Thank you very much, Dan, and good morning, everyone, and welcome. Thank you for joining us for the Wesfarmers Strategy Briefing Day. I am joined here today in Sydney with our divisional managing directors and a number of group executives. To start, I will make some opening comments on our group strategy, and then our CFO, Anthony Gianotti, our EGM of Corporate Affairs, Naomi Flutter, and I will happily take your questions. After that, we will move on to the divisional presentations and also the panel Q&A sessions. I will start on slide four, a slide that I always start with and the one that should be very familiar with you. Since listing in 1984, Wesfarmers has been guided by the consistent objective to provide a satisfactory return to shareholders. We define satisfactory as a top quartile TSR over the long term.
We believe that it's only possible to create this long-term value by anticipating the needs of our customers, looking after our team members, treating suppliers fairly and ethically, contributing in a positive way to the communities where we operate, taking care of the environment, and acting with integrity. Anticipating the needs of customers is a really important issue. When I think about our businesses, particularly our retail businesses, Bunnings and Kmart, also Target, Officeworks, and increasingly our health division, we are singularly focused on providing products and services that are making life more affordable and more accessible for Australian households and businesses. I really wouldn't underestimate the power of that. These businesses are making people's lives better. They're increasing the quality of life. When we do that, and when we deliver on that, we do really well financially and we benefit our shareholders.
I think that that virtuous circle of focusing on the customer and delivering great outcomes for shareholders is incredibly powerful. Each of the areas set out here on this slide are very much embedded into our strategies and how we run our businesses. I hope you'll agree that the divisional presentations today will very much bring these things to life. Moving on to slide five, I did want to share a few proof points. We'll get very much into the commercial focus and the shareholder value creation focus, but I did want to focus on some of the good progress we're making in other areas, such as climate and environment, acknowledging that focusing on climate and environment does have a direct link to long-term shareholder value.
For our team, the priorities are very much around safety, career development, maintaining our performance culture, advancing reconciliation and inclusion, and there are examples of some of our progress on this slide. We also are committed to building long-term relationships and partnerships with suppliers, and we know that as our businesses grow, so too do thousands of small businesses across the country supporting jobs and the broader economic growth. A source of pride across all of our team is the very deep engagement we have with communities. If I just look at the first half of this financial year, our group and the divisions provided AUD 55 million of direct and indirect assistance to communities, representing over 8,000 community organizations, which I think is a really powerful demonstration of the value that we add.
Moving to the next slide, turning to slide six, which shows Wesfarmers' total shareholder return since listing in 1984 relative to total shareholder returns of the broader market. In line with our objective, our TSR performance has been top quartile, and it has been top quartile not only since listing, but over the last three years, five years, and ten years. It is really that long-term focus that we are most focused on. We have delivered since listing a TSR, if you reinvest the dividends and distributions back in the company, of around 20%, which is almost double the index.
Now, whilst past results matter, and this is ultimately what judges our performance, what matters most, and I just want you all to realize that this is the way that we think as a leadership team, what matters most is that someone choosing to buy a Wesfarmers share today or to hold a Wesfarmers share today should have confidence in our ability to deliver superior returns in the future. Today's briefing is all about the future. I hope that what you'll hear from our divisional managing directors is how, as a result of the investments and the consistent execution across the group, we have created many opportunities, many opportunities for shareholder value creation in the future, which is what we're all about. Slide seven, moving on to the next slide, another slide that you'll be familiar with.
This really sets out our operating model and provides the framework for how we manage the group to generate satisfactory returns to shareholders. I genuinely believe that this framework is as relevant and contemporary today as it was 20 years ago. The secret is not so much in what the strategies are. The secret is how we execute and implement these strategies. It takes an enormous amount of discipline to stay focused on the things that matter for shareholder returns. We have four overarching strategies across the group that ultimately drive the delivery of our corporate objective. These are, quite simply, strengthening our existing businesses through operational excellence and a focus on customer needs, securing growth opportunities through entrepreneurial initiative, renewing the portfolio with value-adding transactions, and ensuring sustainability through responsible long-term management.
Our strategies are very much underpinned, I think, by a number of areas of competitive advantage, somewhat unique in some respects when I look at a lot of listed companies. The first is divisional autonomy. Divisional autonomy is a core principle of the Wesfarmers operating model. It empowers and incentivizes our divisions to focus on the execution to deliver best-in-class performance. The true test of this is how the performance of our divisions compare to their peers, including many listed company peers. We also recognize that it's our teams that drive the outcomes, and it's clear how much value we can add when we combine exceptional talent with high-quality businesses. Financial discipline is another key feature, which is very much embedded into everything we do around portfolio management and also, importantly, how we allocate capital.
Now, a developing source of competitive advantage that I see is our omnichannel retail and data capabilities. I do believe that these are increasingly a differentiator, and I will talk more about this today. Finally, at the bottom of this slide, you'll see our core values, which very much guide our culture at Wesfarmers, and it's these values that underpin the group's strategies and ways of working. Moving on to slide eight, this outlines our approach to capital allocation in further detail. While there are many ways in which we can deploy and allocate capital, we realize that often the most attractive opportunities come from investing in our existing portfolio. We're really attracted to businesses where we have opportunities to invest incremental capital at attractive returns in businesses that have various platforms for growth.
Over the last five years, most of the capital that we have deployed has been in our core businesses, with over AUD 5 billion invested to strengthen and grow our divisions. This does not include the significant investments we've made in data and digital platforms and technologies that ultimately those costs flow through our P&L nowadays as a result of OpEx or software-as-a-service charges. If we look at what we've invested in this area, it's in the hundreds of millions of dollars. A great example of incremental investment within the group is in WesCEF, and WesCEF has invested in various capacity expansions over the years. I'll just draw your attention to one very interesting example. WesCEF's sodium cyanide facility was built in 1988 with an initial capacity of 15,000 tons per annum.
Now, after a series of expansions and deep bottleneckings, including the recent FID taken to expand the plant, WesCEF is expected to have annual production capacity of about 130,000 tonnes, so an increase from 15,000 tonnes to 130,000 tonnes. These expansions have created significant shareholder value, and it has allowed WesCEF and our joint venture partner in sodium cyanide the ability to serve a growing demand in the WA gold and international gold sector as the sole producer of sodium cyanide in WA. A great story of incremental investment adding value to shareholders. Now, we see many logical value-adding opportunities across the portfolio, which you will hear about today. We also take advantage of adjacent opportunities where we can leverage existing assets and capabilities to deliver growth, and we will, in that context, consider value-accretive transactions.
All decisions around capital allocation are subject to strict investment criteria, obviously given our strong focus on shareholder value. Lastly, the other important point to make is that the strength of our balance sheet provides significant headroom to key credit metrics and the capacity to invest in the long term. If I think about some of the most powerful investments that we've made that have supported the growth of our divisions, it's often at times when some of our competitors are under financial stress, market conditions are poor, and many of you that have followed us for a while will know that we often invest more through those times in order to further differentiate our offer. Moving on to slide nine.
What I wanted to do over the next three slides was to set out how the portfolio in Wesfarmers has grown and strengthened over time and how the consistent execution of our strategies has created both value and opportunity. Now, to start, over the last ten years, Wesfarmers' return on equity has improved from 9.8% to 31.2%. I also believe that the potential for growth in the portfolio has also improved. The portfolio has obviously changed significantly. If you look back every ten years in Wesfarmers, you'll see that that is a constant feature. The portfolio is always evolving. Our largest businesses today, Bunnings, Kmart, and WesCEF, have not only grown but have materially expanded their addressable markets, growing their combined earnings at a compound annual growth rate of around 8%.
We've established new growth platforms such as our Covalent Lithium joint venture and Wesfarmers Health division, both of which provide exposure to industries with attractive long-term fundamentals. Now, it's important to note that these divisions and these businesses are very much focused on the long term. There's significant lead times to value creation through what is essentially a greenfield development at Covalent and a very long-term transformation within our Health division. Both of these opportunities are expected to deliver good value to shareholders over the next five to 10 years. Now, we've also made changes to the portfolio where it supports our TSR objective. We have exited businesses that were either lower growth, faced structural or sustainability issues, or where an opportunity has arisen to realize a price that we considered was in the best interests of shareholders.
As a result, I genuinely believe that we have a portfolio of higher quality businesses that are higher returning with great opportunities for the future. Moving to slide 10, this provides examples of how we've executed on each of our four value-creating strategies in recent years to grow and strengthen the portfolio. First, we've strengthened existing businesses by continuing to find ways to deliver value and better service for our customers. Consistent execution of productivity initiatives has allowed us to unlock efficiency gains and reinvest those benefits back in lower prices for our customers. Secondly, we've secured growth opportunities. Our existing businesses continue to expand their addressable markets. I won't go into detail, but you'll hear many examples across Kmart, across Bunnings, across Officeworks on how they have continued to evolve their offer. We are not operating in a static market.
Our range and service expansions also support the ability to capture a greater share of wallet from our existing customers while also attracting new customers to our businesses. A great example of this, if I think about Kmart, the developments of new products and ranges within health and beauty and youth fashion has introduced many new younger customers to the Kmart business. Now, we've completed some bolt-on acquisitions that support returns. For example, in Wesfarmers Health with Instacare Group and Silk Laser Clinics, Officeworks acquisition of Box of Books. While these are smaller capital deployment opportunities, they're quite logical adjacencies that are expected to deliver good value. Finally, we have obviously renewed the portfolio, as I mentioned, the most significant change a number of years ago being the demerger of Coles.
To demerge our largest business at the time, I think, demonstrates our commitment to prioritize shareholder returns over scale for the sake of scale. It has been really pleasing to see Coles shareholders do really well as well post that demerger. More recent actions, such as the announcement of the sale of Coregas, which is still subject to completion, and also the divestments through the middle of the year for Clean Heat's LNG and LPG distribution businesses, are all just good examples of actively managing the portfolio. Earlier this year, we announced the wind down of Catch, which included the transfer of Catch's fulfillment assets to Kmart Group and some of the digital and marketplace capabilities to our retail divisions.
This decision will clearly improve earnings in the 2026 financial year as we eliminate the losses, but it will also strengthen our retail division's omnichannel offers and improve Kmart Group's earnings. Slide 11. As a result of the developments and the strategies I have just discussed, I am really pleased with the shape and quality of the businesses within the portfolio that, as I said, I believe are well set up to deliver good returns through the cycle, but also, very importantly, to withstand market volatility better than many other companies. As we sit here today and I think about the portfolio, we have market-leading retail businesses with strong value-based offers with broad customer appeal and growing addressable markets. Our globally competitive industrial businesses offer products and services that support critical industries.
We also have exposure to growing demand through our newer platforms, such as health, lithium, and also retail media. Importantly, these businesses are not really contributing to the earnings of the group at the moment. Moving to slide 12. Over the next two slides, I'll set up some examples of the growth and productivity initiatives in train across the group, but I won't go into detail because this is what the divisional presentations are very much about today. Some of these highlights are the continued expansion, as I said, of addressable markets through entry into new categories and ranges. Our retail brands are also looking for ways to not only grow their space but better serve customers in new and existing locations. Our retailers are also looking to renew store layouts and optimize their use of space to make our stores more attractive places to shop.
Whilst it's early days, there are also opportunities to trial new formats and brands to grow our addressable market. I think Wesfarmers Health is a great example of that, where you'll hear today about some of our new formats that we're testing to trial new accessible health and beauty formats, which we think is very complementary for what we're doing. Kmart, in addition, for Kmart now focusing on upgrading their store format in Australia, which we're really excited about, we're also excited about the progress of the Anko store that we opened in the Philippines in Manila. That's performing really well. Together with our joint venture partner, we have agreed to open a number of new stores this year to further test the proposition.
At WesCEF, we are pursuing a number of attractive opportunities to expand chemical production capacity across sodium cyanide and ammonium nitrate. We are very much focused on commissioning our lithium hydroxide refinery, but once we get through that, we also have the optionality to consider further expansions to the mine, the concentrator, and the refinery, which would obviously be subject to a separate investment decision. Lastly, we see opportunities to continue to drive our omnichannel retail capabilities. Moving on to slide13 . This shows ways in which our businesses are improving productivity and efficiency. This is so important for various reasons. Obviously, it is important to maintain our competitive advantage, but it is also important if we are to continue to invest in value to maintain our leading value credentials in many of our businesses.
At the Bunnings investor briefing back in March, many of you would have heard about the numerous opportunities around space productivity that are underway to drive sales density and better return on space. Across our divisions, you will also hear today about many of the initiatives around supply chain, continuing to evolve and improve our supply chain, leveraging automation in many cases. This relates to both better store fulfillment together with direct-to-customer e-commerce fulfillment. There's also a lot of work going on across our group with generative AI. I appreciate that there's probably not a customer that's convincing you all how clever they are around generative AI.
I wanted to say to you that our lens on generative AI is a very strong commercial lens, which is focusing on opportunities where we can leverage generative AI to, number one, improve the customer experience, number two, improve the work that our team members do to drive productivity, and then finally, leveraging new capabilities to drive revenue growth. Hopefully, you will hear today as our divisions talk about some of the use cases and initiatives that they're driving, you will see that clear nexus. Because consistent with the Wesfarmers objective, if it's not improving our customer offer, if it's not helping our team members be more productive, if it's not creating value in terms of new revenue growth and profit growth, then we'd need to question why we're doing it.
We are very excited about the many opportunities we have across merchandising, store operations, marketing, digital platforms, and supply chain to create value. Moving to slide 14. I said I would talk a bit more about omnichannel. Now, on slide 14, there's been very much a transformation in our data and digital capabilities, which has very much strengthened our omnichannel offer. This is the ultimate objective of our investments in data and digital. It's all about improving the quality and effectiveness of omnichannel. Once again, we measure this in terms of how is it benefiting our customers, how is it supporting growth, and how is it driving greater efficiency. We are in a phase at the moment where in recent years we've made very significant investments in capability, and we're now moving to a phase of benefit realization. That is really exciting.
Now, despite the significant growth we're seeing in e-commerce, we also expect that stores are going to represent the majority of retail sales for the foreseeable future. We want to win across all channels because customers want to shop across all channels. That is why we're not talking singularly about e-commerce. We are talking about omnichannel. Reflecting on our investments, our investments and the capability build have really been focused in three core areas. As I said, first, investing to improve the customer experience. This goes to uplifting our e-commerce platforms, making more products available online, improving our capabilities around store and fulfillment center delivery to support faster and more reliable fulfillment, providing greater options around click and collect. We've also invested to develop marketplace capabilities.
The Bunnings marketplace has been, I think, a really successful initiative that provides a bit of a template for the opportunities we have across the group. You will hear today from Alex in Kmart about their thinking of how to develop a more extended range capability within their offer. Now, we have learned a lot about the role of extended range and marketplaces in recent years, and we do see this as a natural extension of the digital offer of our trusted brands rather than something that necessarily should be pursued as a separate business. We have also seen this trend internationally. There are obviously challenges, as we found with Catch, of having a standalone e-commerce business that does not have the scale, does not have the organic customer traffic, does not have the benefits that we have across many of our businesses.
We are finding that, as many international retailers have found, offering this extended range choice in a far more curated range aligned with our brand propositions can leverage the organic traffic that we have, leverage the investment in digital systems and supply chain, and very importantly, can be far more commercially attractive than a standalone business. You will hear more about that today from Bunnings and Kmart. The second area around our investments in technology and digitization are really about improving productivity and efficiency. Finally, uplifting these capabilities creates a great opportunity across our shared data asset to really unlock the power of customer insight and personalization. Some of the opportunities we are seeing with retail media are only going to be possible at the scale that we think they will be as a result of the data capabilities that we have.
Turning to slide15 , as I was saying, these are, I genuinely believe, emerging as a source of competitive advantage. This slide, I think, draws out a few data points to support this. Now, I won't go through this in detail because Nicole will talk about this and our divisions will talk in more detail. The scale of our retail and consumer brands does allow us to reach millions of households across the country. We have an extensive physical footprint that provides excellent connectivity in all major population centers with a network of 1,900 stores, more than 35 distribution and fulfillment centers.
In total, if we look at the space allocated to our stores, and many of our stores do play a role connecting with customers around home delivery and click and collect, across our stores and DCs, we have more than 7.5 million sq m of space, which I think provides a remarkable point of competitive advantage around being close and connected to customers. This compares very favorably when we look at some of our pure-play e-commerce competitors. We also, as Nicole will talk about today, have a range of complementary loyalty and membership programs which do provide us with deeper customer connections and opportunities for more targeted offers. Final slide for me on slide1 6 . Before I wrap up on what I'd like to leave with you as the key messages, I wanted to just provide a couple of updates.
I appreciate that today is all about the long term, but I also understand your desire to ask questions around the health of the consumer. I wanted to make a few observations on that. From a consumer point of view, we've largely seen a continuation of the trends that we highlighted at our half-year results in February. That is, many lower-income households are still doing it tough, some making deliberate choices to put fewer items in the basket. There are other customer cohorts, particularly those that would own their home without mortgage stress, that are continuing to spend. We see these trends across our retail businesses. We also note that many business customers continue to feel pressure. Businesses big and small are feeling the impact of elevated costs of doing business, navigating more complex and onerous regulations.
We particularly notice this in the building sector, which has been challenging. The rate cut on Tuesday is a welcome source of relief for customers. This will ease pressure not only for households but many businesses that are important customers of ours. While this is positive, we know that it will take some time for this to flow through in a change in spending and investment. Secondly, I also wanted to remind you of some of the portfolio actions that we've taken in the past few months and their financial impacts, which in aggregate for this financial year will be positive. As we previously announced in our results for the half-year, we noted that in our full-year results, there would be one-off pre-tax costs of between AUD 50 million-AUD 60 million for the wind-down of Catch.
Now, pleasingly, with Catch now closed, our one-off costs will be at the lower end of that range. We also noted that in the full year, there will be a one-off pre-tax gain of between AUD 80 million-AUD 130 million for the wind-up of the BPI property structure. Now, this with the final amount subject to an independent valuation as at the 30th of June. Finally, following the announcement of the sale of Coregas in December, completion of this transaction remains subject to ACCC and FIRB approvals. As a result of the timing of the expected transaction, and that is still subject to confirmation, we would expect a pre-tax profit on sale of between AUD 230 million-AUD 260 million. We will provide the market with a further update when we have clarity on the completion timing.
As I said, these three items are expected to be recorded as significant items in our accounts. With that in closing, I wanted to leave three key messages with you, three very simple messages that hopefully our divisions will reinforce today. Firstly, we have a portfolio of high-quality businesses that continue to demonstrate their resilience in the current economic environment. Our businesses also have a strong pipeline of growth and efficiency opportunities with the ability to keep expanding addressable markets and better leverage technology to realize productivity gains. Finally, we have new growth platforms that are not currently delivering earnings to the group but are really exciting sources of growth for the future, such as health, lithium, and in our data and digital and retail media space.
Our strong balance sheet provides the capacity to support ongoing investment in our business and opportunities that may arise from time to time. With that, I'll be joined by Anthony and Naomi, and we'd be very happy to take your questions.
Just two questions, very broad questions. Others might want to go a bit more specific. Two questions I'd like your views on. First question is on the ancillary bolt-ons to expand growth. I mean, I understand that doing bolt-ons does expand market reach, etc., but it also adds layers of complexity. I've noticed in a number of your businesses, I mean, WesCEF has been a victim of this, Catch, whatever you're talking now, we're doing Health. These bolt-ons do add complexity. I understand that they can add, but I'd like your views toward the challenge of sticking to your core, because my experience is ancillaries don't really add a lot and ultimately end up selling them down the future. I'd like to get your view on that. The second thing, very broadly, the gray market.
I was talking before to James Graham about the culture of the corporate. To your credit, I cannot think of a better company in terms of culture, culture carriers. Wesfarmers has an incredibly high culture. When does this start to work as your disadvantage as other companies start to access the gray market? I am looking at perfumes in some warehouses. They are half price compared to what others can bring them in because it is clearly from the gray market. I hear retailers are using unethical transport companies that do not follow safety protocols, etc., etc. I understand in the long term, it is a long-term game, you will win out, but in the short term, it can damage you.
Particularly in that health area where you're competing against people that can sell a bottle of perfume or a bottle of aftershave for half the price that you can because of unethical purchasing. I'd love to hear your comments on how you're going against that sort of market.
Thanks, David. Look, firstly, on the ancillary business bolt-ons, I think you're absolutely right that you need to be very careful that some of these bolt-ons, although they might appear logical and provide some new revenue streams, they can be very distracting. If I reflect over the last decade or so, there have been some bolt-ons that have worked really well. There have been others that have not worked well. I think it is fair to say that we are more discerning about that, and we also recognize the opportunity cost that can come and the distraction that can come. We will not, but there have also been examples where they have been very powerful. Sometimes the way things work, we do a bolt-on acquisition to get capability or exposure to a new category. Sometimes things work in ways that we do not originally expect.
If you take the acquisition of, and Mike could talk about the acquisition of Adelaide Tools, that was a rounding error. We did not pay a lot for Adelaide Tools, but it gave us some exposure and an insight into a whole new sector of the commercial tools market that gave us access to new brands. I think it is fair to say that the Bunnings team really expanded and developed their capabilities around commercial tools. Now, if you look at Adelaide Tools in our toolkit depot, that is evolving. That is evolving, maybe not exactly how we thought at the start, but we still see a lot of potential there. The real gain that came there was actually what has happened with the renewal of the tool shop.
All you need to do is look at the 150 tool shops that we've renewed, the additional commercial brands that we've brought into the warehouse. That is performing exceptionally well. Once again, I think if you look at Box of Books, I think Box of Books, we're really excited about that. That's traveling well. You might look at Geeks2U. Geeks2U, once again, financially, it's profitable. It's paying for itself. It's providing a point of difference in the technology space. I can point to examples where they have been successful. I think you raise a fair point, and I think Anthony is probably right to say that we are more discerning and selective today than maybe we were in the past. The final point on gray market, I might let our divisions talk more to that.
If you take the health is a great example, and you very rightly pointed out that a lot of our competitors in the health space do not set the bar as high around ethical sourcing standards. In Wesfarmers, there are certain standards that we expect, and we are very public about our disclosures in this area. Look, I would say at the moment that we still see that there are plenty of opportunities to compete and differentiate. Interestingly, in the health spaces, Emily will say, we are finding that a lot of international brands are approaching our health business now because they see that we are more serious about differentiating in that space. Part of the attraction of formats like Atomica is brands that were never prepared to actually provide product in a pharmacy are now seeing Wesfarmers Health and Atomica as a platform for differentiation and growth in the Australian market.
I don't dispute the point you raise that the gray market can provide a lot of pressure on pricing, but there are plenty of opportunities that we can go after. More broadly, and I'm sure Bunnings and Kmart can talk about this, we have many competitors out there. We have demonstrated, I think Kmart's a great example. Kmart has demonstrated that we can, through our scale, through direct sourcing, through the sophistication of our product development capabilities, deliver amazing value at scale and generate good margins, notwithstanding the fact that Kmart compete against many competitors that don't necessarily feature as prominently in a lot of the lead tables on sustainability and sourcing.
Morning, Rob, Anthony Knowles. Ben here from Jarden. It feels, Rob, the presentation you've given has probably been a lot more around leaning into growth than it has been sort of since you became CEO, sort of talking to the opportunities. It also feels like you've opened the door a bit more to M&A at a larger scale today. Two parts to the question. Firstly, the incremental return you see on capital from the growth opportunities you've got within your core divisions, do you see that incremental return as high? I'm just following off on the comments you said around saying to leverage off on the et cetera.
The second point is just any comment around the fact that it does feel like you've opened the door a little bit more to some larger scale M&A given the capital requirements and ways that the business is sitting today.
Yeah. I think on the first point, you're absolutely right that we do see more growth opportunities across the group today than we did five years ago. I think that's a function of a lot of the investments that we've made. Clearly, as I said, the investments that we've made in our data capabilities and our digital platforms now create an opportunity around retail media that did not exist a while ago. The opportunities around health and lithium, quite frankly, did not exist five years ago. We've invested a lot of capital. We now need to see the returns. That's before we get to the other opportunities around the Anko Global or the category expansions and expanding addressable markets. Yeah, I think that message that you received around the growth opportunities, the platforms for growth, is absolutely a message we wanted to convey.
The returns on capital investment we see as the most attractive of all the opportunities that we have. We did not necessarily mean to convey a message that we are more open to bigger M&A. Clearly, our balance sheet is in fantastic shape. I think from a group point of view and a bandwidth point of view, we would certainly have the capacity to potentially have another division, given, I think, how well our businesses are set up at the moment. I must admit, I think it is quite hard to find the opportunities that are going to be accretive. What Anthony and I are really conscious of is that we have some of the best businesses in Australia in our portfolio with amazing growth opportunities. I think that our businesses, as set up at the moment, can deliver a top quartile TSR without any M&A.
If we're going to do M&A, we want to make sure it's going to be accretive to that, not dilutive to that.
It's Michael Simotas from Jefferies. If I can follow on from Ben's question, Wesfarmers enjoys a pretty healthy trading multiple in terms of the stock. Your objectives are predominantly around top quartile TSR. When you're allocating capital either within your existing businesses or exploring value-creating transactions, how do you think about balancing allocating capital into industries and businesses which generally attract lower trading multiples versus the higher trading multiple businesses that dominate the earnings and the value base at the moment?
Michael, I might answer the first part of that, and then Anthony can add to it just to shed a bit more light on how we think about returns. You raise a good point that you need to be mindful that when you've got businesses in the portfolio like Bunnings and Kmart and even WesCEF that enjoy such significant growth opportunities, have demonstrated resilience, and are really high-quality businesses, we do not necessarily want to dilute the Wesfarmers investment proposition and the risk-return relationship by allocating an enormous amount of capital to a business that might have a high degree of cyclicality or volatility. That being said, Wesfarmers has demonstrated over many decades that allocating some capital to businesses that might have some degree of volatility can still generate very good returns on capital, but subject to a few things.
Firstly, you need to be mindful of your entry point, your pricing point, if you are entering into a new business with that commodity exposure. If you think about the investments we made in coal many years ago, I think our investment in Curragh generated in excess of a 40% IRR. Investment in Bengalla was a very successful investment. We did not bet the farm on those, but we did allocate capital. Most of the capital we deployed, importantly, was greenfield capital. We did not go and pay an enormous amount of goodwill at the top of the cycle for these businesses. Their cost structures were quite competitive as well. A great example of that would be lithium. We have invested largely through a greenfield development. We made the initial Kidman acquisition, but most of the capital has been deployed on a greenfield basis.
The cost structure we think is going to be quite attractive. There's a lot of complementarity within our WesCEF division. We have a fantastic JV partner, and we think that can generate fantastic returns. Now, would we allocate 30%-50% of Wesfarmers capital to a more volatile business? Clearly not. Clearly not. That is how we think about investment in those types of businesses. I might let Anthony shed more light on how we think about those opportunities.
I think the only thing I'd add would be that obviously earnings growth in the existing portfolio is a big chunk of the way we generate TSR over the long term. What we need to make sure of is our core assets are still earning and growing at a rate that's going to allow us to deliver top quartile. On top of that, when we look at acquisitions, we do have regard to obviously trading multiples. What's probably more important is the return on capital that we can get from that asset, both in terms of the initial investment, and we'll have minimum and satisfactory return targets that we set, which will be at a margin above our cost of capital, recognizing the risk that we take and the return that we need to get to get to top quartile.
Where we can add to that, as Rob said, is some of those platforms for growth. Lithium might be a good example where over time we can invest more capital organically into that business and earn a higher return on capital than the initial investment. Through that mechanism, we can actually ratchet up the returns that we get across a number of our businesses. You'll see that Rob talked about Wesfarmers before around what we've done in plants. There are plenty of opportunities, even what we've done in Bunnings. There are plenty of opportunities where having a good core asset and being able to invest capital in that asset at a much higher return on capital over time generates much higher returns for shareholders and helps support a really strong TSR. That is, I guess, the nuance that I would add to the way we look at the portfolio.
Makes sense. Thank you.
Hi, Rob. Anthony Naimi, Sean from UBS. Just a question regarding Cogs. This probably is more generally across your broader businesses. How are you seeing the opportunities to reduce Cogs by way of factory costs out of Asia, freight costs in particular? I think Kmart's got a contractor that's coming up, and Kmart's quite large in the Southern Hemisphere. I'm just curious around how you're thinking about the Cogs opportunity and then the broader philosophy the company has around your retail businesses in particular, around how that gets deployed.
Yeah. Sean, I think that I'd let Alex and Mike talk in more specifics about Cogs and how they're seeing that. To your question of how the current tariff issues could potentially impact Cogs and how we think about that. First of all, based on the current tariff situation, clearly i.t.'s far less onerous than it was a few weeks ago. With a 30% tariff into the U.S., maybe we'll see less product going to the U.S. from Asia, which could lead to an opportunity for businesses like ours to extract better commercial terms from a lot of our suppliers. Maybe there is a little bit of a deflationary benefit on Cogs. I think it's important not to get too ahead of ourselves. This is such an uncertain and volatile time.
Whilst things are looking a bit more moderate today than they were a month ago, who knows what they're going to look like in a month's time. What we've been doing across our retail businesses is just we are deeply connected with suppliers. We have great relationships with many factories, many suppliers. We also know what the next best alternative is to source product. We want to make sure that if there are gains to be taken, if there are savings to be made, then we want to capture them. We will make a very commercial decision based on where pricing sits in the market and how our consumers are faring on how much of that benefit should be reinvested back in price.
I think we have, as Mike and Alex and Sarah will talk to, we have a very sophisticated approach and a very customer-focused approach to make sure we do not get too greedy. When there are opportunities to extract some Cogs benefit, do not get too greedy. That has served us really well over the years. I am sure that our MDs would say the same, that we will always focus on reinvesting back in value to drive further growth, further differentiation. Particularly in the current market where customers are very value-conscious, we would be crazy not to.
What about you on freight?
Oh, on the freight side, once again, I'll let Alex talk more about our contracts with freight. We have enjoyed very good, not only rates, but also access and availability to container shipping by virtue of the strategic partnerships that we've had with Maersk and others. Similar to my comment on tariffs, if there is significant disruption and additional capacity is freed up, then maybe there will be some benefits. What we generally find is that the shipping groups are quite quick to reallocate capacity. The lines out to the routes out to Australia and New Zealand are not what you'd say are the high-volume, most strategic lines in global container shipping. Unlikely that we're going to extract enormous benefits, even if there was a reduction in demand. What is probably most important, it's not just a question of are rates going to come down.
It's a question of if they do come down, are we able to capture as much or more of the benefit than our competitors? Because that's what ultimately matters to pricing that you see in Australia. In that regard, I do feel that we're very well positioned.
Good morning, Rob, Anthony, and Naomi. It's Craig from MST Marquee. Just a question about the CapEx budget going out a couple of years. Interested in your perspective on a few things. One, it feels like there's some areas of investment that need to rise, things like automation, format renewal that you've talked about. Also, what seems to be a bigger issue across retail, which is difficulty in accessing sites at decent prices to continue a new store rollout. Will the company look at owning more property to continue the rollout of new stores?
Craig, I'll cover off. Just firstly on CapEx, I'll probably give up some updated guidance on that. For the current financial year, I think we gave guidance of net CapEx between AUD 1.1 billion and AUD 1.3 billion. We're likely to probably come in at the lower end of that range. That's really more as a result of timing across the various businesses. One of the key ones will be what Alex will talk to you later around our next-gen DC opportunity in Sydney. In terms of looking at CapEx as we go forward more generally, obviously we'll have ALM coming off next year. Most of the CapEx will finish this financial year. There'll be a bit that flows into next financial year. That's a big chunk that will come off because that was about AUD 350 million in the current year.
Yes, so we continue to obviously look at expansion opportunities for stores. I'm not sure that changes. We're always looking, and we have quite a, we look out five to ten years in terms of our store portfolio and looking at where there are gaps in the network and how do we actually fill those gaps. I don't think that's changed. We're always looking for those growth opportunities. The various divisional MDs will talk to those specific opportunities in terms of network growth. Obviously, there's probably a little bit more network growth in Officeworks than there is in some of our other businesses. Mike's obviously talked to what we're doing. In Bunnings, it's probably more about opening and replacing existing stores with larger stores. You've seen that actually in the last financial year.
Of course, Alex will also talk to the new format, the Plan C Plus. That is going to be fairly modest CapEx. That is supported by the fact that what we have seen in those formats is much stronger sales uplift. In fact, because of the cross-shop across the box and particularly apparel, we are actually seeing margin improvements from that. They have got a really strong payback as well. We will obviously give you more detail around specific CapEx across the divisions when we come to August at our full-year results for next financial year.
Yeah. I mean, the last bit was just about internally owning the sites versus third-party developers. It feels like retailers would need to internalize their property development more so than we may have seen five or10 years ago.
Look, possibly. I think we've always had that in Bunnings, as you know. I'm not sure it changes our approach in terms of owning properties or sale and lease back. I think fundamentally we believe that an investment in property generally is going to produce a lower return if we want to be top quartile. Investing in property is not the way to do it. I think we always will invest in property directly where we think we've got a strategic benefit to do it, and we can do it probably faster. It is something that we constantly look at and obviously look at opportunities in the market in terms of third-party developers and their ability to deliver what we need.
Thanks.
Good morning. Bryan Raymond from J.P. Morgan. Just on the return on capital dispersion that you see across the group, obviously you've got two phenomenal businesses, Bunnings and Kmart. You've taken action on Catch, which is, I think, sensible. Just looking at some of your other businesses, there are some underperformers in there in the portfolio, and there are, I'm sure, plans in place. How should we think about your commitment to some of those underperforming businesses and the ability of either incremental capital to deploy there to improve the returns? I'm talking Health and Industrial and Safety even is well below cost of capital at the moment. Mount Holland clearly losing money this year and next. How committed are you to all of these businesses, and what's the kind of medium-term strategy to get them up to the level that's appropriate for shareholders?
Brian, we're only committed to businesses where we feel that there's the ability to generate good returns on capital over time and can contribute to our top quartile TSR objective. If I step through the businesses that we would look at and say the returns are unsatisfactory, clearly lithium, as I said, we're yet to commission the refinery. The approach to Mount Holland and Covalent was always about having an integrated lithium hydroxide refinery. We're really pleased how the commissioning is going, but we're yet to actually commission it. We're still confident that when we look at our corporate plan over the next five years, even with kind of cautious, modest assumptions around hydroxide price, that we should generate good returns. It is not surprising that the fact that we are yet to commission a greenfield development, that the return on capital is not great.
We're still optimistic that will give good returns. On the health side, Emily will talk more to this. Probably fair to say we're probably a year or a year and a half behind where we were hoping to be. Have had a few issues to work through on the wholesale side of the business, which has dragged the returns lower than we would have liked. Actually, the performance of our retail consumer-facing businesses gives us reason for a lot of optimism around the future. We have front-loaded a lot of investment there. We do not see that we need a huge amount of incremental investment in health to drive a strong improvement in return on capital. In fact, a lot of the consumer retail-facing businesses are quite capital efficient.
Clearly, when we look at our corporate plan over the next five years for Health, we expect to see a strong improvement in return on capital. And then on, well, do you want to talk to Wes?
Yeah. I think on industrial and safety, we know the return on capital hasn't been where we'd like it to be. That said, the division, as you know, has seen year-on-year growth now for quite some time. There has been significant improvement in return on capital. The exit of Coregas will actually help the return on capital from the remaining businesses. We actually get a higher return on capital across Blackwoods and Workwear Group. That fundamentally goes to one of the reasons why we actually chose to divest the Coregas business, not because it wasn't performing well. It was actually performing very well. It is a highly capital-intensive business with lower returns. It doesn't really fit the portfolio. We were able to sell that and obviously subject to H1C and FIRB approval, but if that goes through for a very good price.
In terms of Blackwoods and Workwear Group, we still see a lot of growth in those businesses. As you know, we've been through an ERP implementation in Blackwoods. We've still not got all the benefits from that. I'm sure Tim will talk to that today. I think we know that we're in a tough environment in terms of B2B, and I think that will improve hopefully in the years ahead. I expect to see a lot stronger growth across the balance of the WIS portfolio moving forward and moving to what we would consider to be an acceptable and satisfactory return on capital.
Just a quick follow-up on that. Given that feedback and to Craig's question around CapEx and this bit of a roll-off there and your earlier comments on M&A being hard in this sort of environment for various reasons, how should we be thinking about returns to shareholders in terms of capital returns going forward? Your balance sheet's in great shape, as you mentioned earlier, Rob. What is the target gearing, and is there an opportunity for special divs or buybacks here?
Yeah. I'm happy to take that. Obviously, our gearing is sitting fairly low. As you probably know, we target A-minus S&P rating, which is about 2.75 times debt to EBITDA. That is currently sitting at about 1.7, so significant debt capacity. As you know, we're also disciplined around what we do with capital, and we have shown a tendency where we have excess capital to give that back to shareholders. What we do want to do is make sure that we can get that back to shareholders in a tax-effective way. Otherwise, it's not really helpful for our shareholders. The way we've done that in the past has been through a combination of tax-free capital returns, which is obviously subject to ATO approval, and then through special dividends and fully franked dividends. Obviously, we haven't yet completed the sale of Coregas.
If we get to that point, we will look at the opportunity for capital management and assess those opportunities.
Okay. Thanks.
Hey, team. It's James Lee from Goldman Sachs. Just one question on productivity. I appreciate we don't provide a medium-term group-level cost-out target, but can you kind of bring to life maybe some of the low-hanging fruits that excite you most in terms of productivity measures across the group?
Yeah, you're right. We don't set a group-wide target because in our divisional autonomy model, it's really the divisions that take ownership over it, and the opportunities across the different divisions are quite different. Tim Bult will talk, as Anthony touched on, talk about the fact that we're now through a very challenging ERP implementation. That's done. Customer service is the strongest it's been for a long time. That creates opportunities for us to realize the benefits of that, which will flow through more efficient processes, leveraging these technologies in some strong benefits to cost base. Tim can talk about that. Across our retail businesses, I won't go into it in detail, but there are ongoing efficiencies around sourcing, the supply chain I talked about, and we are seeing, as a result of the modest incremental investment, that we are continuing to drive good efficiencies there.
I'd also point to the areas around better utilizing data from a personalization point of view and a marketing point of view that's driving benefits. One of the best things you can do in retail to drive efficiency and productivity is improving sales density. You'll hear very strongly through the sessions on how driving sales density will ultimately improve our cost base and efficiency. That's probably the key ones. The other area, you'll hear a bit about trying to digitize business processes. I think the standout division is Kmart and how they've shown examples of how they've used RFID, but they're probably only at stage one of a multi-stage process of how they can unlock the productivity benefits of that. Some of the GenAI tools around team member productivity, another example. I'll let the divisions bring that to life a bit more in their sessions.
Thank you.
Okay. Thank you very much. We're going to have a break now and then get back into it with the Bunnings session at a quarter to ten. Thanks, and we'd be delighted to take more questions during the break. Okay. I think we've got almost everyone. Good morning, everyone, and thanks for the opportunity of speaking with you today. We're going to start on slide 19. As we look forward to the year ahead, it's important to recognize the fundamental transformation that's occurred since our first warehouse opened over 30 years ago. This transformation has accelerated during the last five years as our transition to a digital and data-led enterprise continues to build momentum, enabling growth across traditional and emerging products, services, and categories.
We're proud of the fact that we've been able to deliver these significant changes whilst retaining and enhancing our unique performance-based culture and deep connection to both team and community. Across Australia and New Zealand, our market size is now around AUD 110 billion, with this market being split quite evenly between our consumer and commercial businesses. The market continues to grow through new and expanded product categories and services, along with new formats and channels across online, on-site, in-home, and of course, in store. Turning now to slide 20. Competition has never been stronger or more diverse. Our playing field spans geography, product assortment, formats, channels, including traditional hardware, big box, and specialty retailers. Of course, there's pure play online, which continues to grow strongly.
As I observed at our briefing day in March, if a customer is building or renovating or simply doing a basic DIY job on their home, they can shop for literally everything at Bunnings from the front gate to the back fence. Alternatively, they can shop with us for nothing at all. We believe that this choice is great for customers, and it inspires us to relentlessly improve our offer every day to win our customers' trust and to be chosen for their projects. Turning now to slide 21. Our market is underpinned by strong long-term fundamentals, many of which are countercyclical. Our populations continue to grow, and this growth underpins sustained demand for housing, which, as we all know, remains chronically undersupplied. For those households who own their home, demand for repairs and alterations and additions remains strong and continues to grow.
Lifestyle and demographic trends present changes to housing composition, requirements, and create opportunities for us to evolve our ranging and our service offers accordingly. Finally, the pace of technological innovation presents opportunities for us to participate in new categories that did not exist even five years ago. Turning to slide 22. The sustainable success of our business depends on our ability to create value for all stakeholders. For our customers, we are unwavering in our commitment to consistently delivering the lowest prices, widest range, and best experience while evolving our offer to meet their ever-changing needs. For our team, providing a safe, inclusive, and rewarding workplace is not only the right thing to do, but it enables us to deliver a leading customer experience. Our unique team and culture are an enduring source of competitive advantage that continuously develops and evolves to remain relevant.
We are proudly a house of brands, and we foster collaborative and mutually beneficial long-term partnerships with our diverse pool of local and global suppliers. At Bunnings, we partner with around 2,000 suppliers, with more than 1,500 across Australia and New Zealand. Being a meaningful contributor to local communities in which we serve is core to our DNA, and we're incredibly proud of our team who provide tens of thousands of community activities every year. Finally, when these elements come together, it allows us to generate satisfactory returns for our shareholders over the long term. Turning to slide 23. Our sustained success over the past three decades has been built on delivering this value and staying disciplined to our strategic pillars.
Our customers are seeking more value than ever, and our commitment to offering the lowest prices every day is core to our offer and to our low-cost business model. We offer the widest range, comprising of what is now close to 300,000 home, commercial, and lifestyle products across our in-store, online, and marketplace offers. Our offer is diverse, catering to both consumer and commercial customers for essential maintenance and repairs, as well as more substantial projects. We know customers value our assortment of leading brands that they know and love. Finally, we strive to deliver this range by offering our customers the very best experience every day. At Bunnings, we employ close to 55,000 team members, many of whom have deep trade or industry experience.
Investment in team, digital channels, and supply chain capabilities enables us to fulfill this commitment to our customers, regardless of the channel in which they're engaging with us. Turning now to slide 24. Our unique team and culture are a real source of competitive advantage. This starts with a deep focus on safety and inclusion, and our unique enterprise agreements enable us to provide industry-leading benefit development opportunities that allow our diverse team to grow and to thrive. All of this feeds our culture of empowerment, high performance, and enabling our business to evolve and drive strong execution right across our entire offer. The high retention of our permanent team is a genuine cost of doing business advantage. We also embrace the role we play in engaging and assisting the communities in which we serve.
Whether it's through thousands of community barbecues, raising funds for local groups every weekend, to partnerships with larger organizations like the Good Friday Appeal, Share the Dignity, or the Red Shield Appeal, we strive to make an authentic and meaningful contribution to the communities that our team live and work in. From a sustainability perspective, we've delivered on our ambition of sourcing 100% renewable energy, and we're well advanced on our journey to achieve net zero, scope one, and two emissions by 2030. Turning to slide 25. This commitment to our team and local communities comes together with the other elements of our model to drive long-term value for all stakeholders. Excuse me. Since the inception of the Bunnings warehouse model, we've delivered uninterrupted revenue and earnings growth over a sustained period.
To have achieved this outcome through various market cycles and periods of substantial industry disruption is something we're immensely proud of and testament to our resilient business model and our focused growth mindset. Turning to slide 26. While our business has grown and matured over the last three decades, there does remain an incredible opportunity to continue to drive sustainable sales and earnings growth over the long term. This includes expanding and innovating our offer to meet changing customer needs, further optimizing our retail space, accelerating our commercial offer, and more deeply personalizing the customer experience, along with improving productivity right across the enterprise. Moving to slide 27. We're continually expanding and innovating our offer in a way that's customer-led and informed by data.
Investments in space productivity and optimization over the past several years have given us the opportunity to think more strategically about how we design, curate, and expand our offer in store and online. This has allowed us to bring new categories and ranges into our stores. We've got a strong pipeline of opportunity ahead, spanning both our assortment of leading brands and our extensive portfolio of own brands. As many of you observed firsthand at our briefing day in March, our smart home offer continues to evolve and is resonating strongly with customers. We're continuing to refresh our offer with a focus on smart security products enabled by improvements in this technology. Our expanded automotive offer is now available in all stores across Australia and New Zealand, and we've been really thrilled with how strongly this offer is resonating with customers.
We're already iterating and expanding the range further in response to initial positive customer and supplier engagement. For our customers in regional locations, we're excited to be trialing an expanded rural range across some regional Victorian stores starting in July. This new range offers more assortment to our rural and regional customers, spanning extended fencing and irrigation ranges, a wider selection of stock feeds, and a more curated selection of fertilizers and weed solutions. These core ranges will be complemented by an extensive online offer of animal health solutions, farm transport, feed equipment, and light machinery, providing access to everything our rural customers expect through one transaction. We've also now completed phase one of our EV charging trials and are already rolling this offer out to our wider network.
We're making strong progress on our ambitions to become a leading provider of household renewable solutions, and we've listened closely to our customers in this category and are collaborating with some industry-leading partners to launch an innovative and comprehensive offer that makes home electrification simpler and, most importantly, more affordable. Finally, the growth and innovation of our expanded pets offer continues through the upcoming launch of a new exclusive pet food range that will bring even more compelling value to our customers. These are simply a few examples of our opportunities in progress, and of course, there are many more in our pipeline over the coming years. On to slide 28. Space growth has been a key growth driver for us over several decades and remains a material opportunity ahead.
Our approach to long-term network planning and property management is highly commercial and disciplined, and our anticipated rate of space growth over the next five years of between 1%-2% per annum remains broadly in line with the growth we've delivered over the last five years. We have confidence in our strong pipeline of over 100 property projects incorporating new and replacement stores, as well as opportunities to expand or upgrade our existing network to support growth and expand our offer. As I explained in March, this network growth is complemented by our growing space optimization capability. In the last decade, sales and earnings have grown significantly ahead of space growth. This has resulted from a relentless focus on category renewals to ensure the strongest possible offer for our customers, with new categories, category expansion, and ranging optimization, all enabled by space planning capability.
We're now accelerating beyond these foundations, leveraging technology and data to tailor ranging to local catchment and refine the ranges for our smaller stores. Of course, while there are significant differences in local market characteristics and operating models, we can see significant opportunities based on our learnings and deep relationships with our global peers to drive space optimization even harder. Recent examples like our tool shop renewal and our refreshed automotive offer are already showing strong and sustained uplifts in sales, sales density, and gross margin return on space, while the assortment choices by our category teams are enabling improvements in inventory productivity. Whilst enabling improved space productivity is important, our primary focus remains on overall earnings growth over the long term. Moving to slide 29. Commercial remains a key growth driver, with B2B sales now representing around 38% of our total revenue.
The addressable market is large, it's fragmented, and it's growing. We have lots of runway and opportunities to participate in this segment more deeply. We have clear plans to grow across each of our three commercial customer segments. For our builders, our whole-of-build strategy remains focused on developing a full, credible offer across all stages of the build, from frame to fit-out through to finishing. As a part of this, we are also leveraging our frame and truss and Beaumont Tiles businesses. For our traders, it's about ensuring that they have all the tools and products that they need to get the job done. Trades are our largest commercial customer group and value our convenient store network and broad product range. Here, Toolkit Depot supports the Bunnings offer by enabling a deeper and wider range of trade-quality brands and service.
Organizations represent a diverse mix of segments, from small business operators through to large, complex businesses and governments. Here, we're targeting growth industries, including education, hospitality, healthcare, and tourism. Moving to slide 30. Our digital capability continues to improve to remain relevant in a rapidly evolving world of consumer and commercial customer expectations. Across the business, we operate four websites and four customer-facing apps, collectively handling more than 500 million sessions per year and processing more than 650,000 transactions every month. Combined with over 380 warehouses, small format stores, and trade centers, we offer customers a convenient and familiar experience across whatever channel they choose to engage with us through. We combine these channels with the investments we've made in developing and harnessing an extensive and rich base of consumer and commercial customer data.
These investments, coupled with our rapidly maturing capability in harnessing generative AI, are enabling us to deliver a seamless, relevant, and more personalized experience for our customers. Collectively, these investments have resulted in significant growth in our digitally enabled sales, from AUD 0 in 2018 to more than AUD 1 billion per year today. We know our digital channels offer a material growth opportunity for us in the years ahead. Turning now to slide 31. Our marketplace continues to grow rapidly, and we have seen incredible growth in GMV and transactions over a sustained period. We now have over 180,000 SKUs on the marketplace, complementing our core merchandise offer in store and allowing our customers to complete their entire project in one transaction. For our sellers, we offer a trusted, high-visibility channel that offers exposure to over 450 million customer sessions per year.
The offer is a very profitable, scalable model that continues to rapidly and sustainably expand our participation in non-traditional categories such as bedroom and home decor, health and fitness equipment, and an assortment of home office furniture. Our model allows us to seamlessly provide this wider range to customers while maintaining a curated assortment and commitment to quality that we know our customers expect. We're excited by the tangible growth opportunities ahead for this channel, including adding more range and sellers that our customers are demanding, with our indoor living ranges being a standout example where we continue to see double-digit GMV growth year on year. We're also expanding into adjacent categories rapidly and growing our addressable market through commercially focused ranges. Looking ahead, we're also well progressed with the development of a services marketplace, with the ambition of a better connect to our consumer and trade customers.
Turning to slide 32. Much like our marketplace, our retail media program has rapidly evolved and continues to grow. We successfully launched our new retail media offer, Hammer Media, in March, and it is powered by the broader Wesfarmers Group retail media network, OneReach. Our offer provides a holistic, omnichannel experience and comprehensive ecosystem for suppliers across the channels that their prospective customers are most likely to engage with. The offer incorporates digital advertising on the Bunnings website, a fleet of 300 in-store screens, in-store radio, and extensive offsite inventory such as YouTube and social media, along with space across our suite of well-established print magazines. A new commercial radio offer called Tradeo has just launched. The customer reach achieved across this inventory is significant and offers unique appeal to both endemic and non-endemic advertisers.
The effectiveness of these channels is extended by our investment in gathering and understanding customer insights from all of our campaigns. While its extended offering is still relatively new, we've been incredibly pleased with the interest and take-up from our supplier and non-supplier partners who've opted to participate so far. Following initial trials, we're now working with many participating advertisers on longer-term strategic plans for FY2026 and beyond, with positive sales uplift results from initial campaigns helping to drive confidence to reinvest. Moving to slide 33. As we explained in more detail in March, we've been pleased with the progress to help our team be more productive. Our new rostering platform is now embedded across our business, and we're already seeing record labor productivity metrics and strong customer experience outcomes from initial adoption.
Likewise, improved store applications, in-store tech, and demand planning systems are supporting us to drive stronger labor and inventory productivity outcomes. We're also seeing positive results from our initial use of generative AI to drive productivity and better decision-making across all parts of our enterprise, and we have a clear map of additional use cases ahead. Turning to slide 34. We have a strong plan in place to improve productivity in our supply chain. Our supply chain model has served us really well over many decades and supported us with significant growth. We see that as our business continues to evolve, investing in and optimizing our supply chain presents an opportunity to unlock material benefits for our team, our customers, and our suppliers. Our supply chain strategy is focused on a couple of key areas and is planned in incremental steps over a multi-year period.
Firstly, we're focused on enhancing our direct import distribution center network operations to support our future growth. We're also making store replenishment better by consolidating and flowing stock into our stores more efficiently. Finally, we're improving our customer fulfillment offer to support the growing demand from our online channels and our commercial customer base. In closing on slide 35, our business model has demonstrated a consistent track record of delivering sustainable revenue and earnings growth over the long term. The resilience of our model is supported by an expanding addressable market, favorable long-term demand drivers, and a diverse mix of customers, channels, and product categories. Today, we remain well positioned to drive growth over the long term. Our product and service offer continues to evolve at pace for all of our customers. We continue to grow and optimize our space.
Our digital, data, and tech capabilities continue to accelerate, and our productivity agenda continues to drive great outcomes across all parts of the enterprise. Put simply, we have solid momentum and an exciting roadmap in front of us, and we're excited to be driving that forward. Thanks for your time this morning, and I'll now hand over to Alex Spaseska.
Thank you, Mike, and good morning, everyone. I'm Alex Spaseska, Managing Director of Kmart Group. Having commenced in the role in April, I'm really pleased to be here today to share our refresh strategy for the business. Turning to slide 37. In previous years, we have outlined the unique advantages of our business model. These underpin our future strategy, which is all about delivering sustained growth in sales and earnings. Our strategy is built on strong foundations and a track record of performance over the long term. Kmart and Target are two of Australia's most loved and trusted retail brands shopped by millions of Australians and New Zealanders every week. We have built a uniquely differentiated product brand in Anko, which now provides a platform for global expansion. Through significant transformation, we have optimized our store network and operating model, and we have been progressively digitizing our core business processes.
We are now focused on two key objectives. Firstly, to extend our market leadership across three areas which are core to our business: our product, stores, and cost structure. Secondly, to significantly scale two growth platforms, digital and our global business. Today, I will provide more detail on each of these. The plan I will outline has increased emphasis on areas which will ensure we are well positioned to respond to changing customer expectations and extend our market-leading position while maintaining strong consistency with the strategic agenda we have been executing over several years. Turning to slide 38. Our business has four key areas of competitive advantage which, when combined through our operating model, are very difficult to replicate. At the core of our model is the Anko brand.
Last year, Ian outlined the strength of Anko, which unlocks so many benefits for our business and our customers, including lower prices with no compromise on quality, simplified selection, a completely integrated brand experience, and accelerated brand awareness. We believe Anko is truly unique in a global context, and we remain focused on delivering low prices for our customers. Selling very high volumes per SKU, combined with our significant scale across the end-to-end supply chain, enables cost structure advantages, control, and visibility of our products from factory right through to consumers, all complemented by long-term supplier partnerships. Our stores provide convenient access to our products for customers across Australia and New Zealand. We enjoy high levels of visitation and strong sales per square meter across an optimized store network.
Stores also play an important role supporting online by acting as local fulfillment hubs for home delivery orders and in-store pickup, with over one-third of customers choosing click-and-collect. A growing source of competitive advantage is our digital engagement. With over 600 million sessions per annum and the number of monthly active users on the Kmart app doubling over the last year to over 1.3 million, we have a very large and growing digital audience that is highly engaged. When combined with our strong brand awareness and trusted position for providing low prices and quality products across a broad range of categories, our digital assets are differentiated and provide an attractive platform for future growth. Scaling this platform is a focus of the future strategy. Turning to slide 39. We are relentlessly focused on our customers and meeting their evolving expectations.
Our strategy is aligned with both the changing demographics of our customer base and their focus on value. Gen Z and Alpha are the fastest-growing customer segments, and over the next few years, will come to represent a material portion of total consumer spend. Engaging these customers early through the evolution of our product offer and shopping experience is a strategic priority to capture their future lifetime value. The development of our youth apparel offer and investment in growing our beauty category are just two examples of how our range has evolved to attract more younger customers. These cohorts are also digital natives. Their preference for mobile shopping, omnichannel experiences, and social media-driven discovery is accelerating the shift toward digital engagement. The importance of value is well understood in the current environment, where households are focused on making their budget stretch further.
We expect value to remain important to customers through all economic cycles and across all income groups. With value expected to be an enduring trend, our business is positioned well to continue to grow customer share of wallet. Turning to slide 40. This slide summarizes the key elements of our refresh strategy. We share a common purpose across our business, making everyday living brighter. With cost of living front of mind for customers, our purpose has never been more important. Our retail brands, Kmart and Target, are clearly differentiated. For Kmart, our vision is to offer the lowest prices on a broad range of everyday items across apparel and general merchandise. Target is focused on apparel and soft home. It differentiates through quality products at price points a fraction of specialty retailers.
Kmart and Target together can capture a larger share of the addressable market than either brand alone, while both benefit from one operating model which leverages the combined scale of the business. The evolution of our strategy has resulted in five strategic pillars, with the first three seeking to strengthen and grow the core of our business, and the next two serving to accelerate new growth platforms. Online and global have the potential to become a material platform for future growth. I will step through each of these five strategic pillars today. Finally, we are working to launch a new aspiration for our business to replace 10-1-6, having achieved our aspiration of AUD 10 billion in sales and AUD 1 billion in earnings on a rolling 12-month basis.
We have always taken a bold approach, and consistent with this, our aspiration will be to double the size of the business over the long term. As always, this is not a forecast, but a long-term aspiration. Turning to slide 41. We operate in a large and growing addressable market. Execution against a consistent product strategy has delivered growth in market share as we attracted new customers and expanded our share of wallet of our existing customer base. Our team are relentlessly focused on continually improving and extending ranges in existing categories, as well as developing brand new categories. I spoke about the growing importance of younger customers. We have already seen success in our youth apparel range, which has benefited from a much shorter design-to-shelf lead time operating model.
With the success of the women's youth category over the last year, we launched men's youth this year and are pleased with the performance to date. Kidult was introduced last year and refers to toys, collectibles, and electronics aimed at adults that would traditionally be seen as children's categories. The estimated addressable market for Kidult is currently AUD 1 billion, and it is a rapidly growing segment of the toy market. Kmart was an early mover into the Kidult category, which has enabled us to establish a strong market share. With the category continuing to grow, we see a significant upside potential from further innovation to meet customer demand. Cleaning has also been identified as a significant growth opportunity, with product innovation driving customer demand.
Our focus this year has been expanding ranges in cleaning appliances and household accessories, and we will continue developing our product roadmap in this space, including outdoor cleaning and handheld gadgets. Turning to slide 42. We operate in a competitive market, and technology has made the pace of change faster than ever before. The ongoing digitization of our product development process will ensure that our capabilities in designing, planning, and sourcing products remain market-leading. Our investments in a new product platform and 3D design have delivered sales and markdown benefits, as well as more efficient ways of working for our merchandise teams. Moving forward, we will invest in GenAI digital product development capabilities where it makes sense to improve speed and efficiency, while retaining our unique interpretation of product trends and range curation as a differentiator.
Digital platforms for supplier collaboration are also expected to contribute positively to product innovation and more efficient sourcing operations. Turning to slide 43. Stores are our largest channel. As customer shopping behavior continues to change, we recognize there is a need to continue to evolve our in-store shopping experience to drive ongoing growth in visitation and further improvements in sales per square meter. Apparel RFID in Kmart, which has enabled the digitization of the backfill process, is delivering sales benefits through improved inventory accuracy and better availability for customers. We are now seeking to leverage the RFID platform across more products, specifically general merchandise in Kmart and apparel in Target. Another platform is our app, which generates high engagement with customers, providing opportunities for in-store activation to support the customer experience. We have also progressed digitization of team member experiences to make working in stores simpler.
The role of technology in store is to ensure our teams are engaged and have access to the tools, information, and communication they need. This means team members can focus on the right things at the right time for their stores and customers, which will deliver a better customer experience overall. A new initiative, which we are excited about, is reinvestment back into our store format in Kmart. The current Plan C format has been successful, but it is now over a decade old, and there is an opportunity to evolve the format to better represent the evolution of the merchandise offer and customer shopping preferences. We have trialed a new format called Plan C Plus in Mount Gravatt, Queensland, and the early sales results and investment returns have been really encouraging.
Key features of Plan C Plus include an optimized space allocation with additional fixtures in apparel and beauty and a reduction in some big and bulky products, increased product coordination in apparel to drive greater inspiration and outfit building, and automation of the click-and-collect process to increase speed and convenience for our customers. Pleasingly, we are seeing a significantly higher level of cross-shop between departments relative to our Plan C stores, and customers are putting more items into their baskets. We have also seen strong engagement from younger customers with this format. A further four Plan C Plus stores will be opened in the second half of this financial year, and subject to replicating the successful results of Mount Gravatt, the format will be rolled out across the fleet over a number of years. Turning to slide 44.
Low-cost leadership is critical to our ability to offer low prices to customers while also delivering a satisfactory return on capital. In a competitive market and with the cost of doing business continuing to increase, we will retain a relentless focus on productivity. This will be underpinned by continued digitization of our core processes and modernization of our physical supply chain infrastructure and systems. The digitization of our store operating model has been covered in previous years, so today I wanted to outline our plans to modernize our supply chain and further optimize inventory. On supply chain, we are making good progress against a multi-year plan to invest in capacity for future growth, improve productivity, and deliver a better experience for our customers. Earlier this year, Wesfarmers announced that the two former Catch CFCs in Victoria and New South Wales would transition to Kmart Group.
This transition is progressing well, and the two sites now fulfill over 45% of home delivery orders for Kmart and Target in these two states. Once fully operational in FY2026, these sites are expected to improve the customer experience through faster delivery times and improved stock availability, while delivering lower variable fulfillment costs for the business and simplifying our in-store operations. Our focus is also on preparing for the building phase for a new omnichannel fulfillment center in New South Wales to meet our long-term requirements, which I will cover in more detail on the next slide. The investments in physical supply chain capacity are being supported by upgrades of our key supply chain systems, specifically our warehouse management system and order fulfillment platform for online. Both will deliver data enhancements, which will further optimize our supply chain operations and complement the new physical infrastructure.
We also see an opportunity to optimize inventory across our end-to-end supply chain, further improvement of stock turn, and ensuring the right product is in the right place at the right time, with unlocked productivity benefits across our business, and in particular in stores. To support this objective, we are trialing RFID at source with suppliers as a first step towards greater data accuracy and supply chain visibility. With greater visibility and better data, we can make more agile, informed decisions, reduce friction, and shorten our lead times. Turning to slide 45. We have committed to open a 100,000 sq m omnichannel fulfillment center for both Kmart and Target, situated in Moorbank, New South Wales. Our next-gen facility is expected to be operational from late 2027 and will incorporate proven fit-for-purpose technology and processes that will deliver significant benefits across our stores and online operations.
These benefits will include increased capacity to support the future growth of stores and online, increased replenishment capability to improve availability for customers, a design which prioritizes team member safety by reducing manual handling and enhancing ergonomics, and the adoption of new technologies to improve productivity and reduce the cost of fulfilling store and online orders. The total capital expenditure on this facility will be in the order of AUD 200 million and will be incurred over FY2025 to FY2027. This commitment is an exciting milestone and represents a significant investment in our future supply chain and online capabilities, further strengthening our business and improving the customer experience. Turning to slide 46, and I'll talk to our winning online offer strategy.
As I outlined earlier, Kmart has attracted a significant and growing digital audience, which provides a platform for future growth that is aligned with longer-term trends in customer demographics and shopping behavior. We see a significant opportunity to grow our online market share. To win online, we are enhancing customer experience across every digital touchpoint, improving product discovery, and integrating more social commerce capabilities to meet the expectations of younger, digitally native customer demographics. With a growing number of customers browsing and shopping through social platforms, we are focused on enabling seamless shopping from these channels through influencer partnerships and user-generated content. Our most engaged customers shop via the Kmart and Target apps. Around one-fifth of our total online sales are now app-generated, and this channel continues to deliver strong rates of conversion.
Particularly pleasing has been the growth in engagement with the Kmart app, with the monthly active users doubling in the last year to over 1.3 million. Continuing to improve the fulfillment experience for customers is also a focus, and I have already outlined how the investments in central fulfillment and the new order fulfillment platform will contribute to faster delivery and better availability for our customers. This will complement our click-and-collect offer, through which OnePass customers have access to two-hour pickup from their local stores. On loyalty, our aim is to leverage OnePass, Flybuys, and new Kmart-centric experiences to grow the base of high-value, high-frequency customers. By unlocking richer customer data through loyalty and the app, we can drive more personalized, relevant experiences for our customers. Turning to slide 47. Kmart's strong brand awareness, broad range, and scale make it one of Australia's leading digital retail destinations with significant traffic.
We see an opportunity to leverage this position to further grow our share of wallet by providing customers with extended range in the categories we are known for through a third-party marketplace on kmart.com.au. We expect the marketplace to launch in the first half of FY2026, with a focus on a small number of categories where we have a strong right to win, for example, toys, furniture, and home. Our goal is to serve more customer missions by offering a broader but relevant range without compromising what customers really love about Kmart. This customer-centric approach will see us partner with trusted third-party brands and sellers and provide a completely integrated digital experience between third-party and our own products. By leveraging the scale, traffic, and existing operating model of Kmart Group, the economics of the marketplace are expected to be favorable relative to standalone marketplace businesses.
The addition of third-party brands to our digital platforms enables future high-margin revenue opportunities, such as retail media. We expect to be a strong partner for sellers and brands looking for alternative channels to market. It is also worth noting that by leveraging learnings and capabilities developed in Catch, we have accelerated our ability to bring a new marketplace offer to market. Turning now to slide 48. Anko remains a significant focus of our long-term strategy. Value-focused retail segments are growing globally, and Anko is perfectly positioned to capitalize on this demand. We are seeing early momentum in international markets, and the positive customer response to date has reinforced that Anko products have global appeal. Anko's unique, hard-to-replicate capabilities, from design and sourcing at scale to quality and price, are a strategic advantage, especially in an environment where affordability and trust are key.
This gives us real confidence in Anko's ability to expand into new markets and succeed globally, providing a meaningful growth platform for the group. Turning to the next slide. We continue to learn a significant amount, both in terms of how our products resonate with consumers in new markets and which operating models best suit particular markets. We remain focused on pursuing both the B2B partnerships and B2C store models. While the business is not expected to be a material contributor to the group in the near term, both of these models have the potential to be significant over time if successful. On B2B, we are pleased with the progress of our Mattel wooden toy partnership under the Fisher-Price brand sold around the world.
We have also added new partnerships with high-quality retail partners such as Walmart Canada, and first shipments are on the way to Action for sale in stores across Europe. In the United States, the evolving tariff situation has created uncertainty for retailers, and this may impact orders and the ability to contract new customers in the short term, but we remain positive about the longer-term prospects. We have also made progress on B2C. Together with our joint venture partner, we opened the first Anko store in the Philippines late last year, and we are encouraged by the customer response. The second store opened earlier this month, and a further three are expected to open this calendar year. Additional stores will continue to test the offer across different demographics and mall types and provide confidence for a broader rollout across the country.
Turning to the final slide, I'd like to leave you with three key messages today. Firstly, the strategy for Kmart Group has been refreshed, and the business is positioned for sustained growth in sales and earnings. Secondly, we remain focused on strengthening and growing the core business through continued improvements in product ranges and growth of new categories by reinvesting to improve the in-store customer and team member experiences and by continuing a strong focus on productivity. Thirdly, we are scaling new platforms for future growth by leveraging and further growing Kmart's digital traffic and engagement and by expanding into new markets globally. Finally, I'd like to take a moment to sincerely thank the teams across Kmart, Target, and Anko for their continued hard work and dedication to delivering for our customers every single day. I'll now pass to Sarah Hunter. Thank you.
Good morning, everyone.
I am Sarah Hunter, the Managing Director of Officeworks. Starting on slide 52, Officeworks' purpose to help make bigger things happen and our vision to inspire Australians to work, learn, create, and connect remains consistent, as do our five strategic priorities, which provide the roadmap for delivering sustainable long-term growth. Officeworks has a clear and focused growth strategy to meet the needs of our broad B2C and B2B customer base in an intensely competitive landscape. Our four priorities are strengthening the omnichannel customer experience, transforming the technology offer and experience, scaling our B2B offer across all customer segments, and modernizing and simplifying our business. These priorities are enabled by a continued focus on the safety, health, well-being, and engagement of our team. Turning to slide 53, our customers know and trust us for our low prices, widest range, and best experience, helping them to work, learn, create, and connect.
Low prices. We know value and trusted pricing continues to be front of mind for all customers. Our ability to offer low prices is enabled by our ongoing productivity focus and cost discipline. Our recently launched Officeworks for Business Loyalty Program offers 5% off more than 1,000 products that are most relevant to small and medium-sized businesses. Widest range. Our customers are continuing to digitize how they work, learn, create, and connect. The pace of technology change, usage, and levels of connectedness is only accelerating. We continue to evolve our range of products and services so we can help our customers digitize and solve their needs with complete solutions. Best experience. We know that when we are delivering the best every channel experience, whether it be online, in-store, or with our B2B teams, our customers will shop with us more often and spend more.
The investments we've made in the last year and our focus on delivering the best customer experience is being noticed by our customers, and we're seeing substantial improvement and positive momentum in our net promoter score. There is always more to do. Turning to slide 54, we are doubling down on providing the best omnichannel experience. Our accessible store locations, easy online experience, market-leading fulfillment options, and customer loyalty programs continue to support an easy and engaging experience. In stores, we are meeting customers' needs by expanding to more convenient locations and renewing our existing stores. In FY2026, we expect to grow our store network with six net new stores and relocate or extend to a further four stores. We are also investing in increasing the technology product knowledge of our team, ensuring they can continue to provide trusted advice, up-to-date advice for our customers.
Online, we recognize there has never been so much choice for customers, particularly in the technology category. Making the online purchasing journey even easier and simpler is critical. There are always opportunities to improve and further personalize the customer experience. For example, we are progressively launching improved search, guided buying capabilities, and product description pages to help customers find, compare, select, and access the products and services they need. We expect GenAI-powered conversational search and commerce tools will be very helpful for customers in complex categories like technology, and we have work underway to be trialed and launched in the year ahead. On delivery, we have a well-established two-hour, same-day, and next-day delivery offer, and we want even more Australians to benefit. We will be expanding our coverage for all our customers.
To ensure it is affordable, we are continuing to digitize and automate our supply chain and investing in order management technology to drive efficiencies and MPS. Finally, on customer loyalty, we are scaling Officeworks for Business. Since launching last year, this program continues to go from strength to strength and has brought in well over 50,000 new customers. Currently, Officeworks for Business has more than 230,000 actively trading customers, and we have recently expanded the range to over 1,000 products that support small and medium businesses at a time when we know that every dollar matters. Our partnership with Flybuys continues to strongly resonate with value-conscious family shoppers. Pharma's shared data asset, which has more than 12.5 million unique customers, improves our customer understanding and our decision-making, and we are using this data to grow our business.
For example, our known customers benefit from personalized experiences and, in turn, spend more than double a non-marketable customer. One in two product recommendations on our website are personalized, and more than 65% of our email communications are personalized. This improves both the experience and conversion. Secondly, our investments in loyalty are improving customer lifetime value. Not only do our programs bring new customers to Officeworks, but those customers are spending more and shopping more often with us. For example, we're only a few months in, but new Officeworks for Business customers are already spending on average 9% more. Thirdly, this data is now providing us with the opportunity to expand our retail media business across broader channels, connecting advertisers with our scaled audiences. Our suppliers are excited about this opportunity, and our team is partnering with OneDigital to bring it to life.
As we reach even more customers and leverage our partnerships with Flybuys, OneData, OnePass, and OneReach, we expect both the earnings and sales benefits for Officeworks to progressively build. Turning to slide 56, a key focus of our growth agenda is building on our momentum in the technology category, which represents approximately 60% of sales. We see material growth headroom ahead, supported by compelling tailwinds, including the growth in AI-enabled devices, the Windows 11 upgrade cycle, and the rising popularity of gaming. To capture this growth, we are transforming our tech offer and experience to bolster the reasons that customers choose Officeworks in a highly competitive market. We are focused on four priorities. Beginning with our tech range, we will strengthen our core offer and drive ASP expansion across categories like laptops, mobile phones, tablets, and accessories.
For example, we are looking to broaden our range of AI-native laptops and PCs and expand into attractive categories where we have the right to play. This includes televisions and premium displays. More on this shortly. Secondly, to complement our product range evolution, we'll also be expanding our services offering. Key priorities include scaling our telco offer so more of our customers leave our stores with a brand new device and a plan to connect it, as well as building out our device repair services through Geeks2U. Thirdly, whilst Officeworks team members currently provide our customers with a great in-store experience, we recognize that tech purchasing journeys are becoming increasingly complex, particularly with the evolution of AI computing. Our customers tell us they need our help to select the best products to meet their needs.
With this in mind, we will strengthen our in-store experience by investing in increased team member product knowledge, training, and availability across the shop floor in tech. Finally, we will step change how the tech offer is executed and presented to customers as part of a broad store renewal program. This includes increasing space allocation to tech, co-locating complementary products to improve attachment rates, and introducing new product benches and displays. Our marketing and customer communications will also do more to reinforce Officeworks as a first-choice destination for technology. Turning to slide 57, building on the previous slide, while there are still many opportunities to uplift our core offer across stationery, art and craft, print and create, and technology, I'm excited to continue growing our addressable market through range and service expansion.
The Windows 11 refresh cycle is starting to build, and a significant number of new AI-enabled laptops and PCs will launch in the year ahead. This is a significant opportunity for Officeworks to expand and evolve the range to increase premiumization and grow share. We will also continue to expand our digital display range with premium televisions and monitors as our customers look for multi-purpose solutions for their homes, workspaces, offices, and schools to display a wide range of content. As customers increasingly digitize and we end up with more connected devices in our lives, the level of connectedness across Australia is growing. Today, the average Australian household has 22 connected devices, and by 2030, the average Australian household will have 40 connected devices.
As a significant retailer in technology, including outright mobile handset sales, it makes sense that we complete these sales with a telco plan that enables connectivity. Turning to slide 58, we have delivered strong growth in B2B in recent years, and whilst trading conditions have been more challenging this financial year given the economic conditions, we see significant opportunity for continued profitable growth across all our B2B customer groups. Officeworks has been building capability in recent years to grow in the government and large corporate markets, leveraging our omnichannel capabilities and trusted pricing. Officeworks is now on panels for the federal government and all the states and territories, excluding one. These contracts have a long tenure of typically between five and 10 years, providing Officeworks with significant opportunity to scale our relationships across current and extended product ranges.
have also been building our large corporate business offer and have been awarded multiple private sector contracts in the last year, presenting opportunities to also grow and expand our product offer to drive sales. As mentioned earlier, we are pleased with the performance of Officeworks for Business, our curated B2B online experience and integrated loyalty proposition for our small and medium business customers. We will continue to evolve this program with new features and benefits to provide even greater value to our customers. Officeworks recently acquired Box of Books to complete the education offer. The Box of Books offer will accelerate our scale and capability in the secondary school market, evolving our proposition from a top-up school supplier to a holistic offer and enabling us to be the one-stop shop for parents, students, educators, and schools in Australia.
Turning to slide 59, Officeworks remains focused on expanding our curated range of products and services to meet the diverse needs of our B2B customers, beginning with learning resources. Classrooms are digitizing. Our research shows that 1,600 secondary schools around the country are struggling without a digital aggregation platform. We now provide schools with a central hub for all their learning resources, streamlining access to learning and making schools and classrooms more efficient. We can scale our Box of Books offering and complete the education offer. In office facilities, we will expand our product ranges across cleaning, catering, and hygiene to meet the needs of large corporates, government agencies, and schools. Finally, we'll launch new tech products for our SME customers, for example, enhanced commercial-grade premium computing and meeting room audio-visual products, including displays, cameras, and microphones.
Turning to slide 60, we remain focused on driving productivity and efficiency across Officeworks. We are realizing the benefits from our recent investment in our demand and replenishment transformation, and we now have an end-to-end view of inventory across our operations, enabling improved availability, lower working capital, and increasing team members' availability to serve customers. We have commenced an ERP upgrade, which is expected to be completed in FY2027, in continued strategic partnership with SAP. This program will simplify, modernize, and digitize business processes across our stores, our supply chain, and the support center. Finally, we are continuing the execution of our long-term supply chain transformation strategy with the establishment of a new omnichannel facility in Queensland. Construction is expected to commence in FY2026, and it is set to open in early FY2028, leveraging the same automated technology and learnings from our other customer fulfillment centers.
Turning to slide 61, in summary, Officeworks maintains its relentless focus on meeting the changing needs of customers. As digitization is transforming the way our personal and business customers work, learn, create, and connect, we are evolving to meet their needs across all categories and channels. Officeworks is well positioned to leverage our low prices, widest range, and best experience to deliver the products and services customers need to run their households, businesses, and schools. Lastly, I would like to reiterate that we have four clear strategies to deliver growth and long-term returns. We are strengthening our omnichannel customer experience, enabled by our investments in data, digital, and loyalty. We are transforming our technology offer, including evolving products and services, as well as the in-store customer experience. We are well positioned to scale our B2B business across SMEs, government, large corporates, and schools.
We continue to focus on modernizing and simplifying our business to drive further productivity so we can continue to invest in price for our customers. The team and I are confident that Officeworks will continue to deliver strong growth and strong returns for shareholders over the long term. Thank you, and with that, I'd like to hand over to Nicole.
Thank you, Sarah. Good morning. OneDigital has never been more important to the group as we accelerate our data and digital capabilities to drive shareholder value. Before I start, I'd like to acknowledge that Catch has wound down and thank the Catch team for their hard work and dedication. It's great to see the assets and capabilities developed in Catch now being leveraged across the group, including the two customer fulfillment centers at Kmart Group, which Alex talked to earlier.
For today, I'd like to talk about our key drivers of growth for Wesfarmers and the retail divisions. Turning to slide 63, OneDigital is focused on driving incremental value in three ways. Firstly, OneData operates our shared data asset that delivers unique, actionable insights. Secondly, our OnePass membership program increases customer engagement across the retail and health divisions, driving incremental earnings and cross-shop. Lastly, OneReach, our soon-to-be-launched retail media business, will monetize the group's scale, digital and physical networks, and customer engagement across our market-leading brands. These are all complemented by our joint venture with Flybuys, which continues to resonate with customers, demonstrated with improving in-store scan rates. Turning to slide 64, OneData operates our group-wide data insights engine. Our shared data asset is one of the richest first-party data assets in the country, with approximately 12.5 million customer records.
OneData provides unique, actionable data insights to our divisions that no single division has access to on its own. While having this data is valuable, it's what you do with it that matters. For OneData, there are three clear priorities to drive value. Firstly, OneData will continue to build high-value audiences to unlock cross-shop and drive incremental sales. For instance, we recently worked with Officeworks to drive engagement in gaming through a digital marketing campaign targeting OnePass members. When compared to a control group from the cohort of OnePass members that were targeted, there was an 8% increase in newly identified shoppers to Officeworks and a 23% sales increase across Wesfarmers retail brands. These benefits are all incremental, and there's still more to go. Secondly, OneData will help scale OnePass to continue improving customer engagement across the group through more personalized and relevant offers.
All OnePass campaigns are targeted, with 93% of them using attributes from the shared data asset. Many of these insights are made possible using our AI-driven personalization engine to create targeted offers based on customer shopping behavior and history. This has laid the foundations for monetization opportunities in the divisions and for retail media. We are really excited to launch OneReach, our retail media network, and I'll talk more to this shortly. Finally, OneData is, of course, underpinned by continued investment in strong privacy, security, and data governance. Turning to slide 65, we continue to see the benefits of the enhanced OnePass customer value proposition, which has now been in market for a little under two years. OnePass is a low-cost membership program.
At just AUD 4 a month or AUD 40 a year, members are getting more value from their membership across our broad range of omnichannel retailers, including free delivery, five times Flybuys points or two times Sister Club points for in-store and click and collect, improved convenience through express click and collect, improved peace of mind with 365-day returns, and other member exclusives. OnePass is also highly complementary with both Flybuys and Sister Club, and we continue to strengthen the relationship across all three programs to deliver members a more consistent and valuable experience. Turning to slide 66, which highlights the value of OnePass members. OnePass has a loyal and active membership base and is growing across all channels and brands. They shop 3.3 times more than non-members. They spend over 20% more after they join the program and cross-shop twice as much across all our brands.
This divisional cross-shop metric is important because it means we can continue to introduce our most loyal customers to new brands and expand their share of wallet in categories that best support their needs. This drives incrementality and earnings. OnePass is also introducing new shoppers to the group through member exclusive events, increasing OnePass membership and spend. This was seen at our first marquee event last September, a four-day member-only shopping event called OnePass Weekend. During this weekend, 12% of shoppers were newly identified to the group. We saw materially larger baskets with orders containing at least one OnePass Weekend item, contributing to a 23% increase in average order value across all divisions' existing shoppers. We also saw a halo effect, which drove an increase in shopping, even for orders that did not contain a OnePass Weekend product. We will continue these marquee events as we continue to scale the platform.
Turning to slide 67, looking ahead for OnePass, we're focused on three ways to improve the customer experience and deliver value. The first is accelerating cross-shop and greater personalization. Through OneData, we learned that OnePass members who complete three key activities in the first 30 days after joining become the most engaged customers and stay with the program. We think of this as 3-2-1. Specifically, when members shop at least three times across two divisions and link to Flybuys, this model has enabled us to completely redesign our new member welcome experience, create targeted personalized offers, and drive cross-shop. This isn't just about OnePass retention. It's about introducing them to our incredible brands and offers and increasing their customer lifetime value across the group.
Secondly, we're improving the customer experience across all divisions and channels, so it's seamless for customers to join, shop, and scan, and drives membership and basket conversion. This includes trialing new ways to drive sign-ups and foot traffic, such as in-store card swiping, reinforcing member value in-store and in divisional online channels, enhancing the OnePass app to show personalized member savings, earn Flybuys points, digital shopping receipts, and purchase history. The third is maximizing our strategic partnerships. There's an untapped audience of non-OnePass members who are shopping across the group but missing out on OnePass benefits. At a time when many households face cost-of-living pressures, OnePass can help cost-conscious households stretch their budgets just that little bit further. This is why we're focused on working with the divisions to maximize our partnership with Flybuys and Sister Club.
This includes elevating the Flybuys bonus points a OnePass member has earned in all OnePass channels, targeting in-store activation through a full in-store point-of-sale refresh with all divisions who participate in Flybuys, redirecting marketing spend towards targeted channels, and working closely with Priceline to make OnePass more attractive to Sister Club members. We have also launched new external partnerships to grow both member value and our base. Turning to slide 68 and the unique opportunity we have in OneReach, OneReach, developed in partnership with the divisions, is uniquely positioned to become a leading retail media network and unlock a significant earnings opportunity. Not only is the market opportunity compelling, Wesfarmers has a clear right to play and a unique competitive advantage. From a market perspective, the Australian retail media market continues to grow strongly.
Advertisers are looking beyond traditional sales channels to reach more consumers, while consumer expectations for more relevant offers are increasing. For OneReach, our competitive advantage comes down to three things. First, our unmatched scale and reach. As I said, we have over 12.5 million customers in our shared data asset and an extensive physical and digital network, as Rob mentioned earlier. Second, we have access to leading trusted omnichannel businesses, which provide advertisers a breadth of category purchasing behavior. Thirdly, we have first-party data and measurement tools that are critical for major brands and agencies to assess the return they're getting on their ad spend. Turning to slide 69, let's look at how the OneReach value chain will work. The way we're building our retail media network is through a value chain that benefits advertisers, the divisions, and our audiences.
While divisions bring the contextual relevance and the deep category knowledge and consumer trust, OneReach will bring scale, standardization, efficiencies in technology, and cross-divisional sales and monetization potential. We worked closely with the divisions to develop our group retail media approach and operating model, which will see our group function deliver incremental value in two ways: a group-wide sales function focused on securing incremental revenue from agencies, both endemic and non-endemic advertisers, and consistent product data and technology capabilities and shared platforms that each division can leverage to support their clients. Importantly, data utilization and standardized closed-loop measurement frameworks across divisions are critical for success, with the shared data asset being the key enabler that connects advertisers with group-wide audiences and insights and provides clear measurement of return on ad spend for OS.
You heard Mike and Sarah talk to their retail media in their presentations earlier, and Emily will talk to the opportunity at Priceline later. How will this work in practice? The divisional teams have deep supplier and vendor relationships and category expertise. If a Bunnings Power Tools supplier wants to engage in a partnership on Bunnings channels, Hammer Media would service that advertiser directly, leveraging the OneReach platform and measurement capabilities. However, if there is a potential advertiser that does not supply any products to the group, such as a car company, they would be serviced by OneReach, which can offer a targeted multi-divisional campaign across OneReach's wide audience base. OneReach's focus will be to establish strategic partnerships with agencies and large advertisers looking for a consistent product experience across multiple divisions.
Turning to slide 70 to summarize, at OneDigital, we are laser-focused on driving incremental value to customers and our shareholders. OneData operates a unique data asset of scale. OnePass continues to deliver compelling omnichannel benefits to members, and OneReach will unlock incremental earnings for the divisions and the group in the years to come. Thank you. I'd now like to invite Mike, Alex, and Sarah to the stage to take questions.
Good morning. It's Adrian Lemme from Citi. My question's for Alex. Look, it's very clear from your presentation, I took away that Kmart wants to retain the value, low-price positioning. A key question for investors at the moment with Kmart specifically is, as the consumer improves and maybe has some more dollars in their pockets, what does that mean for Kmart? Do some customers look to go to higher price points at other brands?
I guess my question for you is, within the strategy, how much is the good, better, best concept to use in your ranging, and is there room to lift that? An example I can think of is Coles in their pre-prepped meals will have three different tiers of their Coles private label range. If you could just talk to that, please.
Thank you. There's a couple of things. I think the first one I'd say is we very much see Kmart and Anko as a brand for everyone. We see really strong engagement across all demographics, all income cohorts, and we're seeing engagement and spend with all of those cohorts continue to grow. We've done a really good job in terms of attracting new customers to our business, and our retention rates are improving year on year.
We can see that we're holding on to the new customer acquisition, and we're engaging them into more and more categories over time. I'd say that's the one piece. We think value, as I said, is a trend that will endure over time, and once customers discover our product, they'll choose to spend their money elsewhere to the extent that disposable income grows over time. Our concept within that range architecture, we call our opening price points our one-up and our two-up, and that's working really well for us in terms of being able to differentiate the product range across those three price points. Across time, we see customers trading up and down across that architecture over time. We definitely see an opportunity to be able to continue to service customer demand through all economic cycles.
Target, as I mentioned, Target plays in a price point that's complementary and above that of Kmart. Through the two brands, we feel like we will be really well-positioned to perform well through all environments and continue to grow our business. Low prices is absolutely fundamental to our strategy and will remain the core and the DNA of our business as we go forward. That will never change.
Thank you.
It's Michael Simotas from Jefferies. Alex, while you've got the mic, if I can follow on the price piece for Kmart. I think one of the key drivers of Kmart's success has been good quality on-trend product at very low prices. Just interested in how the marketplace strategy fits into that, given you'll have less control over product, less control over the customer experience generally, and certainly on pricing.
Is there a risk that that undermines Kmart's value leadership?
Thanks, Michael. I think the first thing I'd say is the marketplace, we're going to do it very much in a Kmart way. It should feel like a very natural, logical extension of the product offer and the digital experience on the site. That's the first thing. That'll be represented not just in the categories that we look to play in, but in the brands and the sellers that we choose to partner with, because we are very conscious that part of our competitive advantage is exactly the trust that customers place in us to provide really good quality products at really low prices. We will continue to be a value player in the marketplace offer and look to partner with sellers and brands that can do that.
If I look at why do we think there's a demand for that on our site today, we know many, many customers come to our digital channels, and they are searching for brands, and they're searching for products that we just do not sell today and would not look to sell as first-party products in the future. We think there's latent demand that we can absolutely tap into. In terms of how broad that becomes over time, I mentioned we're very customer-focused in the way that this offer grows. We will start very curated and targeted, both from a category but a seller perspective, and then go where the customer demand takes us. It will be a fully integrated experience into our site as well.
If you search for a kettle, there will be our own brand kettles, and then there will be national brand kettles on there as well. We are not looking to create a separate and almost distracting experience within the site. It will be fully integrated in a very Kmart way. Over time, I think the better that we get at things like search and personalization, the ability to serve up the right product to the right customers coming through the site becomes, I think, a really good opportunity for us to optimize further.
Okay. Will you be able to control price, or is it more about just partnering with vendors that you think will offer the best value?
It is about partnering with the vendors that offer good value.
We clearly would not and could not control the pricing equation, but we will be very deliberate about who we partner with and would look to partner with brands and sellers that offer a similar value-focused proposition, but cognizant of the opportunity to obviously trade into higher price points than what our business sells today. It will allow us to move up the price architecture, but still into products and brands and categories that represent really good value for those price points.
All right. Thank you.
Morning, Tom from Barrenjoey. Question for everyone. How much of your stock comes out of China? A, and B, do you think you start to get some savings on the products that you are sourcing out of China, either directly or indirectly?
Maybe Mike will kick off and then go along.
Yeah, it is probably 40% or so in broad terms, but it is early days.
I think you heard Rob talk earlier. It's still a pretty volatile market. There's clearly going to be some opportunities depending on sort of what plays out in the medium term. The thing that's really important for us is that we stay really disciplined on our focus on customer, the customer offer. If there's opportunity to sort of purchase some goods and create some value and some excitement in sort of event periods like Black Friday or something like that, I think we'd be crazy not to be participating in those things. It is pretty uncertain.
What we've definitely seen, and I think I've spoken to this a number of times over the years, is we're actually seeing a lot of the relationships we have, either with factories or suppliers, moving, either augmenting their Chinese manufacturing with manufacturing in another market, but also some other markets opening up, which are creating some great opportunities for us as well.
From a Kmart Group perspective, it really varies depending on the product categories. From an apparel perspective, the global manufacturing base is much more diversified, and we would be around a third would be China-based, and the rest we have really strong sourcing locations in other markets. In some general merchandise categories, it's clearly a much higher number, over 80% in some categories. We've had really good success in bringing the percentage exposure to any given market down over time.
Our strategy has been to work with suppliers where we have very strong and long-term relationships and look at geographic diversification opportunities with them rather than trying to start again. We are moving with our supplier base into new markets, Vietnam being a really great example that has provided some good opportunities over the last few years, and India continues to be a market that we grow in.
Similar to Alex, I would say if you look at technology, it is quite a different proposition to say stationery. If you look at what we would traditionally say is the left-hand side of the store and our more traditional products, we have strong sourcing out of China, but equally, we have been looking to diversify that over the last five years, and we have built, we now have a team in India. We are seeing good opportunities in Vietnam as well too.
With regards to the current conditions, I would say, as Mike referenced, it's a bit of a watching brief. We're staying close to it. We've got a team in India, a team in China. We're talking a lot to our suppliers and just understanding daily how things are moving, and if there are opportunities to improve buying and buy better, we absolutely will take them.
Great. Thank you.
Morning, team. Mike, this is for you. I came away from your strategy day really enthused about your growth opportunities in sales, store productivity, new categories, etc., etc. Where I'm now focusing my attention, if you like, is your back-end productivity, particularly in logistics and in transportation. You touched on it a little bit at the strategy day. You touched on it a little bit today.
Can you go into a little bit on the supply chain opportunities, how big that prize is by unlocking transportation? You did mention it's a bit unlike Kmart where they're a little bit more streamlined. They go direct, and they've got home brands where you're more unashamedly a house of brands. How much availability, how much of a prize is there for you to take more control of your transportation logistics into the store? I think you're doing what? Is it B line that's coming up or something, and you're putting a lot of investment into that area? Can you give us a bit of sugar, if you like, on what you're doing in that area and how big a prize that is? I get your sales growth. It looks fantastic.
Going back to that back end, it looks like an equally exciting opportunity for you.
Yeah, it's a fantastic opportunity. I think right through the supply chain, there are significant opportunities. As we continue to refine our thinking on the sort of scale of our global sourcing, where it makes sense to be going direct to factory, that's got a significant impact on our import DC. The first part of the strategy is very much understanding our short, medium, and long-term aspirations in terms of direct sourcing and making sure that our import DCs are set up to be as efficient as they can possibly be.
They are very efficient today for the nature of the product that we are flowing through them, but also to make sure that we have the capacity to sort of handle any increase in sort of global sourcing, either through expanded range or just expanded volume as the business continues to grow. We have some supplier partners who have incredible supply chains, and our large suppliers do a very, very good job of moving quite complex, often bulky, often ugly product into our stores in ways that we would not want to touch because I think we would actually add costs and complexity to the supply chain, David. There are many medium and small-scale suppliers that would really benefit from us helping them to consolidate their deliveries into cross-dock facilities, and that is what we are looking at at the moment.
The downstream benefit of that is more predictability and reliability from either our DC or from these cross-docks into store and offering our suppliers much more competitive rates on freight. Equally, outbound's important for us. You touched on it in your question to Rob this morning. We've taken ownership of part of our outbound supply chain with our team member-driven deliveries. We've got that in now over 100 stores with fantastic customer reaction to a Bunnings team member turning up and delivering our product. It creates a level of self-reliance as volumes and capacity in some of the other players gets diminished as we see some of our competitors grow. We definitely see opportunities all the way through. They deliver really positive outcomes in terms of inventory availability, which is good today, but can be better.
Overall sort of inventory weight across the business, the way we think about working capital management, but also for team member safety. I think that's probably the most significant opportunities. I think Alex touched on it in her presentation as well. Making things safer through touching product less for our team is going to be really good. I think it also just creates an opportunity to deliver a better customer experience. Significant opportunities is the short answer. Hopefully, I've given you a bit more color on the canvas on the different stages.
Your market share, 17%-25%, is the two world's best. I'm just trying to get my head around how big a prize this could be for you because I've heard it. It's huge, but I'm just trying to get conceptually how much it could be. Is it sales?
Is it capital return? I do not know.
It will definitely turn up in our productivity numbers. We will definitely be able to reduce cost of doing business by being more efficient. I think we will definitely improve the way we handle inventory. I think that has an absolute benefit on sales. If our inbound logistics are good, our stock availability is great for customers. If our outbound logistics is great, it means the online offer is strong and is used more. I think you definitely get benefits right across the enterprise, and we will sort of call those out as they start to flow through.
B line is this? This is what, B line?
B link, yeah. B link is a part of that. That is actually about working with our suppliers to consolidate where it makes sense for the suppliers.
What we're not doing is dictating terms to our suppliers. I want to be very clear about that. We do have suppliers that come to us and say, "Can you help us to be more efficient?" That is delivering benefits to Bunnings and our team and our customers as well.
Thanks, Mike.
Morning. It's Ben here from Jarden. Maybe a question just on the operating side, just in terms of appliances and electronics. Probably sort of goes to Sarah, Alex, and Mike. Sarah, can I ask you the same question as last year? How do you convince a rich person on the street to actually go into Officeworks and buy a television? Obviously, it's not in the name. Similarly, just interested in Alex and Mike, how you're thinking about appliances. You put that 2% share up, Alex, it seems like a logical adjacency.
Does that fit into the marketplace? I'm sorry, Mike. I'm asking three questions here. Mike, you talked about that productivity difference, but a big chunk of that is the fact that you guys don't sell appliances when you compare it to your guys in the U.S.. I imagine your GP dollar per square meter is probably a smaller GAP. Maybe just those three in terms of context of electronics and appliances.
Great. Okay. I'll kick off. How do we convince a person to come in off the street and buy a television at Officeworks? Look, the way I would start is we look at what our customers ask us for and what they're searching for on our website.
We do a lot of research, and we work with our suppliers to understand when we do our category planning and we're going into adjacencies, whether A, customers see us as a destination for that, and B, how will we differentiate against our competitors in providing a more complete solution for what our customers need? When we go into any market adjacency, Ben, we're looking at, is there a market there available for us? Then we'll test and learn. We've tested and learned with TVs. We sell a lot of TVs already. The great news is a lot of those journeys start online, and we're such a big every-channel retailer with huge brand loyalty to some of those brands and those ecosystems. For example, Sony and Samsung, we sell a lot of Samsung devices. We just don't sell their TVs today.
We will test and learn. Then when we build confidence, we tend to test online. If you've looked on our website in the last couple of weeks, you'll see that we've launched Samsung TVs online. Pleasingly, they've sold out. Once we get our research right, we find an adjacency we can build into. It's then about working in collaboration with those suppliers, with Sony, with Samsung, with our Blaupunkt TVs to make sure that we're entering the market in a way that's relevant to our customers and meets their needs.
From a Kmart perspective, we see it as quite a significant opportunity. I talked about cleaning today. Health and beauty would be the other area.
The way that we think about it is there's general customer trends we see globally, and they're often fueled by product innovation as well, with new types of products coming on market that create a big addressable market that potentially wasn't there before. Our unique advantage really comes back to the unique Anko sourcing model that we talk about all the way from product design through to sourcing and getting it to customer. What we're able to do is look at those global trends around the types of products that customers are looking to buy and the product innovation that leads to that, and then leveraging our unique model to bring those products to market at a price point that didn't exist before.
That's really the core opportunity that we see is tapping into new and growing addressable markets and then growing them even further by making that product accessible to a bigger pool of customers by virtue of the price point that we can bring to market through the unique sourcing capability that we have. That's really the biggest opportunity that we see. Marketplace, of course, in terms of then complementing that with a branded offer will also be an opportunity. I would say the big dollars that we see in terms of growing our sales would come through what we can do through our own product development processes.
From a Bunnings point of view, firstly, we've taken a lot of learning from what we have sold on marketplace. I think the points Alex makes are really important. We've actually expanded quite significantly across cleaning and small appliances.
You'll actually see quite a comprehensive small appliance offer in our warehouses and online now. When we look at larger appliances, we've been in the large appliance business for a while, just not with branded product that we would probably like. When we look at the volume of kitchen sales that we do every year, which is in the tens of thousands of kitchens, the attachment rate opportunity for suppliers is significant. There is definitely a reluctance based on the market structure at the moment for some of the brands to want to part ways or at least repartner with a new large retailer. There is some apprehension about what would happen if they sort of diversified that supply chain. We're continuing to work there.
There is definitely a real interest in that sort of volume around kitchens and that ability to sort of participate in that whole of kitchen sale. I think you'll see an expansion into that space over the next couple of years. To your point around margin, getting the operating model right will be critical so that there is, first and foremost, a great customer experience and strong value proposition, but also that that product is getting to the customer in a way that is accepted in the market and in a way that is acceptable for us from a returns point of view. Ultimately, if we can make our kitchen offer a stronger one by augmenting it with appliances, then we think that that would be even accretive and a good thing to go after.
Thank you.
Morning. Caleb Wheatley from Macquarie.
I just had a question for Alex just around capital intensity in Kmart Group. You called out trying out the new store format, CFCs as well to come in. How should we think about kind of the pathway for capital or CapEx in that business and return on capital? I guess as a follow-up on that, you mentioned doubling the size of the business. Can you raise that sales, earnings, or otherwise?
Thank you. Just on capital intensity, in terms of the CFCs, we're commissioning them as we speak. They'll be within the numbers for this year, and they'll be largely absorbed within our normal CapEx profile. As we look forward, the biggest material impact to our CapEx will be the next-gen omnichannel facility. You'll see the bulk of that CapEx hit our FY2026 numbers.
Outside of that, we continue to really pursue both short, medium, and long-term return opportunities. The way that we think about our investment is ensuring that we phase it in such a way that we have benefits realization over all of those timeframes that help to fund both the CapEx and the OpEx investments that we're making in our business. We're investing because we see really material opportunities to continue to grow our business. Our return on capital is very healthy, and therefore, there's a really good opportunity to continue to grow and improve the efficiency of our business and the customer experience through the investments that I talked about today. In terms of the aspirations, as I said, it's very much an aspiration. What's the significance of it? It really galvanizes our team.
The 10-1-6 was really important in terms of galvanizing our team around the aspiration and the magnitude of that aspiration. I think we are really well placed to continue to drive very material growth, both from our business in Australia and New Zealand, but also the potential for global. This is really, again, around making sure that we are very bold in our aspiration, galvanize our organization against a very bold aspiration on sales and earnings, and make sure that we're making the appropriate investments and we're taking the appropriate steps to achieve that over the long term.
Sorry. To be clear, the doubling is a doubling of the 10 and the 1 we should be thinking about, or is it?
Without foreshadowing my new 10-1-6, but yes, we're focused on both sales and earnings.
Hopefully, what you got through our strategy today is we've got some very material revenue opportunities, but actually, through the productivity focus and the investments in central fulfillment in supply chain, inventory is still an opportunity for us. Although if you were to benchmark us globally, we would be in the top quartile in terms of our inventory efficiency. We still see incremental opportunities there and across our store network. We are taking a very end-to-end approach on that. Our aspiration would be to deliver earnings growth ahead of sales growth, which is what you've seen over the last couple of years in our results.
Thank you.
Hi, Shaun Cousins, UBS. Just a question for Sarah. Can we talk about Officeworks and the opportunity in technology?
I just want to walk through some of the sort of how this is sort of margin diluted, it appears to me, in the near term. By way of you're doing more training of staff, you might be having more staff in store or possibly reallocating. You have to get customers to understand that you have technology in the store and there is a bit of store refurb that is going on. These, I assume, are probably lower margin products, possibly than print and copy, which I was curious around that. You want to sell more plants. I'm just curious how you remain committed to expand long-term return on capital. I'm just curious if there is a dip, particularly from a margin compression perspective, and you start to sort of increase from there. Look,
it's a good question.
I think I'd kind of echo what Alex said around the challenge of managing the multiple parts of the businesses and the investments that you're making in a timely and structured way and making sure the investments that you have made. For example, we recently made a significant investment over the last 18 months-24 months in our demand and replenishment transformation. We went live across all categories. We were live by the end of March this year. We will see, as a result of that, both sales benefits through improved availability, improved working capital benefits, and freeing up team on the shop floor. The art of this is about recognizing how you drop those benefits to the bottom line and where you choose to reinvest.
The choices we're making around, and we've worked hard on our productivity as well too, is to make sure that we can then afford to reinvest in growing the business. One of the ways we need to grow our business in technology is by training our team and by making sure there's greater team member availability on the shop floor. To your point around margin dilution, I think it's really important to recognize that whilst at a first margin level, some of these products may be at a lower percentage, let's say, than stationery or print and create, they're a much higher ASP, the cost of a pen. When we bank dollars, we try to bank dollars, not percentage.
What we've got to do is look at holistically our growth in technology and the EBT margin that it contributes, which is very, very healthy to our business. It is about working collaboratively with our suppliers because a lot of the product knowledge we're talking about comes actually from them. They have the best knowledge of how this hardware is changing. It's making sure we're partnering deeply with our suppliers to bring up-to-date relevant information to our team. Attaching to make sure the complete basket has a really strong blended margin. We make sure that we sell a laptop case with a laptop bag, and we sell 365 with it as well too, or AirPods with an iPhone. You want to sell a complete solution.
It makes sure that the profitability of that part of the business is strong and contributing, which it is. It also ensures, even better, that the customers are happier because when they leave the store or they have that shopping experience online, they actually get everything they need to do what they want to do.
Maybe back to the sort of training, do you actually need to bring in new people? Because when I go to your stores, I do not get a lot of service. It is sort of they are behind the counter. They are tasking much of the time. I am just curious, do you need, is it a training and/or as well as adding team, or can you do it just via training alone?
I think it is both. It is always both. Recognizing that we have a reasonably large casual workforce, and so we are constantly recruiting.
The point you made, I think, is, and we do give a great experience in store, but the point you made is the right point around making sure there is a team member available. We are very focused on this not just being a training exercise. It is also about team member availability and an operating model and mindset shift around service over task, which is something you would hear if you spoke to our operational team. We have been very, very focused on service over task, and that is showing benefits in MPS.
Great. Thanks.
Morning all. Craig Woolford from MST Marquee. I have a question for Alex around Target. A lot of the presentation was Kmart-centric. There are still 124 Target stores. We would like to understand the outlook on the store profile for that part of the business.
I would expect it's not a 10-in-1 or that ratio in terms of margin. So understanding the margin outlook and how you think about Target within the Kmart Group.
Thanks, Craig. We're pleased with the performance of Target. I think with the work we've done over the last five or so years, the store network is very much optimized. We're not looking at making material changes to the number of stores. Also, with the move to the one operating model across the two businesses, the business is now more profitable than it previously was. We're pleased with the performance that we've made.
We've made good progress in terms of the differentiation of the offer as well and enabling the business to be laser-focused on where it can differentiate, which is apparel and soft home, I think has delivered hopefully visible benefits from a customer perspective around the quality of the offer now and also the price positioning. We've got a way to go. Every year, with every buying season, I think you'd expect us to continue to get better and better. I feel that we now have a formula across quality and price that is very clearly differentiated in the market and positions us well as we go forward. In terms of the future strategy, what I would say is it's a group strategy, and that's probably the piece that's different to what we've had previously. We're very much bringing Kmart and Target together under the common purpose.
Those five strategic pillars apply to all of the brands within our business. Our focus outside of continuing to improve the product offer is now around how do we leverage the capabilities that we've built in the Kmart business for Target. If I look at where that translates to immediately, the central fulfillment centers that we are currently commissioning will service both brands. From an online perspective, Target customers will get the benefit of faster delivery and better availability online. We are now looking at how we extend the RFID capability that we've developed in Kmart and bring that into Target stores, which will not only improve store operations, but from a customer perspective, should result in much better availability and, importantly, size availability of apparel on the shop floor as well.
We're really seeing the ability through our current operating model to leverage those capabilities and continue to invest in the Target business as we go forward. Smaller, more profitable, and as I said, an important part of our ability to address a larger addressable market than what Kmart can do alone.
Okay. Thank you.
Awesome. Thanks, team. It's James Lee from Goldman Sachs again. Just quickly on the number of SKUs in Bunnings for Mike. I noticed we've added quite a few SKUs since Bunnings invested a couple of weeks ago. How should we think about the medium-term aspiration there and potentially the revenue and margin implications from that step up?
I think the delta is really just the marketplace. 180,000 SKUs on marketplace, and that's probably growing really fast.
If I sort of get into some of the departments, if you look at sort of energy and you look at smart home, you look at tools, we've probably got a few thousand new SKUs that have gone in, but the most substantial ones are in the marketplace space. That is really a GMV sort of story there. I think we always look at a blended margin across the business. Some of our products have a higher margin than others, but we're very focused on gross margin return on space. There are some really informed decisions by our buyers for making sure that the ranging architecture is right from entry through to best and making sure that we've got that diversity for customers as well.
Thanks.
It's Bryan Raymond from JP Morgan. Another one for Alex just on Kmart.
I think this is a really interesting opportunity right now between the new store format coming through, and the Catch CFCs being repurposed and more heavily utilized. I just want to understand a bit more of the delivery volumes that you're currently doing out of Kmart and Target. I think you mentioned in the presentation 45% are being delivered already through the CFCs. Should all deliveries in New South Wales and Victoria essentially be done out of either Moorbank or the CFCs? What does that mean for the store economics in terms of how much labor does that free up? What sort of margin opportunity over and above what you're seeing with operating leverage through better availability, etc.?
Yeah. Thank you. If I go back to store fulfillment for online, it is awesome when you've got excess capacity in stores.
I think when we started online, we did, and the size of the online business relative to in-store sales was relatively small. It is important to recognize why we are moving to central fulfillment. That is because our in-store sales have grown materially, but also the size of our business is now quite material. By moving to central fulfillment in these two states, it will do two things. The first one, from a customer perspective, which I have covered, is faster delivery, improved availability because you just get better stock integrity when you have a central location and customers are not picking the product off the shop floor. Importantly, from a store perspective, it will free up our team to concentrate on the in-store customer. That is one piece.
The second piece will be it will remove some inventory from the system as well because it will be diverted to the central fulfillment centers. To Mike's point on safety, we know that that should carry some quite material safety benefits for our in-store team members as well because there's less process and less stock in store. We see benefits across all of that. Our intention is to get to probably around 85% of home delivery orders in both states being fulfilled from those central fulfillment centers. The vast majority will be coming from there. Clearly, we want to, if the stock's not available there, we don't want to compromise the customer experience, and we would still surface the product available through our store network. Click and collect, though, I don't want to lose into this narrative. Click and collect is really important for us.
As I said, it's about 35% of our online business. We'd love that to continue to grow materially. I think there's probably benchmarks globally where you could say that can get to a much bigger number. Ultimately, we do want customers to continue to come into our stores, and they pick up other items on the way when they come into Click and Collect. For us, it's really about making sure that we're investing in capacity to continue to grow, and then we're allowing each part of our fulfillment chain, whether it's a store or it's a separate distribution center, to be as efficient as possible.
Excellent. Thanks.
Thank you.
Hi, it's Johannes Thor here from Morningstar. I had a question on Kmart, Alex. In terms of the global expansion, it's obviously a very exciting opportunity for the Anko brand.
Have you entered new markets just by selling on existing marketplaces in those markets, or is it an opportunity or a potential to enter new markets without a physical footprint, like in the Philippines, but just by, let's say, a proprietary website?
Yeah, it's not our current focus. I'm not sure if you know, but a couple of years ago, we actually did a trial where we listed our Anko product on a couple of marketplaces in India. And we learned a lot through that. Our biggest learning was part of what's so unique about our product offer is actually the range curation. It's really seeing the whole range come together in a cohesive way and the trend aesthetic and the price points. When you go on a marketplace, it's an item-sell business.
What you end up doing is you're competing against lots of other products, and you're largely competing on price because one customer's do not necessarily know the brand and therefore know the quality of the product, but you're also not presenting, I guess, the value of the whole range curation as well. We do not see that as an attractive model for us for global expansion. In contrast with what we're doing with the store network, we see that as a really prospective opportunity. Equally, being able to bring cohesive ranges to retail partners globally, we see as quite prospective as well.
Thank you.
Thank you.
That looks like all the questions. Thank you very much. I think there's a break now till about 11:50.
There you go.
Okay, I can still say good morning. Good morning, everyone.
I'm extremely honored to present my first strategy briefing day as the WesCEF Managing Director, taking over from Ian Hansen, who was a great leader of this organization for many years. I'll start today by providing a brief overview of WesCEF before diving into our strategic focus areas and finishing with some key messages. First, turning to slide 73. WesCEF's vision is to grow a portfolio of leading sustainable businesses. It's delivered through our four key strategies, which are ingrained across all of our operations. A portfolio of complementary businesses, each with strong market positions, are accretive in the value chain, taking raw materials and feedstocks and transforming them into key products for use in critical industries that are critical to the Australian economy. Before we dive into the divisional strategic focus areas, I would like to provide a brief update on these business segments.
Firstly, starting with lithium, we are focused on finalizing commissioning of the Kwinana Lithium Hydroxide Refinery, moving to first product and ramping up of production at Spodumene Concentrate at the Mount Holland mine. We'll cover that in a few slides. In our chemicals business, we are concentrated on continuing to provide a high-quality and reliable supply of ammonia, ammonium nitrate, and sodium cyanide to our customers, with organic growth opportunities available through production capacity expansions and incremental bottlenecking initiatives. Our energy segment that includes the LPG and LNG production facilities, as well as our natural gas retailing business in Western Australia, is focused on maintaining and improving its award-winning customer service to drive customer growth and satisfaction. Across to fertilizers, we continue to invest in infrastructure, digital innovation, and productivity initiatives in order to continue to deliver the best reliability and experience and advice to those growers.
Finally, as we noted at the results presentation in February, we completed the divestment of the LPG and LNG distribution businesses whilst retaining the two production assets and with customer offtake. The divestment was an opportunity to simplify and streamline the energy segment, given its complexity, and allowed us to redeploy resources and focus on growth opportunities within the remaining areas of the division. We'll now turn to slide 74. At WesCEF, we have four key strategic focus areas that I'll expand on in further detail throughout the presentation. First, we are focused on providing all the necessary resources and support to the Covalent joint venture to facilitate the successful completion of commissioning at the Kwinana refinery and the continued improvement and operational performance at the Mount Holland mine and concentrator.
Next, we continue to ensure we have strong plant reliability and production and benchmark our plants globally accordingly in order to provide high-quality, dependable supply alongside implementing productivity initiatives to incrementally de-bottleneck those production facilities. Customer focus is a new call-out this year, but something that has been embedded within our organization for many years, as we ensure we are providing the best customer proposition and service through developing a deeper understanding of our customers and their needs. Finally, we have a strong pipeline of major growth opportunities, which include production capacity expansions in our chemicals and the lithium business to capitalize on growing markets. These strategic focus areas are underpinned by the importance of gas supply to our production facilities as a key chemical feedstock, which we actively manage through a combination of long, medium, and short-term arrangements.
The parliamentary inquiry into the WA domestic gas policy was completed late last year and delivered largely a positive recommendation with additional government measures to enforce the policy and encourage short-term production to come on stream. Given the importance of natural gas to our portfolio, we remain actively and constructively engaged with the WA government and local gas producers on the policy. Our commitment to decarbonisation and a transition pathway to net zero includes utilising existing technologies, knowledge, and capabilities to meet our interim 2030 target and investigating long-term abatement opportunities to meet our net zero by 2050 commitment. I'll now turn to slide 75 on lithium. As you would all be aware, lithium pricing has been depressed in recent times.
This is with a backdrop, however, that there has been strong growth in the EV markets, particularly in China, and even in a market like Europe, growth was above 20% for the year ending to March. As well, there has been strong growth in stationary battery storage. Despite the current depressed price and sentiment, the long-term demand outlook for battery-grade lithium chemicals remains strong. While the pricing outlook in the near term may remain subdued, it highlights the importance of the core characteristics in lithium production and the assets, such as grade, deposit size and location, and the jurisdiction you operate in. Mount Holland is an example of this type of quality supply, enhanced by the vertically integrated nature of its operations, all of which support its expected favorable position on the cost curve as it matures.
Recent announcements around the world on reciprocal tariffs are likely to create continued uncertainty in the market. Despite lithium being called out as exempt in the U.S. of these tariffs, the full impact of tariffs on the battery value chain is still unknown. We'll now turn to slide 76. At the Mount Holland mine and concentrator, the focus remains on the ramp-up of spodumene concentrate production, with FY2025 production outlook now expected to be between 140,000 and 150,000 tonnes for WesCEF's share. As illustrated on the chart, we have seen a continual improvement in the operational performance and throughput at the mine and concentrator since achieving first product. It has not been without some headwinds, however, including a severe bushfire near our site in January, which halted production, and some more recent short-term challenges with equipment that are being addressed.
It is a journey of improvement and ensuring that we can lift the plant availability and reliability, which is not a new challenge for us at WesCEF. Based on our latest expectations for pricing and production, we expect lithium losses for the full financial year to be approximately AUD 60 million. In the year ahead for FY2026, spodumene concentrate production is targeting to achieve nameplate run rates, acknowledging that a portion of this product will be used as feedstock for the refinery following achievement of first product and to facilitate the ramp-up of the refinery. Finally, outside of the Covalent project, we continue to advance our exploration efforts at our prospective opportunities as the initial drilling program is underway at the Davyehurst tenement package.
Moving to slide 77, I'll provide an update on the refinery as we continue to make good progress on becoming a vertically integrated Australian producer of high-quality battery-grade hydroxide. Construction of the Kwinana refinery is essentially complete, with some minor rectification works being completed, but all of the effort on site is now on commissioning. If I drastically simplify the refinery flow sheet, we can talk to its commissioning in two parts. We have a front-end twin pyro-metallurgical circuit and a single back-end hydro-metallurgical circuit. We've taken a staged approach to the commissioning, with the first of the two front-end pyro circuits and the single hydro circuit being prioritized. We've been pleased with the progress to date. The second pyro circuit, which completed construction later than the first and has commenced commissioning, will be fully commissioned in the coming months.
It is not required for us to achieve the first product milestone. Commissioning has been progressing well and in line with our plans, which is due in part to one of the benefits of our joint venture structure with our partner, SQM, who are able to provide their technical expertise, people on the ground, and experience. The hydro-met circuit that I mentioned earlier at our refinery is very similar to the process at SQM's Atacama operations, which has allowed them to add significant value to the project and the process flow sheet through the process. It is important to note that FY2026 will continue to be a transitional period for the project, with several critical foundational milestones commencing, including the ramp-up of the lithium hydroxide production, which is expected to take approximately 18 months, i.e., well into FY2027.
During this period, the operation will experience higher than steady-state unit costs, as well as taking time to achieve the qualification of our product with our tier-one contracted offtake partners. These are important prerequisite steps to complete before we reach a steady-state operation and begin to realize the value from our fully integrated operations. I'll now turn to slide 78, which is to focus on our operational excellence and customer focus. We remain committed to our pursuit of operational excellence through the ongoing continuous improvement of plant performance and the embedding of a value-conscious cost culture across the organization. We are seeing this improvement firsthand through the uplift in production outcomes from incremental de-bottlenecking and diligent deployment of capital to enhance our operational assets.
Investments in systems and processes, including a new ERP system across the division, are underway, which will deliver productivity and efficiency gains and lay the foundation for long-term growth. Alongside these productivity initiatives, we continue to implement safety strategies to promote our safety-focused culture. While our management of high-potential incidents continues to improve year on year, recent trends in safety performance, as measured by TRIFA, have been disappointing compared to our usual high standards, and management and leaders across the business remain committed to improvement here. Moving to customer focus, we are fostering a deeper relationship with our wide array of customers to enhance the customer experience. We're investing in expanding our production capacity to meet their needs, as well as delivering on our promise of reliable, high-quality, cost-competitive supply.
Finally, we continue to strengthen our relationships with our customers and offtake partners to ensure long-term value is created for both parties. I'll now turn to slide 79, where we highlight our major growth projects. Firstly, starting with our NAN, or Nitric Acid Ammonium Nitrate, de-bottlenecking program. We took FID, or an investment decision, on the first of our three plants last year, with execution work commencing recently in anticipation of full run rate capacity coming online in the first half of FY2026. The future opportunity remains to de-bottleneck the remaining two plants by an additional 40,000 tonnes per annum each, with the implementation dependent on the growth of end-use market demand in the WA mining and agricultural sectors. Another major milestone over the last 12 months was in the sodium cyanide business, where FID was taken to expand production capacity by approximately 35% to near 130,000 tonnes per annum.
The project is supported by the historically strong gold mining sector, favorable long-term market fundamentals, and was underpinned by customer contracts. The project also includes the installation of a low-emission waste gas incinerator to improve the emissions intensity of the entire facility. Finally, to our Covalent Lithium expansion, the optionality remains to double the production capacity of the Mount Holland mine and concentrator, which will be considered following achieving certain commissioning and product milestones at the refinery. The opportunity remains subject to a final investment decision, and we are currently awaiting an assessment of submitted regulatory approvals in Western Australia. Should we proceed with the project, the expansion will allow us to further leverage our low-cost position on the cost curve and bring forward future cash flows from the project.
An expansion of the production capacity at the Kwinana refinery is also a possibility, which may be considered following the completion of commissioning. I'll now turn to slide 80. This slide illustrates our current view and pathway to achieving our net zero roadmap goals. On the left-hand side of the chart, you can see the historical investment we made in decarbonisation initiatives, such as the secondary abatement all the way back to 2012, has resulted in already reducing 40% of our FY20 emissions to get to our abated baseline. Moving to the middle of the chart, we are well on our way to achieving our further 30% reduction by 2030 target relative to that 2020 baseline.
This will primarily be achieved through the ongoing optimization of our existing secondary abatement catalysts, as shown in the green bar, alongside the implementation of key decarbonization projects such as the tertiary abatement catalysts in our three nitric acid plants and the installation of a new low-emission waste gas incinerator in the sodium cyanide facility, which is shown in the blue bar. The final steps of our journey to 2030 involve utilizing renewable or zero-emission electricity sources to eliminate our scope two emissions, alongside progressing the emerging opportunities to offset the additional emissions from our major facilities. Finally, to facilitate the period post-2030 on our journey to net zero, we are actively evaluating and progressing a range of projects and technologies, which may include solutions such as CCS.
WesCEF will take a measured and commercial approach to these longer-stage technologies, with a focus on ensuring we adopt solutions that are at the lower end of the cost expectations for carbon. Finally, to slide 81, our key messages for the division. We will continue to advance our efforts within our key strategic focus areas. Number one, providing the necessary support and resources to Covalent as the project enters a critical phase and begins producing lithium hydroxide. As I noted earlier, FY2026 will continue to be a transformational and transitional period for the project as a result of the higher unit costs due to the period of production ramp-up and product qualification with our tier-one offtake partners and the potential opportunistic sale of spodumene concentrate in the short term not required for feedstock to the refinery.
Due to these factors, as well as the current subdued pricing outlook, it is expected that the lithium business unit will incur a greater loss in FY2026 relative to FY2025. Next, progressing our major growth opportunities, including the production capacity expansions with key projects in ammonium nitrate and sodium cyanide, we anticipate to contribute value to the division in the near future once we complete construction of those projects. Through all of this, we are continuing our pursuit of operational excellence through incremental productivity initiatives and the completion of the ERP project to achieve process efficiencies across WesCEF. As our final area, investing—sorry, we remain dedicated to investing in and implementing decarbonisation initiatives to meet our net zero roadmap commitments. In terms of the nearer-term financial outlook for WesCEF, the business will continue to be impacted by the current subdued commodity pricing environment.
As a result, our chems business is not expected to repeat the favorable impact experienced in the second half of FY2024 resulting from the pricing lag mechanisms in some customer contracts. Thank you, and I'll now hand over to Tim Bult.
Thank you, Aaron, and good afternoon, everyone. I'm delighted to take you through Wesfarmers' industrial and safety businesses today, or WIS, as we call it. Turning to our strategic agenda on slide 83, WIS is a leading supplier of industrial safety and workwear products to a wide range of customers, including some of Australia and New Zealand's largest corporate and government entities through three main businesses: Blackwoods, which incorporates Blackwoods Australia, New Zealand Safety Blackwoods, Bullivants and CM3, Workwear Group, and finally Coregas.
On the 20th of December 2024, Wesfarmers announced that it had agreed to sell Coregas to a subsidiary of Nippon Sanso Holdings Corporation. Subject to satisfying conditions precedent, the sale is expected to complete by mid-calendar year 2025, as previously indicated. For the remaining businesses within WIS, Blackwoods and Workwear Group both hold number one position in their respective markets and are well placed to enable and support the industrial economy. We see our competitive advantage by providing our customers confidence in the products and services we deliver, particularly through anticipating our customers' needs, which is supported by our value proposition. Our strategic focus is on sustainably growing market share in targeted segments, making disciplined investments in improving capability, improving service and customer experience, and seeking out productivity initiatives to drive an efficient organization.
Turning to recent performance on slide 84, we have presented here historical earnings for Blackwoods and Workwear Group only, excluding Coregas. We have seen a steady improvement in earnings over recent years. This is supported by the achievements that I'll talk through in the next few slides. Central to our approach is that we are building for the long term. However, in FY2025, we have found trading conditions challenging, which impacted our first-half results, with reduced customer demand in Blackwoods and Workwear Group reflecting the economic conditions affecting our customers. While excluded in the chart here, our reported first-half FY2025 earnings result included AUD 7 million in restructuring costs across Blackwoods and Workwear Group. These restructuring costs reflected actions to reset the operating model and cost base in both businesses, enabled by recent systems investments and to address the more challenging trading environment.
While the benefits of these actions have started to materialize during the first half and have continued in the half to date, we do continue to see a challenging market environment. Safety will always be a key priority for us. Our key safety measure, TRIFA, reduced further or improved from 1.8 in FY2024 to 1.7 in the first half of FY2025. Our safety results continue to show long-term improvement as a result of the strong safety programs in all of our businesses. We continue to focus on improving safety culture. Turning to slide 85, our actions to reset the operating model and enhance customer service have resulted in improved operational performance in Blackwoods. These activities are driving greater efficiency and strengthening our customer offer, which supports the long-term earnings growth of the business.
Blackwoods has delivered other important achievements in the past 12 months, notwithstanding the tougher environment that we are operating in. We continue to invest in our digital capabilities to enhance our offer to customers. These initiatives also look to increase customers' digital penetration, which improves both customer experience and our operating efficiency. Key examples include upgraded e-commerce search and automated processing of inbound orders. Improving our ordering process with our customers reduces exceptions and manual interventions, which is a huge time and cost saving for our customers. Another example is our New Zealand and Bullavance businesses with the recent release of new websites that greatly improve the customer experience. We continue to strengthen relationships with strategic customers. While we are in a challenging environment, we are aiming to drive profitable sales growth and market share in this segment by having the right offer.
Blackwoods' wide range and geographic coverage provided by our DC and branch network means we are uniquely positioned in our offer to strategic customers. As a result of all our actions, I am very pleased to see improvements in our net promoter score, customer and supplier die-fot, higher retention and win rates, and overall improved stock availability and improved fulfillment. Again, these activities set us up well for the long-term growth and provide us with the ability to capitalize when market conditions improve. Turning to Blackwoods' strategic priorities on slide 86, Blackwoods continues to focus on building a market-leading product and supply offer based on our four key value pillars: unbeatable range, reliability, expertise, and ease to do business with.
Looking forward, the current priorities to drive growth are growing sales in segments where Blackwoods is underpenetrated through creating offers that meet the needs of these customers, enhancing the middle market offer through a strong value and service proposition. In New Zealand, where we are very strong in safety products, our priority is to grow the engineering range and improve the customer offer with the new Auckland Distribution Centre. We are continuing to transform the business model, with data and digital playing a critical role in this. Key priority areas include customer and supplier digitisation, data alignment initiatives, process automation, and productivity tools. We continue to progress initiatives to increase fulfilment, workflows, efficiency, and automation across our supply chain. Now turning to Workwear Group on slide 87, Workwear Group's key industrial brands of Hard Yakka and King Gee have a strong position in the market.
We'll continue to invest in brand desirability initiatives aimed at driving consumer desire and choice. In uniforms, we are targeting growth in sectors that have growing and essential uniform needs, and that includes uniforms required for security, health, and safety or branding. These sectors include healthcare, emergency services, defence, and government. Our end-to-end capabilities, scale, and track record will support growth in this area. Workwear Group is pursuing a number of growth-enhancing and efficiency initiatives. As noted at the half, we recently undertook a reset of the operating model and cost base to improve business efficiency, and the benefits of these activities have started to materialize. We have completed the rollout of the new e-commerce platform across the entire business. Customer feedback has been very positive, and this platform improves our value proposition while simplifying our back-end operations.
We are accelerating the growth of our industrial brands internationally through a number of global distribution parties, and we continue to have an elevated focus on productivity and competitiveness, including an improved delivery model supported by ongoing investment in technology. Now turning to Coregas on slide 88, Coregas has delivered a resilient performance thanks to its industrial gas products being an essential input for a diverse range of industries, and the business has a number of avenues that it can drive through growth. Coregas has gained market share with major customers by developing tailored solutions to meet their needs. This is underpinned by our agility, technical innovation, speed to execute, reliability, and quality control. Revenue growth is particularly strong in healthcare, mining, and oil and gas industries, along with the trade-and-go gas offer and good underlying growth broadly across its industrial customer base—sorry, industrial customer base.
We continue to see industry decarbonisation will drive demand and investment in industrial gases over the medium to long term, and Coregas is well positioned to participate in this growth. Finally, our new air separation unit is under construction in Brisbane and will be operational later on this year. Finally, on slide 89, while we are building momentum in the businesses, trading conditions continue to be challenging. Our activities over the past 12 months have improved our customer offer and provide a leaner cost base to help support sustainable earnings growth. We recognise that performance must continue to improve. Our teams are aligned on the task ahead of us. We are focused on continuing to improve the customer value proposition, enhance operational capabilities, and execute new growth opportunities.
This is to be achieved by providing confidence in the products and services we deliver, by offering the right product with reliable supply and ease of doing business, investing in data and digital capabilities to improve efficiency and value of our offer, and continuing to work closely with customers that are impacted by margin pressure solutions on solutions that best meet their needs, including own brand. While market conditions are difficult to predict, we are focused on our businesses building market share, capability efficiencies, and integrating sustainable practices to ensure long-term profitability. Finally, I would like to thank our team members in each of the WIS businesses for their ongoing commitment and contribution in helping our customers and for their input into shaping our strategies. That concludes the presentation on WIS. I will now hand over to Emily for health.
Good afternoon, everyone.
At Wesfarmers Health, we have an exciting opportunity to make the way Australians experience health, beauty, and wellness simpler, more affordable, and easier to access. The health, beauty, and wellness markets are attractive, large, and growing, worth around AUD 65 billion. They're underpinned by compelling long-term macro trends, such as an aging population, increasing chronic disease, and more health and digitally literate consumers. With health budgets under pressure, we need a more efficient system that prioritizes simpler, more affordable, and easier-to-access care. Community pharmacies and digital platforms are at the heart of this shift, making us well placed to leverage growth opportunities. Today, we are a consumer health and beauty business supported by a unique range of physical and digital assets. We have a pharmacy offering in Priceline that is known for health, beauty, and service.
We have valuable digital health and medi-aesthetics businesses differentiated by a deep commitment to clinical governance, and our wholesale business serves our retail business as well as thousands of pharmacies across Australia. Our consumer business is in really good shape, and there is significant potential to accelerate earnings in this higher margin, less capital-intensive part of our business. Our wholesale business continues to navigate inflationary headwinds and heightened competition as a result of recent sector consolidation. While this market remains challenging, we see clear potential to improve the performance of wholesale. Right now, we are partway through a multi-year journey to transform and grow our business. Over the past year, we've made strong progress on a number of fronts. In Priceline, we've opened to date 23 new sites, achieved double-digit growth in online sales, launched some exciting new brands, and achieved ongoing growth in our loyalty program.
We are also trialling two new differentiated formats. In wholesale, our new automated fulfilment centre in Brisbane is open, and we have launched an improved B2B trading platform called MyAPI, which makes it easier for pharmacies to do business with us. While a lot of hard work is behind us, there is more to do and a lot more upside to be unlocked. We see significant opportunity to grow earnings and returns over the next three to five years. We will do this by growing share and scale in consumer health and beauty, investing in and leveraging loyalty data and digital assets to power our businesses, and delivering a fundamentally lower operating cost base, a higher-performing wholesale business, and an optimised supply chain. Priceline is a full-service community pharmacy with a strong retail offering that is clearly differentiated.
Priceline is a fantastic business and brand that is performing really well with a lot more potential to grow. As one of the most loved retail brands in Australia, Priceline is known for service as well as its range of health and beauty products, including exclusive brands at affordable prices. Growth in Priceline will come from a relentless focus on delivering our customers value, range, and service. This year, we have reduced prices on 150 core value lines. We continue to offer compelling promotions and see more opportunity to reward our Sister Club members with exclusive pricing and offers. We've also identified opportunities to expand our great quality and affordable private label offer. We're well placed to continue to grow our Priceline Pharmacy network over the coming years.
Our range of exclusive brands like Number Seven and The Ordinary continue to make us a destination for beauty and skincare. We have also secured some iconic new brands, including Bubble, a Gen Z favorite with a massive TikTok following, as well as K-Beauty sensations Innisfree and Beauty of Joseon. As well as being known for great service from our pharmacists and beauty advisors, Priceline Pharmacy is a market leader in health services, including vaccinations, travel consultations, medication reviews, and packaging. This positions us well to maximize opportunities from the expansion in pharmacists' scope, such as those that were announced this week in Victoria and Tasmania. Combined with our digital and e-commerce assets, investment in these services further enhances our competitive advantage and helps franchise partners who share our commitment to community healthcare.
Lastly, there's a significant opportunity to strengthen the omnichannel customer proposition, which I'll touch on shortly. There's a clear opportunity to leverage our capabilities in health and beauty across a larger addressable market by pursuing a multi-brand strategy with new format innovation. We're exploring two new trial formats in accessible beauty and community pharmacy. Through Atomica, we are competing in the growing beauty market in a more deliberate and meaningful way. Atomica is an aspirational and accessible beauty retailer offering exciting brands, including some Australian exclusives like the cult brand Made by Mitchell. Atomica provides more personalized service at an affordable price point. The stores offer a welcoming environment with trained beauty advisors offering services across skin analysis, foundation matching, and lash applications. We've opened three Atomica stores to date, and so far, the supplier and customer response has been very positive.
In pharmacy, we have an opportunity to bring the best of modern retail experience to a smaller format community pharmacy setting with a strong health focus. Approximately 2,000 pharmacies in Australia are smaller than 150 square metres and so not suitable for the Priceline format. Instacare Group's Pharmacy Health Hub, due to launch next month, bridges this gap, offering customers value, a tightly curated range of pharmacy essentials, and a strong pharmacy service proposition. Customers who require support from a doctor will have the option to consult with an Instacare Group's doctor through a telehealth consultation. While it's still early days, we see a clear opportunity to leverage our capabilities in community pharmacy and health and beauty retail into these larger market opportunities.
Transforming our loyalty program and investing in our unique data and digital assets provides the business with the significant potential to drive omnichannel growth across the consumer segment. Our Sister Club loyalty program is a superpower in the making. Sister Club members have grown from under 8 million when we bought the business to over 9.3 million now, making it Australia's largest health and beauty loyalty program. In addition to an enhanced offer with OnePass, we have a range of initiatives underway to strengthen value for members, including expanded promotions and rewards, and to drive engagement across all of our brands. The new Priceline app will be launched later this calendar year.
It will be an important addition to our digital ecosystem, offering integration across loyalty, e-commerce, and health services, including script and medication management and access to telehealth via Instacare Group, making it a truly unique proposition in the market. We've strong momentum in e-commerce and see a lot more upside as we continue to invest in new features like personalisation and enhanced search. We also have a great opportunity to scale retail media, leveraging our established assets across online, loyalty, in-store screens, radio, the catalogue, and the new app. Add to this the depth of customer data available through Sister Club and the measurement tools offered by the Wesfarmers Group Media Network OneDigital, we can offer compelling value to advertisers.
Our digital health business is well placed to address access issues and cost pressures in the health system and enable customers to engage with and manage their own personal health journey. Our market-leading Instacare Group business is now available 24/7, and it continues to grow in double digits as demand for telehealth services grows. We've simplified the customer experience for Instacare Group, and we're also providing new customer journeys and bespoke service offerings for weight loss and women experiencing menopause. Our medical aesthetics business operates as a natural adjacency to gain greater share of beauty market spend. We have progressed the integration, improved the performance of Clear Skincare, and have closed 31 unprofitable stores across our network in the last 12 months. We've also introduced a shared ownership model across the business to secure clinical talent and a growing product sales and treatments.
Both of these businesses are positioned to drive profitable growth. Our wholesale business plays an important role supporting our consumer business and thousands of pharmacies across Australia. We provide community pharmacies with competitive pricing, great service, and a strong range of medicines and branded private label products. Central to our transformation and growth agenda has been improving supply chain efficiency and cost to serve. In our wholesale segment, we have a range of supply chain improvement initiatives in train across inbound productivity, labor optimization, freight route optimization, and replenishment efficiency improvements for Priceline. We continue to invest in automating our network to improve efficiency with our new Brisbane Fulfillment Centre up and running alongside Sydney. Cairns is on track to be operational later this year with Adelaide scheduled for 2026 and Perth for 2027.
There is further opportunity to reduce the cost of core processes, enabling us to reorient spend to growth initiatives across data and digital, as well as core systems investment. While there is still a lot of work to do, we are well on our way to having a business with a fit-for-purpose supply chain and a lower operating cost base. In summary, we see a significant opportunity to grow earnings and returns over the next three years to five years. We are focused on accelerating earnings in the growing, higher margin, and less capital-intensive consumer segment and improving performance in wholesale.
Our three key priorities are growing share and scale in the consumer segment by offering value, range expansion, and service across a broader market opportunity, leveraging our loyalty data and digital assets to drive further differentiation, and finally, by continuing our transformation journey towards a more efficient business with a lower cost base. Thank you. I'd now like to invite Aaron and Tim to join me for Q&A.
Hi, Aaron. Hi, team. Aaron, can I just—the one risk that I'm really concerned with with Wesfarmers is the commissioning of the refinery. Listening to you today, I got the impression that it's not mechanical risk now. The risk is effectively producing the product, hydroxide, at the quality required. Is that fair? Is that the way?
Because it looks, and part of the question is I'm trying to work out why I was supposed to get to what I'm trying to look, what does FY26 look like is where I'm trying to go. I'm trying to understand what do we need, what boxes you need to tick to get this to being an acceptable return on the investment. Listening to you today, I got the sense is getting the refinery to work to the level that will produce the product at the quality to meet tier one customers' needs. Is that fair? Is that what you're talking about? Because I'm trying to depict what you were saying today.
Yeah, thanks, David.
I think it's partly fair what you're saying that we're definitely through the majority of the commissioning process where you can rule out is there a fatal flaw in the chemical flow sheet or as you use mechanical equipment, etc.
Are you through that?
Yeah, we know individual parts—as I said in my presentation, you break the circuit down into those two core pieces. We've proven at reasonable throughputs that those pieces of equipment are making the chemical conversions they're required to do. On the back end, we've crystallized product. We ran the bagging line for the first time last week, which allowed us to actually see physical product in the end state. The journey we go on once we target a first product milestone, which is when we actually then run all of those processes I mentioned before in sync with each other as a continuous process.
We then go on the 18-month journey of hopefully every month improving. We focus first on quality. We want to get the quality specs right. That's your ticket to the game. Then every month after that is about improving reliability and throughput in the plant to get the production economics where you get to fractionalise those unit costs when you hit the nameplate capacity. That is the journey we'll go on. If you look at most of our, both the chemical plants that Wesfarmers has commissioned over years past, and then you look at other refineries, the journey on that 18 months, I would say, is unlikely to be a linear journey, and it's probably going to be more of a back-ended curve, but we need to show progress through that cycle.
The quality—you are confident that you can get the process through, that you can get the quality through that will meet the tier one specs.
Yeah, we do not see anything in the commissioning process today that tells us that we cannot meet our objectives. The commissioning process has gone well. It has been a kind of a good news story inside Wesfarmers and is on target and on plan at the moment.
Do you capitalize these—like this trading thing? Can you capitalize these costs or are you just whacking everything to your P&L?
One of the decisions we will have to make is once you hit first product, and then the next major milestone for us is the qualification of that product with the customers. There will be a decision kind of within that spectrum of time when you cease capitalizing and it moves to OpEx.
I can't give you that date yet because we haven't gone through that journey, but that's something we're working towards.
Tell Mr. Gianotti
to capitalize as much as you can.
Hi, it's Adrian from Citi. Another question for Aaron. You've touched on the challenging market conditions at the moment. If we look at Spodumene Concentrate, it's down pretty significantly just in the last few days and down $200 US a tonne from the March quarter. And what we're also seeing, I think in your chart showed the recovery rate was about 65%. I think some of your peers are tracking a fair bit higher than that. So can you talk to how the current market conditions are playing into that guidance? Like, is current spot pricing actually in there? And where do you think those recovery rates can get to next year, please?
Yeah, sure.
I'll start with recovery and then come back to the market. We successfully hit first product, if you like, from the Spodumene Concentrator in December 2023. It is still a relatively early plant in its journey. Hopefully, as you could see from the chart, there has been a progression over that time, pretty consistent improvement month on month on lifting both throughput through the plant and the recovery percentage. They will go hand in hand as you get better availability of equipment and stability in the plant. You can then really hone in and focus on recovery. Our end state is to still get that. As you said, it is sitting in the mid-60s at the moment. We want to target a 70% is a good objective for us. Most of it is going to come from just getting mechanical and electrical availability of the plant.
There's nothing that we're seeing that's unique to our ore body or unique to our operations on why we can't achieve that. We've had weeks and months where we can show that we can both go above nameplate capacity and hit those recoveries. The plant can do it. It's now just getting it to do it consistently is the focus. Back on the market, yeah, look, the Spodumene market is well and truly now into the cost curve. I think reputable forecasters are showing that 40% of the hard rock supply chain is losing money at these prices. It doesn't look sustainable. However, the financial figures we provided, at least for the FY2025 estimate, are including both the current pricing environment, but we do have sort of mechanisms in our contracts that we've had to reflect in that outlook.
Thanks, Aaron.
That's Michael Simotas from Jefferies.
Another follow-on on Covalent, if we can. I'd like to think a little bit longer term. Are you still as confident in the outlook for the market and Covalent's position in the market as when you made the initial investment and took FID for the investment? I guess there's two parts to that. One, there's demand and there's a lot of discussion around alternate battery technologies. The second one is, are you as confident on your position on the cost curve across all ore types, given some of the alternate ore types like lepidolite seem to not be as high cost of production as what they perhaps looked several years back?
Yeah, thanks. Good question. I think on the demand story and over that, we made the investment, completed the acquisition of Kidman in September 2019.
You kind of look at that sort of circa five-year period. Spodumene, at least, is almost back to kind of where it started back then. It obviously went through a heightened phase and the chemical, whether it's hydroxide or carbonate, following a similar trend. The positives on the demand side have been the stationary storage batteries. That is a much larger part of the market and we expect could be up to 10%-20% of global demand by 2030. That is something that surprised us significantly on the upside. Lithium, whether it's carbonate, hydroxide, or going into iron phosphate batteries, lithium is still today the kind of the winning element, at least used in stationary storage. If you go back two or three years ago, there was a lot of talk about sodium, vanadium, and these other technologies. It appears that lithium is holding in that market.
Ultimately, for us, lithium units going into those various chemical forms is good for the industry. The softness at the moment is clearly not helped by the U.S. market. That would be one area where I think demand is weaker today and probably likely to be weaker for a few years out from now versus expectations back in 2019. The big change in the market, I think, has been the resilience of Chinese lepidolite, as you mentioned, and also the speed of which some of the African ore bodies have been able to get product to market via a Chinese supply chain. Specifically on lepidolite, I do not think there is almost two types of lepidolite mines, those that are very competitive on the cost curve and will remain so. There are definitely higher cost mines, lower grade, that are sitting in the supply chain at the moment.
Ultimately, you have to look at how those mines are feeding into vertically integrated chemical operations and then maybe a battery producer at the other end. They are looking at the economics of that entire value chain, not just what is made at the mine. I think for our investment, that is exactly what we look forward to in the long run. Once we are a vertically integrated operation, we are not so concerned whether the value and the economics in the lithium industry are made at the mine or they are made at the chemical refinery because we will obviously control the supply chain across all of that. Our mine and refinery have been sized so that we are not reliant on selling incremental third-party product to Chinese chemical refineries.
Okay, thank you.
Hi, it is Tom from Barrenjoy. Sorry, Aaron, I have got another one. You are popular today.
The hydroxide price today is kind of $7,700. If we fast forward 18 months and you are up and running where you want to be on production, would it be profitable? Would it be cash flow positive? Just trying to get a sense of, yeah, I mean, where you are at on the cost curve.
Yeah, just firstly, lithium price is quoted. What matters ultimately for an operation like ours, we are going to kind of tier one markets likely outside China, as I think we have spoken before. There is a spot price in China that might be traded, very, very small volumes. Have a look at the import prices, average import prices into Japan, Korea, markets like the U.S.. The point remains, the lithium hydroxide price is clearly depressed at the moment.
When we look at the long run of our operations and once we hit nameplate capacity, can fractionalise those fixed costs across the refinery, even at the depressed spot prices today, we would be contributing cash and likely contributing to earnings. We also do have support from our customer offtakes with pricing mechanisms that mean we will not necessarily be receiving the spot prices that you are looking at.
Yeah. Great. Thank you.
Okay, Caleb Wheatley from Macquarie. Just had a question on the health segment. Rob made the comment earlier, probably running one to two years behind where you may have initially hoped to have been.
Just keen that Kid here, sorry, posts some of this investment in CapEx if you think that from a run rate point of view, you're sort of backtracking in line or if there's risk of further slippage and then thinking about kind of the recovery from here, if there's any particular brand or segment you'd call out as a material opportunity.
Sure. We are really pleased with how all of our consumer businesses are growing well. I think the investments that we've made in supply chain, so the one year behind thing really refers to, I suppose, our cost-out program in supply chain. That part of the business is taking us longer than we initially hoped for. I'd say the rest of the business is performing in line with expectations and our earnings last year, this year, and going forward are improving year on year.
As I said today, we're really focused on investing in the higher margin, lower capital intensive parts of the business because we are very focused on really rapidly improving our return on capital. In terms of material opportunities, I mean, we've outlined a few things that we're trialling. I think if they work over time, they can turn into additional material opportunities.
Thank you.
Hello, it's Ben here from Jarden. Another question for you, Emily. Just following on there just from the material buckets in terms of opportunities. As you said, it sounds like it's more distribution, wholesale that's probably more challenging. If we look at retail, it feels like two obvious and pretty sure nothing's easy, but maybe incrementally easier buckets is the media and then potentially generics side of things in terms of vertical supply.
Can you give us a bit of a feel for where you're at in terms of generics, in terms of vertical supply? You look at, say, your competitor with Wagner's, etc. Sounds like it's significant. Also, media, again, sorry, picking you back to one of your competitors, massive part of their business. Is media a AUD 100 million, AUD 200 million, AUD 300 million opportunity for you guys? How do you think about it?
I wouldn't say it's at that level at the moment. It is a significant opportunity. We already have quite a strong supplier trade investment program. Retail media, as we digitize a lot of our assets and really kind of bring them all together, is an increasing opportunity that you've heard about from a range of us today. That will definitely be a material contributor. I wouldn't say at those levels in the near term.
Sorry, the first part of your question.
Just in terms of the generics, in terms of quickly behind the counter prescription and going more vertical because it's what, 10-15-20 point top margin opportunity?
Yeah. We would talk about that as private label, whether it's medicine or front of shop. It is a significant part of our business, key to us expanding both the margin in our retail businesses and the margin in our pharmacies, which obviously is incredibly important for franchise partners. We've got a very strong private label strategy that over the next couple of years, we've already made significant improvements this year, but over the next five years, it'll be a material part of our business. In terms of generic medicine, that is very controlled, if you like, by a single player at the moment.
We work with them and other sources to provide our own sort of branded version of that. Absolutely, it's all part of our strategy.
Sorry, one final follow-up. Where would your sort of private label share be? Is it single digits within your retail side of the business at the moment? Where's best practice globally, what, mid-20s?
I think it's really hard to say in pharmacy, to be perfectly honest, but we are single to low double digits depending on the category.
Great. Thank you.
Hi, Bryan Raymond, JP Morgan. Another one for Emily, just on the Priceline business. Just wanting to explore the value proposition and how that compares to Chemist Warehouse in particular. You mentioned that dropping prices on 150 SKUs. Where do you see your overall pricing position versus particularly Chemist Warehouse, but versus the market more broadly?
Do you think you're competitive enough? Or do you need to close that gap further on price? Or are you looking to differentiate in other ways, service and locations, etc.? Just be interested in that value proposition.
Yeah, absolutely. What I would say is I've said a couple of times today, Priceline's going really well. It's a really strong brand, and we are a full-service pharmacy. We're not a warehouse model. Core to us is value is really important, and I think value has a few components. Price is one. What our customers tell us and what we know to be true is that on all the lines that people compare, we've got to be competitive, and that's really what we've been investing in. We've significantly narrowed the gap. I think we've got a way to go.
The other components to value are really why people come to Priceline. It is the unique ranges. It is the examples I gave today, like Bubble. It is the use of our Sister Club loyalty program, which is creating unique member-based promotions that our customers know and love, as well as service. Customers also come to Priceline for access and health advice. We look at value in the round, acknowledging that price is really important, but all of our products are actually pretty competitive as well.
Great. Just to follow up, just on the Instacare scripts, bricks and mortar opportunity. Is that a conversion opportunity of smaller Priceline stores? Is that new green fit, sorry, new sites that are outside of the network coming in? Can you just help us understand?
It is predominantly for newer sites. Pricelines tend to be, let's call them three-400 square metres.
This is very much in the 150 square metre, very small community pharmacy where we can bring a great value offer to consumers, but also a great value offer to franchise partners, but also really modernise the consumer experience.
Okay, thanks.
Shaun Cousins, you'll be here. Sorry, Emily, another one for you. Maybe just can you just sort of amplify what's gone wrong in wholesale in terms of supply chain costs? You said market consolidation. I mean, has the cost savings from Marsden Park not delivered, or you've lost share as Sigma and Chemist? You were just a little bit if you could amplify that answer, I'm just curious around that, please.
Yeah, what I would say is it's just taken us longer to realise some of the incremental value rather than what's gone wrong. So in terms of supply chain, we've put down some new sheds.
They're actually performing compared to the rest of the market. We were the wholesaler who is last to the game, if you like, in terms of renewing our network. The efficiency that we're getting out of the warehouses is really important to reducing our cost to serve. Obviously, our wholesale business and our supply chain is incredibly important to make sure that we've got a really competitive cost to serve all of our pharmacies. In terms of the performance of those sheds, just to give you an example, we went live, for example, in February with Brisbane. For a while, we were running the old shed and the new shed. The new shed straightaway is 30% more efficient. Sydney is about 50% more efficient. Obviously, there are significant investments that take time to pay back over a few years.
A big part of improving our supply chain efficiency is the new network, but it is also the optimization opportunities that we have got across the rest of the supply chain. We have had a couple of cost increases with some legacy freight contracts. A few other optimization opportunities are the things that have really slowed us down. We have really taken steps in recent months to address those and go faster.
Okay, thanks. Maybe just on Atomica.
Sure.
What is the proposition, particularly around, be it sort of price point, and how are you not going to get caught being potentially stuck in the middle between a Chemist Warehouse and a Mecca? I am just curious, is the opportunity in time to convert all of the Priceline beauty stores, i.e., the non-pharmacies, to actually be Atomica?
I'm just curious around your outlook there.
Yeah. Look, the way we would talk about Atomica is it is both aspirational and affordable. It really is serving a very unserved part of the market. I would say the market's incredibly stratified. You're either at a grocery level in personal care or you're at a premium beauty retailer. We've got an opportunity to bring some really unique products to the market. We're very focused that they are both aspirational and affordable. We're focused on that AUD 20-AUD 40 product range as being that price points as being our real sort of key focus areas. We opened along today. We've got three on the ground. We've said we'd put six. We're testing a lot of things.
While we're super encouraged by what customers think and what suppliers think, we need to make sure that they're delivering on all aspects before we make any decision to convert sort of further price lines. I think that's an opportunity for down the future, but we haven't made a decision yet because we've got to make sure it really works.
Great. Thank you.
Hello. Sorry, we're slingshotting back. Aaron, my name's Scott Ryle from Rymor. Thanks for your answers today. I have a question that maybe is a bit bigger picture. About six months ago, BHP shut their nickel refinery just down the road from where you're building, really due to changes in technology and nickel processing, and particularly in countries that don't have the same environmental and labor rules as we do in Australia.
I'm wondering how, just with that in mind, how do you think about the risks in the medium to long term of the lithium refinery and in respect of potential changes in extraction, processing technology, and also how you compete against some of those other countries that do not have the same protections as Australia?
Yeah, good question, Scott. One of the key differences, I think, between nickel and lithium, though, would be the future demand profile for lithium, at least if we outlook a 5-10 year horizon, the multiples of today's production that are required to meet, whether it is stationary storage or the electric vehicle, whether it is full battery EVs or hybrid EVs, which are now increasing penetration, but also the weight of lithium and density of the battery in a hybrid is completely different than it was three or four years ago.
On a reasonable estimate, we would say you need almost two to two and a half times as much lithium produced to hit those 2030 objectives that you need now. Although nickel is an important element in some battery formulations, the vast majority of nickel consumed and still will be for a decade out versus lithium will be in the stainless steel market. It just does not grow at the same requirement. What that industry saw was a major displacement of Western country nickel sulfide ore bodies getting replaced by lower cost nickel laterites in Southeast Asia. The game changer for them was the technology to produce nickel laterites going into a nickel sulfate product, which has made their plan uneconomic here in Western Australia.
I think our refinery at the moment, we're producing a hydroxide product with blue chip customer offtakes that are going into a non-Chinese supply chain. It will be a fairly unique asset in the overall lithium demand equation. As I said, for at least what we can forecast out for a 5-10 year horizon, the amount of new Mount Hollands that are going to be required to enter the supply chain means I think all forms of lithium technology will be required, whether it's brine, hard rock, DLE technologies, or something that the industry isn't even aware of now, is going to be all required to meet that objective.
All right. Great. Thank you.
Afternoon. Craig Woolford from MST Marquee. I'll ask a question for Tim. I'm interested in your talk about the demand environment being somewhat challenging.
I'm interested in your separate cyclical versus structural factors, particularly there are almost some retail properties in what Wesfarmers is around a lot of physical sites that sell to customers. Is it moving more online? Do you feel like you've got new forms of competition in the traditional Blackwoods business?
Yeah, sure, Craig. I mean, we just talked about nickel. That's one example of what we've seen in the last 12 months or so, a structural change for some sectors of our customer base, particularly in resources. It's been beyond that. There's been plastic plants and the like that have closed down. More broadly, when I talk about the markets being tougher, is that even our most prosperous customers, almost all of them have an objective to reduce operating costs and a mandate around productivity. Everyone's looking to save money.
Now, in a way, that's an opportunity for us as we differentiate our offer and own brand and other things and the like that we can provide in Blackwoods, but it also applies to Workwear Group. What we're seeing, and I mentioned in my presentation around tender win rates and the like, is that I'm confident we're growing market share. We're getting good results in our tender, not only renewal of business, but in winning new business. I'm optimistic about that, that we're not actually losing business to another channel or other competitors. We're actually growing. Some of the underlying productivity initiatives I talked about, I think, position us really well when the market starts to turn around. In the meantime, we're focused very much on productivity and sustainably gaining market share. Do you think you'll need as many sites going forward?
Look, we've reduced a number of Blackwoods branches over a period of time. Workwear Group has a very small number of sites. It is a different model in New Zealand where, in fact, our network is really strong and our over-the-counter sales are a really strong part of the business. If you look in Australia, we're arguably underweight on sites. More importantly, we can scale up because our business is more now a DC to customer model than historically. We have latent capacity in a number of most of our six DCs and opportunities on productivity with them as well.
Thank you.
Thanks, Tim. It's James Lee from Goldman Sachs. Just a question for Emily on potentially space growth for Priceline and Instacare pharmacies. Appreciate that you're partnering with franchisees.
How should we think about the unit economics here and potentially incentivising partners to join the network? Is there a store fit-out incentive for potentially these new spaces? How should we think about that?
Yes, that is how the model works. I think in terms of Priceline, you can expect us to grow at similar rates over the next couple of years. We're looking at ways to really strengthen that and grow faster. We will have opened, I think, by the end of this year, about 30 new Pricelines. We'll have closed some. The thing I can tell you about the ones that we're putting down, they're performing substantially above the others. Because what we're doing is we're really focused on making sure that we've got the right partners in the right locations to deliver on our model. We know that Priceline has been growing really well.
I think at the half, when we looked at sales through the till, we were growing in line with the market or ahead of most of our competitors. We know we've got a model that works. Because of the franchise nature, it's also about picking the right partner. That's probably Priceline. I think with Instacare, it's a lower cost. It's a smaller store. We're trying to not only make it a really affordable fit-out for franchise partners, but while we have our own internal estimates of how many we think we could roll out, we obviously need to prove out the concept first. It would have some level of contribution, but you'd have to downscale it to the size of the store. Hopefully, that answers your question.
Okay. Thanks, everyone, for joining us.
Those in the room, thanks for staying here through the day. For those online, thanks for dialing in. Hopefully, we have answered a lot of questions and given you a good snapshot of how we see the future across our divisions, across the group. For those in Sydney, please feel free to stay and enjoy lunch with us. A lot of the leadership team will stay on. If we have not been able to answer all your questions through the session, we would be delighted to have a chat over lunch. Thank you all very much. I would also like to thank the team at Wesfarmers that put this together. A lot of work has gone into this. Thank you all very much. Safe travels for those of you that are heading off.