Woolworths Group Limited

Thank you for standing by and welcome to the Woolworths Group FY25 half-year earnings announcement. All participants are in a listen-only mode. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Amanda Bardwell, Managing Director and CEO of Woolworths Group. Please go ahead.

Good morning, everyone. Thank you for joining us today for Woolworths Group's half-year results for the 2025 financial year. I'd like to start by acknowledging the traditional custodians of the land on which we meet today, Dharong Country, and I pay my respects to elders past and present. Joining me this morning are Stephen Harrison, our Chief Financial Officer, Von Ingram, Managing Director of W Living, Dan Haig, Managing Director of Big W, Guy Brent, Managing Director of Woolworth Food Company, and Paul Harker, Chief Commercial Officer, Australian Food. Also joining me is Spencer Son, Managing Director, Woolworth New Zealand, who will be stepping down in the role at the end of March to take up an exciting opportunity at Woolworth Holdings in South Africa. Stepping into that role is Sally Copeland, who is also joining us today in her current capacity as Managing Director, Group EcomX. And finally, Annette Carantoni, who was recently appointed Managing Director of Woolworths Retail, also joins us in her current capacity as Chief Supply Chain Officer before officially stepping into her new role next month. The group's H1 results reflect the challenging half impacted by industrial action in Australian food and ongoing cost of living pressures for our customers, leading to more value-seeking behaviour and cross-shopping. Our customer scores for the half reflected these challenges. However, pleasingly, they rebounded in H2 as supply levels normalised and availability improved. Group sales for the half increased 3.7% or 2.5%, excluding the impact of pet stock. Excluding the impact of industrial action, underlying sales growth was solid, with e-commerce growth remaining strong. H1 Group EBIT declined 14.2% on the prior year to $1.45 billion, largely driven by Australian food, due to the impact of industrial action and incremental supply chain commissioning and dual running costs, as well as price and promotional investment and ongoing inflation in wage and other costs. I will cover our 2025 focus areas in more detail later in the presentation. but we know we have an opportunity to further improve the shopping experience for our customers and we are taking steps to simplify our business to make it easier for our teams to have the most impact and deliver efficiencies. We also know that we have an incredibly strong business but have more to do to unlock the full potential of the group. Work is underway to assess the shape of the group portfolio as well as ensuring that we're realising benefits and delivering returns from our investments. Turning to slide four. Importantly for our customers, food inflation has continued to moderate and household spend on food continues to decline as a proportion of overall spend. Average prices in Australian food business have now declined year on year for the fourth consecutive quarter, with food inflation low and stable. As shown by the chart on the right, the continued moderation across long life in the hearth was driven by key categories such as personal care, household care and baby needs as customers favoured promotions on products such as deodorants, paper towels and nappies. This helped offset some modest inflation across fresh as well as recycled more stable supply conditions in the prior year. Turning to slide five, despite food inflation stabilising, we know broader cost of living pressures continue to weigh heavily on our customers' household budgets. Customer behaviours in our food business have shifted rapidly in response to this pressure, as well as the increasing need for convenience in their busy lives. The importance of value has accelerated over recent years, which has led to increased levels of cross-shopping, particularly for our customer cohorts such as families and younger singles and couples that have told us they are under the most pressure. Based on our customer pulse survey, these cohorts have said they are cross-shopping substantially more since 2022. Online shopping is also increasingly a way to help manage budgets and unlock more convenience. Over 30% of all e-commerce orders are now fulfilled under two hours, which has more than doubled on the prior year, as we've continued to grow our convenience shopping propositions through direct to boot now and milk run. The culmination of these behaviours has resulted in a shift in customer transactions and baskets. Customers are shopping more frequently as evidenced by the increase in transactions over the last two years, particularly online. At the same time, customers are putting fewer items in their basket when they shop in our stores. While an online basket remains materially higher than an in-store basket, significant growth in our on-demand proposition is also contributing to smaller online baskets with an average of 15 products in a typical on-demand basket. We have also worked hard to deliver meaningful value to our customers as detailed on slide six. This included delivering more promotions with larger weekly savings complemented by more than 3,800 products on everyday low price and lower summer price programs. Work is also underway to simplify our promotion, including our red everyday low price programs and making our tickets easier to read for customers, with the next phase rolling out to our in-store shelf tickets today. In the current environment, the key sales events are becoming more important for customers, particularly Black Friday. In Big W, we responded to this by increasing the number of offers and value we provided, and through Big W Market, customers now have access to over 400,000 additional items. Members also unlocked even more value through Boost Your Budget campaigns in the period and made the most of their savings with record engagement for Bank for Christmas. Members redeem these points when it's needed most, including at Black Friday deals across the group or at their Christmas grocery shop. with each member banking approximately $100 worth of savings. Our digital tools also continue to play a critical role in helping customers plan their shop and manage their budgets. We now have approximately 2 million weekly average users of our digital shopping list and digital catalogue, which has increased 12% and 14% respectively compared to last year. This half, we also launched watch lists which notifies customers when their favourite products are on special, as well as the launch of savings summary on our rewards app for members so they can see where they've saved. Focusing now on the Australian food performance on slide seven. A number of challenges during the half led to a disappointing H1 result for Australian food, with EBIT declining 12.8% on the prior year. We had spoken previously about the rapid shift in customer behaviour we had been seeing since the beginning of the calendar year, and this accelerated in the half. Value-seeking behaviours such as a shift to lower-priced items, more deeply discounted specials, and trading into affordable own-brand options impacted growth margins in the half. Furthermore, the significant supply chain disruption caused by industrial action and broader reputational challenges faced during the year led to a decline in customer advocacy. During the industrial action, stock flow to stores was disrupted for 17 days in the lead-up to Christmas across Victoria, the ACT and some parts of New South Wales. Customers were impacted by inconsistent supply across product lines and a pause in e-commerce services as we managed the stock flow to stores. Our store teams worked hard to mitigate the impact to customers during the period and quickly responded when stock flow improved to get our stores into good shape for Christmas. We estimate that we lost $240 million of sales and EBIT was impacted by $95 million in the half, reflecting lost sales, additional transport and supply chain contingency costs and higher stock loss. Profit in the period was also impacted by wage increases of 4.25%, including superannuation, higher meat input costs, a higher cost of e-commerce mix of sales, and a modest increase in stock loss. While some of these challenges will continue into H2, I'll come back at the end and talk about our focus areas for 2025. Turning to slide eight. What is clear is that customers want more and more convenience every time they shop and our e-commerce and digital platforms are playing a critical role in meeting that need. We now have over 4 million weekly active users of our Woolworths and Everyday Rewards app as customers research online and complete their weekly shop with each growing by 18% and 9% respectively. supported by growing usage of digital tools such as shopping lists and digital catalogues. The Everyday Rewards app also maintained its top ranking among retail loyalty apps, reflecting the continued strength of the program. Our retail media business cartology had a strong half with 15.3% revenue growth as the business continued to scale its screen presence both in our stores, in shopping centres and online. the Everyday Rewards platform remains key to unlocking greater value for more than 12 million active members across Australia and New Zealand. The program was further bolstered in the half with the launch of Everyday Shop, which allows customers to use points to purchase marketplace items with more partners onboarded to give customers greater choice. In EcomX, sales increased 20% for the half, driven by strong growth in same-day, and on demand with 88% of our online orders fulfilled in less than 24 hours as we continue to grow our ultra convenient propositions. Turning to slide nine. The reach of our store network remains critical to our success. As of today, 83% of Australia's population are within less than a 10 minute drive to one of our stores. highlighting the incredibly important role our store network has in reaching our customers. We completed 34 renewals in the period to improve the in-store experience with five new store developments completed in the half. This includes new stores at Pacific Epping in Victoria and Belvidus North in WA, as well as our latest renewals in Ashfield, New South Wales, and our Metro store in Paddington, New South Wales. We're also focused on the experience within our stores, including front-of-store upgrades to improve the flow and give customers more space at self-checkouts, and continue to grow our direct-to-boot offer to support the fast-growing customer demand for same-day convenience. The next iteration of Scan & Go technology was also launched in 10 stores during the period, with the new digital trolley enabling customers to scan and bag items and track their spend as they shop. I am now on slide 10. Our New South Wales supply chain transformation reached an important milestone in the HARP with the official opening of our Moorbank National DC in November, and we are working towards achieving a full ramp-up at the site at the end of this calendar year. At the co-located regional DC, the automation installation has been completed and remains on schedule to go live by the end of the calendar year. Our fully automated CFC in Auburn also remains on schedule for launch this half after the successful completion of automation integration. Turning now to slide 11. New Zealand food sales momentum improved during the half with total sales increasing 2.7% in New Zealand dollars as transformation initiatives resonated with customers. A reset of value and improvements to our fresh offer led to value for money and fruit and veg customer metrics both increasing on the prior year. E-commerce sales growth increased 14.6% in H1 and penetration reached 14.4% driven by investment in convenient same-day delivery propositions including express pickup and delivery and milk run. I am now on slide 12. While Big W's financial performance during the half was below our expectations, we made good progress in repositioning our range to provide more value to customers through lower prices and more affordable options in store. While this helped to drive strong item growth despite the late arrival of spring-summer clothing range, sales were broadly flat on the prior year, reflecting lower average selling prices. Encouragingly, the new home range performed well and play and everyday categories were broadly flat on the prior year in very competitive sectors. We have clear priorities for the business in H2, including improving the execution of autumn-winter clothing range transition, continuing the product-led transformation in home and delivering more value and convenience through growing our own brand and marketplace offer. will also remain prudent on costs and continue to focus on becoming a lower cost operator. Lastly, on slide 13. Starting with safety, our total recordable injury frequency rate improved on S24, reducing by 3%. While the improvement in trend is pleasing, we remain keenly focused on mitigating risks related to manual handling and slips and trips. and are implementing targeted programs to further reduce these incidents. We also have done a lot of work to bolster our safety program under our group-wide safety promise, our place, we're safer together. And we received pleasing recognition in the half for our acts of violence virtual reality training at the National Safety Awards of Excellence, winning best training program. Our initiatives to reduce our scope one and two emissions resulted in a 12.5% reduction in H1 on our 2023 baseline, which was supported by our switch to renewable electricity. We know our customers want to see less plastic and we continue to make good progress in reducing plastic packaging further in the half by bringing the cumulative reduction to over 19,000 tonnes compared to our F18 baseline. The trial of soft plastic collection also expanded to 94 Woolworths supermarkets in the half. We plan to add more stores in the future as we continue to work collaboratively as part of the Soft Plastic Taskforce to develop a long-term solution. I'll now turn to Steve to talk to our financial results.

Thanks Amanda and good morning everybody. I'll start today on slide 16 with the half one F25 result summary for the group. Group sales for the half increased 3.7% to $35.9 billion, with sales growth in all operating segments. Excluding pet stock, which was acquired in January 2024, group sales increased by 2.5%. Group EBIT before significant items was $1.45 billion, a decrease of 14.2% compared to the prior year, primarily reflecting lower EBIT from Australian food and Big W and higher net costs in the other segment. This result does include a number of one-off impacts associated with the industrial actions and supply chain commissioning and dual running costs. When normalised for these impacts, earnings were down approximately 7% which I'll elaborate on in the following slide. Group NPAT attributable to equity holders for the parent entity before significant items was $739 million, a decrease of 20.6% reflecting lower group EBIT and higher finance costs in the half, somewhat offset by lower tax. Group basic EPS on the same basis declined 20.6% in line with lower group NPAT. Turn to slide 17 and our group trading performance. In Australian food, total sales for the half were $26.7 billion, an increase of 2.7%, benefiting from strong e-commerce sales growth of 20%, with solid trading momentum in Q1 somewhat offset by the supply chain disruption caused by industrial actions in Q2. Australian food sales momentum was positive through Q1 and October, but was adversely affected by the industrial action in November and December, which we estimate resulted in approximately $240 million of lost sales. Adjusting for this impact, sales growth would have been approximately 3.7%. Total Australian food EBIT declined 12.8% in the half, excluding the one-off impact of industrial action of approximately $95 million of EBIT impact, and supply chain commissioning and dual running costs, EBIT growth would have declined by approximately 5%. Outside of supply chain impacts, gross margin was impacted by livestock cost inflation in meat, customer shift towards lower priced items and more deeply discounted specials and a modest increase in stock loss. Wage increases, a shift in e-commerce mix, and higher depreciation and amortisation led to higher costs despite productivity measures partly mitigating inflationary pressures in the half. While we saw a decline in EBIT in Woolworths Food Retail, which is the combination of our stores and e-commerce business, Woolies X profitability increased by 24.8%, driven by strong sales growth and a positive contribution to earnings from cartology, rewards and our everyday services businesses across insurance and mobile, with the DAP and EBIT margin of 4% increasing 22 basis points compared to the prior year. Australian B2B sales for the half increased 5.5%, largely driven by B2B food, with PFD continuing to perform strongly across all channels. B2B EBIT increased by 9.9%, with growth driven by sales growth and a strong contribution from PC+, a third-party supply chain business. New Zealand food made good progress in the half, with sales growth of 2.7% in New Zealand dollars, with consistent growth in both quarters, supported by continued progress across a range of transformation initiatives. EBIT increased 15.2%, with EBIT margin rise in 21 basis points to 1.9%. In F25, we established a new reporting segment, W Living, comprising Big W, Pet Stock, Healthy Life and Woolworths Market Plus. Total W living sales increased by 16.1% in the half, largely reflecting the inclusion of pet stock revenue following its acquisition in January 2024, with W living sales flat versus last year excluding pet stock. In Big W, we've seen some pleasing progress and momentum with 4.4% item growth as we reposition the business to provide customers with more affordable options. However, this led to lower average selling prices in the half with sales broadly flat compared to the prior year. The late arrival of the spring-summer clothing range also impacted sales and led to high levels of clearance activity. BW's EBIT declined by 46% in the half to $29 million. Paid stock sales increased by 3.2% compared to the prior year. which is before Woolworths Group ownership, driven by strong growth in own brand pet food and the opening of 5D stores in the period with EBIT of $22 million for the half. Our other segment includes group functions such as property, group overheads and the Woolworths Group's investment in Quantium. The segment recorded a loss before interest and tax of $106 million, an increase of $52 million on the prior year driven primarily by lower property sales in the half and the loss of the group's share of profits from Endeavour Group compared to the prior year following the sale of the final transfer shares in September. Moving to slide 18 and our key balance sheet metrics, average inventory days were up 1.6 days on the prior year, reflecting an increase in investment in entry across key lines to improve availability, longer international lead times on some products, the earlier receipt of Big W's autumn-winter seasonal inventory and inventory build-up for the newly opened Moorbank National Distribution Centre. Average payable days was 0.3 days below the prior year, reflecting year-end payment timing differences and lower stock purchases during the period of industrial action in December. Group ROFI of 14.6% decreased 106 basis points compared to the prior year prior year normalised ROFI of 15.7% largely due to lower group EBIT. On slide 19 is a reminder of our capital management framework. While our cash flow was below our expectations in the half, impacted by a number of factors including investment, timing and one-off items, we distributed $489 million to our shareholders via a 40 cent special dividend in the half. And I'll provide further colour on the following slides. Moving to the cash flow now on slide 20. The group generated operating cash flow before interest and tax of $3.0 billion for the half, a reduction on the prior year reflecting lower working capital benefits and a decrease in EBITDA. The movement in working capital in the half reflects investment in stock availability, longer international lead times and earlier CW seasonal inventory driving lower working capital benefits together with the timing impact of supplier payments in the last week of the period. Cash interest costs increased 15.3% driven by higher average debt as well as a higher proportion of floating rate debt. Cash tax pay increased 55.4% compared to the prior year driven by the timing impact of higher pay-as-you-go tax instalments and final tax payment for F24 paid in the half. Cash used in investing activities was $678 million. 43% lower than the prior year, reflecting lower CAPEX and also includes $383 million from the sale of Endeavour Group shares and I'll provide some more detail on CAPEX on the following slide. Cash flow before lease payments and dividends of $1.2 billion was down 12.3% on the prior year. The $420 million in payments for the purchase of additional equity interest in subsidiaries largely reflects the acquisition of the remaining 35% interest in PFD in the half. Dividends of $1.189 billion were paid in the half including the payment of $489 million of special dividends to distribute the proceeds from the sale of a 5% stake in Endeavour Group in Q4 of F24. Finally, a cash realisation ratio was 85%. However, when adjusting for the timing impact of higher tax instalments, a cash realisation ratio was 93 on a normalised basis for the half. Moving then to slide 21 and CAPEX, operating CAPEX for the half was $1 billion with a modest increase on the prior year reflecting increased spend on renewals as part of our sustaining CAPEX. An increase in growth CAPEX compared to the prior year reflects higher spend in e-commerce. We expect operating capex of $2 billion to $2.1 billion for the full year, a modest reduction on the previous guided range of $2 billion to $2.2 billion. Moving to dividends and funding on slide 22, the board today approved an interim dividend of $0.39 per share, a decrease of 17% on the prior year, broadly in line with a reduction in earnings. Turning to our balance sheet settings, net debt increased on the prior year to $16.3 billion, reflecting the acquisition of pet stock, the acquisition of the remaining interest in PFD, the payment of a $0.40 special dividend and a half and lower operating cash flow, partially offset by the sale of our remaining stake in Endeavour Group. Net debt to EBITDA was 2.8 times at the end of the half compared to 2.6 times at the full year, well within our target levels. We remain committed to solid investment grade credit ratings and have significant headroom under our current ratings of BBB from S&P and BAA2 from Moody's. With that, I will now hand back to Amanda.