Wesfarmers Ltd Old

Ladies and gentlemen, thank you for holding and welcome to the West Farmers 2024 full year results briefing. Your lines will be muted during the briefing. However, you will have an opportunity to ask a question immediately afterwards and instructions will be provided how to do so 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. Please go ahead.

Thanks very much and hi everyone. Welcome to our 2024 full year results briefing. In Perth today, I'm joined by our Divisional Managing Directors and our CFO, Anthony Gianotti. As we ordinarily do, I'll give an overview of the group's performance for the year, provide some comments on the portfolio and then Anthony will provide more detail on the financial performance. I'll conclude with some comments on current market conditions and the outlook for the group. And then the divisional managing directors, Anthony and I, would welcome any questions that you may have. So starting on slide four, a slide that will be familiar to all of you, it sets out the Westfarmers corporate objective, which is to deliver a satisfactory return to shareholders. We define satisfactory as top quartile shareholder returns over the long term. We acknowledge that we can only achieve this if we continue to anticipate the needs of our customers, look after our team members, treat suppliers fairly, contribute positively to the communities in which we operate, take care of the environment and act with integrity and honesty in all our dealings. So moving to slide five, starting with our financial performance. This year, West Armour's net profit after tax increased 3.7%. to $2.6 billion and operating cash flows increased 9.9% to $4.6 billion. Our businesses demonstrated strong operational execution as the group's profit result was achieved in a challenging market environment with continued cost of living pressures, subdued activity in residential construction and volatility in key commodity prices. We had expected some of these challenges, especially with persistent cost pressure and and our businesses benefited from our early proactive decisions to focus on a range of productivity measures. As a result, we were able to mitigate cost pressures and continue to provide great value for customers. Notably, all our major retailers grew sales and earnings for the year, which for 2024 financial year is a very pleasing outcome. This year, Kmart Group's performance was a standout, with earnings growth of nearly 25%, highlighting the market leading value of its ANCO products, its unique sourcing capabilities and ability to operate more efficiently. Due to the continued growth in profit and cash flows, the board has resolved to pay a fully frank final dividend of $1.07 per share, which brings the total dividend for the year to $1.98 per share, a 3.7% increase. Looking across the portfolio, our quality businesses and commitment to responsible long-term management gives us confidence that we're well positioned to deliver returns over the long term. Turning to slide six, as mentioned, the results reflect strong execution from a portfolio of high-quality businesses where we have trusted brands, competitive advantages in scale and sourcing, and exposure to industries with attractive long-term growth, such as health and wellbeing and critical industries. This past year, our retail businesses have focused on continuing to provide market-leading value, and our major retailers benefited from their everyday low price positioning, which resonated with customers in the current environment. Their focus on reducing costs and improving productivity has helped to lower prices at a time when many households and businesses are doing it tough. Importantly, we continued to retain our everyday low price positioning at Bunnings, Kmart and Officeworks, which benefited households and business customers as they focused on balancing their budgets. Our customers have responded well to price drops, including more than 3,000 price drops at Kmart in the last year. Our businesses are continuing to meet changing customer needs and expand their addressable markets through providing new products and service offerings and capturing a greater spend from younger generations, such as Gen Zs and millennials, while continuing to meet the needs of the broader market. On the industrial side, our businesses again delivered strong operating results, with WESF achieving increased plant production and supporting customers in critical industries. Set out on the slide are some examples of actions we're taking to drive sustainable long-term returns. Key to our success this year has been the ongoing focus and investment in technology and digitisation across the portfolio. This helps unlock operational benefits, productivity improvements, as well as improving the product and service offering through a stronger omni-channel experience for our retail customers. Turning to slide seven, I'll use this to talk to some of the key divisional highlights and then Anthony will provide more detail on the financials. Bunnings demonstrated the resilience of its offer and strong execution of its strategic agenda, continuing to grow sales and earnings in challenging market conditions. This year, Bunnings continued to expand its range with innovation across categories such as smart home, supporting an increase in customer demand. Bunnings also continued to invest in supply chain, data and technology projects to strengthen the customer experience across channels, such as the new Bunnings local delivery service. The business continued to improve its whole-of-build commercial strategy, and in the second half, Bunnings opened a new state-of-the-art frame and trust site to supply customers with pre-made products frame and trusses with greater efficiency at a lower cost. Kmart Group recorded significant earnings growth. The result reflects Kmart's consistent focus over many years on developing world-class end-to-end sourcing capabilities to deliver market-leading own brand products through ANCO. This focus has enabled Kmart to deliver a step change in performance driven by its everyday low price positioning and provided new growth opportunities for the future. The performance has also been supported through leveraging digitization to improve operating performance. Now that Kmart and Target integration is largely complete, Target is benefiting from Kmart systems, processes, and capabilities. Wessef delivered strong operating results with good plant production rates and great safety performance for the year. As previously outlined, Wessef's financial result reflected lower global commodity prices, At our covalent joint venture, the focus remains on developing the integrated mine, concentrator and refinery and we expect the project to deliver satisfactory returns over the long term. Officeworks continue to focus on evolving its product offer and gained market share in technology while also progressing actions to modernise its operations including a new automated customer fulfilment centre in Western Australia. Industrial and safety continue to improve its performance benefiting from recent investments and a strong focus on productivity. The health division increased earnings while continuing to invest in transformation activities, focusing on opportunities to improve returns. Sales growth in retail and pharmacy wholesale was pleasing and is benefiting from these recent investments. The health team is focused on integrating the instant scripts and silk acquisitions which were completed during the year and are performing well in line with expectations. and the health division is now moving from a phase of building capabilities to realising the benefits of these investments. One Digital continues to play an important role, accelerating omnichannel growth for our retail and health divisions. During the year, significant enhancements were made to the OnePass membership program with the addition of new retail partnerships, delivering even better value for its members. It has been pleasing to see these enhancements resonate with members, and OnePass is driving incremental sales for the divisions and improving customer retention. We know that OnePass members are significantly more valuable than non-members, shopping across more brands more often and spending more after joining the program, with members shopping three times more frequently compared to non-members per annum. Catch reduced its losses on the prior year, following actions to reset the operating model and reduce the cost base. It's clear that the competitive environment in Australian e-commerce retail is intensifying with the growth of international e-commerce and marketplace retailers. In this environment, the group's investment in Catch, which provides a marketplace platform and fulfilment capability, provides valuable insights and capabilities for the group's broader operations and also improves the offer for OnePass members. So CATCH is now scaling up its marketplace, which is a capital light strategy that will better utilise its supply chain assets and digital capabilities, whilst also strengthening the group's e-commerce offering. Now, these actions are expected to reduce ongoing investment and improve returns, and progress will continue to be monitored very closely. Turning to slide eight and the progress on our sustainability agenda. As one of the largest employers in Australia with around 120,000 team members, we know our businesses play critical roles in our economy, providing the first job to thousands of teenagers, often casual, still in school, through to terrific multi-decade careers built on great experience and development opportunities across retail and industrials. We know that our success is linked firmly to the creativity and commitment of our teams and have long recognised that we'll only achieve Westfarmers' purpose if we continue to look after our team and provide a safe and fulfilling work environment. In this context, it was pleasing to record improvements in safety across most businesses. At a group level, TRIFA declined slightly from 11.3 to 11, albeit with an increase in the year of earnings. At the end of the year, WESF had not recorded a single lost time injury for 17 consecutive months. The group remains at proportional representation with 3.8% of Australian team members identifying as Aboriginal or Torres Strait Islander. And recognising its link to long-term value creation, we continue to build climate resilience across our businesses. During the year, divisions achieved a 5.4% reduction in Scope 1 and Scope 2 market-based emissions, building on improvements in recent years and working towards our targets with respect to emissions reduction and renewable energy targets. Turning to slide nine, you can see the summarised financial performance. I'll now hand over to Anthony, who will talk in more detail on the divisional financials and the balance sheet and cash flow.

Thanks, Rob, and hello, everyone. On slide 11 in the presentation, we've provided some further detail on the sales performance across each of the divisions for the year and for the second half. I'll speak to the performance of each division on the next slide, but at an overall level, we were pleased with the sales results for the year. In particular, the strong growth across our retail businesses, which reflected the market-leading value credentials and our everyday low price proposition, which resonated with customers in a difficult trading environment. This was particularly the case in Kmart, where comparable sales increased 6.4% on the prior year, while Bunnings had a pleasing second half, increasing sales by 2.9%. The revenue decline in WSF was driven by lower global commodity prices relative to the elevated levels we saw in the last financial year. On slide 12, at a total level, divisional earnings increased 1.8% for the year, with the strong results in retail more than offsetting the impact of lower commodity prices and earnings in WESF. Our retail businesses executed well during the period, enabling them to deliver great value to customers and benefit from the continued investment in efficiency and productivity. On a combined basis, Bunnings, Kmart Group and Officeworks increased earnings by 6.8%, Across the retail portfolio, the focus remained on keeping prices low, which supported growth in transactions and sales dollars and allowed our businesses to further fractionalise costs. I'll now step through the divisional results in more detail. Firstly, in Bunnings, sales growth of 2.3% was supported by growth in both consumer and commercial segments, driving growth in transactions and units sold. As household budgets remained under pressure, consumer sales growth was supported by bunning strong value credentials with bulk pack quantities, own brand products and entry-level ranges all performing strongly. Pleasing second half sales growth was supported by sustained demand for repairs and maintenance, online channel growth and range innovation, partly offset by a market funding in building activity. Commercial sales growth reflected continued demand from trades, Demand from builders moderated through the year as new building starts were lower relative to recent years. Bunnings maintained its strong cost discipline and continued to invest in business improvement initiatives to support ongoing reinvestment in prices and improved experiences for customers. Bunnings earnings before property contributions of $2.25 billion represented an increase of 2.6% with the impact of lower property activity for the year, resulting in Bunnings overall earnings increasing by 0.9%. Kmart growth delivered record earnings of $958 million for the year, an increase of 24.6%. We continue to see a strong response from customers to Kmart's lowest price positioning and ANCO product range. Sales at Kmart increased across all categories, with units sold, transaction volumes and customer numbers all growing on the prior year. Earnings growth for the year reflected Kmart's strong trading performance, including strong growth in apparel sales as a result of improvements in the product offer and well-executed pricing strategies. Target's comparable sales declined of 3.6% for the year, which included a disrupted period of sales with the changeover in Target's general merchandise range to ANCO. Pleasingly, the core apparel range in Target performed well, with positive sales growth for the year and the ANCO range is tracking in line with expectations. Kmart Group continued to focus on productivity measures, including the integration of the Target back-office, which along with the moderation in key input costs, mitigated the impact of cost of doing business pressures and higher shrinkage. In WESF, revenue declined 16.9% and earnings declined 34.2% to $440 million for the year. The result was largely driven by lower global commodity prices with strong operating performance delivering higher sales volumes across all segments of the business. In chemicals, earnings decreased significantly due to the lower global ammonia pricing and higher WA natural gas costs compared to the prior year. In clean heat, earnings were also impacted by higher WA gas costs and a lower Saudi contract price. In fertilisers, despite strong sales volumes from a later 2023 seeding season, earnings declined due to the lower realised margins in a more competitive market environment. Good progress was made this year on construction of the lithium hydroxide refinery, which was approximately 80% complete at the end of the financial year. Due to subdued market pricing and the high unit cost of production as volumes ramped up during the half, WSF's sale of spodumene concentrate in the second half contributed to a loss of $26 million for the 2024 financial year. This loss includes WSF's share of covalent corporate and overhead costs. In office work, sales increased 2.3% and earnings increased 4% to $208 million. The result was supported by growth across key categories including technology, stationery, art, education and print and create, partially offset by lower furniture sales. The sales result also reflected strong Black Friday and end of financial year trading and and solid sales growth during the back-to-school period as Officeworks cycled the New South Wales government's back-to-school voucher program last year. The earnings result was supported by disciplined cost management and productivity initiatives across Officeworks stores, supply chain and support centre. These actions helped mitigate the impacts of ongoing cost of doing business pressures during the year. Industrial and safety delivered a solid result for the year. Revenue increased 1.5%, supported by revenue growth in Blackwoods and Corgas, reflecting higher demand from major customers, while revenue in Workwear Group was in line with the prior year. Earnings increased 9%, with recovery in operating margins helping to offset ongoing domestic cost pressures. West Farmers Health continued to focus on its transformation program to accelerate growth and improved returns. Earnings of $50 million reflected the continued investment in transformation activities and the integration of recent acquisitions, including $9 million of integration costs associated with the acquisitions made during the year. Excluding non-cash amortization expenses relating to business acquisitions, earnings increased 20.7% to $70 million. Priceline delivered strong sales growth supported by store network expansion promotional activity and online sales, and wholesale delivered sales growth despite cycling a significant reduction in COVID-19 antiviral sales. Catch reported a loss of $96 million for the year, which included an $18 million non-cash impairment to Catch's brand value and $5 million in restructuring costs. Excluding these costs, loss has improved by $50 million compared to the prior year. A priority this year was to remediate catchers in stock business and to exit unprofitable lines which impacted GTV. As Rob mentioned, now that the remediation activities are complete, the focus is shifting to scaling the capital light marketplace and we expect losses in the 2025 financial year to continue to reduce. Turning now to slide 13. Our other businesses and corporate overheads reported a loss of $167 million, and consistent with previous years, the result included the impact of a number of one-off movements and items. The key driver here was the favourable property revaluations recorded in BWP Trust, with the group share of profit from associates and joint ventures increasing to $19 million. Group overheads were broadly in line with the prior year, while other corporate earnings increased by $8 million. This increase reflected a favourable group insurance result and proceeds received as part of the value share mechanism agreed on the sale of home base. This was partially offset by lower dividend income this year following the sale of the West Farmers remaining interest in Coles back in April 2023. Finally, through One Digital, we continued to develop the One Pass membership program and the group shared data asset with a net investment of $70 million. As you've previously mentioned, 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. Turning to working capital and cash flow on slide 14. Divisional operating cash flows increased 4% for the year with divisional cash realisation of 101%. The divisional cash flow result reflects favourable working capital management in Bunnings, which saw higher stock turns, and this was partially offset by higher closing inventory in Kmart due to the later sell-through of winter apparel and lower payables due to the timing of year-end payments, as well as working capital investment in the health division. This was primarily from changes to supplier and customer payment arrangements. Overall, we're comfortable with inventory health across the group. with good stock availability across the retail divisions and improved stock turn over the year at both Bunnings and Kmart Group. At a group level, operating cash flows increased 9.9% to $4.6 billion, reflecting the strong divisional cash flows as well as lower tax pay due to the timing of tax instalments. Free cash flows for the year decreased 11.1% to $3.2 billion, which reflects the cycling of proceeds from the sale of the group's remaining interest in Coles back in 2023 and the impact of cash consideration for the acquisition of Silk and Instant Scripts this year. Moving to capital expenditure on slide 15. The group invested gross capital expenditure of $1.1 billion for the year, which was 16.5% lower than the prior corresponding period. This was driven by lower spend on new stores and development activity in Bunnings and lower development spend on the covalent lithium project due to the timing of project spend. Proceeds from the sale of PP&E declined for the period, reflecting reduced property disposals at Bunnings, and this resulted in net capital expenditure for the year declining 11.7% to just over $1 billion. For the 2025 financial year, we expect net capital expenditure for the group in the range of $1.1 to $1.3 billion, and this will obviously be subject to net property investment and project timing at WESF. This guidance includes the balance of the remaining capex associated with the construction of Wessex share of the covalent lithium refinery with first product expected in mid 2025. 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 and growth initiatives and to take advantage of value accretive opportunities that may arise We continue to actively monitor the group's debt mix and we manage exposure to variable interest rates. The average cost of funds for the year increased from 3.3% to 3.9% with the impact of interest rate increases largely mitigated by the group's fixed rate bonds and interest rate hedging programs. Other finance costs increased 23% to $166 million, reflecting lower capitalised interest following the commissioning of the Mount Holland mine and concentrator and higher average interest rates during the period. On a combined basis, other finance costs, including capitalised interest, increased 8.5%. We continued to strengthen our core credit metrics and maintained our strong investment grade credit ratings from Standard & Poor's and Moody's. And the group maintains considerable headroom, and at the end of the financial year, the group had available unused bank financing facilities of around $1.9 billion. And finally, the dividends on slide 17. As Rob's mentioned, the board has determined to pay a fully franked final dividend of $1.07 per share, which brings the total dividend for the full year to $1.98. This is consistent with our dividend policy, which considers available franking credits, balance sheet position, credit metrics and cash flow generation. In line with recent practice, the group does intend to repurchase shares on market to satisfy the shares issued as part of the dividend investment plan. I'll now hand back to Rob to cover Outlook.

Thanks, Anthony. Now, turning to slide 19. Before I touch on Outlook, I just wanted to make a couple of remarks on the portfolio. We have high-quality businesses that provide us with a platform for long-term shareholder value creation. Our retail divisions benefit from their value-based offers, leading market positions and products with broad customer appeal. Westf's strategic domestic manufacturing capabilities support customers in critical industries where Australia is globally competitive. The health division provides exposure to sustainable long-term growth in health, beauty and wellbeing sectors. And across the group, we're pursuing opportunities that support decarbonisation, including the ongoing development of the covalent joint venture project. So turning to slide 20, I wanted to stress a few things with the portfolio and as it relates to growth. We have various opportunities for organic growth in our current divisions with attractive returns available from range expansion and investment in adjacencies. Our investments in health and lithium refining are a long-term investment that are well positioned to deliver growth in earnings and returns on capital over the coming years. And finally, as Anthony said, the group's flexible balance sheet provides a degree of optionality to deploy capital across the portfolio and to consider step-out opportunities that generate shareholder returns. So turning to outlook on slide 21, at a macro level, As we anticipated heading into the year, inflation and interest rates remain elevated and continue to place pressure on household budgets and domestic cost of living and cost of doing business pressures are expected to persist in FY25. Despite these challenges, we continue to see low unemployment and population growth providing support to overall economic conditions. In this environment, we remain confident our businesses are well-positioned. with their market-leading value credentials and an ongoing focus on productivity and efficiency. For the first eight weeks of the 2025 financial year, Kmart Group delivered sales growth broadly in line with the growth in the second half of the 2024 financial year. Bunnings continued to see positive sales growth, but growth is moderated from the second half of 2024 financial year, impacted by the continued market-wide softening in building activity And Officeworks delivered sales growth slightly ahead of the growth in the second half of 2024 financial year. Along with our joint venture partner, Westfarms remains focused on developing the covalent lithium project, which includes the mine, the concentrator, and importantly, the refinery. The project is expected to deliver satisfactory returns over the long term due to its attractive cost structure and the improved margin available from value-added production. Covalent is expected to complete construction and commissioning of the refinery with its first lithium hydroxide product in mid-calendar year 2025. Sales are expected in FY26 following ramp-up activities and satisfactory product qualification with customers. Looking ahead, Westfarmers 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. Before we stop to take your questions, I wanted to acknowledge that this is the last results presentation where Ian Hanson, Managing Director of WESF, will be in attendance. As many of you would know, Ian is retiring later this year, handing over to Aaron Hood after an over 40-year career at WESF Farmers. Ian's been instrumental in the development and the success of WESF over the years. Whilst we're sad to see him leave, he's not leaving entirely because we're really happy that Ian has agreed to remain on board as the chair of the Covalent Lithium Joint Venture and to continue to provide advice to us on various projects. So on behalf of the leadership team of West Farmers, Ian, thank you very much and all the best for your last analyst call. So with that, we'll now take your questions.

Thank you. We will now begin the Q&A 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 then 2. We do ask that you limit your questions to one per caller and that clarifying questions are concise. You may then rejoin the question queue for any additional questions. The first question today comes from Tom Keerath from Baron Joey. Please go ahead.

Morning, guys. Just a question on Bunnings. It looks like the store growth was pretty slow in the back half of I know you haven't spent a whole lot of capex either in the fiscal year just gone. Just how are you kind of thinking about store growth? I think you've given the guidance of 10% over five years. Is that changing? Yeah, what's kind of happened there in the second half, you know, economics of stores, sites, et cetera? Thanks.

Yeah, thanks, Tom. As I said at Strategy Day, if you sort of look back, it's been about net 10% space growth in the last five and sort of 10% space growth in the five to come. New stores, a pretty challenging time out there for significant construction projects. We've got a couple like French's Forest in Tempe that we're just being really measured in discipline in sort of progressing those, so that's sort of slowing the capital spend up. But we've got a bit to come. We've got French's Forest, Tempe, the redevelopment of our Oxley site, which is the one that's flooded a couple of times in Queensland, Portland in Victoria, and in Varela in Western New South Wales still coming, as well as some expansion projects. And then alongside that and complementing that is the work that we're doing inside the box to drive space productivity harder. So automotive, for example, is rolling into our stores at the moment. And that's coming as we reduce some space in flooring because we can lean more on Beaumont tiles, for example. So hopefully that gives you a bit of a perspective that we sort of see space growth continuing to be sort of that 10% over the five-year period, but just some timing on some of the projects.

Thanks. And just on Toolkit Depot, I just noticed that's slowed down quite a lot. How are you thinking about that one specifically?

Yeah, I think as I said at Strategy Day, Tom, the opportunity that we've sort of seen emerge over the last 12 months is the acceleration of our digital business and some really pleasing performance, which is letting us sort of drive a great customer outcome, but with a lower capital spend on new stores. We opened Belconnen, I think, during the period, and we've got one under construction at Launceston in Tasmania as well. So they'll continue to come out, but we've seen some really pleasing results digitally with TKD and we're just sort of driving that. So we'll sort of swing back to that one at the next strategy day as well.

Cool. Thank you. Thank you. The next question comes from Michael Samotis from Jefferies. Please go ahead.

Hi, everyone. I was hoping we can talk a little bit about how much more productivity you expect to be able to generate from the retail businesses over the next 12 months. And I think it would be useful if you put it in context of what you managed to achieve last year, as well as the difference in cost of doing business and COGS outlook for this year versus last year.

I might start, Michael, and then I'll hand to the others. But from a productivity point of view, you know, we sort of think about it as a bit of a full-court press across Bunnings. So did significant restructuring work with our New Zealand support function, streamlining our merchandising. And we did similar with our Australian store operations team so that we can be more efficient and more streamlined. You know, we've called out, I think, earlier in the year, sort of the millions of hours we've identified and redeployed into service. in stores, and we sort of have an outlook on that for around about another million hours across the year ahead. That sounds like a lot, but obviously, as you break that down to stores, that comes through in lots of different ways. We're more efficient at the back dock, more efficient with some of our pricing, and we can see a very clear pathway for ongoing productivity improvement. I know in other results calls, cost of doing business has sort of been called out, and absolutely, it's a challenge with electricity and rates and taxes and things that get introduced. But I think that, you know, over the last sort of two or three years, our team have done a very, very good job in a very disciplined way at identifying those cost opportunities and driving them out. And as we start to leverage some of the tech investments we've made, you know, we've got a really good runway ahead of us, but we do want to do it in a very methodical, disciplined way because we're bringing the team on the journey and we don't want to disrupt the customer experience as well.

Look, I agree with much of what Mike said around cost pressures. They're certainly there but I think as we talked about over a number of strategy days and results presentations, Officeworks has had a well understood path to modernising and simplifying our business over many years now and we continue to do that. We opened a new CFC in WA during the year. We're looking forward to that delivering the returns that are in the business case and it's on track to do that. We continue to invest in process and technology-based improvements in our support centre throughout the year and our demand and replenishment transformation program, which is significant for Officeworks, is well underway and on track and will enable us to have an end-to-end view of inventory for the first time across the business and deliver some material benefits on the back of that. And we continue to look at opportunities to improve the store environment, whether that be through the use of technology and how our team work, but also making sure we're optimising rosters and cost rates across the business. So all of that's really, really critical, not just to make sure we deliver long-term returns for shareholders, but also to continue to invest in price to deliver great value for our customers. Ian?

Yeah, thanks, Sarah. Hi, Michael. A couple of things from me. I think, first of all, we have the one brand, two businesses. So I think I've got this wrong again. One business, two brands, got there in the end. That gives us a significant productivity improvement in the target business. I think last year we called out that the one-off costs were pretty much offsetting the benefits. This year, of course, we'll get the benefits, so that'll flow through, particularly in cost of doing business this year. Outside of that, we do look at our processes all the way from product design through to in-store execution, and a combination of the processes and the technologies that we've been implementing gives us a line of sight to further productivity pretty much across that inventory flow. So that's both in Cost of goods sold as well as cost of doing business, particularly efficiencies in store from more efficient inventory flow. I would say in our business, I'd see that as the ability to offset the inflationary impacts, and I'd probably think of it in that context.

Michael, Rob here. Just at a broader level, if I think about our five-year corporate planning process that we go through, There's very clear and ongoing productivity efficiency initiatives baked into the whole five years of the corporate plan. And a lot of it also comes back to capacity. Each division would have a very long list of opportunities, but we're really just constrained by people, resources, time. So it will really take us the next five years to get through a lot of what we want to get through. And the other thing to call out, which each of the MDs touched on, is the opportunities available through leveraging technology today are very different to what they were five years ago. And I have no doubt that in two years' time, there'll be even more opportunities. And I feel that as a group, we're far more capable of getting on top of those and acting quickly with those technology changes than perhaps we were five to 10 years ago.

Thank you.

Sounds like you've got a lot underway.

Thank you. The next question comes from Sean Cousins from UBS.

Please go ahead. Thanks. Good morning. Good afternoon. Good morning, WA. This is a question for Ian. Just around Kmart, conscious you don't want to break out Kmart anymore between Kmart and Target, but maybe just to clarify, the first eight weeks, did Target and Kmart respectively achieve the second half 24 growth in line? Was that achieved in the first eight weeks? And then maybe just to sort of amplify your answer to the previous question, Is it fair to say that, as your outlook indicates, that earnings growth is moderating? Does that mean that all the initiatives around the digitisation of sourcing, supply chain and the store operations, as well as those target and Kmart integration benefits, all that does is offset inflation such that we should really see earnings growth go in line with revenue growth? Or is the prospect that some of those initiatives could actually sort of drive EBIT margin expansion for the Kmart group in fiscal 25, please?

Thanks, Sean. Good afternoon. First of all, on the revenue line, both businesses are growing through the first eight weeks of the year. It's only eight weeks. There is volatility from week to week, but broadly in line for both over the course of the last eight weeks. In terms of that second question on productivity, I think to a degree it depends what happens in the marketplace. We're very much focused on trying to maintain and grow both revenue and profitability over time. Sometimes that means increases in our margin. Sometimes it means it decreases because it really depends upon that market element. What I would say, though, is I do see a line of sight to further productivity savings, which I just called out. I think that will help us offset the inflationary impacts that are out there. And then it really just becomes a question of how intense is the competitive landscape. And one of the things we will do is always keep the long term in mind, and we'll always make sure that we protect our lowest price position as we see that as critical to the long-term success of the business.

To sort of amplify that a little bit further still, does that mean that you're sort of coming towards more of the end of some of these big productivity initiatives in terms of is the potential as great as for 25 or 26 as great as what you realised in 24 or are you getting to the stage where you've just sort of, you've already made a significant number of improvements, it gets a little trickier from here on to access improvements of the same size?

I think what we're seeing, I want to assure you to agree, the step change in performance in 24 is unlikely to occur again in 25 to the same magnitude in terms of growth in profitability. And the inflation is a big number that sits within cost of doing business and some parts of our operating gross profit these days. So I don't think we're at the end of the line of sight of productivity. I think there's a lot more to come. I can see benefit, as Rob just called it, not just in the year ahead, but in subsequent years as we continue to improve both our technology and our operating model that further refines and makes it more efficient. So I would be looking at this as we have the ability to continue to grow revenue because of the things that we're doing on the top line, which I feel good about. And at the same time, we should be growing profitability at the same speed, if not slightly ahead, if things go to plan. Fantastic. Thank you, Ian.

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

Good afternoon, everyone. Rob, this is probably for you and to Mike. I mean, I've got many questions, but this is the only question I've really got front of my mind when I'm looking at valuing West Farmers as an investment, and that is whether Bunnings has got a lot of growth runway or whether it's going ex-growth. Now, what worried me in listening to your answer to Tom's question, and it did worry me, When I see the CapEx dropping off as significant as it does for Bunnings, and it's ironic that I'm saying about CapEx, but when I look at like a Woolworths that spends $2.5 billion on CapEx and Coles are spending over billions, your CapEx on Bunnings is only $260 million. It's dropped. And when I'm looking at your working capital, you've really driven working capital extremely hard in Bunnings this year, a saving of $230 million this year. despite an inflationary world, which I'm imagining inventory pressures, costs would go up. So I don't want to poke the bear, but I am in a way, but I am poking you in a way that you're running Bunnings as if it's an ex-growth business. Now, I know that there's delays in buildings and whatnot, but I was wondering if Mike can really basically talk about some of the growth initiatives that you've got, because at the moment, when I look at Bunnings as numbers, I understand it's a tough environment. But for me, in valuing Westfarmers, the most important thing for me today is to ensure that Buck is still a premium growth business and you're not running it as a mature business that's gone ex-growth. So I know I'm poking the bear, but if Mike can respond to that and assure us that there is plenty of growth and what he's going to do to go out and get it, even if you have to spend hundreds of millions of dollars, when you've got a rock of 69%, we want you to go out and find those growth initiatives. So if you could answer that, that would be really appreciated.

I certainly appreciate the encouragement, and this bear doesn't mind being poked. So there's heaps of growth, David. Obviously, if I go back to what we talked about at Strategy Day, the philosophy has always been the same, grow the market, grow our ability to participate. We've done a really good job over... my 20 years at Bunnings in constantly reinvesting into the network. So what we don't find ourselves with is the need to go back and sort of hack into 50, 60 stores and do that in a really aggressive way. We've built a lot of functionality and modularity into our racking and our layout so that when we roll in new categories and new ranges, it's very CapEx light, but it's very revenue positive. So we've seen that with expansions in categories, expansions in space. I called out automotive earlier. I called out a range of categories at at Strategy Day. And I think on the commercial side, you know, it's really validating the way that we sort of thought through commercial. You know, we're not just exposed to the commercial building sector. We've thought very deeply about how we drive growth in trades, how we drive growth in organisations. And we're actually, notwithstanding some of the headwinds from a domestic construction point of view, we're actually seeing some incredibly positive results in those areas. But they are smaller businesses that are growing, but they are growing fast. Cracking increase in digital penetration, really strong performance in our marketplaces. So I'm never been more excited really about the opportunities to keep driving those core things that make our customers' homes better, the building sites better, the organisations better. There's certainly no problem accessing capital whatsoever. We obviously wound out of some inventory that we knew were a little bit long on coming out of the back of the last few years and that's probably freed up some space in store and we're thinking differently about some of our slower moving lines and pivoting those into sort of the digital channel as well, which means we optimise inventory efficiency there. But I don't see anything for Bunnings other than being a growth business. We want to grow the market, grow our opportunity to participate. You know, and in our heartland categories, you know, power gardening, the tool shop, you know, we've got some really exciting innovations. We've got a new tool shop concept that we're rolling into 50 stores before Christmas that when you see them, our tool shop looks materially different. It's delivering some really interesting and very positive results both across our consumer brands, you know, and our commercial brands. But we don't have to go and build a new tool shop to do that, David. We just have to modify and adjust racking so we can do that in a CapEx-like way. And look, RAC is a little bit like EBIT margin. It's an outcome of other things. We're just focused on the long-term sales and revenue growth. So, yeah, I'd encourage you to keep backing us.

David, Rob here as well. Sorry, Rob. Yeah, certainly from a group point of view, there's no – the capital's available for the businesses that are performing well and delivering good returns. I think the point that Mike mentioned earlier is a really relevant one that there's always a degree of phasing and judgment required around construction and so forth. And when construction costs are really high and there's a shortage of trades, it's just often not sensible at that moment in time to be throwing a lot of money around. But then obviously six months later, 12 months later, you can re-engage and do things far more efficiently and cost effectively. An example I'd call out an area where we've deliberately supported a proactive investment in growth for Bunnings is pretty significant investments in frame and truss manufacturing capabilities over the last couple of years. Now, that is unquestionably an investment for the long term. Looking at where the building space is at the moment, it's not, you know, whilst I think we are improving from where we've been, the real gains from that investment will happen in the years ahead.

Well, can I follow up just a quick one? In the next five years, because I'm not worried about the next two because there's a lot of economic issues, but the next five years, Mike, can you list in terms of the top three priorities for where you see growth coming from? Would it be new stores, number one? If you could prioritise that so we could get a line of sight and then we could try to, ourselves, try to monetise that growth, if you could prioritise where in the next five years, and I think that's a reasonable timeframe, what the priorities would be in terms of that growth?

Yeah, it's going to come in a number of different ways, David. I think we'll continue to see outweighed growth in parts of our B2B business, like organisations. That's a significant one. We recently received some NDIS accreditation, for example, that opens up some real opportunities there. And we're very excited about that. Got a very strong and capable team. We've got category expansion. across categories like automotive. We've got significant category expansion to come in tools. We've got opportunities in rural and regional ranging, which we called out at the strategy day, which will impact about 130, 140 of our stores. So there's natural growth opportunities through all of those. And then alongside that, we've got opportunities to sort of source inventory better as we sort of go further back towards factory on the categories that make sense. We are a house of brands, so we're very focused on deep and strong supplier relationships. But we see a lot of innovation now. It's just in the States a couple of weeks ago with a couple of their major suppliers and new products and new innovation within categories is going to drive growth as well. And that's going to make our space work harder. So there's real opportunity to grow productivity within the box. We've seen about a 5% improvement in gross margin return on space in the last few years. We've got really strong ambition to drive the space harder and And then lastly, you know, right back to Tom's question about productivity, driving the productivity agenda even harder to make sure we're more efficient, we flow stock better. All of those things combined to deliver really strong earnings growth and consistent earnings growth over the long term, which is really what we've been focused on forever, I guess.

Well, thanks, Mike. Great answers. Really appreciate it.

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

Good afternoon, Rob and team. Sorry, another question from Bunnington, following on someone's arrow. Mike, has the strategy changed in the last 12 to 24 months with Bunnings? And specifically, what I mean is in terms of the opportunities you see from a garage standpoint. I think you put out some numbers for targeting trade getting to sort of around half the business a few years ago. But if you look at how you're reconfiguring stores, and I think you must be a top five player in pet and cleaning now in the space of 12, 18 months, you put flybys into the stores. It feels like it's, and I appreciate it's always been a very consumer, a weekend warrior type facing business, but is that where you see the bigger opportunity continuing to expand and leverage sort of more the consumable side as it sits next to hardware and where you've got right to play and potentially moving more down the lines of what we see with loans and Home Depot? Because it just feels like that's where the opportunity is larger in the more immediate term around sort of stock turns, productivity, profitability, and a lot of white space in terms of share.

It's a great question, Ben. I think if I sort of look at it over sort of the last decade, the beauty of our model is it's really resilient. So if we've got strong consumer performance, which we continue to see as we track into FY25 and some headwinds in the commercial space, then the business continues to grow and thrive, as Rob and Anthony have spoken to. And equally, there's been periods of time where we've seen consumer quite tight and commercial very strong. And I think that ability to sort of take a 50-50 mindset is important. I've spoken many times to the fact that on the commercial side, we see the margin profile not particularly dissimilar to consumers, so we don't see that as a drag on earnings. And we think about merchandising and assortment from everything from the front gate to the back fence of your home or your building site, and that's long been how we've thought about it. I see and hear a lot of commentary about a couple of consumable categories. They make up a pretty small part of our overall offer, and what we drive in timber, what we drive in paint, what we drive in plumbing, Now, these are all strong categories, and we continue to innovate in those. You know, I know Rob called our smart home before, but the sort of transformational change in that category in just on, you know, 18 months has been unbelievable, and the participation and the volumes we're driving through that are just incredible. I think people want to make their homes more secure. They want to automate their homes more. So, you know, I definitely don't think we're trying to become more consumer. I think Flybuys has been really useful for knowing customers our consumer customers in the way that PowerPath lets us understand our commercial customers. And really, that's all about the service proposition and going forward. And when we've got more tradies in our stores than ever before, and they're telling us very candidly that our offer is very strong, our CSAT scores between consumer and commercial are very close, and they're just telling us that they really enjoy the convenience, the long hours, and the range credibility that's coming in, and then their ability to get even more through TKD and Beaumont Tiles. You know, I think that's really sort of validating why we've built such a resilient model.

So just to err on Tom's question, sort of put that together, and you sort of rank them, it feels like productivity at a store level is probably bigger options. I appreciate you probably have more homogenous ranging across the 15,000 square metre shed versus just the stock standard buildings. Is that probably where you see the biggest opportunity over the foreseeable future?

No, I think it's growth through more assortment, better space productivity in stores, and using those opportunities and also leveraging online. If you go back six years, we didn't have an online offer. We had to jam pretty much every product we could into every store. By the end of this year, with our order management system online, you'll be able to view the whole range regardless of what store you select, and that's a great convenience for our customers, but it means we can become much more targeted at what's right for a product assortment in your local market rather than just trying to sort of push all the products in because we're running off a running off a paper catalogue. So it's not all about productivity. It's definitely about new SKUs, more innovation and category expansion where it makes sense either in Heartland categories or reaching into new categories where we have the opportunity to participate. Fantastic. Thank you.

Thank you. The next question comes from Adrian Lemme from Citi. Please go ahead.

Hello, all. Yeah, I might follow up on the Bunnings questions. I'm quite interested in the household cleaning and pets categories. I think, Mike, you just kind of mentioned that they're a pretty small part of the Bunnings sales, but I would have thought they're growing from basically nothing. So I would have thought they're driving a lot of the sales growth at the moment. And I see the cleaning product all over the front of the store and even outside of the store at the moment where you'd normally see a lot of seasonal products. So, yeah, can you just talk to your growth there and Also, you know, whether you're investing your own margin to be able to only cut the supermarkets on these price points because they do seem to be struggling to match your pricing, please.

Well, I think when you're going to go out and say you have the lowest prices, you have to back that up, right? So we're absolutely linear focused on that. But that's not cleaning or pets. That's gardening. That's paint. That's fixings. That's timber. So that's a mindset that's been in our business for 30 years, Adrian. So there's nothing new in that. I can't speak to individual stores and tie up, but they will vary. One of the beauties of our model is that our leaders get to think about the layout of their store relative to what's going on with weather or what's going on with a particular event or theme or something that's happening in their local community. And if you look at percentage growth, yeah, for sure, pets and cleaning have got some strong percentage, but you can't bank a percentage. You've got to focus on the dollars. And that's what we're doing across all of our categories. What we just want to be is relevant to the family, relevant to the home, relevant to the trade where it makes sense which is why there's as much innovation going on in our tool shops as there is anywhere else there's as much innovation going on in the way that we we think about paint you know we're just bringing the wattle brand back into bunnings you know that's a great you know well-known australian brand it's providing you know some really great competitive tension within the market and customers an even better offer so you know we're very focused on you know the whole the whole box and making the whole box work and For sure, we study our global peers and we've taken great learnings from Depot and Lowe's as we've done from retailers in Europe, the UK and South America. But sometimes we're looking at what's not working for them more so than what is working for them so that that world's best that we're sort of benchmarking ourselves against is coming to life in our stores.

Thanks, Mike. And is it fair to say when you think about these categories, we shouldn't just think about it from a individual category profit perspective it's also about you know driving increased frequency of visitations to store so it's more about an overall strategy for the store rather than just focusing on the category themselves everything we do is about engaging our customers whether it's our digital and and you know i think it's like 40 odd million hits to our website every month we want to inspire and engage our customers we want you and your

family to come in on a weekend and do a craft activity with your kids or do something where you're learning. So, you know, it's about the whole offer and the way we sort of think about that so that, you know, we're top of mind and we can only be top of mind if we earn that right and the only way we earn that right is to deliver compelling value every day. Thanks, Mike.

Thank you. The next question comes from Brian Raymond from JP Morgan. Please go ahead.

Thanks, guys. Good morning. Just on On Bunnings again, just trying to unpick the sort of the directional comment around first eight weeks. You mentioned some of those trade categories in that outlook statement, softening or the broader activity slowing, I think was the commentary. Could you maybe help us sort of? understand the composition of growth as you move into first half 25 between commercial and consumer are you seeing DIY or consumer actually pick up and as people do more work themselves and are you seeing trade go negative or is it still positive if you just help us understand that that comment that would be helpful thanks yeah you're spot on it's it's it's really early days you know it's particularly you know if you sort of think about commercial we see some particular challenge

You know, in New Zealand, which is a tougher economy, we'll stop. And, you know, New Zealand isn't an immaterial part of our business, but I also don't want to overplay that. We've seen, you know, really pleasing consumer engagement. We've got more customers in store, you know, than we've ever seen. They are certainly putting a little bit less in the basket. There's absolutely a focus on value as well. And as I touched on earlier, you know, we've seen really great growth in parts of our commercial business and other parts are are constrained by, you know, either access to trade or concerns with interest rates or confidence in builders. But that varies state to state as well, Brian. So, you know, Western Australia performing, you know, quite strongly. We've got good quoting activity for frame and trust. And as Rob talked about, we've got the capacity there ready to go. I think on commercial, the thing that excites me the most is the underlying demand. You know, the conversation about housing in Australia is one that's sort of dominating. And I think there's sort of a fairly... consistent effort across all levels of government to try and drive activity into that space where we're well positioned for it. So, you know, this time of year for us is really interesting. You know, we're heading into what is, you know, a busy time. It's Father's Day this weekend. We're heading to spring. We've got, you know, we've got the One Pass event. We've got Halloween. We've got Christmas. All on the consumer side, they're all great things. But there's a lot of, you know, a lot of activity that comes later in the year for commercial as jobs and projects get finished. So it's an ad space space. is pretty good. So it's too hard to sort of unpick it, you know, with a finite level of detail this early in the year. And, you know, I hate throwing the weather word in, but, you know, we're sitting in Perth where it's cold and rainy and it's 35 degrees in Queensland. It's a bit sort of all over the place with that as well, which can be disruptive to, you know, commercial activity as well as consumer activity as well.

Right. So thanks for that. That's really helpful. Just to follow up on the DIY side, is that I mean, given your numbers are still positive, albeit moderating, would it be fair to say trade softened a bit, that DIY is accelerating, or is it sort of just holding in at similar levels to where it was? It helps to understand directionally there.

It's pleasingly strong, but I wouldn't say that, you know, it's shooting the lights out or anything like that. I just think what we've got is good momentum where we've just got really good participation. I think people are keen to do things around their home and It's also a natural part of the cycle, right? You know, we start to see a little bit of warmer weather. People get out in their gardens. The weeds start growing. You get that sort of bumping activity, and that's fantastic to see, and hopefully we sort of see that continue as spring and summer roll out. Great. Thanks. Thanks, Mike.

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

Good afternoon, all. I'll avoid a question on Bunnings. Can I ask a question? In the outlook statement, there was the comment that you continue to monitor international supply chains and shipping routes and contingencies to manage potential risks. What are you referring to there? I assume Kmart's a key focus there. I know there was some disruption in Bangladesh recently. Sea freight rates have spiked. What risks does the business face on that front over the next 12 months?

Yeah, I might let Ian talk to that. Yeah, thanks, Craig. Yeah, you're right. There's been a few things going on globally. Obviously, you've got the troubles in the Middle East, which is impacting global shipping, and that has a knock-on effect to sometimes availability of ships and timing of ships of when they sail. And there was the unrest within Bangladesh, which seems to have settled down for the time being, and factories are very much back to normal. The shipments are back on track. So when we call that out at the group level, It's a dynamic which I think is constantly changing and one we need to adapt to. If I speak specifically about the Kmart business, we have long-term agreements in place with our shipping partners. We not surprisingly import a large number of containers relative to anybody else within Australia, and that gives us the ability to negotiate pretty good rates. And we've got contracted rates for the vast majority of this year. So I don't see any near-term impact on the Kmart business of any of the increases in spot rates. But of course, if those spot rates maintain over the next couple of years, then that will be something which we'll have to deal with along with the market.

So you've got contracted rates at the end of the calendar year or fiscal 25?

It's through to late this financial year.

And does Kmart have to pay the PSS, the surcharges?

It really goes down to the individual agreements we have with our two primary shipping partners. But we lock in base rates and then we do have various clauses which enable some ups and downs based upon various elements. But broadly speaking, we're happy with the rates that we're paying and we're very happy with our partners and the work that they do.

Thanks, Ian. Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.

Hi, Tim. Can I come back to Dave Errington's earlier point around capital allocation and where Bunnings capital allocation seems like given the 69% ROC? You've allocated almost double the amount of capital over the year to West Westies Health versus Bunnings, even though it's got a 3% ROC. Can you just talk us through the medium terms? I know you've talked a lot of times in the past, it's a long-term journey. But it is so far below the hurdle rate that you guys called out at strategy day and is declining. When can we expect health actually to turn around?

Yeah, Ross, I'll comment on that. It's Rob here. Firstly, we don't adopt an approach of rationing capital. Capital will always be available to businesses if we believe that the returns from that investment are appropriate. So that's the first point I'd make. I think Mike answered it pretty well earlier that we're certainly not holding capital back from Bunnings. There are some very deliberate choices that have been made around why we're not accelerating building activity at a time when costs are really high and there's issues with tradies and so forth availability. Coming back to health, We've also been quite consistent with health that this was very much a long-term project. The higher capital was in part related to we've bought two businesses through the year in health. And the way that we're setting our objectives for health, we expect this business to be getting towards a satisfactory return on capital over a five-year period. We're not judging, you know, we're not expecting two years after acquisition to be hitting our hurdle rates. We've talked about the very, very significant investment we've built, we've made in capability build. You know, you can look at the financials and look at, you know, look at the investment that Emily and Anthony spoke to earlier around the team, technology, upgrade various distribution centres and so forth. So look, All I'd say with health is time will tell. You know, we'd ask for a bit of patience there. One of the great things with West Farmers is I feel we have the capacity to make some of these long-term investment decisions, but ultimately we realise that, you know, after a five-year period, you're accountable for the results. And over the next couple of years, the health division's focus is converting all that investment and capability build to profit growth and improved returns. And Emily, you might want to add a bit more context.

Yeah, thanks, Rob. I think specifically on the return on capital for this year, if you add back the acquisitions and a decision we made to bring soft balance sheet financing back on balance sheet, our actual return on capital improved. We still have a really long way to go, as you point out, in that direction. But when you look at the underlying earnings uplift of 20%, I think we are starting to really demonstrate that we're making progress. And so... Because we're on a multi-year transformation journey, part of that is making, as Rob said, decisions right now that are really about setting us up for the future. So we're really forecasting and focusing on the underlying earnings performance uplift over the coming years.

Thanks, Emma. In the release, you do also talk about meaningful reductions in health and beauty. Can you give us a bit of a feel around that and does that bring you closer in price on the product level to the discount retailers?

So, like, you know, everyone's spoken about today, value is incredibly important for our customers. We've seen really great growth in our retail business in the last year. And, you know, part and parcel of that is actually about thinking about how we drive value to consumers. So we have invested in key value lines. Our customers... you know, walk through the door and expect us to be competitive. And that's really what that reflects. So really focusing on value for everyone through price deductions and also increased value for members through additional promotions through Sister Club, which, you know, which has really played out well. So we've had a really strong, what I would say, promotional plan over the last year. You know, we've done some market leading offers like $10 mascaras and $10 cleansers. And that's really really driving foot traffic to that business.

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

Hi, guys. I just had a question on the WES-CEF result, which I know the year result was down significantly, which I think you've given a fair bit of indication that that would be the case. The actual second half looked a lot better than I thought. And actually, if you take out the losses on the lithium business, you know, it was nearly back to the levels you were doing last year where, you know, you had elevated selling prices. So I just wanted to understand a bit more what drove such a strong second half result and how we should think about FY25.

Yeah, hi, Phil. It's Ian Hanson. The second half result was reasonable. It certainly wasn't anywhere near the result of previous years where we've had the high commodity prices. I'm not sure it was any more outstanding than historical second half results. We always have a higher earnings in the second half because of the fertilizer sales and the seasonality that comes with that. Also, potentially in the second half, we did have the ammonia price coming down rather than going up. So there's a price lag on ammonia, which we talked about on a number of occasions. In the first half, we were lagging behind a rising ammonia price and therefore suffering from a margin squeeze there. In the second half, the price was declining, so the margin was increased in the second half. All those things go together to perhaps skew the earnings a little bit more towards the second half than normal. But I didn't think it was terribly abnormal.

I think maybe, Phil, just to add that $26 million loss in lithium would not have been just in the second half because, as we called out, within that, that includes overhead costs and other costs as part of covalent. They would have been incurred. also in the first half. So probably not correct to just take that 26 off the second half.

Great, thank you. And is that, I mean, are we now, have we sort of rebased? I mean, that price lag on ammonia helps for a bit and then it sort of catches up to itself, I think, is how the contracts work. Is that right?

Yeah, pretty much we're seeing stability in the ammonia price in the last few months, Phil. Whether that remains stable or not, it's very difficult to forecast commodity price, but we've certainly seen a great deal more stability in that price over the last three or four months than we've seen over the last couple of years.

That's right. Thanks, guys.

Thank you. The next question comes from Richard Barwick from CLSA. Go ahead.

Thank you. I've got another question on Where's Seth? So for Ian, just to follow on from where you're going there with Phil, I mean, there's always a bunch of moving parts in Where's Seth? And you talked to the outlook for AN earnings probably looking a bit more positive, but energy being under pressure and obviously covalence being a little delayed. With all those sort of puts and takes, do you see that you, or are you expecting to be able to actually grow earnings across this FY25 relative to the FY24 base?

Look, I think the markets that we see at the moment are challenging in terms of, you know, we look at the mining sector here in Western Australia, the nickel business shutting down, and that's a customer of ours and also a supplier of ours, so there's probably an impact from the nickel sector changes. So there's some challenges in the mining sector. In the agricultural sector, of course, that's always dependent on the weather conditions, seasonal conditions, and global prices for the grain and the meat and wool. And then you look at our energy business, and that is subject, to a large extent, by the cost of gas in Western Australia. So at this stage, it's very hard to provide any definitive forecast for FY25. We certainly don't see significant upturn in earnings going forward, but at the same time, we do see a few challenges on the horizon.

Okay. Now, that's helpful. Thank you, Ian.

Thank you. The next question comes from Nicole Penny from Rumour Equity Research. Please go ahead.

Good day. Thank you for taking my question. Just following on with it, please. On slide 38, it states you might stockpile sputumine. Can you please talk to how much capacity you have and whether there's any potential impact on product quality? And then also on the same slide, it does suggest weaker demand for AN from mining customers. Can you provide more colour around whether this is due to the particular commodities that you've mentioned earlier or some market share changes, please?

Yeah, thanks for the question. In terms of spodumene concentrate, there's no real shelf life for that product. So we can stockpile it for a significant period of time and it can still be used to feed lithium refineries. So I don't believe there's an issue there. Obviously, we're going to be looking going forward at what sales we're going to make of spodumene concentrate versus what we need to stockpile to feed the refinery versus what's in the shareholders' interest in terms of the timing of the sales of spodumene if we have excess spodumene. So we'll work through that. We'll need to find potentially additional storage for that material, but we believe that's probably available if we decide that we're going to stockpile it. In terms of the second question, which has just slipped my mind, I do apologise. AN. AN demand. AN demand, sorry, yes. No problem. Well, obviously the decline in nickel mining in Western Australia will impact AN demand. We've seen a short-term softening in iron ore offtake of AN, but we think that's probably more to do with timing of... expansions within the iron ore sector and also perhaps some weather impacts. So we'd see the iron ore demand continuing. Gold is obviously going very strong in West Australia but it's not a large consumer of ammonium nitrate. So nickel will be the one that's impacting us the most at the moment. Going forward we see the iron ore demand for AN continue to increase as that sector returns to higher levels of production and yet gold continues to have an increasing demand, albeit it's a small part of the market.

Thank you. With no material market share changes?

Sorry, I didn't quite understand the question.

You mentioned the commodities that's being impacted and is weaker in demand, but have you noticed any particular market share changes in that?

Market share changes for ammonium nitrate? No, there's no significant change there.

Thank you. Thank you. The next question comes from Lisa Deng from Goldman Sachs. Please go ahead.

Hi, I've got two questions. The first one's probably more for Rob or Anthony. So just trying to get a handle on the growth envelope for 25. If we look at 24, really, it was the retail businesses and Kmart was like the standout. But if we look at 25, Bunnings is run rating softer, Kmart not growing to the same magnitude in profit, Westf low commodity costs, prices still and Kidman not profitable first half. If we were to ask you, in building your budget, which division should be the sort of torchbearer for the growth in 25, where would you think or how would you guide us?

Well, Lisa, if you could see the room here, there's many divisions putting up their hand wanting to be the torchbearer. And I'll have very detailed discussions with them after this call to see who's going to step up. No, to be serious, we obviously don't give forecasts. We feel that across the portfolio, there's every reason to think that there's the capacity to move the group forward from an earnings point of view. One of the benefits of having a diversified portfolio is it gives us that flexibility that not every division needs to be moving forward every year in order for us to keep creating shareholder value. I'd start by just noting that we had a very strong performance in our retail businesses in FY24, and there's no reason to think that we should be going backwards in retail this year. There's every reason to think that we can continue to go forward. And then obviously, as is always the case, in WESF, there is a degree of volatility associated with commodity prices, and I think it's too early to predict how that will play out. And then we have other businesses. Health is obviously expecting continued strong growth in earnings, albeit off the low base. And there are a few other things that we're hoping to improve in the year ahead. So, yeah, overall, we still feel that as a group we can move forward.

Got it. And then just to follow up on the growth drivers, like I think one very visible thing and tangibly profitable digital use case actually is retail media. I think you also mentioned that and we're starting to see that kick into more scaled benefits in, you know, call it the two supermarkets. How should we really think about, you know, capturing that in that growth envelope that we're talking about? Is it not one year? Is it two years? Is it three? How should we think about it?

Yeah, look, I think you're right, Lisa. There's definitely, I think, a very good opportunity in the retail media space where we're probably a few years behind some of the other names you mentioned. The great thing that we've been able to achieve through the development of with one pass and one data is we now have some data capabilities that give us an enormous amount of opportunity. We should also remember that a number of our businesses are already participating in retail media. That is already happening. That is flowing through their own P&Ls. And the capabilities continue to expand all the time. So I would expect we will see incremental improvements at a divisional level over the next couple of years. And as we better harness and unlock the broader group capabilities through OneData that Nicole is working on closely with our divisional managing directors, then there's a bigger profit pool to go after. But I think realistically that's over the next few years.

Got it. Thank you. Thank you. The next question is a follow-up from Sean Cousins from UBS. Please go ahead.

Great, thanks. My question's on catch. While I don't expect this to be quantified, I'm just curious, what are the markers, I guess, across earnings or operations that West Farmers is waiting for before making bolder decisions regarding catch? As your EBIT or earnings losses were worse than expected, sales have sort of deteriorated, conscious there's some changes to the base. being made there, but this is not a strong performing business. And I would have thought that earnings of this nature would probably require bold action. So what's holding you back from being, I guess, more deliberate and taking a different approach there? Because it's unclear how the current approach is in the best interest of shareholders.

Yeah, Sean, I'd say that probably the key opportunity is seeing the growth the growth that we're looking for through the marketplace. And as I said, the advantage of the marketplace growth is it's more capital light, accretive growth. We're not out there having to buy and take the risk around inventory. So I'd say that would be, that would be one of the key criteria. But then the other related fact is the, the cost and efficiencies of our fulfillment is when you look at the investment we're making in catch, we, We have a pretty significant investment in supply chain through a number of distribution centers on the East Coast. To be fair to the team, they've done an exceptional job of improving the profitability there, but we're at only about 50% capacity. So it's underutilized from a capacity point of view. That's why to, you know, to fractionalize the cost and improve the earnings of catch, we really need to get the marketplace growth. So that's really what we're monitoring. But you're right that we're not prepared to tolerate this level of losses for a lot longer. And whilst there are valuable, there's certainly valuable lessons that we are learning around the performance of marketplaces and e-commerce fulfillment, there's a limit to how many losses we're prepared to accept to gain those experiences.

And so just to clarify there, so really, as you see the marketplace be effective and work and drive growth, that would give you comfort. Conversely, if that marketplace revenue wasn't coming through to the way that you would expect and you still run at an unsound utilization, say at 50%, after a period of time, then you would make some more bolder decision. Is that kind of what we really need to be?

looking forward. That's right. The bottom line is if we're not able to scale and grow the marketplace, if it's not resonating to the extent that we would like with customers, and the great thing is we have a lot of visibility now on what customers are spending across the group, then that would then lead us to rethink how we might deploy the various capabilities we have. We have some really interesting capabilities, not just in catch, but within our other businesses around e-commerce and and marketplaces. Notably, I think Bunnings have done a great job with their marketplace that's continuing to scale very cost-effectively. So we'll continue to monitor the progress there, Sean, but yes, GTV growth through marketplace would be a key KPI.

Fantastic.

Thanks, Rob.

Thank you. The next question is a follow-up from Michael Samotis from Jefferies. Please go ahead.

Thanks for taking another one. I've got a bit of a specific question for Mike. You've mentioned the tool shop and some of the changes that you are planning to make, some changes in that category. Just interested to know how Bunnings has performed in the tools category over the last few years. It seems to have become a lot more competitive. Some of the auto accessories retailers are playing more in that space. You've got a lot of space that's been put on the ground by the professional tool retailers, which seem to be taking a little bit of share in the consumer channel as well. Just interested in how that's performing and whether that is why you are deciding to make some changes in that category?

Yeah, no, it's certainly not a defensive play. It's really just an opportunity to grow and engage with customers more. So when you see these and you know, very happy to, you know, through the team, share with you the stores that it's going into. You'll sort of see what we're doing. So again, with more height, a different look and feel, which is based off some learnings, not only at a TKD, but global study as well. And it's really letting us expand the commercial range. So we're really happy with the consumer performance. We've got, you know, exclusive brands in Ryobi and Azito that perform incredibly well. And they're both, you know, fantastic partners to us through innovation and growth. And we've done a lot in accessories and, I think it's actually why we've had the confidence to sort of go harder at auto is the sort of performance of some of the stuff in sort of the mechanical tool category. So that's why we're sort of pushing on those. You're right, it is a very, very competitive market. And that's really what's driven us with TKD to participate in the market because it is a different customer. They are mostly different brands and specialist brands that are managed through the channel. And the market performs differently. So TKD can sort of match it with sales and rebates and discounts alongside how that industry performs while Bunnings sticks very disciplined to, you know, ETLP and the work we do with PowerPass. So, you know, really this is just a category that's continued to grow for us over 30 years and, you know, we brought some new leadership into the category with some fresh thinking and it's delivering us some really pleasing results and it lets us bring together a few different thoughts on optimising space and fits very neatly in the way we think about, you know, improving space productivity across the store.

All right, thanks. I look forward to taking a look.

Thank you. The next question is a follow-up from Ben Gilbert from Jarden.

Please go ahead. Ben, your line is open if you'd like to ask your question.

Thanks very much for taking another question. Just a quick one just to Ian. Obviously, it's a cracker result. We came out for the year in a big step change in margin on relatively low sales for the full year. Just to the extent you're annualising these benefits coming through under 25, obviously Rob just said you're expecting to grow earnings. If you're annualising it at the run rate, it still could be quite a material step up in margins into fiscal 25. I'm just wondering why that might not be the case, or is my thinking incorrect there? Because I appreciate we don't know all the nuts and bolts that are happening within the group.

Yeah, I think, Ben, you've got multiple dynamics at play. So yes, we do have a full year of benefits of the work we've been doing to integrate both the Kmart and Target businesses into one. Bearing in mind, of course, the vast majority of that benefit is in a business that's 20% of the size of the group, which is in Target. So that's the first part. And, of course, inflation is going to be running across the entire group, which is 100%. So I think you need to look at it in the context of the magnitude of those two sets of numbers. That's why we see them netting out closer to a zero as opposed to a big positive or a big minus. And that is the work we're doing around productivity on the one hand and price investment in the other. Because we know it's a very competitive market at the moment where we're seeing retailers getting more price aggressive. I think as they try to figure out how to get their top lines to move in a positive direction, which is coming off a year or 18 months where we saw a lot of retailers expanding GP and not being so price sensitive. So that's why there's a little bit of caution around the relativity of the profit growth relative to the sales growth, because we're expecting a pretty competitive environment out there. I would say, though, we feel very well placed for that eventuality. And of course, if there's less price intensity out there, then so be it. Thank you.

Thank you. The next question is a follow-up from Tom Kirath from Baron Joey.

Please go ahead. Oh, good day, guys. Just one on Covalent. It looks like, so you're saying you're commissioning the refinery mid-calendar next year. I'm just thinking about how long that might take to get to nameplate and when you'll be at full run rate and we can kind of assess the performance and the costs and all the rest within that business.

Yeah, thanks, Tom. It's Ian here. I'm going to throw this question to Aaron Hood, who is succeeding me as the Managing Director.

Thanks, Anne. Hi, Tom. So just to clarify there, we're actually commenced commissioning of the refinery rather than, I think in your question, you said commissioning mid next year. So as per the announcement, we're actually targeting first product production mid calendar 2025. We're complete construction, as Anthony said, at around 80% at the moment, but we've actually started handing over packages on the refinery to the commissioning team. We're probably one to two months away from actually starting to trial some physical product in the refinery. So really the back end of this calendar year and the first half of calendar 2025 is that commissioning process. Once we hit first product, we then have a period where you actually send off samples to our customers and that's the product qualification process that we outlined. So really you don't see significant sales revenue potential for the refinery until post that qualification process. Once you hit first product, the other exercise we then move into is actually ramping up that refinery. Just like we've done with the concentrator out at Mount Holland, we're going through a 12 to 18-month process at the concentrator of increasing recoveries, getting production stability. We'll have to go through the same process at the refinery.

And so when do you think, like how long after first product do you get to nameplate, do you think? Or does it get there straight away? Sorry, I'm not an expert here.

No, so once you hit first product, our definition, I mean, that's really, you know, a modest volume of hitting the grade and quality required. You then start a, you know, it can be, I think, 12 to 18 months, just like we've experienced out at the concentrator for Mount Holland. The same process will undergo for the refinery in Kwinana.

Yeah, cool. Okay, that's clear.

Thanks, Aaron.

Thank you. At this time, we're showing no further questions.

Okay, thank you all very much for dialling in and if any further questions, please give Dan a call and we'll be happy to help. Thanks very much.

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