U.S. Markets close in 2 hrs 6 mins

Edited Transcript of WOW.AX earnings conference call or presentation 29-Aug-19 12:30am GMT

Full Year 2019 Woolworths Group Ltd Earnings Presentation

Bella Vista, New South Wales Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Woolworths Group Ltd earnings conference call or presentation Thursday, August 29, 2019 at 12:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Bradford Leon Banducci

Woolworths Group Limited - MD, CEO & Executive Director

* Claire Peters

Woolworths Group Limited - MD of Woolworths Supermarkets

* David Paul Marr

Woolworths Group Limited - COO

* David Walker

Woolworths Group Limited - Acting CEO of Big W

* Stephen Harrison

Woolworths Group Limited - CFO

* Steve Donohue

Endeavour Drinks Group - MD

================================================================================

Conference Call Participants

================================================================================

* Andrew J. McLennan

Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst

* Ben Gilbert

UBS Investment Bank, Research Division - Executive Director and Analyst

* Bryan Raymond

Citigroup Inc, Research Division - VP & Analyst

* Craig John Woolford

Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team

* David Errington

BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia

* Grant Saligari

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

* Johannes Faul

Morningstar Inc., Research Division - Equity Analyst

* Morana McGarrigle

Macquarie Research - Analyst

* Peter J. Marks

Morgan Stanley, Research Division - Research Associate

* Phillip Kimber

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

* Richard Barwick

CLSA Limited, Research Division - Research Analyst

* Scott Ryall

Rimor Equity Research Pty Ltd - Principal

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by, and welcome to the Woolworths Group FY '19 Full Year Earnings Announcement. (Operator Instructions)

I would now like to hand the conference over to Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [2]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to the Woolworths Group full year results for financial year 2019. I'm joined in the room today by my fellow presenters, Stephen Harrison, our recently appointed Chief Financial Officer; and David Marr, our new Chief Operating Officer. Also joining us in the room is the Managing Director of Woolworths Supermarkets, Claire Peters; the Managing Director of Endeavour Drinks, Steve Donohue; WooliesX Managing Director, Amanda Bardwell; BIG W Managing Director, David Walker; Managing Director of our Group Portfolio, Colin Storrie; and joining us on the phone from New Zealand is Natalie Davis, Managing Director of Woolworths New Zealand.

I will begin with a brief summary of key points for the year followed by the progress we have made against our strategic priorities. Stephen Harrison will then present our financials; followed by David Marr, who will provide an update on the Endeavour Drinks and ALH transactions, before turning back to me to provide an update on our outlook and any questions you might have.

I wanted to start on Slide 4 of the presentation, which really is just taking summary -- a high-level summary for F '19. The headline to us was that despite the challenging start to the year we made, we had a strong second half and ended the year with good momentum. Critically importantly for us, our customer scores improved over the course of the year. In Australian Food, VOC Net Promoter Score ended the year 3 points above the prior year. And our store-controllable Voice of the Customer was resilient at 82% despite a number of challenges starting with plastic bags and then in Q3 with some of the quality issues we had with fruits and vegetables and even the droughts and floods in Far North Queensland.

Group sales and profit momentum also improved in the second half with normalized sales and EBIT growth of 4% and 10% for H2. Group online sales continued to grow strongly, increasing by 32% on a normalized basis compared to the prior year to $2.5 billion, and online penetration is now 4.2% on group sales.

BIG W's underlying trading performance continued to improve with comparable sales growth of 5.3% in F '19 and 7.2% in Q4. We are pleased with the strong improvement in sales growth in F '19 but have not been satisfied with the rate of translation of sales growth into profit growth as we talked about in March. And as a result, we announced the outcome of a store and DC network review to accelerate the path to profitability. And we have now confirmed 3 stores to be closed just after Christmas.

We also completed the sale of our Petrol business on the 1st of April with the proceeds returned to shareholders via an off-market buyback in May. Together with the dividends paid during the year, cumulatively, we returned $3.1 billion to shareholders during F '19.

I'll just move briefly then to Slide 5. It is a reminder of the Woolworths Group's priorities for F '19, and this is how we measure our progress against our strategy. While we always update our priorities to ensure they remain relevant for the group, the good news for our team is they remain relatively unchanged for F '20.

In terms of those priorities, now let me just turn and walk through, in a relatively brief fashion, how we feel we've gone against the priorities. And you'll see that on Slide 6 and then on Slide 7. At the very roof of our house is the -- our aspirations, live our purpose and build a customer-first and team-first culture. As I mentioned, one of the highlights was the resilience we saw in our customer scores over the course of the year despite a number of challenges and the fact that in all of our businesses, we ended very strongly on both the customer and sales basis. I think this is testament to the customer-first, team-first culture we are embedding across the group.

In addition to the improvement in the customer scores, we also launched a number of very important initiatives for our team in the business, starting with our new parental leave policy and the fact we paid superannuation for 12 months of parental leave; a critically important mental health program, I am here, and we have 22,000 people, team members inside the group now participate in the program; and last but certainly not least is the implementation of Australia's largest enterprise agreement for Woolworths Supermarkets and Metro.

As with all of our priorities, while we made progress, there are always many things to do. And of course, in F '20, as we look at this part of that half, we have another very busy change agenda, and the challenge for the group will be to progress this change agenda while continuing to improve the experience for our customers.

Still on the top of the house, our second priority is to create connected, personalized and convenient shopping experiences for our customers. Again, as mentioned in our highlights, online growth remained strong during the year with online penetration at 4.2% of group sales. WooliesX and CountdownX continue to build on their foundations, and EndeavourX was established during the year to ensure a consistent approach to digital and data across all of our Endeavour Drinks businesses. BIG W online continue to grow strongly, more than doubling over the last 12 months with growth rates in pick-up remaining very strong.

Despite the rapid growth of online, we also worked on improving the operational performance of this business. And our margins in the X businesses, in particular in WooliesX, continue to improve. And at this stage, if I look to the overall Australian Food Group margin, we've made material progress on reducing the gap between the margins we find in our stores and the margins we generate through our e-commerce business, a very pleasing customer and financial result in this field.

We provided our customers with a number of new ways to shop during the year. We now have 112 drive-ups and drive-thrus and materially increased our stores offering for on-demand delivery, with over 730 stores across the group at year-end providing on-demand services. This is primarily through BWS, but we really have started to ramp it up in Dan Murphy's and in more recent times, in supermarkets with 39 stores at the end of the year providing on-demand.

Committed to build on the online but also about offering more convenient urban locations through our Metro stores and more convenience for our customers in the context of our supermarkets or our standard stores of course. Metro stores and profit continue to grow strongly. And at the end of the year, we had 43 branded Metro stores. And in F '20, we expect to add another 15 to 20 Metro stores as our rollout gathers momentum.

Going forward in this space, the real challenge for us is to keep in pace with our customers' expectations around convenience and ensuring that we leverage technology to help us do the sale as efficiently as possible.

If I go to the rooms of our house, and that's really -- you see it on Page -- just on the end of Page 6 and then going into Page 7. In our food businesses, it's all about differentiation for us and trying to provide a differentiation in the minds of our customers as to our proposition relative to those of our customers -- of our competitors. In this context, our Renewal program continues to evolve with our first smart store in Gregory Hills and a new in-store fresh experience in Mona Vale and Takapuna in New Zealand. Our brands continue to grow strongly, supported by double-digit growth in macro and our free-from range. Differentiation is also critical for what we range to ensure a new store is curated for local customer preferences and in that providing, in terms of localized range. And we've made really pleasing progress in international food, health and value-added fresh or Fresh Made Easy.

We also continue to focus on developing our new exclusive brands that create a true point of difference for Woolworths customers. And as I mentioned in the media call, what I'm really proud about in the own brands space was the recognition we got as Australia's healthiest supermarket own brand portfolio.

Moving on to Slide 7, our Drinks business. We have been speaking for some time about accelerating innovation in drinks and evolving the business to meet rapidly changing customer needs. While the financial performance of Endeavour Drinks in F '19 was below our aspirations, we have taken a number of positive steps during the year driven by our ambition to connect to everyone with the drinks experience they'll love and have already seen some very pleasing early signs of improvement. Some of it you can see it in our Q4 results. And that has certainly continued into the first 8 weeks of F '19.

The biggest changes are happening at Dan Murphy's with the repositioning of the business focused on discovery, Customer 1st Ranging, which has been very successful in our food business and in BWS, is well underway within Dan Murphy's. In addition, at year-end, we had 35 wine merchants working in key Dan Murphy's stores, providing an authentic and exciting discovery experience for customers.

As mentioned, EndeavourX was established during the year to ensure a consistent digital experience across Dan's, BWS and the other Endeavour Drinks businesses. And we have made very good progress in this context of increasing convenience to customers during the year. As I mentioned through the scale-up of on-demand, the rollout of 30-minute pickup to Dan Murphy's Metro stores and the continued expansion of Jimmy Brings.

In F '20, we have more work to do to continue to build operating momentum in Endeavour Drinks as we work towards the separation of Endeavour Drinks and ALH in calendar 2020.

Going to our portfolio, it was an incredibly busy year and successful year from our portfolio team as we made good progress in unlocking value for shareholders. We completed the sale of Woolworths Petrol to EG Group in April with the proceeds returned via an off-market buyback. We also announced the outcomes of the BIG W network review. And while it was a decision not taken lightly, the closure of around 30 stores and 2 DCs over the next few years will lead to a more sustainable store and DC network and will support the operational improvements coming through the business as you will see in our F '19 performance.

We also announced one of the most significant transactions in the history of Woolworths Group with our intention to merge Endeavour Drinks and ALH followed by a separation of Endeavour Group Holdings in calendar 2020 with an ongoing partnership with Woolworths Group going forward. There is a lot of work to be done, but we are well underway. And David will provide a more detailed update shortly.

In an increasing digital world, we need to continue to work on being more efficient in everything we do and leveraging technology to help ensure that our end-to-end processes are better and simpler for customers and stores alike. We have a number of efficiency initiatives in place across the group and now are building momentum.

In Q4, we announced the first change to our Woolworths Supermarkets operating model in a number of years, at a support level, to ensure that our 4 teams -- our stores are organized in a way that reflects how our customers want to shop. While these changes are never easy, we are confident that it will result in a better outcome for our customers and a more sustainable operating model for our team.

Stockloss in F '19 was disappointing, and we have implemented a number of initiatives to get it back on track. We started to see some signs of its improvement over the half, in particular in June, and we refocused -- we're very focused on our asset range into F '20.

Melbourne South Regional Distribution Centre or MSRDC is now up and running, and we're looking forward to the material improvements it will provide. However, we have decided to keep our 2 DC open until early calendar 2020, albeit operating at low volumes to ensure there is no impact to our Victoria customers over the Christmas period.

As with all parts of our house and just looking at the bottom of our house, on our processes, our work is never done in the space, but we have a number of important initiatives underway, which I think will place us in a very good place in F '20. And the highlight to me on this part of our house is most of these initiatives started in Q4, such as how we will hold our NIM over the first and second half.

Finally, on Slide 6. I wanted to conclude with the Woolworths Group ecosystem. Core food and everyday needs retail will remain a key part of our business going forward. But we are increasingly excited about the opportunities to extend our brand into new channels and extend our range of products and services. New channels, of course, include a B2B, wholesaling, export to new services, include same-day pick-up and delivery and on-demand delivery. None of this will be possible without the investments in our core group platforms over the last couple of years. We are now nearing the end of a material systems upgrade program, which is a key part of our platform. And I'm confident we now have an IT and data platform that are increasingly world-class in many areas.

So very pleasing progress during the context of F '19 on our strategic priorities. As I said, particularly in the second half, with real momentum on these priorities as with our financials into F '20.

I will now turn over to Stephen Harrison, who will present our financial results for F '19 before David Marr provides an update on the Endeavour Group transaction. I will then come back and provide an update on our outlook. I'll hand it to Steve.

--------------------------------------------------------------------------------

Stephen Harrison, Woolworths Group Limited - CFO [3]

--------------------------------------------------------------------------------

Great. Thanks, Brad, and good morning, everybody. For those of you who I haven't had a chance to meet, I look forward to meeting you over the coming weeks.

So let me start on Page 11 of the results presentation, where I'll give you a quick summary of the 2019 group results. And I wanted to start by just giving some context on how we've presented the results.

So 3 things before I get into the detail I just wanted to highlight. Firstly, continued operation excludes our Petrol business, which was classified as discontinued operations until the sale was completed on the 1st of April. As Brad mentioned, for F '19, we had a 53rd week. So mostly, I'll refer to the normalized column, which is adjusted to remove the impact of that extra week, just to help with comparability. And then finally, in F '19, we booked 2 significant items, being the charge associated with the BIG W network review of $371 million before tax and the gain on the sale of Petrol of $1.1 billion.

So starting on the right-hand side of Slide 11, for F '19 on a statutory basis, the group reported an EBIT of $3.6 billion, an increase of 29.5%. Group NPAT, including discontinued operations and after significant items, was $2.7 billion, up 56% on the prior year.

Moving to continued operations. Sales from continued operations were $60 billion, up 3.4% on the prior year. All continuing business units delivered higher sales growth in the second half compared to the first half which we're very pleased with. EBIT from continuing operations was $2.7 billion, up 5% on the prior year driven by a 3.8% EBIT growth in Australian Food, a 24% reduction in loss in BIG W and a reduction in central overheads reflecting some individually nonsignificant line items that I'll explain shortly. These were partially offset by a 9.7% reduction in EBIT in Endeavour Drinks.

Regarding the oneoffs I mentioned, the Australian Food results in H2 includes a charge associated with the implementation of new operating models. In Endeavour Drinks, we recorded the impairment of the carrying value of the group's investment in Summergate in China. On the positive side of the ledger, however, was a $50 million payment from Caltex, which we've previously flagged, and the reversal of the property impairment on a property held for sale at year-end in Hawthorn East where we now have a binding agreement for sale.

NPAT from continuing operations was up 7.2% to $1.8 billion, and EPS was up 6.8%. And I'll cover dividends and ROFE shortly.

So turning over to Slide 12, Australian Food EBIT was up 3.8% to $1.9 billion, with broadly consistent growth across both halves. Sales are meant to be improved in the second half, but GP was marginally -- GP margin was below last year, largely due to higher stockloss particularly in half 2 that Brad referred to. On the flip side, CODB was well controlled and benefited from our focus on both productivity and cost control. As I mentioned, half 2 CODB included a charge -- implementation of new operating models which was broadly in line with one-off costs in the prior year.

While the Supermarkets and Metro EA was implemented in January -- in early January, the cost of implementation have largely been provided for, minimizing the P&L impact in half 2. As a result, the full impact of the new EA will be felt in F '20 before any offsetting productivity initiatives.

Turning to New Zealand Food. EBIT increased by 1% in New Zealand dollars, reversing the 2% EBIT decline in the first half. Online sales growth remains a highlight in New Zealand with normalized growth of 40% supported by the establishment of CountdownX during the year. Endeavour Drinks EBIT declined by 9.7% to $474 million. The underlying performance in the business did improve though in the second half, but EBIT includes a $21 million impairment charge related to intangibles associated with Summergate in China. Excluding this, EBIT declined by 6% in F '19.

BIG W reported a loss before interest and tax of $85 million, a $25 million improvement on the prior year. Sales growth in the second half was very strong with comparable growth of 7.3% with a highlight being the improvement in apparel.

Hotels EBIT of $261 million was broadly flat on the prior year. Again, the business had a better second half with strong growth from Bars, Food and Accommodation, with Gaming more subdued. And central overheads were $60 million in F '19 and included some of the one-off gains that I mentioned earlier. We still expect central overheads to be around $150 million per annum on average before any costs associated with the Endeavour Group transaction in F '20.

Turning to Slide 13, just quickly covering some balance sheet metrics. Average inventory days from continuing operations showed a further improvement on the prior year, declining by 0.2 days to 38.8 days with the improvements across each of Australian Food, New Zealand Food and BIG W. And normalized return on average funds employed from continuing operations was up marginally, benefiting from improved EBIT growth in half 2 and trade working capital improvements. We've also shown our lease-adjusted ROFE estimate on adoption of AASB 16 of 14.1%, which I'll talk to a little bit further and in the coming slides.

Turning to cash flow on Page 14. We've presented the total group including discontinued operations and significant items. Cash flow generated from operating activities before interest and tax was $3.9 billion, up 0.5% on the prior year due to higher EBITDA from continuing operations before significant items and improved trade working capital. This was offset by the timing of a New Zealand creditor payment run in the last week or 53rd week of the year and a reduction in provisions and accruals.

Interest paid declined by just under 10% due to the repayment of higher interest rate borrowings in the prior year, and tax paid increased by 12.6% due to higher tax installment rates and higher refunds of tax in the prior year.

Cash used in investing activities were $246 million. The material reduction compared to the prior year was as a result of the sale proceeds from Petrol. The entire proceeds of which, as Brad referred to earlier, were returned to shareholders via the off-market buyback in May.

Dividends increased to $1.3 billion compared to the prior year. F '19 included a final F '18 dividend with a special dividend of $0.10. We had a higher interim dividend, and the cash impact of the lower DRP following the removal of discount also reflected in our cash dividend payments.

In terms of net debt, it increased by $377 million largely as a result of the New Zealand creditor payment timing, high growth CapEx and higher dividends.

Our cash realization ratio was 74% for the year, but we've also shown a normalization of this because that 74% was impacted by some of the timing issues I mentioned earlier. So on a normalized basis, excluding significant items and the New Zealand payment timing issue, the cash realization rate was 98%. And as a reminder, cash realization is always lower in the second half due to seasonality, as we flagged at the half.

Turning to Slide 15. Operating CapEx for the year was $1.8 billion, at the top end of our $1.7 billion to $1.8 billion guidance range, largely as a result of $80 million of business acquisitions included in CapEx and higher spend on MSRDC and renewals in Australian Food. Renewals and refurbishments remain the biggest bucket of spending, comprising 35% of operating CapEx, which is broadly in line with F '18.

Turning to Slide 16 quickly on capital management. The Board today has approved a fully franked final dividend of $0.57 per share, which is up 14% on the prior year. The full year dividend of $1.02 is broadly in line with the prior year total dividend. However, last year did include a $0.10 special dividend. The dividend represents our typical payout ratio of 70%, which we based off NPAT from continuing and discontinued operations but before significant items. The dividend includes earnings from the 53rd week and 9 months of Petrol earnings.

Across the year in F '19, we did return $3.1 billion to shareholders, excluding franking credit, reflecting our strong focus on capital management and in enhancing shareholder value.

Quickly turning to Page 17. The group remained committed to a solid investment-grade credit rating, and we have BBB and Baa2 ratings with both our major rating agencies and a stable outlook. The group's sources of funding and liquidity remained strong as highlighted by the recent Green Bond, which was materially oversubscribed at very attractive rates.

Turning to Slide 18, I wanted to just quickly provide an update on the new lease accounting standard, which comes into effect on the 1st of July 2019 for the group. There are a few slides here. But don't worry, I'm not going to talk through all of them. So before the implementation of AASB 16 on the top of Slide 18, we held off-balance sheet commitments of $21.8 billion. On adoption of IFRS 16 using the modified retrospective approach, our balance sheet as of the 1st of July will change with assets increasing to $36.4 billion as we recognize a lease asset of $12.2 billion while liabilities will increase to $27.1 billion as we recognize a lease liability of $14.7 billion.

On the second chart on Slide 18, we show a reconciliation of our off-balance sheet commitments of $21.8 billion as of the 30th of June to the lease liability of $14.7 billion on the 1st of July 2019 on adoption of the new standard. And in the reconciliation below, we've tried to highlight the major differences between the off-balance sheet commitment and the new lease liability.

Quickly on Page 19, we've provided a breakdown of the lease assets and lease liabilities by business unit. Not surprisingly, Australian Food makes up the majority of both the lease asset and the lease liability.

Finally, on Slide 20, we've shown a more detailed analysis of the impact on the F '19 P&L assuming the new lease accounting standards have been in place for the F '19 year. Under AASB 16, EBIT would have increased by around $600 million as the straight-line operating lease rental line is replaced by depreciation of the new leased asset and the service component of rent, such as outgoings. Of course, the new lease interest embedded in the lease will now be recognized below EBIT.

Profit before tax on implementation will be lower under the new standard due to lease depreciation and an interest excluding the -- exceeding the rent under the old standards given the relative immaturity of our lease portfolio. And finally, as a reminder, there is no impact on the cash flows of the group from the implementation of AASB.

So that's it for me. Thank you very much, and let me now hand over to David to provide an update on the Endeavour Drinks and ALH transaction.

--------------------------------------------------------------------------------

David Paul Marr, Woolworths Group Limited - COO [4]

--------------------------------------------------------------------------------

Thank you, Steve, and good morning, everyone.

Let's turn -- start on Slide 46 for those following in the pack and just run through 3 or 4 slides briefly. So on 46, as we announced on the 3rd of July, Woolworths Group is merging Endeavour Group -- Endeavour Drinks and ALH into a combined entity which we expect to call Endeavour Group. Following this merger, we intend to pursue a separation of that combined Endeavour Group. Preparation for both the merger and separation is on track with a dedicated internal team, an advisory group working on the transaction itself as well as the operational implementation aspects of both the merger and separation. We'll be implementing the first stage of the transaction via a scheme of arrangement which will transfer the assets and liabilities of Endeavour Drinks to the new combined entity.

On Slide 47, we outlined some of the key milestones, and for your information, the scheme is subject to both shareholder and court approval. We expect the first court hearing to be held in late October, after which we will dispense the scheme book to shareholders in early November. We're planning for shareholder approval to be sought on the same date at Woolworths Group AGM, which is now scheduled for the 16th of December. Following the shareholder vote, if shareholders approve the scheme, we'll go back to the court in late December to seek final approval for the scheme with the merger and restructure then becoming effective in early Feb. And of course, subsequent to which, we'll continue to plan for the separation of the new Endeavour Group in calendar year 2020.

Slide 48 for your reference, this highlights the mutual importance of ALH and Endeavour Group on each business. As the table at the bottom points out, Endeavour Drinks operates a network of almost 1,600 BWS and Dan Murphy's stores, approximately 600 of which or 38% of which are owned by the ALH entity. In F '19, these 600 stores accounted for 29% of the combined Endeavour Drinks and Hotels revenue, as you can see in the pie on the right-hand side, and 24% of the combined group's EBIT, which we'll touch on now on the following slide.

So moving to that following slide, on 49, it's quite a busy slide, but let me just step you through it. This slide effectively highlights how ALH's business is currently included in the Woolworths Group segment reporting and what a combined Endeavour Group would look like if we were to report that as a segment today just on an indicative pro forma basis. So just stepping through, Endeavour Drinks includes both the wholly-owned retail businesses, which is Column A, in the purple on the left-hand side, as well as the 600 retail stores owned by ALH, which is Column B. We do this because this effectively reflects how that business is managed, how we report internally, whereby Endeavour Drinks is primarily responsible for the management of the retail business, and ALH is primarily responsible for the operation of the hotels.

Also included in the Woolworths segment is the hotels themselves in Column C, in the third -- the blue column, third from the left. It is included as hotels, as the name suggests, not total ALH because of course the retail component is already included in drinks. The pro forma Endeavour Group therefore is highlighted on the fourth column with the red outlined box, which is an indicative aggregation of all of retail as well as the hotels. You'll see in that column, the outlined red box, we've included a pro forma impact for the Endeavour Group, which includes the impact of the current $1.9 billion of debt currently owed by ALH Group to Woolworths. This debt will need to be refinanced -- restructured and refinanced externally prior to separation in 2020.

Under the merger of ALH Group and Endeavour Drinks, Bruce Mathieson Group will swap its 29% economic interest in ALH Group for a 14.6% stake in Endeavour Group. This economic interest is greater than BMG's 25% ownership, effectively reflecting other contractual entitlements they receive, most notably a preference dividend.

Both the ownership -- the ultimate ownership outcomes of Endeavour Group were derived via a number of valuation techniques and of course, negotiation. The relative pro forma NPAT shown on this slide indicates transaction is a very fair outcome for both parties.

Thank you. I'll now hand back to Brad to cover the outlook.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [5]

--------------------------------------------------------------------------------

Thank you, David, and I'd like to congratulate Steve on his first outing as the CFO and David as the COO presenting possibly the most complex slides. So clearly, we've had a full enough presentation on Slide 49, and I encourage you if you have any questions to go back to David at the end.

Turning to the outlook. We ended F '19 with good momentum, and this has continued into F '20 with Australian Food the highlight. Comparable growth in Australian Food for the first 8 weeks is around 7.5%. Clearly, this needs to be viewed in the context of the challenging sales we had last year, and on a 2-year average basis, comp sales growth is around 4.5%.

While sales momentum has been good across the group, we remain cautiously optimistic going forward, just given a lot of uncertainties we see in the consumer environment and the various input cost pressures we need to work through across the group.

In Australian Food, we have a number of initiatives that should support sales over the next 12 months if we execute effectively. Online sales are expected to continue to grow strongly. And we plan, as I mentioned at the outset, to ramp up a number of Metro stores being opened in F '20.

We do have some well-documented headwinds clearly including the impact of our new enterprise agreement in Australian Food and these input cost pressures. However, our Simpler initiatives are delivering productivity benefits, and we should also begin to get the benefits from MSRDC in the second half of F '20.

In New Zealand Food, the team remains focused on value for customers, fresh and customer experience while continuing to progress their version of Simpler for Stores.

Endeavour Drinks will continue to evolve to improve its digital experiences, deliver more localized ranging, improve servicing experience and build on the operating momentum we started to experience in Q4, in particular in Dan Murphy's.

In terms of BIG W, we expect a further reduction in losses in BIG W as we continue to focus on maintaining sales momentum, improving the operating performance of the business and taking, first of all, a more sustainable store network.

In conclusion, as always, I would like to thank our customers, team and investors for their support. And I will now hand back to the operator to open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question today comes from Shaun Cousins from JPMorgan.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

Just a question in regards to food and how the enterprise agreement burden will be offset in fiscal '20. I assume the $35 million cost in food, CODB won't repeat so that will help, and you'll get some operating leverage sort of benefits from the strong start, which won't be continued but still quite good. But maybe how are you thinking of the benefits that you're getting? And maybe if you could put them in buckets in terms of getting gross profit dollars out of supplier for mitigation, the automated DC. Does that actually net help you out? Or are you -- are orders running the dual DC offset? Where the rostering benefits are, are there any other benefits? And maybe in the past, you've highlighted D&A growing as well. So maybe if you could sort of go through a couple of buckets about where you see sort of benefits to help you out to offset? And confirm it's $150 million, the cost that you've got to pay.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [3]

--------------------------------------------------------------------------------

Shaun, I don't know if that's 1 question or 20 questions, but let me take a shot at that. If I don't get it right, please come back and ask more specific variants of it. Let me just -- so I think there are 2 components. Yes, there is one we're doing in the GP and one we're doing in CODB. In the GP, as we called out, we had a challenging year on stockloss in F '19. That does need to be seen in the context of a good '18. But we really started to change our stockloss processes in January, February. We actually ended up with a good exit rate. So just to give you a sense of the numbers because I think it's quite important. Stockloss in H2 ran at about 3.2%. Overall stockloss for the year ran at about 3.1%. That's materially up from what we were in '18. But we exited, as I said, materially lower than that in July. And our key -- in June, sorry. And our key focus, of course, is to continue to focus on improving it. The improved sales do help stockloss unashamedly, but there's a number of other exciting initiatives underway that we can talk to in that space. But that is a key lever for us in the context of GP. On CODB, we've been well aware of our need to drive, as I say, a series of programs across the whole of Woolworths. And they come in various manifestations, of course. The customer operating model we put in, which I'm alluding to, which we have provided for in H2, does have material benefits to us, both in terms of customer and experience, but also it does also help us with our overall operating costs in particular as we work to the rosters that underpin the new operating model. So that is a key platform for us. That's why we provided for it. That's why we got it underway in late May or early June in Woolworths Supermarkets.

In terms of other initiatives we've got sitting there, we have a number of other more specific process improvements under the Simpler moniker. In Woolworths Supermarkets, again, Claire can talk to it, but huge benefits in the middle of our store through just the whole way we flow product to shelf and just lift our overall cost and case rate to that part of our business. And then also additional benefits at our front-end as we lift our scale rate. This particular issue was one we were quite positive about realizing benefits from in F '19 with plastic bags and everything. We never truly got to where we quite wanted to. But it is a material opportunity as we get into '20. So our operating model and rostering this core process improvement, front-end, center of store in particular. And then we also in Q4 of F '19 also worked very hard in simplifying our support office.

And so we did a whole simplification piece of work in the support office, which again is in that number we talked about -- that we provided for in the second half of F '20, just to make sure we have the right exit rate on our overall above-store cost structure into the year. So lots underway. Lots to do, but really, a lot of benefit there.

If I come then specifically to the MSRDC, we see material benefit improvements from this. And we will start seeing those hopefully in H2 and into F '21. The reason we did not close the 5 (inaudible) centers but extended it is the truth is we have just great momentum down in Victoria and Tasmania in our business. And it just was not a risk it felt sensible to take given the momentum we see in the business. So it was a very considered decision. It will cost us some money, but it's not -- I wouldn't overstate what it cost us. And it really wasn't a very sensible asset that we wanted to put in the business.

So Shaun, as always, there's lots to do in the P&L. But actually, as I mentioned at the outset, these initiatives we've been working on all year in '19 and been very, very focused on exit rates in June out of '19 to make sure we got to flow into '20. Last year, the real challenge for us was, as you know, with the challenges around plastic bags and a number of other things, we never quite got the right rhythm we aspired to in the first half, and we're planning to change that this year.

--------------------------------------------------------------------------------

Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

And so maybe just to clarify just 2 specific points. D&A has been growing quite significantly. Will that continue in fiscal '20 or will that sort of moderate? And has [Peter Mack] been effective in getting some GP dollar growth out of suppliers in those [unification] efforts?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [5]

--------------------------------------------------------------------------------

Yes, sure. So I'll let Steve talk specifically to depreciation and amortization. But as we called out in the release, it will continue as we've launched production on MSRDC and as we continue to build on our renewal program, which we are still very pleased with the results we're getting.

But Steve, do you want to talk about our comeback to overall buying.

--------------------------------------------------------------------------------

Stephen Harrison, Woolworths Group Limited - CFO [6]

--------------------------------------------------------------------------------

Yes. Shaun. Certainly, you did see that big increase in depreciation in F '19. We would continue to expect depreciation to grow in F '20, particularly as we start to depreciate MSRDC, but we continue to have depreciation on things like our renewal program but also increased investment on some of our shorter-life digital assets. So we would expect depreciation to grow, maybe not quite at the same rate, but certainly you should plan for that in F '20.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [7]

--------------------------------------------------------------------------------

And in terms of overall GP for Australian Food and Woolworths Supermarkets then, Shaun, and recall this started in the year, called the biggest challenge we actually had to GP before stock loss in the launching really was in protein, in particular in red protein. And in our GP, we just saw it go down in '19. We actually felt we couldn't pass on all of the input cost pressure we were bearing to our customers. So that's one of the reasons you'll see it come back. That's been a real challenge for us. We do expect that part of our business still to be very challenging as we go into '20, and we've talked about some of the other meat challenges we had there. So that's where the -- that's been where the real challenge in GP is.

If I go to the long-life side of our business, what we've been working very hard on is trying to get into a more sustainable promotional plan, and that's where our biggest upside is. That's not actually in how we negotiate with our suppliers, but I'll come back and talk to that specifically. It's just making sure that promotional monies are well spent for everyone involved. And so sustainable promotions, a lot of work kind of with our promotional effectiveness tool. We've actually reduced the number of promotions we had in the business, as we have in the last couple of years. But actually, the promotions we're doing have more impact. So you don't see it completely in the numbers, but it is a material benefit for us going into F '20 to continue to have less but better promotions. So that is a big opportunity for us.

In terms of how we deal with the overall supplier cost increase requests, it is dealt with, as you know, on a case-by-case basis. We don't use the word mitigation in our business anymore, Shaun. We actually deal with them as we should and consider everything in the context of which it's considered. We've had more than we usually do. We've actually accepted more than we usually do. We just got to be very careful that we don't, in any untoward way, pass them onto our customers who are, of course, trying to balance their budgets.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question comes from Grant Saligari from Crédit Suisse.

--------------------------------------------------------------------------------

Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [9]

--------------------------------------------------------------------------------

So just first on Dan Murphy's, can you elaborate, Brad, on the reset or repositioning of Dan Murphy's? The liquor comp was a bit soft in the fourth quarter. I don't know whether that was indicative of the Dan Murphy's result. But if you could elaborate on where you're at with the Dan Murphy's repositioning, I guess, what we should expect to see coming into FY '20?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [10]

--------------------------------------------------------------------------------

Yes, thank you. Thank you, Grant. It was a year that really, there's been a lot of work on, in many ways, refocusing Dan Murphy's. Reset, I think, is too strong a word, but a refocus on what made Dan Murphy's so successful in the first place, which is broadly covered under the topic of discovery and in a place where you can discover great prices, great range, great service, be taking on great adventures and so on. So it was really staring into the business led by Steve, and I'm going to let him speak in a moment, Donohue, on this topic of discovery and how we get that right. And we've turned up every part of Dan Murphy's and said, "How do we get this spirit of discovery back into the business?"

On range, it's been about our Customer 1st Ranging process but indexed to interest. The first carrier that we called out is the easiest one to impact, which is the Sauvignon blanc, and Steve will talk to that. We've managed chardonnay. We're well into progressing into the red wine side. But one merchant is back into our key wine stores to really hand sell and excite our customers. We relaunched My Dan's, not MyDanMurphy's, with a rebuild of the personalization engines to provide the right offers into our customers. We rebooted the whole marketing program that sits around it. So -- and then underpinning that has been just this work on convenience, which is a massive opportunity. Dan Murphy's is very, very convenient in ways that actually no other retailer can be and getting the team to lean into that. It took us the whole of the first half to really land these initiatives, and they started to land quite pleasingly in the second half.

In terms of the specifics, Steve, of Q4, in Dan's, can I turn to you to give a little bit of color to that?

--------------------------------------------------------------------------------

Steve Donohue, Endeavour Drinks Group - MD [11]

--------------------------------------------------------------------------------

Yes. Let me start by saying, Grant, it's really difficult to look at these 2 quarters in isolation given the movements of New Year's Eve and Easter and all these sorts of things. So I've tended to have more of a focus on the half and really pleasingly, both Dan's and BWS accelerated their sales growth in the half. And Dan's actually accelerated a little bit more than BWS, so that was positive.

To Brad's points, the big areas of movement around the range, experience from customers, the service experience with customers and the convenience that we're giving them through the digital platforms. Now Brad mentioned the range working Customer 1st Ranging. Dan's, in the last half, added about 260 new wines to their range, and that's in stark contrast to what's happened over the last few years. So it's becoming much more dynamic. And specifically, in Sauvignon blanc, the Customer 1st Ranging program delivered 300 basis points of growth versus the prior category event that we had. So that one's working really well for us. We've just landed chardonnay, and we're in the process of rolling out red wine. So we're taking the learnings from Supermarkets and from BWS, which has been very successful with Customer 1st Ranging and have started to apply to Dan.

On the service experience, the wine merchants in 35 stores have really seen nice uplifts in customer feedback on team knowledge. And we put these team members in the stores where we have bigger baskets for wine and higher average bottle prices, but both the basket size and the bottle prices are moving very positively. So that's good. And in -- on all of our brand metrics, our customer brand metrics to Dan Murphy's, we saw a nice pop in Q4 in the last -- if we did right across the range of questions we ask customers. So that's been really good.

And then a brief note on so far this financial year, the momentum's continued, and we've had very positive results from the new Penfolds release which has actually surprised us on the upside. So that's been good, too.

--------------------------------------------------------------------------------

Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [12]

--------------------------------------------------------------------------------

Okay. Second, just on food. This -- I think there's a market expectation that the margin, the EBIT margin, should be increasing in food, and it's not. And you sound, in your commentary, quite a note of caution, I guess, around price pass-through and the state of the customer. And simultaneously, you're putting a lot of change through your food business. I'm just trying to get a sense of what we might be missing in terms -- we -- in terms of the market might be missing in terms of that expectation for margin improvement, given the sort of things you're talking about with the customer and the change that's actually going through your business. So anything you could elaborate on that.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [13]

--------------------------------------------------------------------------------

Yes. Thank you, Grant. I'm just trying to be cautiously optimistic. If I sound -- and I'm trying to get the balance between those 2 words. So it sounds like I'm getting more indexed on cautious than on optimism. But it really is cautious optimism. We've gotten to a really pleasing start to F '20. The #1 risk in any business is hubris, and that's not what we need. We've got a clear plan. We need to execute against it. We should always plan against the downside and hope for the upside. So we are cautiously optimistic. As I said, when you look at the start, it's been great. Not only have we got momentum resonant with customers across our various products and services, but it's given us the ability to crack along with our strategic plan, which is the key to driving our growth. So we don't feel in a bad place, but things can change very quickly. So it's good to have a very cautious approach to retail at all time.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

The next question comes from David Errington from Merrill Lynch.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [15]

--------------------------------------------------------------------------------

Following on from the last 2 questions. I thought Shaun's question was excellent. And -- but I have to say, I'm completely nonplussed with your answer. And it's the worst-kept secret in the world. I'm not that bright. I like to keep things very simple. So if I could ask, have you got cost imposts going forward or have you got cost tailwinds? Because there's a lot of stuff happening there which Shaun pointed out. You've got your stockloss issue, your EVAs, you got one-off things, then you got the DC benefits. You've got a lot of stuff there. So straight to the bottom line, have you got cost imposts or have you got some -- are the tailwinds that you've got through nonrecurring one-offs through the DC benefits coming through, hopefully, from stockloss, all of that, plus all the CapEx you've been spending that we should start seeing benefits. Should all of those tailwinds offset the cost imposts that you've got from the EVA? Straight -- easy question, easy answer. Will your tailwinds offset the cost imposts?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [16]

--------------------------------------------------------------------------------

It all comes down to whether we're executing against our plan, as straightforward as that. It's all about execution.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [17]

--------------------------------------------------------------------------------

Sorry, I missed that, Brad. Sorry, what was that?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [18]

--------------------------------------------------------------------------------

It's all about execution against the plan. We have a number of great initiatives in place in the business, as I've hopefully been clear on, but it does require us to execute against them. Got off to a great start, puts us in a good place, but it's all about execution. So there are as many, if not more, positives we have right now than negatives, but it is about us executing against the plan. So straightforward as that. Good start, judge us from the half.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [19]

--------------------------------------------------------------------------------

But we pay you guy -- or you guys get paid a lot of money to execute at a reasonably good level. So if you execute at the level that we expect you to execute at a reasonable level, and we're not expecting you to shoot the lights out, we're expecting you to perform adequately, will those plans that you've got in place offset the cost imposts so as that you're going to get a nice level of growth going forward? That's the question.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [20]

--------------------------------------------------------------------------------

We're not in the business to providing guidance, but our plan is not to go backwards, let me be clear. And that's certainly not our goal. It's to progress at all times on the customer, on our return for our shareholders and what we do for our team. So we're not in the business of giving guidance, but we're also not in the business of going backwards.

--------------------------------------------------------------------------------

David Errington, BofA Merrill Lynch, Research Division - Head of Consumer Research for Australia and Asia [21]

--------------------------------------------------------------------------------

Yes. But we -- yes, okay. Well, stockloss, Brad, what's going on there? Can you -- what was happening with stockloss? Was it 3.2%, did you say, for the year? Is that what you said?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [22]

--------------------------------------------------------------------------------

No, David, I said it was -- that was our number for the second half. It always runs higher in the second half because you just don't have quite the sale -- same sales velocity. I mean you've got Easter, which is quite a lot of public holidays, and there is some technicality to work on client. But it's much higher than it should be. And we exited June of F '19 at about 2.9%. It needs to continue to go down. There's a lot of upside to be made. Again, it comes to execution, and that's the name of the game for us. We continue to build on that execution.

Really, in stockloss, as you well know, you've got to sort of look at it as a game of 2 halves. In fresh, it is all about how you manage through your markdown process and how you manage your freshness. In long-life, it really is stock adjustment to making sure we have integrity and reduce unknown loss in the stores. So both sides need work. The biggest blowout for us was in the long-life part of our business where unknown stock adjustments are really listed, so -- that was as we went through the transition to -- out of single-use plastic bags and as we saw a lot of changes in the market, certainly, our competitors really started closing up the front end and there was a lot of competitor activity.

We recognize, this current team has started taking actions in the second half to make sure we balance that customer experience versus managing the unknown loss a lot better. And so as the half went on, we saw those improvements come through, which is why you saw us exit at 2.9%. Our aspiration is to be -- make a lot more progress against that in the context of F '20. So a lot of upside potential there, David. It comes back to execution.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

The next question comes from Ben Gilbert from UBS.

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [24]

--------------------------------------------------------------------------------

Just interested, just around the momentum that you've got for this Q1, just how you're thinking about it strategically? And obviously, it's not a phase where it's necessarily maintained that momentum given the comps start cycling a bit. But how do you think in trying to pull forward initiatives you got previously, pushing your database a bit harder on Woolworths Rewards, just trying to hold the customers in-store? And I'm just interested in some of the learnings you might have had through Ooshies because obviously, Coles last year, I think, saw customers return pretty quickly to where they'd usually shopped. And how are you thinking about trying to hold on to those customers post Ooshies?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [25]

--------------------------------------------------------------------------------

Thanks, Ben. Look, I mean in general, what we're trying to do across the group is use the momentum every business has to actually crack along in our strategic plan and deliver against the aspirations we have, which I'll leave it to, in a moment, to David.

If I come to Australian Food, in particular, we had faced quite an unusual confluence of events where we come out of the Lion King with only 3 weeks into Discovery Garden. This is quite an unusual, sort of almost back-to-back program. Now as I mentioned, [Rita] called out, they have very different programs. Lion King is a traditional collectibles program, although done in partnership with Disney over the context of a year of partnership with Disney; whereas Discovery Garden is a much more community-centric program, a bit more in [Sam Yorkers], Earn & Learn and certainly follows on from our Discovery Tours which we did with our Fresh Food Kids.

So it's quite an unusual situation where we remain hopeful that in this process, we will be able to hold people who haven't necessarily shopped us over a longer period. And hopefully, if we execute well, they will really get a sense of where we are with great prices, with affordable health, with engaging service and just the overall experience in our stores. So there's a lot of optimism we have in that, but it does require a great execution. We do think if customers stay in the business and get habitually used to shopping us over 12 weeks stay -- will stay, but only if we do a great job for them. So that's why I'm cautiously optimistic. So it's quite unusual, one program into the other. We wouldn't have designed it this way. It just happens to fall this way. For those of you who have an interest why it falls this way, you can't do Discovery Garden unless it's spring so that actually the herbs can grow. So there was just a timing issue of how it falls, but it could actually play to our benefits in truth there.

--------------------------------------------------------------------------------

Ben Gilbert, UBS Investment Bank, Research Division - Executive Director and Analyst [26]

--------------------------------------------------------------------------------

And second one from me. I know we're not done talking about gross margin, but there's a pretty big shift in terms of going from up 2 in the first half to down 52 in the second half of food. I appreciate it's seasonally high period of strength. But I think you said at the half you missed your shrink target for probably about 30 basis points as well. So it's a big step down. And I think you'd also said previously, you're probably starting to pull back a little bit on your reinvestment back into protein. So I'm just interested, did you take a step to absorb more price increases or to try and leverage some of the momentum you're seeing in the business to cement price positioning specifically? Or was there something else because the delta just sort of seems too big...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [27]

--------------------------------------------------------------------------------

Look, I mean the major mover in H2, undeniably, and I'll convince Claire Peters to talk to this, is just stockloss. We really did -- we were just challenged in H2, and it's just a material pullback from us. And that's really -- in many factors that go into making the GP, as you know. But it just -- was just challenging on a whole kind of basis from January from the get-go -- from the second half. And once things get a little bit away from you, it just takes a while to catch them up. So it was the cost, every bit of our business. But actually, the initiatives we have in place are really getting great traction. So the headline was stockloss.

My comments on red meat were the input pressure we had in the first half, we were very hesitant to pass it onto customers. So it was much a first half story as the second half. We're just simply in the context of where we needed to pass a lot of the increases through. And we've seen the whole industry do this, I might add. So that issue is not -- we've ameliorated that issue somewhat in the second half. But it was a story of loss.

In the context of meat, red meat, Ben, it really is how we manage the markdown process. And with our new skin on process, skin on tax, we were starting to fresh seal. We started to see material benefits as we extend shelf life and actually provide a better quality and a better quality freezing for our customers. So that program started to kick through which is really good. And then, as I say -- well, some of the initiatives we've done in long-life in our assisted checkout area, we've -- the way the scales are -- have been reactivated but with a lot more tuning and precision to them. We've been very thoughtful on how we manage entry and exit out of our business and a range of other initiatives.

So it was about stockloss. It's easy to react and create a bad customer experience, and we chose not to do that. We chose to be systematic from what we did. Exit rate was good. And so far, so good in F '19 -- F '20, sorry.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question comes from Bryan Raymond from Citi.

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [29]

--------------------------------------------------------------------------------

I'll continue to focus on gross margin for a minute, if that's okay. My first part is, can you clear up what second half '18 was just so we can get the delta? I have 2.8% in my model, but that might be for the full year. Could you just -- so we can get the basis point delta around that?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [30]

--------------------------------------------------------------------------------

Is this for stockloss?

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [31]

--------------------------------------------------------------------------------

Sorry. Stockloss, yes. Yes, stockloss. Versus the [3.1% in the second half, what was the...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [32]

--------------------------------------------------------------------------------

I'm just looking at Steve. I've got about a month. So, Steve, just on the half?

--------------------------------------------------------------------------------

Stephen Harrison, Woolworths Group Limited - CFO [33]

--------------------------------------------------------------------------------

Yes. Second half of F '18 would have run around 2.9%.

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [34]

--------------------------------------------------------------------------------

Okay. So you've only got 20 basis points there...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [35]

--------------------------------------------------------------------------------

27. 27, if I was going to be decisive, right?

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [36]

--------------------------------------------------------------------------------

27 basis points. Okay. So that's about half of your gross margin move. How much of it was down to the fuel discounting coming in? You're talking about $38 million annualized, but that was a deal that closed in April. What sort of dollars was that, that would have contributed to the gross margin move?

--------------------------------------------------------------------------------

Stephen Harrison, Woolworths Group Limited - CFO [37]

--------------------------------------------------------------------------------

I think it'd be fair to take that number and take 1/4 of it.

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [38]

--------------------------------------------------------------------------------

Just 1/4 of that? Okay, I get it.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [39]

--------------------------------------------------------------------------------

But there's some other one-off costs on fuel that are there as well, but I wouldn't call that material.

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [40]

--------------------------------------------------------------------------------

Okay. And then just within -- other than that, I mean, we've been hearing across the market the promotional intensity has dropped over the last 12 months by about 200 basis points -- sorry, promotional participation, that is. How does that compare to what you guys are saying? Or do you think that you're promoting a bit more than your competitors and that's helping your sales line? Or could you...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [41]

--------------------------------------------------------------------------------

The other cost to GP is collectables, just to be clear, and obviously we did Disney Words, and then Earn & Learn. So those are in there as well. So just don't forget about those. As I mentioned, to answer a previous question, the number of promotions we do is actually decreasing year-on-year, it has for the last 3 years. However, our execution of promotions has improved as it has for the last year. So our commercial participation has not gone down as quickly as our number of promotions has. So it has reduced, but the number of promotions has reduced much faster than promotional participation, if you know what I mean.

--------------------------------------------------------------------------------

Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [42]

--------------------------------------------------------------------------------

Yes. Yes, I understand. Okay. That's helpful. Just the -- my second question is just actually around BIG W. You've obviously had seen a bit of gross margin compression there. How are you thinking about that into F '19 in terms of -- you mentioned losses narrowing in that business. You are more price competitive, but how do you see your gross margin profile in that business? Is that our -- is that investment made and should be stable from here? Or do you think that there's further investment needed in price, given what -- came out announced that they had dropped prices again in -- made in this.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [43]

--------------------------------------------------------------------------------

Yes, look -- thanks, Bryan. I mean -- and I'll turn to David who will add a bit of color. Just like inside the food business, just sort of thinking about the fresh chilled, very different to the long-life and truth inside our Big W business, sort of still moving my way through it. Our hard goods versus soft are very different in terms of the composition of margin and how you manage and execute against margin. One of the challenges we've had at the GP level has been soft. And if you don't get your range and flow right in seasonal, decisions-wise, you end up with a very large markdown prices which dilutes your GP. And so that has sort of been a big drag for us over the last few years. It's going to actually change as we get better at that, and it was quite noticeable in Q4. So the whole margin issue in apparel is how you hold that first margin and then dilute it with your markdown prices on the way through.

On the long-life or the hard goods side of our business, we've been very price competitive, actually, arguably overly price competitive in some areas. And so we'll be much more thoughtful on strategic pricing and price elasticity of different products, and working very hard to get the right shape to our price investment. We weren't getting quite the same resonance or impact with our customers as we expected, given how competitive we are. So we're working on our key value indicators inside hard goods and our whole flow of soft goods, derisking the fashion side of soft goods and better managing our markdown process. Both of those are coming together to really start improving our GP line. You see a little bit of it in the second half, but you'll start seeing it into F '20.

Dave, anything you'd like to add?

--------------------------------------------------------------------------------

David Walker, Woolworths Group Limited - Acting CEO of Big W [44]

--------------------------------------------------------------------------------

I mean you covered the 2 big ones, Brad. I mean price is clearly really important for our customers. So getting that balance right, Steve, by staying very competitive by trying to find a way to change the efficiency of our business. Seasonal was important, and we saw a real kick in the fourth quarter with our pull price sell-through through winter apparel, particularly. But the other key driver for us is just shifting the mix. So we've gone through Customer 1st Ranging, through a lot of our areas of our range at the moment, and we're seeing some real shifts in our mix within the categories and across the category. So customers are shifting from entry to slightly elevated good, better, best. But we're also seeing some of the higher-margin categories starting to really fire with stronger ranges. So the combination of lots of different things are coming together, and we're pretty confident as we move forward that we can strengthen that.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [45]

--------------------------------------------------------------------------------

I mean we also track a lot of metrics, as you know, across all of our businesses and certainly on the customer side, both probably the experience in shopping in our store and their perception. And our customer metrics in BIG W have actually trended pretty pleasingly overall and in a relative sense.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

The next question comes from Morana McGarrigle from Macquarie.

--------------------------------------------------------------------------------

Morana McGarrigle, Macquarie Research - Analyst [47]

--------------------------------------------------------------------------------

Just my first question, very quickly, is just on the Voice of Customer metrics for food. The scores appear to be either plateauing or starting to slow, and I do appreciate that they are all-time highs. But could you just please provide some commentary on what's going on there? Is the business running too lean, like are staff hours too lean, and maybe also where you see opportunities for improvement now?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [48]

--------------------------------------------------------------------------------

Well, the voices have room for improvement. We have sort of, of course, got to a higher level, and we've done some re-weighting and we've made it harder for our teams, to be honest, to get high scores, in truth, and Claire can talk to it. We were starting get in the mid-90s, and that's not a good number. There's always room to improve. So we've done some re-weighting, which we can talk to. The numbers are crossed on the same weighting, but we were quite sensitive to making sure we left enough challenge for our team.

The highlight for the year was the improvement in Voice of the Customer score and in particular, in online. So if you sort of look, you'll see the trend line go up on that. On Voice of the Customer score at store level, we didn't get quite the improvement we may have wanted. But actually, in the context of the year, we had -- we thought that was a really good result. So in the first half, with plastic bags, with a lot of other challenges we had, we just -- it was very hard to actually provide the experience we aspire to. And then at the start of the second half, as I said, grants in place, we really had a lot of quality issues, out-of-stock issues and supply issues -- not out-of-stock issues in fresh there. There were a lot of challenges there. So to bounce back, and in particular, as we implemented our new customer operating model in May, which is relatively disruptive for our teams, we thought it was worth calling out as a resilient and positive outcome.

Claire, would you like to -- anything you'd like to add to that?

--------------------------------------------------------------------------------

Claire Peters, Woolworths Group Limited - MD of Woolworths Supermarkets [49]

--------------------------------------------------------------------------------

I think you covered the main 2 things in half 1 and half 2. And I think as we continue into this year, refining the measures that matter even with most of the customers, we will refine that weighting even further by bringing our Voice of the Customer at the store level down to the key 5 metrics that our customers have that are most important to them. But as you said, Brad, whether it was this time last year with the small crisis we had on strawberries or as you quite rightly said, the out-of-stock increase in veg, particularly, which hit all of Australia in February and March.

--------------------------------------------------------------------------------

Morana McGarrigle, Macquarie Research - Analyst [50]

--------------------------------------------------------------------------------

Okay. And then...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [51]

--------------------------------------------------------------------------------

With regards to the strawberry crisis of last year, for those of you -- as Claire rightly pointed out, there was the whole crisis around the punnets in strawberries across Australia, which was a material impact on everyone, and in particular, the growers, of course.

--------------------------------------------------------------------------------

Morana McGarrigle, Macquarie Research - Analyst [52]

--------------------------------------------------------------------------------

And then just maybe one more question, again, on the food side. Just how should we think about pricing in the overall deflationary environment going forward? And I guess I'm particularly interested on the dry goods side. It feels as though both you and Coles are trying to delay price rises for as long as possible. So I guess my question is, what's holding you back? And can we expect to see some price rises push through more aggressively in FY '20?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [53]

--------------------------------------------------------------------------------

Yes. Look, I mean I think we said we're looking at everything on a situational specific. I would think we've got a very rational market right now and everyone's leaning into the challenges on input cost pressure and -- from all angles. As you would have seen in our results and our competitor results, there has been a softening in deflation in long-life products. Fresh products, in particular, chilled are inflationary at the moment. But long-life is slowly transitioning out of being materially deflationary to being neutral to slightly inflationary. We would expect that to continue into F '20. I can't tell you exactly where it'll go. I can tell you that the market is rational. I can tell you we're all, of course, nervous in making sure we hold price trust with customers, but it is clear that there is movement from a deflationary environment to a neutral, slightly positive inflationary environment in long life and that part of the market has been deflationary for at least the 4 years that I've been in this part of the business.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

The next question comes from Andrew McLennan from Goldman Sachs.

--------------------------------------------------------------------------------

Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [55]

--------------------------------------------------------------------------------

The first question I have is just on the store rollout. Pretty much across-the-board, other than BWS, the net store rollout was sort of under your expectations. At the same time, you've had tremendous success pretty much across-the-board again with respect to online. Is there a timing issue here? Or are you getting more and more confident around your online growth and penetration rates to maybe review your store footprint requirement?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [56]

--------------------------------------------------------------------------------

Thank you, Andrew. A great question. Look, we didn't open as many stores as we would have aspired to in F '19 in truth and these things are many years in the planning and we sort of pulled back a few years ago and it's very hard to move things around. The store program we had in Woolworths Supermarkets, the store openings, the net 16 I think we opened were -- really did perform in line, if not ahead of expectations for us. It was really, really pleasing and clearly, it was more than ahead. I think if we could have opened a few more with the quality we had, we would have, but it's just very hard to find them. So I'll come back to the issue you have and it's a very important issue. But actually, we would have opened a few more. At Dan Murphy's, one of the reasons we had a tough year is we, and I think this will help us going forward, was we never opened a store really until mid-May, I think. So we used to sort of open in 8 to 10, and we didn't open until mid-May. The one we opened in mid-May, which is in New Town in Tasmania, and Hobart was a fantastic store for us. And we opened 3 in rapid succession in the last 4 weeks. We'll get back to 8 to 10 in that -- in Dan in '21 and we can see enough growth for them there. But all the stores -- so we would have opened more Dans in the nice quality neighborhoods and more supermarkets if we could have. But we never want to get out of balance. We're always about this balance. So we're talking about moving to -- I'm sorry, the number at the back of the deck, I think it's about 15 to 20 supers a year, about 8 to 10 Dan Murphy's a year.

Then if I look at our convenience business, we are very excited by Metro. But you've got to find the right size. It's even more important than it is in supermarket. It has to be on the right end trail. The interesting issue you have is when you find it, it's very quick to open, so you can open within 6 to 8 months. But finding it is the challenge. So you don't have quite the lead time with finding the right site. So we are very positive about Metro; but finding them is our challenge.

And in BWS, we're happy with the number we have. It's continually rationalizing the tail. It's one of these churn businesses for us, but we're very happy with where we're at. And the real action in BWS is through our renewals, which are already doing very well when we reactivate a BWS with the Supermarkets. So you will see full -- sort of 1% to 2% growth in the number of larger stores we have in Liquor and in Food. Certainly, in BIG W we're in the process of rationalizing our overall number of stores.

If I then look at online, yes, we do feel it's no longer a startup. It is a core part of what we do right now. The immense benefits of having it a core part of what we do, our Woolworths Supermarkets team, our WooliesX team are working very collaboratively. We're now reengineering every process that we do online. And as we do that, we're becoming more and more efficient, whether it's just the way a truck roll works, the yield we get out of the truck, amount of -- the way we actually route our trucks, which we've rebuilt for all those processes. The in-store pick process, just the way we manage it, the way we operate, where our dock stores are now manual CFCs, the exciting opportunity we have at the back end of F '20 with Takeoff Technologies, which will help us provide speed. So we're very excited.

If you look forward, so what does this all mean for our future store network? I think we will still be opening stores, but the size of them will -- and the shape of them will change dramatically. We have already been taking action of stripping general merch out of our stores. Increasingly, you will see that our supermarkets provide more room in the back of the house to facilitate the e-commerce part of what that do and we fully expect them to shrink. So that will sort of be a glide path over a few years as online grows and as traditional retail shrinks. Hope that makes sense, sorry.

--------------------------------------------------------------------------------

Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [57]

--------------------------------------------------------------------------------

Yes. No.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [58]

--------------------------------------------------------------------------------

It's one of our very hard questions which I look forward to getting on the roadshow, if you like. Spend a lot of time on it.

--------------------------------------------------------------------------------

Andrew J. McLennan, Goldman Sachs Group Inc., Research Division - Consumer and Retail Analyst [59]

--------------------------------------------------------------------------------

Okay, indeed. And maybe one for David, just in relation to Endeavour Group, you mentioned that there would be some costs incurred as part of this process. Obviously, it's not going to be a cheap process. But I'm just wondering given -- particularly given the fact there's a merger and Bruce Mathieson Group will take effectively a share of the store fleet that they didn't previously own, is there any requirement to look at the valuation of the assets, the inventory, et cetera, as part of this merger and demerger process? So if you could just explain maybe what to expect on costs and then what to expect around the process?

--------------------------------------------------------------------------------

David Paul Marr, Woolworths Group Limited - COO [60]

--------------------------------------------------------------------------------

Andrew, thank you. Yes, if I start with the second one, look, I don't think anything is going to jump out from an inventory perspective, although, of course, we need to look at that across the group or assets more generally -- specifically as a result of it. But I don't think there is anything at this point, but of course, we will work through that.

On costs, we did say there would be some minor costs associated with this move, when we put the release out in July. I think we quantified something in the order of $275 million, obviously, a large, large number. In reality, how much of these costs ultimately lands and what degree of stand-alone or stand-up costs and therefore what stranded costs sit within Woolworths ultimately really depends on the level of a partnership we have to take in 22 businesses.

So what we're very clear on is the separation provides greater simplicity and it gives you a growth mandate, certainly for the Endeavour Group. But it's really trying to underpin it with retaining some very strong partnerships. Depending on the extent of those partnerships have on the go-forward and they'll vary by area will influence the level of cost incurred. So at the moment, we stick with the one-off costs being in that order of $275 million. Given the time frame we're working to, the majority of that cost would be incurred in '20, as per our previous discussion. So -- but we'll certainly continue to update the market as things progress.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

The next question comes from Scott Ryall from Rimor Equity Research.

--------------------------------------------------------------------------------

Scott Ryall, Rimor Equity Research Pty Ltd - Principal [62]

--------------------------------------------------------------------------------

Not to -- I'll come back to my question on Food because I don't want to beat a dead horse there too much, but I wonder if you could just talk in terms of fresh -- the comments you make about fresh products in your supermarkets. What categories have you've seen that have been the most pleasing in the second half and whether or not you've progressed any strategic initiatives to ensure the more consistent availability of fresh offerings, please?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [63]

--------------------------------------------------------------------------------

Thanks, Scott. I'll turn to Claire Peters to just give you a little bit of color of what happened in the second half. As you would hopefully know, on Fresh, we have Fruits & Veg chilled now. We've moved chilled from our long-life business to manage this part of our Fresh business and then on Meat, Bakery and deli. Over to you, Claire.

--------------------------------------------------------------------------------

Claire Peters, Woolworths Group Limited - MD of Woolworths Supermarkets [64]

--------------------------------------------------------------------------------

Thanks, Brad. Thanks, Scott, for the question. Specifically in half 2 in Fresh, we saw some good increase in some of those key categories that Brad's touched, produce, also chiller and also in-store bakery will be the kind of 3 key pull-outs of Fresh Food, which we saw continue to be strong throughout the year in share as well as in like-for-like. To the question specifically on what are some of the strategics within our house and the same for Fresh, we've had 2 specific programs: one, which is around being proud for Fruits & Veg, which is an accumulation of in-store training for our teams on Fruit & Veg, new equipment and as well as localized range into specific stores.

And then the other one that Brad even touched on at the start around our Fresh Made Easy, which we've been trialing now in a number of our stores across all our states, which is giving our customers more of a choice to be able to have fresh made easier for them, particularly in the dinner space and particularly in the dinner for later, which we'll be looking to roll out at speed and across the whole fleet for the remainder of this year.

--------------------------------------------------------------------------------

Scott Ryall, Rimor Equity Research Pty Ltd - Principal [65]

--------------------------------------------------------------------------------

All right. Great. And then could I just ask maybe instead of delving into the detail, which I think has been done around the 2 different margin metrics that you give for Food, I think it's probably fair to say that the supermarket retailers around the world that delivered the most sustainable growth and the trend of gross margin going down and cost of doing business going down as well. Obviously, you've called out some gross margin impact, but not the sort of gross margin directional items that you'd like in terms of stock loss and some of the others. And it looks to me like cost of doing business, you've got some one-offs this year and last year that broadly balance out that even -- you've had an ability to take some cost out even with the EVA cost coming through.

So I guess my question, Brad, is do you agree that conceptionally that what you're targeting is cost of doing business heading down and the ability there to share some of that with your customers? And yes, not talking about guidance or anything like that and quantifying, but broadly speaking, that as long as you execute well, that's what we can -- should be able to see over the next 2 or 3 years now that you've made a lot of the investments that you need to make.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [66]

--------------------------------------------------------------------------------

Thanks. Look, we think the 2 best retailers in the world are H-E-B and Publix and both of those are actually promoting a brilliant customer experience, do it strategically, and through that, get I think very strong EBITs and have better market share in their markets than we do in ours and compete with Walmart and ALDI. So I don't accept the proposition at the high level. It doesn't mean you're not right that we don't need to work very hard on our CODB and GP, which we do. Actually, we didn't think -- we felt, in the context of F '19 and also recognizing the provision we've taken against our customer operating model that our CODB performance was pretty pleasing, to be honest with you. So actually we felt we made progress that was really on the back of the work we did in '18 that we then wrapped around into '19. Now clearly, we need to continue it into '20, so no question. But we've got off to a good start on that and we're not feeling uncomfortable. So we need to work on our CODB and we need to offset our costs. A little bit of inflation in this context would actually be very helpful. We've battled negative leverage through not having it. But we don't seek it as an outcome, but if we do get it, it will help. We actually think that the CODB performance wasn't bad in the context of the challenges of the year.

On GP, we fully agree with the call that actually it wasn't quite where we wanted it to be. Actually, if you looked at just the 30 basis points in Fruits, it was stockloss, which we're not happy about. But the nice thing about stockloss, in a way, it's entirely in our control to manage that. So it comes back to the point I made to David about execution for us. This is not an issue outside of our control that we can't manage, and we can manage it while providing even better experience to our customers in terms of fresher service. So it is just a pure upside opportunity to us. So we do need to improve -- continue to improve our numbers. We agree, but actually most of the issues we need to deal with it are inside of our control and we're making good progress on.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

The next question comes from Richard Barwick from CLSA.

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [68]

--------------------------------------------------------------------------------

Can I just -- I mean I'm -- I guess I'm going back attacking the same topic, but from a different angle. I know that you said, "Look, if you execute against the plan, then ultimately you're expecting earnings growth within." -- or you didn't accept that. And I know that you're not giving any guidance here; I'm not asking for that either. But within those comments, there must be a certain assumption around a minimum level of like-for-like growth that you can achieve to basically swing into earnings growth or earnings decline. So is there an inflection point that you can actually talk to or an underlying sort of assumption that you can give us some details on?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [69]

--------------------------------------------------------------------------------

I don't know if I fully understand your question, Richard. Of course, we're aspiring to continuing to grow and we would like to grow at above-market growth rates. That is clearly our aspiration. As you well know, once you get above 2.2% comp growth, you really start getting quite a lot of leverage irrespective of what you do at a store level, so you really do get a nice balance and that's certainly our plan to do that and get the leverage benefit that comes from it. So that is definitely our plan of record.

As you'll see from the numbers we reported on our first 8 weeks, we got out of the gate very quickly on that. Now it's a challenge on how we sustain it. And food retail, like liquor retailing, is all about customers: how we build out guidance to customers is the key. We're very fortunate, we think, to have Discovery Garden as another platform for us to build on into the rest of the year. In Liquor, we have all the great seasonal events starting this Sunday with Father's Day. Make sure you buy something at Dan Murphy's. And then we go into carnival -- food carnival, which is really important. Time as well we reengineered the white wine business in Dan's, too, and I think ready to go into that. So yes, we're feeling, as we keep saying, cautiously optimistic. The market is looking solid. We've grown in ahead of market, which our aspirations are in all of our businesses and it's just how we hold them in [sustainable manner].

--------------------------------------------------------------------------------

Richard Barwick, CLSA Limited, Research Division - Research Analyst [70]

--------------------------------------------------------------------------------

Okay. And the online profitability, so there's obviously improvement there. How much of that has been driven by Click & Collect? Is that taking a bigger share? And would it be helpful if you just give a little bit of an update on the sense of, is the online delivery model, that actually profitable as well? Just a sense of the moving parts there...

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [71]

--------------------------------------------------------------------------------

Look, it's actually -- you can get into the game of how you allocate overheads in our -- I can see our head of -- our CFO, Stephen Harrison, being excited to go, wanting to go on in a very detailed way. How you allocate overheads becomes an interesting conversation. In truth, as we said, our e-commerce business, overall, is profitable and it has become more so in the last year. It is still rate dilutive, but at a rapidly changing percentage. So it is -- clearly, Pick Up is our most profitable channel right now. And that's for obvious reasons that the customer drives first to the store. But we are making good progress on home delivery. And I'd really call out our new routing system, which we're using which is really just changing the yield we get on drop density and actually we're starting to get dynamic pricing and availability of capacity inside our home delivery network, which has now close to 800 trucks on the road at any one time.

So the whole thing is actually becoming better performing. And in fact, our newest channel, which is on demand, is in line with that. So we're not uncomfortable with mix. The real challenge in online though, if -- which management and the team are working very hard on is we believe the future lies in same day and that's true in Liquor and in Food. And so how we improve our underlying process to get speed is the key for us and not incur extra costs as we do that. So we think that's where the action is. We think we can grow and continue to lift margin and that's how we're planning F '20.

--------------------------------------------------------------------------------

Operator [72]

--------------------------------------------------------------------------------

The next question comes from Peter Marks from Morgan Stanley.

--------------------------------------------------------------------------------

Peter J. Marks, Morgan Stanley, Research Division - Research Associate [73]

--------------------------------------------------------------------------------

My question is just on the cost of doing business in the Food business and the EVA. So in the second half, it looks like cost of doing business only grew about 1%. Could you just clarify where you guys were able to take the costs out there and I guess how you achieve that result?

And then also help me understand why there was no impact from the EVA in the second half and then how we should think about that going forward into FY '20?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [74]

--------------------------------------------------------------------------------

Yes. Look, I mean, I think -- let me answer the second one first. There was an impact of the EVA in the second half. We had accrued conservatively in the first half. The key part of the EVA was actually the one on signing benefit we provided to our team at the end of January, which we had accrued over the course of the first half. But then, of course, the rest of the cost of the EVA were in our run rate.

In terms of all the things we did to offset that, and this is at an Australian Food level. Firstly, I would call out the achievement of our facilities management team. Our electricity costs actually went down. That was really mainly through demand management to the way we upgraded our forces and material costs run. It didn't change the overall result, but it was just I think one of the great achievements inside the group and the pressure coming through electricity. But actually, as we made online more efficient and effective, that also provided benefit instead of being negative leverage. Actually the efficiency started to flow through, so there were a real benefit. We did a lot of work on some of the stores with Claire and the team, and particularly in the middle of the store and just the whole way we manage our full process to our shelves and getting an extra -- getting our caution rate up. That was a huge benefit we did. We've got 2 cautions in a day, as you're calling out. So it was a real benefit on just that in-store process. That actually made us better in stock as well as getting the efficiency that flowed through.

Our customer operating model, which we initiated in May, which has 2 parts. It's the way we organize the store for success and how we roster efficiently and effectively. The reason we started that work in May was to get ahead of the benefits we needed to bank in F '20. We realized in early '19 that in order to offset the kind of cost increases in '20, we needed to start taking action in '19. And so that's why we started that work in May '19. That's why we've provided for us in the Australian Food number. But that will materially help us into '20. I know many of you have heard me talk about rostering before, but actually we still don't get out the right yield on roster of about 30% of ours are not necessarily at the right time of day there. So hopefully, that answered the question, but we're out of the gate through quickly on our productivity plans for '20 as we needed to be, and they're on track.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

The next question comes from Phil Kimber from Evans & Partners.

--------------------------------------------------------------------------------

Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [76]

--------------------------------------------------------------------------------

Just a question on BIG W. The second half like-for-likes are fantastic. And the customer base there, I guess, lines up pretty well with the recent fiscal stimulus. So you have sort of comment at all on how your sales have gone in July and August in BIG W?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [77]

--------------------------------------------------------------------------------

I think the point we made across the group is that the momentum we built in Q4, particularly in June, was actually sustained across the group. We don't give specific numbers but we have continued to hold momentum there across the group already. The one thing I would call out is we had a good toy sale this year. We were quite worried it straddles the 2 financial years, but that went ahead of expectations. I think that...

--------------------------------------------------------------------------------

Stephen Harrison, Woolworths Group Limited - CFO [78]

--------------------------------------------------------------------------------

Yes, it did. It's was a strong toy sale for us.

--------------------------------------------------------------------------------

Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [79]

--------------------------------------------------------------------------------

Okay. So that will flow also into the first half of fiscal '20.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [80]

--------------------------------------------------------------------------------

Yes, absolutely. We just -- yes. Well, that's the plan.

--------------------------------------------------------------------------------

Phillip Kimber, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [81]

--------------------------------------------------------------------------------

Yes. And then one last quick one. Just on the Food, obviously you had given the first 8 weeks of trading update and you mentioned before about your typical like-for-likes of like in the 2s to leverage at the store level and you're well above that at the moment. What -- is there anything on the flip side we should think about, though, in terms of unusual costs associated with that strong growth? I don't know if there's a meaningful cost of some of those promotional programs.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [82]

--------------------------------------------------------------------------------

Look, on a trading basis, no, it's just focusing on actually providing a great customer experience. When sales have been as strong as they have for us, actually keeping the stock price or the store providing a great customer experience are the main 2 challenges. I would say that's gone well for us. We are also, though, just in continuing with our new operating model, investing in the new roles and new teams to give them the right capabilities going into the end of -- right into Christmas. So we're obviously making some investments there. And we also really believe in the next generation of growth for us in Fresh and Food. We needed to do it in Fresh made Easy, which is where you sort of continuing to evolve our thinking on our Fresh business and how we make it more convenient to buy fresh food and prepare dinner or lunch or lunch boxes for our customers. And so we do some investments there, but we're comfortable that if we execute effectively, we'll get a return from them. So it's about focus and execution and not getting ahead of ourselves, not for 8 weeks.

--------------------------------------------------------------------------------

Operator [83]

--------------------------------------------------------------------------------

The next question comes from Johannes Faul from Morningstar.

--------------------------------------------------------------------------------

Johannes Faul, Morningstar Inc., Research Division - Equity Analyst [84]

--------------------------------------------------------------------------------

Brad, just touching on the comments you made earlier on online and that it's -- the future is in speed and 1-day delivery. Could you perhaps provide us a bit more color on the partnership with Takeoff Technologies? Basically, I understand it's a trial at the moment, but how big could it potentially get? How many stores could the technology be rolled into? And how does that partnership look like? Will these pay for the CapEx or is it a fee-type partnership?

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [85]

--------------------------------------------------------------------------------

Yes, thank you, Johannes. Look, we -- as we analyze what our customers want, you've always got to be quite careful not to confuse what you provide with what customers want. And that's I think one of the great risks in online. Historically, retailers in Australia, in particular, provide a next day, and therefore, we think that's what customers want. Actually, as you look through the search pattern we find that actually while clearly a number of customers do want prearranged time or next-day and many customers actually wanted same-day, whether it's the same-day pick up experience or same-day home delivery arranged time experience or a same-day on-demand experience. So as we look at that, it changes the way you think about your network quite dramatically. It means that a more distributed network becomes important. And it's in that context that we're piloting with Takeoff Technologies who really provide the micro performance centers versus customer performance centers. And so the 3 sites we have committed to in F '20 are strategically very important even though they're not material in the context of capital because that will help us prove out the model and help inform how we're going forward. Whether we tackle for other providers of micro performance centers, there are increasingly a few providers out there, which Takeoff right now is clearly the leader. But we'll see how the sector plays out. So it won't inform the future. The model with them become a very traditional model in the space, which is partly about capital and partly about a fee-for-service. So it's a combination of the 2. It's not something that we can or would want to reveal the specifics of at this stage. But if we execute against it, it will give us a decent ROI and I'd say critically important as it'll inform the future of our business.

--------------------------------------------------------------------------------

Operator [86]

--------------------------------------------------------------------------------

The next question comes from Craig Woolford from Citigroup.

--------------------------------------------------------------------------------

Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [87]

--------------------------------------------------------------------------------

Brad, just a quick one, but it's been a topic we've discussed over this call. If not for the stockloss, the food EBIT margin would have risen by more than 20 basis points for the year and that includes a significant headwind from depreciation, I think, faster than sales. Broadly, does the company have any concerns about EBIT margins rising? It's something that we haven't seen as much of with some decent trials in the past. But with the lower CODB and the prospects of improving stockloss, it looks like margins could rise from here. Just wondering whether the company is concerned about previous episodes of increasing EBIT margins.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [88]

--------------------------------------------------------------------------------

We're always concerned about having price trust with our customers, Craig, and that's why we should and we continue to focus on that. It's all about price trust. We don't have Catholic guilt on the rest of our P&L so -- but it has to start with price trust and it has to start with a great customer experience and the rest is in outcome. So within that context, of course, we are aware of our obligations to our shareholders, and so rest assured, that's not the focus. It just needs to be in the context of being competitive. And competition comes and goes, as you know, and there are some forms. I can tell you at this stage, our price indices are in good shape and we're very happy with where they are and our price perception is also in good shape. That doesn't mean there are not products or categories we don't need to continue to work on, but we've got the right series of settings right now.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

Thank you. At this time, I'm showing no further questions. I'll hand the conference back to Mr. Banducci.

--------------------------------------------------------------------------------

Bradford Leon Banducci, Woolworths Group Limited - MD, CEO & Executive Director [90]

--------------------------------------------------------------------------------

Thank you, everyone, for your questions.

It is a very complex time with a lot of moving pieces with the 52-week year, the -- what's happening with Petrol and the Caltex, the one-off costs that we start annualizing inside our business with fuel discounts as well as the impairments of BIG W.

I wish I could tell you that F '20 results will be easier with AASB 16 and what happens with Swan, but it won't. But hopefully, we can continue to work in making sure we give you a good transparent look into where we are in a trading sense.

The message I was trying to land today, I hope I did, was cautious optimism. Actually, as you look through our year, it was a very challenging start to the year. The team rallied, we started to build some momentum in quite a challenging macro Q2. That continued in the second half of the year and it gives us some momentum into F '20. The challenge for us as a team is how we use that momentum in the next few months, and it's a good challenge to have and we're excited by the challenge. So judge us on how we do it.

And thank you for your support, and we look forward to seeing many of you on the investor roadshow. Thank you very much.

--------------------------------------------------------------------------------

Operator [91]

--------------------------------------------------------------------------------

Thank you. That does conclude our event today. Thank you for your participation. You may now disconnect.