Woolworths Group Limited (ASX:WOW)

Earnings Call: H2 2021

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Aug 26, 2021

Thank you for standing by, and welcome to the Woolworths Group FY 'twenty one Full Year Earnings Analyst Announcement. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. Followed by the number one on your telephone keypad. I would now like to hand the conference over to Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead. Good morning, everyone, and welcome to the Woolworths Group full year results for the S21 financial year. Given the current circumstances, we are conducting this call completely virtually today, so I apologize in advance for any technical difficulties we may experience. Stephen Harrison, our Chief Financial Officer, will be joining me in presenting our financial results a little later and our other business heads are joining us Today's briefing will include an update from me on our financial results for the year and our progress against Our strategic priorities in F 2021. Steve will then present our financials in more detail before handing back to me to Finish with an update on our current trading and outlook for F 2022. Thereafter, we will be happy to answer any questions you have. Just focusing in on Slide 4, before I reflect on F21, I would like to recognize the Woolies team and express my gratitude For their extraordinary efforts as we continue to be challenged by COVID and the more recent Delta outbreak, as I talked this morning, we have over 3,300 team members in isolation and 3 in hospital. Our team continues to work tirelessly to ensure we're providing A stable supply of food and everyday needs to the communities which we serve and continues to demonstrate real care for each other and our customers. I also want to thank our customers for their support and patience as we navigate an ever changing set of challenges and for continuing to shop COVIDSafe. As a group, we remain firmly committed to operating COVIDSafe and ensuring we are doing the right thing for our team, customers and communities and by leading the way to make shopping safe. We know how critically important vaccination is and I'm proud of the work we're doing to partner with the federal, state government And other food retailers to establish pop up vaccination centers at IDCs as well as increasing access to vaccines For our store teams, we've also revised our vaccination leave policy to ensure all of our team members can get vaccinated. We are clear that vaccination supported by both PCR and rapid antigen testing and other COVID safe protocols or essential to ensuring a secure supply of food and everyday essentials. Moving on to Slide 5 and a summary of the F 2021 financial year, which I must confess feels like a lifetime ago. F21 was, however, a year of significant achievement for our business. And in addition to continuing to navigate COVID, we achieved a great deal during the year, With the most significant being the successful demerger of Endeavor Group in late June. We are now entering into a new era for Woolworths Group And with the caveat of the challenges of Delta in the next few months, I couldn't be more excited about all the opportunities we have in front of us. In F 2020, we outlined plans to transfer Morgus Group into a more focused food and everyday needs ecosystem By building partnerships and delivering adjacent services and products for our customers, we've continued to make good progress in which I will talk about in more detail later on. The group's trading performance in F 2021 was strong with group sales growth of 5.7 percent and group EBIT growth of 13.7%. F 'twenty one was a tale of 2 halves or more accurately a tale of 3 thirds as we cycle the impact of COVID from late 2020 last year. H2 sales growth slowed as expected in our retail businesses, but all of businesses reported sales growth in H2 and contributed to EBIT growth with the exception of New Zealand Food, which was impacted by subdued market growth. E commerce was again a highlight in F 2021 with continued operations, e commerce sales growth of 63%. Sales penetration increased over 3% during the year to 8.5% of sales, driven by material investments Moving to Slide 6. Operating sustainably is not only important to our customers and shareholders, but it is increasingly intrinsic to our business. We launched our group sustainability plan 2025 with With ambitious targets across the three pillars of people, planets and product, focusing on areas where we believe we can make the biggest difference. There are too many things to call out individually, but I am particularly pleased in the progress we have made on diversity and inclusion during the year, Including being voted the most diverse and inclusive company in Australia according to Refinitiv, We have reduced Scope 1 and 2 carbon emissions by 27% since 2015 and removed over 2,500 tons of plastic from our products in F 2021 alone. We recognize that there is much more to do and we aspire to act like a leader and speak up Moving to Slide 7 on progress against our 3 key strategic priorities. I'll talk to Slide 7 and 8 in parallel in tandem, which detail the progress against our key strategic priorities for F21. I will call out some highlights, which I think are important to reference. As we lived our purpose of being best together for a better tomorrow, we were pleased to be recognized As Australia's most valuable brand according to Brand Finance and Australia's most trusted brand according to Roy Morgan in F 2021, We also continue to support the community through direct investment of $35,000,000 including support for the Salvation Army, Rural Aid, OzHarvest, Food Bank and Lifeline. In F 2021, e commerce and digital accelerated at an unprecedented rate As our connected customers increasingly took advantage of our e commerce services, I have already mentioned our strong e commerce growth and increase in sales penetrations, but another highlight was the increase in average weekly visits to the group's digital platforms. On average, 17,200,000 customers visited our website and apps, up over 40% from the prior year, with most of the growth coming from app usage. As we continue to increase e commerce capacity, we announced the new automated performance center To be opened in 2024 in Auburn, New South Wales in partnership with KNAP and now have 4 operational Takeoff Micro Performance Centers operating 2 in Australia and 2 in New Zealand. Despite the COVID interruptions, we worked hard to differentiate Our food customer propositions and completed 75 renewals in Australia and New Zealand in F 'twenty one. We also continue to make progress in tailoring ranges for our customers with the tailored premium or app ranges we call it rolled out to 31 supermarkets And a new community range launched in Cabramatta in Sydney based on the needs of that area's diverse Asian community. I have touched on the successful demerger of Endeavour Group in late June, but again, wants to thank all The team across both businesses, they worked so hard to bring this together. We look forward to working in partnership with Endeavour Group for many years to come. Turning to priority 5. The performance of BIG W was one of the highlights of the year in F 2021 with strong sales growth And an increase in EBIT of over 300%. Unfortunately, F 2022 is shaping up to be a much more challenging year for BIG W, But I'm incredibly proud of the BIG W team and what we have been able to achieve. Finally, To conclude in our strategic priorities, we have prioritized the safety of our team and customers this year and we'll continue to do so in F 'twenty two. We've made progress in the rollout of our new workforce management solution and continue to progress the modernization of our supply chain during the year With work now underway at the Moore Bank Intermodal. Just moving to Slide 9 and the Woolworths Group's Food and Everyday Needs Ecosystem. Slide 9 is a summary of how we think about our ecosystem and it is organized into 4 areas. Those being of course Our Cornerstone Retail or B2C Food Businesses, our growing B2B Food Businesses, more every day, where we want to deliver additional value and services for our customers and our platforms and partners, where we add value to our customers and partners through building scalable retail platforms. I will touch on some of the highlights on various aspects of our ecosystem on Slide 10. As you will know, when we come to B2B Food, we completed the acquisition of a 65% strategic investment in PFP Food Services on the 28th June following ACCC approval. This investment and partnership with the Smith family will provide us with exposure To the growing foodservice sector in Australia and form an important part of our growing B2B Food segment. We also established a new business called Greenstock, our upstream meat business and launched WPA as a standalone retail payments business. In May, we increased our stake in Quantum to 75% and are establishing Q Retail, combining Quantum and Woolworths Group's Retail advanced analytics capabilities. Cartology, our retail media business also continued to perform strongly with growth across all advertising channels. And by year end, we had digital advertising screens rolled out to over 1200 stores. Moving to Slide 11 and the F-twenty 2 group priorities. While we like to ensure that our group priorities remain broadly consistent, We refine them annually to make sure they continue to evolve in line with market trends and customer expectations. All of AF22 priorities Financial results and I will then conclude the presentation with an update on our outlook for F 'twenty two. Over to you, Steve. Thanks, Brad, and good morning, everyone. I'll start today with the F21 full year group results summary on Slide 14. Group sales increased 5.7 percent on the prior year to $67,300,000,000 with group EBIT before significant items increasing 13.7% on the prior year to $3,700,000,000 NPAT before significant items increased by 22.9% to approximately $2,000,000,000 Group NPAT after significant items was $2,100,000,000 On 23rd June, we updated the market on a number of significant items to be incurred in F 'twenty one, which resulted in a post tax gain of $102,000,000 These included Estimated redundancy costs associated with the planned closure of our temperature control facility at Minchinbury, the impairment costs for 13 metro stores, Transaction costs related to the demerger of Endeavor Group and the acquisition of PFD Food Services and a net gain on Quantium with our previously held Interest remeasured to its acquisition day fair value. I'll discuss our dividend later in the Capital Management section. Turning to half due sales on Slide 15. Before we get into the financial performance by business, It's worth recapping on the significant volatility in trading we experienced in F21, largely reflecting the ongoing impact of COVID And the cycling impact in our F 'twenty nine results compared to the prior year. In Q4, New Zealand Food, BIG W and Endeavour Drinks all reported negative or lower comparable sales than the prior year given the elevated sales in Q4 of F 2020. Australian Food comp sales increased by 0.1% in Q4 due to stronger sales growth in June as lockdowns again began to have an impact. 2 year average growth rates remain strong across all businesses. And this is important context for the next slide, which shows our EBIT by business. Turning to Slide 16. In Australian Food, F21 sales increased by 5.4% and EBIT increased by 9%, following a strong first half with 10.6% sales growth and 13% EBIT growth. In half 2, EBIT increased by 4.5 percent to $1,100,000,000 on flat sales, reflecting the impact of cycling COVID in the prior year. Growth was driven by gross margin improvement and lower COVID costs despite material growth in e commerce and ongoing investment in digital initiatives in the half. New Zealand sales were negatively impacted by lower low market growth and cycling a strict lockdown In half two last year, EBIT decreased by 4.6% in New Zealand dollars for the year, impacted by negative sales With half to EBIT down 13.3%. BIG W performance was a key highlight of F 2020 1 with EBIT more than quadrupling to $2,000,000 Half two EBIT of $39,000,000 was equivalent to the full year EBIT in F 2020. Group costs for F21 were $176,000,000 up 23.6 percent $144,000,000 the previous year. This included COVID related cost of $28,000,000 additional risk and payroll remediation resources and higher insurance costs. While we have presented Endeavour Group as a discontinued operation, it was part of the Woolworths Group for the entire financial year of F 2021. A strong increase in Endeavour Group EBIT for F21 and Half 2 reflected the continuation of in home consumption trends in drinks And cycling a period of closures in hotels in half 2 of F 2020. Turning to Slide 17 And covering off Endeavour Group demerger accounting implications. While we're pleased with the success to date of the demerger of Endeavour Group, unfortunately, the demerger has led Some complex accounting at year end. As mentioned, Endeavour Group is now recognized as a discontinued operation and its assets And liabilities are now classified as separately held for distribution in the presentation of the June 21 balance sheet. Following the shareholder approval of the demerger in June, we were also required to recognize a demerger distribution liability of $7,900,000,000 In the year end balance sheet, based on the estimated fair value of Endeavour Group shares calculated using the VWAP for its 1st 5 days of trading. While the demerger distribution liability resulted in a material reduction in net assets and equity at the end F 2021, we will book a gain on distribution of approximately $6,400,000,000 in Q1 of F22 as the demerger was implemented on the 1st day of the new financial year. Turning to Slide 18 and covering off some of our key balance sheet metrics. Average inventory days for continuing operations improved by 0.5 days from the prior year due to strong sales growth Through the year and normalizing inventory levels, group normalized ROCE increased by 143 basis points to 15.1% And was driven by increases in all business units aside from New Zealand Food, which was impacted by lower EBIT in F21. Moving to Slide 19 and our capital management framework. On this slide, we've included a recap of our capital management framework and called out some of the key highlights. As you can see on this slide, we've continued to generate strong operating cash flow in F21. This cash flow has been allocated primarily to dividends and investments in the current year. We have also announced today an off market buyback of $2,000,000,000 to return excess Capital and franking credits to shareholders, which I'll cover shortly. Moving to Slide 20 and our cash flows. Cash flow from operating activities before interest and tax increased 1.7 percent to $6,200,000,000 Growth in EBITDA was somewhat offset By working capital movements reflecting a normalization of inventories and payables relative to the prior year and the reduction of provisions following significant salary team member Remediation payments made in F 2020 1. Lower interest paid was due to lower average net debt and lower borrowing costs. Tax paid increased due to higher installments, reflecting higher profits and stamp duty associated with the Endeavour Group demerger. Cash flow on investing activities Increased 13.1 percent to $2,200,000,000 and I'll talk about the increase in CapEx on the following slide. The increase in repayment of lease liabilities reflects the commencement of new leases and lease remeasurements. Our cash realization ratio was 97% And below F 2020, largely driven by the reduction in provisions from the payment of salaried team remediation costs during F 2021. Moving to Slide 21 and covering off on our CapEx. As a reminder of our capital classifications, Sustaining CapEx includes areas of spend, including maintenance, safety, store renewals, IT and supply chain spend And investments in productivity initiatives to sustain and improve the efficiency of the business. Growth CapEx refers to spend in areas like new stores, e commerce, Digital and other projects that are expected to drive higher sales growth and increased gross margins over time. Operating CapEx for the year With the $2,000,000,000 a little above the $1,800,000,000 to $1,900,000,000 we forecast in F 2021. This was due to increases in sustaining CapEx, Particularly in IC supply chain and renewals as well as growth CapEx driven by our increased focus on unlocking ecom capacity during the year And driving digital traffic. We've also worked to identify how much we're spending on our sustainability initiatives to highlight our commitment to driving a better tomorrow. In In F 2021, we spent approximately $170,000,000 on capital projects with strong sustainability benefits, including areas such as refrigeration, Lighting, solar and HVAC. F'twenty two operating CapEx is expected to be approximately $2,000,000,000 despite savings related to the Endeavor Group. The increase will be driven by investments in supply chain, in particular, our New South Wales supply chain projects increasing ecom capacity, including the commencement of our automated customer fulfillment center in Auburn, New South Wales, together with ongoing investments in digital initiatives, as we look to support long term growth of the business and drive sustainable long term value for shareholders. Moving to Slide 22. Today, the Board has approved a final dividend of $0.55 with the F 'twenty one full year dividend of $0.108 up 14.9% compared to F 'twenty. Endeavour Group is also expected to pay a dividend of $0.07 per share reflecting its earnings for half 2. Including the Endeavour Group half two dividend, the payout ratio represents approximately 74% of group NPAT before significant items. It should be noted that one of our goals in determining the F21 dividend was to ensure that shareholders receive dividends from Woolworths and Endeavor Group That are broadly equal to the dividend that would have been expected if the demerger had not gone ahead. The Woolworths Group Final dividend included approximately $0.04 per share to achieve this. Turning to Slide 23 And our off market buyback. As mentioned earlier, the group today has announced an off market buyback of $2,000,000,000 1 September will be the last day that shares can be acquired on market to be eligible to participate and qualify for franking credit entitlement. The buyback is expected to release approximately $840,000,000 of franking credits for our shareholders. Further information is available in the buyback booklet also released today. Moving to Slide 24 covering funding and debt. The group's sources of funding and liquidity remain strong with good access to both bank and capital markets We ended F21 with net debt excluding lease liabilities of $1,400,000,000 On the 28th June, The 1st day of the new financial year, Endeavour Group repaid $1,700,000,000 of intercompany borrowings to the group. Woolworths also deconsolidated Endeavour Group's Cash of approximately $440,000,000 We remain committed to a solid investment grade credit rating And a significant headroom above the threshold for our current ratings of BBB from S and P and B,882 from Moody's. We intend to launch a debt capital markets transaction shortly with an estimated size of approximately $1,500,000,000 To secure long term funding for the investments in Quantium and the acquisition of PFD and to lock in long term debt at attractive interest rate. Turning to Slide 25 and closing with a brief update on PrimaryConnect. MSRDC continues to increase throughput Despite COVID disruptions over the past year, averaging 2,100,000 cartons per week in Q4 with further increases in volumes expected in the F-twenty 2. Melbourne Fresh DC opened ahead of schedule in August 2020. The development of a new 20,000 square meter fresh Distribution center in Auckland is progressing well with completion expected in 2022. In June, we announced a new seventy 1,000 square meter fresh distribution center to be built at Weatherall Park in Sydney to consolidate the currently fragmented temperature controlled network in New South Wales. We also began work on our new Moorebank National Distribution Center, which is part of our overall ambient network project in New South Wales with the 2 DCs opening in 2024 and 2025 respectively. Thanks, everyone, and I'll now hand it back to Brad. Thanks, Steve. Turning to outlook. We know that COVID will continue to have a profound impact in F 'twenty two, especially in the next few months, and making any predictions about the year ahead is very difficult. What we do know is that our commitment to operating COVIDSafe remains our number one priority and our ability to respond quickly and effectively to disruptions is now just part of the way we operate. The ongoing impact of COVID has led Strong sales growth of approximately 4.5% in the 1st 8 weeks of F 'twenty 2 in Australian Food As in home consumption has increased, particularly in New South Wales, 2 year growth in New Zealand has continued to improve with some sales benefits from recent lockdowns included in those results. COVID costs have also increased with $41,000,000 of COVID costs in the 1st 8 weeks of F 2020 2, Equivalent to 0.5 percent of sales, BIG W has been negatively impacted with the number of stores impacted by some form of restriction And sales declining by 15% for the 1st 8 weeks. As a result and given the outlook in the next few months, BIG W's EBIT is likely to be materially low H1 of F 2021. As Steve already mentioned, CapEx will be approximately $2,000,000,000 in F 'twenty two, predominantly driven by supply chain and e commerce investments. In summary, we are excited to be embarking on the new era for Woolworths Group and remain focused on our key strategic priorities in F 'twenty two. We're also focused on leveraging our core capabilities and platforms to grow our food and everyday needs ecosystem by expanding into complementary areas that deliver more value for our customers. While we are excited about what the future holds, we are realistic about the challenges that lie ahead in the next few months As we work through driving vaccination rates and responding to the challenges and volatility of the delta strain, I will now turn the call over to questions. Thank The first question today comes from Michael Simotis from Jefferies. Please go ahead. Good morning, everyone. The first question for me is on the outlook for CapEx. I guess $2,000,000,000 is a big number, given it doesn't include Endeavor Drinks and it's almost twice your asset depreciation. Should we think about FY 2022 as At peak year for CapEx or is the investment likely to continue at a similar rate for the next few years? Thanks, Michael. And a very good question. I'm sure Mr. Errington was hoping he would get that before you. So You're ahead on that one. I might turn to Steve to elaborate on where we are in capital. So we can sort of preempt a few other questions that might come on this front. Over to you, Steve, to talk through what we see the capital profile looking like in F 'twenty two and any thoughts you might have on the outlook more broadly. Yes. Thanks, Brad, and nice to chat. Thanks for the question, Michael. Look, it's something that we think a lot about in terms of Balance sheet settings and how we manage our capital and particularly how we allocate our capital and we as we lay out in our capital allocation framework, We look at both how do we sustain our business and how do we grow our business. The next couple of years in F 'twenty two, we've called out specifically, but we have Some specific investments that are really about enabling the long term growth of the business and also maintaining and hopefully growing our advantage. And that's in 2 areas specifically. Firstly, in supply chain. So as we announced this time a year ago, our investment in Moorebank, That is expected to drive increased spend both next year and potentially in the couple of years thereafter with the opening in 2024 and 2025. We've also announced that consolidation of our fragmented temperature control network in New South Wales into a new facility built at Wethereal Park. So The way I think about that supply chain investment is really, we're at that point in the cycle where New South Wales, our most important state where we have our biggest market Sure. We need to reinvest back into the capacity for the next stage of growth. And we think that those are investments that won't necessarily pay back in The next one to 2 years, but will set us up for the next stage of growth. So certainly, they are multiyear investments that we are making in the next 2 to 3 years. When it comes to e com, that's the other place we'll be continuing to invest. And you would have seen in our CapEx slide We did step up our investment in e commerce, as we have been doing for a number of years. And actually, that's holding us in pretty good stead right now if you think about The demand for e commerce in this delta world that we're living in, but we'll continue to invest in e commerce capacity, Both in putting more drives into our stores, enabling capacity in the stores, to allow them to cater for when E commerce represents up to 20% of our penetration, which we think will happen at some point in the future, and we want to make sure that Our store network is an advantage and future proof. And then the other thing we're doing is we're making that next investment in our Capacity for e commerce now and that's the next step up in terms of automation. We've obviously got the takeoff units. We're now going and building An automated CFC in Auburn. So ultimately, the areas where we've chosen to step up the investment, it's a conscious choice, Are things that we think will give us both capacity for long term growth, but also give us advantage and protect the advantage that we have in e commerce. Okay. Thanks. So it sounds like we shouldn't necessarily expect it to drop materially beyond FY 'twenty two Is what I think from that? No, I wouldn't have thought so given the supply chain pipeline we have for the next couple of years. Yes. Okay. And then the question from me is around your margins in the Australian supermarket business. I know it's problematic trying to separate cost of goods sold from CODB. But if we sort of look at the CODB line and CODB margin, even with pretty healthy sales growth and COVID costs falling, there was a little bit of deleverage and the margin expansion came from gross margin. So I'd just be interested in whether you can continue to grow gross margin fast enough to offset that deleverage, Particularly in the context of my previous question in that I would expect D and A to start to tick up through the Australian Food business as well. Thanks, Michael. And I think I may have expressed this before, my view on the efficacy of GP and CODD, the way it's Currently defined for our business, I think it's questioned on a go forward basis. And one of the reasons actually our CODB has Gorna, certainly in the second half was related to the e commerce costs and us picking For e commerce orders in our store, which is in the CIDB, actually the net delivery cost sits in the GP. So you sort of As our business show changes, the way we measure things is something we're going to have to turn our minds to in the next couple of months. But again, let me expand on sort of what happened in the P and L just to provide context That's what you had to say. And I might also then get Natalie Davis to elaborate on my comments. On the GP line, it was A pleasing year, really primarily driven by our continued progress and improvement on the topic of stock loss. And we've been working hard as an analyst for many years, and it continued its progress very pleasingly through a whole range Of initiatives, and that was a material benefit in the GP line for us and also then some changes In mix of business, as actually the frozen category, in particular in the second half, has started to grow quite strongly So, as has control category, we can come back and talk about the reasons there. One then, in the CODB, The material growth in e commerce has put a lot of pressure onto the business and making sure we pick and pack and dispatch the orders. And you see that in the CODB line. The highest growth role in Cyber Woolworths in the last year was our personal shoppers and we have in the order of 25,000 personal shoppers in the business as I speak today. And it's become a material part of our business. There's lots of things we're learning and working on there to improve efficiency of the way we route our teams through the store. We've got pick to light and a whole range of very exciting initiatives, but it's still a work in progress. So a large investment there. Also in addition, a slowdown in some of our productivity improvements. One of our anxieties right now is a Team that is tight and fatigued and a number of those understandably, we had to slow down through the year and that was a very conscious Choice and decision. And then, of course, just in wage rates Going up. So that sort of gives you a sense of where we're at. On the go forward, we do think, of course, And our aspiration is to continue to improve the overall performance of the business and we see ranges of opportunities, material opportunities in our GP Line as well as in how we improve using technology to improve the things we do in CODB. But, Natalie, is there anything you would specifically like to call out, in particular in the second half, Michael, where we're lapping What's the material COVID costs in F 2020 as you would know? Thanks, Brad. Yes, I'd just like to I do think we're constantly looking at our profit flow through and trying to make the right trade offs. We did have a very good year on stock loss, and we now have stock loss underneath 2.5%. We're really focused on And we see further GP upside in areas like tailored ranging that Brad called out. Also really using data, so we're working on what we're calling next generation promo of effectiveness, but really using data to help Target our investments in promotions, so for maximum impact for our customers. And we continue to see upside in CODB, we've called out some of the initiatives we're putting into store to leverage technology to make processes much simpler for our store team. And I think Action Center was a really good example of this where we effectively have created a number of different algorithms, but our team just gets One set of alerts prioritized around what they need to do, whether it's a waste and markdown, whether it's Replenishing the shelf, it's all in the one place. So we've got a, I think, a long programmatic approach there to really try to remove Paper from our stores, automate things and make things simpler, while we also invest in the future. And clearly, e comm growth It's a priority and leveraging our stores to provide that convenience that our customers are seeking is incredibly important for us. So there are definitely opportunities there, and we're just very conscious at the moment around the pressure in our stores on our team And just making sure that in the short term, we're looking after our team, which might mean that some of these productivity opportunities really are more of a focus in half 2. The next question comes from David Errington from Bank of America. Please go ahead. Hi, Brad. Hi, Natalie. Can I follow-up on the cost Question? When I look at the first half, your first half cost of doing business on first half Increased excluding COVID costs by 5%. But when you look at the second half on second half, Your cost of doing business excluding COVID costs increased by nearly 9%. Now I know that the you just explained well about e commerce and the accelerator, but there was a huge jump in e commerce Sales growth first half on first half, I think you went from about 4.4% sales penetration. You sizably stepped up in that first half up 7.7. And the second half step up was there, but it wasn't as big a step up in that second half. I'm just wondering, are you investing ahead of the curve with your e commerce? Because it just looks to me to be I understand There's responsive costs, but there's get ahead costs, if you know what I mean. Have you invested ahead of the curve For further acceleration in e commerce in the second half relative to first half, because there is a significant jump in that second half cost of doing business Relative to the first half. Thanks, David. A really good and important question. Firstly, I think if you just look at the second half and look at our basically flat sales Profile for the second half, it's clear that all of our growth came through Commerzbank. And essentially, there was Some negative operating leverage in the stores. If you look at store originated sales, and this is not uncommon to us, It would have been something that was true across most retailers. So there's the issue of making e commerce As possible as it should be, there's also the issue that Natalie talked to on making sure that we use technology to simplify our stores to deal with The challenges of negative operating leverage at a store level and it will be an ongoing conversation, I think, with Woolworths and virtually Every other retailer in Australia in the next couple of years. Secondly, to your point, David, we have continued to materially invest And e commerce capability and capacity, and this has still has some very good stead in the last 8 weeks, in particular in New South Wales Given the lockdown, so you can see the numbers. And we are committed to continue to invest ahead of the curve With our belief set that actually the more supply we add, the more it's taken up. So we supply constraints more than consumer demand constraints, particularly in the time, of course, of And so there's a whole range of investments there that we've been upskilling the team, building more capabilities into Woolies X That Amanda can talk to making our stores more e commerce enabled in every case and so on. So clearly And a very important part of what's going on there as well. And what I'd say about e commerce right now for us is And this will change on the go forward again. Getting capacity out there has been our key. Actually making it efficient and effective is something that we still need to do a lot more work on. We're aware of the opportunities, but when you're in the middle of these COVID challenges, the number one thing is getting the customer So getting the product to the customer and there's quite a lot of engineering work that can be done on the back. As I say, how do we write Personal shoppers through store and get the right algorithm in place, how we cube out totes. We still need a lot of extra air in our sites and so on. But Steve, I'll turn to Steve first, if that's okay, David, just to give you sort of a financial explanation of what happened in H2. And then perhaps back to Amanda first on e commerce and then Natalie, anything you'd like to add at the back end. But Steve, I know it's just useful For us to lay it out for everyone on the call, if that's okay, if we first start the financial side with you, Steve. Thanks, Brad, and thanks, Doug, for the question. We looked at exactly the same analysis you've been looking at in terms of that cost growth in the second half, and I think there's a couple or a number of elements to it. Yes. The biggest one that we've called out is the cost associated with e commerce and the picking and the mix impact that that has. There is a degree of additional costs that goes into our existing store network. So if you think about we have flat growth in the second half, But we had all of our growth came from our e commerce in effect. Therefore, the stores The store originated sale, albeit a lot of the e commerce is picked in the store, effectively went backwards. But at the same time, we continue to open new stores. We continue to see Some inflation on things like rent where we get turnover rent that links to elevated sales in the prior year interestingly enough. Yes. We continue to have some depreciation and timing impact. If you think about the lockdown in Victoria that you personally had to live through, We weren't able to execute things like training or the rollout of some of our productivity initiatives that then fell into the second half. So there is some timing That we would probably have distributed across the year. And I think probably the other one that's worth calling out, and Amanda may want to add some color on this, We have continued and consciously to invest in some of our digital capabilities and some of our ecosystems. We've continued to add functionality to our apps and our websites and enhancing those. We've continued to invest in digital traffic generation, which is supported, But sales into our stores, sales into e commerce as well as supporting some of the growth that we've seen in cartology. And we're also standing up some new businesses in our ecosystem that are embedded in those costs. So things like Healthy Life, Willy to Work, WPAY. And I think probably just the other point and Tied back to what Brad said right upfront, we do have a tied team. The reality is that team didn't take the levels of lead that we would typically have done. And so There is a burden on our cost base throughout the year in terms of slightly higher levels of increasing our annual leave and long service leave But Amanda, thanks Steve. Anything you would like to add by way of color? And I'm sure, hopefully, everyone knows Mander is the Managing Director of our Woolies X business, which has the digital and e commerce partnership Thanks, Brad. Look, I think it's been really well covered. I'd just add a couple of Key points, if I could. Just on e commerce in particular, we are seeing when we compare H1 to H2 An ever improving performance when it comes to what we call out as directly attributable profit. And so we are pleased with some of the productivity measures that are starting to flow through in terms of both logistics And the drop costs that we saw in certainly H2, which were an improvement on H1, also in terms of our Labor rate and just looking at the productivity and as Brad spoke to, we've got a number of initiatives underway around Picking efficiency, particularly in our store, which is absolutely critical given the important role that our store network Please. The other comparison just when we think about H1 to H2 is important and that is that in H2, we were Carrying some additional costs from some of the 2 CFCs that actually really didn't land until very late in the first half. So you'll see that as a distinct difference between the 2 and those CFCs are playing an absolutely critical role right now For us, we've been really, really pleased with those investments and frankly those facilities are now running at Almost full utilization as you could imagine in New South Wales and in particular. So overall, I think we're very Pleased with the ever improving productivity out of Ecom. There is more work to do, of course, but I think that that's the key comparison. Of course, when you look at H2 last year, e commerce, Particularly in that March April period was deeply disrupted in terms of offering our services because of the supply chain challenges we had. And so Those costs won't have been as overt in the base for the previous year when you compare it. So, yes, a lot more work to do, but I'd We're very pleased with the current trajectory in terms of ever improving profitability coming out of ecom. Thanks. Thanks, Samad. Hopefully, David, that at least provide some color to the question you asked. Thank you. The next question comes from Grant Saligari from Credit Suisse. Please go ahead. Good morning, Brad, and thanks for the opportunity. I Just like to have another shot at the investment profile question, if I could. I mean, I can understand you've unashamed of the Taken the business on a growth strategy and that sort of comes through in a number of the initiatives. And we I think we all understand with that sort of growth strategy, I mean, the investment upfront is required and there's some impact on free cash flow. And if I look sort of fairly simply at the numbers, you're sort of after dividends or sort of free cash flow slightly negative this year. Next year about $1,400,000,000 EBITDA drops out with Endeavour not being present. The CapEx profile doesn't change a lot. So The implication is probably unless something else changes a lot on the profitability side that the business does go pretty significantly free cash flow negative. And that could continue for a couple of years with the investment profile that you've got in mind. So I just wanted to sort of cross check with you to see that that is the sort of financial shape that we should be thinking about as you invest upfront and set this business on a growth Thanks, Grant. And again, I'll let Steve talk to them. I mean, I think the big difference In previous years, it's not actually investing in e commerce and store renewals, and we've been doing that for a while. As you know, we might be challenging changing the balance there, But we're getting to that peak period and what is more our long dated capital investments around supply chain. And for reasons everyone in this call, I think, would understand, we've I've been trying to make sure we were comfortable with the performance trajectory, which we'll come back to on MSRDC before We moved, but just given our capacity constraints in Sydney, it was just essential that we announced and started activating our Moorbank Jewel facilities, our national DC as well as our RDC and then our new fresh DC in Sydney as well in Werribee. So that's what you've seen come through on top of that normal profile. So But Steve, do you want to just talk to the details of what it means in a cash flow sense with, of course, the usual sensitivities around providing guidance? Yes. Thanks, Brad. We'll do. So Grant, just you sort of have an implied question on cash realization in the Let me just quickly cover that off. As you know, we typically target to have a cash utilization ratio of 100 or better. This year we're slightly below at $97,000,000 The key driver there is actually the timing of payments against the salary remediation activities From the prior year, so we had over $250,000,000 of payments in the current year. But if you looked at our cash realization ratio across 2 I think we did 124 last year and 97 this year. So we typically target 100% or better. Just picking up Brad's point, we don't want to give guidance on cash flow as we don't on earnings, but We will typically target that 100% cash rate or cash realization ratio From operating activities there, that step up investment will put pressure on that in F 2020 2. It is something that we need to manage. That said, we also look at it in the context of the long term and our goal is to create long term shareholder value and we think some of these investments are very much around Creating long term value and we believe that we do have the capacity on our balance sheet and we're well positioned against our credit metrics even after the buyback To be able to fund a little bit of additional capital, not a little bit, a fair amount of additional capital around what are strategically important investments for us. And we do believe that that will deliver long term value. Thanks, Ross. Thank you. The next question comes from Sean Cousins from UBS. Please go ahead. Thanks. Good morning, Will. Just a question on the 1st 8 weeks Trading obviously very strong given what you're cycling in first half Q1 'twenty one and even Q1 'twenty with Ushi. So just curious around Online as a share of sales, how does that compare to the 8.5% and maybe if you could quantify that? And any impact on availability of this concerned around You've got 3,500 staff in isolation, I assume because they're in exposure stores and we understand merchandisers are struggling to get into store. I'm just curious around Are you even, dare I say, missing out on sales because availability of gaps on shelf might become a problem, please? Sean, thanks for the question. Look, when you look at our growth in Australian food of the 4.5% for the 1st 8 weeks, 8.5%, as you rightly pointed out, on a 2 year basis. It is materially driven by e commerce. And We've literally doubled our e commerce capacity in New South Wales in the last probably 12 weeks. It's an extraordinary effort by the team to put the capacity into the field, so to speak, and leveraging on the investments we just talked about With, in particular, our Lidcombe CFC, which we commissioned in December last year, which has proven to be incredibly important and doing, think somewhere in the order of 17,000 orders a week as I speak. So it really has been, for understandable logical reasons, An e commerce story, but a very good mix actually interesting enough between home delivery and direct to boot services. So it's Got a nice balance, which we think is important. On availability, actually product availability has been not bad for us to date, But there are a lot of stresses and strains as you rightly point out in the supply chain as we speak today. And these are partly driven By the fact that we have a number of our team in our DCs in isolation, actually we've got a material number of them coming back to work today, thank goodness. And we're working very closely with New South Wales Health to adjust how we treat close and casual contacts with the vaccinated Workforce and also where we're doing antigen testing and then we've got a very detailed track and trace process in our DCs. So we're hoping we can address the issue, but there are some challenges right now and I would expect those challenges to continue Probably for the next 7 to 14 days. What it means right now, we're probably running an out of stock rate in e commerce On average of 5%, and we can easily substitute against that. But how things play out, in particular, how we engage and how New South Well, Health Department engages with us in the next week or so, we'll dictate whether that goes up somewhat. Are we potentially losing sales? I would say so based on actually e commerce More than availability, customers at this point in time are willing to substitute product, but it can take 3 days or 4 days in some areas to get a delivery window right now. And one of the things I'm always conscious of when speaking to media or analysts is we all I have personal experiences with Woolworths. And I'm sure all of you either directly or indirectly know what our delivery window performance is. A very important thing to reference for everyone on this call, either media or on the analyst side, We are saving capacity for our priority assist customers and this is critically important for us to make People who really need home delivery get it first and get it in a predictable way. And we've got 900,000 customers on our priority assist Scheduled, so we are actively adjusting and balancing as you might expect as we go forward. Brad, you said you doubled capacity in online. Thanks for that. Would it be fair to say that you've got e commerce double the share of where it was in the Q4? Or is it in the teens? Maybe you could just sort of I'll provide some more questions. You look at so we had it's not to be disingenuous, but it is constantly Change in our e commerce penetration in New South Wales has gone up materially, Sean, to be honest. On average across the country, it hasn't gone Quite as dramatically, but certainly New South Wales, it's probably, if not double, gone up very close to double, just based on what I've just been saying. And we will continue in working very hard between NatGen's team and Amanda's team to add more e commerce capacity in the upcoming weeks into the field. Thank you. The next question comes from Brian Raymond from JPMorgan. Please go ahead. Good morning, Brad and team. Mine's just on inflation and the outlook from here. Obviously, you're cycling some pretty strong inflations. I can understand the numbers Remaining pretty negative at the moment. But in terms of the outlook, there's a lot of price increases coming from suppliers. There's challenges around global supply chain. And at the same time, we're seeing promotional activity bouncing back. Excluding fruit and veg and tobacco, how are you seeing the basket, The overall cost of basket or the overall inflation measures looking over the next year or 2, do you think there's a bucket pressure on those metrics at the moment? Hi, Brian. Thank you for the question. I'll provide some context and ask Natalie to add additional color. And it will sort of be quite extensive on the audience here because I think this is a really important question to provide full context. Obviously, we've seen Q4 deflation, and that really is as much a product to what we saw in the previous year as anything else. We'll come back to some elements of it. So it's been an incredibly challenging year to unpick all the moving pieces, In Q4, in F 2020 was a period where we had to stop our promotional program and then we put it back in first online and then And then slowly back into a more full catalog program. So you are seeing the cycling impact in Q4. The question then to the one you rightly point out, what is the outlook going forward? And as always at Woolworths, we sort of look at the long life categories, is the one you're asking about specifically separate to our fresh categories and then tobacco, which has generally been inflationary but will become less inflationary The changes in the application of CPR to EXOS in September. So firstly, just on the fresh side, it has continued to be a tale of 2 halves there with meat prices continue to go up, But we've had deflation in fruit and veg, in particular, in fruit, just with banana prices coming down. And We expect while we'll see where meat goes, it will probably continue to be slightly inflationary. It looks like at least for the next half, Fruit and veg will be deflationary. Call out the rate value sitting there in avocados for those of you interested in super fruit and there's a material oversupply of avocados. So We'll continue to see the equation. On the long life side, Matt, you'll talk in more detail. But obviously, just on the indent side of our business, Hopefully, everyone is aware of the material pressure right now in international freight rates. And they've gone up in the order of between 25% 30% depending on what ports we're looking at and what time frame we're looking at. This has been somewhat offset by exchange rate movements, but not totally. And the outlook on international freight rates is it doesn't look like it will be coming down potentially going up. So there is pressure on international freight rates, never mind All the other pressures on input costs as well as the disruption a number of our suppliers are finding in their own Supply chains and manufacturing assets and what it does to cost there. And so we are starting to see more cost increases come forward, And we'll work through those on an individual case basis. So you are starting to see certainly a lot more Understandable engagement in that area. And on that issue specifically, Matt, I'll ask you to provide a little bit more color, if you don't mind. Thanks, Brad. I think you've laid out the dynamics very clearly. So we are cycling the reduced Number of promos probably for the next couple of months and that impact will begin to moderate. We are seeing a step up In long life in terms of cost us by suppliers, and that's being driven by freight costs in some instances, but also by prices in other instances. So as an example, vegetable oil prices have gone up and That's being reflected market wide in terms of vegetable canola oils, but also in products that rely on those inputs such as Frozen chips. So we do expect to see moderate inflation emerging over the course Continued ongoing pressure on red meat prices in the short term. And As Brad said, fruit and veg, there's a number of different dynamics in play there. But certainly, the avocado season has been a bumper one, and I'm sure Australians are enjoying their avocados for as low as $1.50 or $1 in some instances. That's great. If I could just follow-up very quickly. The is it still rational in terms of the market reflecting these genuine price increases? And Do you think that do you think other players in the market are seeing similar pressures? And if so, is everyone passing these costs on as you would expect them to? Brian, I think if I again just start more because I think a key question for us on this matter is, yes, We have seen it as being relatively rational. And one of the big issues for us has been making sure our price indices Continue to track where we want them to be. And that's been true for the whole of the second half of last year and then into this year. So we are seeing A relatively rational industry and our price indices against our key competitors continue to be where we want them to be. But, Natalie, again, I'll pass over to you to add more color as you see such. Yes. I think we are seeing a rational market. And for us, it's very important that we balance the For us, it's very important that we balance the genuine cost of our suppliers with also the need of our Customers to have value for their groceries, so we continue to balance those two dynamics out, And we're very pleased with our overall price index and the value we're providing for customers. All right. Thanks. Thanks, Brian. Thank you. The next question comes from Tom Curath from Barranjawi. Please go ahead. Good morning, guys. Yes, just following up on Brian's question on inflation. How long do you think it will take for The input cost to be reflected in pricing? I know the grocery code has kind of 30 days that you need to respond to suppliers, but So how long do you think it will take yet for it to be reflected? Look, Tom, Great question. I don't think we can give you a definitive answer. I mean, the way we measure it is with the Fisher method, as you would know, sort of means that it's a more gradual slope that you get So, I reasonably would expect a very gradual process of moving back into inflation in long life items over the second the first half of this year and into early next year. And a lot of the numbers, by the way, Caveat in the first half of the year, just given all the challenges we have with the delta strain and therefore substitutions and Trading into large pack sizes and all that up. I think it will still be a very noisy half for measuring it, but I think we'll see a much That's a version of it coming into H2, but as I say, a lot of caveats on that, if you don't mind. Yes. Okay. Understand. Thanks, Brad. Thank you. The next question comes from Craig Woodford from MST Marquis. Please go ahead. Good morning, Brad. Good morning, Stephen. I just wanted to pick up on the topic around the negative operating leverage in stores. It's sort of one of the inferences from The strong e commerce growth you're getting and the costs that are coming through there, can you just give us a sense on what costs the company is trying to reduce In store, related to store based sales. And is the company rethinking store openings in supermarkets given Ecommerce Growth? Thanks, Craig. I mean, I think firstly, the way we are Trying to think about it is sort of in the network economic sense. So how do we drive a better store outcome for Customers and economically. And so we're always trying to balance what the store does to support e commerce together with what it does to support Store originated sales, so you need to look at them together. I was just making the point that actually when you look at the store, we've got the pressure of serving the e commerce Part of the business as well is the fact that the store originates store sales are going down, but we try and look at them as one integrated Units, if you know what I mean. And where we are probably different to some retailers, in particular overseas, is our belief that Stores have an incredibly important part to play in e commerce going forward, in particular as most e commerce moves to either same day or on demand And in some cases, sub-sixty minute. So we are trying to recreate or reimagine our stores where they meet all these different needs and work through all the different productivity initiatives on the e commerce side as well as the store side. If you then look at When trying to make our stores fit for purpose, how we use data and technology to improve all of our processes in the store is the key. And that's really where the work and initiatives are. We've got quite a lot of exciting initiatives underway, as Nathie talked to. And The real issue question is not whether they work. It's how we thought we and sense in this scale them up in the context of COVID. And so that is where our challenge lies. But if you look at the store cost, it really does come down to It really comes down to how you manage your team and the hours and the processes underneath that. The number one opportunity as always there is getting the right team On the right day and giving them the right hours to do their job and that's our biggest individual initiative that we have underway going To F 2022 and beyond. And then within that, really you've got to look at How you optimize your checkout processes and balancing between ACOs and Belford and the role that Scan and Go can play. And then, it is really how you replenish the shelf and how you want to balance off what's happening there and using technology. So, I don't think there's an easy answer. We can see an exciting group of initiatives. And I'd say our Smart store technologies are working very well, in a normal course of business. We've probably showed them to you, whether it's One that Gregory Hills, which was our original one 2 years ago, which is really delivering for us in particular or any of the other newer ones, But we can't, unfortunately. And if we showed them to you, you would see the fact that we've actually now got electronic shelf labels working for us. And we're rolling them out into a number of our stores as we speak. And they not only, of course, take pressure off in the ticketing process, But also they have pick to life capability to help accelerate the online pick for the customer. We could show you our computer vision Scanning on the shelves to help us manage refill and at least talked about Action Center and what's happening there And a number of other initiatives, including an automated temperature checking via our moniker handheld devices and so on. So I think we feel Optimistic that we can thread this needle, but it's just a caveat on COVID that's the challenge. Okay. And just in terms of store openings, just to clarify Yes. Sorry, Craig. I went on too long. My apologies for that. Look, Natalie, feel free to correct me. Store opening hours are actually just driven by COVID right now. So anything you've seen with us adjusting So open is not to save money or cost or we think there's an efficiency play there. It is really simply driven by how we think through COVID, curfews, Given the stock pull for the customers and so on, we don't see adjusting store opening averages and material Productivity play for us. Feel free to correct me. Yes. So I think, Brad, the question was around new store openings and will we continue to open new stores? I'm caught up in curfews. And the answer to that is yes, Because we're definitely still seeing high returns to our new store openings. And our new stores are also used to fulfill online orders, whether that's Direct to boot or delivery. So we see the store network playing a very important role in our e comm offering going forward. And Craig, it's sort of in the realm we have now, the 15% to 20%, we feel that's the right number. You'll remember well, Back in 2015, we got up to the 32 to 35 stores. So we kind of like where we are now. And as Natalie pointed out, Actually, our new stores are performing very well. They're very fit for purpose. And we've actually had a really good patch of New store openings, I should call, on both sides of the Tasman include from June and into July. Now we've got a lot more delays now. But there's actually been a really high quality portfolio that's been delivered. Thanks, Brad. Thanks, Natalie. Thank you. The next question comes from Phil Kimber from E&P. Please go ahead. Good day, Brad. My question Was on BIG W and I know there was questions before on the supply chain and freight costs. I mean, we're reading freight costs 3, 4 times higher for general merchandise. So the question is really, first part, are you Seeing that and is that something we should be anticipating in terms of thinking about BIG W's results? And then secondly, Just actual inventory availability given supply chain issues, so putting that the price might be going up, can you actually get the stock at the moment? Well, I think it's a great question. I'm going to and I'm going to throw it to clear, Peter, to provide more color on it. I just would make the point that the international freight costs are there's a lot of pressure there. We are fortunate to have Relative scale in the space and good long term contracts and relationships with most of the international freight companies. So Scale does give us some benefits here on a go forward basis. And actually, the number one way we're leveraging right now is Just to get capacity to get products into Australia given what happened in China last week. And so we are anxious Just more broadly on making sure we get all the products we need into the country for Christmas in food and BIG W. But coming back to BIG W specifically, obviously, some challenges in transitioning to our new DCs in Perth and Melbourne that puts a bit of pressure on availability into our business. And then you add that together with some of the challenges on getting the product landed on the stores and there's a lot of juggling to be done. In parallel with the supply chain pressure is given we've got literally half our fleet either shut down right now or only authorized Essential selling in store that is. We're having to work very dramatically through what products we actually want to bring into the country And how do we rethink our sales and inventory profile? But over to you, Claire, to add more color to that. Thanks Brad and thanks Phil for the question. And you're absolutely right, global shipping in the GM market is in that More 30%, 40%, predominantly obviously based on this time last year when U. K. And U. S. Was closed. So we are seeing that much more competitive market, which is driving some costs through. It wasn't a surprise coming into the year, so the team have got some Good productivity initiatives to offset, what we knew would be coming through in this half. I think playing to Brad's point, We are we've got good relationships at Port and prioritization and heavily prioritizing what our customers' Needs are for this next half is what the team are working very hard on with vessel prioritization at port. That would be, as you'd imagine, spring, summer, Halloween and Christmas. We know in BIG W how important these customer events are and would expect us To have a value promotionally driven digital Christmas. And we can see already customers are searching for Christmas. I think only 2 weeks ago Christmas as a word went to the number one search. So given our customers That ability to plan early to be able to budget to see what's coming through is a way we've changed our way of working. And I'll be comforted by some of the more smaller events that we've seen. And for anyone on the line who's got kids, Book Week Dress Up was still as big this year as it has been any other year because customers are adopting to how they do those events, whether via Zoom or whether it's actually just being done at home to bring a bit of joy into that. So we're very mindful of inventory. We're very mindful of the shipping. As Brad said, we have Transition through RDCs will be going into this Christmas with a network that brings product closer to the customer, Which also therefore means we can bring more vessels into ports across Australia, which is what we are working through now to get Product that we need for our customers into the country and on sale for them to be able to plan and enjoy those special family events. Phil, I should just we're very seldom talking about New Zealand. We're also very worried about New Zealand given the NBN stock into New Zealand. Spencer and his team are working very closely with our primary freight inbound logistics team on the international freight logistics on that as well. So I think there are risks associated with for every retailer in Australia and New Zealand in the space. But Hopefully, we're relatively well positioned at this point in time. Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead. Thanks. Actually I had a pretty similar sort of follow on question on BIG W. The lockdowns in Sydney and Melbourne happened right During that sort of winter apparel clearance period, how are you thinking about sort of winter apparel clearing? And is that accounted for in the guidance you've given us for the first half? Thanks, Ross. Yes, and I'm clear to Claire and Pejemann and team for taking early action on that one. So we've actually seemed to have managed that relatively well, and it is reflected In a high level, I guess, in our commentary. I don't know, Claire, if there's anything you wanted to add to that. I think, as you said, Brad, thanks for The question, Ross, I think we're very pleased with how we've exited out of winter rather than waiting to see what if. So we're in a very strong position on winter clearance in all states. As Brad mentioned in the release, 2,400 days impacted is pretty significant. I always look to a half glass full. And whilst our underlying performance remains still very strong, what's also encouraging is our e commerce is penetrated up to 21%. And actually customers are shopping deals through e commerce, including apparel. So There has been some really good sell through on weekends and weekday offers in that space, which means we're ready to launch Spring summer in the 100 stores that are open and trading very well and to the 76 stores when we are able to open them to our Thank you. Thanks, Ross. Thank you. The next question comes from Ben Gilbert from Jarden. Go ahead. Good morning, Brad and team. Just a question for me just around sort of how you're thinking about the business over the next few years in terms of what's Core and obviously Endeavor is demerged now and you've launched the trial of the marketplace up in New South Wales Coast. What do you guys see as sort of your core focus now? Is it food? Or would you think about looking at M and A or More aggressively into some other categories and really expanding, I suppose, the BIG W type offer. And specifically, there are, I suppose it's interesting, Brad, if you're thinking about doing that organically or do you see M and A as a part of that as well? Thanks. Obviously, our focus right now to Christmas is all the issues we talked about on COVID, but our longer term focus is activating that food and Every day, I mean, the ecosystem articulated in our in the presentation and continuing to work through all the segments of that. If you think from a retail consumer back, we want to be quite focused on curating Food and Everyday Needs Products and services for our customers and leveraging everyday rewards to make sure we offer the right product to the right customer, all with the caveat around privacy. So we're not trying to be the everything marketplace, so to speak, of Amazon, but very focused on Food Everyday Needs and everything that goes to do with that. And so that's a very deliberate strategy of ours. It's Deliberately manifest in the partnerships we are doing with Everyday Rewards and also in the additional categories we may grow into through our marketplace strategy. So it's very Q rated 1P, 3P marketplace wrapped around by rewards somewhat monetized by Cartology and obviously the overall sales mix we get. Now as I said, fair to say there will be some delays, in particular in the first half on how we activate that strategy. On the topic of M and A, it's always hard to comment, to be honest with you. Ben, we can only control The organic things we can control. We'll continue, of course, to engage with others as opportunities come up. But we've Had a more answer to at least making sure we manage our own destiny. So the everyday market for those who have an address in the Wollongong Newcastle area It's up and running. We're learning a lot from it. We'll gradually activate it across the rest of the country. Inside the everyday market is a consumer facing proposition called everyday market, but there is also So we've kind of got to have a mindset, build it ourselves and then look at other opportunities and balance them against the counterfactual. So I feel across a whole ecosystem strategy, what I feel good about is when you look at that slide. It's not a theoretical consulting construct. Everything that we need to do is underway at the moment. And the only challenge is what we scale up and how we scale it up given, as we say, short term imperatives and And that whole ecosystem is the new core of Woolworths Group. And our belief set The total addressable market there is material and gives us a good growth profile for the next 3 to 5 years and beyond. Thank you. The next question comes from Richard Barwick from CLSA. Please go ahead. Good morning, guys. Just got a couple of questions online. If I'm reading it properly, your online voice of customer, Looks like it's actually the score is actually down on the Q4 of 'twenty. Just a bit surprised with that because I would have thought you Scrambling in Q4 'twenty and you would have things more under control in Q4 'twenty one given those sort of pre current lockdowns, etcetera. So is there anything to call out there? I think it's a really great question, Richard, and well picked up the topic we actually talked about a lot inside Woolworths. I'll give a high level summary and then I'll ask Amanda to give some detail. Customers expectations of customers are changing all the time would be my headline. A year ago, they cut us some slack for unavailability of items or delivery predictability or speed. A year later, customers aren't going to catch you at the same amount of slack. So expectations are just moving rapidly. And I think, we've got to keep up with them. And that's a major insight to us. There's other bits and pieces that we've learned and I'll let Amanda talk to those. But expectation sets of consumers In digital and e commerce, we said it, but it's been proven true, are rapidly changing, and we need to continue to rapidly innovate and Keep up with it, but can I pass to you, Amanda, for a little bit more color on those comparison? Yes. Thanks, Brad. And you're right, your description is exactly the case. I think when we compared quarter 4 last year, there was this In some way, I think we were calling it out as a halo of gratitude from many customers who were absolutely in need of particularly home delivery services. And so that's why there is that difference year on year. But when we look at voice of customer across the year overall, we would actually say that Overall, we've been improving in terms of our experience and we're very pleased and I think we called this out in the documents shared With our perfect order rates, for example, significant improvement there around complete baskets, on time deliveries, And that's of course a really important part of customer experience. And so there has been this overall improvement, But there are patches where for various different reasons and then usually associated with the release of new Services and so in quarter 4, we released a lot more new capacity for things like DeliveryNow, a 2 hour service. And understandably, customers have very high expectations of a 2 hour delivery service. They're paying a premium for it in terms of The cost of that delivery and so when and as we launch these things and test and learn, there is inevitably a period where customers Mark is down in terms of those voice of customer scores and so you see that too. So there's a very significant difference between Our customer might rate us on direct to boot services, for example, versus home delivery is a same day or a next day service and The introduction of services like the 2 hour service. So there's a big mix shift in there overall. And then of course, if we now just look at How we've been tracking in the last 8 weeks when it comes to voice of customer. Well, unfortunately, there has been an easing Of the scores we're seeing come through and again that's just reflected in particularly those COVID hotspots where there's big surges In volume and customers are not necessarily satisfied with waiting a couple of days for a home delivery slot, etcetera. And so It is a relatively volatile measure for us at the moment, but it's just reflecting the very volatile market conditions. But on the whole, I'd say we're in the it's been trending overall on the improved COVID and new services aside. Thanks, Amanda, and thanks, Richard. Thank you. The next question comes from Johannes Pfohl from Morningstar. Please go ahead. Hi, Brad. It's my question. Given that NSAID will be a bigger part of the group going forward, I I was wondering or hoping that if you could perhaps compare the consumer behavior in New Zealand versus Australia. Are there any differences that you've Observing over the last 12 months. And then related to that, I've noticed that the online growth rates in New Zealand have Happened weaker than in Australia. And is that a function of the higher penetration rate in New Zealand or lesser investment in online or maybe I missed your first one, but I think I've got I think I understand the question, Johannes. So I'll do a high level answer and then I'll go spend this on to provide some color. New Zealand and Australia have been on different paths in relation to COVID over the last 2 years until 2 weeks ago. And I guess that's when we welcome our New Zealand colleagues into the club of dealing with the hard lockdown. There was a short lockdown in Q4 of F 2020, which obviously we've just been fighting and it's reflected in our F 2021 results for New Zealand. But essentially outside of that, it's been A very different scenario in New Zealand, and therefore, the way consumers have behaved has been relatively different. And so that has changed, Unfortunately, for all the wrong reasons in the last couple of weeks, and we started to see much more similarity. Now, if on specifically on the topic of e commerce, New Zealand has led the group in terms of e commerce penetration and that has continued to grow. And particularly if you take up Cycling of the impact of COVID in Q4 last year, and we've seen that accelerate even more so in the last 8 weeks as New Zealand has started to enter the same lockdown. So we're starting to see relatively similar trend lines and behaviors across both in more recent times. In terms of the overall New Zealand economy, one thing that I've learned and we studied all these numbers is just the differences of Tourism and immigration flows and what season they do or don't come into a country. And so New Zealand has been more impacted By, a lack of inflow of tourism actually over certain periods and that's reflected in the subdued growth rate we saw from New Zealand last year. We started to cycle at all now though. And so that's positive for the business this year. So there's quite a lot of moving factors there, but we don't think the average Kiwi is any left choppy commerce and in fact just as likely and that's been all of our experiences. And the rest of it has been just a function of Where the economies have been through either net inflows of people into the country or where they're set in relation to COVID lockdowns. Spenser, I know you've been in New Zealand now only since February of this year. We've only seen you once given the various lockdowns, but Any color you would like to add? Yes. Thanks, Brad, and thanks for the question, Joc. I mean, I think Brad's covered it really well. Just at an overall level, we've certainly seen, Obviously, a challenge second half in real terms as we cycled Through the high base of last year, but we've certainly seen in the 1st number of weeks of this year An improved performance in the overall business, up at 6%. And within that, our e comm growth has continued to be strong With a growth of 20% on a base of 30% last year. So whilst I think as Brad said, it's been Leading light for the group, it's continued to grow and we still believe there's significant growth In our online operation and there's been investment voted towards that Over the last number of years, which we're starting to see the benefit of. From a penetration point of view, Yes. Obviously, the last 8 or so days have been unfortunate as we've started just adjust To the lockdown that sprung on us So it's Wednesday of last week. But just prior to that, we were getting up to penetration levels of around 14% in certain weeks In our ecom business, our capacity within ecom, I think most of you will know, we're able to service most of our customers' Orders within about 40% of our customers' orders within the same day, that certainly hasn't been the case in the last number of days just given The massive demand that's placed that's been placed on our operation, which is starting to stabilize somewhat now as we get into A more, I guess, even rhythm dealing with what is now a new normal with the delta outbreak in New Zealand. But Certainly, from our perspective, very similar behavior across both sides of the Tasman and A strong ecom business for New Zealand in the next number of years. Thanks, Brad. Thanks, Johannes. Thank you. The next question comes from Scott Ryall from Ruma Equity Research. Please go ahead. Hi. Thank you very much. I've come on a little late, so hopefully you haven't addressed this. And I might ask 2 questions In one go because the first one you may need to look back to the first half. In the result releases under Australian Food, both questions, You have a you give EBIT growth the first half of 13% and then You've got a before significant items and after significant items in the full year results. I'm just trying to figure out which The comparable one with the first half, sorry, that's a relatively simple one, hopefully. And then the second one is, You have a metric now called plastic removed in tonnes, and I'm wondering whether that is a cumulative number Or whether that's I should read that as you took out 2,100 tonnes last year and you've taken out an additional 2 point 5,000 tonnes this year. And what is the size of the prize, I guess, is the ultimate question on that one? Thank you. Thanks, Scott. I'll pass the question over to Steve Harrison to deal with Steve. If you could Yes, pretty straightforward answers, I think. Yes. Thanks, Brad. The half one EBIT versus I would recommend you do your comparison before significant items. That's the best way to look at the trading performance of the And then in terms of the question on plastic, actually we've got on Page 28 of our investor presentation, I've actually footnoted it. And so it's I'll read it to you just for clarity. It's an annualized calculated value for each reporting period based on virgin Plastic weight removed per unit times annualized sales volumes. Scott, to your question of how much traffic we aspire to take out, that's a question we're working through at the moment. Obviously, we're quite clear on our aspirations on scope 1 has got 2 emissions alone. We are planning to revisit our aspirations there as well In March next year, when we revised all of our targets, we currently think what were leading edge sustainability targets Back in August, September last year, now slightly out of date. So a lot more work to be done on target setting In the context of sustainability, we've actually set up an advanced analytics team within our sustainability Chapter 2 to review and recalculate all of the targets. So we can't tell you what our ultimate aspiration is For plastic, but we do intend to hopefully have that number early next year and we'll then revise all of our targets as well as in how we measure progress against them. Thank you. That does conclude the question I'll hand back to Mr. Banducci for any closing remarks. Thank you, everyone, for all of your interest in our business. I think it's fair to say We couldn't have presented to you a more complex series of accounts with changes in our portfolio, the impact of COVID and so on. So I really appreciate The nature of the questions are asked today and hopefully our answers help you understand more about our business. As we said at the end, we feel very optimistic about the long term The potential of the group and the investments we're making, but the short term priorities around dealing with Delta and the challenges

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