Wesfarmers Ltd Old

Ladies and gentlemen, thank you for holding and welcome to the West Farmers 2024 half year results briefing. Your lines will be muted during the briefing. However, you will have an opportunity to ask questions immediately afterward and instructions will be provided on how to do this at that time. This call is also being webcast live on the West Farmers website and can be accessed from the homepage of westfarmers.com.au. I would now like to hand the call over to the Managing Director of West Farmers Limited, Mr Rob Scott.

Hi everyone and welcome to our 2024 half year results briefing. Today I'm joined in Perth with all of our divisional managing directors and our CFO Anthony Giannotti. To begin I'll provide an overview of the group's performance, some comments on the positioning of our portfolio and progress on strategies and then Anthony will provide more detail on our financial performance and the balance sheet. And I'll then conclude with some comments on the group's outlook. And then Anthony and our divisional managing directors and I would welcome any questions that you have. So starting on slide four, a slide that will be familiar with all of you. So it sets out the West Farmers corporate objective, which is to deliver a satisfactory return to shareholders. And we define satisfactory as top quartile shareholder returns over the long term. We know that we can only achieve this if we continue to anticipate the needs of our customers, look after our team, treat suppliers fairly and ethically, contribute positively to the communities where we operate, take care of the environment and act with integrity and honesty. Turning to slide five, I wanted to start on financial performance and we were pleased with the results for the half with net profit after tax increasing 3% to $1.4 billion and operating cash flows up 47% to $2.9 billion. 3% profit growth was achieved against a backdrop of the expected decline in WESF earnings given ammonia prices and continued cost pressures facing households and businesses. Kmart was a standout result highlighting the financial benefits that come from delivering great value ANCO products to customers through a scalable business model that drives productivity, operating efficiency and category expansion. As a result of the strong financial performance, the Board has determined to pay a dividend of 91 cents, which is a 3.4% increase on the prior corresponding period. Looking across the portfolio, there are a few points that provide confidence about the positioning of the group. We have businesses with clear and sustainable sources of competitive advantage, particularly in our larger divisions. there remain significant opportunities for incremental growth through product innovation, addressable market expansion and capacity investment across the existing divisions. And we see the potential for attractive long-term returns over time in our health and lithium businesses, with these factors all supported by the cash-generative nature of our businesses and our focus on operating responsibly. So turning to the next slide, six, I'd like to talk about some of the specific themes we saw in the first half. Overall, the group's performance reflected strong execution from high-quality businesses. We see strong execution through our businesses' success in meeting changing customer needs, driving product innovation and delivering productivity initiatives and new growth projects. The high quality of the businesses is attributable to factors such as our trusted brands, the strength of our teams, the resilience in demand across our product range, competitive advantages through the scale of our sourcing operations and the alignment of our industrial businesses to industries where Australia is globally competitive. Through recent results we've talked about the benefits of our core retail offer providing market-leading value on everyday products and this has again been a clear feature of our results for the half. Our retail businesses saw growth in customer transactions and sales as customers were discerning with their spending, seeking out value and being more selective with purchases. We saw strong growth in lower price point and own brand products. And we acquired new customers and increased share of wallet as customers sought value and as we expanded our offer into new categories. As some input costs moderated and our businesses realised benefits from ongoing productivity initiatives, the retail divisions were able to deliver thousands of price cuts for customers during the half. On the industrial side, it was good to see the continued strong operating results with WESF executing well and achieving good operational performances. Overall, these results are a credit to the 120,000 team members across the group who maintain their focus on meeting customer needs and their commitment to the group's objective. Turning to slide seven, I'll use this slide to speak to some of the key divisional highlights and then Anthony will talk in more detail to the financials. Bunnings delivered solid sales growth reflecting the resilience of demand across its offer and strong execution of its strategic agenda. Bunnings again demonstrated its capacity to grow its proposition and addressable market while maintaining strong returns. This included progress on the pets range and the expanded cleaning offer, both of which are trading well and delivering great value to customers. Bunnings also continued to make significant progress with its digital agenda, increasing digital sales and a strong customer engagement through the PowerPass and customer apps, the Bunnings marketplace and also through their educational and social content. Kmart Group recorded a very strong result with significant growth and record earnings for the half. This result reflects many years of effort developing and refining Kmart's unique business model. The strength of ANCO product development and sourcing provides a clear point of difference. It enables Kmart to deliver lowest prices across the growing ANCO range, with these products resonating strongly and attracting new customers. Kmart continues to innovate and delivering strong growth in apparel categories, including the new Youth Apparel range. The expanded beauty range also traded strongly and contributed to growth for the half. Kmart Group made good progress on steps to further integrate Kmart and Target, and select ANCO ranges have been introduced to Target this calendar year with positive early results. WESF delivered excellent operating results, with plant reliability and safety focus a highlight. Covalent made good progress in the development of its integrated lithium project, successfully commissioning the concentrator and commencing the ramp-up of spodumene concentrate operations. Good progress also continued on the construction of the hydroxide refinery at Kwinana, which was more than 65% complete at the end of the half. And as previously indicated, WESF's financial result reflected lower international commodity prices, particularly ammonia, which has been elevated in recent years. Officeworks recorded growth across key categories and continued market share gains in technology, while also progressing actions to modernise its operations and realise productivity improvements in store through its supply chain and through its store support functions. Industrial safety again improved its performance and has benefited from its strong focus on customer and its digital capabilities. The Health Division continued to advance its transformation plan with investment in supply chain, improvements to the customer offer and network changes to strengthen the competitive positioning of API and its pharmacy partners. The Health Teams also expanded its digital health and medical aesthetics capabilities with the completion of the acquisition of Instant Scripts and Silk Laser Australia during the half. Significant enhancements to the customer value proposition of the One Pass membership program continued to support growth in member numbers and provided incremental benefits to the retail business during the half. We know that One Pass members are higher frequency, higher value customers compared to non-members and they enjoy shopping in-store and online. And importantly, we see the one pass program supporting customer acquisition and retention for the divisions and incremental sales as members increase the spending after they join the program. Catch's performance continued to improve during the half with successful execution of the restructuring program commencing in December 2022, providing a simplified first party offer and significantly reducing the cost base. The catch offer has resonated with OnePass members who value the broader range in e-commerce options and our data shows that customers that join OnePass increase their spend on catch. Turning to slide eight and progress on our sustainability agenda. Recognising its link with long-term value creation, we continue to build climate resilience across our businesses. Our divisions achieved a 7.8% reduction in Scope 1 and Scope 2 emissions, making good progress towards their interim emissions reduction and renewable energy targets, and our longer-term progress towards net zero. As the larger emitter of the group, WESF continues to make pleasing progress, taking actions aligned with its net zero roadmap. Reflecting on our commitment to provide a safe and fulfilling work environment for our team members, improvements in safety results were recorded across most businesses, and at a group level, we saw TRIFA improve to 10.9, driven mostly by improved results in Bunnings. The group remains at proportional representation with approximately 7.7% of Australian team members identifying as Aboriginal or Torres Strait Islander team members. And we continue to support career progression of Indigenous leaders with a further 37 team members completing the West Farmers Indigenous Leadership Program through the half. Now, turning to slide seven, you'll see the summarised financial performance of the group, and I'll now hand over to Anthony, who will talk in more detail to the financials.

Thanks Rob and hello everyone. Slide 11 in the presentation provides some of the detail on sales and revenue growth across the group. I'll speak to sales and earnings performance for each of the divisions on the next slide, but at an overall level we were pleased with our sales results for the half, which was underpinned by a really strong result across our retail businesses and in particular across Kmart. On slide 12, at a total level, divisional earnings increased 2.3% for the half, with strong results in retail, more than offsetting the impact of lower commodity prices in WESF. Our retail businesses executed very well during the period, enabling them to deliver great value to customers, which supported the pleasing financial results. Excluding catch and the impact of property sales, retail earnings across the group increased by over 9% for the half. Across all the retail businesses, we saw continued cost of doing business pressures, which were generally well mitigated by productivity actions, resulting in stable margins for Bunnings and Officeworks. And in Kmart, the stronger margin for the half reflected the benefits realised through the ANCO direct sourcing model. As we've said many times before, we don't manage our retail businesses to short-term margin targets. Instead, we see margin percentage as an outcome and focus on growing margin dollars over the long term. I'll now step through the divisional results in more detail. In Bunnings, we saw further demonstration of the resilience of its operating model with sales growth of 1.7%, supported by growth in both consumer and commercial segments. Consumer transactions, unit volumes and store visitations all grew during the half, as Bunnings saw continued demand for home repair and household products across a range of categories. Commercial sales were supported by demand from trades and builders as they worked through the pipeline of outstanding work. Activity did moderate through the half as new building starts normalised from the peaks that we've seen in recent years. Bunnings continued to focus on delivering great value for customers with ongoing investment in price, supported by cost discipline, business improvement initiatives and moderating global supply chain costs. Overall, Bunnings' earnings of $1.28 billion represented an increase of 3.1%, excluding the impact of property contributions. Kmart Group delivered record earnings of $601 million for the half, an increase of 26.5%. Customers continued to respond strongly to Kmart's lowest price positioning with comparable sales growth of 7.5% for the half. Kmart delivered sales growth across all categories as well as growth in units sold, transactions and customer numbers relative to the prior corresponding period. Kmart's trading performance was supported by continued improvements in the product offer, particularly in higher margin apparel categories. The end-to-end ANCO direct sourcing model enabled efficiency and earnings benefits as Kmart extended its lowest price leadership. Targets comparable sales declined 2.9% for the half with variable performance across categories. Targets apparel range continued to trade well but results across toys, home and general merchandise products were more challenged and many of these categories have now been replaced with ANCO product. Kmart Group continued to progress proactive productivity and cost control measures which helped to mitigate ongoing cost of doing business pressures and higher shrinkage during the half. In WSF, revenue declined 21.2% and earnings declined by 46.9% to $172 million for the half. As previously indicated, revenue and earnings were impacted by lower global commodity prices relative to the elevated pricing environment that we've seen in the last few years. In chemicals, excellent operating performance continued, but earnings decreased significantly due to the lower average global ammonia price. In clean heat, earnings were impacted by a lower Saudi contract price and higher WA natural gas costs during the half. And earnings in fertilisers decreased as a result of declining global commodity prices, partially offset by strong sales volumes due to a later 2023 seeding season. As Rob mentioned, the production of spodumene concentrate has entered the ramp up phase with first product available for sale in the first half of the 2024 calendar year. Good progress has also been continued on the construction of the Kwinana Refinery with the timing of first production and capital expenditure expectations in line with the previous guidance. In Officeworks, sales increased 1.8% and earnings increased 1.2% to $86 million for the half. It was pleasing to see continued growth across key categories, including technology, stationery, education and print and create, partially offset by declining furniture sales. Officeworks continued to invest in everyday low prices and promotional initiatives to deliver value for customers, and the business achieved strong sales growth during the Black Friday and Cyber Monday period. Earnings growth was supported by ongoing investments in productivity initiatives and disciplined cost management, which helped to mitigate ongoing cost of doing business pressures. During the half, Officeworks opened its new automated customer fulfilment centre in WA, along with three new stores and a new head office, resulting in higher lease interest costs. Industrial and safety delivered a solid result for the half. Revenue increased 3.2% with growth recorded across all businesses. And earnings increased 4.3% with the business managing ongoing domestic cost pressures and making continued investment to support long-term growth. Westfarmers Health continues to progress its accelerate transformation plan, building capabilities and taking actions to position it for long-term success. Sales for the half was supported by pleasing growth in price line and new customer acquisitions in the wholesale business. This was offset by a significant reduction in COVID-19 antiviral sales. Excluding the impact of amortisation from purchase price accounting, Health's earnings increased 5.9% to $36 million for the half. The earnings result includes some early benefits from improvements to the retail and wholesale offers, albeit these were largely offset by the necessary investment in longer-term transformation activities, as well as the short-term impacts from 60-day dispensing, recent PBS price changes and higher costs in clear skincare. Catch reported an improved performance for the half with a loss of $37 million, excluding restructuring costs. The result was underpinned by significant reductions in the in-stock range in order to exit unprofitable lines, and the business continued to improve fulfilment efficiency and further reduce the cost base. Performance during the half represents continued improvement relative to the $48 million loss in the prior half and $75 million loss in the prior corresponding period. We expect restructuring and cost-out initiatives to continue to reduce operating losses into the second half. Turning now to slide 13 on other businesses. Our other businesses and corporate overheads reported a loss of $95 million for the half compared to a loss of $75 million in the prior corresponding period. A key driver of this was the impact of lower property revaluations in BWP Trust, with the group's share of profit from associates and joint ventures declining from $44 million to $15 million. Group overheads were broadly in line with the prior corresponding period, while other corporate earnings were slightly higher, driven by a higher group insurance result, partly offset by lower dividend income following the sale of the group's remaining interest in Coles in April of 2023. Finally, we continue to invest in the development of the One Pass membership program and the group's customer and data insights capabilities through One Digital, with a net investment of $39 million for the half. It's worth noting that the growing financial benefits of higher customer frequency, uplift in One Pass member spend and improved personalisation are reflected within the Retail Division's sales and earnings results. Turning to working capital and cash flow on slide 14. Divisional operating cash flows increased 27.1% for the half with divisional cash generation of 120%. Strong divisional cash flows were supported by strong earnings growth in Kmart and a favourable net working capital result which contributed $568 million for the half. The strong cash inflow from working capital was driven by Bunnings' disciplined management of stock levels, as well as the impact of lower international shipping rates, and a normalisation in WESF following the impact of elevated commodity prices and the timing of fertiliser seasonal breaks in the prior corresponding period. These factors were partially offset by working capital investment in the health division, including the removal of higher cost debtor funding arrangements and changes to supplier payment terms. At a group level, operating cash flows increased 47% to $2.9 billion, reflecting higher divisional cash operating cash flows, as well as lower tax paid due to the timing of payments. Free cash flow for the half increased 47.4% to $2 billion, reflecting higher operating cash flows partially offset by the impact of cash consideration for the acquisitions of Silk and Instant Scripts. Moving to capital expenditure on slide 15. The group invested a gross capex of $577 million during the half, which was 14.6% lower than the prior corresponding period. This was driven by fewer store openings in Bunnings due to the timing of new and replacement stores and the completion of construction at the Mount Holland Concentrator in the 2023 financial year. Proceeds from the sale of property, plant and equipment declined for the period, reflecting reduced property activity at Bunnings. As a result, net capital expenditure for the half declined 1.4% to $570 million. For the full year, we're expecting net capital expenditure for the group to be in the range of $1 to $1.2 billion, and this estimate includes around $350 million associated with the ongoing development of the covalent lithium project. Turning to balance sheet and debt management on slide 16. The strength of our balance sheet continues to provide the group with significant flexibility and capacity to support investment in growth initiatives and to take advantage of value accretive opportunities that may arise. We continue to actively monitor the group's debt mix and manage exposure to variable interest rates. The average cost of funds for the half increased from 3.3% at the full year in June to 3.8% for the half. with a weighted average term to maturity of 4.4 years. Our strong investment grade credit ratings from Standard & Poor's and Moody's were maintained, and the group retains considerable headroom within these key metrics. At the end of the half, the group had available unused bank financing facilities of approximately $2.4 billion. And finally, to dividends on slide 17. As Rob's already mentioned, the board has determined to pay a fully franked interim dividend of $0.91 per share. This is consistent with our dividend policy, which considers available franking credits, our balance sheet position, credit metrics and, of course, cash flow generation. In line with recent practice, the group does intend to purchase shares on market to satisfy shares issued as part of the dividend investment plan. And with that, I'll now hand back to Rob to cover Outlook.

Thanks, Anthony. So turning to slide 19, I'll cover the outlook on the next slide. But first, I just wanted to highlight why we see our portfolio as being well positioned, providing both resilience and growth and a great platform for value creation. Our retail divisions benefit from their value-orientated offer, their leading market positions and focus on everyday products. We have strategic domestic manufacturing capabilities in WESF, supporting customers in critical industries where Australia has clear competitive advantages, such as iron ore, gold and broadacre cropping. The quality of our major divisions provides an opportunity for superior returns from incremental capital investment. The Health Division provides a platform to increase our exposure to structural demand growth in the health and wellbeing sectors. And across the group, we're pursuing opportunities that support global decarbonisation with actions that strengthen our existing businesses and through our development of covalent lithium. So then turning to the group outlook on slide 20. As always, West Farmers remains focused on long-term shareholder value creation and we continue to invest both to strengthen our grow and grow our existing businesses as well as progressing new growth platforms. At a macro level, we continue to see low unemployment and strong population growth providing support to overall economic conditions in Australia. But cost pressures facing Australian businesses and our customers remain elevated. Our retail businesses' strong value credentials and expanding offer of everyday products make them well positioned both for the current environment as well for any improvements in customer sentiment. For the first five weeks of the second half, Kmart Group has continued to record strong sales across all categories. Sales growth at Bunnings remained in line with the first half of the 2024 financial year. Officeworks sales for the first five weeks were in line with the prior year, with pleasing back-to-school sales results, particularly given the non-recurrence of the New South Wales voucher program that was in place this time last year. Looking ahead, West Harbours will continue to develop and enhance the portfolio by making disciplined investments in existing operations, developing long-term avenues for growth and strengthening the climate resilience of the portfolio. We're now happy to take your questions.

Thank you. We'll now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. Your first question comes from Adrian Lem from Citi. Please go ahead.

Hi, Rob and team. Congratulations on another fine result. I just wanted to firstly focus on the Kmart EBIT margin, if I could. It's a sort of two-part question. Firstly, we're hearing, I guess, from a number of retailers now that lower shipping costs and lower prices from the private label suppliers are are increasing their gross margins. Could you please outline how material these factors were to the EBIT margin improvement you saw in Kmart, and should we see a similar uplift from these factors in the second half?

Sorry, Adrian, Ian here. Was that the first question, or did you have a second follow-up question too?

Well, the second part was simply just it appears the EBIT margin in Kmart has made a step change. Do you see that as sustainable, please? OK, great.

Great, thanks. I think first of all, there's a lot that goes on within cost of goods. I think if you stand back and look at the Kmart group result, you know, Kmart's business model and strategy is something we've been working on for some time, and I think it's now delivering the intended results. So I'd say that's the overarching message. If you look at it from a customer perspective, you know, the customers are getting better products, they're getting better availability, and we're extending price leadership. Now, the advantage of our model is we can see all of the costs that occur from product design all the way through to getting the product into customers' hands, whether that's in-store or through online delivery. So there are a number of cost changes that are occurring within that. So obviously there's inflation in CODB, which is one of the big topics that's out there. The FX rate this year, last year for the half, has actually gone backwards, so that's been a cost increase. And then you've got cost decreases, which are two of the ones you called out, some of the raw material prices and some of the... Sorry, the raw material prices and the shipping costs. How does that all play out into margin? I think it really comes back to the ability to deliver, in our case, incredibly low prices but still make an adequate return to shareholders. So I would say that the work we've done to improve the business model, to apply the technology that we have and to deliver on those outcomes means we've got the ability to make those sustainable margins.

Thank you. Your next question comes from David Errington from Bank of America. Please go ahead.

Ian, can I follow up on that? Because it's a fabulous outcome. I mean, your growth in sales is $272 million and your growth in EBIT is $130 million. I mean, as you say, this is not one year in the making. This is five years in the making. But I think the area that I'd like to dig into is what you've done in your control I'm really interested if you could talk a bit about ANCO and how big ANCO is, how big it could become. I'm interested in your direct sourcing model of ANCO, if you could go into that. And you've called out some cost improvements through productivity and digital development. So could you talk a bit about, following on from Adrian's question, which is more talking about the non-controllables, can you give us a bit of a, you know, to talk about the sustainability of this performance, the areas that were within your control? And one area that I don't probably fully appreciate is the ANCO model that you're doing. You know how big that is now, how big it could be. The margin, you know, obviously it's margin accretive. Can you go into a little bit more in detail of that? Because today the result that was the standout was Kmart.

Yeah, thanks, David, and good morning. I think the... to go into to go into a lot of detail here will be tricky so clearly at the strategy day we can go into we can go into a little more detail to try and bring the model to life to a greater extent what we have been doing though is we have been investing in our capability both from a people perspective and a technology perspective in all elements of product design through to to manufacturing international shipping local supply chain and store operations And so it's a combination across each of those steps that gives us the ability to unlock value. ANCO is now 85% of the sales within Kmart, to give you a sense of the scale. And, of course, we've now got about 25% to 30% of the products in Target are now by ANCO as well. And, of course, ANCO is the brand that we're looking to take into new markets. So we see the potential for ANCO as a brand to be really material as time passes. If I should try and bring it to life, where do those things occur to give you some examples? You know, we've talked about RFID in stores, which is the ability for us to then have a robot that goes around and scan the products on a daily basis. That gives us multiple benefits. It gives us a sales benefit because we get improved availability. It gives us a benefit of efficiency in the way that we run the store in that we can direct team members to go and find the right item in the right place and put it in the right place on the floor. And it helps us improve our supply chain because we get improved data on exactly what inventory we have and how to flow that inventory accurately to the stores. So that one piece of technology gives us multiple benefits. And we've got others in that same category. So we've got 3D design would be another good example in apparel where we're seeing really positive results. We're seeing higher sell-throughs by using 3D design compared to traditional design techniques. We're seeing reduced lead times because there's no longer the physical samples going backwards and forwards. And we're increasingly getting improved data. from each of those designs because we have complete data on the products which are coming through, which enables us to learn each season and get better the next. So I feel like I'm giving you a couple of random examples, but it's really this combination of factors that goes all the way from product design through to the customer's hands that gives us the capability to hit price points that others can't and deliver an adequate return to shareholders.

Because it seems like a couple of years ago, or more than a couple of years ago, when Guy was running the business, the perception was it was just to load it high, sell it cheap, and get as much volume out. You seem to have evolved this business now into being a really high-quality, well, it always was, but a really high-tech business. quality branded ANCO direct sourcing model, you seem to, it's a step changer. That's what it appears to me. Is that a fair call or am I overplaying that a little bit?

I think our intent has always been this idea of no compromise for customers. And when we started our journey, we need to establish the basics and the basics were get the price right. So if you go back in time, we were very focused on white plates, white T-shirts, you know, the fundamental basics. But we know that customers really want more than that. So we still deliver on the basics, the white T-shirts and the white plates, but customers want on trend. They want the latest designs. They want the latest colours. They want quality they can rely on. And they want to feel good that we're doing the right thing for the environment and for the people that manufacture the items. So we've been working across all of those dimensions so that customers feel really good about the purchases they have with us, and they effectively get it all. They get the lowest price, they get the quality, and they get the comfort that we do the right thing. Thanks, Ian.

Great job.

Thank you. Your next question comes from Sean Cousins from UBS. Please go ahead.

Thanks. My question is regarding lithium, maybe for Ian Hanson. Could we just clarify the comments around lithium being lost making the second half? Maybe just confirm if that's not positive earnings. Is it EBITDA or EBT? And more generally, based on current spodumene prices, why wouldn't those losses continue into the six months into December 24? Because you might want to ramp up your production, but you also would be doing so into a low market to maybe fractionalise your costs. But there'd also be, I assume, potentially some ramp-up costs associated with the refinery. So I'm just curious around definition of the second half 24 commit, but also what that implies based on current prices for the six months into December, please.

Yeah, hi, Sean. As you know, the lithium market continues to evolve and we've seen that firsthand over the last 12 months where lithium hydroxide prices back in December 22 were about $84,000 a tonne and now they're about $13,000 a tonne at the start of this week. We're really focused on areas that we can control. Importantly, commissioning of the mining concentrator is complete and ramping up is progressing well. We're on track to deliver about 50,000 tonnes of spodumene concentrate as our share of production during the second half of this financial year, as we previously advised. And we're really pleased with the recovery rates and specifications of the product produced to date. Our refinery construction, as both Rob and Anthony mentioned, continues to progress and remains in line with our previous cost and schedule guidance. And it is worth remembering that we invested in the Covalent project and took FID when lithium hydroxide prices were lower than they are today. You know, the Mount Holland project is a long-term project with a 50-year mine life, and we've been operating the concentrator now for two months, so that puts that into some perspective. And at the very start of that, with operations still ramping up, we remain confident in our initial decision to invest in the project including the decision to build the associated refinery, which really is the main game here. It's not the spodumene concentrate in the short term. This project is all about producing battery-quality lithium hydroxide. In terms of the outlook for financial year 24, the sales volumes will be dependent on really a range of factors, including shipment timings and also sizes, with our first shipment currently expected probably in March of 24. But at the current pricing, and combined with the higher cost per tonne experienced through commissioning and ramp-up, which is pretty typical of projects at this stage, an early stage, we're not expecting sales to contribute to divisional earnings in FY24. However, over the longer term, we do believe the Mount Holland project will be competitive with other large-scale Western Australian-based producers, given the quality of the ore body. We gain more confidence in this as we work through the ramp-up and see a path to a normalisation of the cost base over time. Once again, I remind you that the whole project was about lithium hydroxide and we look forward to that becoming operational early in calendar year 25 when we become an integrated producer and we can draw on our core chemical processing expertise. And we do remain of the belief that this integrated model will support value creation, providing us with a premium product with strong ESG credentials that will support future demand, as well as satisfactory long-term shareholder returns.

Great. Thanks, Ian. Maybe the comment on first half fiscal 25, the six months into December.

Yeah, we would see the ramp-up continuing. I think we've mentioned before ramp-up of the concentrator continuing over a 12-month period. So we'd see that ramp-up continuing through to the end of this calendar year, maybe slightly beyond, at which time we'd be producing at the normalised run rate out of the concentrator. And obviously the costs would be reflective of the volumes that we – the cost per unit would be reflective of the volumes that we're producing.

So the idea there would be that the full run rate of volume would actually then help you get to profitability at current prices. Is that what we should infer from that, or the losses would become less at current prices?

I'm not going to talk about the margins. What I will say that – when we get to our steady state operational level, the costs of production would be comparable with similar operations in Western Australia. What the pricing is at that time, who knows? Thanks so much, Ian.

Thank you. Your next question comes from Michael Simotas from Jefferies. Please go ahead.

Hi, team. There's been a lot of discussion around Kmart margins, I guess, for obvious reasons. Can I just sort of ask a higher level question? Across the retail businesses, and I'd include Bunnings and Officeworks in that, it looks like West Farms has had a very good ability to control costs in an inflationary environment. And back at the strategy day, there was some discussion around, you know, some clogs relief pretend. some offset to CODB inflation but can we just talk generally going forward whether you think you've got an ability to continue to mitigate those costs based on previous productivity investments and you know maybe allowing for you know what's happening with input costs but also potentially some increase in front costs from here?

Michael, it's Rob here. What I might do, I might let Mike Schneider talk to that. You are right. I feel that our retail businesses have been very proactive around cost management, productivity initiatives, also investing in the technology and the systems to sustain and support customers. those benefits but there are there are obviously headwinds around cost of doing business pressures domestic cost pressures in in australia that we're having to manage so that might let mike talk to that and then we could go to sarah and then in just to talk about well what's currently in train and how they're thinking about it over time Thanks, Rob.

And hi, Michael. From a Bunnings point of view, we've been looking for quite a long time around store labour, store labour productivity and efficiencies and sort of planning for the way that we think about deploying that so that we get the best of a safe environment for our team. And it's pleasing to see improvements in our safety performance, but also a great experience for customers. So we've been stripping task and process out, and some of that has come through the significant changes tech investments that we've been making over the last few years so a lot of the tech investment has been customer facing when you think about our digital platforms but a lot of it's also been about making the work that our team members do in store much more focused on the customer so they can provide better service and better experience and then behind the scenes in our support functions it's all about you know considerations of ways of working we obviously had to scale very very quickly sort of 2020 21 and 22 to cope with the the sort of unprecedented growth that we were seeing. So we did that in a very old school way, obviously, you know, bringing in the capability that we needed to do. But now that we've sort of been able to realise some of the investments we've made in technology, we're able to be a little bit more productive through that area as well. And as Rob touched on, you know, there are some significant headwinds out there with tax, energy prices and a range of other challenges from a Cost point of view. So being really efficient, you know, really does underpin our commitment to being a lowest price retailer. And to do that, you've got to have the lowest cost. So there's still lots of opportunity for us to do that as we go forward. And some of those tech platforms, the full benefits come to life. So we're really optimistic about the opportunity to continue to demonstrate the leverage that we're starting to see. I might kick to you, Sarah.

Yeah, thanks, Michael, for the question. And thanks, Mike. Just, I guess, echoing Mike's comments, you know, for a number of years now, Michael, you'll be aware we've been proactive in investing in productivity, both with a lens to simplifying and modernising our business, but also making sure that we deliver a great customer experience and great pricing for our customers in line with our everyday low price commitment. So probably the highlights from Officeworks, I would say, you know, I think everyone's pretty familiar now with the modernising and simplifying of our supply chain. We're well advanced around that. We have invested in a new CFC at Briggs Drive a couple of years ago. We recently opened just over 12 months ago a new IDC in Victoria. In WA, as Anthony mentioned, a few months ago, a new customer fulfilment centre. So all of those investments are on track to deliver or are delivering in line with business case. And that is significantly helping both the customer experience for our customers for their same day and next day delivery offer, but also making sure that we keep our costs under control, recognising CODB headwinds. The only other thing I would say is in terms of what's ahead, we are well advanced with our demand and replenishment transformation program, which will simplify how we forecast our inventory and how that flows through our support centre operations as well. And so that is a multi-year journey with our partner Relics and that is progressing well. Ian.

Thank you, Sarah. So, yeah, just to round out the story, I'd say five things from us. First one, we look at the P&L in totality, so it's very much a holistic P&L management, as opposed to looking at an individual line and saying we've got to manage that line in isolation of everything else. The next one is the size of Kmart relative to Target. Kmart continues to grow. It is the more profitable of the two businesses, as we all know. So we get a mixed benefit from that, which helps us offset cost increases over time. The technology platforms, some of which I've mentioned already, are still relatively early in their evolution. We see a lot of opportunity to continue to leverage those. to get further improvements across all aspects of our business, then ultimately the P&L. And then finally, two brands, one business. The fact we're moving to one business model for Kmart and Target will also open up further productivity potential in the future.

Great. And could I just ask a second one of Mike? And just relating to M&A in the hardware space, Holman, one of Bunnings' strategic suppliers, has just changed hands. I'd just be interested whether, you know, that's likely to have any impacts on Bunnings. And then the second one, TradeLink, is for sale. Would that be something that Bunnings would consider to be a potentially attractive adjacent business?

Look, you know, we're always contemplating where the next growth opportunity is going to come from. And I think, as you know, Michael, we're very disciplined in the way we think about that. So sort of probably way too early on the ladder. On the Holman business, we're delighted for Wally Edwards and his family. They've built an incredible business. We were across the transaction before it went ahead. And actually, one of my colleagues was meeting with the new owners in Atlanta last week. We're really excited by the growth opportunities that that's going to present for particularly when it comes to industrial plumbing capability. So I think it's a really logical fit for the Holman business and a really exciting growth opportunity for them and their new owners and their relationship with Bunnings as well.

Thank you.

Thank you. Your next question comes from Lisa Dang from Goldman Sachs. Please go ahead.

Hi, Rob, and congratulations on the results. Just a question on the housing market. You know, obviously we're still seeing mixed signs, and I noticed there was a question or a comment earlier about... reducing activity through the half. So just standing at this vantage point, like what is our best sort of central scenario about, you know, the housing in terms of prices, transactions, open ads, that sort of 12-month forward view?

Yeah, I might get Mike to talk to that. And I think also maybe providing a bit of context that the commercial business in Bunnings is a very broad business that goes beyond the residential housing side. But anyway, Mike can talk to both. Yeah, thanks, Rob.

And hi, Lisa. I think to that point, we've got a strategy when it comes to The commercial side of the business, which is really focused on a whole of build. So we've got a really unique opportunity to sort of see right through the sort of housing cycle. You know, there's some characteristics, you know, play in the market. Housing demand is incredibly strong. And you see that through the resilience of house prices across all markets in Australia and also New Zealand. And there's clearly strong demand, which has been driven by, you know, people wanting to be able to get into that first housing or first home, I should say, coupled with what we're seeing from an immigration point of view. But, you know, I think if you're looking at the sort of front end of the bill, first home buyers clearly, you know, very, very value conscious, very mindful of the interest rate environment. And that's seeing a slower growth. sort of start point but activity through the rest of the pipeline is quite strong and and we've seen really strong performance particularly in some of the finishing stages we see that particularly come to life when you see how the Beaumont Tiles business performs for example less in terms of absolute volume because it's a very very small business but more the customer activity that we're seeing there alterations and additions continue to be quite strong albeit slightly smaller projects, but I think a lot of larger ones have sort of been commenced and finished in the last couple of years. So I think the market's in a solid space. I think there's still a lot of opportunity and work to be done in affordable housing and social housing, which clearly Bunnings is very well positioned to participate in strongly. So certainly a little bit quieter at the moment, and there's been plenty of commentary on that. But the underlying demand, very, very strong demand. And we're confident that as we move through calendar year 2024 that we'll see builders start to get a little bit busier, particularly that front end of the project cycle.

Got it. And then I guess a follow-up, which is, you know, a little bit more high level for the corporate, is we've made commentary around the health of the balance sheet supporting further investment into growth platforms. I just wonder if we could, you know, go a little bit more detailed in terms of what key verticals or subsectors in the market that we think presents most, I guess... abundant or interesting opportunities at this point.

Thanks. Lisa, it's Anthony. I'll have a go at that one. Look, I think, you know, we're not going to give specifics around where we're going to invest. The point around balance sheet is, you know, well made. It's quite well known that we like to have a strong balance sheet that gives us the flexibility to to both continue to invest in our existing businesses, which you've seen us doing over the number of years. We've talked to potential opportunities around expansion in lithium. Obviously, we've been making some bolt-on acquisitions in the health sector that you've seen. So I think, you know, we want to continue to maintain that flexibility in our balance sheet to be able to do that. So outside of really the key pillars that we've talked about, I think most of the growth will actually also come from expansion of our existing businesses. So there's plenty of opportunities for us to continue to invest in our existing businesses. Obviously, we have the flexibility through our balance sheet to look at acquisitions, but that's on a bit more of an opportunistic basis, you know, other than the bolt-on acquisitions that were made in the key sectors where we think there's further growth.

Cool, thanks. Lisa, Rob, the only thing I'd add to that is, as Anthony said, there's a lot of opportunity to keep investing in our existing businesses. I really wouldn't underestimate the opportunity there. And the great thing about investing in our existing businesses is that tends to be more ROC accretive. We tend to get much better returns. The risk profile is lower. As Anthony said, we're disciplined around M&A. We certainly have no KPIs in our business around having to do deals. If we can't see opportunities to invest externally in things and if we have surplus cash over time above our needs, then we've demonstrated in the past that we'll happily give it back to shareholders.

And just on that, like for organic, right, one digital, we've called out the FY24 sort of investment at $70 million net loss. Is it more beneficial for us to go harder on that if we're actually seeing really good, you know, returns from, you know, memberships actually buying more loyal repeats, et cetera? Like can we not go harder on that?

Lisa, it sounds like you've been speaking to our one digital team that would really like us to spend more money. Look, I think at the moment... Look, it's a fairly significant investment. I think we're getting really good traction on the investment we're making. It's a lot of money, but in the scheme of our group, it's a fairly modest amount. When you look around the world at what other large retailers are spending in this area, I think it's a fairly modest investment. We shouldn't forget that... You know, there's also investment that is occurring across our divisions as well. So, look, I think we've got the mix about right. We are very, you know, very focused on are we getting the return? Yeah, are we getting the benefit to justify the level of investment? And at the moment, I feel that there's really good evidence to suggest that the money is being well spent and it is strengthening our group at the moment.

Got it. Thank you.

Thank you. In the interest of time, we ask that you please limit to one question per person. If you would like to ask further questions, you may press star one again to rejoin the queue. Your next question comes from Tom Kira from Baron Joey. Please go ahead.

Just a question for Mike at Bunnings. Obviously, you've added a few new categories, pets, laundry cleaning in. I mean, I would love to know what the sales contribution is, but I presume you're not going to tell me that. But it might be helpful to understand a couple of things on that. What it's done to traffic and the demographic of the stores and whether that's changed. And secondly, I've heard that you're getting quite a lot of stock in the grey market. Is that in those categories? Is that the plan going forward? or are you more likely to get it from local suppliers as opposed to grey market?

Thanks. Yeah, thanks, Tom. And you're right, we're not going to talk to sales contribution, so sorry about that. But on the performance, we're really delighted. PET's obviously been in for longer. Cleaning has been a category we've been in for 30 years, so we've got incredibly well-established relationships with lots of different suppliers. A little bit has come through grey import, but the majority is actually being done sort of through the more sort of traditional buying practices. And we've been blown away by the support from those suppliers. And I think they're finding a really refreshing and engaged way of working with a retail business as well, which has been absolutely fantastic and I think is contributing to the really good support that we're seeing. What we're seeing from a customer point of view is a little bit of a higher frequency shop. We see that through some of the data that we get through our customer data platforms. So slightly higher frequency of shop. Clearly, you know, that ability to sort of buy, you know, buy in bulk is resonating very strongly with consumers as well. It is skewing a little bit to younger female demographic from the data we're seeing, but not in a significantly material way. We'll obviously watch these categories over the next six to 12 months. Pets, we're sort of into its second iteration, so you should expect to see some changes and expansions in some parts of the sort of subcategory structure, and we'll touch on that at Strategy Day. And cleaning, we've moved more into the laundry space from some of the general cleaning as well as automotive, and early signs on those have been really positive. Thank you very much.

Thank you. Your next question comes from Craig Wilford from MST Marquee. Please go ahead.

Hi Rob and Anthony and team. Can I just ask a question about space growth? It probably applies to each of the businesses with more Bunnings in the Kmart group. What's the plans with Bunnings? I thought it was going to be something closer to 2% space growth. Maybe my memories uh wrong there but it was more through existing stores and relocations and it looks like the contribution is a lot lower than that so is there just a timing issue there and target you know should we see further store closures given the operating performance we've seen in target

I might start, Craig, and then hand to Ian. It is very much a timing thing. Obviously, it continues to be a little bit challenging from a cost and pricing point of view in a commercial property market. We've got some really big projects still to come. The replacement store in Oxley in Queensland, which is now underway. We've got Tempe French's Forest in New South Wales. The replacement stores also are an interesting story. They're not clearly like for like. If I take Wonthaggi and Preston in Victoria. Between the two of them, they gave us 10,000 square metres of additional space. So we are increasing the footprint. I touched on it very briefly at the last Strategy Day, and I'll speak more to it this coming Strategy Day, but really starting to think through how we utilise space between our smaller stores and our larger stores. The Bunnings property fleet ranges from 2,000 square metres to 20,000 square metres. So the ability now that we've got online shopping the technology platforms we have to optimize that space i think will make that space work harder for us into the future but you know back to sort of the central part of your question it is it is timing and some of that's reflected in in what you saw in the capex spend in the half as well i might hand it again yeah sure thanks mike

Hi, Craig. On the Kmart side of the equation, I think we've called out, it's sort of less than five stores per annum is generally what we're going to be hitting. In Australia, it's pretty much, you know, optimising within markets or in new growth corridors when they occur. In New Zealand, there's more opportunity, but obviously trying to find the right real estate is never straightforward. So that's the Kmart side of the equation. I think on Target, if I just go back to your core, if you like, the background behind your question, I think there's a lot to be optimistic around for the Target business in the future. The performance of apparel has been strong through the first half. We've been very pleased with that. We've now got ANCO going into the categories which we've had probably a tougher time in Target over the last couple of years. So we're very excited to see that play out. We've got a lower cost base through the changes we're doing, bringing it to one business. And that's creating the ability for us to invest both in fixturing and technology to help drive that business in the future. So when I translate that through, what does that mean to the fleet? It means that we're pretty happy with the fleet that we have. We were always going to look at each individual store and its merits, which means if there is a store that we don't think is performing and we don't see a line of sight to performance, then obviously we'll look at exiting that at the right moment. But overall, I'd say the fleet's roughly in the right shape.

Thank you.

Thank you. Your next question comes from Christina Kim from JP Morgan. Please go ahead.

Hi, can you hear me? Sorry, it's Brian Raymond here. Yeah, we can hear you, Brian. Oh, great. Sorry. Thanks for that. So, Michael, just on Kmart again, just on the margins, I'm just intrigued at the sort of the level of reinvestment you're seeing. It's just unusual to see that sort of operating leverage out of Kmart, 5% revenue growth and 26% earnings growth. If you could just help us understand sort of where you're at in that investment cycle around price. even relative pricing sits. Obviously, we've seen Big W under pressure and versus other peers that we may not have as much visibility on. Normally, I would expect a bit more reinvestment in times like this when you're making fantastic return on capital and fantastic earnings growth. Is there opportunities that you see where you could reinvest in the customer offer, whether it be price or something else to further extend your leadership in the category?

Thanks. Thanks, Brian. So in the last six months, we've dropped and came out about 1300 prices. So 1300. And in Target, it's actually a little bit more than that over that same time period. So price drops is something that we continually do where we see there's a benefit in doing so, both obviously for our customers and also to create the right economic outcome for ourselves. I think when you look at the market more broadly, we track price perception and we're seeing our lowest price perception continuing to improve. So we feel like we've established an even greater lead over the last six months. So at the moment, we're feeling like we're getting the balance right between finding the right pricing point that we can deliver savings to our customers but still deliver adequate returns to our shareholders.

Great. And just to follow up on that, so the 10% margin you delivered in the first half, just to confirm, you see that as a sustainable first half margin, clearly the second half is always seasonally lower, but there's nothing kind of one-off in there that we need to be thinking about for the next year? It's a number which we could build on from here.

Correct. There's no one-offs driving that result. It's all underlying performance. There's some things that have gone well, so clearly we've called out apparels being a strong performer. That helps with our margin mix, because obviously apparel is generally at a higher margin than general merchandise, and if you have a really strong half, it means you've got less clearance. But none of those things I would put in the category of one-off kicks, which we shouldn't anticipate in the future, and our ambition is to continue to operate at the same level.

Okay, great. Thanks.

Thank you. Your next question comes from Ben Gilbert from Jarden. Please go ahead.

Awesome, team. This question is to Nicole or Rob or Anthony. But if we look at your data capability, you've sort of arguably got the best position or probably one of the two best positions in terms of your reach and engagement with consumers. But if I looked at it, there's probably sort of two positions. areas where there's probably still some, I suppose, sort of questions in terms of flybys. You've got a JV partnership with someone who you're increasingly competing against, and the question there is, is there a longer-term port or call whereby you could take full ownership of flybys? And then the second sort of question to that is around insurance and financial services. Obviously, you're used to doing insurance. to really sort of drive and build health and really sort of delve and take greater share of customer wallet, I would have thought that you would need to find some sort of financial services offer in your arsenal moving forward. So just came on sort of comment on those two points.

Yeah, I'm happy to, Ben, to talk to that, given previous head of the insurance division many, many, many, many years ago. Look, I'll start by saying just with Flybuys, I'd say that we're, you know, we're quite pleased with the Flybuys joint venture and, you know, obviously the Coles team can talk to it as well, but it's working for us. I'm pretty confident it's working for them. We're really, you know, there's a lot of opportunities we see to continue to improve. the customer experience, the member experience within flybys. We're continuing to develop the redemption offers and experience, reducing the operating costs of the program. You're right that, you know, at the margin, I think it's really important noting that it's at the margin, all of our businesses compete against each other. Even, you know, within the West Farmers Group, we compete against each other in some minor categories. But at the end of the day, we're You know, we're very different businesses with very different propositions, and we can be a lot stronger by leveraging the combined program. So we're pleased with that for the time being, and there's a lot more we can do. And then on the broader, you might call it, expanding the offer across financial services, I think the opportunities to do that are always there. But we'll... You know, the reality is that there's a lot we can do within our existing businesses, and that's where we're predominantly focused. And if we were to go down that track, we will be able to achieve far more once programs such as One Pass have reached critical mass. So we're really focused on trying to build the customer trust and the membership base there. And we're really pleased how it's going today. And then, you know, down the track, we'll, you know, we'll reflect on does it make sense to move into those other areas.

I'm so sorry, is there a put or a call that fits with implied lives at some point where you could increase your ownership?

I wouldn't comment on any aspects of the joint venture agreements. All I'd say, Ben, is that from our point of view, we're happy with the current position. The joint venture has usual joint venture provisions that most joint ventures would have, but our focus is very much on continuing to improve the Flybuys program as a JV partner. Okay. Thank you.

Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead.

Oh, good day, Rob. Kind of circle back on to One Digital. And there's a couple of questions on it already. Obviously, you're talking about a 70 mil loss for FY24. But you've also said previously that you'd expect it to eventually become profitable in its own right. And I get to a degree it might be a little bit around cost allocation because if you're seeing a lot of the benefits being embedded into the different divisions, then arguably you could be allocating those costs out to those divisions and you could say one digital becomes profitable in its own right. Can you just sort of give us a little bit of a steer on what you're thinking there? How far out should we be sort of pushing these 70 mil-ish type losses? At what point should we actually have one digital as a positive?

Look, what I might do, just on that, Richard, I'll just make a high-level comment. We've provided guidance for you each May just on what we think the next year's investment is likely to be in the One Digital, and we'll continue to do that. We'll do that for you as well in May this year when we go to the Strategy Day. You're right that, you know, from a P&L point of view, and you don't have visibility to this, but... we look at the broader benefits across the entire group. And most of the upside sits in the divisions. Most of the cost sits in One Digital. But Nicole might want to just talk a bit more about how we're thinking about, you know, how we're thinking about the investment we're making and how we're, you know, importantly, how we're, you know, what we're seeing in terms of the benefits that are flowing through. Because at the end of the day, that's what we're always assessing. Does it make sense continuing to invest this amount of money? Are we moving the businesses forward?

Yeah, thanks, Rob. So definitely the incremental sales are obviously embedded in the divisional numbers, but what we can actually see already is that One Pass members are incredibly valuable. They spend more, they shop more frequently and they cross-shopping more than non-members. So, for example, members' total spend is more than two and a half times that. those of non-members and we're really pleasing the early early signs for one pass is that they're actually cross shopping which is a big objective of how we actually measure success of the program obviously in the last year we've invested substantially in the CVP so we've added five times flyby's points because we see that as important for driving in-store growth and that's really important part of our program it's an omni-channel program But things like 365-day returns and two-hour or express click and collect, these are all adding value to what the members are getting. And so as we continue to drive and grow those memberships, we want to continue to add value to our divisions and grow sales overall.

To click and collect example, I mean, the cost would fall to the... actual, you know, whatever retailer was actually delivering that, surely. How do we think about that in terms of what that means for the, I guess, in the end, the result printed by OnePass or OneDigital?

Yes, so the cost of the operational costs sit with the division. Obviously, the technology costs, the member management, the marketing, those other elements to the program are borne by OneDigital.

Right, okay. I'd say just one general comment. I think one of the great things that's come about through OnePass, and we've really challenged ourselves in all the businesses, things like free delivery, free online delivery, express click and collect. It's really forced us to get a lot better. forced us to get better, be faster, be more efficient, more productive, lower cost in our operations. It's been quite, I think, a healthy challenge across our businesses. So take something like Express Click and Collect. You'd expect us to get a lot more efficient at that, and over time it shouldn't necessarily be a cost burden on the business. And given that members pay a membership fee to be part of the program... they expect to get something, you know, something unique, something different for that membership. Yep. Okay.

Thank you.

Thank you. Your next question comes from Ross Curran from Macquarie. Please go ahead.

Hi, team. Apologies. This question about health, maybe it's better placed in the strategy today in May, but I was just looking at health, and earnings are about two-thirds of what consensus expectations were for API or standalone, and you've added more businesses into the mix along the way. We've recently got a bit of a better feel for the earnings in Chemist Warehouse. The question is, do you have the right operating model for health? Because there seems to be other operators in the space that are running different models with significantly better earnings outcomes for shareholders.

Hi. Thank you. That's a great question and definitely happy to go into it further in Strategy Day. I would say when the old API model, you've got to remember if we go back a year, it's not an apples for apples comparison. We've divested businesses like... like New Zealand. So we look at EBT. They used to report earnings in a different way, so it isn't actually apples for apples. We've obviously been also investing substantially to really bring the operational efficiency up. In terms of the sort of flat result, there was a lot in it in the half. So, you know, as Anthony said, from a revenue perspective, being in wholesale, we were cycling, you know, more than $100 million of COVID antiviral sales. We did see strong underlying growth in our retail business to offset that and actually had quite a lot of headwinds from a margin perspective there. with 60% to 80% prescribing, you know, some PBS price cuts sort of cycling through, and we're investing in people systems and capability. The new businesses that we have added are still very new to the group and very small comparison. So you should expect to see that sort of flow through over the next two to three years. Chemist Warehouse is a formidable competitor and yes they do have a different, well actually they have a fundamentally similar operating model but they've got a lot more operating leverage given their scale. And what our focus is is really on improving the consumer offer, you know, in our kind of retail business. So, you know, we are a community pharmacy-focused business at the moment with a strong front-of-store offer in Priceline, and there are opportunities to grow, expand that and make it more competitive. So... Yes, there are opportunities to enhance the operating model, but that is a work in progress. And given the ownership structures, that will take time. And that's very consistent, I think, with the narrative that when we started this journey, it really was a transformation.

Thank you.

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

G'day, Rob. I just had a question on the lithium business. And apologies, I only just jumped on the call, so apologies if you've been asked before. But we're seeing some of the other mines cut back on production, given where pricing is, which is usually the first seeds of the uptick in the price cycle. So I was just wondering what the thinking was there about, you know, producing spodumene and whether you might actually decide to cut back production for a while given where prices are. And as you've mentioned on the call that, you know, it's really about the lithium hydroxide business, which isn't even going to come online. for a while yet. So I'm just wondering if that's part of the thinking, cutting back production of spodumene.

Phil, I'll make a brief comment and Ian can add to this. As Ian was saying earlier on the call, you're right that our main focus is developing an integrated hydroxide plant and our ambition is to sell lithium hydroxide And we feel that we'll be very well positioned on the cost curve and we'll generate good returns from that. That is our focus. You know, at the moment, we're just going through this short term phase where we've actually commissioned the concentrator in advance of the refinery. And we do have some additional spodumene available for sale. We'd say that is really just opportunistic. You know, we're considering that in an opportunistic way in advance of the hydroxide plant, but it's certainly not the main game. And there's no intent to be curtailing production or cutting back production just based on what we're seeing in terms of short-term markets. But, Ian, I don't know if you wanted to add to that.

Yeah, hi, Phil. Just on top of that, we've been running the concentrator now for a couple of months, and as I mentioned earlier... we see the ramp-up profile of the concentrator hit its nameplate capacity or steady-state operations is taking us probably 12 months. And that takes us to the end of the year and into perhaps the first part of calendar year 25, at which time we'd be into commissioning the lithium hydroxide refinery. and the objective would be to get the concentrator better down and operating at maximum rates and then start introducing some of that spodumene concentrate into the refinery and hopefully all things going well more and more throughout calendar year 25 to produce more and more lithium hydroxide, which, as Rob pointed out, is the main game.

Can I ask as a follow-up, I mean, you can stockpile spodumene. So, I mean, maybe if you produce it, but, you know, do you need to sell it at these prices? Like to stockpile it and put it through the lithium plant once it's ready?

Yeah, that's a good question, Phil. We wouldn't be stockpiling it to ultimately put it through the lithium hydroxide plant because at the run rate of the concentrator going forward, the nameplate capacity, that has sufficient production capacity to put into the hydroxide plant. So it'd really just be a delay in the sales of spodumene concentrate. We do have some arrangements in place to supply concentrate over the next 12 months, and we'll be talking with our customers about the timing of those obligations to supply. But we'd also have some opportunity to delay some sales and potentially look at stockpiling some sales of the – or stockpiling some of the spodumene concentrate if we have a view that that's in the best interest of our shareholders. Great. Thank you.

Thank you. Your next question comes from Craig Wolford from MST Marquis. Please go ahead.

Hi, this is just a follow-up on that lithium. Two questions to it. One, so is the company required to sell lithium at a loss for spodumene over the next six months, assuming prevailing spot rates? And is there anything we should be mindful about, given you're starting selling product, how that affects depreciation in that lithium business?

Well, the problem with any rampart is that the costs per unit are extremely high because you're not making the volumes that you'd normally make at steady-state operations. So with the current pricing, our costs of production... Sorry, with the current operations and low volumes, our costs of productions are much higher than what we'd see in steady... run rate, steady operations. So inevitably, we're going to be not making a positive contribution. However, over time, as that run rate increases, as the ramp up increases, our costs will come down. And as I've said earlier, our cash costs, our costs of production, will be in a similar range to that that you're seeing in the West Australian hard rock spodumene concentrate producers at the moment. Although inevitably it's all about lithium hydroxide and I realise that A lot of the analysts are looking at the short term, but we look very much at the long term. It's about producing lithium hydroxide and where we sit on the cost curve for lithium hydroxide, the positive ESG credentials we're going to have putting that battery-grade chemical into the market and the long-term return for our shareholders. The depreciation question, I wasn't quite sure what you meant by that.

Yeah, Craig, it's Anthony. In terms of the depreciation, obviously once the plant is commissioned and working, then the depreciation is actually amortised or capitalised into the cost of goods sold. So you'll see that flowing through when you sell the product.

That's what you mean, as well as obviously lithium hydroxide down the cake.

Yes, yeah, that's right.

Thank you. Your next question comes from Sean Cousins from UDS. Please go ahead.

Thanks. This is a question on health, further to Ross's question there. Just conscious that health's very early in its ownership there, but the return on investment is sort of quite low at the moment. And I'm just curious around the trajectory of the improvement in returns and earnings. Is this like a five-plus year sort of period before you get a satisfactory return, or is it more of a in the next one to two years, just aware of the degree of investment that's required? But just if you can kind of shape So how you actually expect to get a satisfactory return for shareholders in this division over what timeframe would be helpful, please?

Sean, I might answer that because I'll go back to what we said even before Emily joined, and that is that given the extent of investment and transformation that needs to go on within the business, really you should be thinking about this over a five-year period. So we're a couple of years into it. and we'd expect to see good earnings improvement over the next couple of years. There'll always be times in which, whether it be through additional investments, bringing new businesses in, that might reset the profile. But the bottom line is that we're very happy with the progress that the team's making on the transformation, but we're not happy with the level of profitability or returns. So Emily could add to that.

Yeah, and I think when you look at the business, it's a portfolio, but at our core, we're a wholesale business, which is high volume and low margin. So, yes, we're focused on growing the top line, growing and retaining customers, but, you know, to the point about the long-term cost base across the rest of the divisions, you know, we're investing in our supply chain. Key to improving our margin is really about getting cost efficient, and they are... significant investments that will play out over a multi-year period. So we are really deeply focused on getting our cost base to a sustainable level so that it will bring further operational leverage, you know, in a timeframe that is five years, as Rob just said.

Great. Thank you very much.

Thank you. There are no further questions at this time.

OK, thank you, everyone, for joining. And if any further questions, please call Simon and the team. But thanks for joining us today.