Thank you for standing by, and welcome to the Woolworths Group F20 half-year earnings announcement. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.
Good morning, everyone, and welcome to the Woolworths Group half-year results for the two thousand and twenty financial year. Stephen Harrison, our Chief Financial Officer, joins me today as a fellow presenter, and will cover our financial results a little later this morning. Also joining us in the room are Woolworths Supermarkets Managing Director, Claire Peters, WooliesX Managing Director, Amanda Bardwell, Big W Managing Director, David Walker, Endeavour Drinks Managing Director and recently appointed CEO-elect for Endeavour Group, Steve Donohue, our Chief Operating Officer, David Marr, our Chief Legal Officer, Paul Reid, and joining us on the phone from New Zealand is Natalie Davis, Managing Director of Woolworths New Zealand today. I will start the briefing today with an update on key issues, followed by our progress against our key strategic priorities.
Steve will then present our financials before turning back to me to provide an update on our outlook. Before getting into our results, I wanted to start today by acknowledging the devastating impact of the recent bushfires and the ongoing droughts and what it has done to many communities across the country. We have also been heartened and inspired by the selfless actions of our team and customers alike in terms of stepping in and lending them a hand to support the recovery efforts across the country. I also wanted to express our gratitude to our customers for their generosity in supporting bushfire efforts via donations to our STAND program, Standing Through Australian Natural Disasters, raising much-needed funds in partnership with Woolworths for our charity partners, including the Salvation Army, and current fundraising stands at over AUD 3.8 million as I speak.
This is clearly only the beginning of what will be a long recovery effort, and we remain committed to making a difference where we can to assist the rebuilding of communities. We also shouldn't forget the team, our team, and supply partners that we have in Hong Kong and Shanghai, who have also had to deal with significant adversity over the last while, with the Hong Kong riots and more recently, the outbreak of the Coronavirus. I also wanted to take the time up front to provide an update on our salaried team member pay review, which we announced on the thirtieth of October of last year, and the work that has been done since then to rectify the matter as quickly as possible for our team.
We've now analyzed almost 80 million time attendance and roster records of salaried store team members and moved swiftly to start compensating those impacted. AUD 69 million was repaid to impacted Woolworths Supermarket and Metro team members in the first half, covering the initial two years of our review from September 2017 to September 2019. We have also expanded the scope of the review to include other GRIA-covered Woolworths Group businesses, such as Big W, Dan Murphy's, and BWS, and extended the analysis back as far as we have available data. On the basis of the latest available information, we have updated the estimate on the cost of remediation to impacted salaried store team members to be AUD 315 million or AUD 265 million before tax and other provisions recognized in F19.
We recognized a provision in F19 for AUD 15 million once we became aware of the issue, and we expect to incur a further AUD 80 million in interest and other remediation costs. The primary component of that AUD 80 million, I should add, is interest, our assumed interest payments that we would add to any remedial action on the salary front. We remain fully committed to rectifying all matters for our team as soon as possible, and thank our team for their ongoing patience as we work through this detailed process. I will leave Steve to explain the finer details, but to say that the adoption of the new accounting standard has added some complexity to our results is probably an understatement.
We've tried to simplify this as best we can by comparing our reported H1 2020 numbers to a normalized H1 2019 set of numbers, which have been normalized to reflect the impact of AASB 16. In terms of the underlying results themselves, Woolworths Group had a strong half with group sales growth of 6% and group EBIT from continuing operations before significant items of AUD 1.89 billion, up 11.4% on a normalized basis on the prior year. All businesses reported strong sales growth, sales and EBIT growth over the half, with the trading performance of Australian Food and Hotels the highlights.
Group online sales continued to grow to enjoy strong momentum, increasing by 31.6% on the prior year to AUD 1.6 billion, and online penetration increased to 5.1% of group sales. All of our X businesses, WooliesX, CountdownX, and EndeavourX, delivered strong growth as we continue to invest in a number of digital initiatives and targeted customer promotions, as well as leveraging customer shopping patterns toward events like Black Friday and Cyber Monday.... Our turnaround at Big W remains on track, with continued strong sales resulting in a first half profit of AUD 50 million, or AUD 21 million on a pre-AASB 16 basis. The first half-yearly profit since 2016 or F16 , I should say.
Strong sales, and more importantly, improved category mix, with strong improvements in apparel sales, drove the EBIT improvements, despite a challenging trading environment over the half. The restructure to form Endeavour Drinks, Endeavour Group, and the ALH Group merger were completed earlier this month, following the formal approval from our shareholders at December's EGM. We were also pleased to announce the appointments of Steve Donohue and Colin Storrie as CEO-elect and CFO-elect, respectively, and joining our chairman-elect, Peter Hearl, that we appointed late last year. The final stage, or stage two of the process, being the separation of the newly formed group by way of demerger or other value-accretive alternative, is now well underway. We are not able to provide a specific update on the timetable of the stage, but we've continued to target a separation in this calendar year.
In terms of, the Woolworths Group's priorities, for F20, as mentioned at our full year results, what feels like a while ago now, these largely remained unchanged, but with adjustments as to specific targets in any one period, and what I wanted to do, and I think you'll see if you go to, slide eight of the attached investor presentation, is just call out some of the highlights, in terms of our progress against the priorities during the half. Critical to us, as always, is living our purpose and building a customer-first brand, team, and culture, and this remains fundamental to our long-term success as a group.
While there are many pleasing examples of us living our purpose over the last six months, the way our teams from across the business have responded to the recent bushfires has been the real highlight, and we are truly better together in moments of crisis. We are also proud to be named Australia's top company, and the top company in Asia Pacific in the 2019 Refinitiv Diversity and Inclusion Index . Being a very inclusive business, we think is key to our future, and not only in terms of diversity, in terms of, team composition, but diversity and inclusion in terms of support processes.
This was a great achievement, and we're proud about it, and it was supported by the launch of our new Reconciliation Action Plan in July of last year, reaffirming our commitment to Australia's reconciliation with Aboriginal and Torres Strait Islander peoples. Brand metrics for Australian Food improved over the half, with strong customer engagement during Christmas, and our customer satisfaction scores, while they softened on the prior year, but very importantly for us, improved in our run into Christmas. Continuing to focus on these in the second half is a priority. Our second major priority for us is creating connected and convenient ways to shop, and we made, again, good progress on this.
As I called out, we had very strong growth in our X businesses, and we finished the half with online penetration running for the group at 5.1% of group sales. Also importantly, though, the operational performance of e-commerce also improved as our business continued to scale. One of the key elements of a profitable online business is fulfillment and last mile, and during the half, we announced our partnership with Takeoff Technologies to deliver four eStores or micro-fulfillment centers across Australia and New Zealand this calendar year. And also, we have begun rolling out our new route optimization software, which is expected to deliver material improvement in our home delivery efficiency. Also, apart from actually driving efficiency in the core, is continuing to innovate the range of services we provide our customers.
And with that in mind, in Australian Food in particular, I'd like to call out the expansion we have on Delivery Now, which was extended to further parts of the Eastern Seaboard, including the Gold Coast, in the half. As of last week, Delivery Now, which is our on-demand delivery business, for those who haven't used it yet, has extended across all states and is available to over 8 million customers across the country. The rollout of Metro fruit stores continues to gain momentum during the half, including our first Metro in Auckland, New Zealand, on Albert Street. In Sydney, in Australia, sorry, there are now 52 Metro branded stores.
We still have a few supermarkets in the Metro business that we are progressively rebranding as we renew those stores, and 52 Metro branded stores at the end of the half, with a number of new stores expected by the end of F20. Within the context of the Metro business, I should also call out that we launched our first two Caltex Metros, which were launched in Sydney in November. Good progress was also made on our third priority, which was to differentiate our food customer proposition in both Australia and New Zealand. Within that context, we continued to progress our renewal program, and we completed 36 renewals in Australian Food in the half, including two Smart Stores in Millers Junction, in Melbourne, Victoria, and more recently in Chullora, in Sydney, in New South Wales.
We also opened 15 new stores during the period, including the latest evolution of our sustainable store strategy, which was at Burwood Brickworks in Victoria, which operates using 100% renewable energy, among many other eco-friendly initiatives. The national rollout of phase one of Fresh Made Easy in Australia was completed, which involved updates to the store layout, as well as fresh training for store team members. While the customer reaction has been positive, it will take some time for customers to familiarize themselves with the new products and layout. In the second half, we're rolling out phase two of Fresh Made Easy, with a number of exciting new additions to the range based on customer feedback. FoodCo, our own-brand business, had a strong half as well and delivered its largest own-brand seasonal launch to date, with strong sell-through over the Christmas period.
New free from lines, free from lines and plant-based options were also introduced to cater for customers' growing demand for healthier, eco-friendly options. If I just turn, if you would like to turn, if you've got the documents of our investor presentation in front of you, to slide 9, as we sort of then just dive down from food into drinks. Our drinks business continued to evolve, and we made, again, good progress in this regard during the half, with sales growth of 4.7%. This was despite a spring mark, a drinks market that remains challenging, particularly in the wine category, in and in Q2 in particular.
Dan Murphy's really got itself back and focused on the topic of discovery, and within that broad discovery, My Dan has delivered a number of very exciting initiatives in the half that will stand in very good stead going forward, and I'd just like to call out a couple of those factors. The one, of course, was the relaunch of the My Dan Murphy's loyalty program. My Dan now has over 4 million members and a scan rate of over 50% for the half, which was a real highlight in increasing personalization, discovery-based personalization within that program.
We also initiated a number of customer-first ranging reviews to embrace and localize our range by store and continue to innovate the format, in particular with the launch of our first new small format store, Dan Murphy's, in Elanora Heights, that was opened in early December. If I go to BWS, on the BWS front, we had, and I think I called it out last year, had really pleasing results from our renewal program, which had been done in partnership with Woolworths Supermarkets, and we've continued with that program, with 73 renewals completed during the half, as well as seven new stores opened.
I'd also like to call out that in parallel with us doing small stores in Woolworths Supermarkets, again, we've been trialing smart-based technology inside Liquor, in particular in BWS and in our Millers Junction attached BWS store in Paddington, on Oxford Street in New South Wales. In EndeavourX, online sales growth was 15.4%, with increase in penetration overall to 4.9, 6.9% for the business. And very critically important driver of that is our focus on enhancing the mobile experience for our customers through launching new apps in the business, and that was through with the new BWS app launched in October and also the new Dan Murphy's app that we continue to work on and continue to evolve.
Last but not least, in the context of BWS, was us continuing to expand our on-demand delivery experience, and that is now available in 740 BWS stores. Turning to unlocking value in our portfolio, I've already spoken about the progress on the Endeavour Group separation and improved Big W trading performance. Outside that, we're also making very good progress in ramping up some of our new businesses and partnerships within the group, and I'll talk about that a little bit more later when I talk about the Woolworths Group ecosystem. If I then get to our last major priority, which is better for customers, simpler and safer for stores and support.
Group safety, a real highlight, I think, in the last half, for the last six months, improved on last year across all of our businesses as we continued to innovate and improve processes, not only to unlock efficiencies, but also make it simpler and safer every day for our team. And this does not only include physical safety, although that was a particular highlight, but the increased focus that we continue to have on the topic of mental and financial wellbeing through our myHub platform and all the work we're doing, as I say, in financial wellbeing with Good Shepherd and their microfinance business. After a disappointing performance in F19, we have also seen an improvement in total stock loss for the half, predominantly in grocery and Australian food, but also in New Zealand.
The initiatives we rolled out in the second half of last year and spoke to our full-year results continued to have a very positive results for us. In Australian food, a number of material efficiency initiatives were underway during the half. These include the ramp-up of our Melbourne South Regional Distribution Center, or MSRDC, as we call it, which is now fully operational and supports all of our stores in Victoria. Outside of the MSRDC, the other major initiative we had was the rollout of our new customer operating model, which is now live nationwide, and we're very focused on embedding in our business and delivering great customer service through it and creating better team experiences as well.
We are confident that the new customer operating model will deliver better experience for our customers and is, and for our team, and as I say, embedding it is a priority. Finally, on slide 10, for those who have it, I just wanted to conclude with a few comments on the Woolworths Group digital retail ecosystem. As we continue to think about the future of Woolworths Group following the planned separation of Endeavour Group, we have made early progress in building out our broader ecosystem. And this involves us really, in simple terms, nurturing new areas of growth that leverage or support the core business. The two that I particularly wanted to call out at this stage in our journey, are Cartology, our digital media business, which, well, our media business, which continued to build its capabilities during the half.
One of the key focuses for them in the half, not only in scaling up their team, was rolling out our digital screen network, which was rolled out to over 500 supermarkets during the half, and is now pivoting to the rollout in our Coles business. We've seen very pleasing scale-up and performance from that business. The second business I just wanted to call out is Woolworths International, which is our export business, which we've started a bit behind Cartology. That is now up and running, and we're making very good progress in that.
Last but not least, in the context of the ecosystem is, when the demerger of Endeavour Group or other form of a liquid option takes place, what will be key is that we will move from ownership to partnership with Endeavour Group, and very pleasing progress has been made on the definition of our partnership agreements between the businesses. They still have a real critical partnership going forward to be successful. I'll now turn to Steve Harrison, who will present our financial results before returning to me to provide an update on our outlook. Over to you, Steve.
Thanks, Brad, and good morning, everyone. As Brad mentioned, there is some additional complexity in the result, this half, with the introduction of the new lease accounting standard, together with the significant item and the impact of the salaried store team member review on the financial statements. In terms of AASB 16, to help explain the underlying performance in the results, we've compared half one F 20 results to a normalized half one F 19, adjusted for the impact of the new statement, new standard, sorry. However, given many in the market haven't as yet had the information to move to the new basis of accounting for leases, we've also shown half one F 20 on a pre-AASB 16 basis, as if the new standard did not apply. These pre-AASB 16 numbers are prepared for the purpose of reporting and comparison only.
So let me turn to page 13 on our slide pack, and I'll start with the F20 half-year group results summary. Starting with our statutory results, group sales from continuing operations were AUD 32.4 billion, up 6% on the prior year, with all businesses contributing higher sales growth in the half. Highlights, as Brad mentioned, were Australian Food and Hotels. Group EBIT from continuing operations before significant items increased by 33.5% on a statutory basis, with the growth compared to the prior year benefiting from the introduction of AASB 16. NPAT, on a similar basis, increased by 8.5%.
As previously mentioned, at the beginning in my introduction, there were two significant items booked in the half: AUD 51 million for costs associated with the Endeavour Group separation, and AUD 80 million for charges related to interest and other remediation costs for the salaried team member review. Including significant items and discontinued operations from Petrol in the prior year, the group's half-year statutory NPAT attributable to shareholders declined by 7.7%. I'll discuss the impact of the restatement of the financial statements, and cover the dividend shortly. Turning to the normalized post-AASB 16 results before significant items, as outlined at the bottom of the page, underlying EBIT increased pleasingly by 11.4%, and NPAT increased by 15.7%. Turning to slide 14, it's worth noting this page presents the results on a normalized basis post-AASB 16.
EBIT in Australian Food was up 8% to AUD 1.177 billion, with growth driven by strong sales in Q1 and continued momentum in Q2. GP improved on the prior year, primarily due to improvements in stock loss, with benefits also from mix and inflation. The sales and GP improvement more than offset an increase in CODB, which was driven largely by higher team member costs associated with our new enterprise agreement and higher depreciation versus last year. New Zealand EBIT increased by 6.4% in NZD, driven by strong sales growth and higher GP, also benefiting from stock loss improvements. Endeavour Drinks' EBIT increased by 6.7%, reflecting strong sales growth and improved GP, benefiting from growth in the penetration of Pinnacle brands in particular.
As Brad mentioned earlier, Big W delivered a strong improvement in EBIT and recorded the first profit since H1 F 16 at AUD 50 million. While EBIT did benefit from AASB 16 impact, it would've been profitable on a pre-AASB 16 basis, with EBIT of AUD 21 million. Sales growth in the half remained strong, with the improved performance of apparel, delivering positive mix benefits. Hotels also had a strong half, with EBIT growth of 8.3%. Bars and Food performed strongly through the half, including successful execution of Christmas events. Central overheads was broadly in line with the prior year, at AUD 71 million on an underlying basis. However, central overheads in H1 F 19 were restated by AUD 26 million to reflect the impact of salaried team member payment shortfalls in H1 F 19.
The underlying central overheads expense is still expected to be around AUD 150 million for the full year. Now, I'm not planning to talk to slide 15, but it does show EBIT by business unit, assuming AASB 16 hadn't been in place in F20. As mentioned earlier, we've provided this analysis to help comparability to prior year results. Turning to slide 16, I wanna just talk through the impact on our accounts from the salaried store team member review, in particular, the restatement of our historical financial statements. Walking through the table, AUD 263 million relates to years prior to F18, and is adjusted against opening retained earnings in the F19 balance sheet. AUD 26 million has been recorded in the H1 F19 accounts, and has been booked in central overheads.
For the full year of F 19, the impact is AUD 52 million. However, as Brad mentioned, a AUD 50 million provision was booked in the second half of F 19, representing our best estimate at that time, resulting in a net impact over the whole of F 19 being a AUD 2 million cost. AUD 80 million of interest and other remediation costs have been booked in half one F 20, and are shown as a significant item. AUD 61 million has been paid to impacted team members in supermarkets and Metro in half one. And then on an ongoing basis, we expect an impact across the group of AUD 35-45 million per annum before any possible mitigation.
Turning to slide 17, and over the next couple of pages, I'll just give a quick overview of the impact of the new lease accounting standard on the P&L and balance sheet. Page or slide 17 highlights the impact on key P&L line items. As most of you would know by now, EBITDA does go up materially post the new standard, due to fixed rent, largely now split between depreciation and interest. EBIT in half one increased by AUD 289 million, which is very similar to the impact on the prior year, as shown in the table below. The impact on NPAT is in line with our previous guidance of a small reduction in NPAT, and is broadly similar in H1 F 20 and H1 F 19.
The reason for the reduction in NPAT is because lease D&A and interest, lease interest, is higher at this point in our lease curve than the fixed rent, which it has replaced. Turning to slide 18, there have also been some material changes on the balance sheet as a result of the new standard. We disclosed at a high level what the impact on our balance sheet was on the first of July in our F 19 full year results, and this slide highlights the key areas that have been impacted. Gross assets increased by AUD 13 billion as a result of the recognition of the lease asset and net deferred tax assets. Group liabilities increased by AUD 14.2 billion, reflecting the recognition of lease liabilities and other transition adjustments.
The difference between the two is reflected as a reduction to opening retained earnings, which was AUD 1.4 billion. Like the rating agencies, we consider lease liabilities to be debt, which has materially increased our total net debt. I'll comment on some of the key balance sheet metrics on the next slide. Turning to slide 19, average inventory days from continuing operations were 38.9 days, a 1.6-day improvement compared to the prior year. While the period end of 5 January did provide some benefit to closing inventory levels compared to the prior year, underlying inventory trends improved across all businesses, as reflected in the reduction in average day stock on hand.
Normalized return on funds employed from continuing operations increased by 134 basis points to 14.6%, largely due to strong EBIT growth. The reduction in ROFE compared to the pre-AASB 16 H1 F19 reported numbers reflects the inclusion of lease assets in funds employed, and the outcome is largely consistent with the lease-adjusted ROFE that we've historically reported prior to the introduction of the new standards. Turning to cash flows, obviously, the introduction of the new lease accounting standard had some material impact on the presentation of the cash flows, but as you know, the accounting standard doesn't actually have an impact on cash. And so our free cash flow is not, in aggregate, impacted by the new standard.
Walking through the table, group EBITDA is up 42.4%, and was positively impacted by AASB 16. Offsetting this somewhat were the petrol earnings in the prior year and the significant items in the current year. Working capital and non-cash movements were impacted by the timing of trade payables, due to a fairly significant shift in the period end date, resulting in higher trade creditor payments in December compared to the prior year. Interest paid increased materially due to the recognition of lease interest of AUD 414 million. I'll talk to CapEx on the next slide. The cash outflow associated with dividends declined on the prior year, as H1 F 19 included the payment of the F 18 special dividend.
Turning to free cash flows, free cash flow was AUD 49 million, which was below H1 F19 of AUD 401 million, largely impacted by the timing of trade creditor payments I discussed earlier. This also impacted the cash realization ratio, which was 95%. Cash realization is typically higher in the first half due to the working capital benefits of the Christmas period. However, we normalized to the impact of trade payables, timing capitalization would have been in excess of 100%.
Turning to slide 21, operating CapEx for the half was AUD 683 million, AUD 116 million down, AUD 117 million down below the prior year, largely due to supply chain and IT CapEx, and the timing of renewal spend in Australian Food, which also impacted the mix of CapEx spend, as you'll see on the right-hand side of the page. It is important to note that we expect a similar or even slightly higher number of renewals in Australian Food in the full year, so this is really just a timing issue.
Full year operating CapEx is expected to be around AUD 1.7 billion, which is broadly in line with the prior year. Finally, on slide 22, turning to capital management, the board has today approved an interim dividend of AUD 0.46, which is up 2.2% on the prior year. Our dividends, as you know, are based off NPAT, including discontinued operations, and the prior year included petrol earnings for the entire half, which when normalized, is worth roughly AUD 0.03 per share in F 19. The group's sources of funding and liquidity remain strong, and in November, the group refinanced AUD 2 billion of syndicated bank facilities at very attractive rates, extending the group's weighted average maturity profile.
The group remains committed to a solid investment grade credit rating, and we have a triple B and B double A two rating with both major agencies and a stable outlook. With that, I'll turn back to you, Brad.
Thank you, Steve. Just turning to the outlook, which is all the way at the back on page fifteen of the investor presentation. But in summary, while we're pleased with our trading performance in the first half, we do continue to navigate an uncertain consumer and natural environment and expect this to continue. And it's shown through us having a slightly slower start to trading in Q3. Despite this, we remain confident of our plans in the second half. So food inflation is likely to continue in Australian and New Zealand food, particularly given the impact of the ongoing droughts in Australia. In the second half of Australian foods, CAGB will be impacted by the annualization of the Woolworths Supermarket and Metro enterprise agreement. However, we see further opportunities in total stock loss and in-store productivity.
MSRDC is on track, and we expect the benefits to begin to flow in F 21. New Zealand Food is focused on embedding its new price architecture, fresh experience, and moving more and offering more convenience to our customers through new formats and ways to shop. In this business, wages will also continue to rise through our the impact of our new enterprise agreement there, and our commitment to New Zealand to delivering a living wage. In terms of Endeavour, it will be an exciting. It is an exciting and busy time for Endeavour Group as we progress the separation of the business. We expect a more subdued trading environment to continue in drinks, but the team are focused on areas of high growth potential as the market continues to premiumize.
We're encouraged by BWS's trading performance in the first half, and we'll continue to focus on profitable sales growth in the second half, and expect BWS to report a profit for the full year, even on a well, on a post AASB 16 basis, and a pre AASB 16 basis, sorry, I should say. In summary, we had a good first half. We achieved a lot in that half. It was not without its challenges, but what I would call out as the highlight is the way we, as a team, have leapt into those challenges, calling them out, addressing them, and moving on, I think is a core to our culture, and we've done that.
As I look forward in the second half, I expect us to continue to make good progress over the remainder of the half, and delivering against our expectations for all of our key stakeholders. With that in mind, I'd like to, in particular, thank our customers for their ongoing efforts. Sorry, our team for the ongoing efforts and our customers for the ongoing support. I'll now hand back to the operator to open the line for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are using a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to two per person. The first question today comes from Shaun Cousins from J.P. Morgan. Please go ahead.
Thanks. So good morning, all. Just a question on Food Like-for-Like. Can you talk about the reasons for the slowdown in the momentum in Food Like-for-Like sales growth? I guess, both in the Q2 2020, but especially the 2% you've delivered in the first seven weeks to start Q3 2020. I'm not sure if bushfires have been identified as a reason, so perhaps some disclosure.
Yep.
-on sales.
I'll start-
But I'm curious why you had the slowdown?
Yeah, I'll start and then perhaps turn to Claire to add a bit more color, Shaun. Thank you for the question, and I think a very good question. Obviously, Q1 was one out of the box for us, really, if you look at it and you know, with Lion King in particular. So it was not unexpected in our planning that we would see that happen as we came through the first half, through the first quarter.
If, in fact, looking at what happened, in particular, to call out a few things in Q2 and then Q3, I, you know, as I mentioned in the media call, what really struck us was, as we went through the last CPI increase for tobacco, and then traded through the forward buy that everyone does to ameliorate that cost increase in the short term, we did start to see a material slowdown in the tobacco business. And you will note in our results announcement, when you get to the Australian food section, we called out the difference between our comp growth, including and excluding tobacco. Which was, it was 3.8%, including tobacco, and 4.2%, excluding.
So material components of that, and if anything, in the first seven weeks of the new calendar year, Q3, we've seen that tobacco trend continue. So that certainly has been sitting in there for us. Secondly, as I sort of then talk specifically to the first seven weeks of this calendar year, our resort business, and Shaun, we do have a very material resort business, as you would be aware, and not only on the east coast of New South Wales, but actually down into Victoria as well, and stretching up on the north coast towards Queensland. It was just a very challenging time for that resort business.
Understandably, it is something we really pride ourselves in excelling on, and we really had to pivot to a very different strategy. So that was, I think, a key component for us. And then more recently, just a little bit of exposure we started to see in some of our more Asian customer indexed stores. So there are a couple of factors that sit behind it. It doesn't mean that we're not actually focused on driving that uptick back into transaction volume, and that certainly is the priority in the second half.
We think key to that is our customer experience, and I think what we would really admit is, with the number of changes we had in H1, plus some anticipated consequences, like the salary underpayment, we probably stretched ourselves a bit too much in terms of our ambition and the range of things we've done. And our plan in the second half is to just knuckle down and just focus on customer and team experience in particular. I don't know, Claire, if there's anything you'd like to add or?
I think you've covered the three key areas we've looked at, which would be the bushfire and rural store impact. As you said, we have over 130 large stores that would be affected in those areas, but also stores that weren't necessarily in the fire impact, but actually just in a rural area. I think you've touched on that actually for H2, the focus back on some of the customer metrics we see as an opportunity for us, and very early days, we see some impact in some of our 60 high Asian density stores.
Thanks, Claire. Does that make sense, Shaun?
Yeah, it does. Thanks, Brad. Thanks, Claire. Just a question then, my second question, I guess, is just on gross margin, can you talk about the benefit of the forty-two basis points in terms of the uplift there? How much of that came of stock, out of stock loss, and maybe where your stock loss is, and what do you do? There's some commentary around an improved inflationary environment? Can you maybe define what you mean by that, please?
I'll talk to the high level and then Claire will jump in with the details. We did make good progress on stock loss, and particularly in our long life categories. We lost a little bit of that in as we rolled out Fresh Made Easy, and we learned, you know, what are the right products in that fresh side of the business, but it was very good progress. But I would also call out, we also continued to progress, making sure we were much more disciplined in our promotional programs and what we call our winning promotions really did continue to look very pleasing during the half. Actual promotional count wasn't down, but that really was because we were slightly more promotional in health and beauty.
But if you look at the rest of the categories, we traded down a number of promotions that were much more effective. So two factors that I think were key to our GP results that was there. You know, anything you'd like to add on stock loss, I think?
All I would add on stock loss, so as we said, in July, it was around execution of the plan. The improvement in the half was around 20 basis points, and it was on the back of the four key areas we called out in July, particularly around executing the waste and markdown process through all of the stores, giving stores more accurate time to when they would produce key products. A significant piece of work done through Fresh Made Easy, where we got same space and range rights in every store for the fresh food for that particular community. We saw an improvement in stock takes across the year, which was supported by the tightening of our front ends, particularly with weights going on our assisted checkouts and also a customer-friendly tightening of the front of our stores.
We do, by the way, Shaun, despite the progress we made in the first half, still believe there's material progress, of course, that we can, and that is a particular focus, as I called out in the outlook, for the second half.
Great. Thanks, Brad. Thanks, Claire.
Thank you. The next question comes from Michael Simotas from Jefferies. Please go ahead.
Hi, good morning, everyone. The first question from me, just following on from Sean's question about the Australian supermarket sales trends. Can you just give us some comments, please, on how you think you are performing in the context of the market? There's a lot of data points out there, some more reliable than others, but your major competitor seems to have closed the gap fairly materially and perhaps even based on their commentary, is now outperforming you in the third quarter. Based on what you're seeing, do you think you've maintained your relative position?
Michael, thank you. Good question. To be honest, right now, the market reads are very noisy. I think we would all agree, and we you know we're finding that a bit challenging. But when we look at Nielsen Homescan, and we true everything up, you know, we don't feel we're in a bad position market share-wise. It doesn't look like we are losing share. It doesn't mean we don't have more to do, and that there's not a narrative as always at a category level. But we're not feeling in a bad place right now from the numbers we're looking at the market share level.
But it would be fair to say that we're getting quite large inconsistencies between what we're seeing through HomeScan, what we're seeing through Quantium, what we're seeing through Aztec. So it is volatile, but we don't feel like we are badly placed when you look at the aggregate of our market share performance.
Okay, thank you, and then the second question for me is on the wage underpayment remediation.
I should add, Michael, what does make numbers messy for all of us, of course, is how you... And we called out the tobacco and how that rolls back through numbers.
Sure.
It's also how we both account for our export businesses and where that goes and how it's adjusted. And then thirdly, very importantly, how you think about online. The one place I can tell you we are growing share is online. Sorry, your next question?
Okay. Yeah, no, that's, that's helpful color, actually. Yeah, on the wage remediation issue, just a couple of things on that. Firstly, if you could just sort of comment on how you think staff morale is on the back of this.
Sure.
Secondly, the first half numbers that we've got, do they include the ongoing wage cost on a go-forward basis, or does that 35-45 also apply to the H1 2020?
I think, good question there. Let me take the first, and then I might, Steve, you can correct me on the second. See you chomping at the bit to do it. The message has landed very well with our team, and, you know, we try to be very authentic with our team and address the issue. We've got to keep pace with our own payments with our team, because that's how we build trust with our team, when we don't talk about it, but we do it. And so, we don't feel we're in a bad place, but we just need to keep doing it. And, you know, what we're really doing at a team member level, literally is having one-on-one personal conversations, taking them back through the numbers, and giving them comfort that we've calculated correctly.
In the very limited cases, and they've been extremely limited, where there has been any question, you know, we've actually personally lent in with the state manager, engaging directly with the team member, and now we've got Stephen Harrison in there as well. So, I would say with our team, so far, so good, but we simply need to continue to work on it and address it. It's great progress in supermarkets and Metro stores, but now, of course, we need to show the same intent to Big W, Dan's and BWS. I would say that we are have a watching brief. We're not concerned, but we do have a watching brief on the customer side, where this can be misinterpreted.
And so we've just got to make sure that our customers don't somehow think, you know, that we are. And we've got one of these questions in the media call, somehow cutting hours in our stores to address this issue or whatever. That is absolutely not the case, but, you know, how these narratives can build. So we've just got to keep an authentic, a watching brief to that. Now, just specifically on the numbers we've called out, one of the challenges is how we talk about years, calendar years, financial years, or in the case of our wage remediation issue, we've actually talked about pay cycle years, and I think this is very important. So what we called out was our remediation between September 2017 to September 2019, at the end of that.
So any incremental cost post that period is just in our day-to-day trading. So I think it's very important, and it's just a different timeframe, but it is the right timeframe for us to actually look at this particular issue. So everything from the end of September, and Steve, please stop me if I'm wrong.
Beginning of September.
Beginning of September is in the our trading. We've called out what the number would be on an annualized basis. So you've seen a little bit of it in trading, in truth. But, you know, as I said, on a go-forward basis, given it is materially about the intersection interpretation of when various rates or penalty rates kick in through hours worked, gaps between shifts, consecutive days off, you know, number of hours in a calendar month, it actually is much easier to manage on a go-forward basis if we do sensible rostering practices, you know, than it is to address on a go-back basis. So when you see a difference in the numbers, you see actually a fundamental difference, which is just driven by the way some of these clauses intersect with watching it work. Yes, versus hours.
So basically, there's half the impact in the first half, is what you're saying?
Yeah, to sort of speak. Yeah, probably about four months' worth of impact.
Oh, 4 months. Okay. Most of it. Thank you.
Thank you. The next question comes from Bryan Raymond, from Citi. Please go ahead.
Good morning. My first one's just on Big W and your guidance to get back to profitability on a post AASB 16 basis. Just trying to reconcile that versus a pre-AASB 16 basis.
Sorry, I mucked it up, mainly because I saw Paul keep telling me to. I've asked him not to make me say it both ways. On a pre and a post AASB basis is profitable, Brian, we think based on where we are today, still lots of work as always in retail, but it's on both bases.
Sorry, just to confirm, Brad, so excluding lease accounting changes, do you still expect to be profitable in Big W in full year 2020?
Yeah, I'll take that, Bryan. For the first half, we were profitable on both a pre and a post basis. Obviously, as you would understand, there's always a seasonal benefit in Big W and this sector in the first half. While we would expect to be profitable on a full year basis post AASB 16, we're not necessarily forecasting to be profitable on a pre-AASB 16 basis on a full year.
Right. Okay. So I think consensus is circa AUD 40 million-AUD 50 million dollar loss, excluding lease accounting. Is there any sort of issues with that consensus number in your, like, at this very early stage, obviously?
Look, you know, Brian, we, we're not giving guidance on that, but you should be able to have a look at the impact of the lease accounting, pre and post, for the halves and sort of project that forward.
Okay, thanks for that. And then just on the EBA in both Australia and New Zealand, actually. Just firstly on Australia, can you just remind us how much is, you know, flowing into second half 2020, that's like an incremental cost? And then also, if you can sort of give us any quantum for New Zealand, whether there's any... So for us, it's really whether you can continue to grow even in that environment, given you've got obviously a higher wage cost bill coming.
Yeah. So, firstly, let me take the question on Australia. I think we've called out in the past, that the impact of the Enterprise Agreement would be roughly 2x the normal level of inflation, which I think, you know, people in the market have estimated in the AUD 100-AUD 150 million range, which we think is within that range. We would expect to see that impact. We've seen it in the first half, we'd expect to continue to see it in the second half, just in light of, what we would've called out at the full year last year around, the accrual impact in the second half of last year, not showing that impact in our results. So we will see that impact continue in the second half.
In terms of New Zealand, we haven't specifically called out the quantum. It is fair to say, though, it is above the average level of inflation. Do we expect, though, that to impact the profitability of New Zealand? Obviously, it's a challenge that we need to overcome, but we're not saying we wouldn't expect to continue to grow profit, and we'll be focused very heavily on productivity initiatives and other initiatives to offset that.
You would have noticed, by the way, Bryan, our inflation, underlying inflation rates running higher than Australia at the moment. So, you know, that also needs to be put into the considerations, which is entailed with you. We just got to make sure it's real inflation, of course, for our customers.
Right. And just to confirm, two times average wage costs in New Zealand would be a good proxy similarly to in Australia for the EBA? Or does it look a bit differently to that?
There or thereabouts.
Okay. Great, thanks.
You have a habit of giving us numbers that you want us to correct. We haven't called it out, but,
Sure. No, I appreciate that. Thanks guys.
Thank you. The next question comes from David Errington from Merrill Lynch. Please go ahead.
Morning, Brad. I'm going to apologize up front for this being probably a very uncomfortable question, but-
Oh.
When I look at this-
You don't normally apologize. Is this a new technique?
It is a new technique, so but I probably will need to apologize after where I'm going with this, because this underpayment just doesn't wash with me. When the original number came out, none of us had any context to put it in. Now, post, Coles have come out, and they've said their underpayment is AUD 20 million, Target is AUD 9 million, and Industrial Safety is AUD 15 million, and Bunnings was 0, Kmart was 0. Yours is AUD 315 million, plus AUD 80 million of interest. Now, I know that previous management, previous CEOs, previous CFOs, the works, et cetera, of Woolworths, they all retired with defined benefit superannuation. And those defined benefit superannuation were in the tens of millions of dollars.
Now, where I'm going with this, is you said that you've got work to do to regain the trust of your team members. What about the trust of your shareholders here? Because what has happened here, that you have had such a systematic underpayment of staff to the magnitude of nearly AUD 500 million, Brad, over I don't know what period that is, but you owe us as shareholders to explain how this happened. Is there any capability of dragging some money back from previous management that was overseeing this? The culture within Woolworths, forget about the staff on the floor, what about the culture of the management team in being allowed to systematically underpay your staff so that your profits have been overstated to magnitude in previous years, and now we, as current shareholders, have to wear that. What is the outcome of this?
What's Gordon's response to this? What's the board outcome? Is it gonna be resignations from the board? Because this is AUD 500 million, Brad, that you're expecting us to chew.
Thanks, David. I don't think it's an unreasonable question to be asking us, so I don't think you should apologize up front. I can't comment on how everyone else's numbers are done, but I can assure you our numbers are done with extreme veracity.
You've got to assume that their numbers are done with the same. We've got to assume that theirs is fair. Coles is 20, yours is 380.
I can't comment on theirs. David, I can just say we have full time and attendance records, and we've used that as the source of truth for analyzing our numbers. And we haven't debated what people have worked. We've gone to the truth of what they worked in the time and attendance system, and we've gone and pulled all the time and attendance data out as far back as we could get it to calculate this issue. And we haven't lost trust with our team, but the reason we haven't lost trust with our team at this stage is because we haven't tried to do anything but address the issue head-on. And while we continue to do that, we will hold trust with our team. And to us, that's by far the most important metric here.
I can't comment on others, but I can assure you authenticity, data-driven results are what you're seeing, have come to. The second, and this is certainly not an excuse, and I would just like to observe that in 2019, we started accruing immediately to what we saw. You see when we record on our margin accounts, it does not change the result. Very importantly, therefore, change where the bonus payments might have been placed and what the implication on management is. If you go back in the previous years, while it's a massive number, as you know, David, in the context of each individual year, that's not the case. It is not quite as clear, you know, to go back and say, I would have changed our financial outcomes for senior management. We've run those scenarios. It doesn't in aggregate.
Thirdly, and very importantly, I'd just like to make the point that while we have got a wage underpayment, and there's no such thing I should add, as a wage overpayment, I think that disrespects a salary team member when that narrative is run. While there have been these underpayments, we have paid our team, and we've validated this in line with their contractual commitments, and we have done a full internal review, including by an external law firm, who've given us a report that has given us some comfort that what we did was not deliberate. It doesn't mean it was right. It was not. We need to fix it. There have to be consequences, but there's no deliberate action, and it has not materially distorted, as best we can tell, bonus payments, and we haven't lost trust with our team.
But that's because we've gone big, and we've been honest about it and transparent about it, and that's the only way we feel we, as a culture, can work. And of course, I should add, last but not least, between announcement dates and payment dates, we've cracked along and we've really, as I say, addressed a material chunk of the payment. So you have every right to be frustrated, and disappointed. We have let our team down and our shareholders down in this regard, but there is a more nuanced story, of course, in this issue.
So there's no problem with the culture of the management here. You're saying it's a good answer that you gave-
Oh.
but AUD 500 million, Brad. Well, it's not quite that, but we're getting up there.
Yep.
I just- No, David, I think there is an issue. Let's agree. I mean, there's an issue that's found us, does draw a lot of focus for us on just how we manage our accountability as a business, how we set rules and guidelines, make sure we've got the right capabilities. So there are lots of issues, but if there's one thing we're trying to do inside Woolworths, and we're working on a day-to-day basis of doing the right thing, I would say we're on the right side of this stage of the ledger of doing the right thing.
Okay.
If that wasn't the case, you know, the ultimate consequence needs to be me and my role. I would, and I judge it against that metric.
Okay.
But are we happy? No, by the way, so you know, I understand your perspective.
It's a good answer to the question, Brad, but you can understand that the disappointment in Woolworths from... well, certainly from, I can't speak on it, but my perspective, with how this could happen in and, you know, whatever other companies' numbers are, will be what they are, but the magnitude of Woolworths is a huge outlier here, and it's just extremely disappointing. Particularly, I mean, do you guys still have defined benefit superannuation schemes? That's part of my first question.
Oh.
I've got a second question on your CapEx, but do you guys still have defined benefits?
A very limited number of people. I would say there's less than a couple of hundred. I'm sorry, Karen's not in the room. That's rolled off. No, no.
Okay, 100 are still on defined benefits?
Not senior management, David. It's a real historical issue, so I mean, there's no one in the room that I'm sitting here with. The Group EXCO is on that, so.
At defined benefits. Okay. My second question, which is the perennial one, Brad, when are we gonna start seeing CapEx come off? I mean, you're basically saying that it's in line. The dividend per share is still only 65%. It's miles to, in my opinion, miles too low. We've had this discussion for a long time now. When are we gonna start seeing CapEx come off, and when are we gonna start seeing the... I mean, Coles pays 80%-90%. Wesfarmers pays 90%. Even TWE pays 65%. Now, you're only paying 65%. I mean, when are we-- when, when are you gonna start looking after us a bit better?
This is a good question for our new CFO, but David, I think, and we'll talk about it on the journey, what we're finding right now is we are getting great returns out of our capital. Our cost of debt is trending down. We feel not bad about the quantum we spend. Our real challenge at the moment, as always, is to make sure when we spend the money, we spend it well, and that's a bigger issue for us, I would argue, than the quantum. In particular, and I think you should be keeping the blowtorch on us on the Melbourne South Distribution Centre and the quantum of money we spent there. So I don't think we don't believe as a collective that the money is not the right amount of money, but delivering against it is our challenge.
I'll say that would be a particular one. It's our biggest individual investment we've made in the last five years as a group. It is one I think you should absolutely be holding us to account on. In terms of the cash, I would call out actually a very good half on cash conversion. What you don't see in the numbers, but one of the highlights to me and was messy with working capital, of course, with accounts payable. All of our businesses did a really pleasing job on inventory, inventory days from the territory down across the group. So we are trying to focus on cash generation, and we think there's more action in managing that part of our balance sheet than capital. The challenge of capital should continue outside, of course, of MSRDC.
Then it really comes down to our store renewal program, and we've just reviewed that with the board. We feel we are still very comfortable. The day that doesn't return, I think it's a different matter. Steve, do you want to just talk to dividend policy going forward?
Oh, yeah. I think probably my bet, David, would be for the interim dividend. We've always paid a smaller proportion, sorry, dividend, although we've got no set policy. It's been around 70%. So you should judge our dividend paid on the full year, not on the interim.
A little bit more than 70 would be nice, Steve.
... Noted.
Thank you. Thanks, Brad. Good answers, too.
Thank you. The next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Thanks. Good morning. Can we just follow on from the CapEx question? Because the earnings growth is quite good, but you are putting a lot of capital into the business. Was your comment that more around cost of debt, so cost of funds being low, and that's providing additional opportunities to invest in the business? Or are we at a point in the investment cycle where there's just a lot of things, a lot of changes you can bring about in the business, such as the automation, the store renewal programs? Maybe you can give us a perspective of where you actually feel you are in the investment cycle and what's actually driving that at the moment.
Yeah, sorry, Grant. The point I was trying to make is, if we look at the value creation above our cost of capital, you know, we are seeing attractive opportunities irrespective of their cost of capital, but in particular as our cost of debt comes down and therefore our WACC comes down. You know, the narrative in the early years certainly of my time in this role was all about catch-up, and we were in the process of catch-up, and we had the slip in the years of catch-ups, whether it was in supply chain or particularly in IT or refrigeration in store. So you know, it was a catch-up narrative. We are onto the catch-up narrative in aggregate today.
There's still a few things we need to do, of course, but we're moving out of the catch-up narrative to being in a more sustainable momentum narrative, as well as, of course, trying to find things that will help us thrive in general, more productivity into our business. So we're in a different space, which you rightly point out. Our renewal program, while it's down in spend for the first half, is the moment we started looking at renewals and new stores over, not over a 12-month period, but over a 24-30 month period, we started to get a much better rhythm and a much better quality result. So that's part of what I was talking about in capital.
That said, there are some interesting things going on right now, and so we continue, but it's not a material chunk of our capital. We continue to invest in those to test them, and I would call out, in that regard, both our smart performance initiatives and our smart store initiatives. Those are really trials for us right now more than the material changes of our cost structure. On the smart fulfillment, the four Takeoff units we've got, we will have operational by the end of the calendar year. They're not a trivial amount of capital, but they're not material in the context of Woolworths. What we are very focused on is if these things work for us and how they work, what the broader plan for them will be.
So right now, we don't call it out, but I can assure you it's not material in our numbers, a key thing. And the same is true with smart stores. We've got a number of really exciting things there, but again, as with our smart performance, the real issue for us is at what date for that production, really, do we put them in every store? And it's something that we iterate, Claire, myself, Bob McCarthy, on a lot, and we continue to learn, but we still, we're in the right timeframe to make them commercial as we are with these stores, but it might be a bit early. And a lot of these technologies are about timing calls.
So it's probably not a perfect answer, but, you know, we've got a lot of opportunities that give us a great return above our cost of capital. Most of it is in, it's not in catch-up phase. If we needed to dial down, if there was a black swan event, we could quite easily, but then the pain of going down and going up, you just need to balance that against the quality. And then just at the edge, we are continuing to invest in innovation, but not in a mainstream production sense, but to learn from it and figure out how we will productionize it. I would say in general, in all the initiatives we've got in smart, we're about 12 months away from true production on them.
Oh, that's, no, that's a very helpful answer. Just secondly, just coronavirus and supply chain impacts. Could you maybe just give us a, an overview as to where you see and sort of how well positioned your supply chains are from both, you know, equipment for refurbishments, but also obviously, goods for retail and food and non-food businesses, please?
Yeah, I mean, this will be the call forwards, and I don't feel like I did a very good job of answering this one, because in truth, it is quite noisy right now. And, but, we don't feel we're in a bad place, but actually saying that to you makes me worry that we just need to go back and make sure that we are looking at all eventualities in terms of scenarios. You know, as David Walker pointed out in the media call, our major exposure is in our apparel business, but most of that is more tied up to Bangladesh than it is to China. If we get to China, it really is long-life goods as well as some fixtures.
A lot of those long-life goods, we can swing production elsewhere, if we need to, and really the fixtures are the same. So, we don't feel in a bad place. What we have understood to be the case until now is that the factories are back up and up and running after Chinese New Year, but it's that shipping isn't yet up and running. So it doesn't feel we're in a bad place as we sit here today, but as I say, that it also worries me that we need to make sure we've got all these contingency plans in place, depending on how this plays out. 'Cause it feels like a long time since we all read the financial review on Saturday and where things were at and what happened on Monday night, right?
Feels okay right now, but we want to go back and strategize.
Thank you.
Thank you. The next question comes from Andrew McLennan, from Goldman Sachs. Please go ahead.
Good morning, everyone. Just following on from the inflation and food supply perspective, can you just bring it back to the domestic side? And just run through, obviously, there's a bit going on with tobacco there, but from an inflation perspective between packaged grocery and fresh, how that's trending, and also just how you feel about supply across the protein space. Now, it looks like the drought has at least partly broken. Is that potentially an issue for further inflation to come through?
Yeah, thank you, Andrew, and I'll take a go at it, and then I think, you know, Claire certainly can elaborate. If you look at Australia and New Zealand, you see this trend line, which has continued really for the last nine months in really of us moving from being deflationary to inflationary. You know, that is certainly ongoing for us. There are always ups and downs in any quarter, as you might imagine.
Ironically, in Q2, fruit and veg was the deflationary, and as I say, just as we've gone through the Townsville, annualizing the impact of the Townsville floods, we're starting to see some deflation come back into fruit and veg, which we're starting to ameliorate in the first six weeks as we cycle what was a huge spike in banana prices for the business. So, while it feels like we should be in the world of inflation, ironically, produce was deflationary, albeit ameliorating, but that's just turned around, which is... If I just park that for the moment and go to long life, and I'll come back perhaps to let me go to long life and then come back to chilled and then back into fresh.
On long life, the trend line is that we are starting to see and have seen cost pressure, and we're trending back into an inflationary scenario. We're always nervous about this and making sure it's true inflation, but that trend is ongoing. On chilled, clearly we've seen some price spikes, understandably so, given the drought and, you know, the indexing of that to what's happened there, so we've seen chilled inflation come through. On protein then, there is and has been, you know, it does depend by form of protein, but on average it's been very inflationary. Actually, keeping up with inflation has been hard.
It's the one part of our business where we actually haven't passed through all inflation at the half, and we've actually had to invest just because of affordability challenges for our customers. Ironically, the breaking of the drought has put more pressure on red meat prices, because we've seen farmers hold their breeding stock out of the kill yards, and so actually our supply has really shrunk. So it seems paradoxical, but the biggest price rise we've seen in beef was actually in the last three weeks, where we saw it absolutely pop as we've had the grass grow and we've seen the diversion of livestock. So on aggregate, I would say inflation is there.
It's up and down a little bit in produce right now, but actually hopefully we'll see it, the deflation, continue to moderate. It depends on what happens though, with as we cycle the floods and where the droughts are, and on the meat front, it still just feels very hard for us right now in terms of where it is and what's happening, and it's just very challenging, clear.
Nothing to add, Brad, on the inflationary. The key point is how we keep protein generally affordable for our customers and helping them with different aspirations that they may not have tried before.
Yeah. I should add, [pork], by the way, added a lot of pressure, as everyone hopes we are. Just assuming, you know, that's everyone's narrative at this point.
Okay, and just turning back, you mentioned Takeoff Technologies there. So just turning back to online, it was a very strong performance, no doubt about it. Can you just talk about... You've also been doing a lot around the sort of structuring and availability or flexibility, I guess, of your delivery options.
Yeah, yeah.
How do you feel about the competitiveness of your delivery pricing versus your competitor? Has that been a factor, or have there been other things at play?
Yeah.
And also just on Takeoff Technologies, obviously they're progressing with their implementations within, some of the-
Yeah
... North American-based peers, and it appears to be going okay. I'm just wondering if you could provide some insights into what the feedback is from Takeoff as they start to roll out in the U.S..
Sure. I'll talk generally and then Amanda, specifically on competition, will come back on what is next. Look, I think as we mentioned to Grant, this I think it was his question, you know, we these are very much pilots for us. The good thing is, by the way, the Takeoff units are mobile, so we can learn a lot and we're not getting stuck in any structural position with them. We, as you know, are rolling out four Takeoff units, two in Australia, two in New Zealand, is the plan right now. Plans are underway. We commission the first one, hopefully in July. They're in different scenarios in our business.
One is, you know, where we've divided a store and put one in the back of the store, which is in Christchurch, one where we've put it in a standalone facility that we were lucky enough to secure in Auckland, one where we've tested next to a supermarket, inside Woolworths Supermarket. So it's very different scenarios. They'll all be commissioned by the end of the calendar. You know, and we're learning as we go. The last thing about Takeoff is, yes, they haven't announced a number of new partnerships. I think they've announced the Carrefour partnership, but I think that's now public. But certainly we've seen them go Tesco, Carrefour in Europe, and of course, they've got a number of partnerships, including Albertsons in particular, and the Whole Foods in the U.S..
We'll all learn a lot out of this. It's nice to have a consortium of partners on the same journey, and it is test and learn. If they deliver to what we expect, then we'll then have an ability, of course, to materially scale up, but there's a lot going on in the space. We feel comfortable. I'd like to come back to our products and services on e-commerce. We feel comfortable at this stage with our key hypothesis, that what customers want is same day 70% of the time, and in same day on-demand has a critical component to play. As people get less planned, therefore, you need to provide more convenience. I do like the expression. It's been quoted, but today's convenience is tomorrow's friction.
So we are really thinking about this broader move and making sure we provide a number of services in the same day space, whether it's the same day, pre-arranged delivery times, the scale-up of Delivery Now or whatever the case may be. What we find more broadly outside of that, inside e-commerce, is that we have to continue to innovate the range of services that we provide to customers, given each, they're very different use cases. And so what someone wants to do with a curbside pickup, where we put it in your boot, is very different to what they want to do with an online delivery. They're different occasions, actually very different baskets, with actually very different economics and GPs as we've found.
And so, very importantly for us has been not only innovating same-day options, but also our Delivery Unlimited relaunch, which Amanda can talk to, which is us really trying to also give our customers a all-you-can-eat type option, which we've relaunched, as well.
Yes, exactly. So, maybe just to build on that, you know, I think when we're looking at the first half for e-commerce, we would say really great growth driven by two key factors. One is, increasing numbers of customers choosing e-commerce as an option, so new customers coming into these channels. And then those customers who've already, been serviced by our e-commerce, channel, actually continuing to spend more with us within those channels. And so that's been really pleasing to see us manage that through the half. The volume increases are substantial. And in fact, one of the highlights for us, I think, in talking with particularly Claire and the team, has been our ability to manage the customer experience while seeing such enormous growth from a volume perspective.
And as Brad highlighted, you know, we did launch Delivery Unlimited in the half as well. And we're again really pleased with that as a subscription service. Those customers who are joining on for AUD 19 a month fee are having their deliveries to their homes. And again, we're seeing both basket increases and an increased frequency of order from those customers. So we're very pleased with those early results.
And the only other comment I'd just add is that pickup, which, you know, I'll just highlight, continues to be an immense channel of growth for us, and that was always the strategy and the plan, was to make sure that we continue to use our store network and our store team to provide the most convenient option for customers when they want to come buy at a store, and that is where we're getting the majority of growth.
Could I just follow on with this? You mentioned last result that you'd moved into profitability. Given all the innovations that you're delivering here, is that still the case?
And it is, and we called out in the results, I think, the commentary that said actually, as the business scales, we're starting to see improved profitability out of it as well. So that is certainly true. Of course, the way we measure profit is respecting and understanding what our current infrastructure is. But as we overlay the e-commerce business on our existing store network, it was profitable a year ago, and as it continues to scale, it is, of course, becoming more profitable.
Great. Okay, thanks very much.
Thank you. The next question comes from Ross Curran from Macquarie Group. Please go ahead.
Hi, guys. Just two questions, please. The first is just circling back to the very start, just around the slowdown in comp store sales growth in the first quarter. Is there any linkage between the drop in VoC scores that we saw in the December half and that subsequent slowdown in comp store sales growth?
I mean, it's hard to tell, Ross, but what we would say, if we don't address it, then there will be. So it's pretty, you know, there is. Actually, ironically, in Q2, our brand NPS went up, but our customer scores were just not quite at the, you know, the expectations we had. So, you know, the risk would be if the brand NPS started to slow, that is a risk. So, it's hard to debate causality in a very short timeframe on these things, but, it does give us ambition, I think, in this regard.
Maybe, could you just draw out perhaps what you saw as the big drivers of that softer VoC score?
Oh, look, you know, a combination of events, really. So, we know we implemented our new operating model, and that, you know, the team were very focused on that, rolling out our new Fresh Made Easy and reorganizing and, you know, biggest category changes, getting the right flow and the right product to the store. You know, we found actually a lot of consumer demand, for example, in a number of Metro stores on our vegan range. We ended up out of stock in adversity as the customer demand overwhelmed what was the best guessed forecast on certain ranges. So we had that. We also did have the industrial action at Mitcham, which is a key site for us.
We had then the fires, which also caused a lot of supply issues as sort of flowed through. The salary underpayment issue, while our team have actually risen that incredibly well with, you know, it gets into a bit of customer consciousness. So it's hard to as we turned on the scales in our ACLs. Again, we feel we did a good job, but, you know, that does run an intervention, right? They can upset some customers. So there's not one thing that we can look at, but, you know, I would what I would say is none of this is systemic, non-addressable, or has been going on for long enough to have caused a long-term change to our business. They're all just things we need to do.
I often, unashamedly, in looking at, calling out our results, and feel like I'm talking to our own team, and this is us just saying, "Hey, let's not forget about what we really had to do, which is the customer.
Thanks. And then secondly, just around Endeavour, sales there was particularly strong. Can you just talk through what you saw from the competitive environment? I understand that your competitor had discounted a whole bunch of lines and was doing heavy discounting. But did you see any impact from that through Dan Murphy's?
Yeah, look, I'll talk at a high level, and then I'll turn over to Steve to comment. Our result looks better than it is, in truth, at the sales line, not at the profit line, and that is because of the timing difference in New Year's Eve. In truth, it doesn't distort the food business, but New Year's Eve was in at the top line, not in this year's Endeavour numbers, but you know, wasn't in them last year. So there's a little bit of a bump there, but the profit line, that's not the case at all. What we were really trying to do, unashamedly, is make sure we reset our business for the long term.
And so, you know, a number of decisions we made helped us do that. In Drinks, the real highlight for me actually was our customer scores actually went up across both businesses, but in particular in online, and it's such a central part of our business, and we're starting to see the growth coming through there. In the Christmas period, specifically, was there discounting in the market? How aggressively would you participate? I think those are very fair questions, and I'll turn to Steve to comment on that.
Yeah, thanks, Brad. I think it's just worth recognizing that for the most part, the drinks business is a fashion business, and it was certainly the case that in December, a number of the very large, traditionally market-leading brands were perhaps coming off the boil a little bit with consumers, and that led to some unsustainable activity in the market on some of those brands. We opted out of that activity, as we've been doing progressively more and more over the last year and a half or so. I think the temptation may have been greater for others, but certainly we've benefited from the development of things like the discovery engine in Dan Murphy's, which has really taken customers on that journey of new and exciting products rather than the older larger brands.
Thank you very much.
Thank you. The next question comes from Ben Gilbert from UBS. Please go ahead.
Afternoon, Brad and team. I'm just wondering if we can talk about costs within the food division. It's obviously a great top line and result, and appreciate you've got some headwinds around labor, but you said it being margins sort of the highest, I know some special issues, but the highest it's been in recent history, and your friend at Down South is obviously talking a pretty big cost out program. I was just wondering if you could give us any feel for how you see your CODB, sort of when you benchmark it against peers, and also in that vein, if WooliesX costs, which I presume the bulk are falling in here, is sort of disproportionately lifting that. So maybe it's not quite as indicative of what's happening in the actual core stores side of things.
Yeah, I mean, you are seeing a roll-up of all of our investments in Australian food, as you rightly point out. And a couple of comments, and I'll turn to Claire. I would say that all our finance team in the room are smiling as you ask that question, so thank you on behalf of the finance community. One of the things we deliberately did, I should add, going into Q2, while MSRDC was tracking online, we took a safety first approach by keeping Hume in particular open, and also just having another backup warehouse if we needed it. So we took a safety first approach. We don't regret that.
The problem we had is not that actually MSRDC was tracking to plan, but if anything happened so early in our journey, there was. It was very hard to find a plan B. So part of the costing costs we left in the business, unashamedly, was based on that. Hume warehouse is now shut, but we only shut at the end of January. We could have shut it much, you know, earlier at the end of October, but we just didn't feel that was the prudent thing to do, just given the consequences. So you'll see some cost in there. You'll see quite a lot of training costs related to the new customer operating model, which we felt we needed to do.
And we think the model's the right model, but we just wanted to get the training right for the team. So those are the two things you'll see that mean the number is more inflated in the short term than it should be in the long term, even despite us annualizing EAs, and of course, our salary team member review, which is what took place. But actually, I don't know if there's anything else you'd like to call out on store level CODB. We can come back and answer other questions.
Yeah, I think as you said, from a Simpler for Stores , which would be our store productivity program, the main ones that will be delivered in the half was our customer productivity model and rostering, and where we have ended on that, really from a cost point of view, we're pleased that the benefits are in line with that plan. Outside of that, well, there were three other key big areas of productivity which the team were focused on. One was predominantly around what we would bundle and the case rate, which is quite basically less time to touch a box to go onto a shelf. And a number of programs of work has obviously enabled that to have a significant improvement, which drives that efficiency through the replenishment at day and at night...
The third one I would call out would be some work we've got in the pipelines around particular mechanical and operational kits that are going into stores, whether that's simpler promotion ends, whether that's two-third pallets, whether that's what we would call our front of store bundle, which is our ability to get teams to scan more efficiently through our checkouts, where we know a significant amount of our fixed costs sit, and which is why you will see in some of our stores some initiatives already being trialed around how we can completely change that front end experience, whether that's in scan-as-you-go, ACOs, which is continually increasing, enabling more convenience for customers through that. So our pipeline benefits are strong, and our benefit to the plan were in half one, we're on track from an in-store point of view.
Tell us, just my second question, just following on from that. When you benchmark, and I presume you do some pretty detailed benchmarking, both versus domestic and also global peers, how far away do you see yourselves? Do you think you're close to best in class around CODB per square meter at store level? Do you think there's a way to go? Because very simplistically, I know this is wrong because you put your logistic cost at a different point, but your CODB per square meter is at 20% higher than Coles. And I'm just wondering, over time, do you see scope to bring that down, or do you think you're at the right point in terms of efficiency, and it's just incremental things trying to offset some underlying inflation?
Yeah. So Ben, just on the global benchmark, of course, the issue we have is what's in CODB and what's in GP, you know, varies by retailer more than people think. And then, of course, the underlying rate, wage rate per hour is very, very different. And we do quite a bit of benchmarking, and particularly with our U.S. colleagues, which I think Claire leverages her U.K. experience. So you've got to be quite cautious at that level. However, while I say that, do we think that we've got room to? Do we think we're bad on process? Actually, we don't think we're too bad. But do we think we can move to be top quartile and use that to drive down our overall full level operating costs? Absolutely.
The question is not if, it's sequence and, you know, and how we do it, and that's really where the focus is. We don't disagree. I think the, you know, the international ones and where people want to include, in particular, supply chain cost becomes very difficult, but we don't disagree on underlying process improvement.
Okay. That's great. Thanks very much.
Thank you. The next question comes from Phillip Kimber, from Evans and Partners. Please go ahead.
Hi, guys. I just wondered if you could clarify. You mentioned the 130 resort stores were being negatively impacted, as you'd expect. I mean, has that settled down now? Have you seen those resort stores back to a more normal growth pattern?
Thanks, Phil. That's a really good question, and I actually don't know the answer to this one. I'm gonna turn to Claire now. You know, it's been... We, you know, we've obviously cycling out of now into back to school, into a slightly more normal environment. But, you know, Claire, I don't know if you've got any-
Yeah.
Any insight into it.
No. So, as you said, Brad, we saw the significant, almost, you know, there'd be some stores which would have double digits in December and then have double digits negative in January. As you said, when back to school started at the end of January, in February, we had some very strong couple of weeks. So that growth has started to come back. I wouldn't say it has all come back, because clearly a lot of these communities are still in a very stressed space, as you and I would have seen when we visited Batemans Bay and others. So we are still supporting those communities as they rebuild, so they are not back to pre numbers yet. However, with our support in the communities, we're looking up.
Oh, that's great. Thank you. And then my second question was, one of the other areas you called out, that you'd seen a slowing impact was in infant milk formula. Can you, maybe give a bit more color on that?
Yeah, look, I mean, you know, the infant nutrition business is one that is somewhat indexed to domestic and export, and is one of the issues that has inherently high volatility in it. Claire can talk to, you know, some of the specifics on what we've experienced.
Yeah. Thank you, Brad. So, we have seen that significant sales and transaction decline in baby formula, transactions being probably the bigger number of those two. Some of that will have been because for our domestic customers, our ability to ensure we had it on sale, we obviously continued a two-tin limit in order that actually our Australian families could always have that on sale. But from a January point of view, and when we look at some of our Asian stores in January, February, albeit it's just the Lunar New Year, you do need to take into account as well, you would see a reduction in that market.
Okay. That's great. Thank you.
Thank you. The next question comes from Richard Barwick, from CLSA. Please go ahead.
Thank you. Can I just go back, also, talking about these, the resort stores, Brad, the 130, obviously impacted by less traffic and lower sales through the whole sort of bushfire issues. But I would've thought that if a lot of those stores would see seasonal benefit from, you know, holidaymakers and so on. So if those people weren't traveling to those areas, then they would've stayed at home, and therefore you'd see a, you know, pick up in people's home stores, for instance. So presumably that meant you've seen some pretty extreme scenarios between your, those resort locations and non-resort locations?
... Yeah, it's a great question. I mean, it's easier to see what's happened in the resort stores because it's more acute there than it is in the rest of the network. What we don't see in the rest of the network was just if you look at your entertaining categories, there was. They were subdued. So there's, you know, what you really see is a pop in entertaining categories over the summer period, in particular in the resort stores. Easy to see the impact in the resort stores. Hard to see it well, given the sort of averages are.
But it would be fair to say, even in the rest of the network, when you look at your core entertaining business, which you know is really what you see, highly indexed to summer, it was very, very subdued in those core entertaining categories. And you would've seen that in some of our supplier partners and the results they've talked to or announced, I think, in the first half. And yeah, yeah.
Okay.
We highly indexed snacking, drinking, you know, all those things were more challenged.
Okay. And can you just give a also a bit of an update? You've obviously having a lot of success in the WooliesX, certainly strong sales response. Yeah, I'd love to hear sort of latest thoughts in terms of what it means or the impact on EBIT margins from where you're sort of seeing on home delivery sales as opposed to the click and collect sales.
Yeah, look, I mean, I think what we have, and Amanda can talk to the specifics. At an aggregate level, we put a lot of investment in a couple of years ago. And as we annualize that investment and the business grows, the efficiency we're getting through the business is offsetting the growth. So we don't see it, at this stage, as dilutive in the general context of our business. As we get scale, it's becoming accretive to the overall results. So we don't see it as a drag. That said, I would just preface, that's the core business outside of what we do with Takeoff, which we manage it as a very explicit investment, so we can just keep a very beady eye on it.
In terms of mix inside that business, really you're looking at pickup, home delivery, and on-demand delivery are the three really mixed components that become quite important. We're getting a positive mix experience right now with pickup, as you mentioned, Amanda. I don't know if you'd like to add anything.
Yeah, thanks, Brad. Exactly right, and pickup for us is obviously the most attractive channel from an economics perspective, which is why we're particularly keen to drive that strategy early on. From a home delivery perspective, we're seeing just the increasing density of orders starting to flow through in terms of reductions in some of our logistics costs, and so that's helping with drive the result. And then when you look at the mix between pickup, home delivery, and Delivery Now, actually the GPs can be quite different and very attractive in some of those, you know, Delivery Now and same-day type services are positive. So, we're pleased with the early progress, but of course, keeping in mind that it is a higher cost to serve in this channel.
We've been very mindful around how we manage the growth of that business.
And okay, so there's a few things going on there. I mean, if you're saying that the economics still, the click-and-collect, is something that you favor, so presumably, at least if you're trying to nut it out to an EBIT margin level, then there is still a bit of a pecking order with home delivery. You know, it might be improving, but it's still, would still be dilutive to the overall EBIT margin?
Yeah, but as I say, you know, if you look at, on a, on an, not on an absolute but a, a dilution basis, actually the efficiency, we're starting to get that wonderful, flywheel where efficiency starts offsetting growth, so you start seeing it all come up. So, we are, feel we're in a good place on that. Of course, just like we have in stores, continued focus on, on that continued improved underlying process.
Okay. No, that's very helpful. Thank you.
Thank you. The next question comes from Craig Woolford from Citigroup. Please go ahead.
Hi, Brad. Just two follow-ups, if I can. One on refurbishments. There was 36 done in the half.
Yeah.
Will they be more second half skewed? I'm talking about supermarkets here.
Yep. Yes. You're just seeing just the way numbers balance out. So yeah. Three more.
You hinted at export growth for Coles being higher. What is the size and growth for Export Co. at Woolworths?
Yeah. So, at Woolworths International, we, you know, we've got some work to do there. Certainly some of our competitors have led the way more than us. We had actually pleasing growth in the first half, but it was in the low thirties or from a much smaller base. So, some work to do. So good growth, but not nearly to the same extent we've seen from others, and also much smaller business. So yeah, work to do. We know what we need to do, we just need to crack along. Now that we've got a team focused on it, we're getting the benefit of the focus coming back into... And so we just, we need to continue to work on that.
You know, the real growth is really in meat, in particular, you know, beef and fresh beef, so you know, we've just got to think about how we want to structure our business and what exposures we're willing to take in that regard, and that's something we're thinking about.
Thanks, Brad.
Thank you. The next question comes from Scott Ryall, from Rimor Equity Research. Please go ahead.
... Hi, thank you. I wanted to just pick up on a couple other questions around CapEx and MSRDC, in particular, Brad. In terms of the MSRDC, how do you—I don't expect you to give me the metrics, but how do you guys actually look at judging the returns that you have got to date, given it's been in commission for some time, that you've got, as you've highlighted, you've had some duplicate costs in your supply chain to date? And then what will give you the confidence then to pull the trigger on similar investments in other major markets, please?
Yeah. Thank you. Look, we are tracking all of the metrics, as you might imagine, very, very closely. At a very simplistic level, if you just look at it, you know, what is your, your cost per carton, to actually pick a carton out of a facility is the key metric we're looking at in the context of a supply chain. And, and MSRDC is tracking, well at that. That gives us the base IRR that gives you comfort to, expand. You know, and, and that's particularly important in the context of our warehouse facilities have been... We've had no capacity, and so the surge capacity has been really expensive to us. As you consolidate and take up the surge capacity, you get a nice position.
And that's tracking basically in line with what our full costs and budgets have been. Then, where the real benefit though does come in are two things that we are still working through. One is a much higher, better in-store efficiency as we actually you know can improve basically our pallet builds and get them to the right aisle in the store, and therefore we can reduce our back-of-house splitting cost, which is a big cost, and get that flow through to the shelf. We feel comfortable there, although we are taking a steady-as-you-go approach to that right now, and that's a key additional benefit.
And then the third benefit is the one that we can actually have an expanded range, because the whole shed becomes a pick face versus moving from your long-term bulk storage into your pick face. And that one, you know, is. We haven't really put a lot of value on it right now, but in the long term could be, probably be the most important part of the value prop. But anyway, that's one we plan a very cautious approach to. So, you know, we're using all three, as I say, on the cost per carton in the shed. When we finished consolidating all the volume in the shed, it's doing about 1.7 million cases a week right now. Our aspiration is to get to about 2.4, just to give you a sense.
And we're around cost just at about AUD 1 million, AUD 1 million and one. So we're continuing to do nice progress. We will hit that cost per carton, which will give you comfort on the future investments. Like all things in life, the first one's the hardest, so I'm hoping that's the case here. And then, as I say, we'll hopefully get the additional benefits at a store level as we go. So pretty easy to see. I think the thing that is just true like this with any, and it's true with our IT investments as well, is we're all pretty certain on the end state. What you don't always do a good enough job of is just that process to get there and quantifying all the costs there. As I said, we don't.
Result from the decision we took in October was, we weren't going to go into Christmas without a safety net, which was extended to June, and expanded again in some other capacity. So but hopefully that answers it. We will have enough information if and when we make our next major automation decision, that's very clear.
But what do you have a sense of? Well, I guess, do you need to automate in New South Wales? Do you need new facilities? Do you, you know, what's the kind of timing of those decisions?
Look, you know, we're working through it. When we've got data, we'll certainly be coming back to you on it. Right now, it's making sure we get the return out of this, which is something we literally look at on a weekly basis. But we're all very sensible on the right direction.
Okay, great. And then the other question from me, sorry, was just picking up again on some of the concerns, I think I can label it, that your sales growth has slowed in the second quarter, but also in the third quarter. And I know there's a lot of stuff going on, externalities and those sorts of things. But just using your powers of introspection, particularly with the data available to you, has there been any own goals from your perspective that you think you can fix pretty easily in terms of ranging or you know, anything else that you think you've contributed to that slowdown and is an easy fix?
Oh, look, I think as I firstly said at the outset, and I think I don't know if it was Sean or Michael, might have been Michael who submitted this question. Just given the change in the way data is collected and the way the national market research done, market share is quite noisy right now, I should add. But you know, we don't feel we're in a bad place, but it is unusually noisy in terms of getting a clear read. If you look at the... If you had to say, what is the thing with the benefit of hindsight, which is a wonderful thing, we would have done a little bit less in the first half hour.
We landed a few too many things in the first half, given what happened to us with these externalities. So, we landed more in the last six months, as we say, in front of our business than in the last six years in many ways, in terms of moving pieces, and then we didn't eventuate droughts, floods, whatever the case may be. So we would have landed a little bit less. What was the end goal from that? Probably, you know, not as much focus as we would have aspired to on the customer and just getting those customer metrics right. Outside of that, are there anything, and we, you know, we spent a lot of time talking about things we should improve, because that would probably be the big thing I think we would just say.
It wasn't any one thing, it was just a combination of ambitions we had, and then a few things happened, you know, that add to that load. So I think that would be our biggest thing as we focus and settle our business down, settle down our current initiatives, and we think that gives us confidence for next year.
Okay. All right. Thank you. That's all I have.
Thank you. The next question comes from Niraj Shah from Morgan Stanley. Please go ahead.
Good afternoon, guys. Just a question coming back to the Australian Food, the gross margin, obviously. You've talked about stock loss, and that seems to account for about half of the increase in gross margin there. I just wanted to understand some of the other drivers, particularly some color on how higher inflation contributed and whether own brand contributed as well.
Yep. Look, the headline to me, and I mentioned it in the earlier thing, was we'd be much better at promotional and much more disciplined on promotions and getting our winter promotions up as a percentage, and also reducing our overall promotions outside of health and beauty. So a really good job on the promotion side, I think, which is which has been, you know, critically important to us. Own brand actually grew very pleasingly in the half. I think we grew at about 6%. So it was a nice number, six, somewhere thereabout. And so that helped.
And then, of course, as with liquor, probably more in liquor than inside our business, there are some niche margin categories that have continued to grow, you know, and so whether it's health foods or international foods, it's grown pleasing. So Kate, is there anything you wanted to-
The only thing I'd add would be, obviously, we talk a lot about our tobacco sales and transactions and sales, which obviously has the opposite from a GP rate. And what has been pleasing is when we look at our strategic thrust, particularly in the international food and health food, we're seeing significant growth in our plant ranges, our vegan ranges, our eco-friendly ranges, which give us a rate accretive across all our stores where we launched them nationally.
I think your point is well made, on the mixed percentage benefit of tobacco sales being in decline, which is obviously a very low GP percentage business.
Yep, makes sense. Thank you.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Mr. Banducci for closing remarks.
Thank you, everyone, for being on the call today. David, thank you for your, I thought, very open and honest challenge on the salaried team member issue. Actually, when you look at it in context, we made good progress in the first half, but as always, plenty to do. We are focused on those, and we'll be speaking about those, all too soon in Q3 and Q4 sales and profits. So thank you for your questions, for your support, and speak to you all soon.