Woolworths Holdings Ltd

Thank you for standing by and welcome to the Woolworths Group Limited FY23 full year earnings announcement. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.

Good morning, everyone, and welcome to Woolworths Group's full year results for the 2023 financial year. Joining me today are our CFO, Stephen Harrison, who will present our financial results a little later, Nancy Davis, Managing Director of Woolworths Supermarkets, Amanda Beigel, Managing Director of Woolies X, Vaughan Ingram, Managing Director of W Living, Spencer Son, Managing Director of Woolworths New Zealand, Dan Haake, Managing Director of Big W, Guy Brent, Managing Director of the Woolworths Food Company, and last but not least, Annette Carantoni, Managing Director of Primary Connect. I'm going to start and actually just talk through the slides if you've got the slide presentation so you can follow the commentary in parallel. I was going to start on slide three with an acknowledgement of country. Before we start the presentation, I would like to acknowledge the many traditional owners of the land on which we operate and pay our respects to their elders, past and present. We recognise their strengths and enduring connection to the lands, waters and skies as the custodians of the oldest continuing cultures on the planet. We remain committed to actively contributing to Australia's reconciliation journey through listening and learning, empowering more diverse voices and working together for a better tomorrow. I will start today with an overview of the group's performance and our progress on our strategic agenda. Steve will then present our financials before handing back to me to finish with current trading and outlook before we move to questions. Just on slide four, inflation and rising cost of living pressures on household budgets was the key issue in F23 for both our customers and our team. As a group, we prioritised living value convenience in response and it remains our key priority as we move into F24. Improved financial performance in F23 reflects a return to relative stability following the material disruption in the last three years. Group sales increased by 5.7%, with higher growth in H2 as we finished cycling COVID impacts in the prior year, and inflation remained elevated. Group EBIT growth of 15.8% was driven by higher sales and improved operating rhythm, the non-recurrence of $323 million direct COVID costs, and the benefits from our ongoing investments in our customers' teams and platforms over a number of years. Excluding direct COVID costs in the prior year, EBIT increased by 3.4%. On slide five, you will see our customer metrics remained largely stable over the year. However, value perception was impacted by the inflationary environment. As customers returned to shop in more on weekends and in the evenings, some small controllable Voice of customer measures will also impact as we work hard to adjust team rosters to reflect more traditional shopping patterns. We recognise we need to do more in the year ahead to improve customer advocacy by delivering consistent customer shopping experiences and providing ever more value to our customers. While we have room to improve, I am encouraged and proud that our team continue to show care for our customers with that metric remaining our highest store controllable bulk metric across the group. On slide six, we wanted to highlight the shift back to pre-COVID customer behaviors. After many years of disruption, during the year we saw customers shopping more frequently, but with smaller baskets. Our customers are also using more shortcuts to find value, particularly our saver families. Own brands are growing strongly, particularly in the last quarter, and especially in areas like pantry essentials, such as rice, pasta, and long-life drinks. Our members are also unlocking extra value through everyday rewards, with active everyday rewards members continuing to grow. Inflation is impacting all parts of our group, but its impact on the cost of living is having uneven impacts on our customers, as shown on slide seven. While inflation has been rising for much of the last two years, we have seen it begin to moderate in Q4, which has continued into the first quarter of F24. In Australian food retail, item growth has been broadly in flat in H2 despite higher inflation. The impact of cost of living pressures on our Big W customers has been more pronounced than in our food business, as you would expect. H2 sales were below our initial expectations, customers cut back on discretionary items and the sector became increasingly competitive, in particular in Q4. Pleasingly, while we have seen our budget customers reduce their spend, mainstream and premium customer numbers are increasing as customers traded to Big W for its value. On slide 8, It shows how we across the group have responded to the challenging environment by delivering value to our customers in a number of different ways. This includes our seasonal prices drop campaigns with our latest price drop campaign for spring launching this week, representing a saving of 17% on the basket of dropped products. Everyday Rewards members are increasingly looking for ways to save through boosters and bank for Christmas, And we also launched in-store member prices this week to add to the way our custom members can unlock additional value. Big W has also played a role in delivering value for our customers with great prices and specials, particularly for key events such as back to school and annual toy sales. As mentioned at the outset, value remains our number one priority in F24 and we remain focused on finding ways to help our customers and members stretch their dollar further every time they shop with us. On slide nine, while value remains the key focus for all customers, demand for convenience and seamless connected shopping experiences continues to grow. Average weekly traffic to group digital platforms in F23 increased by 16.3%, and weekly average visits to Woolworths and Everyday Rewards websites and apps reached 16.3 million in Q4. For the first time, digital visits to our food and everyday rewards apps surpassed web visits in F23. Woolies X e-commerce sales reached $5.1 billion in F23, which was up $3.7 billion, or a CAGR of 38% on F19. After some challenging normalization in the first half, e-commerce sales returned to growth of 13.2% in H2, with same-day and express services growing rapidly as customers seek ever more convenience. Amazingly, over 80% of our e-commerce sales are now fulfilled within 24 hours of order. I will skip over slide 10 and talk about some of the highlights across our connected group on the later slides. Then moving to slide 11. Delivering sustainable growth and creating long-term shareholder value is only possible through investing in our customers' teams, communities, and platforms. Having the right prices for our customers is paramount, and we continue to ensure that all of our businesses have a strong customer value proposition. But good prices are not enough. Customers also expect us to provide them with convenience and a good shopping experience. E-commerce and digital is an area where we have invested materially in recent years to meet customer demand and to build a strong foundation for future growth. We have also made good progress in our Value Core and Up store and merchandising segmentation program in Woolworths Supermarket. In terms of our team, we're not only focused on supporting our team through competitive pay, but also through delivering meaningful hours and careers through multi-skilling opportunities, as well as cross-store working, which was recently launched nationally to all team members. We enhance team members by rolling out everyday extra for teams and continue to prioritize safety, health, and well-being with further investments planned in F24 to upgrade team safety measures. Investment in our community aligns to our purpose and sustainability commitments for a better tomorrow. I'm pleased to say that we have now not only removed single-use plastic bags, but also reusable plastic bags, which, once the phase-out completes, equates to more than $350 million pure bags in circulation annually. As announced last week, we have also updated our food waste commitment called Reducing Hunger and Food Waste, which will see an additional $9 million of investment in our food relief partners across the group in F24 to help address the issue of food insecurity. And finally, investment in our platforms, including our infrastructure, is critical, enabling greater efficiency greater efficiency, and improving the resilience of our end-to-end value chain. Digital analytics capabilities are also only increasing in importance, and we will continue to build on the strong foundation of momentum. We'll touch on some of our supply chain progress in a later slide. On slide 12, we wanted to provide some examples of how the group's adjacencies are increasingly contributing to growth. PFD had a strong year. with sales growth of 28%, supported by new customer growth. Customer, or retail as many call it, media business cartology grew sales by 29%, despite a more challenging advertising market, with the shop and media integration now complete. WIC also had a strong year to deliver over 30 high-value analytics use cases in the year, and Primary Connect's third-party business, PC+, also enjoyed strong growth. In our everyday needs businesses, Big W is working in partnership with MyDeal, with the Big W range available since August last year on the MyDeal marketplace, and we expanded our online health offer with the acquisition of key technology and warehouse assets of Super Pharmacy. Our proposed investment in pet stock remains subject to ACCC approval. Turn into slide 13. Since we provided an update at H1, MSIDC and Melbourne FreshDCs have reached new levels of consistency, averaging 2.4 million cases and 1.4 million cartons per week, respectively. Development of new projects remains on track, including the Moorbank Precinct, where our National Distribution Centre has transitioned to its commissioning and testing phase and is expected to launch in H1 of F25. Our Christchurch FreshDC in New Zealand and our Auburn E-commerce Fulfillment Centre in Sydney are also on track to open in 2024. Slide 14 shows some highlights on our sustainability journey across our three pillars in F23. Woolworths Group was recognised once again for our efforts on inclusion and belonging, achieving platinum status from the Australian Workplace Equality Index. We also launched our latest Innovate Reconciliation Action Plan in June of this year. Efforts to reduce our Scope 1 and 2 emissions in the year resulted in a 36% reduction from our baseline, and we announced our commitment to a fully electric home delivery fleet by 2030. On the product side, we are proud to obtain the title of Healthiest Owned Brand for the fourth year in a row, and it is great to see our customers continuing to embrace our free food for kids with 30 million pieces of fruit shared in F23. It's also important, I think at this stage, for me to acknowledge the tragedy of two of our team members who lost their lives during work this year in our Woolworths Jasmine Supermarket and in our Minchin Breed Distribution Centre. We're deeply affected by this loss, and our thoughts remain with the family and friends and colleagues affected. Investigation into these events are ongoing, and we are absolutely committed to ensuring learnings are acknowledged and rapidly implemented. Our teams deserve to go home safe. I will now turn over to Steve to talk about our financial results, and then come back to talk about our outlook. Thanks, Steve.

Thanks, Brad, and good morning, everyone. I'll start today on slide 17 with the F23 results summary for the group. Group sales for the year increased 5.7% to $64.3 billion, with solid sales growth across all segments in F23. In half two, sales benefited from a return to more normal trading conditions, no longer cycling the impact of COVID and the impact of elevated inflation. Group EBIT before significant items increased 15.8% to $3.116 billion, with the group EBIT margin increasing 43 basis points to 4.8%. EBIT growth reflects sales growth, the non-recurrence of COVID costs in the prior year of $323 million, a more stable operating environment, and the realisation of benefits from investments we've made in recent years. Group NPAT attributable to equity holders of the parent entity before significant items was up 13.7%, on F22 to $1.721 billion. The last three or four years has resulted in some earnings volatility for the group with significant disruption from COVID, which has largely normalized in F23. As we look back over the last four years and as presented on this page, sales have increased at a compound annual growth rate of 7.1% and even increased at a 7.4% CAGR, which we believe reflects strong growth for the group over that period. and I'll discuss the dividend later in the capital management section. Turning to slide 18 in our group trading performance. On this slide, we've laid out our F23 trading performance by business unit, showing the performance for the full year and for the second half. In Australian food, F23 total sales increased by 5%, with half two sales up 7.6%. Sales growth was driven by items returning to modest growth from mid-January, e-commerce returning to strong growth in the second half, and the impact of elevated inflation in the half. Australian food EBIT increased by 19.1% in F23, with half-two growth of 21.1%. Excluding the material COVID costs in the prior year of $211 million in Australian food, F23 EBIT increased by 9.5%. The EBIT increase excluding the cycling of COVID costs in the prior year reflects leverage achieved from sales growth, growth margin improvements primarily from improved promotional effectiveness, category and business mix changes, and an improvement in underlying productivity from a return to a more normal, stable operating environment. As you may recall, we also provided additional disclosure on Woolies X in half one to show the profit contribution of e-com and our other Woolies X businesses. Woolworths Food Retail is our Woolworths supermarkets and metro food stores and e-commerce. Woolworths food retail EBIT increased by 18.3% in F23, largely driven by stores. Ecom directly attributable profit declined marginally on the prior year. However, DAP grew strongly in the second half as Ecom sales returned to strong growth. Woolies X profit measured through directly attributable profit for Ecom and EBIT for the balance of Woolies X increased by 23% to $181 million in F23. A 4.9% decline in Ecom DAP for the year, driven by the performance in half one, was more than offset by a 71% increase across the other Woolies X businesses, driven by another strong performance from Cartology in F23. Australian B2B sales increased by 17.4% in F23, with half two sales growth slowing somewhat to 12% growth. While PFD had another strong result in half two, Australian B2B trading results were impacted by the sale of Summergate and the exit of our international business in the half. EBIT for F23 increased by 13% to $63 million, but excluding exit costs and losses from discontinued businesses in B2B, EBIT would have increased by 68.7%. It was a very challenging year for New Zealand food in F23, with EBIT declining by 21% to New Zealand dollars, $249 million. Despite continued challenges for customers and teams from devastating weather events, in half two, we did see more stability return to the business, and in half two, EBIT was up by 10.3% on the prior year, and also up on half one. Big W's first half performance helped deliver a strong F23 result, with sales up 8%, and EBIT up 165% to $145 million. However, the sales environment became increasingly challenging over the year with half sales flat due to a decline in sales in Q4 of 5.7%. Half to even declined by 64% to $11 million with flat sales, increased stock loss, higher wage costs impacting the result despite strong item-based productivity in Big W. Our other segment, which includes group costs, the performance of Quantium and MyDeal, property and our share of profits from Endeavour Group. The net loss for the year in other was 185 million which was in line with the guidance of $250 million excluding our share of Endeavour Group earnings provided at the half. And for F24 we expect our net loss from the other segment to be in line with F23 at $250 million excluding our share of Endeavour earnings. Group also reported significant items of $117 million before tax in F23 which included $76 million recognised in half one and $41 million recognised in half two, relating to the revaluation of put option liabilities on non-controlled interest in PFD and Quantium, which we are required to review and, if necessary, revalue each reporting period. EBIT from continued operations, including significant items, increased by 4.6% to $1.618 billion in F23. Moving to slide 19 in our key balance sheet metrics, Average inventory days increased by 1.1 days to 29.7 days. This was largely driven by the impact of high inventory holdings across the year to improve availability, together with the impact of inflation on inventory holdings during the year. Closing inventory days declined by 0.6 days as inventory levels normalised, particularly in Q4. ROFI increased by 120 basis points compared to F22 to 14.9%. and was up 71 basis points on half on F23, largely driven by higher group EBIT. Now onto our capital management framework on slide 20. A capital management framework continues to serve as well as a way to create long-term value for our shareholders. In F23, we generated operating cash flow of $6 billion before interest and tax, which was up 25% on the prior year. I'll describe some of the other highlights in the following slides. Moving to the cash flow on slide 21, the group generated operating cash flow of $6 billion for the year. This was driven by a 10.4% increase in EBITDA and a working capital inflow of $439 million. The reduction in working capital was largely due to a reversion to more normal inventory levels following strong sales growth during the year and a gradual improvement in supply chain reliability, particularly in Q4 2020. While lease interest was flat on the prior year, non-lease interest increased by $74 million, reflecting higher floating rates and higher average net debt during the year. Cash tax paid declined by 30% compared to the prior year. In F23, we're mainly paying F22 tax liabilities, with the decline in cash tax paid largely reflecting the decline in taxable earnings in F22. Investing activities of $1.8 billion was was below F22, primarily due to the proceeds of $634 million on the partial sell-down of our Endeavor Group shareholding in December. And I'll provide a bit more detail on CapEx on the next slide. Finally, our cash realisation ratio for the year was 113%, with working capital inflows and lower cash tax pay driving the strong result. Moving to slide 22 on CapEx, operating CapEx for the year was $1.9 billion, broadly in line with F22 and a little below our $2 billion guidance. The split between growth and sustaining CapEx was also consistent with the prior year. Within sustaining CapEx, supply chain declined on the prior year, reflecting the lumpy nature of some of the investments in supply chain transformation, particularly the more brank precincts. offset by an increase in SIB investments and IT projects across the group in F23. Growth CapEx was broadly in line with F22 while the net investment in property increased year on year. CapEx also included $123 million on projects with strong sustainability benefits in areas such as refrigeration, solar, LED lighting and energy management. As we look forward to F24, our operating CapEx is again expected to be approximately $2 billion. Moving to dividends and funding on slide 23. The board today approved a final dividend of 58 cents per share, an increase of 9.4% on the prior year, reflecting the strong earnings growth in the half. The F23 dividend payout ratio of 73.6% is in line with our typical payout ratio in the range of 70 to 75%. Turning to debt, net debt to EBITDA in F23 declined 2.6 times from 3.2 times in the prior year, due to strong cash generation during the year and the increase in EBITDA. However, the reduction in net debt also benefited from the cash inflow from the sale of a 5.5% stake in Endeavour Group in December, which will be used to fund the investment in PetStock Group, which remains subject to ACCC approval. We remain committed to solid investment-grade credit ratings and have significant headroom under our current ratings of BBB from S&P and BAA2 from Moody's. The group has $400 million in domestic MTNs maturing in April, which will be refinanced or repaid prior to maturity. Thank you, and I'll now hand back to Brad.

Thanks, Steve. Just orientating to slide 42, before I talk to current trading, we announced in July our plans to strengthen our trans-Tasman connections and accelerate the transformation of our New Zealand business. The program includes store renewal plans for approximately 80 stores over the next three years, focusing on some of our oldest stores across our New Zealand store fleet. We will also roll out everyday rewards early next year in New Zealand and materially improve our fresh offer through the commissioning of our Auckland Fresh DC in 2024. For our team, we will continue to pay the team competitively, enhance team benefits, and leverage existing group platforms to make Woolworths New Zealand a better place to work. We will also continue our sustainability efforts focus on grassroots community support. Countdown stores are being rebranded to Woolworths New Zealand with our first converted store in Bethlehem launching on Thursday last week to a pleasing reaction from customers' team. I'm sure I'll get questions on that later. Turning now to our current trading and outlook on slide 43. Sales in the first eight weeks of the year have continued similar trends to Q4. With solid growth in our food businesses, and big W sales declining on the prior year. In Australian food, Woolworths food retail sales growth was approximately 6.5%, with stores and e-commerce growth remaining solid. Inflation has continued to moderate in the year to date, with item growth in the low single digits benefiting from strong volume growth in fruit and vegetables. Costs in F24 will be impacted by material wage increases and inflation in energy and transport costs. However, we have made good progress in restoring our operating rhythm and have strong productivity plans in place. We remain cautiously optimistic about the year ahead in food and are confident in the plans we have. However, even growth in Australian food in F24 does need to be viewed in the context of, as I've mentioned, cost inflation and a strong focus on value for our customers. New Zealand food sales have increased by approximately 4.5% in the year to date. We are clear on what we need to do and are committed to investing where appropriate to ensure we continue to improve our customer and team experiences. We're confident that this will lead to a better New Zealand business in the longer term for all of our stakeholders. But the short-term outlook remains challenging. Big W sales momentum continues to be challenged with sales down approximately 6% on the prior year. While Big W has been impacted by the broader spending slowdown in Australia, some categories like everyday essentials are performing strongly. The outlook for the remainder of the year is uncertain, and as always, trading in Q2 will be key to the full year results. We are committed to helping our customers spend less every time they shop at Woolworths Group in F24, and will continue to innovate our various customer propositions to ensure we do so. I would like to end by thanking our hard-working team for their tremendous efforts in F23 and for making us better together. During COVID, we needed to be better together, but in F22-23, we wanted to be better together, and this is our real achievement. I will now turn the call over to the operator for questions, but can I please ask we limit it to one question per person to allow everyone to have a turn.

Thank you. 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 ask that questions be limited to one per person to allow everyone an opportunity to ask their question. The first question today comes from Michael Samotis from Jefferies. Please go ahead.

Good morning. My question is on gross margin in Australian food. It was a very strong performance across both halves. There's been a lot of conversation around stock loss and theft, and you've mentioned it today as well. Can you give us a little bit more colour on how theft transitioned across the halves? And in the past, you've given us some colour on where your total stock loss sits. If you could give us any indication of that, that'd be helpful too, please.

Michael, let me... It sounds like a couple of questions bundled into one. Nice to hear from you. We can talk about Balmain, the metro transition later, if you like. Why don't we just talk to the... Because everyone I know is going to be interested in this. I'm going to ask Steve to just walk through for everyone, if you don't mind, the gross margin bridge, and then we'll come specifically back to stock loss I'll talk to him broadly, but then Natalie will dive into just some of the factors there. Both of these are big topics, and we'll probably shorten a couple of questions if we do them properly. So if you don't mind bearing with us, if we just step through that in a very stepped way. So Steve, maybe you could just start on the gross margin evolution, and then as I said, we'll come back to stock loss as a component of that.

Sure. Thanks, Brad. You would see in our profit announcement disclosure that there is a 76 basis point improvement in gross margin. It is just worth referencing for those who didn't see it a couple of weeks ago. We have restated our gross margins to now include supply chain costs in our gross margin. And so some of that improvement in gross margin does actually reflect COVID costs in supply chain that we've removed in F23. but we've tried to articulate that variance in the profit announcement. So the underlying improvement when you strip that out is just over 50 basis points. There's a number of drivers of that. We've continued to see cigarette sales decline in the teens which whilst we make less absolute gross margin dollars does have a mixed impact on the gross margin percentage which we've called out. One of the areas that we focused on with WIC, our advanced analytics team, is how do we optimise promotions and really drive promotional optimisation and promotional effectiveness? And that has had a big impact for us as part of the drive to the positive margin. Equally, cartology sits in our gross margin line. So cartology, our retail media business, continued to grow very strongly and had a very favourable contribution to gross margin.

And then there was 29% growth in cartology revenue and included them. We've also got the shopper media acquisition, which started to have some benefits in the

Sorry, Steve. That's right. And then the other elements are there are just some category mix impacts in there. Our long life categories did grow slightly faster. We make more margin in long life. So there's some mixed impacts also driving those outcomes. There are some offsets. We did have some higher fuel costs, and stock loss was a headwind for us. So that's probably a good segue, Brad, to come back to you.

Yeah, Steve, the only one I would add to that is because of us moving DCs into GPs, some of our COVID costs that we took out of the business and cycled actually come out in GP, not in CODB. So it's, excuse me, I'm so many numbers, but it's over $100 million of COVID-related costs actually poured into GP. So those were the positive factors. The negative factor, which is the one that you've alluded to, Michael, is the topic of stock loss. And we've got quite a few questions on it in the media call. And again, we'll just going through it end-to-end, if that's okay. It clearly was up over the year. The point I made in the media call is if you go back to pre-COVID times, it sort of was running where it was in pre-COVID times. So it was stock loss materially reduced during COVID, primarily through all the good work we were doing that Nat will talk to, but also because there was just less movement of people and therefore... This topic that has become very big on theft did materially ameliorate during that period. So it went back to where it was before, but it was an increase on what it was previously and was one of the drags. But Ness, maybe you could just give some color to some of the positive things we've done in stock loss as well as some of the negatives as well as we can come back to the outlook on it.

Yeah, and I would start by saying that stock loss has been a focus for us over the last three years and continues to be so. We definitely have seen a benefit to stock loss as we've stabilised the business because often, particularly in fresh, stock loss just reflects bad processes end to end. So as we've stabilised our business, we've made sure that we're sending the right amount of stock into stores and therefore stores don't have to clear or dust that stock at the end of the day. In FRESH over the last few years, we continue to have great benefits from our waste and markdown process and tool, and that's been driven through advanced analytics. So we've really simplified in FRESH the number of times our store teams do markdowns. We've made it more consistent across different departments. And across the past few years, we've seen a real benefit in FRESH.com from reduction in clearance. I would also say that over the last month or so, as we've had a lot of volume velocity in our fresh departments, particularly in fruit and vegetables, that's also contributed to a lower stock loss figure in fresh. So, you know, the extra turns of velocity you get, the less stock loss you get on items and the fresher the product is for the customer. So that's been a real benefit to both our customers and to our stock loss results. We have unfortunately, as Brad has mentioned, seen a step up in what we call stock adjustments in long life over the past six to 12 months. And that's particularly the case, I would say, for high value items. in personal care, so electric toothbrushes, razors, for example, are items that we're very conscious we've seen an increase in theft. We've certainly been working towards how do we reduce that kind of headwind in our stores, and we've prioritised this year in our capital envelope two major programs. One is Scan Assist, which is technology on our checkouts, which really focuses on ensuring that all our customers are scanning product accurately through the checkouts and we're very conscious that we don't want to slow down our checkouts for the 99% of our customers who do the right thing. So we're very much focused on making sure that intervention in our self-checkout areas is as low as possible and certainly no more than what it was with the weights we've had on our SCOs before. And then double welcome gates. And again, that just prevents anyone from taking a trolley full of goods and running out the entrance. So we've certainly seen in stores where we've put in scan assist and we've put in the double welcome gates, we've seen a reduction in that headwind on stock loss and theft. And so at the end of the financial year, we were in over 474 stores with scan assist, 447 supermarkets with double welcome gates. And we continue to roll that out over the course of this year. So we're now at over 500 of our stores having scan assist. So I think we're making very good progress in terms of rolling that out across the fleet and we plan to complete that rollout over this financial year.

So Michael, I hope that answers the question. In a group sense, actually the biggest step up in stock adjustments or theft have actually been in New Zealand and Big W. The New Zealand numbers have started to trend down materially in the last few months, as Natalie alluded to, inside food. They've stabilized and slowly come down, but they've certainly spiked and come down in New Zealand. And we've got a lot of work underway in Big W, but in the second half, there was another spike. A scan assist, or the ever-seeing computer vision, computer video-based scanning, is also not only being scaled up now more with supermarkets down to $500, much broader, but it's nice to have it working at scale for us. And importantly, as Natalie referenced, it can actually improve the customer experience as much to save stock loss, and it's better than having the scales on, as we call it, in checkout. But obviously, a big area going forward and a big area of focus for us, we need to make sure we keep ahead of the curve on this one.

Thank you. Thank you.

Thank you. The next question comes from Tom Keerath from Baron Joey. Please go ahead.

Morning, guys. Just a question on RT3. It looks like it's been really successful. Just trying to understand, I guess, what the impacts of that will be through FY24 and how big an impact you saw in 23. If there's any numbers or colour you can share on that program, please.

Yeah, Tom, let me talk to Brody and then I'll pass over to Natalie. This was an important program for giving us just a greater level of granularity in terms of when we wanted to see tasks performed and make sure that our team got the right roster. So it was as much about the level of control and precision we had in the business as it was a cost reduction plan in its own right. It was IT3 stands for right team, right task, right time. and just getting the yield right that you do those. And so it is an incredibly important platform for delivering productivity, but also for team experiences going forward. It is rolled out in supermarkets. It's taken us two years to do that inside our Metro food stores. But I'd just like to call out in the last eight weeks, we've managed to roll it out in New Zealand as well. So it is a capability we're trying to build and roll out, and a variant of it has been worked with and engaged with the Big W team. It is a way that we would like to roll going forward and so we think it just gives a foundation which is one of our key thematics for everything we want to do. In terms of some of the benefits that it's enabled, I'll turn it over to you, Matt, to just talk to some of the benefits it's enabled.

Yeah, it was a major initiative for us in supermarkets and it was really about getting the foundation right for us. When we rolled out RT3 we also updated all of our labour standards and so we actually had to reinvest money into certain parts of our stores like Fresh Convenience to update the standards and truth out on our labour standards. But we spent a huge amount of time in every store working with our team to move the hours into the right place, into the right department. We did that very carefully because we wanted to make sure that actually the hours were there when our customers were shopping our stores and actually therefore it would be easier for our team to serve customers and to do all the tasks that we're asking them to complete in store. But we recognised that that had a personal impact on our team because they may have spent the last few years being rostered on a Tuesday and we were now asking them to work a weekend day or a Sunday for example, or work in a different department. And so we spent quite a bit of time just making sure that we had really great conversations with our team and explained the why. We now are at the point where, you know, we would say that our hours are in the right place in stores. So, you know, we kind of measure that and would say we're at 80% of what RT3 would say and we think that's good outcomes. We continue to really focus on weekends and one of the trends we've continued to see throughout the year and into the first few weeks of this financial year is just customers shopping more and more on weekends and in particular Sundays and so that's a continued focus for our store teams just to make sure that we've got the right hours on Sundays when customers are shopping our stores and the right leadership coverage and coverage on our checkouts in particular that get very busy. So RT3 then helps us to inform our productivity pipeline and so we have a very strong pipeline of initiatives going forward that we know will improve customer experience and also create more efficiency and effectiveness and for example one of those business cases that kind of we've built based on RT3 is our ESL which we're now our electronic shelf labels, which we're now rolling out to stores outside of the renewal program as well as through our renewal program. Our team absolutely loves electronic shelf labels. They make life a lot simpler when we change over on promotion weeks and that creates a lot of productivity benefits for us in our stores. So it's been foundational and I think it'll help to inform a really good productivity pipeline.

Thanks, Matt, and hopefully you get a sense of that, Tom. It is a key foundation enabling ESL and many other important initiatives. The ESL learning for us as a team is also applied out to the group, and that's the way you'll see us try to work, take a great learning from one part of the business and apply it more broadly.

All right.

Thanks, guys.

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

Hi, I have a question on e-commerce. It looks like there's a slide on the deck that actually shows the foot traffic's up two and a half times, but I think the sales are actually up three and a half times or more. Can we talk through how the traffic conversion baskets are sort of progressing as we move? And then also, how do we think about incrementality of sales or consumer spend versus the store-generated sales, please. Thank you.

I think there are a few questions in one there as well. Lisa, let me give a high-level summary and we'll pass over to Amanda. Amanda, why not? Firstly, if you just look at it, what we're trying to show in the slides was, you know, COVID actually brought forward a lot of demand for digital and e-commerce. But actually, once you normalize that and look over a long-term time frame, the trend line is clear that it's an increasingly important part of what people do. And the numbers you see in the document are the average e-commerce penetration for the year. But the exit rate obviously is much higher when you start looking at the sales momentum. We started to build in age two as we lapped the COVID disruption that had brought forward previous sales. context. I think we're way past this issue of cannibalization, Lisa, so we're not happy to mention it. We see it as a different choice a customer makes for a different mission, and theoretically it may cannibalize the seller, but that's not the way we think about it. It is an incredibly important part of the overall customer experience at Wal-Mart, that they can shop stores and e-commerce, and we look at the overall sales, we get a much stickier customer experience if they shop physically and digitally. And I think if you poll any retailer globally who works in the space, that will give you a very consistent view on this one. So we'll park that one, but rather come to just what's happening in e-commerce, the trend lines and the basket sizes we see in as well as this. And I actually use the word myself of being quite stunned on the 24-hour cycle for 80% of our orders. But over to you, Amanda.

Yeah, thank you. Thanks. And thanks, Lisa, for the question as well. I think, can I just start by coming back to the digital conversations? I think it's really important. I think sometimes we're confusing digital traffic with e-commerce growth, and actually we look at digital, as Brad's talking to, as a way of actually connecting with our customers, helping them shop, helping them save across both our stores and e-commerce. And so when we see the growth numbers in digital, that's actually fantastic for all of our and it's better for customers as well. When we're looking at then conversion, actually conversion is relatively steady for us. So we're delighted with the fact that we're seeing increasing numbers of customers connecting with us on digital and then for those customers who want to shop in a particular way via e-commerce, converting into e-coms. So we're very happy to see digital grow and we hope that that continues going forward. From an e-commerce perspective, Again, it's been a really interesting year, Brad, as you say. The first half we had the cycling out of COVID and the normalisation of that. And then in the second half, there's been just a tremendous demand from our customers around convenience. And so in particular, looking for same-day convenience, express convenience. And so to see those numbers now, 80% of orders being fulfilled within 24 hours. And in particular, our direct-to-boot services just continuing to see strong growth, mainly coming out of those same-day direct-to-boot services and windows that we've opened up. You know, we feel, I'd say, very positive about, yes, the digital growth, but equally the e-commerce growth. And then, you know, Brad, just coming back to your point, we look at customers holistically. And most of our customers who shop e-commerce also shop our stores. And if they shop both of those channels, They generally spend about twice as much as a customer who only shops one. And so it's a really important part of our strategy to look at it holistically at a customer level.

Thanks, Amanda. The only other point I think we'd be interested in wanting to add is the most important segment for us right now in digital tools and e-commerce are our saver families. And we're finding that Saver families can get a lot of value out of both using digital tools to plan their shopping, but then on occasion, of course, also doing an e-commerce transaction off the back end. So the role of digital is not in addition to value. It becomes a key part of delivering value, and that can also be true of an e-commerce order as well. So just fascinating to us. It's a much broader, more holistic opportunity than a narrow one.

Can I just ask, what's the penetration of the boost office usage? We've seen the growth, but what's the penetration?

Lisa, why don't we come back to everyday rewards in the next sequence of questions? That's a different conversation, which is a very important one, but maybe we'll come back to it in the rotation.

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

Thanks. Good morning. Maybe just a question for Spencer. Can you just talk a little bit about, I guess, the trajectory we should think for New Zealand EBIT, that the guidance in the second half was for it to be above the first half and it's done that. But can you maybe sort of talk a bit about how you think about the catalyst to improve EBIT and maybe just touch on the sales to date. They seem to step down relative to where you were in the fourth quarter, that 4.5 relative to 8.3. and inflation was 9.2% in the fourth quarter. I'm just curious if there was anything, either a step down in inflation or a step down in item growth or volume there that played out. But maybe just give us an idea about how the outlook for the New Zealand business is, please. Thank you.

Thanks, Sean. This is, I don't know what the rugby analogy is, breaking down the wing and trying to see whether we can get Spencer to talk about earnings outlook. You know, we don't do that often. We've all talked about what is positive and what our challenges are in New Zealand. So I'll turn it over to Spencer to give that comment. But as you know, we can't avoid it, particularly where there's a lot of volatility, which is an earnings outlook. So thank you for giving it a lash. So I'll turn it over to you, Spencer. Hopefully you're online from New Zealand to talk about where we stand and some of the positive things we see, but some of the challenges that we're still working through.

Yeah, thanks, Brad and Sean. Thanks for the question. I mean, I might just turn to the beating obvious, which is just where the customer finds themselves, which I think, you know, might just talk to. where the performance has been just over the last little while. The New Zealand customer, all customers are under significant pressure, but the New Zealand customer in particular. And just to remind us, have been living with that sustained pressure for quite some time. So whilst we see inflation moderating across the group, it is much less so in New Zealand. Food inflation still sits at 9.6%. And actually, that's the first time in a year, Sean, that that's dropped to single digits. So we're sitting well above that at sort of the 12% mark. And that's meant that the cash rate has increased and will probably remain higher for longer, which I think gives some indication of of outlook and I guess our ability to start to see items lift materially and trade really sharpen. So cash rate putting pressure on customers. And just an interesting fact is that on average, New Zealanders, about 26% of disposable income goes towards housing. So it's an extremely price-conscious market. And especially we've seen that for families in the young people segment. And the market, of course, as you know, is intensely competitive. So that's what we play in. It plays to the discounters at the moment, a formidable discounter with 30% share. And then what we have seen increasingly of late is just the strength of the rest of markets. And there's a number of value players in that space that's grown, but also just the strength of independents. And so I guess that's really what we compete against in this high inflationary environment. And we classically see the independents as offering them good value. Saying that, I think the transformation of the New Zealand business points to us doing the things that we need to do to really make ourselves more formidable in this market. and that includes a real focus on value. Much of what you see in the Australian supermarkets is what is starting to land in New Zealand in terms of our value mechanics. The fact that we become Woolworths means that we can open up a larger range of our own brand products, and that's a big focus for us. I think Brad mentioned at the start of the call just the state of our stores, but 40% of our stores are over 10 years and older. And so we've got a lot of work to do just to improve that customer experience. And then, very excitingly, everyday rewards coming to this market later on. So I guess the key themes are an intensely competitive market, a very strong... set of value players, both in the formal sector and probably the informal sector. But what gives us confidence is we're focusing on the right things to start to deliver a sustainable growth in the medium term. It'll probably still be challenging for the next little while whilst we land those, but that essentially is our focus.

Thanks, Ben. So just a couple of points to add, Sean. We are seeing inflation moderate in Australia. There's been a bit more of a lag in New Zealand, but we will start to see the same moderation take place, which is much, much needed. The vegetable price deflation is starting to flow through New Zealand, but took longer just given the, I think it was the hurricane or cyclone that impacted.

Cyclone.

So we are seeing that happen, which we think is very important. And we are also now at the moment in the process of reshaping lining them up with Australia and that's early days but it also is going to be fair to say positive early resonance with our customers.

Thanks Brad.

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

Morning Brad. Brad, I'm not going to win any friends asking this question but it needs to be addressed. The amount of money that Woolworths over the last journey has spent on its supply chain and particularly its stores, but particularly the supply chain has been in the many, many billions of dollars. But you had a death this year from an accident where one person died and two other people were seriously injured. Can you please tell us as investors what happened there? Because this is a serious event. I can't remember many companies that I've covered where there's been an accident of this level, and particularly at your DCs, where you're investing so much money that you've had an accident to this level. Now, this is relevant to us as investors because we need to know the quality of your DCs. Now, clearly, your DCs are nowhere near the level of standard operating procedure. Forget about productivity. We're talking about basic essentials of keeping workers safe. Your DCs are a mile behind benchmark as to where they should be. So I'd like to know what you're going to do here, what we as investors should expect. I'm assuming at the least none of your management team are going to get bonuses this year. I'm assuming that. But could you go through, please, and spell out what happened, what the state of your DCs are in, and what you're going to do to rectify this, please?

Thanks, David. It's a tough question and one that should be asked. So thank you. We're all a bit teary-eyed in this room. Let me just tell you that I must feel good about it, so I should just acknowledge that at the start. Firstly, for the facts, we actually lost an employee in Minchenbury, and we lost a contractor in a Jesmond supermarket. The only two fatalities we can remember in 10 years in Woolworths, if not more. So this has not happened in our collective experience working together as a team, and it's devastating. Now, it is... An important juxtaposition, severity, injury rate, which is the way we measure things. We've actually been making good progress. We have been keeping our team safer. We've had a lot of protocols in place that are doing that. And so this comes in contrast to that. And it could be easy to excuse them, and we're not. We own them, and I'll talk to the consequences. But it is actually flies in the face of everything. else that we're doing. We've actually been making great progress, but we do need to learn and learn from both incidents. So, if you want to know what we think about it and how we feel about things, in a Jasmine supermarket, a cleaner in the early hours of the morning was cleaning our store. There was a team there, but a limited number of team. I think it was 5 o'clock in the morning or somewhere thereabouts. They backed the cleaner, it was a subcontractor, they backed the cleaner away into a corner. They got caught by the cleaner and crushed against the wall. And unfortunately, they passed away and none of us knew. And we felt terrible. We found it by 7.30 and we had to get the medics in. There's a full investigation taking place right now. There are a lot of extenuating circumstances, but we feel accountable for what happened. Amongst the many things we are doing about it is setting up our own proactive services so we can manage the right specs of equipment space and everything else. And it's a part of our business that we just simply need to do a better job of. We've contracted out that part, and we intend to insource it and build the capabilities we need. And we've done that in 76 supermarkets, committed to doing it, but also making sure that all our contractors are safe. That was, I think, in November, correct me if I'm wrong. In Minchenbury, it was actually outside of the financial year, but in the context of it, we see it as in the financial year. It happened in our Minchenbury DC. It is a DC, as you know, that has been part of this group for a very long time, our new automated solution, which we have in Melbourne South, which you have been to, or our new automated CFC. So it's a very traditional site where one of our team got killed in a pallet stacker. Again, this is under investigation as to what happened at JAMS. They went to unlock the JAMS and consequences are being investigated right now. We have, of course, stopped using all those forms of pallet stackers, doing a full review of them and how the process works. So those are the two incidents. In terms of what we're then doing outside of that is every piece of physical equipment is now being reviewed at Woolworths and how we use it because both of those were equipment related. There were two near misses and it's good that people report near misses and we encourage it at Woolworths, I should say. with other forms of physical equipment. So we reviewed all equipment and then we're coming back more broadly on the whole topic of safety and how we validate all of our safety procedures. In terms of consequence for management, I don't think you can ever monetize in any way someone's life. So let's not kid ourselves here. But in terms of the consequences, the overall bonus of Woolworths for everyone on the group bonus has been reduced by 10% as a starting point because of this. And it has been done in collaboration with our board, but certainly at the behest of management to feel this is a minimum starting point. We will then go through the investigation and figure out what other consequences take place. So there's no doubt it puts a terrible weight and pale on a year that we had many achievements, but it overwhelms all of them. In terms of our DCs themselves, David, this in no way flies in the face of our current automation plans and the progress and the safety that does come with those plans. It is very clear to us that the automated DCs, if you follow the right processes, are safer. So it doesn't, you could say we should accelerate those plans, but actually they're still going to take a while, which is why we need to do the full reboots that's going on inside the group.

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

Thanks, guys. Just on the outlook commentary, you did cast a bit of a cautious tone there in terms of food EBIT growth, given the need for value and the cost pressures coming through the wage line. I was hoping you could expand on that a little bit further, particularly around if there's any sort of mitigation incrementally, whether it's RT3 or other methods around the wage pressure, And then, you know, gross margins are obviously very high by historical standards once you adjust the history for the new accounting process. You know, is that sustainable in this environment if you think value is going to be important? Yeah, thanks.

Thanks, Brian. Look, you know, we're not giving earnings forecasts as we've talked to Sean, so we're just giving you a sense of the things we balance in as we go, you know, into the year. So we're not just using an earnings outlook. You know, we have to balance as we did in 23, delivering value for our customers, making sure our team get fairly paid for what they do, and then trying to reconcile those back into an overall result. And there are positives and negatives in there, as you can imagine. So, you know, I don't think I can say more at this stage.

Okay. It's possible to sneak another one in then to give notes relatively quick.

I think that's fair, actually. Let me just say as an arbiter on questions. Sorry, Lisa, but we're going to live by and do it.

Excellent. This should be a bit less challenging than on that front. Just in terms of this new everyday rewards member pricing, just interested in incrementality over your yellow and red tickets, if these are orange tickets. I haven't been in store today to see them, but... the incrementality there, or is it just moving product around, sorry, promotional dollars around, and also the funding of the program, obviously, and suppliers, I'm sure, are involved. But how do you see that playing out in terms of scale and those other elements versus your existing yellow and red programs?

It's got a lot of analogies, and this actually ironically does come back, and I think I'll answer at least where you were going. If you think about everyday rewards or you think about digital e-commerce and stores, We try to think very holistically from a customer perspective, and what's their overall experience inside Woolworths, either as a customer, if you think about digital e-commerce and stores, or as a member, if you think about Everyday Awards, and as a member, shop in physical stores or digital stores or across the group. And so we try to back-solve back to the member in this case, and the overall value they get of being a member of Everyday Awards. And so there's a whole series of mechanics that you need to think about in that context and how you bring them together to get the right outcome. Clearly, every time a customer scans the card, they get points, whether it's online or in store and it's in supermarkets or Big W as well as a number of partners. So there's a base earn. Through that process, we get to learn a lot about the member and therefore we get to personalize a lot of experiences for them as well as a lot of offers for them. So... You always want to start with, of course, the size of your database and then try to measure within that which ones customers are active and get them to be as active as possible so you can personalize their experiences with you as much as possible. And each customer does want to take a slightly different journey through our group. What we had laid on top of that a couple of years ago was then providing personalized direct offers to a customer that met their particular needs. So things they either shopped regularly or items that we thought we could suggest to them they might want to add to their basket, a new product or whatever.

We call those boosts.

But it really was just a personalized offer that the customer got in addition to that. In the last couple of years, and Dan Murphy's I think has been a poster child for this in Australia, you've started to see a lot of retailers start bringing member pricing into store to give customers a member's a chance to also get a price of a particular product in a store. And when I say store, I mean physical and digital, by the way, not just physical. And the interesting question is how that is accretive to the overall experience. And the UK has done a lot of this, Brian, as you should be aware, with Tesco, Clubcard, and then everyone else responding to it. But it's become very driven by member pricing. We have looked at it we've pulsed the alternative into store a few times and get pleasing results. What it does for us is it reminds a customer that they are a member of Everyday Rewards and it does prompt them, therefore, to scan their cards to get all the personalisation. So it does help us with scan rate, as we call it, or tag rate, and it reminds the customer. And it does actually then just add a little bit more value to their overall basket. So it provides some other benefits. It is in addition to... our red and yellow programs. It would be fair to say that some of the offers that you see in the yellow program may become orange offers or member price offers over time if we think that the ability to do it gives a better experience for the customer stroke member and for the supplier concerned. But that's something we'll learn and evolve and iterate on as we go. I don't know if I've missed anything, Amanda, that you would want to call out.

No, I think you've covered it, and I think the summary being coming back to Lisa's question of we've got a very strong and growing active membership base. We've also got a very strong and growing group of members that are boosting, so they're taking advantage of those personalised specials that they need to actually take an additional action, which is to boost. With the member pricing, it's actually much more accessible for all of our members to get more value because they only need to scan as their shop. And so I think we're just going to test and learn together with all of our banners across the group over the next six months and then we'll, you know, assess on where we take it after that.

I mean, you know, Brian, you know, when we look at it, we think there's amazing value inside Walworth. You know, and our challenge is actually making sure our customers can find it and they can appreciate it. So we're obsessional, as you would well know, on our price indices, which are looking in a good place and making sure there are affordable options in every store for every customer type. But actually, if you're going to just find it through physically walking the store, there's a chance you might miss it. So we've got a lot of digital initiatives that we're doing in the store. There's a lot of core value in our merchandising segmentation that Natalie can talk to. But there's no doubt that being able to overlay a personalized experience for a customer stroke member just enhances the probability that we can make sure that value is delivered. And that is the macro goal that we are focused on delivering. And with a program that's now got over 14 million members in it, over 9 million active members, it is something that we feel that we can do as a group and add value to all of the businesses in the group.

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

Good morning, Brad. My question's on capex, if I can. So the guidance for FY24 is capex of $2 billion. Can you give a sense in two ways? One, what's the contribution that Moorbank has to that?

And I'm really kind of asking about lumpy items. And the motivation for the question is to try to understand where capex may settle in the medium term, thinking about those sustaining and growth buckets.

Yeah, thank you, Craig. I'm going to get Steve to answer, but one point, and I think everyone at the call understands this, but if you don't mind, we'll just log in. Some of the performance that we see at F23, whether it's, again, digital growth or e-commerce growth or even the resonance of our stores, it relates to the investments we made in previous years in CapEx. So there's no question. It does help us in 23 in terms of where we sit right now and whether it's the ever-seeing tech platform that we've rolled out for assisted scan or whatever the case may be. So F23 does need to be seen in the context of previous investments. In terms of prospect of CapEx and the inherently lumpy nature of supply chain investments, I'll turn it over to Steve to give some color where we stand.

Yeah, thanks, Brad. Craig, it's a good question. I mean, CapEx, So looking at it in preparation for today, it's been pretty stable for the last few years around this sort of $1.8, $1.9 level. We're calling out around $2 billion. We will continue to have spend on our... Moorbank facility and our supply chain cappings program, just given where we're at on that program. So just for context, we've just taken practical completion of the National Distribution Centre from the builder. The automation contract will be moving in. That's the National DC. The Regional DC will follow the year after. So we've still got a couple more years on that project. As with every year, there's a lot of list of opportunities for capital in our group and so we're always focused on how we continue to sustain and maintain our business keep our team safe, renew our stores, but where do we then best allocate the capital to drive the best returns for the group? There's a lot of focus on some of our productivity initiatives. We continue to roll out electronic shelf labels. We've got the second phase of our rollout of Scan Assist that's very important against that stock loss initiative that we talked about. You'll see movements between categories, a little bit of lumpiness in supply chain, but overall we think this sort of $2 billion is about the right level for us.

We try and run it on a three-year window, so we try and sort of look at it over three years and it'll sort of change up and down. Very important to call out, and I know, Ned, this is your accountability, Moorbank is the biggest individual project we will commission, I suspect, in just over $1.4 billion of investments. It's still early days, and we certainly need to keep highly focused on it, but our CapEx plan is tracking to budget, as it is with our Auburn CFC. So two very important projects. Still lots to be done, but tracking to budget on both of those. Can I just clarify, is Moorbank in the sustaining CapEx, and is that supply chain figure on slide 22?

It is, Craig, yes.

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

Hey, guys. I just had a question thinking about cost growth into FY24 and if we just focus on Australian food, I think the growth in the second half was around numbers 8% with a little bit of help from COVID costs dropping out. I mean, is that a good starting point for thinking about FY24 or are there some other... sort of large components that we should consider. Obviously, there's wage step-ups, but other things that we should consider when we think about cost of doing business growth in FY24.

Thanks, Melissa. We're not focused on giving guidance. But maybe, Steve, you can give some colour to the considerations that sit there, particularly just calling out maybe the DNA that's sitting there and the Casio DB difference to that and some of the things we're trying to balance.

Yeah, happy to, Brad. So that number's outright for the second half, Phil. There is certainly some benefit from cycling out of COVID costs. I think we had about $50 million of COVID costs in the... second half last year, although a number of those will have stayed in the supply chain. But if you think about what drives our cost growth as a group, wages and the cost of our team is half our cost base. It's well communicated what the fair work increase is going to be. The other big increase, so that was Inflation on team costs and then inflation across other areas such as energy or some of our people-related costs like contractors for cleaning or repairs and maintenance for other big drivers. So inflation generally was about two-thirds of the inflation in a In gross terms, we obviously work hard at productivity and we've known and expected that cost inflation was going to be higher in F24 than in F23. And so we do have a very robust productivity agenda for F24 and we would expect to generate more productivity savings in 24 than we were able to in 23. Just given the stage of disruption from COVID in 22 impacting our delivery of productivity in 23, we feel like we had a better runway at 24 than I think the other one is, as Brett pointed out, DNA. DNA did step up again, which is really just the consistency of our capital spend over a number of years. A little bit more in the second half that contributes to some of that higher cost growth in the second half. I think probably the other element to just talk to is volume growth. We had negative volumes in the first half of Australian food. We're back into just under 1% volume growth in the second half. And so a lot of... The costs in our business relate to the volume we move, be it the boxes in our DC or the items. that we put on the shelf or we scan through our checkout. So there's actually about a five-point shift in volume between half one and half two, which contributes to some of that volume growth across the two halves. But as we think about the year ahead, there are a number of cost pressures, but equally we feel confident about a number of the productivity initiatives. I think Nat talked about some of them earlier. We know it's all ahead of us, but we're cautiously optimistic about ability to offset a portion of that cost That cost inflation. Thanks, Paul.

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

Hi, Tim. I just actually got a question about your credit card book and WP. What are the plans around credit cards going forward?

Well, thanks for the question, Ross. As you would be aware, we are in the process of transitioning out of the arrangement we had with Macquarie Bank on credit cards. So that process is well underway, and therefore we're actually out of provisioning credit cards. WPAY is really just focused on being the most efficient possible payment merchant it can be for us. We've upgraded the platform that provides services to Woolworths Group, but it's actually also starting to grow retailers who have the same sort of board need as Woolworths Group. It is another profit stream for us. It also gives us some base volume back into the platform. So it's a merchant service. It's a merchant acquirer, not a credit card provider, Ross, and we feel comfortable with where it is and the services it provides to us. Within that context, you may have noticed something that we still have a lot of work to do, which is on our digital wallet, everyday pay, And so we still have a lot of work to do with activating our own digital wallets in the context of our website or inside our store. So some work to be done there, but we're out of credit cards.

Thank you. The next question comes from Scott Ryle from Rimmer Equity Research. Please go ahead.

Hi, thank you very much. Hey, Brad, notwithstanding David's earlier comments, you've used the term operating rhythm in the printed results announcement and you've talked about that over the last few years and trying to get that back given the external pressures on the business and variability and things like that. if we're in a period of smoother operating rhythm, if that's the right word, I wonder if you could just detail what you might talk to the board about over a three to five year period, maybe the top two or three initiatives that you think will add meaningful shareholder value over that time. And I know that with little things added together. But I was wondering if you could just give us a guide as to, in the Australian business, where you're turning your mind to now that that operating rhythm seems to have come back into the business, please.

Yeah, let me... I think there are a couple of questions there as well, Scott, so let me try and pass them. Firstly, I think your point gives me the opportunity to just talk to a very specific issue, which is the underlying process efficiency inside Woolworths Group. And operating rhythm actually is process efficiency, if you think about what it is for us. And one of the achievements for the year that you kind of get glossed over in all the results is when we look at all of our operating metrics and we look at what good looks like, virtually every operating metric in our group has gone back to being good. And good was sort of the highs we had before COVID. So it could be a sore service level, an outdone service level, items per labor hour inside a store, a scan rate at the number of cartons per labor hour in a DC. Over the course of F23, every one of our operating efficiency measures got to where it was pre-COVID. There's a lot of conversation right now in the economy about this productivity malaise. I think our biggest achievement in the year was actually getting back and getting back to where good looks like. Now, that will provide a real foundation for our results in F24, and I wouldn't underestimate the importance of that as a productivity offset against the wage rates, never mind the other initiatives that you put on top. It's easy to always talk about the next initiative, but if your base operating efficiency is not there, it's a diddly squat. It just will never offset that, and And it was terrific to get there and an amazing achievement. And that's true across every part of our group. And we only got there really in May, June. And it's continued into the new year. And by the way, those underlying operating metrics have reflected into our customer scores in the last eight weeks. One of the biggest measures of efficiency in retail, of course, is having a product on a shelf when a customer wants it, right? I mean, that is a moment of truth for all of us. And to see our shelf availability be where it is, and see the customers recognise it in the last eight weeks. I think we're all nodding our heads at the table. It says a lot about where we're at. So I think that is the most important thing. I think actually we stabilise stock loss, which talks to what Nat talked earlier, a good process that's implicit in there, provides the foundation. So, you know, everything else is interesting when you've got that. It's like price. Once you've got price, you can talk to value, but if you don't have price, value doesn't count. Initiatives don't count unless you've got that. If you look at what we're trying to do at the group and you look at the group strategy or the adjacencies we have, we feel that that is definitely directionally correct and it's how we continue to activate that. That is our priority in the next three years. So when you're talking to the board where we go with everyday rewards and how we build a group membership program that adds immense value to our best customers who are our members is key, and so we've got a lot of work going on how we activate that. But that shouldn't be expensive, all the individual business plans we have. Outside of that, then, we haven't talked a lot about it now, but, you know, and I know David Erickson often asks us questions on where we are on, you know, upgrading our DCs or our tech debt. We actually sit here today with probably the best position we've ever been in underlying IT infrastructure in our business. And you can say, so what? Well, that provides the ability to then drive very creative productivity solutions using advanced analytics. Whether we're doing enterprise AI or gen AI or just basic machine learning, just good sense decision making, we now have a platform to drive a true end-to-end optimization through analytics. And so that's, I would call that as the third thing. Many other things going on in the group. But we are not growth constrained in the mid-term. But it is all based on fundamentals.

Thank you. That's all I had.

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

Good morning, Brad and team. I might change track and talk about Big W if I could. So with the unseasonally warm and dry weather we've seen this half, do you think that's been the main driver of the weakness you've seen in in Big W's apparel sales more recently? And how are the aged inventories in that business tracking their relative history, please?

I don't think there's any excuses. People are adjusting based on their spend and how they change their spend and what they do with their spend. So, clearly it will change timing and so on. And in the apparel business, we are in competition with other discounted proposals, but also specialties. stores as well, so there's a lot going on in the space. I'm going to turn to Dan to just give some colour of what's going on in apparel, but I had promised someone to talk about Barbie Mania, so you can talk about our great colours for spring in apparel that make us very excited about the ability to mix and match some great Barbie pink.

We are selling a lot of pink right now, thanks Brad. And maybe give some colour and start with your question on winter. You know, I would say that the warm start to winter contributed in the early days to slower sales, but I would really describe it as a mix of largely around discretionary spend being deferred and especially our budget customers and our budget families managing their spend much more closely. And then from an inventory perspective, you know, we are comfortable with our position. We're managing it very, very practically, make sure we get out of seasonal stock when we need to, and we do, while we don't report it, we track a measure of inventory else, which is, you know, aged in excess and quit stock as a descent of total inventory, and that measure's actually improved year on year, so we think we're in a reasonably good position.

Thanks, Dan. The only other thing I learned from you on Saturday was men's apparel is actually going quite well at Woolworths, so for all the men on the call, come and shop at the Big W. It'll be a new experience for all of you, and we've got some great value.

Right. All right. Thanks very much.

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

Morning, Brad and team. It obviously is a great result in the food business in the context of the market, but it does look like you're probably pipped just in Q4 from a growth standpoint and probably came in third behind Coles and Aldi, and I appreciate their base effects. But just on the tech investment aspect, And again, fully appreciate you getting some good benefits on GM and the alternative revenue. I think some of those are great. But do you think you're actually driving loyalty benefits from rewards at the moment? Because I know shoppers are cross-shopping more, but it just doesn't seem like, from what we can see, there are tangible evidence that you're driving top-line market share from all the investment you've made around the tech and rewards.

Thanks, Ben. Well, it's a nice question to get us fired up at the end on what all the stuff we need to do in the year that lies ahead. Look, you know, when we think about sales, we're actually thinking about customers and are we retaining customers, are we building basket with customers, are we building loyalty? Our data suggests we do that in Q4. So we fill our customers and we look at how they shop in us and what our annual quarterly sales out of them. It feels very good and very solid. So we don't take that for granted. We've got to win our customers' loyalty every day. But actually, when we look at share of customer or customer mints and the customer spend, inside Australian Food or across the group, actually it was a very, very pleasing quarter, and we actually report that number to the board. And within the context of that, I should add that when we look at our pricing guardrails of making sure we're delivering value to customer, we had Q4 probably our best quarter in that sense, and we exited with being exactly where we wanted to be pricing-wise. So we saw it as a good quarter, Always like to, of course, we'd love to have the bragging rights of sales, but that's how we look at it, and we felt in a good position on that. On everyday rewards, we still need to continue to scale up our program and how we use it, but we think there's no doubt that it makes a better experience for customers shopping Woolworths Group, and then hopefully in that term, we'll make them sticky to us. If I just look at digital, and given this is, I think, our last question, Paul, I can go a bit more expansively. Not only is the digital growth going up, which we think is key, but the number one area that has grown is how customers are using our various tools to help them manage their shopping with Woolworths, of which shopping lists, or lists as we call it, has had material growth. And there are close to a million people who use lists inside our digital platform as the way that they engage with us. And what a privilege it is to have the ability to Have them do that and then to be able to add more and more capabilities of have you forgotten into the list or here's a great value alternative into the list or whatever the case may be. So we are seeing the digital platform work. As a group, if we added it all up, you'll probably get more digital visits than physical. But that's not the point. The point is people are starting their shopping experience with us digitally and that's critically important for us. If you look at rewards, what we have seen over the year but in the last quarter is most engaged every day rewards customers are spending more with us than just a customer who's not an engaged rewards member. We're lucky enough that our customers are also spending more with us but our rewards customers are spending more and we think that that's critically important because it's how we get to personalise the experience more for them and hopefully in return they spend a little bit more with us. And then critically for us, if we look at Big W, and it's alluded to in the chart we put in the document, but more than all of our growth to Big W has come from our Everyday Rewards members coming and spending a bit more in Big W. And we're using Everyday Rewards as an ability to introduce customers who could find value in Big W and hadn't previously come in and do that in Big W. And that's been really, really exciting for us. And on a far more micro scale, we've seen the same with MyDeal. We had no questions on my deal. Essentially, our marketplace business in the GMV sense was up year on year. My deal was slightly down, but if you had that in everyday market, they were actually up year on year. But again, if you look through the growth inside my deal, everyday rewards has been a critical component to driving overall marketplace growth. So as per the previous question from Adrian, we've got a lot to do, Ben, as you might imagine, on everything, but in particular digital and rewards. But the signs are very promising at this point in our journey, but, you know, Lots to do. I think that was our last question. Thank you, everyone, for all of your questions. As always, I'm always cognizant as we talk to you here, we're halfway through week nine of the new financial year, and we've only got a couple of weeks left before we talk Q1 sales. So I look forward to engaging with you all there. As we like to say, the truth is in our stores, whether digitally or physically. So I just encourage you to get out there, see the experience you get in our store. Hopefully you'll see what we believe. which is it's a more consistent, more compelling experience for all of our customers, and you'll feel that too. Thank you very much.

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