Metcash Limited (MG9.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Metcash 2022 Half Year Results Analyst Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Jeff Adams, Group Chief Executive Officer. Please go ahead.

Good morning, everyone. Welcome to the results presentation for the Metcash Group's first half of FY '22. I hope all of you, your families and your friends are well, as we continue to live and work through these very challenging times. I am Jeff Adams, the Group CEO of Metcash; and with me this morning is our Group CFO, Alistair Bell. I'll take you through our group results and then hand over to Alistair to go through the financials with you, and then I'll briefly cover the outlook comments in the presentation before we take your questions. Also with Alistair and myself this morning are the CEOs of our 3 businesses, so: Scott Marshall, the CEO of Food; Chris Baddock, the CEO of liquor; and Annette Welsh, the CEO of IHG, who has finally been able to join us in person, up for Melbourne. So we'll start today by turning over to our purpose, vision and values slide. No changes to this slide from our last presentation, but I would like to just highlight, again, the fact we've recently added in creating a sustainable future to our vision statements, as we turn up the focus on this area within the group and also with our independent retailers. Also, I want to highlight the exceptional work done in the first half during this latest phase of the pandemic by the Metcash team and our independent retailers in supporting their local communities. It really does bring to life, once again, our purpose of championing successful independents. Last year presented the group and our retailers with many challenges, but the Delta variant and the resulting restrictions and impacts in this half made it much more difficult for the team to deliver the results we are presenting today, a truly exceptional effort by them under very trying circumstances. I'll move on now to the group highlights slide. So group revenue increased by 1.5% to $8.2 billion, building on a very strong comparative period in the first half of FY '21. All the pillars continue to benefit from the shift in consumer behavior that we've seen since the beginning of the pandemic over 1.5 years ago. We had strong earnings leverage in the half, with group underlying EBIT up almost 14% to $231.2 million, with all businesses in the half performing well and our recent strategic acquisitions, particularly Total Tools, are starting to make a material contribution to the group. Underlying profit after tax and EPS both improved by double digits. And we have maintained a strong operating cash flow of over $212 million, with a cash conversion ratio of 92%. The Board has improved an interim dividend in line with our revised 70% payout ratio of $0.105 per share, fully franked, a 31% improvement over the first half of FY '21. And as I highlighted -- and as we've highlighted in the box at the bottom right, you will see -- you are seeing the results coming through from our group's increased ESG focus, with our Dow Jones Sustainability Index ranking further improving in the half from 29 to 21. If you turn over to the next slide now, the results overview by pillar. I'm not going to go through this slide as I'll cover each of the businesses in the following slides, but it is worth noting the pie charts there on the bottom right, where we have highlighted how we are diversifying the group's earnings with hardware now representing 41% of the group's underlying EBIT, up from 31% in the first half of '21. If we move on now to talk about Food, starting with Food sales on the next slide, and I'll just pick up a few of the highlights off of this slide. Total Food sales ex tobacco increased by 0.9% in the half and up 16.1% on a 2-year basis, if you exclude the 7-Eleven impact, with supermarkets sales just slightly down versus the very strong comparative sales base from the first half of last year, which would have included panic buying and pantry stocking and are up 18% on a 2-year basis, excluding Drakes. We've continued to benefit from the shift in consumer behavior that started at the beginning of the pandemic and seeing those benefits across all of the states, even those less impacted by the COVID-related restrictions and lockdowns. We did experience 1% wholesale deflation in the half, as we remain focused on being price competitive. However, as you will see from our outlook comments, we do expect that to turn around now into a low level of wholesale inflation in the second half of '22. It is very pleasing to see the IGA retail network like-for-like sales up 0.8%, building on the elevated sales base from the first half of last year, and up almost 19% on a 2-year basis, further improving the financial stability of the independent network. And despite all of the challenges with the COVID restrictions and lockdowns, we are net positive in store openings in the half versus closings and de-bannered stores, which we will continue to supply. Finally, it was great to see some of the recognition and awards the Food team earned in the half, which really helped to validate all of the hard work from Scott and the team in these areas. Moving on now to the Food EBIT slide. Food EBIT of $95.2 million is down 7.6% versus the first half of '21. However, applying the adjustments we called out there on this slide to the first half of '21 earnings, there is an underlying improvement in the Food earnings of about $6 million. We've also called out some additional costs we incurred in the half related to the impacts of the COVID restrictions and regulations and some OpEx investment we made into accelerating the rollout of the IGA online shop, which I'll cover off a bit later in the presentation. The EBIT margin was maintained at 2.1% and is an improvement versus the second half of '21. Turning over now to the MFuture update. The Food team has made good progress against our MFuture initiatives in the half despite the significant challenges imposed on them by the COVID restrictions. The Network of the Future program progressed with their 2 key deliverables, with brand standards and consistency work now in rollout, 40 stores already moved to their correct brand with a further 480 stores in the pipeline to be completed. The team has also launched a Local Grocer format, which, along with the new Fresh Pantry brand, will be replacing the IGA Express brand over the coming years. It is fantastic to see this brand clarity work finally coming to life and rolling out after more than 10 years of discussion. The team also completed 41 additional DSAs in the half despite the many challenges, with 663 stores having now been upgraded through this program. And we have a strong pipeline of stores to complete in the second half of '22 as restrictions begin to ease. We continue to look for ways to improve the efficiencies in our DCs and supply chain, and a number of those initiatives are listed there on the right-hand side of that slide. One point to note in this section, it was great to see the Green 5-star certification we received for our new Gepps Cross DC in SA, great recognition to our ESG focus. Normally, we would be talking about digital work here, but we've now combined the digital work across the group onto one slide, which I'll cover a bit later in the presentation. So, if we move on to Liquor now and starting with the sales slide. Total Liquor sales increased 6.6% to $2.2 billion and up almost 22% on a 2-year basis. The network continues to benefit from the shift in consumer behavior that we have called out before. And just as a reminder, we have again listed a few of those there on this slide. The demand in retail bottle shops remain strong, where our network is well positioned, and the half also benefited from the recovery of on-premise sales in mainly non-lockdown states. Similar to IGA, it is pleasing to see the IBA retail network performing strongly, with like-for-like sales up 6.9% and up 27% on a 2-year basis. Turning to Liquor EBIT now on the next slide. EBIT increased $4.2 million or 10.5% in the half to $44.3 million, further improving on a very strong first half last year. Chris and his team continued to do a very good job tackling the challenges from a sales mix shift to lower margin categories and the extra COVID-related costs in our DCs, with EBIT margin in line with the prior year at 2%. The Liquor MFuture initiatives are listed on the next slide, with some of the highlights there under each. The team has continued to make good progress on these initiatives despite the challenges of lockdowns and with many of the New South Wales and VIC teams having to work from home for most of the half. I'll just call out the owned and exclusive brand work in the middle column, which is really starting to gain some momentum now, about 18 months after we acquired the Kollaras private label brands to accelerate this work. We have seen some significant new products developed in the half and rolled out to stores, with volume in O&E up about 30% on last year, with the O&E range delivering better value for customers and improved margins for our retailers. If we move to the Hardware results now, starting with sales on the next slide. Total Hardware sales increased 7.9% (sic) [ 17.9% ] to almost $1.5 billion in the half despite a very strong comparative period last year and are up over 42% on a 2-year basis. IHG sales increased 7.2%, and 27.4% on a 2-year basis, with strong growth in Trade sales and DIY sales remaining at an elevated level. This is a strong sales performance despite the impacts from COVID restrictions, including construction site shutdowns and a large number of retail stores being restricted in the half to only click and collect for DIY products, and also the ongoing supply chain challenges impacting a number of categories. The Hardware business did benefit in the half for market-driven inflation, particularly in Trade, while balancing this with our focus on remaining price competitive. The IHG sales mix shifted to 64% Trade and 36% DIY from a 60-40 split in the first half of last year. The IHG retail network like-for-like sales increased 5.6%, driven by Trade, and up substantially almost 18% on a 2-year basis, driven by DIY. Total Tools Holdings sales increased to $153.5 million despite being impacted by the COVID restrictions and supply chain challenges in the same way as IHG. TTH sales would also include 6 months of trading from our majority-owned JVs, which we acquired in December last year. Both businesses saw substantial growth in their online sales, particularly during lockdowns. Turning to Hardware EBIT slide now. The total Hardware EBIT substantially increased by $34.4 million or 53% to $98.9 million in the half, driven from the factors we've listed there, including sales growth, the contribution from our joint and -- our retail and joint venture stores and the material contribution now from the Total Tools acquisition. IHG wholesale EBIT margin was 3%. The overall Hardware EBIT margin was up by 160 basis points to 6.7%, driven by the positive impact from Total Tools and the performance in the retail and joint venture networks. Turning over now to the IHG and Total Tools MFuture update on the next slide. While the Hardware team has continued to make progress, we did experience some delays on a few other initiatives due to the COVID restrictions and lockdowns in the half, like in our Sapphire Store refreshes with only being able to complete 10 in the half. However, the team is expecting to get some momentum on the delayed MFuture work in the second half of '22, as some of these restrictions begin to ease. One of the points to highlight on this slide is the work the team has been doing on the Whole of House initiative under Build Trade, with significant work done over the past couple of years really starting to pay off now and delivering good sales growth. Looking at the right-hand side of that slide, Total Tools has opened a further 5 stores despite all of the challenges from restrictions, bringing the total opened to 94, and they continue to target 130 stores by 2025. We are just finalizing the further 14 majority JVs to add on to the ones we completed last year, bringing our total to 27 JVs, which is in line with the Total Tools growth strategy we outlined at the Investor Day last March. And finally, on this slide, the team remains focused on delivering the $5 million of synergies we discussed at the beginning of this acquisition, with about $2 million of that in FY '22. Moving on to the digital slide -- update slide. As I mentioned earlier, we've brought together the digital work going on across the group on to one slide here, with digital being another one of our key growth strategies that we outlined in March, as more of our retailers get engaged with the opportunity in digital for them. In IHG, we have started to accelerate the rollout of the IGA Shop Online after a very successful pilot at the end of the last financial year, with the number of stores on the new platform up to slightly over 100 now from the 3 trial stores that we started at the beginning of the half. The interest among the retailers continues to build, with a pipeline of over 300 stores now signed up and still targeting 800 stores by 2025. And as you'll see in the outlook comments, we plan to invest some additional OpEx in the second half of '22 to speed up this rollout even further and also some investment in rolling out in Liquor. The Liquor team has completed the build of their branded online sites for Cellarbrations and The Bottle-O, which will replace the current Shop My Local platform. The new platforms are now in pilot sites on the East Coast, with a plan to accelerate the rollout early in 2022, starting with converting over the Shop My Local store. Both Food and Liquor are making good progress on their loyalty initiatives, with the IGA Rewards program continuing the rollout to more stores, now live in almost 300 stores, and Liquor finishing up their design work and looking to move to build and trial in the second half of '22. On the right-hand side of this slide, we listed some of the further enhancements to both the IHG and Total Tools online sites, both are more mature online businesses than where we currently are with Food and Liquor, and as you could see in the sales results, really starting to make a material contribution to those businesses. So I'll stop there and hand over to Alistair to cover off the financials.

Thank you, Jeff, and good morning, everyone. I trust everyone is still okay during these times. As Jeff's just outlined, it has, in many ways, been another exceptional half for Metcash. Since we last met at the end of June, I've had the pleasure of working with and witnessing the efforts of our high-performing teams, as they navigated through these challenging and demanding times. There have been some outstanding efforts by our people, which have contributed to the performance you see today. Turning now to the presentation. I will run through our group financial performance for the half as well as our financial position and then cover off the dividend before handing back to Jeff to talk about the outlook. So firstly, the group P&L. Jeff has already spoken to the performance of the pillars, which covers the results down to the group EBIT line, that's the $231 million, which is up 13.9%. Obviously, the highlight there is the diversification of earnings for the period. As a reminder, on an earlier slide, we reported corporate costs of $7.2 million, and this includes the increased burden of insurance costs and otherwise remains consistent year-on-year. Other points to highlight on this slide. Depreciation and amortization at $85 million is up on the last year due to acquisitions. In the past, we've commented that our maintenance CapEx should trend broadly in line with the depreciation. However, like last year, due to the adoption of AASB 16, depreciation includes $57 million charge relating to right-of-use assets. So this needs to be excluded when determining maintenance CapEx going forward. The net finance costs line of $22.8 million, slightly higher than last year, as a result of Metcash moving back into having a modest gearing level, in line with our capital management framework that we've rolled out over the last year. Also, as a reminder, like depreciation, this line is impacted by AASB 16. And you will see in the notes to the accounts, the biggest component of the finance costs now actually relates to the interest charge in respect of our lease liabilities. The group's effective tax rate was slightly higher this year at 29.2%, mainly due to the lower joint venture profits which are reported on a post-tax basis within EBIT and, therefore, not included in Metcash tax number. The amount of significant items is $17.8 million after tax, and this includes transaction costs and put option valuation movements relating to Total Tools as well as non-capitalized costs associated with Project Horizon. I will have more to say about Project Horizon on the next slide, but there are no changes to the 4 categories we have reported in previous periods. More fulsome details are set out in the half year report in Note 4. You can see on the slide that there's been a big increase in the underlying profit after tax, which is up 13% to $147 million. Underlying earnings per share increased 15% to $0.146 per share. Also, at the bottom of the slide, you can see the group ROFE is a healthy 30.5%. So all up, it has clearly been another strong half for us. Moving on to Project Horizon. Before I move to the cash flow statement, I plan on providing an update regarding our group-wide technology infrastructure program. We call this Project Horizon. You'll probably recall, Jeff shared the objective of this program at the Investor Day in March. It's a multistage program and will run for a number of years. The new, single operating system is based on Microsoft Dynamics 365. Stage 1 of the program is about consolidating and replacing multiple ERPs, so we have a common platform that makes us easier for retailers and suppliers to do business with and simplifies our operating model to operate in the digital age. Pleasingly, we successfully delivered our first milestone with the core finance module going live in November with minimal issues, a credit to the team. We're now preparing for our first month in close. Detailed design of the operation module is well advanced. This covers the plan, buy, move, sell processes. We plan on settling the Stage 1 scope and the implementation scheduled during the second half and complete the Stage 1 deployment during calendar year 2023. At year-end, we will be in a better position to provide a further update once the plan is settled, including refreshing the benefits case. CapEx in the first half amounted to $24 million, and we expect to spend $25 million to $30 million in the second half. In addition, we incurred non-capitalized costs relating to project management, legacy software, duplication and license fees, which are treated as significant items. These costs reflect the complexity of the historical systems we are transitioning. Yes, the program is complex. We expect that this given the age and number of systems. We continue to learn more as we progress, but it remains an important platform for our future to transact in the digital age. Moving on to the cash flow statement. The cash flows in the half can be summarized into 4 key areas: good cash realization ratio from elevated sales, finishing at 92%, and I'll touch on that a bit in a moment; increasing our interest in Total Tools to 85%; implementation of our capital management initiatives, that is a 70% dividend payout ratio and a successful off-market buyback; and returning the business to a modest gearing position in line with our capital management framework. In relation to the detail, the group generated $34 million of free cash flow during the half. This includes a strong operating cash flow of $212 million, but also includes $134 million for CapEx and acquisitions, proceeds from the sale of assets and loans movements of $7 million and net payment for lease obligations of $52 million. With the operating cash flow, the cash realization ratio for the half of 92%. This is in line with our target ratio of circa 90%. It is lower than the comparable period, but that's because the prior year had a large reduction in COVID-related working capital. Our overall working capital position is in line with fiscal year '21 year-end but higher than October 2020 position due to acquisitions in the Hardware and Liquor. Inventory days increased slightly, reflecting a balance of extended ordering lead times and sales velocity. The build in inventory has been to cater for the supply chain disruptions and sustained higher sales levels. I'll provide some more commentary on inventory levels on the next slide. CapEx of $61 million is higher than the prior year, due mainly to Project Horizon, which was $24 million, and MFuture initiatives. After adjusting for these, CapEx is broadly in line with our adjusted depreciation charge. We spent $73 million in Hardware acquiring businesses, the most significant being the acquisition of another 15% interest in Total Tools for $59 million. We expect to acquire another 14 Total Tools stores in the second half, as Jeff just alluded to. As mentioned, there's been net inflow from the sale of assets and loan movements. A significant component relates to a repayment of loans by retailers. It was pleasing to see that a number of retailers repaid their loans earlier than expected, as a result of their strong trading performance. The continuing healthy trading has been -- has seen the continual decline of past dues of trade receivables, like in fiscal year '21. That said, we have held our allowance for losses of $54 million, which is similar to the year-end position of $55 million. Most doubtedly, during the half, Metcash actioned a number of capital returns to shareholders totaling $297 million. This includes the payment of final dividend of last year of $97 million and a successful completion of the off-market buyback of $200 million. That was upscaled from $175 million. All of this benefited all shareholders. Accordingly, with the significant capital returns, we ended the half in a net position -- net debt position of $149 million. This is reflected in the group balance sheet on the next slide. So on the balance sheet, as an opening comment, we continue to have a strong balance sheet with financing flexibilities. Some key points to highlight, we maintain a focus on effective working capital management as well as a disciplined approach to capital allocation. Seasonal working capital fluctuations is the largest cash flow variable that we manage. Whilst there's not being any change in working capital between the balance dates, there has been seasonal fluctuations during the half. The right-hand side bottom chart shows the average inventory amount has increased year-on-year to accommodate elevated network sales, acquisitions and disruptions to supply chains. And the average inventory days has increased only slightly to accommodate the longer lead times and mix of business, partially offset by the velocity. The right-hand side top chart sets out the historical CapEx, being the total CapEx and acquisitions. I covered this on the last slide. And today, we are pleased to announce that Total Tools is expected to acquire another 14 JV stores in December 2021. The second half will include 4 months contribution from these stores. As a reminder, 100% of the earnings are reported in Hardware results rather than the percentage interest. We have provided some more detail and guidance on the accounting for Total Tools in Appendix 3. And the reduction in the net assets you see at the bottom of the slide mainly arises from the completion of the off-market buyback. And my last point is we finished the year with net debt of $149 million versus the cash position last year, and that's a good segue to the debt management, Slide 20. As I mentioned earlier, in line with our capital management objectives, during the half, we completed a $200 million capital return to investors as an off-market buyback and returned the business to having a modest gearing level, with $149 million net debt or respectable 12% gearing at the half year-end. With the modest debt levels, we still retain balance sheet flexibility to accommodate seasonal fluctuations in working capital, funding the growth projects and headroom for bank covenants. As you can see in the graph on the left-hand side, the group continues to have a well-balanced debt maturity portfolio. We now have a modest level of gearing, 11.7%, and an available total undrawn facilities of $600 million. Also, based on our stable outlook, we continue to rebalance the elements of our debt book, including having refinanced $275 million of the debt, and we expect to refinance a further $200 million during 2022 and renew the customer charge card facility. Overall, the group is in a good financial position, maintaining plenty of headroom and financing flexibilities. Now, moving on to shareholder distributions. The Board has approved an interim fully franked dividend of $0.105 or $101 million. The dividend is in line with our target payout ratio of 70% of underlying earnings after tax. Last year, we announced an increase in the target dividend payout ratio to 70% commencing in fiscal year '21, reflecting the strong financial performance and increased confidence of future cash flows. Our shares will go ex-dividend on the 21st of December, and the dividend will be paid on the 28th of January. In summary, Metcash is continuing to trade strongly in these times, and our performance has enabled us to be in a position to return circa $398 million to shareholders during this year, and while continuing to maintain a strong balance sheet with capacity to fund our growth plans. I will now hand back to Jeff to go through the outlook statement, and then we will take questions.

Okay. Thanks, Alistair. Looking at the outlook comments, I'm sure most of you will have been through these comments yourselves already. So I'll just pick up a few of the highlights, and then we'll take your questions. We've seen a strong start in the first 5 weeks of the second half in all pillars and are expecting to trade well in Food and Liquor over the upcoming holidays. We've successfully navigated the many challenges the business faced in the first half and are expecting to have to deal with many of those same issues in the second half. We want to take advantage of the opportunity we have in getting digital into more of our retailers and plan to invest some additional OpEx into rolling this out in the second half of '22. And finally, we'll have a 53rd week included in our second half '22 results. So we'll stop there, and we'll hand over to your questions.

[Operator Instructions] Your first question comes from Shaun Cousins from UBS.

Great. My first question is around Food. Can you just talk a little bit about the strength of sales that you're seeing? Can you confirm if you're seeing that change in customer behavior? Do you think that is a more enduring shift to local or it's a combination -- or sorry, it's the IGA stores, we could invest in their offer and that the consumers on the back of COVID seeing that? I'm just curious that given the trend has been persisting for some time and also into November post reopening, I just want to get an idea, maybe from Scott, what you're seeing is driving that strength in sales, please?

Shaun, I think to comment, looking forward, any more than what we've already done is difficult to do. But I think those factors -- and I'll let Scott comment as well, I think the factors that we've called out before, we are now coming up on almost 2 years of this, and people have been shopping with us for a very long time. As you can see from those results, having rolled over those peak trading periods from last year, and the results are still very good. Will they continue to do that in the future, as always, is a tricky one to call. But look, I think if people didn't like it, they've had plenty of opportunity to leave by now, let's put it that way. So I do think the work that was done prior to COVID has made a significant difference into retaining them, plus, as I said, the factors we've called out, also the move that we've seen of people coming out of the cities into the neighborhoods and the regional areas. So I don't know, Scott, did you...

Yes. I think, Jeff -- and thanks, Shaun, for the question. I think it's a combination of everything you've mentioned, the focus on fixing the retail network, the Network of the Future around range and price, making the offer more competitive, our footprint. And we've definitely seen a more sustained uptick in the store traffic from our shoppers. So yes, I think we're pleased, and obviously, we're working hard to make sure we hang on to as much of that as we can into the future, as we've called out.

Great. And maybe just a question just on Hardware. Maybe just on Total Tools, can you just talk a little bit about the drivers of the revenue growth for that network in aggregate? I think you've highlighted in the result that it's up some $907 million for the 12 months ended October 2020 (sic) [ 2021 ], and that, compared to $658 million for the period ended June 2020. How much of that are you seeing the store growth? How much of that is organic and sort of like-for-like sales? And what's driving what I assume would be market share gains that you're achieving in the tool market? It seems to me that, that was sort of an area of surprise. Where -- or that wrong about it? And so in Total Tools, I'm just curious around what's driving the strong revenue growth in the Total Tools banner, please.

Yes. Look, I think it's a combination of we have added more new stores now. You know where we're at, at the time of the acquisition, and we've said that we'll continue to open about 10 per year to get to that 130 target. So you've got some additional new stores that have come in, and those stores, by the way, have performed very well, the new stores that have come into the network. But just the underlying performance, Shaun, I think very similar to the IHG business is -- performed very well. Trade sales are obviously strong. There was some incentives into the Trade to get their tools changed out at tax time. Their big trading period is normally in the first half of the year in Total Tools. But having said all of that, to have 51% like-for-like is an exceptional sort of performance. I don't know, Annette. Anything else you'd want to say, Annette, on Total Tools?

No. I think, look, it's a very buoyant market, probably more buoyant than we anticipated it would be. And our view is it will continue to be so.

Your next question comes from Tom Kierath from Barrenjoey.

Just again, another question on Hardware. Can you just talk through the inflation that you saw in the first half and then how you're thinking about that for the second half? I mean, we're hearing some pretty large cost increases coming through. I'd just be interested in your thoughts on how that market will play out.

Yes. So it's a little bit tricky when -- Tom, to give to you guys a number because it's not an audited number. It's an internal number, and we try to derive that number. It's not an easy thing to do. But on Trade, just to give you a range, it would probably be in sort of the mid-single-digit range on Trade in the first half. It seems -- and we said it in the outlook comments, it's very difficult to predict what we think that's going to be in the second half of the year because we are seeing some movements up and down in some of that Trade pricing. But we do believe some of it will still be there in the second half, let's put it that way on Trade. DIY would be lower than that. It would be lower than mid-single digits on DIY. But again, it'd be -- those are not audited numbers, so I'm just going to give you sort of an idea of what we think it is. I don't know. Annette, anything else to say on?

It's very focused on what you've heard already in the market. It's very focused around the timber part of our business, stores, plumbing and is linked to the balance of supply versus demand. So there's an uncertainty as to what it would look like going forward.

Yes, fair enough. And just secondly, the [ associates profit ] line, I think, fell from $11 million to $7 million. Can you just step us through the changes there? And then, Ritchies profit number was up quite strongly in the 12 months to June. So just trying to understand exactly what's changed there.

Yes. I think on Ritchies, first of all, there was a one-off that was into the first half of last year from Ritchies, which put their numbers up from normal. And then there were some adjustments they've made because of AASB 16. They've taken a write-down on some of their stores in the first half of this year. And really, that's the delta between the 2.

So it would have been $11 million outside of that?

Outside the write-down, they would have been better, yes.

Your next question comes from Michael Simotas from Jefferies.

Great results. Maybe a question for Alistair to start just in terms of the movement in your provisions. Through the P&L, there was a $10 million charge this half. It was $26 million last half, same time of year, so there was a tailwind year-on-year. But if I look at history, $10 million looks like about a normal number. Is there any more color you can give us on what we should expect through that line going forward?

Thank you for the question. There was a lot of noise in last year's half. Particularly the inventory number, it was the aberration. In terms of the receivables area, if you go back to the Note 6 in last year's annual report, you'll see that the past dues had reduced quite substantially, and that's off the back of strong trade, trading by the retailers. So the health of the network has occurred last year, but we've carried it forward into this year. We've held the overall provision for -- against the trade receivables at the same level, yet we're still seeing a diminishing amount of past dues in that area. So overall, the $10 million is very much reflective of the half and a good basis to move forward with.

Okay. That's helpful. And then the second question I've got is on Total Tools. I mean, it's obviously a fairly new business with a lot of moving parts, with number of stores growing and number of corporate stores growing as well. Clearly, that business is, on a normal basis, skewed towards the first half, with June in that half and January in the second half. But how should we think about the seasonality as it comes through your P&L, given you've got strong store growth, you've got increasing numbers stores and then you've got additional acquisitions of stores coming through as well? Is there any chance the second half could have enough of those growth drivers to offset the seasonality?

Yes. So well, look, I think it's all of those attributes that you said, Michael. We've opened 5 in the first half, and so yes, we've said our targets to open 10 in a year. So we'll have some additional new stores. We will roll over the 12 JVs in the second half from last year's acquisitions. So we acquired those in December, so there was 4 months of that into the second half of last year. And then we'll have the 14 more that we're completing in December now that will be in the second half number. So as you said, there is a lot of moving parts there. But that business is skewed toward -- as is our IHG business, skewed towards the first half of the year because traditionally, these guys shut down over the holidays and don't really get going again until late January. And so you end up with the spring being the stronger trading period. And then for Total Tools, they have a lot of promotional incentive programs that go around the tax year. So you end up again with that being more skewed towards half 1, half 2. But the split between IHG and Total Tools, it's sort of historically been sort of 55-45 or something. So I would imagine we'd end up somewhere -- not going to predict exactly, but you could sort of use that as a guide.

Okay. And that split that you're talking about, is that 55-45?

And sales.

Your next question comes from Bryan Raymond from JPMorgan.

Just the first one, just on inflation on the Food side. You called out sort of in your outlook commentary that you're looking to maintain price competitiveness. So I just wanted to understand, do you feel there's more work to be done there in terms of investing in price at all or your retail investing in price? Or do you expect just to move with the market from here, just when you're talking about that 1% price inflation looking forward?

Yes. So I'll let Scott comment. But that 1% deflation in the first half, we saw that declining as we went through the half. So it was a bigger number in the first part of the first quarter and then started to decline into the second, so that's the sum of the half. And as we said in the outlook comments, we are expecting that now to turn around to a low level of inflation. But I don't know, Scott, do you -- we are remaining quite focused on being price competitive.

Yes. Yes, I think just to build on that, Jeff, and a reminder, that's our wholesale deflation, inflation number versus, I think, sometimes you're benchmarking that to our retail number with our competitors. But Bryan, we will absolutely keep being focused on being competitive. So there's work to do, but I think you can see through the sales and strong shopper support that we're getting is that we're definitely in the game. So what -- there's been a lot of noise in the market, particularly around produce and fresh around inflation, and we will see that come through, but that's more at a retail level versus a wholesale level.

Right. Okay. And then just on the Total Tools side, I'm just interested in that co-location or adjacent store base that you guys are highlighting there. I understand that's one of the first stores of that nature. Just interested in how that looks going forward. Of the 130 stores, do you think this will be a sizable portion that will be co-located? And do you think there's any cannibalization of the Mitre 10 when you got the Total Tools in there? So yes, interested in just generally how that impacts Food traffic and sales across the 2 on a net basis.

Yes. So we said from the beginning, this acquisition was quite complementary to the Mitre 10 business because our tool business there tends to be more DIY type of customers, whereas Total Tools is completely focused on the professional tool and tradies. That one was a trial for us. It started out very well. Annette, I don't know if you want to make some comments on it. It's -- and we do see opportunities in the network. Is it going to be extensive? I'm not sure I would say extensive, but there are going to be opportunities in that 130 target for us to do some combined sites.

No, I think it's an exciting moment in our history, where we've got an opportunity to ensure that we're growing the market and we're leveraging that market into the vein of Mitre 10 home hardware and Total Tools. So that's the first. And yes, it was always part of the synergies that we thought were available to the network of independents and when we pull the 2 businesses together.

Interesting. And then just as a follow-on from that. I know [ some ] of the loyalty programs, you've got 1.2 million customers in both. How many are common to both? And do you think that there's an opportunity to -- like you're doing on the bricks-and-mortar side, on the loyalty side, looking at trying to translate some of that traffic and those relationships across the other brand?

We're just starting to work through that, Bryan. So, we know there will be an opportunity of customers who shop with Mitre 10 and not shop with Total Tools. They're separate loyalty programs at the moment. And then there are customers that just the opposite, shop at Total Tools but not Mitre 10. So the team is just starting to analyze that. But clearly, that will be a big growth opportunity for us to leverage the 2.

Thank you. Your next question comes from Ben Gilbert from Jarden.

First one for me, following, I think, from whatever else there, but got one on Hardware, one on grocery. Just on Hardware, how are you seeing the competitive backdrop at the moment? And where, I suppose, I'm leaning with that is, do you think that the margins you're achieving on your retail business in Mitre 10 and then the [ 22% ] margin you're trading in Total Tools is a sustainable figure over the next couple of years?

Yes. It's a tricky one to predict the future, Ben, as you know. So look, as we've said in the outlook statement, we're still looking forward to see the Trade sales being good. We felt because it had a good start to the second half of the year, and we're seeing that across all of the stores, both JVs, company stores. Trade, predominantly, DIY, still strong. So it'd be tough for me to comment much beyond that.

Is that rational, Jeff, to the -- and in this inflation period, it feels like the market is pretty [ capped ] at putting price increases through because the consumers seem aware of it and companies are all talking about inflation. [indiscernible] if you get a request, you're able to put it through pretty easily?

Well, look, it's a balance, as I've said to you before then. Typically, when you get into that level of inflation, everybody is sharing a little bit in the pain. You can't just put all of it on the end consumer or the tradies. So the suppliers bear a bit. We bear a bit, and the retailers and the consumers bear a bit. But we're always -- and Annette, you may want to comment, but we're always looking at where the market is and market price. And if you look at our sales, you couldn't get away with that by just putting your prices up out of line with the market. So it's a balance of putting those things through, as the markets sort of increasing as well. I don't know, Annette, did you have any thoughts on that?

Look, our priority has to be to make sure that our retailers are as competitive as they possibly can be. And there has been some movement, I would say, in the Trade part, where builders are recognizing that contracts may need to move more frequently than the 6 months that they would have historically moved. But they're still very much challenging all of us on ensuring that, that is competitive in the market.

That's helpful. And just a second one for me. Just was interested around the DSA program. You've got 660-odd stores on there. I wonder if you could just remind us, broad strokes, how the economics works. I think from memory, you provide rebates and sales uplifts. So I'm just wondering now, as you start moving beyond that, do you get a margin benefit when those rebates start flowing through and you cycle through them?

So Scott, do you want to...

Yes. So it's -- I think, Ben, the short answer is, over time, there's a small uplift, but it is obviously -- what we're seeing is retailers, particularly at the moment, seeing the benefits from DSA, and the majority, at the moment, is spending their own money to go and refurb those stores as well.

Your next question comes from Craig Woolford from MST Marquee.

Just wanted to clarify, I know it's only the first 5 weeks, but I'm trying to get my head around the tobacco excise impact on sales for Metcash. Are you able to share with us how sales are trending excluding tobacco in that time period? And just clarifying that tobacco excise impact of -- was $8 million in half. Is it still on track to be a $10 million impact across the full year?

So yes, we haven't changed what we said before on that one, Craig. As far as the excise, I mean, obviously, that put the base up every year. And so what you were seeing was the value going up, but volume -- underlying stick volume was going down. That trend, I'll let Scott comment, but that trend has continued. We have not seen anywhere near the impacts of what the chains have called out, let's put it that way. So you can almost back into our number on tobacco when you look at it, as we took 7-Eleven out of the base. But ours would be sort of low single digits compared to some of the numbers that were presented.

Yes, I think that's exactly what the answer, Jeff. There's nothing to build from there.

Thought it was very [indiscernible]. Okay. Just turning to the second question around the Total Tools and Hardware business more generally. So firstly, the IHG EBIT margin was down slightly on the pcp. Can you just comment on that decline in IHG EBIT margin?

Yes. So that's mix, Craig. So if you look -- and you can sort of use the retail like-for-like numbers as a guide that what you're seeing there is, as we've said before, Trade is very low-margin business, whereas DIY is a significantly better margin. So what you're seeing in that is the mix shift in the half.

Got it. And then the Total Tools business, I understand there's sort of 3 sources of earnings. You've got your corporate JV stores, your franchised [ company ] and exclusive brands. Was exclusive brands a meaningful contributor to the increasing EBIT run rate that we're seeing in the first half '22?

It's not, but the franchise fees and the JVs are the majority contributors there.

Your next question comes from Grant Saligari from Credit Suisse.

Congratulations on the results. Another question, if I could, just on Food pricing and inflation. Previously -- just, first of all, previously, you've cited a figure in terms of IGA retail price competitiveness relative to the majors. I just wondered whether you could cite what the current numbers, please.

Well, we haven't called out those numbers before, Craig (sic) [ Grant ]. We have -- I just talked about we got 2 baskets that we focus in on. But as far as -- we believe in the half, we have become more competitive, but we've not put any numbers out there.

I thought you talked around 3% as a target previously. So you're saying you've become more competitive as you've gone through the half though?

Yes. Look, I think front basket, we've said before, you always want to try to get yourself in that sort of range of being within 2% or 3%, and some of our stores would be at [ 100 ] for sure. And then you have what you call back basket, which are less recognizable product with customers. And if you're sort of in a range of [ 105 ] or thereabouts, you're generally okay. And those are always sort of our targets of where we want to get to.

Okay. And if I could just clarify the comments on the wholesale inflation outlook. Appreciate it is wholesale in place we're talking about here, but a number of the suppliers with long life would be talking about much bigger cost price increases in sort of low single digit. So I'm just wondering how I sort of reconcile that with your comments around sort of the low levels of wholesale inflation, please.

So Scott, do you want to...

Yes. So look, I think, overall, we're talking that total sales, yes. So there's obviously a mix element to that. There's certainly, like you're saying, in some commodity products suppliers flagging decent price increases. But overall, we think that will be quite modest to our business.

And you're planning full pass-through, so you're not seeing pressure to absorb those cost price increases?

Sorry, I missed the start of that question.

So you're planning to pass basically 100% of those cost increases through? You're not seeing pressure to absorb part of those supplier cost increases?

Again, it will depend on the market, but I think that's a correct way to look at it.

I think, yes, also, I think, you got to keep in mind that supply chains are still pretty difficult. And so those days of the past of building up stock and taking these stock profits is more challenging. Not that there won't be some of those opportunities, but with the supply chain challenges right now, we're struggling to just get enough stock to keep the shelves filled, let alone try to build up stock for some kind of a stock profit.

Well, you're doing an excellent job, so congratulations again on the result.

Your next question comes from Ross Curran from Macquarie.

Congratulations and great results as well. Just can I go back to Michael's question earlier on just around if there's any seasonality in EBIT margins? Just wondering, are you able to give us a little bit of color there? Is there any seasonality, say, on franchise fees? Are they sort of first half-weighted as well? Or is there any sort of lump sum payment at the start of the year that might mean that we get a bit more of a seasonal impact in the EBIT margins in the Hardware going forward?

No. The factor -- if you're talking about Total Tools or IHG, the factor there is going to be, obviously, the new stores and whether those are company or JV stores, which we would then get a higher margin out of. But as far as seasonality in those, no, no, there's not...

It's pretty consistently throughout the year.

Okay. So that sort of 6.7% is the right base to be thinking about into the second half?

Sorry, could you say that again?

That 6.7% EBIT margin for the first half, that's the right base that we should be thinking about into the second half?

No. Well, look, we'll let you do your work on that one. But I mean, obviously, we've had skewed to the first half, this performance from the JVs and company stores, the addition of these JVs that would have been in the first half of last year. So when we get to a like-for-like basis that I don't think you could use the same numbers.

Okay. And then secondly, around Liquor and just the EBIT margin there. You've had pretty decent volume growth through the year. Should we expect a bit more operating leverage through that business than we saw? Or what should we think about that going forward?

Since Chris never gets a question, I'm going to let Chris -- so yes, look, I think Chris and the team, I said in the presentation, did a great job of maintaining that 2%. Some of that has to do with contract versus IBA sales. And IBA, we were impacted by the on-premise shutdowns. And then the shift in mix, which you may want to comment on, Chris.

Yes. So there's a shift in mix back to the on-premise in the open states and also in product. So the leverage, we thought, was okay.

But if you look at the history of that business, you see that it sort of fluctuates between sort of 1.9% and 2.1%. There's not a whole lot of variance there.

Your next question comes from David Errington from Bank of America.

I have 2 questions, 1 financial and 1 on your supply chain, following on from your comments that it's tough to get inventory at the moment and the impact that it's having on your business getting stocking. But the first one, just to tidy up, maybe it's to Alistair. But I remember Brad Soller saying that -- he was going to promise us that we had seen the end of significant items post-tax going through the P&L and that you'd be taking it through your operating line. It looks as though the opposite is happening now that you're basically calling out that there's going to be about $30 million of after-tax significant items in the P&L this year. Could -- Alistair, can you go through those, please, and what they actually are? What the Horizon implementation costs actually are? What the actual other costs are? I know the put option, we could probably park that one. But can you actually go through what the significant items after tax are? Because you're talking a big money now going through that line. And whether they really are one-off because the other -- the chains are really investing significantly. It's debatable whether it's ever going to generate a decent return or not, but that's for another day, but whether these are on -- would these costs be forever ongoing in just keeping up with what the competition is doing?

Well, I'll let Alistair comment, Dave. But I think the 2 buckets that you called out there are predominantly it, which is the replacement of our systems which goes across the group. But obviously, the accounting standards don't allow you to capitalize all of that. There's some project management costs and other things, which we have broken out at the Investor Day in March that would be identified as significant items. And then the other is just -- which is different, the Total Tools put options which we've called out. But I don't know, Alistair, do you...

Yes, that's -- there's plenty of detail in the financial report that flesh these out. But there's a couple of key messages around this. There are 4 categories. These are categories that have been there for a couple of years now. Obviously, Horizon was the new one at the end of last fiscal year. But these are unusual in nature, multiyear programs that for investors understanding whether these are the underlying earnings or not, we feel it's important to call it out. Horizon, I took time to talk in detail around that piece. As Jeff alluded to, the accounting standards don't allow us to capitalize certain costs. We do factor that into our returns calculation and the benefits as we see it. The Total Tools piece is about the fair value movements. And obviously, given with the acquisition of the extra 15% and with the pending joint venture stores that we're acquiring, we've done a true-up of the valuation, and that goes through a significant item. They are the 2 big movers. We've got the tail end of MFuture implementation costs, and then we've got specific COVID category impairments. And we feel that where we keep that alive because there will be pluses and minuses. And if we have found we have surplus in provisions around those areas that we plan to reverse those back as a significant items below line. So our goal is to keep it very open.

Yes. So the debate is not around capitalizing it. The debate is around whether you should treat it as an operating profit item or whether you take it below the line. So the question is not whether you should capitalize it, that's an accounting statement. My issue is, why shouldn't it just be charged through the operating EBIT line?

These are...

Why is it so different to the ordinary course of running a business now? Why do you have to call it out? So if it's actually making your EBIT look high, but you're actually -- that's the key point, Alistair. It's not a question of capitalizing it, I get that. But I just wonder why you don't charge it to the ordinary case of doing a business which goes to your operating EBIT line.

There's no benefit until this thing is completed, Dave, in those businesses. So that's -- you can move it up against the businesses and allocate it as you see fit. But I think until there's some benefits delivered against that, which is part of the business case, then you are really negatively making those businesses look at a time when they haven't received any benefit out of these system changes.

It's a fair call. Anyway, it's just a bugbear of mine, companies that take these costs, which is going to benefit their business in the future. I mean, that's the cost of running a business. But anyway, I'll take it offline. But the second one, Jeff, is, are you seeing any real shortages of inventory that's costing your business, like in Hardware, things that you just can't get through that's actually, your sales would be higher if you could get them? Is there any particular product items and which is likely to become more acute in the next 6 to 12 months? Because I am noticing myself shortages on shelves and that wait times for particular items, and I imagine pretty highly profitable items, too, it's just taking time to get. Are you noticing it's getting -- can you give us a bit of an update? How hard is it now? And how hard is it likely to be in the next 12 months? Because it does look like it's getting tougher, both in Hardware -- Liquor itself, I'm finding it difficult to get certain liquor items, and in Food.

Yes. No, there is no doubt. There is no doubt. And it's a day-by-day challenge for the teams. It moves around from category to category. As Annette said earlier, timber seems to be fairly consistent. I did say though, at the full year results, Dave, that I think -- because everybody in the market sort of impacted equally, that what it's doing is really elongating in hardware more the building cycle. Because would our sales be higher if we could get everything that we're trying to get? Absolutely, there's no doubt. But is it lost sales? I don't think it's lost sales because, again, it's a shortage in the market. So what that does do then is just elongate out this current building cycle because the builders are just not able to get everything, or else, yes, the sales will be much higher. Liquor, I know, Chris, you've had some -- do you want to talk about some of your challenge? Pallets are the latest challenge, by the way.

Thank you, David. So you're right, there are shortages around certain categories. A lot of liquor is substitutable. The most substitutable is wine. That's why the private label businesses do so well in the wine category. And then in big branded businesses, there are various formats, so cans versus bottles. For example, one of our brewers has had a couple of tough manufacturing runs, but people substitute across the brand as well. Our service levels remain high. But our ability to be able to manage that is much, much closer to the supply chain and working with the suppliers, one of the reasons the working capital has moved up slightly to ensure that we remain in stock.

Your next question comes from Richard Barwick from CLSA.

Do you hear me? Yes. Sorry, Jeff, I had a bit of a connection problem. My question is actually for Alistair around CapEx expectations for the second half. So very clear on Project Horizon that the $25 million to $30 million, assuming that the maintenance CapEx about -- in line with D&A should be about $28-ish million. What else is there? Obviously, any store component? Anything else that you can call that in terms of sort of an all-in CapEx number for the second half? And if you're prepared to give a number for '23 as well, that would be helpful.

We're not at the stage of calling or giving guidance for '23. The second half, the other one to add to it is Total Tools will acquire the other 14 JV stores, and that's similar to last year where we did the first 12 stores.

That's -- so therefore, you're not calling out much, Alistair, in terms of the sort of any store or any of the Diamond stores in the...

No, they're all -- it's.

Those wouldn't be that material. The biggest one would be Horizon and also the Total Tools JVs.

All right. And then my other question is on supermarkets. And you talked a lot about this change in behavior. And as you say, Jeff, people had -- going on 2 years or certainly 18 months of this new behavior, and they've had plenty of opportunity to switch. Do you have any data to back it up in terms of proportion of households that are shopping at IGA stores now versus 6 months ago or 12 months ago? Or anything you can talk to in terms of like different number of customers at stores, foot traffic, that sort of thing? Because otherwise, it's sounding a lot like the vibe is people are shopping there more, but you haven't really given us anything to back it up and support it. So I'm assuming you do have some sort of data or done some research on it. So hoping you can provide a bit more color.

Yes. So I mean, unfortunately, we don't have any of that type of market data, but certainly, we hear that from the retailers. And also, I don't know, Scott, did you want to...

Yes. So obviously, calling out the like-for-like sales, I think, and then the internal metrics we use for foot traffic and basket certainly show that those shoppers are sustaining and coming back. And again, through range and price, there's a growth in basket size as well. But it's that like-for-like sales number, I think, that we call out there that should give confidence.

And we tried to align our internal, what we see from our like-for-like versus what's in the market for others to some of the market measures that are out there, and they don't align. So we're trying to understand from people like Nielsen why that's the case because clearly, we have seen a shift to the IGAs, and that's not always evident in some of those market reporting compared to what we see in the like-for-like numbers.

And I guess if we're pulling it apart in terms of some of the more COVID-impacted behaviors, is there anything more you can tell us on the -- I mean, you have mentioned in the press, your WA, SA, Queensland still strong. How -- what's the differential between those states and perhaps some other states on a more recent basis?

Yes. So I don't -- we never call out the breakdown by state. But I think what we have tried to do here is give you a bit of color to what we're seeing. And it is that it's quite consistent around the country. So aside from Victoria, cycling those really tight lockdowns last year, I think we're seeing that, and we've called out quite healthy growth, quite equally around the country.

Your next question comes from Phil Kimber from E&P.

Just a question on the Project Horizon costs. I want to go back to the Strategy Day. You had mentioned here a significant item $5 million to $10 million of OpEx across '22 and '23, and it seems like it's going to be a fair bit bigger than that. Has something materially changed in how you're doing that project? Or is it just a case of estimating these things is difficult?

I think it's the latter. We made some assumptions, and then when you get into the actual accounting for which project cost and other things that can't be capitalized, then there was a shift. But I don't know, Alistair, any...

Yes. You may recall from my comments, we're into the detailed design of finalizing a scope and implementation schedule for the operations modules. And that's the plan, buy, move, sell processes. With -- it will take us the balance of this half to get there, and then at year-end, we'll give a further update of -- around the deployment, which we see running into calendar year 2023. It's an important platform of getting us ready for the digital age. And Jeff called out and had a conversation or shared with you what's happening across each of the pillars, in digital where we need the platform there to be part of it. And so we're working through to make sure that comes together.

Yes. And then the second one is sort of a more housekeeping then. The joint venture profits which you report, which I know an after-tax number, how do we allocate them across the division? Because I think you do have a few small investments in some of the other divisions that might fit in that line. Is it sort of over the next 3 quarters of that number that you report relates to Food? Or I just wanted to get a little bit more color on how to think about that number in respect to each of the divisions.

It's predominantly Food. Yes, it's predominantly Food. That's the best way to think about it.

Okay. And therefore, the change -- year-on-year change is also predominantly through.

Yes.

Just making sure it's not the year-on-year changes because it might be a small number at the full year, but the year-on-year change isn't because of one of the other divisions. And so I just wanted to check as well.

No, no. As I said, in last year's base, there was a one-off true-up in the Ritchies accounts that came through in the first half of last year and then really just this adjustment that they've made on AASB 16 in this last financial year to where they wrote down 4 of their stores.

Sure. And very quickly, just you guys have the sales seasonality of the Hardware business. If I understand these extra JV stores, you're going to think about that when you're forecasting the second half. But in terms of fixed versus variable costs, are a lot of the costs in that business fixed? So therefore, if it's a 55-45 sales split, it will be a much bigger EBIT split? I just wasn't sure if you could give any color there on how the sales line in that business -- what's fixed cost, what's variable cost, and that will give us a sense of what the EBIT seasonality will be.

Yes. No, we've not broken that out before, but you can assume that if sales go up, they're going to make more money.

Your next question comes from Adrian Lemme from Citi.

Yes. Yes, I just wanted to discuss the IGA store. And as you mentioned, obviously, that they've made up better profits over the last 18 months, that their finances are in good shape having repaid some loans. I just wanted to gauge, do you see sort of increased appetite from them to reinvest into their stores to cement these market share gains from the shop local tailwinds? Just wanted to get your sense on that, please.

Yes, there's no doubt. So across all 3 of the businesses, we're seeing significant interest now in getting new stores. And then also, just the pipeline of stores to do the refresh is as strong across all 3 of the businesses. So clearly, the retailers have sort of seen the improvements in the network across the last 3, 4 years. And we went from a position, particularly in Food, sort of 3, 4 years ago where we were closing a lot more stores than we opened and there wasn't a lot of interest to a place now where we're actually getting a long queue of retailers who are wanting more new stores in that business. Similar in Liquor, continued to grow. It's a controlled license market, so it's a bit tough to do that in the same way you can do it in the other businesses. And then, Annette's now got her team focused similar to Total Tools on finding new sites. And absolutely, the retailers are lined up behind those.

That's really interesting. And with the DSA target, I think 90% of the network upgraded by FY '26. Could it be possible that, that could be brought forward if there was sufficient appetite? Or is there more like just a constraint in terms of executing that, that sort of FY '26 is more reasonable?

Go ahead, Scott.

Yes. I think there's absolutely a lot of excitement in the network, and we want to capitalize on that. And we're constantly looking at ways where we can go faster to improve that investment in the stores.

To be honest, I'm surprised that we've been able to get as many done as we have over the last 2 years, given all of the COVID restrictions and limitations that the teams have had to deal with. So if we can get some easing enough of those restrictions, there is no doubt we will be able to go faster on both Sapphires and on the DSAs.

Yes. Understood. And just one final quick question. Just on Liquor, you talked about on-premise is obviously improving. Is it logical to think that as on-premise lifts that the retail channel sort of slows down? Or do you think you can grow off this sort of elevated base, please?

So to be honest, we haven't seen that. So WA is probably the most normal market. But Chris, do you want to...

Yes. Thanks, Jeff. So WA is probably, as Jeff just said, the most normalized market. We've seen particularly the IBA network to be quite robust in regards to customer count, basket sizes. So we are signing up more on-premise customers as our service is what they're after, and we haven't seen much of a drop at all in regards to retail.

Okay. Everyone, I think that was the final question. So thanks for joining us this morning, and I know we'll catch up with a number of you over the next few days, but appreciate you taking the time to catch up with us this morning. Thanks.