Woolworths Group Limited

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

Good morning everyone. Thank you for joining us today for Woolworth Group's full year results for the 2025 financial year. I would like to start by acknowledging the traditional custodians of the land on which we meet today, Dharong Country, and I'd like to pay my respects to elders past and present. Joining me this morning are Stephen Harrison, our Chief Financial Officer, Annette Carantoni, Managing Director of Woolworths Retail, Sally Copeland, Managing Director of Woolworths New Zealand, and former Managing Director of Group EcomEx, and Dan Hay, Managing Director of BigW. I will start with an overview of the group's performance in F25 and an update on our focus areas as announced in February. Steve will then cover off our financial performance before I conclude with an update on our medium term strategic agenda and outlook for 26. While we plan to share our strategy in more detail at an investor day in the second half of the financial year, I wanted to provide a high-level overview of our strategic priorities this morning. Turning now to slide four. A number of challenges during the year resulted in a financial performance that was well below our expectations and those of our shareholders. After a highly disrupted first half, we have taken action to reposition the group for long-term sustainable growth. While there is more to do and current training remains below our aspirations, we have seen some early positive signs with improving customer scores. In F25, group sales increased by a normalised 3.6%, with sales momentum, excluding pet stock, improving in H2 after the disruption from industrial action in the Australian food business in H1. Group EBIT declined by a normalised 12.6%, reflecting a lower earnings contribution from Australian Food and Big W. In Australian food, providing more value to customers, affecting ongoing cost of living pressures, industrial action in the third farm and high wage and other cost growth led to a reduction for the year. Encouragingly, we have seen improvements in customer scores in H2 as we've delivered lower prices to customers and focused on improving our everyday retail execution in areas like product availability. Excluding the impact of industry action, incremental supply chain commissioning and dual running costs and the acquisition of PetSoc in the prior year, Group EBIT would have declined by a normalised 7.8%. Despite the disappointing overall performance, e-commerce, media, rewards and services at New Zealand and CFD made a strong contribution during the year. Now moving to customer behaviour during the year on slide five. Despite food prices stabilising, cost of living pressures continue to weigh heavily on customer household budgets, particularly our favour customers. We saw a continuation of value-seeking behaviour and an increasingly competitive retail environment, particularly in non-food grocery areas like pets and babies. While customer sentiment appears to have stabilised, customers are shopping more special, with promotional penetration increasing by three points on the prior year. At the same time, the shift to convenience continues, reflected in the growth of digital and e-commerce, with more customers using digital tools to help plan their shops and manage their budgets. In Australia, sub-60 delivery sales have tripled compared to the prior year, highlighting the importance of our rapid delivery propositions. Now on slide six, in our half-year results, we highlighted three focus areas. While we have more to do, we have made good progress across these three areas, which I'll cover in the next few slides. We know we need to get it right for our customers every time they shop with us. Customers have more choice than ever, and we need to make sure Woolworths is their first choice through providing great value and the best in-store and e-commerce experiences. We're improving our retail execution and have taken very deliberate steps to address the areas that matter most to our customers. In addition to offering more specials with deeper depth and absorbing cost price increases in categories that are critical to families like meat, we launched lower shelf price in May, recognising that pricing on some key household items have risen in recent years, reflecting cost price inflation. Customers told us they want reliable, lower shelf prices every time they shop with us. We have invested in lowering the shelf prices on around 500 everyday items, increased specials, absorbed cost price increases, and made our pricing clearer and easier to understand through improved in-store and online ticketing. Early customer feedback has been encouraging, with improvements in value for money, Vox NPS scores up four points compared to quarter three, F25, with positive trends continuing in July. Food inflation has continued to moderate throughout the year, and average prices have now declined year on year for the sixth consecutive quarter. Turning now on slide eight to our Everyday Rewards program. As more members connect with us, the value increases for both Everyday Rewards members and our business. Over 70% of sales in food are captured by Everyday Rewards members participating in the program. The more a member engages with us, the higher their advocacy and loyalty to our retail banners. This delivers money back to our members and they reward us by spending more on their food budget with us. Turning now to slide nine, one of our greatest strengths is our customer reach through our store network and leading e-commerce business. To build on this strength, we have opened 12 new supermarkets and metros and completed 82 renewals across Australia and New Zealand, an increase of 25 compared to the prior year. A highlight was completing the renewal of our Harvey Bay supermarket, which was closed for 14 weeks after sustaining significant damage in the Queensland floods. Pick-up orders fulfilled by our store network are growing faster than delivery. with pick-up mix reaching 42% in quarter four. To support growing demand, we added over 200 direct-to-boot now sites in F25, available as part of our network of over 750 standard direct-to-boots, which serve both our customers and our rapidly growing milk run deliveries. Product availability has been a key focus area, and our out-of-stock box metric was up five points compared to Q3, at up seven points compared to quarter two, as we focused on improving retail execution and recovered from industrial action and weather-related disruption. Now on slide 10, customers are looking for convenient ways to shop. Our e-commerce business had another strong year, with Australian food e-commerce sales growing by a normalised 17.4%, driven by on-demand services like Milk Run and Direct2Boot Now. As at quarter four, 87% of our e-commerce orders are now fulfilled within 24 hours and 41% of delivery orders are fulfilled within two hours, an increase of six points compared to the prior year. Our capabilities took a big step forward with the opening of Auburn e-commerce CFC in May. With capacity to serve 60,000 orders per week, the new automated CFC will free up store capacity to meet the growing demand for delivery and pick-up services in the highest density catchment areas of Western Sydney. Now moving to our second priority, simplifying the way that we work. We have made key management changes and established a new structure to better align to key focus areas and our strategy. This includes the establishment of Woolworths Retail under Annette Carantoni's leadership, bringing our own brand and red meat businesses together with Woolworths Supermarkets and Metro. Sally Copeland is now leading Woolworth New Zealand, returning from Australia where she most recently led Group EcomX. We have also finalised other changes to the group leadership team to simplify our reporting structure and increase accountability, including consolidating previously separately managed but complementary areas under the direct leadership of key executives. Amitabh Maul has been appointed as Managing Director of Group EcomX. In addition to his role as Group Digital and Analytics Officer, Mike Tyken, Managing Director of Cartology, will work with me to take our insights, media and loyalty commercialisation to the next level with our suppliers. In this elevated role, Mike will report directly to me as he works with leaders across the group to orchestrate a more connected commercial insights, media and loyalty front door for our suppliers. Dan Haig will also now report directly to me to ensure that Big W has the right group of support as it progresses its turnaround. And PSD and Petstock will now report to Stephen Harrison reflecting the material opportunity to value creation in these businesses. Now turning to slide 12. Our productivity plan in retail businesses and supply chain is helping to offset elevated inflation in F25. Dollar productivity benefits in store have almost doubled over the last three years, providing some offset to a period of material wage and other cost growth. Some key examples of savings during the year include e-commerce, picking optimisation initiatives to reduce the walk path of personal shoppers in stores, and transport efficiency initiatives to optimise door delivery windows and transport routes to deliver transport savings. We are also committed to restoring a discipline of making every dollar count across Woolworths Group. As part of this, we announced a review of our above-store support office structure, recognising increases in support office costs compared to the pre-COVID level. We are on track to deliver $400 million in above-store savings by the end of the 2025 calendar year. Regrettably, this has led to some redundancies as we've reorganised management structures to reduce complexity and increase the speed of decision-making by bringing decision-makers closer to the business. We have also reviewed all above-stored non-team costs to ensure maximum efficiency. Turning now to slide 13, the third priority was unlocking the full potential of the group. Over the last six months, we reviewed our strategic plans and potential of all businesses to ensure that they have a credible path to delivering appropriate returns. In June, we announced the closure of the My Deal customer website by the end of September and have consolidated or exited other smaller, early stage businesses during the year to enable greater focus on our core food business. In New Zealand, we're encouraged by the progress we're making on our multi-year transformation. This has been reflected in our improved customer scores and financial performance, driven by improvements in value, fresh and e-commerce. Turning now to slide 15, we recognise Big W's financial performance remains materially below where it needs to be. We understand the challenges of this sector, but also recognise the opportunity in categories such as everyday, pet and health and beauty. In F25, we have seen strong customer momentum with quarterly sales growth rates increasing sequentially. We have also seen items and transaction growth as we worked hard to reposition our range and provide more value to customers in a competitive market. We will continue to progress the transformation of the business and expect an improved result in F26. Turning to slide 16, our complementary businesses are continuing to grow and are important earnings contributors to the group. Cartology, insurance, mobile, and our third-party supply chain business, PC Plus, all delivered solid sales and profit growth in the year. Cartology was a highlight, with revenue increasing by a normalised 19.5% in S25, with growth across all banners and channels. Finally, moving on to progress against our sustainability initiatives. on slide 16. This year marks the completion of our five-year 2025 sustainability plan. I'm proud of the impact we've had across our key pillars of people, product and planet. Over the last five years, we've delivered an estimated $2.6 billion in net societal benefit through investments and initiatives addressing hunger and food waste, plastic packaging, decarbonisation, healthier eating and human rights. Another highlight is the improvement in our safety outcomes during the year with a 6.2% reduction in TRIFA achieved through focused efforts on material risk management and injury prevention. I'll now hand over to Steve to cover off our financial results in more detail.

Thank you Amanda and good morning everyone. I will start today on slide 20 with the F25 results summary for the group. As many of you will recall, F24 included a 53rd week, so unless otherwise stated, all growth rates I reference today will be on a normalised basis to exclude the extra week in the prior year. Group sales for F25 increased 3.6% to $69.1 billion, with sales growth in all operating segments. This includes the four-year contribution from PetStock, which was acquired in January 2024. Excluding PetStock, group sales increased 2.9%. Bruce, EBIT before significant items was $2.8 billion, a decrease of 12.6% compared to the prior year, primarily reflecting lower EBIT from Australian food and Big W. This result includes a number of one-off impacts, including the negative impacts from industrial action in half one in Australian food, and incremental supply chain commissioning and dual running costs versus F24, and the benefit of a full year of pet stock post the acquisition in the prior year, Normalised for these impacts, Group EBIT was down approximately 8%. Group ENSA attributable to equity holders of the parent entity before significant items was $1.4 billion, a decrease of 17.1% reflecting lower Group EBIT and higher financing costs in the year, somewhat offset by lower tax. Group ROCI was 13.7% in F25, a decline of 194 basis points compared to the prior year due to lower Group EBIT. Turn into slide 21 and our group trading performance. Starting with Australian food, total sales for the year were $51.5 billion, an increase of 3.1%, benefiting from continued strong e-commerce growth of 17.4%. Excluding tobacco, Australian food sales increased 4.5%. Reflecting the recovery from industrial action in H1 and more consistent trading, Sales momentum improved in the second half with sales growth of 3.5% or 5% excluding tobacco. Within Australian food, Woolindex sales increased 15.9% driven by e-commerce, continued growth from cartology and a solid performance from our everyday insurance and mobile business. Australian food EBIT declined 10.5% in F25 and by 8.1% in half 2. Excluding the impact of industrial action in half one and incremental supply chain commissioning and dual-rein costs, normalised EBIT would have declined by 5% in the year. In Woolworths Food Retail, which is the combination of our stores and e-commerce business, EBIT declined by 13.3%. While the impact of cost inflation and private investment on gross margin moderated somewhat in the second half, this was offset by adverse stock loss trends in half two. Wage increases, which were partially offset by solid productivity in the year, together with a lower mix of in-store sales and higher DNA impacted EBIT in the year. Reflecting the strong e-commerce sales growth and growing contribution from cartology rewards in our everyday services businesses, Woolley Deck's profitability grew ahead of sales, increasing by 27.5% in F25, with NAP and EBIT margin growing by 40 basis points compared to the prior year to 4.5%. Australian B2B sales for F25 increased by 4.1%, with half-two sales increasing by 2.7%, with the slower growth in half-two largely due to softer sales in SIW and the scale-back Australian grocery wholesalers. Four-year sales growth was largely driven by B2B food, with PFD sales up 6.9%. B2B EBIT increased by 15.8% in the year with growth driven by double-digit earnings growth in both PFD and PC+. And half 2 EBIT increased by 24.4% on the prior year. New Zealand sales increased by 3.4% in F25 and 4.1% in half 2 in New Zealand dollars. driven by item growth and e-commerce momentum as good progress was made against transformation initiatives across the year. This translated into a strong EBIT performance increasing by 40.6% in F25 and by 91% in the second half. Total W living sales increased by 9.9% in F25 and 3.2% in half two, largely reflecting the full year contribution of pet stock compared to a half year in F24. Excluding the pet stock, W living sales increased by 1.6% for the full year. W living recorded a loss of $63 million in F25 compared to a loss of $29 million in the prior year, with big W losses the key driver of the decline, somewhat offset by the full year impact of pet stock. Big W full-year sales increased by 1.1%, with half two sales up 3.1%, supported by improving customer momentum over the year and a successful toy sale in Q4. Volume increases were driven by a shift to a more affordable range and seasonal clearance, leading to lower ASP, which impacted gross margin and resulted in a full-year loss of $35 million. Pet stock sales increased by over 100% compared to the prior year, reflecting a full year of ownership. Our two sales increased by 1.7% on a reported basis. However, excluding the impact of divestments, comparable sales increased by approximately 5%, driven by strong growth in own-brand pet food and e-commerce growth. Even increased in F25 by 57.8% to $44 million, with a similar earnings contribution in both halves. Our other segment includes group functions such as property, group overheads and Woolworths investment in Quantium. The segment resulted in a loss before interest and tax of $211 million, an increase of $91 million versus last year, with the variance largely driven by the inclusion of the group's share of profits from its investments in Endeavour last year and lower gains on the disposal of properties in the current year. The group also reported a significant item Loss before tax of $569 million in F25 related to the impairment of Big W of $346 million. My deal impairment and closure cost of $52 million. Healthy life impairment of $17 million. And in addition to this, a cost of $146 million was recognised relating to team member redundancies and restructuring costs as part of the group's support office savings program and the reset of the store operating model in New Zealand. Moving now to slide 22 in our key balance sheet metrics, average inventory days were up 1.6 days on the prior year, reflecting an increase in investment in inventory across key lines to improve availability, including elevated inventory levels in advance of the industrial action in half one and the earlier receipt of big W seasonal inventory. Despite a decline in closing payable days, reflecting payment timing differences in New Zealand, average payable days were down 3.3 days in F25, largely driven by the timing of payments related to the impact of the retail calendar from the 53rd week in F24. ROFI of 13.7% was down 194 basis points, reflecting lower group EVAs. Pleasingly, Australian B2B ROFI increased by 176 basis points to 10.8%, reflecting strong profit growth in this segment. Moving to slide 23, this slide is a reminder of our capital management framework. The group generated strong operating cash flows in the year due to favourable working capital movements which were invested into sustaining our assets, growth initiatives and maintaining a dividend for shareholders at the higher end of our payout ratio and I'll provide some more cover on the following pages. Moving to slide 24 and our cash flow, the group generated operating cash flow before interest on the factor of $6.2 billion in F25. an increase of 5.3%. This was driven by favourable working capital movements more than offsetting a decline in EBITDA for the year. The positive movement in working capital in the year reflects an increase in trade payables driven by the timing of payments in New Zealand food together with higher provisions and accruals. Cash interest costs increased 41.3% driven by higher average debt across the year. Cash used in investing activities of $1.9 billion was 15.4% lower than the prior year, reflecting the cycling of the pet stock acquisition in F24. And I'll provide more detail on CapEx on the next slide. Cash flow before lease payments and dividends of $2.6 billion was up 26% on the prior year. The group paid $422 million for the purchase of additional equity interest in subsidiaries, largely driven by the acquisition of the remaining 35% interest in CSD in the year. Dividends and payments for shares held in trust of $1.7 billion for the year included the payment of a $0.40 special dividend from the prior year. And finally, our cash realisation ratio was 103% reflecting the favourable movement in working capital during the year. Onto slide 25, operating capex for F25 was $2 billion, broadly in line with the prior year, reflecting increased spend on renewals offset by lower supply chain capex in the year. A small increase in growth capex compared to the prior year reflects higher spend in e-commerce, including the Auburn CFC, which went live in Q4. As you can see from the additional detail on the slide, capex has been relatively stable for the last four years and declined as a percentage of sales over that time. And in F26, we expect operating capex to be approximately $2 billion broadly in line with F25. Moving now to an update on our supply chain on slide 26. Our NSW supply chain transformation reached a number of important milestones in F25 with the opening of the Moorbank National Distribution Centre in November and the opening of the Auburn CFC in May. The Moorbank Regional Distribution Centre is also nearing completion and is on track to open at the end of the calendar year. This will complete the renewal of our ambient supply chain in New South Wales, and together with the MSRDC in Melbourne, our two major markets in Australia will be served by modern, efficient and highly automated supply chain. We continue to expect double-digit return on the investment in these sites in New South Wales. Construction has also commenced on a new semi-automated children fresh distribution centre in Sydney, which will complete the transformation of the supply chain in New South Wales, our largest market, This aligns with our fresh food strategy and this temperature controlled site will materially enhance fresh quality for our customers at capacity for future growth to deliver benefits from automation and reduce transportation costs given its strategic location in Eastern Creek. We've also announced the construction of a new automated CFC in Melbourne North to provide increased capacity to service the growing demand for e-commerce in Melbourne following the compulsory acquisition of the Nonnyhill CFC. this new CSC will also use the same proven technology as our Auburn facility. Moving to slide 27, as previously guided, the group expects F26 supply chain commissioning, transition and dual running costs to be broadly in line with F25, which was approximately $110 million. Implementation and dual running costs in F27 are now expected to be similar to F26, given the incremental costs associated with the commissioning of Sydney Children Fresh and Melbourne North However, we expect these costs will be materially offset by benefits from Moorbank and Auburn in F27. In F28, the facilities will deliver net benefits, and in F20, we expect double-digit ROFI in aggregate across all three DCs and the two CFCs. Moving finally to slide 28, and dividends and funding, the Board today approved the final dividend of 45 cents per share, bringing the total ordinary dividend for the year to 84 cents. with a four-year payout ratio of 74.1%. Moving to our balance sheet settings, net debt to EBITDA was 2.8 times compared to 2.6 times in F24 and remained well within our leverage threshold. We remained committed to solid investment credit ratings and have significant headroom under our current ratings of BBB from S&P and VAA2 from Moody's. In F25, the group completed $5 billion of debt refinancing. including a billion of domestic medium-term notes and Euro 500 million of Euro medium-term notes, with the balance relating to bank debts, with proceeds used to refinance maturing bonds and facilities. Thank you, and with that, I will now hand back to Amanda.