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Edited Transcript of MYR.AX earnings conference call or presentation 5-Mar-19 10:30pm GMT

Half Year 2019 Myer Holdings Ltd Earnings Call

Melbourne Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Myer Holdings Ltd earnings conference call or presentation Tuesday, March 5, 2019 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Anthony King

Myer Holdings Limited - CEO, MD & Director

* Nigel Chadwick

Myer Holdings Limited - CFO

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Conference Call Participants

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* Aryan Norozi

UBS Investment Bank, Research Division - Associate Analyst

* Bryan Raymond

Citigroup Inc, Research Division - VP & Analyst

* Grant Saligari

Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director

* Keegan Booysen

Deutsche Bank AG, Research Division - Research Associate

* Mark Wade

CLSA Limited, Research Division - Research Analyst

* Morana McGarrigle

Macquarie Research - Analyst

* Philip Pepe

Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst

* Phillip Kimber

Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Myer Holdings Limited First Half Results Investor and Analyst Call, with Myer's Chief Executive Officer, John King; and Chief Financial Officer, Nigel Chadwick.

I'll now hand the call over to Mr. John King. Thank you. Please go ahead.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [2]

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Thank you. Good morning, everyone, and thank you for taking the time to join us today. My name is John King. I'm the CEO and Managing Director of Myer; and I'm joined here today by Nigel Chadwick, Myer's Chief Financial Officer. Please note that this call is being recorded.

Let me start by taking you through the agenda for today. I'll begin with a quick overview of the results and the Customer First Plan. I'll then hand over to Nigel, who'll provide you with more details on the financial results. I will then come back to you to provide further details on the progress of our Customer First Plan and some comments on current areas of focus. After that, there'll be an opportunity to ask questions.

So turning to Slide 4, the first half 2019 results summary. Today, we announced our financial results for the 26 weeks through the 26th of January 2019. Let me take you through a few headlines covering trading, earnings, balance sheet and cash flow. We reported a 3.1% increase in net profit after tax to $41.3 million before implementation costs and individually significant items. I believe this result demonstrates the positive customer response to our Customer First Plan, particularly during the all-important Christmas and Myer sale periods.

Putting our customers first is at the core of all our decisions, both tactical or strategic. We are rigorously focused on long-term value creation and making decisions that we believe are in the best interest of our shareholders and our customers.

As you know, we announced the Customer First Plan in September 2018. As we implement that plan over the next 18 months, our aim is to ensure that we are Australia's favorite department store. Importantly, with the results today, we see further strong growth in our online business, which represented the largest store in the company in December. During the second quarter, total online sales grew by 28.8% to $97.7 million. Online now makes up 9% of our total sales compared to 7.4% at the end of the first half 2018, and we are targeting to grow that to over 20% in the medium term.

I made it clear last year and I will again today that our focus is on cash and profitability and we will not chase unprofitable sales. As you will have seen, the improved operating gross profit margin and continued disciplined cost management combined to more than offset the high depreciation and interest expense, resulting in the improved NPAT. And more importantly, we delivered $173 million in operating cash flow, resulting in a $57 million reduction in total net debt. The dividend remains suspended while we continue to improve the performance of the business.

So let me provide you with an update since the AGM in November on our Customer First Plan on Slide 5. We've made good progress in strengthening our leadership team, and we will continue to work to ensure we have the right people in place to execute our plan. Most recently, Geoff Ikin has joined Myer as our Chief Customer Officer. Geoff's responsibility is for key functions, including online, MYER One, marketing, advertising and public relations. Geoff has led advertising, marketing and media functions at some of Australia's most well-known and respected organizations, including Tourism Australia, Westpac and David Jones. He will be putting a lens over everything we do here at Myer to ensure we are engaging with customers in the best way, showcasing our ranges and offer to give them a compelling reason to shop at Myer, with a major focus on our online business as well as the Myer brand. And as part of this, he'll also be reviewing our MYER One program to ensure it remains one of the best loyalty programs in the country and we maximize the opportunity to develop that business.

As a result of the refinancing process we completed in November 2018, we have a stable financial position and substantial headroom in all of our covenants, which importantly gives us the ability to implement our Customer First Plan.

From our product and range perspective, we will continue to focus on Myer Exclusive Brands as well as introducing new brands. We have a fantastic stable of exclusive brands, and our customers expect constant newness, and we will be enhancing these ranges over the course of this year and next. Our buying and merchandising teams are completely focused on this.

Regarding new brands. This season, we have over 20 with more to come, new and exclusive, with the majority of these being international brands, which are already selling into the country, into Australia, via their home websites. So we know there's an appetite for them. We will also continue to look for operational efficiencies across all areas of our business. As a key part of this work, we're making sure our store network is operating in the best possible way and, more importantly, that store sizes are appropriate for the markets they operate in whilst not diluting our service or brand offer.

I'll come back to the Customer First Plan later, but I'd now like to hand over to Nigel to take us through the financial results in more detail.

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Nigel Chadwick, Myer Holdings Limited - CFO [3]

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Thanks, John, and good morning everybody.

As John has said, these results are very much a work in progress, and they reflect the status of our journey under the Customer First Plan. And whilst they show a modest improvement over the prior year, there is still plenty of work to be done and plenty that can be achieved over the coming months and years.

So I'll move now to Slide 7, the income statement. Total sales for the period were down 2.8% compared to last year and down 2.3% on a like-for-like basis, reflecting lower foot traffic generally but also our focus on profitability rather than sales for sales' sake. These were partially offset by growth in online, which recovered in the second quarter and finished the period 18% up on the prior year. Despite the decline in revenue, OGP was essentially flat year-on-year, and we'll delve into that a bit in a moment. CODB was down 1.3% to $530 million, which was a reasonable outcome given the inflationary pressures, which included an EBA rate increase last year.

So putting all that together, we finished the half with EBITDA of $114 million or 4.9% above last year. We had higher depreciation at $3.5 million this year, principally reflecting the commencement of depreciation under our new merchandising system and our new website, which was progressively rolled out from September onwards. We also incurred marginally higher interest charges of $0.5 million from the higher margin on our new debt facility, offset to some degree by our lower average debt levels during the period.

So our NPAT before implementation costs and individually significant items was $41.3 million, which was 3.1% higher than last year. Implementation costs and individually significant items at $2.9 million after tax were primarily redundancy costs. Statutory NPAT was $38.4 million compared to last year's loss of $476 million, which, of course, included the impairments we took last year.

Moving to Slide 8 to discuss the second quarter. Some of you may recall, within November, we released high-level information on our Q1 sales outcome, which was down 4.8% on the prior year and down 4.3% on a like-for-like basis. For Myer, this trajectory changed for the better in Q2 while still being slightly down on the prior year.

There were numerous signs of improvement we saw in Q2, which included, one, the decline in both total sales and like-for-like sales reduced substantially, largely due to the return to growth of online, a strong Black Friday period and a better execution of the Christmas period. Two, sales mix shifted, with sales from concessions and national brands declining to 20.3% and 62.2% of total sales, respectively; and Myer Exclusive Brands increasing to 17.5%. Three, online sales returned to stronger growth rates of 28.8% after achieving 3.6% in the first quarter following our new website launch and removing some less profitable products from our online offering. If we remove those same products from the prior year sales figures, the half-on-half growth rate would have been 26.5% as opposed to the 18.6% disclosed, and the 2Q growth rates were at over 36%. And fourth, our SLA at the end of Q2 was lower due to the Logan closure, which was nearly 2% lower than the same time last year, primarily due to the closure of Colonnades in March 2018. Overall, this brings the total reduction in SLA from January '17 to today to just over 5%. As I mentioned, these are just a selection of the many areas of activity within the company and they are driving improvement moving forward.

Moving now to Slide 9, OGP. Despite the reduction in sales, our OGP was held flat. Now as we can see on this slide, the negative volume impact from the $48 million drop in sales was mainly offset by improved sourcing reflected in a higher Internet margin and lower markdowns, principally in national brands; the shift in mix from concessions and national brands to MEBs that I've just described; an increase in higher-margin apparel over the online channel; and finally, a lower cost of MYER One point associated with the lower sales and lower discounts on corporate gift cards.

From a margin perspective, this has resulted in an improvement in margin of 1% over the same period last year and has returned us to a similar margin to what was being achieved in the first half of 2016. We continue to believe there are plenty of opportunities to extract further efficiencies in OGP, and I'll touch on those a little later.

Moving now to Slide 10 to talk about CODB. And just as a reminder, CODB includes store and other operational wages; occupancy costs and other operating expenses of the stores; and then head office costs, including IT, loyalty, marketing, merchandising, retail ops and the usual corporate areas of finance, HR, legal external affairs and the Company Secretary's office.

CODB declined from the same period last year despite having inflationary pressures in a number of areas and investment in online and in other projects and providing long-term benefits to the group. Major areas of cost reduction included optimization of our store wages through the work we've been doing with our new workforce management system, and importantly, this was achieved whilst improving our year-on-year customer service metric; lower marketing costs as we redirected our spend; and lower IT costs as we transition to a new service provider and reengineered myer.com using world-leading cloud and IT tool sets and turned off support for old software; and finally, refining the organization structure in the head office and removing the number of unnecessary activities. Again, we believe there are substantial further cost reduction opportunities within CODB, and I'll touch on those later.

Moving to cash flow on Slide 11. Traditionally, the first half of the year benefits from the cyclicality of the business, and this one was no different. As John has said, we continue to maintain a strong focus on cash within the business, which is showing through in higher operating cash flow. The change in working capital is due to the timing of payment runs at the period end, so there's been no deterioration in our working capital position relative to the movement in the prior corresponding period.

CapEx is being tightly controlled and is down significantly from last year as a number of significant projects, mainly in the IT space and store refurbishments, were completed. As we've noted on the slide, the cash flow performance would have been even better if we'd assumed the payment runs occurred on a like-for-like basis at both period ends.

In terms of working capital, trade creditor days were higher than this time last year, but unfortunately, inventory days were also higher but to a lesser degree. We think there are significant further opportunities in working capital and in both inventory management and payables tightened our working capital days. And we've commenced a program of work to deliver those.

So overall, we've delivered free cash flow for the period of $146 million, which is $35 million or 34% better than the same period last year. And net cash flow of $145 million, which is $52 million better than the same period last year.

Moving to the balance sheet on Slide 12. So the key items to note on the balance sheet are obviously net debt. And given the strong cash flow performance, this has resulted in us moving from net debt of $20 million last year to a net cash-positive position of $37 million this year and $145 million better than at last year-end. Equity has improved from both this time last year and year-end. And importantly, both of those items obviously impact our covenants, which we'll discuss on the next slide.

Fixed assets have declined as depreciation expense is higher than CapEx for the period. And then lastly, inventory is down marginally despite us pulling forward some of our winter season product into January to provide some newness to our stores.

Moving now to covenants on Slide 13. Here, we can see our performance in each of our covenant for our new financing arrangement completed in November last year. As you can see, we've improved in each one since last year-end. Importantly, it's worth noting that the first step up in the FCCR occurs at the end of March this year to 1.45x. But even with that, our second half EBITDA would need to be absolutely disastrous to cause us to have any concern of a breach. And given the initiatives we have in place and those about to commence, we think that scenario is even less likely than remote.

So overall, we are very comfortable with our financing position. The financing we've put in place is working well, and we continue to have very strong relationships with our syndicate bank.

Turning to Slide 14. So in summary, we've seen some improvements in the first half of the year. And these have translated so far into an improvement in our OGP margin, higher EBITDA over the prior period, a 3.1% increase in NPAT before implementation costs and individually significant items. And operating cash flow is up, CapEx down, resulting in net debt that's $57 million better than the prior year. So we feel this result is a small step in the right direction, but we are highly conscious that the heavy lifting is still ahead of us.

I mentioned earlier cost opportunities in both OGP and CODB. And these include things like, within OGP, supply chain optimization, including delivery of product, which is floor-ready, to stores and implementing more of a demand-pull model from stores rather than the push model today; and shrinkage where we've just completed a strategic review and will move into implementation mode in this next half year. Shrinkage continues to be at a rate of nearly 1.3% of wholesale sales compared to just a few years ago when we were below 0.8%. We brought back the same leadership to help us reinstitute shrinkage management across the organization, and we believe this will help us reduce our shrinkage moving forward.

And in CODB, online fulfillment. As our online business continues to grow rapidly and as we've experienced over the Black Friday weekend and again on Boxing Day, our fulfillment model of picking most items in store is inefficient and will need to be revised. In its present form, it cannot cope with the volume of orders and traffic, resulting in customer dissatisfaction and missed online sales, increased costs and distraction of our store staff away from their purpose being to serve in-store customers, meaning even further opportunity losses. Accordingly, we've commenced a review of our fulfillment operations and how a more centralized distribution activity might work in conjunction with more of the store pull model mentioned earlier.

Secondly, store operating efficiencies. We've seen some benefits from the work we've done to date in workforce management, but we expect to continue to refine that work and how we consume our time in both front and back of host.

Third, occupancy costs. As John has mentioned, we continue to have productive dialogue with all of our landlords and have identified numerous opportunities for floor rationalization moving forward. Some of those have been agreed in principle with landlords. In addition, we have Hornsby and Belconnen scheduled for closure this calendar year, which have already been announced. And if we just look at the stores that have been announced that are approaching the end of their leases and positions where we've already got firm agreement, it could take SLA down by a further 30,000 square meters over the next 18 months, which would result in a reduction in annualized occupancy costs of circa $10 million. Whether we execute all of these will depend on the continuing dialogue with the landlords. But the current discussions with landlords involve multiple times more space than what I've just discussed to you.

And then finally, head office structure and processes. We continue to review and evolve our internal structures and the way we work, which is resulting in removal of duplication and more streamlined accountability framework. In addition, end-to-end process reviews are being conducted to identify areas of potential efficiency and removal of pain points within our core processes, which will lead to efficiencies within the business.

So these are just a selection of the many areas that provide opportunity for the company to be improved moving forward. But each of them will take time and some investment to make them happen. Even things like switching brands in and out, relayering our stores, exiting our clearance floors and investigating a new online fulfillment and store replenishment model all require some level of OpEx even if there are capital elements to them. So we'll be managing these initiatives with a tight fist to ensure they are progressed in the most effective and efficient manner.

So to finish, we're not getting carried away with where we are, but given the changes being implemented, we continue to be optimistic about what can be achieved.

Thank you. That finishes my presentation, and I'll now pass you back to John.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [4]

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Thanks, Nigel. I'd now like to ask you to turn to Slide 16. I'd like to remind you about our customer plan and also update you on the progress we've made so far.

Last Christmas, I was able to visit every one of our stores across the country. And I met with each and every member of the store management team who serve our customers every day and got some very constructive and honest feedback about the local market and what customers are telling them. I also spoke to many customers in those towns, and their message was clear: they want great products and brands, value for money, leading customer service more importantly it's their store. And we are listening.

This is why we brought back the My Store campaign. Hopefully, you've seen how this is evolving with our current advertising. Importantly, this campaign continues to send a very strong message: we are here for all Australians and are focusing on what made Myer great in the first place.

The Customer First Plan is about ensuring we are Australia's favorite department store, providing that helpful service, high-quality exclusive brands with compelling value. We continue to focus on customers, putting them in every -- putting them first in every decision we make and every action we take.

Our 3 areas of focus have not changed. They are transforming customer experience in store; secondly, Only at Myer brands and growing our MEBs; and continued enhancement to grow our myer.com business. This will be supported by simplified business processes and by us becoming more efficient from factory to customer, as Nigel outlined earlier. And this is no matter where the customer shops, online or in store. Since September, we have rolled out this plan across the business, and every team member and brand partner is a part of it. So whether it's team members at our store support office or our stores or distribution centers or business partners, everyone has a hand to play in its delivery.

On Slide 17, there are some key points of what we've done so far. Under transforming the customer experience in store, we have undertaken relayering 23 stores. We aim improving the appearance, layout and brand adjacencies in store and adjusting the merchandise offer to better suit each location. Supporting this initiative are improved service levels, with labor more aligned to when customers shop and better levels of product knowledge. Although we have focused on 23 stores initially, all stores across the network have been implementing components of this initiative through their individual store plans.

The cost of relayering a store is based on what our customers tell us they want and what we believe will work in that market. At the end of the day, it's their store, and we have to respond to what our customers want. Our Bankstown store in Sydney suburbs is a classic example of this where we decreased the size of home and increased the men's branded offer, the kids' offer and upgrading the beauty department with key fragrances. That store will get a 1-year payback on this investment. Early results are promising, and we will continue to aggressively test and learn to make sure we are delivering for our customers.

We also rolled out the biggest and the best Christmas activation to date and I've congratulated our stores on their appearance, brand offering and service over this period. It was bigger from a marketing perspective, from an in-store perspective and from a sales perspective. Our Christmas Giftoriums were in every store, and our hugely popular Santalands were a big hit with our customers. Personalization of product is one of the keys to the success of Giftoriums, something like Toblerone where we sold over 0.3 million. And our planning for Christmas 2019 will be with even better gifting, more personalization and more unique experiences only at Myer.

As Nigel has touched on, we continue to review every aspect of our property portfolio to make sure we have the right size store for the market we are in. There'll be a number of announcements in the coming months as we work with landlords on this important piece of work. We spend quite a lot of time with our landlords, examining every problem at the store and the shopping centers that they own, looking at where we can get efficiencies for both of us. So it really is a win-win partnership.

One example is our Cairns store, where we will be extending our lease but reducing the store from 2 floors to one bigger floor. And as part of this space reduction, we will improve the merchandise offer and the in-store experience for our loyal Cairns customers, so they can continue to shop with us and be excited for years to come. So we end up with a better customer offer, a smaller, better-laid-out store and more importantly a more profitable store.

On to some other areas of focus. We're improving the way we communicate with team members in stores. We've introduced an app which has been developed in-house that provides real-time operational information, product knowledge to those team members and also customer feedback. We need to make our team members more results driven, and the app helps us achieve that.

Through a new digital platform M-comms, as we call it, we have revolutionized the way we communicate with our store teams by digitizing all store communications. This allows the quickest speed of communication with store teams with timely communication and ensures leaders in store have more time on the shop floor, leading their teams and focusing on the customer rather than handing out bits of paper and distributing communication. Since launching M-comms, 15,000 leaders and team members have engaged with the digital communications.

Another area of review will be our MYER One program, and we'll have more to say about this in September.

Second major area of focus for us is Only at Myer brands. I've touched on our My Store advertising campaign. As we've said previously, this campaign, above many others, resonates with our customers, and for that reason, we brought it back. Through this campaign, we will show you we are improving our brand offering with exclusive Only at Myer brands. Remember, the Only at Myer brands are those that are both MEBs, the Myer Exclusive Brands, brands that we own, that we design and are therefore some of our most profitable brands; and Only at Myer brands that exclusive to us. That is, you can't buy them anywhere else. Our aim is to grow our Myer Exclusive Brands to over 20% of our sales mix.

In addition to this and what I briefly touched on earlier, this season we have over 20 new and exclusive brands arriving across the business, with the majority of these being international brands and many more to follow. Examples of some of these are SELECTED FEMME and SELECTED HOMME from Denmark, Twisted Tailor from London, Acqua di Parma from Italy, Girls On Film from the U.K. and Jack London, with many, many more to come. In addition to this, we have expanded the range of a number of our exclusive brands, including VERO MODA and some of the most popular MEBs. We also announced that in beauty, we are the exclusive department store for Aesop which is performing strongly and getting a huge positive response from our customers. I'm also very encouraged to see that both sass & bide and Marcs and David Lawrence are performing well during the half.

We constantly review every aspect of our assortment to ensure we are getting it right for our customer and we act on their feedback. And you will see a lot of changes as we go forward because it is standard practice for any department store to change and adjust their brands and product portfolio to ensure best-performing brands and new offers are placed in key locations. Getting our range and offer right for our customers is essential, and our buying teams have been traversing the globe to bring exclusive, new and on-trend brands to customers. Some of these new brands that we are bringing in are already selling in Australia through their home websites, so we know there is a demand for them. And they will only be at Myer.

On Slide 18. As we mentioned, we are committed to growing our online business to north of 20% of the sales mix over the coming years. In the second quarter specifically, we saw some record-breaking days and some pretty big change in the online space, and these will help build the foundations for our future growth. October saw our biggest day ever with Black Friday. We had our highest-ever traffic, up 121% on last year, our highest number of orders and the highest level of sales, with the biggest hour ever from 11:00 p.m. to 12:00 a.m. on a Friday night with over 300k of sales in 1 hour. That 4-day period encompassing the Black Friday weekend drove over $10 million of sales. But we need to be mindful that it did suck some sales out of early December, which was a bit slower, but we really picked up again in the week before Christmas.

Boxing Day 2018 then became our biggest-ever day online, with sales up 55% and traffic up 62% from Boxing Day the previous year. Our new website performed exceedingly well during this period especially given the unprecedented volumes. Coming into Black Friday, the website had only been live for a matter of weeks. This was the biggest -- first big test, and it passed with flying colors.

Going forward, we have 3 key priorities for our online business: more convenience, better functionality, better filters, better checkout and better content. We speak to our online customers every week, and whilst feedback is positive, they are telling us they want more. And we have dedicated teams building improvements to the new site, and it will improve month after month after month as we go forward. And we will aim to have ranges online that have more choice of options than our biggest stores. We have no physical limitations to what we can sell online as we don't have any bricks and mortar or walls dictating how much product we can put into a store. And as Nigel touched on, we will improve efficiencies of online fulfillment as we embark on our factory-to-customer project, which will result in more centralized distribution. Our aim is to be faster and at a lower cost.

But now I'd like to touch on some of our efficiency levers. Space, we've already touched on this, but reducing space continues to be a massive priority for us. And we continue to have productive discussion with our landlords as we see significant opportunities across our portfolio to reduce space and rent whilst improving sales and margin through smaller, more efficient stores. Combination of a smaller, appropriately ranged store in a particular market with the support of the full offer online gives us the opportunity to seriously improve the profitability of our space. We're taking a very long-term view with our landlords on this, looking at 5 to 10 years out in terms of what they want to do with those centers as we know that there's a lot of retail space available across the country.

Labor costs. We will continue to work with our new workforce management system, which Nigel touched on. This ensures that we have team members rostered when customer demand is greatest. And this will enable us to make sure that they get the service levels they expect from Myer.

Cost reduction opportunities. Our focus on saving money across the business continues. As you can see in this result, where we delivered a 1.3% reduction in cost of doing business, we continue to believe there are significant amounts of opportunities out there that will deliver further savings going forward.

So in conclusion, we want to ensure we are Australia's favorite department store. We have seen positive momentum since the launch of the Customer First Plan in September, but we know over the next 18 to 24 months, there is much more to be done. Importantly, we improved sales in Q2, improved OGP margin in the first half, with NPAT plus 3% on lower sales.

As Nigel said, the retail sector faces some headwinds, and we've seen this across the sector this year. We know that we'll be facing macro headwinds with impacts on discretionary spending, whether that's B2B in response to tightening of lending from banks or due to uncertainty caused by elections. Regardless of these, at Myer, we will continue to forge ahead through our Customer First Plan. We will exit brands that are not popular but performing well. And by the way, contrary to reports in the media, Sportscraft is alive and well in 57 stores. We'll be unrelenting in adding new and exclusive brands that are popular with our customers as well as enhancing our own MEBs and improving profitability across all brands.

We will push ahead with the removal of clearance floors by December 2019. As I said last year, and my view has not changed, I don't like them. We will continue with our efforts to improve customer service, to improve communications, product knowledge and empowering store managers and team members to make decisions that lift the bar of service in our stores. And we will continue to invest in our online business to improve the customer experience range and make it our biggest store by far.

More importantly, we will focus on continuing to deliver results, not promises. We will make strategic decisions that are driven by long-term value creation that are in the interest of our shareholders and our customers. We believe we're on the right path, and we have the right plan and with the right people in place who are working day in and day out to execute it to ensure Myer's best days are ahead of us. I'm now 9 months into the business, and I'm even more excited than I was 6 months ago about the future of this great company.

Thank you for your time, and we'll now open up the line to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have our first question in queue. Our first question is from Keegan Booysen from Deutsche Bank.

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Keegan Booysen, Deutsche Bank AG, Research Division - Research Associate [2]

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I was just hoping you could give us some color on how comfortable you are that the international brands going into the store are going to be able to fill the gaps of some of the brands that are leaving, please.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [3]

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Yes. We've actually -- the brands that are leaving, we've had over 100 leave actually, that we've actually exited. We're quite comfortable. We've actually allocated all of the space already. We have brands in -- currently in store that we need to expand, such as Polo Ralph Lauren, Rodd & Gunn and Industrie. And we have new brands that are coming in. Most of them are already selling into Australia via their own home websites, whether that be in Denmark or the U.S. or the U.K. So we already know which postcards they are going into, so we are making sure that they're ranged in those areas. Look, like any brand, like any fashion business, you can't predict what will work and what won't work. So we -- but we have the flexibility to change up or change down.

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Keegan Booysen, Deutsche Bank AG, Research Division - Research Associate [4]

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Okay. And just a second one. Just looking at how you're thinking about store rationalization, like, perhaps give us some -- us a bit of a detail on how you're thinking about the right size in terms of the store count going forward and maybe whether there are any other stores that you prefer to close.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [5]

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There's a couple, but to be honest with you, it's more about rightsizing the store because they're all profitable from an EBIT level. So from our perspective, it's about how do we grow the EBIT? How do we make the EBIT improve? So Cairns is an example. We didn't need a 2-floor store with a huge café in that center. Them taking the first floor back, and they can put in a Woolies Metro and split the floor into a luxury food court with a Woolies Metro, we then extend out into the ground floor and put a better offer in. So we end up with a lower rent but a higher profitability. And these are the conversations that we're having. So it's not really so much about the number of stores. It's about the size of the stores, and that will really depend on the market. So we've identified in some areas where we have 4 floors that we can actually lose the lower ground and the top floor and keep the middle 2 and still get the same level of profitability, if not improved, with a better offer. And these are the conversations that we're having, but we'll be in a much better position to give you a further store-by-store presentation when we come to the full year results in September.

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Nigel Chadwick, Myer Holdings Limited - CFO [6]

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Just to elaborate on what John said, in terms of store profitability, I never set Logan to one side because that was closing during the period. All stores were EBITDA positive apart from one, which was marginally negative in the 6-month period.

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Operator [7]

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(Operator Instructions) Our next question is from Philip Pepe from Blue Ocean Equities.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [8]

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Just if you can elaborate a bit on those targets, particularly the online, 20%-plus and mid-20%-plus, I mean, one way you can get there is by the continuing decline in the national brands, right? So you'll get those percentages off a lower base. So given the good work you're starting to do in the exclusive brands, what more can you do in the national brands line item, which is still the largest, to at least stop those sales going backwards, so those percentage targets, you can hit them and not of a much lower pie.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [9]

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Yes. I think it's about making sure we have the right mix of national brands, and that's what the guys have been working on over the last sort of 6 months, and also making the big bigger. So we see an opportunity in national brands to actually expand some of those popular brands and not have as many. So there's a piece around what is right for that market. Bankstown was a classic example where we put Polo Ralph Lauren in, and it wasn't in there before, and all of a sudden, it's taking significant cash. Same with we put Ralph Lauren into Indooroopilly up in Queensland; same thing happened there. So it's a question of using our space wisely. And also, as we develop the factory to the customer centralized model, more than -- about 80% of our stock, they're online orders and for store replenishment will come out of central distribution as opposed to the back of the house or have the back of the house allotted with stock. So we will be converting a lot of that asset, the GLA, at the back of house, into SLA, which allows us to do the downsize on this space. So this facilitates us growing our MEBs to 20%. I mean, we were at 17.4%, I think, at the end of the half. We think 20% is definitely doable. And online is purely about distribution model and then absolutely putting as many products and brands online as we can. And from experience, having done this elsewhere, online is all about the size of your offer and we just need to keep growing that. The more we put on, the more we sell. It's a simple dynamic.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [10]

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And just a follow-up question. The reduction or the introduction of the JC on the low-value goods from July 1, have you been able to measure the impacts on your business? And would you like to see better benefits come through in the second half?

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Nigel Chadwick, Myer Holdings Limited - CFO [11]

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No. We haven't done that yet.

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Operator [12]

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Our next question is from Bryan Raymond from Citi.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [13]

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My first question is just around the cost of your business efficiencies on the first half. I just wanting to see -- get a feel for how that looks into the second half, depending [on your own dollar boost] as we just try to rectify how much can we expect to continue and annualize through, and how much additional you might be able to realize? If we can get some sort of color around the outlook there, please.

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Nigel Chadwick, Myer Holdings Limited - CFO [14]

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Well, so we expect sort of the store wages efficiencies to continue through into the second half. But what I was trying to outline in the back end of my presentation was that we've got many, many other initiatives that we need to move forward, that are going to have offsetting investment requirements, that are going to flow through for the time being. So we're not giving guidance around sort of where we're going to end up, but I do expect those efficiencies that we've sort of seen in the first half, particularly around store wages to continue through.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [15]

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Okay. And then, if you could just also talk to the amount of store hours you added. I think that previous to -- prior to Christmas, you had talked about adding a [set of hours] in to improve customer experience, et cetera, given widespread pressures in the market and the cost of new business outcome. (inaudible) you've added huge amount of hours? Can you talk to what you did there and maybe what you intend to do around hours in store?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [16]

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Yes. Sure. Our intention is to put more hours on the shop or in front of the customer in the most efficient way. So we were doing that through 2 routes -- 2 main routes, really. One is the workforce management system, which is automated and we've launched last year, and that's really allowing us to get into some real granular detail about what our customers are shopping and when we should have our staff on the floor. And also, it's the operational efficiencies at the back of house. So we've done a number of initiatives through our local DCs in terms of floor-ready merchandise and holding stock by mimicking a centralized distribution system ahead of moving to one. And this has allowed us to free up hours at the back of the store to actually convert those into selling hours. So our aim is to have nothing at the back of the house and everybody on the shop floor at the appropriate time to serve our customers. Clearly, the vast majority of our sales are Friday, Saturday, Sunday, so we need to make sure the rostering is done right. So through 2 routes, operational efficiencies, back of house, frees up hours, and the workforce management system allows us to actually place the hours in the right spot.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [17]

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So you don't think you need to add hours in that sort of terms from here to (inaudible) from back of store in front of store?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [18]

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Absolutely. Yes. And it's also about we've invested in product knowledge training and customer service training. We put everybody through the customer product plan, which was every member of staff went through Christmas product knowledge training. And that allowed them to be more efficient as well. So the hour that they were in front of the customer, they were selling. So it's a combination of things. So efficiency, training and correct scheduling.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [19]

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Okay. And then, just a follow-on for me on the profitability of your online growth. I can see deliveries accelerate in sales terms. Just wondering how you saw profitability there, particularly as you lowered your free delivery threshold to $49. I'd imagine that weighed on it to a degree in terms of basket size. I mean, perhaps you're not -- and perhaps knowing those delivery costs, can you just walk us through online profitability and how that might have changed year-on-year, please?

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Nigel Chadwick, Myer Holdings Limited - CFO [20]

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The EBITDA margin still runs sort of lower than the group level EBITDA margin, but it was impacted sort of heavily in this half by the sort of higher fulfillment cost that we experienced because of the peak sort of orders, particularly in the Black Friday weekend and around sort of the Boxing Day sort of time sale. We actually had to supplement sort of our in-store staff with contract staff and bring people in just to help sort of fulfill orders around that time. And that's what sort of led us sort of to move quite quickly to reviewing sort of our fulfillment model moving forward.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [21]

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And in terms of profitability, we do believe online has quite a ways to go, particularly with the fulfillment model. And also the mix, a higher apparel mix will give us better margin mix. And also the $49 threshold, that was heavily tested -- stress tested in terms of whether that would affect -- would be incremental or not, and it was incremental business.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [22]

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Incremental to sales or to earnings? Did it change your basket size materially?

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Nigel Chadwick, Myer Holdings Limited - CFO [23]

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No. It was EBITDA positive.

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Operator [24]

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Next question is from Shaun Cousins from JPMorgan.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [25]

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Just a question maybe in terms of cash flow. I believe that CapEx was below depreciation for the first half. Will that continue on? And I mean, how do you think about CapEx trajectory going forward?

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Nigel Chadwick, Myer Holdings Limited - CFO [26]

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Well, clearly, we've sort of really, constrained sort of what we're doing with CapEx, and we've put some really tight controls around that. But ultimately, we do need to invest in the business. And so I expect CapEx spend in the second half to be higher than where we were for the first half and probably still to land somewhere in that sort of 60 million-ish sort of to 65 million-ish type region by the time we get to year-end and sort of moving forward from there. I mean, clearly, depreciation is a factor of our investments that we've made historically and (inaudible) depreciation all the time. But moving forward, we do have quite a long pipeline of opportunities of investment that we're looking at, at the moment, including sort of store refurbs and things like that. But it's too early to sort of say what we'll sign off on for the FY '20 year.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [27]

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All right. Maybe just in terms of MEBs, can you talk a bit about the space that you've allocated to MEBs, lifting it from 16.4% to 17.5% of sales? Have you increased the space that you've allocated to MEBs in line with that percentage change of your mix or less or more? And I'm just curious about what share of space MEBs will require of your store to achieve that aspiration of 20% of sales, please?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [28]

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It's probably similar kind of percentage. I mean, we've really done on a store-by-store basis, so we haven't really modeled it from a company-wide perspective because it really is what we can sell in that market because every market is different. So we don't have a cookie-cutter one-size-fits-all kind of grocery approach to it. But we have increased space. More importantly, what we've done is we've actually, in some stores, we haven't increased space, we've moved location. So it's more prominent. So you land on it when you come off an escalator, things like that. So it's a combination of location and space and also with the range. So one of the things we've done, not necessarily increasing the space but giving more choice in some of the smaller regional stores where, previously, they wouldn't have got necessarily the more fashionable stuff. But having been around every single shop, I can tell you that customers are wanting to be treated to fashion in some areas, so we in the store support center hadn't previously looked that. So for me, it's a number of things. So it's space, it's location and it's range.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [29]

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Great. And just finally, just in terms of the broader idea about we've been down the path in the past of MEBs wanting to be 20% of sales and I think actually exceeding that. Do you see MEBs at 20-plus percent of sales being a factor that actually drives store traffic? Or is it really -- or is the greater priority just sort of harvest the sales that you've got to -- given this -- given the higher gross margins that these product ranges enjoy? I'm just curious, does this drive traffic? Or is it more of a profit generator?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [30]

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Yes -- that's a really good question. It's a bit of both, actually. But I will say, it's probably 70-30 profit generator, 30%, 70%. This is -- again, I have a model based just from experience. When a customer comes in to look at the brand choice and they suddenly stumble across some MEB and sees that it's actually great value for money, then it obviously is more profitable for us. But also, we do have customers that like these brands, that shop them and hence the 17% of $3 billion. Otherwise, they wouldn't -- there is popularity. But in terms of the appeal, it's a combination of traffic, but more importantly, it's probably margin, once they get in the store and they see them.

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Operator [31]

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And the next question is from Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [32]

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I was really pleased to hear you talk about moving online, out of store because, clearly, that's not where it belongs. But I guess, that sort of gets me then to focusing on what's actually happening in-store. And if you do the simplistic calculations of backing out the online growth from your total store growth, I mean, stores look like they're falling at sales about 5% year-on-year in terms of sales revenue. So I guess, the specific questions are: one, is we recognize that there are some changes in promotional mix, et cetera, occurring through the business, so I wonder whether you can give us a view of what the underlying sales rate is in store; and secondly, I just wonder whether you can actually keep up with the pace of change that's occurring in the market because if that online trend continues to occur at that rate in your business and if the store trend continues at the same rate, you're going to be really under the pump to maintain productivity in your stores over the next several years.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [33]

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Yes. Hence, the space reduction. We need smaller stores that are more efficient and more effective with lower rent, and we have a plan for that. So we'll announce more of that in September. So the stores currently, as I said last year, the stores will be very lumpy this year in terms of this top line number because we're reducing discounting. We took a month's worth of discounting out of the spec -- out of the half lot this year, so those were 4 weeks that we didn't promote. And we're doing the same as we speak now. So currently, you'll see stores sort of bump along in a negative low single digit for the course of 2019 where more than a quick deal with the fast-moving changes is online. We have a very capable team. We've invested in the team. As Nigel said, we've invested in the capability around the website and around IT and back-of-house systems. But you're absolutely right, the right place for online fulfillment is centrally, and we're saying we should be fulfilling out of store for that lot, 1-hour pickup for that last mile. So what you'll see is the business -- the shape of the business change with significant reduction in SLA, physical, but more improvement and more productivity in terms of profitability in those stores. And then, you'll see a rapidly expanding centrally driven online business.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [34]

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And when you talk about store profitability earlier, does that include the online sales that are currently being picked from store? Or do you somehow separate that out from the store P&L?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [35]

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No. That's classed as an online sale. The stores only have what they sell on their iPads, which we call MCO, my customer orders. That's -- because that physically is sold in the store on an iPad. So a store gets credited with those sales. So for example, if you go in to buy a De'Longhi toaster, we've only got black, white and red, and you want the gold one, if they order it on the iPad for you, the store gets credited with that sale. And if you ordered a black one and they picked it from the store and sent it to you via the Web, then that's classed as an online sale.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [36]

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Okay. So the EBITDA comment is truly store-based sales. The other question I had around you're clearly capital-constrained. I mean, that almost goes without saying. Can you make the changes that you need to make at the rate you need to make in terms of store layout and online development with the capital that you've got available?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [37]

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Yes, absolutely. We're not capital-constrained at all because all of the space reductions will be done in conjunction with the landlords. So they'll be funding from the landlord for that because they're getting space back that they can turn into more profitable space. So as Nigel said, we're happy with that $60 million to $65 million kind of level of annualized CapEx because a lot of heavy lifting is already being done.

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Operator [38]

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And our next questioner is from Mark Wade from CLSA.

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Mark Wade, CLSA Limited, Research Division - Research Analyst [39]

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My question is on the customer response you're getting to your Customer First Plans that you've only recently reintroduced, such as the ONLY Myer store initiative, et cetera. So just wondering, how do you go about measuring this customer satisfaction, a, and then, b, some -- perhaps you can share some of the early results that you're seeing that could be a lead indicator of the future.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [40]

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Yes. We gather customer data via a number of sources, both through our call centers, also customers, when they shop online, we get good feedback from online, and also in store, they're reminded on their receipt to actually pop on to myer.com and give the feedback. So we don't actually publish that number, but we have seen an improvement year-on-year.

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Mark Wade, CLSA Limited, Research Division - Research Analyst [41]

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Okay. So you're seeing an improvement. That's good. And I guess, secondly, John, around the impact of all your changes on staff and the engagement levels and morale in thinking both in-store and in the support office?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [42]

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Yes. Well, I think, we've simplified the business in the store support center. So people are now completely energized about where they're going and what we're doing. The Customer First Plan has been a great sort of flag to rally around. And I spent a couple of weeks reviewing product with the buying teams and everything was in Customer First language in terms of how do we make our customers get -- how do we get them even better service, better product, better ranging. In stores, everyone is very motivated. Having been around all the stores, they're united behind this Customer First Plan because I think we've been a bit amiss over the last few years, adrift from what we should be doing, which is making sure our customers get fantastic service. And I think increasing the product training, which we've done, and the new and M-comms, which makes life so much easier for team members because everything is digital and goes through their mobile phone as opposed to trying to think when's the paper coming out every week from in here. So it just means they get real-time information from inside this business and they get their customer feedback numbers every other day, so they know how they're tracking.

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Operator [43]

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Our next questioner is from Phillip Kimber from Evans & Partners.

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Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [44]

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Just wanted to follow up on the online. I mean, I get a slightly different number, sort of why your stores went backwards 2% in the second quarter, which was a much better outcome than in the first quarter. As we look at either the next few years, and I know why you're saying discounting's going to make -- the change in the discounting program is going to make sales hard to analyze and they'll be lumpy, but on a 3 to 5, are you expecting that you can get store sales, so not online, back into a positive? Or is it going to be more a case of holding store sales as best you can and any sales growth is really going to have to come out of the online business?

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Nigel Chadwick, Myer Holdings Limited - CFO [45]

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Yes. I think it's more of the latter. To be quite frank, Phil, I think it's more a case of get as good a product as we can and get the floor place allocations as optimal as we can within sort of a smaller store footprint and seek to hold our position as best as we can in the sort of bricks and mortar world and then aggressively chase growth in the online space.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [46]

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Phil, within the mix, though, we do have some stores that are positive, that are growing. So it's not all negative. So there's -- to Nigel's point, we think we can have smaller stores more profitable and we'll have some stores with modest growth. But online is really what's going to knock it out of the park.

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Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [47]

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And is there a trend to that -- those stores that are growing? I mean, do they sort of seek CBD key locations or key geographies? Or is that sort of a bit more ad hoc...

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [48]

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It's a real mix because particularly with some of the regional stores where we have no competition and where the customer isn't necessarily an online shopper, they like to go in and try it on. And some of the country stores, we've seen really good growth with them. So it's a real mix, Phil. It isn't sort of one-size-fits-all here, but we'll take you through some more detail when we see it.

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Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [49]

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Sure. And then, a follow-up just around the fulfillment phase because obviously, in that environment, getting your margin structures in online are going to be crucial to your overall profitability. How quickly can you bring in the fulfillment to a more centralized location? Is there a major CapEx spend to do that, or can you do it (inaudible) ?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [50]

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It's CapEx-light for us. Phase 1 will be later this year, before peak. And Phase 2, which is the completion of it, will be first calendar half of next year.

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Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [51]

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Okay. But -- so we should assume that those sort of fulfillment cost pressures, if you like, because of fantastic uptake of online, are probably going to continue for at least the next 12 months or so before that's fully integrated, that fulfillment change. Is that a fair assessment?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [52]

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Yes. So I think, like any, in my experience, having built a couple of distribution centers over the years, it takes time for you to get the efficiencies out of them. So I think it's reasonable to assume for the next 12 months or so, we're going to have a similar sort of fulfillment cost pressures. What this do is -- what it will do is because we'll be running a dual fulfillment process going into Christmas and peak this year. So we'll have some in the distribution, some in central, some back of house as we transition over.

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Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [53]

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Okay. And then, at some point, whether it's getting that down plus increasing the sale to the online business, hopefully, at some point, from an EBITDA point of view, it's no longer margin dilutive. But it sounds like that's not going to be in the next year or so.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [54]

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Yes. I think so. That's for sure.

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Operator [55]

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And our next questioner is from Morana Hunter from Macquarie.

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Morana McGarrigle, Macquarie Research - Analyst [56]

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Just going back to one of the earlier questions on property portfolio. So just to confirm, at an EBIT level, there are no stores loss-making, but at an EBITDA level, there's one. Is that correct?

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Nigel Chadwick, Myer Holdings Limited - CFO [57]

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No, no, no. That's -- I was correcting John there. What I said was if we set Logan to one side because it was closing during the period, then there is one store that is EBITDA negative and it was only marginal in the 6-month period. Clearly, as you then load it up with depreciation, that sort of adds additional costs and that results in 2 or 3 others being EBIT negative.

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Morana McGarrigle, Macquarie Research - Analyst [58]

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Okay. Sure. Now that's clear. And then on those leases that are rolling over, and you mentioned Cairns, where you've reduced space and extended the lease, are you actually finding that landlords are in fact offering reduced rent? Or are there other forms of incentives that are being offered instead?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [59]

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It's a combination. So there's a capital contribution and/or rent reduction. So it really is on a case-by-case basis. But we're generally finding that the landlord is partnering with us, so the -- from a CapEx perspective, as we said earlier, we're quite comfortable with the levels that we have and require for changing the portfolio as we go forward over the next sort of 2 to 3 years.

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Morana McGarrigle, Macquarie Research - Analyst [60]

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Yes. Okay. And then, just on supply chain, can you just talk a little bit about the type of benchmarks? I mean, I guess, perhaps days and trends that are similar that you have in place to measure efficiency and then how you're tracking versus your internal targets and maybe against some of your peers?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [61]

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Yes, well, I think, with regards to that, we're -- because we're running a store-based fulfillment model, which I find not very efficient, we are moving to the centralized distribution model, and that will -- whilst we have sort of lowest cost of delivery in the country, we will be moving to what I would see is a more automated, centralized, efficient model. So measuring what we do today -- I mean, certainly, from a cost perspective, we know it can reduce the cost significantly going forward. That's the one measure we're looking at, speed to customer. We'll get more into that as we move out sort of back-of-house of store and into centralized distribution. So we will update as we go through that program.

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Morana McGarrigle, Macquarie Research - Analyst [62]

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Okay. Yes, fair enough. And then, just last one for me. Given some of the changes you've implemented and in recent FX movement, are you seeing any changes in supplier pricing or marketing support?

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Nigel Chadwick, Myer Holdings Limited - CFO [63]

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Not specifically. No.

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Operator [64]

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And the final question in queue is from Aryan Norozi from UBS.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [65]

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Just a question for me. Can you please just update us on the space rationalization plans, just a bit more data? Because I think, previously, John, you mentioned you're looking to cut around -- or you've identified around 24 of the space that you're willing to cut. If I look at that 30,000 over the next 18 months that you flagged, I think about 20,000 of that is just the 2 stores. So when do we expect to see those sort of hand backs kicking in?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [66]

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Yes. So I said earlier in the presentation, we'll update everybody in September. We're in the middle of those negotiations right now. Obviously, that was in the detail because we're going to take work with the landlord and what their plan is to do with each and every one of those centers. So you can imagine, with 8 or 9 landlords, it takes a bit of time. But we will update fully in September which stores and when.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [67]

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Okay. And the experience you've got so far just in terms of the sales that you lose from closing the space, what's been the sales loss? Or has it actually not changed? Can you just give us some more data around that?

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Nigel Chadwick, Myer Holdings Limited - CFO [68]

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Sorry. Could you just repeat that?

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [69]

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Yes. Just in terms of the sales loss from closing a space down, in your experience so far of the space you have handed back, what's been the change in sales from closing that floor?

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Nigel Chadwick, Myer Holdings Limited - CFO [70]

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Well, it depends on sort of the location of the individual store and what transfers we get. The 2 alternative stores are into online and that can sort of range between 30% to 50% of the store's sales revenues, so it's sort of, of that order.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [71]

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Okay. And just around the market, I mean, just the competitor intensity, interested in your comments or thoughts around how you're seeing that play out. Is the market being rational? I mean, you're obviously taking a more rational stance in terms of discounting. What have your competitors done? And are you seeing any pressure there, please?

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [72]

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I would say, I mean, pressure on the top line but not on the bottom line. So we didn't discount beauty in the run up to Christmas. So our next door neighbor discounted 20% off a couple of times. I mean, discounting fragrance in the run up to Christmas is mug's game. So we didn't play in that sandpit at all. So we just focused on profitability. In fact, beauty was incredibly profitable for us over Christmas. So we will have planned promotions as and when needed. And we took 4 weeks out of the first half and we'll continue to look to take weeks of discounting out in the second half and in the first half of next year. So we've got another 12 months of lumpy sales while we reduce our need to discount. And as we touched on, there's a bit of uncertainty out there with the consumer. I saw some stuff this morning about housing market. We talked about the Australian Bureau of Statistics coming out about growth rates. So -- and there's election looming. So there's a number of headwinds out there that, I think, will affect consumer behavior. So we'll just be mindful of that as we trade our way through the year. And as we said earlier, we will not focus on unprofitable sales. We're focusing on cash and profitability.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [73]

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Just final one for me. Specific one, just in terms of the cost of debt, your funds -- your rates obviously changed since the refinancing. Can you just say what it's changed to and what it was before, please?

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Nigel Chadwick, Myer Holdings Limited - CFO [74]

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Sorry. Just repeat that again?

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [75]

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Yes. Just the cost of debt. Can you please outline what the change in the cost of debt is from the refinancing? What the actual percentage change is?

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Nigel Chadwick, Myer Holdings Limited - CFO [76]

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So the margin in the facility sort of has increased by about 1%.

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Operator [77]

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There's no more further questions. I'd like to hand the call back to the speakers for any continued remarks. Please go ahead.

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John Anthony King, Myer Holdings Limited - CEO, MD & Director [78]

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Just want to say thanks for you taking time out this morning, and look forward to catching up with you soon. Thank you very much. Have a good day.

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Operator [79]

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Ladies and gentlemen, that does conclude the call for today. Thank you to all participating. You may all disconnect. Goodbye.