahead.

Morning Doug. Doug, just a quick clarification before I ask my questions. I've been asked, an email came through and I must admit it's to Adrian's question. about the recurrence of the restructuring costs in 27. You said that you wouldn't get an increase. Could you just clarify what you meant by that? In other words, will those restructuring costs of $10 million or so disappear or will they just stay flat into the foreseeable future? If you could just clarify that before I ask my next question, that would be great.

Yes, I'm sorry I wasn't clear. They will disappear. We do not expect them to recur.

Right, excellent. So that's a $10 million tailwind in 27. Thanks. I think that was important to clear up, Doug, so thank you for that. Doug, one of the attractions of this result for me was the performance of Campbell's and convenience, the performance there. And I must admit, it snuck under the radar for me, and if you could take a minute to go through some of your commentary in the release where you say, the acceleration and growth continue to be underpinned by the business's new growth strategy, which has positioned it as the leading supplier in the sector, supplying all major petrol and convenience operators. I mean, it's a pretty big increase, like $50 million first half sales growth. It's really quite meaningful now. So could you go into saying, what is it that you're doing differently now compared to what you were doing previously that's actually seeing some really chunky sales growth here I mean, I know Superior is doing very well. I get that, you know, new contracts and whatnot. But this convenience business has sort of like crept up on me. And I must admit, if you could spend a couple of minutes elaborating what your new strategy has been and going forward, that would be wonderful.

Thank you. Sure, Dave. Not much sneaks up on you, so I don't know if that's a good thing or not. So, yeah, thanks, and thanks for calling it out. I'm going to invite Grant to make some comments, but just remind you that we're still in the, you know, what is the word, annualizing the MPOL contract. But, you know, Grant's the leader of the business, and I'll invite him to talk about the strategy.

Thanks, Doug. Thanks, David, for your question. As you know, we commenced supplying Ampol in February. It ramped up through the course of February, so you've got six months now in the result of full supply. At the time we won that contract, which was over a year ago, we talked about around a $70 million annualised total. It looks like it's going to be a bit more than that, which we're pretty happy with. And I think beyond that obvious upside is we're growing really well with most of our large customers in petrol convenience. And why is that? Well, we've worked hard to be a partner to that industry. It's not a side gig for us. As a wholesaler, it's the main game. So investing in our assorted platform where many of them place their orders, investing in DCs, upgrading the DCs. Obviously, you're well aware of Truganina last year, but we're also upgrading in WA. We've been able to shift some volume around to support the superior business, create capacity for them to grow. So moving QSR volume into Truganina, moving QSR volume into Canningville early in the year has created the capacity for Winslight Coffee Club. It's a good example of the benefits that we're getting of putting the businesses together as a new food service and convenience business. So there's a number of factors, but really it's being a great partner and that's our aim. We've even won a couple of awards from our customers through the course of the half, which we're really happy with. But I believe that there's ongoing opportunity for us in that space.

Yeah, that was where I was going. Is there more upside, do you think, or is there more wins out there for you in the near term?

Yeah, well, we're working with all of the big players in petrol and convenience now, but we're not supplying any of them with all of their needs, so there's a share of wallet opportunity that remains, and we're actively competing and participating in tender processes and looking to build on the wins that we've had, and obviously the key to that is providing good service to our customers and good value to So, yes, I think there is opportunity, but it's a competitive market as well, and we've had a few wins at the expense of competitors, and you don't expect them to stand still in the future.

Okay. And, Doug, can I finish off? Look, you mentioned Horizon. I remember your strategy day, you know, it got a lot of press. This would have been over a year ago now, I suppose. It got a lot of press. You seem to be on top of it now, and now we've got a line of sight. It's going to be coming on live in about a year. Are you confident that it's going to come on without much of a hitch or is it something that we as investors should keep at the back of our minds? It seemed to be on your comments you're a little bit more comfortable now than what you might have been a year ago, but can you give us a bit of flavour as to where your feelings are toward this major project when it comes on?

Yeah, sure. Thanks for the opportunity. There's a couple of things I'll say, and I'll start with the fact that, as I always say, it's a large and complex program. I do want to quote our COO, Neil Whiting, who always reminds us that the system will be tested. We just want to make sure it's by us and not by the users. And so we're very focused on making sure that what is being built is of a high quality. I said maybe a year, maybe it was a year and a half ago, I think it was a year ago, I spoke about this idea of as we move through the program, we'll essentially buy down the risk And what that means is that as you go through specific milestones, you kind of tuck those to bed and the risk diminishes. It doesn't go away. The completion of the solution build was a significant milestone for us and one that was completed on time and actually well on budget, slightly better. I referenced some savings that we've had. And so all of that does give you confidence. But I want to be very clear, this is no means easy, and it's not yet done. So, you know, we are very focused. We're in the phase where the business is very engaged with the program, and they have their hands on it. And you can never really be sure what will come out of testing, but so far so good. So, you know, my confidence grows with each passing milestone. Sorry, the one last thing I'd say is I think we've done a very good job, the team have done a very good job of managing the costs, what we call the burn rate. And that's why, as I pointed to the fact that the costs in the next 12 months are slightly higher than we showed, but that's because we've actually had a lower burn rate leading up to it, as well as that small increase in the total overall spend. We have also engaged now with customers and suppliers to talk to them about our deployment plans. So, you know, stuff is very real for us.

It just seems a little bit more optimistic today than what it was about 12 months ago. And there's a line of sight for it now. So, yeah, that's why my question. But thank you, and hopefully it goes well. And good cash realisation too, Deepa. That wasn't lost as well. So thanks very much for your answers.

Thanks, David. Thank you. Just a moment for our next question please. Next we have Brian Raymond from JP Morgan. Please go ahead.

Good morning Dr Deepa. The first one is just on this extra specials program that's in I think 75 going to 95 stores within the food business. Started during September. Just wondering if that is meaningful enough to move the dial for, say, the acceleration into the trading update over November? And then just the second part of that question, is this how it's funded between supplier, wholesaler, retailer in general terms?

Hey, Brian, thanks for the questions. Yeah, I'll let Grant talk to the details of it. I do want to say, though, that the business is made up of many, many moving parts and an enormous amount of effort across many programs. And so, as always, pinning results on one intervention is dangerous. But I'm confident Grant is going to tell you that it is making a difference.

Yeah, thanks, Doug. Thanks, Brian, for the question. You're right, it started just after the AGM. We announced it there. We started with 75 stores. It's increased to 95 recently, and we think that'll grow again in the new year. Obviously, the 95 stores that it's in today are 95 of our biggest stores, and therefore their contribution to the overall network sales number is disproportionately high. So I can tell you that... The program is delivering strong results to the retailers. They're getting roughly double the sales growth rate than the rest of the network and it's good for us as a wholesaler as well and it's growing our wholesale sales too. So we see value in it. Obviously, it's about delivering great value to shoppers. The specials themselves are better than market pricing. And it's really good to put IGA in that light of really being very, very competitive. And it builds on our large group of stores where we've done exceptional work over the last few years in getting them to a really competitive position and where their shelf prices, as Doug called out earlier, are now below Coles and Woolworths in many cases. In terms of how it's funded, like everything we do, it's a combination of supplier support. Suppliers continue to be supportive of independence, and they want independence to succeed. Our retailers, of course, invest margin in promotions to drive results, and Metcash also has invested in this through the course of the half. It's embedded within our results. We're very careful about our price investment. You see price matches, the single biggest part of that. We always make some other investments around that, and it's within the bounds of normal for us. But it's very targeted investment. I'm very pleased with the results.

Okay, that's fantastic. And then just a second one for me is just on employee costs. I was a bit surprised. I'm going to look through the detail that we do have at this stage. It looked like about 8% employee cost growth over the period, sort of two times wage inflation, 9% lots of moving parts in the business, and I feel there's some JV growth. contribution to that in stores that have converted and other elements, but it just seems like a very high number compared to your sales growth and compared to wage growth. So is there sort of a simple explanation, maybe one for Debra, in terms of how that might have come through?

No, I mean, we're a large and complex business, Brian, so there isn't one simple explanation. The part of it is superior. There's additional costs because we had an additional month as well as some of the other small acquisitions we've made. There is also a high, what do you call it, accrual of short-term incentives than there was last year, and natural CPI increases. I'm sure you'll be aware that, you know, certainly in the bargaining space, there's quite a lot of pressure. So there's a number of contributing factors. Yeah. Okay. Thanks. Thank you.

Thank you. Next comes from Sean Cousins from UBS. Please go ahead. Sean Cousins from UBS. Just a moment for our next question, please. Next we have Caleb Wheatley from Macquarie. Please go ahead.

Good morning, Doug, Deepa and team. Just to follow up on the IGA network, it sounds like an extra specialist is doing quite well. Can you talk to where you're seeing average price index now across the network relative to the sector? Any comments you can make on other initiatives being considered to drive market share, please?

Yep, I can answer that. The price index, we've never shared the exact number of the price index, but we've described over the last five years continuous improvement. That continues to be the case in all channels, so small, large and medium-sized stores all continue to improve. What I'm particularly pleased about is year on year, our price index is flat. So in a market that's clearly become more competitive, we've held that position. And through programs like Extra Specials, in particular stores, we've obviously improved the position So it's an ongoing process. It's the sum of many parts. So it's a combination of shelf prices, the promotional program that we run, and it's a weighted average measure of price paid looking backwards. So it compares the average price paid in IGA to price paid in the chains. And then beyond that, other factors for performance in the network, obviously store numbers. You can see we're continuing to open stores in our sweet spot, medium-sized stores, which is healthy. We also continue to move stores out of IGA and into other banners where they're unwilling or unable to meet the channel standards we set for IGA. We keep raising those standards along the way. working with retailers, and there are some stores that simply don't fit into the network anymore. And as they move out of IGA, they continue generally to be Metcash wholesale customers, but they do drop out of the Metcash or the IGA market share rate. But we think that's better because having that strong cohort of very good execution stores is what allows us to work with suppliers to get additional investment in things like high-compete extra specials.

That's clear. Thank you. And just a second one, if I could, just on margins in hardware. Appreciate the comments, Doug, on the one-offs and those rolling out as we go into next year. But you've also noted retail margin pressures in the release. Just keen to understand what you're seeing on that retail margin pressure front and including... the implications of some of the comments you made on Black Friday starting a bit earlier. New competitors set there as well, please.

Yeah, sure, Caleb. Happy to comment on those. I think it's important, firstly, when you're talking about the hardware business and we say retail, what we really mean, you know, they trade distribution sites that we own in the main. And so they trade, they negotiate and make prices with their customers very often. And so that's where you're seeing that competitive intensity increase. and margin pressure coming through. We're very comfortable that our teams are balancing that well. I know Scott and his team have got a huge focus on driving sustainable sales growth. In total tools, the retail sales margins have been a little steadier. In terms of Black Friday, I think I've kind of said it all. It was the market that moved earlier than they have in the past. We were alive and waiting for it, and I think we responded very well. I know Scott and the team are comfortable. And, you know, let's see how we trade. Black Friday itself has just finished, but let's see how we trade the next few weeks of the half.

Great. Thanks very much, Peter.

Thank you. Just a moment for our next question, please. Next, we have Ben from Jarden. Your line is now open.

Just the first one, just on hardware, just came to dig into a little bit in terms of comments around seeing green shoots. Obviously the total tools update was stronger. Could you talk to outside of Queensland where the order book's obviously pretty full for the Broman Trust, how you're seeing the order book more broadly? Are you seeing lengthening of it? Are you seeing sort of some improvement growth there and Then also, Scott, just be interested in just that very strong like-to-like update for Total Tools in the first four weeks. Is there anything funny or unusual in that, or do you think that could be the beginning of a bit of a trend?

Hey, Ben, the line's not that great, so we're going to answer the question, but if we miss something, then please prompt us again. We'll answer what we thought we heard. Scotty? Thank you.

Yeah, thanks, Ben. Appreciate it. Look, I... For us, the first part of the question around hardware and performance, I think we called out the differences by state. Where we are seeing greater challenges, definitely Victoria, TAS and then New South Wales. If you look at the national approval starts, there is an uptick, which gives us some confidence. There's some green shoots there. There is still those structural challenges around trades that are meaning completions are prolonged. But for us, we are trading, I think, well and out there hunting business, as Doug said, but the market's competitive. So if you want to – we don't normally give a split by market, but Victoria, where we have a higher share of our own network, is a drag for us. The other part of your question around tools, and like I think we've called out, it's a four-week period. The half growth in the network has been strong. We're working hard to have the right promotions at the right time. We're really pleased with that month performance being really targeted with our customer engagement and having the right promotions. So again, it's a very short period. I wouldn't I don't think I can add more commentary than that.

My second question. The market's got a pretty material lift in the rate of margin expansion for hardware into fiscal 27. I appreciate we're sort of looking at the crystal ball here and we're not going to get guidance for 27, but could you just give us a bit of an understanding or feeling for how you feel that leverage can run through this business as the cycle turns? Because we haven't really seen an upcycle in the business in its current form, do you think that the cost base is largely embedded with the business now, so improving top line should drive decent leverage for the P&L? If it's more trade-driven, is it diluted? Could you give us a few sort of, I suppose, sort of things about how you think about the market construct as the cycle starts to tick up?

Ben, I'll take a crack at that. You know, we obviously have to be cautious about any forward guidance, and I'm not going to do that because I just can't. But our plans and strategies are designed in such a way that as volume lifts, we're able to take advantage of that. I don't think it should be lost on anybody that while volume may be subdued and has been for a while now, cost inflation has continued to grow. It doesn't go away. And that is what we've been managing very carefully, and it's very, very difficult to offset it in a business that has relatively high fixed costs, like particularly trade distribution businesses do. And so we've been working very, very hard to stay in one place. The flip side, mathematically, should happen as well as volume lifts. Now, we're very focused on making sure that we don't somehow feed into the volume pressures by taking out so many costs that we're unable to serve our customers and it's a very live issue that the team manage on a site-by-site basis. So, you know, I think that's the best we can give you now. You know, I'll sum it up by saying our plans and strategies are designed to deliver leverage. And remember, I did say that if you take away the second quarter integration and strategy costs, we did achieve positive leverage in the second quarter. I mean, it's only one quarter, but we did achieve it. That's helpful. Thanks, guys. Appreciate it.

Thank you. Just a moment for our next question, please. Next, we have Sean Cousins from UBS. Please go ahead.

Hi, good morning. Can you hear me now? Yeah, we got you loud and clear. Yeah, apologies about before. Maybe just regarding the food business and just curious to understand how you're handling the contagion of the tobacco weakness since the 1st of July on the broader food business. Do you think you can... Should we just see an annualisation of what looks like sort of weaker sales growth? And I'm not sure... I'm just trying to work through your presentation materials if you've provided what like-for-like is maybe on that second quarter period, but it looks sort of as though there's been somewhat of a step down there. So should we anticipate that the weakness that you've seen say since the 1st of July in food, that that continues on or can you do better and actually improve that and maybe just further to IGA, just how do you think your price perception is relative to the price reductions that you've spoken about before in your leading stores?

Yeah, I mean, we don't generally give you quarter by quarter for everything, but we did call out that particularly talking about the extra specials program, actually supermarkets growth recovered a bit in the second quarter. But I'll let Grant talk about the actions and initiatives we're taking to, I like your word, defend against the contagion.

Hey Sean, thanks for the question. As you say, since the beginning of July, we've seen a significant step down in tobacco, even from a declining market before that, as more and more of the sales pushed into the illegal market. There is obviously a loss of tobacco sales. On top of that, you lose the associated product sales, the products that would have been bought in the same transaction. And that is definitely a drag on the network. And we called that out as we see that. But the drop down in July was a little bit more significant than we expected initially. Our objective is to grow the whole store. We've been working very hard with retailers both on a competitive front which I think we've covered already. We see things like Chobani coming into our DCs through the course of the half. That is good not just for Metcash but good for the network because Chobani and our Our distribution model means, you know, more stores getting more frequent deliveries, better in stock position, and a significant improvement in our competitive position there. There are other suppliers continuing to come in. So Monde Nissen, with the rest of their products, came in just at the end of the beginning of the second half. And there's more products like that in the pipeline. We work hard on that competitive position. We've talked about the extra specials, but improving across all of the store network. How do people perceive that? That's a much harder thing to change. It takes time, but I think if we're doing the right things, we're calling out those extra specials. Very active in digital marketing, we've really seen a shift there. of our marketing focus from printed walked catalogues increasingly to digital means and that allows us to increase our reach and reach more people with that message. So it takes time to shift perception but we are doing all the right things and I'm confident that over time that will continue to improve. So I think you can expect that step down in tobacco to continue until it cycles out at the end of June. We are seeing some positive signs on enforcement, as Doug touched on earlier, and we continue to advocate for the network because we can see the impact that it has, particularly on our customers in the tobacco law. So we've been very actively advocating for improved enforcement measures, and we're pleased to see some evidence of that happening now.

Great. Thank you. And maybe just a question within the hardware division. Have you split out the total tools and IHG hardware EBIT?

Sean, we split out the – no, we don't split out the EBIT. We split out the retail sales, as we said we would. You'll see that in the appendix. I'm just paging to it. So we'll give you sales between the two, and we'll split out own stores and third-party sales, and then we give you total EBITDA and EBIT.

So you're no longer telling us what total tools and IHG EBIT is respectively?

No, and remember I told you that we weren't going to be able to do that because we have now started combining a number of functions. So I told you that at year end.

Yep. Okay. Maybe just one quick question on disclosure going forward. You've spoken about a change to a different revenue model by way of sort of being a wholesaler, food service retailer, franchisable model. Is there an intention to sort of maybe think about disclosing earnings on that basis, just given that that can help shift the way of thinking from the investment community if we have some earnings on that with some history, please?

Yes, we are thinking about how to do that. Your words are ringing in my ears from the last time we discussed this and you made your point well. As you've seen, we've given you some more information this time around. We need to think carefully about being very helpful and accurate in the way we attribute earnings. We won't be able to do it at the EBIT level. because there's a whole lot of costs that are not attributable between them. So not this time around, Sean. I think you'll see some movements when we talk to the market in March at our investor day next year and at year end. Fantastic. Thank you. Thanks.

Thank you. Just a moment for our next question, please. Next, we have Phil Kimber from EMP Capital. Please go ahead.

Hey, Doug. My first question is just on the food business. You guys are doing a great job there and you've talked about some sales momentum. Just trying to understand from your customers' perspective, you know, with, you know, such a big fall in tobacco, is it having a more material impact on their profitability than it seems to be on your profitability or are they managing it well like you are?

Thanks, Phil. I'll take that. Yes, it undoubtedly is having a bigger impact on our customers' profitability. I think we've said consistently over the years that our margin on tobacco is considerably lower than non-tobacco and that most of the profit made on tobacco is being made in the network. So you see that in other integrated retailers as well where they're calling out substantial drops in their tobacco income. The challenge for us is to replace that value in our customers' P&Ls. So we've been supporting them to drive growth. So it's pleasing to see that at a department level, Fresh is now bigger than tobacco for Metcash. And in retail, Fresh is growing strongly. Fresh is the biggest driver of store choice. Obviously, we talked about value a lot already, so I won't repeat that. But really focusing on getting the basics right across the store, macro space allocation, ranging, pricing, the promotional program that we run, high quality service, high quality fresh. All of those things help lift overall store performance and they're the things that we've been working on for some time with retailers but really accelerated in this period because everybody's seen the challenge of tobacco and it's really helping to galvanize the network around some initiatives to drive improvement in performance that will ultimately offset that tobacco challenge. And who knows, some of that tobacco business might come back.

Yeah, and then my second one just quickly was on, I think on the call it was mentioned that there was a strategic investment in tobacco and I just wanted to understand that given, you know, you also said that sales took a step down from the recent change. Why would you be making a strategic investment in the inventory in tobacco and is there a sort of one-off profit, you know, rebate benefit from that? Thanks.

Hey, Phil, I'll take that one. So as a wholesaler, we're always taking positions. And what we do is make sure that we're taking those positions in a responsible way ahead of price increases. And you'll also recall that at year end, we told you that we expected that the impact of the removal of the accelerated tobacco excise program will be around $5 million, we estimate, and that buy-in ahead of increase is part of our strategies to manage that, as well as all sorts of other things from retail media to all of the initiatives Grant spoke about. I just want to be clear, there's no profit recognized until the product is sold. And then the last point I want to make is that this is done in consultation and in partnership with our tobacco suppliers. And, you know, I've spoken for a while now, and so has Grant, about our strategic partnership with them as their chosen preferred route to market. We do this every year. This is entirely normal. And, you know, there is nothing unusual about it.

Okay, great. Thank you. Thanks, Doug.

Thank you.

Thank you. Just a moment for our next question, please. Next, we have Michael Simotas from Jefferies. Please go ahead.

Morning, everyone. First one from me on food, just fleshing out some of the topics that have been covered a little bit. There's a line in the release that the food retail market is the most competitive it has been in a number of years, and I think many would agree with that. Metcash has done a very good job of maintaining its underlying food margin since the rebase about 10 years ago, and then there's been some benefit from mixed shift away from tobacco, et cetera. Are you confident that you've got enough levers to pull and drivers to be able to continue to maintain margins on an underlying basis, notwithstanding the market continuing to become more competitive?

Hey, Michael. Before Grant comments specifically within food and the levers, everything I'll say is couched in we have plans and strategies designed to rather than we're going to, so please hear it that way. But at a high strategic level, we've spoken for a while now about the reduction in proportion of total food sales from IGA, and we've spoken about it being around 60%. And that's a function of us. obviously selling to other supermarket customers, but also growing our Campbell's and convenience business and the entry into the food service market. So the expansion of margins that you've seen is in part because of the shift away from tobacco, but it's also a higher contribution to earnings from the now combined food service and convenience business. I'll invite Grant to make some more specific comments.

Thanks, Michael. The short answer is yes, I think we have the levers. Over the last few years we've been carefully managing our costs to allow us to maintain a competitive position. Our costs to serve our customers. We've invested in DCs. We've put new automation in new DCs like Troganina, continuing to invest in systems, not just the core ERP system, which is well publicised, but all the systems around that that support better choices around ranging pricing promotions. All of that means that the efficiency of the work is good. I've talked already about high-quality execution. That drives a really neat flywheel in food and has been for the last five years of better execution, good supplier investment, better returns equals more good investment and more execution. And that's been working really nicely for us for a while and continues to be a driver of our competitive position and success there. So I think we have got it. I mean, it's a... It's an interesting market in that it's competitive. It's very competitive. But the investments that we've seen by others in the market, you know, we've been able to keep track of and match and build programs with suppliers, with retailers that keep us in a competitive position. And as I've already referenced on our measure of price paid, it's equivalent to what it was a year ago. So we've held that position very well.

Michael, you've heard me say in the past that expanding wholesale margins is not always the way to grow profits. We focus on spinning the flywheel faster and growing wholesale profit dollars in that way. But as we both, Grant and I, have touched on, there are other strategies and other revenue streams and business models that have a higher margin that will grow. if our plans are executed well and our strategies are successful, should support margin expansion.

Yeah, I think you've done a very good job on that. The second question I've got is on hardware. I think the ingredients for a recovery have been in place for a little while, but it's taking time for this to come through and you know, with the monetary policy backdrop potentially being a little bit less favourable as of the last few weeks. What do we need to see to get this business to really fire and maybe to give it a little bit more comfort? Can you talk about in markets like Queensland where you have seen pretty good demand, whether there has been more favourable pricing backdrop for some of the heavy building materials, frame and trusses?

production etc yeah so so what we really need to see I mean it's it's fairly simple is is a material uplift in in starts in actual activity you know we need we need tradies on site and and we need we need tradies confidence we need builders on site and building or renovating new homes so that's that's pretty simple in in what what will happen is that activity will uplift, but you're not going to be able to gain pricing power, if you like, or expand through pricing power until... capacity is used up. So there's still capacity in the market, and while that's there, us and our competitors are going to fight hard to utilize it. It's a bit trite now, but we're very focused on making our own weather. We're not waiting for the market to improve. We've taken very specific actions, which I think I've outlined today and in the past, that are designed to support our business.

And Michael, hey, Scott, nice to hear from you. And just as a build, I think we were asked the question earlier around leverage as well. Definitely now is the time for us to ensure that we come out of this period strongly. So being really clear that we lead in trade and being set up and organised the right way for that. And then just how we localise our formats, whether it be convenience or trade, and our range and pricing policies around that. So we're very focused on our execution right now of our offer, and as Doug has said, doing what we can to come out of this strongly.

Okay, thank you.

Thank you. Just a moment for our next question please. Next we have Richard Barwick from CLSA. Please go ahead.

Good morning Doug and team. Just a quick one, probably a question for Grant on IGA stores. I noticed that you opened 10 but close 9 through this half but you're planning to open 17 in the second half. Can you give us or do you have a view here as to what number of closures you'd also be expected in the second half and then a little bit longer dated, how should we be thinking about a net number of IGA stores if we look into next year as well please?

I don't have a number for anticipated closures in the second half. Sometimes these things happen quite quickly and they're not planned. When I look at the reasons for those closures, sometimes it's competitors acquiring stores or sites. I think we're on the record in our calls for stronger action on mergers and reform in that space, and that's come now. So we'll be interested to see whether that actually benefits us in stopping the chains from some of their acquisitions of sites and stores. Beyond that, we also have a bit of churn in the network. It's normal, particularly in small stores. They do open and close relatively frequently. Larger stores less. We're pleased with our pipeline. We've got a really strong pipeline of store growth for the remainder of the year. The planning that goes into opening a store obviously means you've got good visibility to coming forward, so we're confident in that number. And looking further, I'm confident in that number because we're really focused on stores in that sweet spot of around sort of 1,200, give or take 300. So 900 to 15 is what we think of as a sweet spot for new stores. Beyond that, as I mentioned, you do see stores moving out of the IGA brands. In terms of net number of stores in the IGA brand, it's sitting just under 1,250 now. I think we'll probably have a few more that exit as we continue to drive standards up. There's a few final stores to do that with. I'm hopeful that you'll also see some stores coming back in where people have decided that they aren't able to be an IGA. They leave, but then they see the benefits of being in that brand, and they'll come back over time.

Okay. And then, I mean, you sort of touched on it, I think, Grant, and maybe, Doug, this is a bigger one for you perhaps, but the ACCC has obviously changed some of its processes around acquisitions in terms of what's to be reported and the way that they go about it. I mean, are you hinting here that that's a positive impact for you in the sense of supermarkets? But I was also wondering if this might have been perhaps a bit of a negative impact for you in terms of your approach to bolt-on acquisitions especially within hardware. So I'd love to hear your thoughts there please.

Yeah, I mean, I'm not a lawyer, so you can take what I say with that caveat. The changes that are coming in early next year are around the notification regime and being more proactive about that and getting preclearance from the ACCC. What the ACCC haven't done is reverse the onus of proof. on the impact of the market, which is what we had hoped that they would do and have consistently asked for. because very high market share businesses should be able to demonstrate that their actions are not contrary to good competition. We will obviously, as you say, we will be subject to the new notification laws and we'll be ready to do that. That may add some time to everybody's process and it may therefore involve costs any time you've got legal teams involved on the clock it could cost money. So I think we'll all have to wait and see. But we feel comfortable that with our market positioning, we have the right to be confident that we'll be able to get those through. there's been a lot of activity towards the end of this year, as you can imagine, trying to get, say, deals over the line across the market. So let's wait and see what happens next year.

Okay. Thanks, Doug.

Thank you. Just a moment for the last question, please. Go ahead.

Morning, guys. Just a quick one. Can you just give us the superior EBIT contribution and then just an update on the synergies there? How are you tracking, please?

Hey, Tom. Yeah, you'll remember we said at year end, just like in hardware, we're not able to break it out specifically because we've merged so much of the business. So we've shown you the sales. We're on track with synergies. We feel comfortable that we'll meet the – the run rate of $14 million by the end of year two, which will be around June next year. I think what's important is the strategy of the food service and convenience, sorry, The results of our food service and convenience strategy are bearing out, and we're very happy with the performance of that business. As Grant said, we've moved products between distribution sites. We've integrated teams, and so it's just not possible to give you an individual number, but at a total level, we're very pleased, and you should take confidence from that.

Great. That's it for me. Thanks, Doug.

Thank you.

Thank you for all the questions. That concludes our Q&A session. I will now turn the conference back to Doug for closing remarks.

Thank you, operator. Thank you to the team. Thank you to all the listeners for your support and attention and for your questions. I also want to thank you for your patience on the call with the lack of the presentation. You know, it's not our doing and we're as frustrated as you are. We're liaising with the ASX and as soon as we've got their clearance that we can distribute the presentation, we'll make it available on our website. As it stands right now, the Chief Compliance Officer of ASX tells us that they're unable to give us estimated timing of when that issue will be resolved. So I can only apologize and thank you for your forbearance. And with that, I'll be seeing most of you later in the week. Looking forward to your engagements and just want to thank you all again for your time and attention this morning.