Thank you for standing by and welcome to the Coles Group first half 2021. 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 key followed by the number.
Thank you, and good morning, everyone. It feels like Groundhog Day as we welcome again from a lockdown and sunny Melbourne, but I understand. It is Leah Weckert, our CFO, and Ben Hassing, our Chief Executive of eCommerce, who will provide you with a strategic update as we promised last year. Before I get into the presentation, I'd like to make a few opening remarks. We've faced many challenges over the last 12 months, none more so than the second COVID-19 wave in Victoria. However, I continue to be amazed at our customers, suppliers, and community partners who all pull together to help us work through these volatile and unpredictable times. During the half, we saw many more Australians reunited and celebrating Christmas at home, and I'm pleased Coles was able to play its part through our Christmas ranges and some entertaining opportunities for change.
I look forward to Coles and our team members serving the community and contributing as Australia continues its recovery. With that, I'll move on to the financial results. Eighteen months ago, we launched our refresh strategy. Of course, no one then could have predicted financial results in the first half, which were pleasing. Total sales up 8%, EBIT up 12%, and net profit after tax up for Smarter Selling program. And in FY 2021, in excess of AUD 250 million, and we'll talk more about that later. We invested gross CapEx of AUD 532 million, which was up almost 40%. Operating cash flow of AUD 1.7 billion, cash realization of 120%, and a very strong balance sheet with net cash position of AUD 38 million. For our shareholders, I'm also pleased to report a fully franked half. Finally, the safety of our team members and customers in store is always a priority of ours.
We measure this through our total recordable injury frequency rate, or TRIFR, and I'm pleased to say this reduced by 15% during the half. Following years, health programs with R U OK? Day, our GEM program, gratitude, empathy, and mindfulness, and the support of Movember, which Coles contributed to Movember in November last year. I'll now go through the strategic pillars and talk about some of the progress that we've made there. So slide four. Before that, reached 90.1%, significant improvements on most metrics.
In terms of key initiatives, we celebrated 10 years of Down Down, one of the most famous value icons in Australia, lowering the cost of living for millions of Australians, and still an important part. When we signed an Ocado deal a couple of years ago, we call it anytime, anywhere, anyhow shopping, and Ben will take you through the strategy to see in supermarkets rising by 61% and in liquor by 90%. We were especially pleased with the supermarkets number. We also led the industry in removing door-to-door catalogs and launched Coles & Co., which is resonating. More than doubling the number of stores ranging Coles Best Buys to almost 200, allowing customers across Australia to access a broader range of great value general merchandise products all sold out within days. We also made significant progress in own-brand, with revenue growing by 10%, delivering AUD 5.7 billion of sales.
11 own-brand products won Product of the Year, including Coles Finest Chocolate and Hazelnut Mousse, and we saw very high Flybuys customer engagement, particularly in the second quarter with our MasterChef stainless steel knives collectible campaign, which proved to be very popular with the many new home cooks out there. In liquor, the refresh strategy continues to be embedded with significant range change and three eCommerce dark stores opened to increase capacity, streamline order fulfillment, and improve speed of delivery. Finally, the rollout of our new self-serve coffee machines, serving the award-winning Urban Coffee Culture blend, has been completed to 99% of the Coles Express network, delivering strong sales results. Moving on to slide five, Smarter Selling. We're on track to deliver cost savings of AUD 250 million in FY 2021. I won't go into the individual detail, but I will talk about the future.
One of the changes of COVID is, obviously, customers started packing their own bags more during the year, and as a result of that, we've decided to change the packing benches in almost 300 stores to enable them to do that more effectively, which increases our team. The progress has been significant with the Witron projects under construction and Melbourne Ocado continuing and Sydney now underway. Supporting an efficient and agile workforce, we've mentioned this before, but we launched a new people and payroll system called myHub through our strategic partnership with SAP. myHub has replaced over 16 disparate people systems, providing a one-stop shop for all our team members. Penetration of reusable crates for Coles Fresh suppliers, reducing cardboard packaging.
Finally, our Smarter Selling, our tailored store strategy continued with 30 supermarket renewals completed during the half, including 7 Format A, 10 features that I'll talk about shortly as part of our final pillar Winning Together. Moving on to slide six, including trolleys made from recycled plastic milk bottles and RED. We entered a 10-year agreement with requirements from renewal sources from July 2022. We partnered with Victorian recycling organizations, RED Group and Replas, to pioneer a concrete slab car park made partly out of recycled bags to supply Coles with fresh milk for Coles brand, almost 60 across 40 states. This gives these farmers longer-term contracts and greater certainty so that they can invest in improving the sustainability and productivity of their farms.
We also had our most successful Christmas fundraising campaign for families impacted by childhood cancer, a fantastic result when we know so many Australians are going through hard times. There were AUD 520,000 in grants donated to more than 150 Little Athletics clubs across Australia. And then finally, Prime Minister to celebrate those who'd helped during the pandemic. Terence worked for Coles for more than 15 years in Sydney. Moving on to the next slide, our strategy tracker. We show this every six months, as you know. I've talked about this place later in the half, and we'll give you an update on that at the full year. In line with market, as you can see, our relative growth has been impacted by the trend to local shopping, and our stores are more likely to be in shopping centers than the competition as well.
We'll continue to report our progress at the next. Shortly hand over to Ben Hassing to take you through our eCommerce strategy. Just a little bit of background. Ben has been testing our internet connection. The internet connection from San Francisco can often be better than the difference with the team. So Ben, over to you.
Since joining Coles over eight months ago, it's been an exciting time with so much change. I've learned about the business from our team members. I've also been able to see Coles in action in our team members' amazing response to the challenges presented with COVID-19 in the first quarter. Posted in China leading their eCommerce and technology divisions. I'll move to slide nine. Now, slide nine. As we enter our third decade, we expect to see more transformation than ever before.
We will continue to enhance our offer and capabilities to deliver the best customer experience as Australians further embrace digital shopping. I'm now turning to slide 10, direction based on three key pillars. As Steven said, Inspiring Customers , Smarter Selling , and Winning Together . We pride ourselves on being customer-obsessed and doing so in a way that also adds value to the Coles Group. By creating a seamless and unified and then we'll begin merging online and offline into a unified experience. We're also focused on continuing to evolve over time. All of this is enabled by delivering through speed, speed and design, speed and development, and speed and delivery. We do this as one Coles team and not a separate silo within Coles. Part of the grocery shopping experience.
We see more and more customers engaging with us digitally, whether it's to explore the great products and content on our apps and websites or to Coles. We find they're more loyal, they shop with Coles more frequently, and they have a higher participation rate in Flybuys. Let me turn to slide 12. The vast majority of Coles Online customers do not just shop online, but rather we see these customers shopping both in store and online. Omnichannel customers, customers that shop both in total with Coles. In our most recent quarter, our omnichannel customer spent 2. This is a fast-growing customer segment for us. The year-over-year growth in total spend with Coles is much higher as well. That is why having an omnichannel approach. Recognizing this trend, we are working to build our digital capabilities to be more integrated and customer focused.
For example, today we have two separate websites, one for content and one for commerce. Our Coles App offers amazing content such as Coles & Co., our digital catalog, and much more. But our customers are unable to make eCommerce merging commerce and content onto Coles.com.au. That's going to provide a seamless experience for the customer. We are also delivering omnichannel enterprise capabilities that give us a 360-degree view of customer, of product, of order, and more. We've begun to structure our teams and our way of working differently that will allow us to move with more speed. Turning to slide 14, the online grocery proposition has a number of unique characteristics that make it different from other retail categories. For example, the average than the ones you might find in a discretionary category in online.
We've looked to remove friction from have it, find it, display it, price it, fulfill it, and support it. For have it, we want to make sure the customer has access to the same product range that they would expect to find in store, and we also want to make sure that that is available and it's in stock for the customer when they shop online while they shop online. For display it, we want to make sure that when the customer lands on a product page and they're making a decision whether or not to price it, we want to make sure that we are competitive in the market first and foremost, but also that our prices are consistent with our brick-and-mortar stores. For fulfill it, we want to make sure customers get exactly what they ordered in the time that they expect. We offer two-hour, four-hour time.
It's also important Click & Collect customer that they don't wait a long time while getting their order placed into their car boot. Lastly, support it. Some of our customers want to engage with us while they are shopping online or after the order has been fulfilled. Having a great customer care experience fixes it. We have built data capabilities to quickly identify the exceptions and solve them at pace. It's basic, it's operational, it's cross-functional, but it's improving the overall customer experience in a meaningful way. Let me show you an example on the next slide, slide 15. We monitor customer NPS. Our focus on the fundamentals and the Six Its has begun to pay off. This is while the business was ramping up at a great pace due to the additional demand that came to us in the second wave of COVID-19 in the first quarter.
One of the Six Its that we focused on order rate. A perfect order is when we provide customers with all of the 50 or more items that they ordered without any substitutes, zero damages, and no returned items. And the orders that we deliver represent the Perfect Order Rate, which nearly quadrupled in the context of the business ramping up in the first quarter from the second wave of COVID-19. There's other examples that I could share across Six Its , and we believe we can continue to improve the. I'm now on slide 16. In this half, we've seen online liquor sales, as Steven mentioned, across all banners increase by 90% year-on-year. With support, we support Coles Online and delivery into a single experience. The online shopping experience across all of the liquor online channels has been upgraded through the platform and through new personalization features.
As Steven mentioned, supporting this growth was the opening of three dark stores in Victoria, Queensland, and Western Australia. These changes to our network allow us to serve customers. Now turning to slide 17, and as I said earlier, we've begun to organize to deliver at a faster pace, which, again, has been very challenging this time. We've tested the proposition in late November, and we were very pleased with how our store operations team adapted very quickly and executed flawlessly. We recognize that previously our Click & Collect proposition lacked delivery, and we will be building on that. I'm now on slide 18, excuse me. By invitation only Coles Plus for benefits at Coles Supermarkets. For a monthly fee, the member gets access to any delivery slot. It doesn't matter which day of the week; the delivery is free.
The Coles Plus member also receives five-star expedited customer care, front of the line that these members would expect. First, the customer will have access to more selection as we carry more range in a central location. Second, the customer service, especially through Perfect Order Rate, is significantly enhanced. Lastly, the CFCs allow us to optimize assets such as inventory, both the breadth and the depth, as well as our overall network assets. We're also learning a lot from Ocado's retail partners across Europe, North America, and Asia, and we look forward to bringing these differentiated capabilities to the Australian market together. As Steven will have mentioned, construction at the Melbourne CFC is continuing, and construction at the Sydney site is underway.
So in sum, we have good momentum today. It's resonating with our customers. It's also resonating with talent in the market as we continue to bring in diverse and experienced leaders to be part of this journey. Thank you for the opportunity to share a bit of what's happening with Coles Online. I'm happy to take questions at the end, but for now, I'll kick it back to Steven and Leah to close us out.
Thank you, Ben, and good morning, everyone. I'm now on slide 21, which shows our group results. First of all, I'd just like to note that we have fully transitioned to AASB 16, so all of the figures in the presentation are now on a post-AASB 16 basis. For those of you who are interested, we have provided some pre-AASB 16 numbers as an appendix to the results release for comparative purposes.
As you can see on the slide, sales revenue increased by 8.1% to AUD 20.4 billion. Group EBIT grew by 12.1% to AUD 1 billion, and group margin expanded by 18 basis points to 5%. Net profit after tax increased by 14.5% to AUD 560 million, and basic earnings per share also increased by the same amount. As Steven mentioned, the Coles Board has declared a fully franked interim dividend of AUD 0.33 per share, an increase on the interim dividend of the prior period of 10%. Moving now to slide 22 in the segment financials. I'm pleased to report sales and EBIT growth across all segments. In supermarkets, sales increased by 7.3%, driven by the successful execution of the Christmas campaign, range changes, strong growth in eCommerce, and increased in-home consumption associated with COVID-19.
Supermarkets' EBIT grew by 14.4% to AUD 903 million on the back of higher sales and supported by the continued Smarter Selling program and strategic sourcing. Despite additional COVID-19 costs, 31 basis points of EBIT margin expansion was delivered for the half. In liquor, revenue growth of 15.1% was driven by strong performance across all banners, channels, and categories, but we saw particularly strong growth in eCommerce, spirits, and RTDs, and in the larger format stores. Liquor recorded EBIT growth of 36.8% to AUD 104 million, with higher sales offset by margin deterioration from mix as a result of COVID-19. Express revenue growth was driven by tobacco, forecourt sales, and the drinks category, which was supported by recent investments in fridges and targeted range reviews bringing in healthier drink alternatives. Sales growth was also supported by improved momentum in Victoria following the easing of the government-imposed COVID-19 restrictions.
Express reported EBIT growth of 14.3% to AUD 32 million, which was supported by the strong convenience store sales and good cost control in the half. The other segment recorded net cost of AUD 19 million for the year. Corporate costs were AUD 39 million, with a year-on-year increase driven primarily from market-wide increases in insurance costs. Corporate costs were partially offset by earnings from property operations of AUD 20 million, which, as we said at the full year, are expected to be largely first half-weighted in FY 2021. Coles' 50% share of Flybuys' net result was nil for the half. I'm now turning to the operating cash flow on slide 23. Operating cash flow, excluding interest and tax, was AUD 2.2 billion, with strong cash realization of 120%.
This reflects strong trading performance and a working capital inflow of AUD 221 million, largely driven by the timing of the half-year end, resulting in fewer payments in the first half of FY 2021 compared to the prior corresponding period. This is expected to reverse in half. Despite the unwind, we are targeting cash realization of greater than 100% for the full year. The change in provisions that you can see on the slide is a result of higher employee entitlement provisions, with fewer team members taking leave, both annual leave and long-service leave, during COVID-19. I'll now take you through capital expenditure on slide 24. Gross operating capital expenditure on an accrued basis increased by AUD 216 million year-on-year to AUD 532 million. The step-up in CapEx was driven by our renewal programs in both supermarkets and liquor, as well as growth and efficiency initiatives.
Within supermarkets, capital expenditure was incurred in relation to 11 new stores that were opened during the half, as well as investments in the store renewal program, with 30 stores renewed. CapEx was also spent in relation to in-store investments, for example, on loss prevention measures as part of the Smarter Selling program, as well as investments in the supply chain modernization project. Liquor capital expenditure focused on new store openings, with 20 stores opened in the half, while investment in First Choice Liquor Market conversions continued. Finally, we reported a net property inflow of AUD 24 million on an accrued basis. Divestment income reduced compared to the prior corresponding period, which, if you'll remember, was a particularly active half for us. Turning to the balance sheet on slide 25.
As of the 3rd of January, we reported negative working capital of AUD 1.3 billion, capital employed of AUD 11.1 billion, and net assets of AUD 2.8 billion. We maintained a strong balance sheet with investment-grade credit metrics, which will provide flexibility for future growth. If I start with working capital of -AUD 1.3 billion, working capital improved by AUD 496 million compared to the prior corresponding period. As I already mentioned, this was largely as a result of an increase in trade and other payables, which were impacted by the timing of month-end payments compared to the prior corresponding year. Capital employed remained relatively stable, with higher right-of-use assets as a result of the recognition of reasonably certain lease options being offset by higher employee provisions, which I've already discussed.
Inventory days decreased compared to the 5th of January 2020, with the impact of the change in the recognition of duties and taxes on tobacco inventory and the removal of fuel inventory more than offset by the business being able to successfully manage inventory levels through the periods of heightened demand as a result of COVID-19. The above factors, as well as the timing of the month-end payments, also impacted the trade payable days. Turning to slide 26 on capital management. Coles retains its existing annual dividend payout ratio target of 80%-90%, franked to the maximum extent. The Coles Board has declared a fully franked interim dividend of AUD 0.33 per share, a 10% increase on the interim dividend of the prior period, and with a payment date of the 26th of March 2021.
We reported net cash of AUD 38 million, and the weighted average drawn-down debt maturity was 7.4 years as of 3rd of January, with undrawn facilities totaling AUD 2.4 billion. In August 2020, Coles issued AUD 450 million medium-term notes, comprising AUD 300 million 10-year fixed rate and AUD 150 million 5-year floating rate notes. The 10-year notes were priced at a coupon of 2.1%, and the 5-year notes were priced at a margin of 0.97% over the three-month BBSW. The proceeds of the notes were used to retire existing bank debt facilities. Coles continues to be committed to retaining diversified funding sources and to extending the debt maturity profile over time. And finally, on credit ratings, we remain committed to solid investment-grade credit ratings with S&P and Moody's. I'll now hand back to Steven, who will make some concluding comments.
Thank you, Leah. Regarding the outlook, over recent months, Australia has successfully managed to avoid large-scale COVID-19 outbreaks. However, short-term outbreaks have impacted a number of cities and communities across Australia, as is the case in Victoria this week. Depending on COVID-19, depending on vaccine rollout and its efficacy, and a number of other factors, sales in the supermarket industry may well moderate significantly or even decline in the second half of FY 2021 and into FY 2022. Coles will be cycling elevated sales from COVID-19 in supermarkets late in the third quarter for the remainder of the second half and indeed for most of FY 2022. Obviously, what we saw was pantry stocking, people working and eating from home, customers shopping online, and more Australians in Australia due to border closures. While the outlook remains uncertain, the following trends are likely.
We'll see some reversal of the local shopping trend as customers become more confident in shopping in larger shopping centers and, to some extent, CBDs. We'll see increased movement as COVID-19 restrictions ease, which will help restoration of fuel volumes closer to pre-COVID-19 levels. We'll also see benefits of recent improvements in both unemployment numbers and consumer confidence, maybe partly offset by a reduction in fiscal stimulus measures introduced during the height of the pandemic very successfully. Perhaps most importantly, we're going to see reduced immigration for quite some time. This reduced immigration has underpinned population growth for decades and has been a major contributor in driving supermarket sales in that period. Supermarket comparable sales growth has continued to moderate, and in the first six weeks of the third quarter, it was 3.3%.
However, there continues to be significant variation in sales performance between states, store locations, and week to week as a result of customer shopping trends as well as any short-term outbreaks that have occurred. Progress made on our strategy at our strategy day on Wednesday, the 9th of June, on COVID and so on, where you'll also get the opportunity to meet the executive leadership team. With that, I'll hand back to the operator, and Leah, Ben, and myself, happy to take any of your questions. Thank you.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press s tar then two. And if you're on a speakerphone, please pick up the handset to ask your question. As we have many in the queue, please limit yourself to two questions. Our first question is from David Errington of Bank of America. Please go ahead.
Morning, Steve, Leah, and Ben. Yeah, Steve, straight into the sales numbers, I'm trying to work out the minus market growth of 10%. Yeah, the drop-off in the sales in that first six weeks, what's happening out there that's caused that? Is that market, or is there something there that's just not? Because Ben's presentation was excellent. That perfect order was really impressive. Yet for the online growth to drop to 37% in the six weeks and your likes to likes to drop, there must be something going on. Can you give us a little bit there that might unearth that as to what's happening? Is it market, or is there something in Coles there?
Okay, thanks, David. By the way, Ben's looking very pleased based on that feedback.
Thank you.
Thank you for that. Look, there's a couple of things that we've picked up and probably need to discuss in more detail. I think first of all is that we were in bushfire season this time last year, and we did see through that first quarter an improving sales trend at Coles, which we've talked about before. And that impacted supermarkets positively and liquor negatively, as you might recall back then. What we've seen within the numbers is quite an interesting change in Victoria in particular, where there is softness. And it looks as though during January and beyond, a number of Victorians have gone to Queensland, which is perhaps not surprising. We've also seen a shift from metro Victoria to rural Victoria.
Then what we've also seen is the fact that Victoria was one of the biggest, if not the biggest beneficiary of overseas immigration, and that's about to start being cycled as well. In most of the country for the year, the positive impact of Australians being in Australia has offset the lack of tourists and immigration. With Victoria, I think it's facing some real population headwinds from a number of factors. Victoria is very soft, and more of our sales percentage comes from Victoria than any of the other major supermarkets. That's one thing to bear in mind. The second important element is produce deflation. We ran for most of last year with fairly high produce inflation, and you'll be aware of a number of factors driving that, not least of all the bushfires, the droughts, and COVID.
What we've seen is the reverse, and we're expecting it to maintain to be in deflation for quite some time, and that's driven by mostly double-digit sort of declines in a lot of vegetable categories, so driven by population trends and a big shift in produce inflation moving to deflation.
Okay. Thank you, Steve. Thank you very much.
Thank you.
Thank you. Our next question is from Grant Saligari of Credit Suisse. Please go ahead.
Thank you. Steven, it was a strong result in absolute terms, but just to follow on from that market share point on supermarkets, you're attributing the market share loss almost solely to store location, store network, and the effect of lockdowns you're pointing to. But if you actually look at the December quarter, your relative growth rate relative to the industry was no better than the September quarter. In fact, it could even have been a little bit worse than the September quarter. And in the December quarter, most of Australia, ex-Victoria, was out of lockdown. And you're down AUD 10 worth of additional online sales, which could easily be the differential between you and Woolworths. That's worth 50 basis points in terms of growth. So just be keen to understand what, and you have changed a lot of other things in the business. You've changed the catalog. You're changing the ranging.
Just be keen to, if you could provide some more proof points around the likely recovery in that relative sales growth rate, market share point.
Yeah, I don't think I've really got much else to add, Grant, other than what I've said, which is I'm not sure what market data you're talking about, but we use the ABS data. And based on the ABS data, we had an improving market share going into Christmas. So I don't think there's anything more I can mention where we've looked at every single store location. And as I say, we've got neighborhood stores that are up double digit. We've got CBD stores that are down 25%. Based on our store-by-store analysis, the biggest impact on our performance relative to the market is the shift to local shopping. And the reason for the additional reason to believe that that's the case is that the customer metrics are the best they've ever been across all of supermarkets. So.
I guess the customer metrics are going to be the key ones. How quickly do you think you can catch up with these online initiatives? Because I know you're downplaying it a little, but they are sort of material differences in growth rate that are impacting the top line.
I think there's a bit of confusion out there as to whether everyone's online strategy is the same. It isn't. We made the biggest investment in online in Australia two years ago by signing up to Ocado. That is being built as we speak. And I don't know whether you saw the Ocado results last week. Did you manage to see them?
No, I didn't have a close look, Steven.
See who is doing the best job in online in the world, and it's them. That's coming to Australia in FY 2023. We made the investment. We're building them, and we're looking forward to having that as part of our differentiated online offer. There's nothing I can do about bringing that forward. Unfortunately, they've got 17 in build around the world. They've delivered two this year to Canada and France. They're performing extraordinarily well by all accounts. Ocado is the most profitable online and best customer metrics in the world. That's coming. There's nothing I can do to change that. We made that decision. I think it's going to turn out to be a good decision. What we then have to do is decide on how to complement Ocado in the non-Sydney metro and Melbourne areas.
And that's what Ben has been trying to articulate today, which is he's building a team. We're building a plan around that. The main thing to do first is to make sure you've got strong foundations on which to grow. And even in the last few months, we've done Click & Collect Rapid. We've got the membership services launching today. There's been huge improvement in the customer digital experience, and that will continue over the next few years in the runway to Ocado.
Okay. All right. Well, thank you for that.
Our next question is from Michael Simotas of Jefferies. Please go ahead.
Good morning, everyone. Sorry to continue to harp on about this, but can we talk a little? Can you hear me? Sorry about that.
It's okay.
Sorry to harp on about it, but can we talk a little bit more about the like-for-like sales trends that you've seen through the second quarter? I know it was only four weeks, but you started the quarter stronger than you ended the quarter, and it looks from ABS data like November and December were fairly strong months. So I just want to understand, when you say market share improved, do you mean that you were losing market share at a slower rate, or you were, in fact, growing market share through that period as you approached Christmas?
No, as I, hi, Michael. As lockdown happens, we are impacted more than anyone else because of the five-kilometer rule, because we have fewer stores than anybody else, so what happens is our market share goes down more, and then each and every time that's happened, our share starts to recover, and so what we saw was consecutive months of improving market share going into Christmas.
Okay. All right. So that's more directional than the absolute number. Okay. And then you had quite a good margin outcome in the supermarket business in the first half. I mean, obviously, it's always a balancing act in retail, but do you think you may have done yourself a disservice from a sales perspective by, if perhaps you reinvested some of that profitability?
I think when we look at our price indices, we're very well positioned and, in fact, probably the best we've been positioned in years. So I'm not worried about that. And in fact, we invested quite a significant amount in pricing alongside those through the first six weeks of this quarter as well. So I'm not concerned about our price position. I think it's very strong. And so do our customers, by the way.
Okay. And investments outside of price around service and online, etc.?
Yeah. As I said before, we've got the strongest telco's customer metrics we've ever had. We've never been over 90% before. And that's on all attributes, whether it's to do with service, pricing, and so on. So our customers are very happy. However.
Hi, Shaun. Leah, how are you?
Today. Well, thanks. Yourself?
The full year last year. We are modestly above half of that at the moment for the half.
Okay. So full year, you haven't quantified it. Last year, you said you were above AUD 250 million.
Correct, and so we're modestly above the halfway point on that for the half.
Okay. All right. Perfect. That's very helpful. I hate this AUD 1.1 billion-sized CapEx number to continue because while you've highlighted some of these COVID initiatives, the low-cost format attacks are really good, and you should be doing more of that anyway, COVID or not. I'm just curious that it actually stays at this 1.1 number going forward for the next few years, please?
Yeah. So we're going through the planning process, the annual planning process internally and with the board at the moment. So we'll be able to give a much stronger level of guidance on this when we get to the June strategy day. What I would say is that the business is in a very strong position. We've got a very strong balance sheet. We've got a net cash position, and we've got opportunities that are becoming available to us, which have strong returns and we think are good investments for our money. But we are going to continue to be disciplined on capital on the go forward and really require quite strong hurdles to give you that in June at strategy day.
Okay. Great. Thanks, Leah.
Our next question is from Richard Barwick of CLSA. Please go ahead.
Thank you. Can I just, I mean, you've given a great explanation for the move to local and so on and that actually being the key driver of the relative market share moves. But can you give us a sense of what that looks like for your portfolio? So, for example, are you able to give a sales growth number or a like-for-like number for what would be a local or a suburban store relative to a major shopping center store?
Yeah. Hi, Richard. I'll give you, let me just get the facts out. I think so in the half, the standing portfolio were both in excess of 10% comps, whereas the shopping centers and so on were sort of flat, and the city centers were - 25%. Is that what you're asking for?
Yeah. Yeah, absolutely. That, to me, just brings that to life. And so then really what you're emphasizing here is it's your mix of stores across the portfolio. In these neighborhood and freestanding stores relative to Woolworths, for example, then that's why your like-for-like is going to be lower.
Yeah. We have fewer freestanding and neighborhood stores than anybody else and if I look at, take three of our biggest stores in Sydney, for example, which would be World Square, Broadway, and Bondi. They're all trading down significantly.
Okay. That's helpful. Thank you. And then just for a bit more color on online, and I agree with Errington's comments, it was a great sort of background presentation to see what you're doing and where you're taking it. But I'd love to get a bit of an updated sense of the profitability through online. We know that, obviously, the omnichannel shopper is doing double the level in sales. What can you tell us in terms of a home delivery profitability versus a Click & Collect versus an in-store? Just so again, we get some sort of sense of relativity across the three types.
Thanks, Richard. Great question. So, I mean, as Steven and Leah have said in the past, I mean, the online business, it is profitable and has been profitable for quite some time. And certainly, as you get the additional unexpected growth that we had in online in the first half, that just is great from a profit standpoint. We don't disclose the absolute number, but it's a really good trend. I think longer term, as Steven mentioned with Ocado, I would really encourage everybody to review their latest results. I mean, it's industry best in class in online grocery EBITDA. But what our team is focused on is order cost economics. We think there's still a lot of efficiency that we can get. And when you're focused on order cost economics, you're agnostic to what is the demand as well as what is your fixed cost.
That's where the real opportunity is, and that's where we're seeing some pretty good progress, and we have more to come. Thank you.
Okay.
Thank you.
All right. Thank you. Our next question is from Ross Curran of Macquarie. Please go ahead.
Hi. Thanks. Actually, Ben, I've got another question for you. Can you talk us through what you think success looks like for Coles Plus? How many customers do you think will sign up to that, and how will you judge the program to be a success or not?
I mean, we have our own internal OKR or key measure of success for the absolute number. We're not planning to share that externally. What we learned in the test was a very good customer or member feedback. I mean, they really appreciate the service. They're going to appreciate it more as we continue to add members. The team is really encouraged by it. Again, it expands across not just the Coles supermarket business. It includes liquor. And we're going to continue to add benefits that's agnostic to brand response of the members and the retention rates that we had.
Can I ask about the monthly fee, the AUD 19? How important is that fee to the overall AUD 19? What makes this work?
I mean, really what the benefit you get on this is the retention and the loyalty. So you've got a certain cost of acquisition that's natural in this business, but your cost of retention goes down. It's a different economic model. A lot of grocers are using this type of service as part of their overall business. We've just got a different spin on it, and we think this is a very compelling overall membership subscription product for the market.
Thank you.
Thank you. A reminder to ask a question. Please press star then one. Our next question is from Phil Kimber of Evans and Partners. Please go ahead.
Hi, guys. Just a question on COVID costs. I think you mentioned that the first quarter result, they were AUD 65 million, and you've called out AUD 70 million for the half. Just trying to understand if that's correct or I misheard the first quarter number, and then how that would sort of flow into your comment of AUD 10 million a month for the back half of the year.
Yeah. Sure, Phil. So I think there are two separate mentions to COVID costs in the release. The total for the half was AUD 105 million. So AUD 65 million for the first half for the first quarter and AUD 40 million for the second quarter. Of that AUD 105 million, around 70% or AUD 70 million falls into CODB. The remainder of it hit the GP line. So that's where the 70 has come from. That's CODB specific. In terms of the look forward, we've called out up to AUD 10 million per month. That we are finding is quite variable because of outbreaks that might happen during that month.
So if I took January, for example, we were between the five and the 10, but potentially the impact of the Victorian lockdown, for example, on February could have a more significant impact and put us towards the upper end of that, which is why we've called out the up to 10.
Yeah. And the 70% CODB, 30% GP split, of that total of 105, is the vast majority of that in the supermarket division?
Yes.
Yeah, and then the analysis I've done now is going to be wrong because of that mix, but can you tell us the CODB in the supermarket business? I mean, if you stripped out COVID costs, what did that actually grow by? I'm not sure if you've got that number to hand.
Yeah. So the CODB for whole of supermarkets, which grew at around the 9% total, the component parts that make that up, you've got the AUD 70 million that I've just talked about of the COVID-19 costs. You've then got a block of additional costs that are related to variable costs due to the higher sales volume. So because we sold more things, we've got that variable cost of the impact of rem and store expenses in stores. And that is a material part of the increase in the CODB. The third block you've then got is what I'd describe as strategic investments. And a very significant part of that is OpEx to support the higher CapEx program. So we've seen the CapEx increase by around 40% versus the prior corresponding period. Obviously, there is OpEx that goes along with the delivery of that.
So the OpEx has stepped up as well to enable us to execute those programs. We also made some investments into digital IT and marketing, things like Coles & Co., for example. Then all of that leaves you then what the underlying cost growth is. Now, for us, on our calculations for this half, it was between 2.5% and 3% on an underlying. Once you strip out the COVID costs, your variable costs related to the additional sales and the strategic investments we made. That underlying cost growth, we then offset with the Smarter Selling savings.
Savings. So that percentage becomes smaller. The percentage growth in underlying costs becomes smaller once Smarter Selling costs are assumed.
I mean, one of the big purposes of the Smarter Selling program, the reason it was put in place, was to offset the inflation in costs that we have in what I describe as the legacy business. And so if you build the cost waterfall down, you end up with a cost inflation on things like your store rem and the like, store expenses of between 2.5%-3%, which is sort of the big blocks within CODB. Things that we've got would be offset against those cost buckets I've outlined.
Yep. Okay. Thanks.
Our next question is from Bryan Raymond of Citi. Please go ahead.
Good morning. I'd like to follow up on the cash cost growth a bit further. If you strip out the D&A and you look at underlying growth, ex-COVID costs, and you also remove the AUD 16 million for supermarkets last year that you recognized for the back payments on wages, I'm getting double-digit growth on my numbers. I'd just like to understand sort of the key drivers. You've called out a few things around some of the investments you've made, but that is growth. So can we expect that to moderate back down to a more reasonable level going forward? So perhaps, Leah, I guess if you want to run me through the key drivers of that, please.
Sorry. This is CODB again, right?
Yeah. So cash CODB, ex-D&A, I'm getting double-digit growth depending on how you account for various things. Particularly, even if you strip out COVID costs, you strip out the rem payments from last year. And yeah. And then you've got and that's not even accounting for Smarter Selling benefits in there as well. So it just seems like an extraordinarily high level of cost growth in lower period of sales momentum.
Yeah. I mean, to be honest, I'm not sure what extra I can tell you that I haven't run through with Phil just then. I mean, we would expect, for example, the COVID costs to come down given that they're moderating on the per-month amount that we're incurring. So that will reduce. We'd also expect, with the moderation in sales, to see sales impact. But we will continue to be making some strategic investments throughout the period as it relates to the capital program and to strategic initiatives that we've got in play. So I don't think that piece of it is going to change on the looking forward.
Did you add labor hours into the store during the period outside of COVID specific costs, just the selling costs, just customer service to try to drive sales? Was there much investment there?
In labor?
Store hours.
Store hours. I mean, the biggest impact that we've seen in terms of the cost increase on labor.
That's not the EBA change. That's just the annual.
No. That's just the flow through of the Fair Work increase.
Okay. Okay. And then just my second question, just on gross margin, just the ability to retain some of that 70 basis points. Or do you think there's an element in there which will revert over the next 6-12 months?
Hi, Bryan. As you probably know, we never do forecasts of gross margin, but we have a gross margin plan, and it's been the same for, I think, 18 months or more now, which is we're trying to tailor the range. And tailor the range means often trying to improve the mix, which has worked. We've obviously got a strategic sourcing program going on, and then we've got Smarter Selling in there as well. And there's some costs in there that might come down in supply chain relating to COVID as well. But the key to how much flows down depends on what happens in the marketplace, and as I mentioned earlier, we're in a good position from a value perspective to our customers. But what we are seeing is inflation coming down a notch as we sort of highlighted at the full year results.
I think that we'd sort of peaked on inflation, and certainly, it looks like promotional intensity has moved up a notch, and deflation is appearing in produce, so that's another factor to consider as we move forward as well.
Where are you seeing that promotional intensity pick up? Is it from one? Is it like Aldi-driven, or are you seeing it just amongst you and your major competitor? Do you think there's a specific category or competitor that's driving that?
No. I think it's just in the marketplace. I think promotional intensity has increased from a low, by the way, because it hit a low in April, and it's probably gradually risen back up to pre-COVID levels. But it certainly is impacting the inflation numbers.
Okay. So it's just normalizing rather than stepping up meaningfully beyond where it was pre-COVID?
I think where we were, of course, was trying to reduce promotional intensity and get more down to everyday pricing. That's going on behind the scenes. I'd sort of say that rather than bringing promotional intensity down, it's sort of being maintained at the moment.
Yeah. All right. Great. Thanks, guys.
Thank you. Our next question is from Aryan Norozi of UBS. Please go ahead.
Hi, guys. You mentioned at the start, obviously, you're losing share because you're only next to local stores. I mean, if you move forward post-COVID, as maybe customers get accustomed to shopping local, you're seeing that in Metcash's numbers, for example, despite the state's reopening. What's your plan to start re-engaging those customers and getting them through the doors again?
That's a good question. I think there's not a single answer to that. And obviously, we're doing a lot of analysis on our Flybuys' customer base and who's where and what they're buying and so on and so forth. But clearly, there's a number of things that we're doing and have been doing to sort of win back customers who've shopped local. It's probably not appropriate for me to sort of tell everyone what's going to happen over the next few months. But obviously, we've done a lot of analysis. And it's clear that as COVID sort of washes through, that some degree of normality comes back. But there's clearly other things that we'll need to do as well.
Cool. The second one, just, I'm sorry if you've already said it and if I've missed it. Have you ever disclosed what your mix of those local or those freestanding stores are versus the industry? So we can get an idea around.
I didn't hear that question. Would you mind just repeating that, please?
Yep. No worries. I don't know if you've shared this before, but could you share what your mix of freestanding stores versus shopping center stores are and how that compares to the industry benchmark?
Yeah. I can give you some broad numbers if you like. So in terms of around about 400, smaller shopping centers around 160, larger shopping centers around 130, freestandings around 80, metros around 30, and city centers around 15. So that's how it sort of breaks down.
Perfect. Thanks, guys.
To sort of also answer your question before, it is different working with shopping center landlords, etc., to sort of think about how do you get customers back to shopping centers and shopping in supermarkets. Clearly, in the CBDs where we've got some of our biggest stores, a lot of that is down to CBD activity increasing. And obviously, all the local councils in the CBDs are working hard to try and get people back to work. And obviously, that's beginning to happen in some CBDs, but it's certainly more Sydney at the moment where some of our biggest stores are.
Thank you.
Our final question is from Ben Gilbert of Jarden. Please go ahead.
Hey, morning guys. Just a quick one from me. Just interested in your view around if we were continuing to see sort of that gap between share, would you decide to start using the price lever a bit more aggressively to drive traffic into stores?
Again, we're not going to sort of talk about hi, Ben. We're not going to talk about what we might do in the future. We are investing in price, as I've said already, and we've invested significantly in price this last seven months on a number of Down Downs and other initiatives. As far as we can tell, customers don't believe there's a price issue at Coles. In fact, quite the opposite. So it's not to do with price. It's to do with, in some cases, safety. We haven't given you it today, but we have a separate cluster that we've looked at, which is our quietest stores, and our quietest, lowest density stores have been our best-performing ones, whereas our busiest, highest sales density stores have been our worst-performing stores.
It's a very straight-line correlation, and it's to do with perceived levels. This is not something that's going to be eradicated from the Australian psyche overnight. A very COVID-safe environment, but some people have just become used to not wanting to be in crowds, as an example. You don't sort of fix that by discounting your product necessarily. You do it by convincing them that you are a safe place to shop, and they'll gradually get used to crowds again as they go back to offices and everything else. That's just human habits significantly, and that will take time to adjust.
Maybe just sneak in one final one as well. You've obviously had a very strong sort of profit result in absolute terms, and I think Leah you sort of alluded to some of it, but do you take this opportunity to maybe expand some things a bit more aggressively and put it through the OpEx line or pull some projects forward?
Guidance around the CapEx, Ben. So we have been cognizant as we've gone through the last half some of the opportunities that have arisen and particularly the strong trading performance we have, giving us room to do that. We have a list of opportunities we have which would pass our hurdles, which we have been prioritizing into next year to do that. We think that's a good outcome for us and a good outcome for shareholders. So that's exactly what we've done.
Fantastic. Thanks, guys. Appreciate it.
Thank you. There are no further questions at this time. I'd now like to hand the call back to Mr. Cain for closing comments.
For questions. We look forward to seeing some of you. I think it's likely to be on a Webex call next week to go through some of the things in a bit more detail. Ben and Leah will also join us on that call. In the meantime, we're looking forward to going through our strategy in more detail in June with you all here in Melbourne. And in between, we'll have as much safety as can possibly be wished and hope that we can soon start meeting each other in the flesh, so to speak. So with that, I wish you all a good day and speak soon. Thank you.
Thank you. That concludes today's call. Thank you for joining us. You may now disconnect your lines.