Wesfarmers Limited (WES) Earnings Call Transcript & Summary

Thanks, Simon. And good morning, everyone, and thanks so much for joining us for our Annual Strategy Day presentation. I'd like to begin by acknowledging that we're meeting today on the lands of the Gadigal people of the Eora Nation and pay respect to elders past, present and emerging. This week is National Reconciliation week, and this year's theme is Be a Voice for Generations. The theme encourages all Australians to be a voice for reconciliation in tangible ways in our everyday lives. At Wesfarmers, our vision for reconciliation is in Australia that affords equal and equitable opportunities for all. For us, this means ensuring aboriginal and Torres Strait Islander people feel welcome in our businesses as team members, customers suppliers and visitors. I'm very pleased today to be joined by many of our group and our divisional leaders. You may have noticed today that we've structured proceedings in a slightly different way. Reflecting your feedback in the larger number of divisions in the group, we've tried to reduce the presentation time to shorten the length of the day and make more time available for questions. We've also -- we're also mindful that today is important for many investors and potential investors that don't know a lot about Wesfarmers. So we also try and cover some broad background on each of our divisions. Now in addition to the managing directors, we also have our divisional CFOs in attendance and other senior managers. And we'd love if you could join us for lunch, and that will be an opportunity to answer any more questions you may have through the day. So I'll get moving, and if I can get the clicker to work. Okay. Thanks. Now this slide in Slide 4 is a slide that will be familiar to many of you. And since listing on the ASX in 1984, Wesfarmers has been guided by the consistent objective to provide a satisfactory return to shareholders, and we define satisfactory as top quartile total shareholder returns over the long term. Now we believe that it's only possible to create long-term value by anticipating the needs of our customers looking after our team, engaging fairly and ethically with our suppliers supporting the communities in which we operate, taking care of the environment and acting with integrity. Now we will focus on a lot of these issues through our divisional presentations and my presentation. And hopefully, these areas will really come to life to you today. Now Slide 5 introduces the key elements of the Wesfarmers' operating model or what we call the Wesfarmers Way, which provides a framework for how we manage the group to generate the superior returns over the long term. Now in managing the group, we seek to strengthen our existing businesses through operational excellence and a focus on customer needs, securing growth opportunities through entrepreneurial initiative, renewing the portfolio through value-added transactions and ensuring sustainability through responsible long-term management. Now these are high-level strategies that guide our focus across the divisions and within our corporate center. Now there are also features of our operating model that I think provide us with points of competitive advantage, and they also help to overcome what you might say have been some of the pitfalls of historical conglomerates. Now these points of competitive advantage are, firstly, divisional autonomy. And divisional autonomy in Wesfarmers empowers and incentivizes our divisional leadership teams to deliver best-in-class performances in their respective industry with the backing of Wesfarmers balance sheet and specialist support from the corporate center. Financial discipline and active portfolio management allow us to deploy and reallocate capital between the existing divisions and into new opportunities that can deliver the best returns over the long term. And I'd say an emerging source of competitive advantage is the development of our group data and digital capabilities. where we benefit from the scale and quality of our data and digital assets across the group that helps us to deliver a superior omnichannel experience across our retail divisions. Now finally, at the bottom of this slide are our core values that guide our culture at Wesfarmers and inform the culture of each of our divisions and underpin the group's strategies and ways of working. Now some of you will recall in recent years, we've called out some specific priorities or areas of focus where we felt additional attention was required. And if I go back about 4 or 5 years ago, you'll recall that I spoke about the repositioning of the portfolio for growth, accelerating our data and digital capabilities and addressing areas of underperformance. Now as we started to take action in these areas, the priorities naturally evolved. And in recent years, our efforts have been focused on investing in the platforms for long-term growth, further developing our data and digital ecosystem capabilities and then accelerating the pace of continuous improvement. Now I'm pleased to say that we've made significant progress across these areas. The portfolio is now in very good shape. We have various growth opportunities in train, and we're well progressed executing our strategic agenda and also our data and digital capabilities are continuing to develop and deliver value. Now there will always be areas within the portfolio that require some additional attention and focus. But at the moment, at least, I would say, we're all about reinforcing and accelerating our progress with these top 4 strategies that are set out on this slide. Now once again, this is a chart that should also be familiar to you on Slide 6, which shows Wesfarmers total returns to shareholders since listing in '84 relative to total returns from the broader market. Now ultimately, it is these results that are the way to judge our success against our objective, and it really demonstrates, I believe, the value of our operating model. Of course, there will always be times, whether it be months or even a couple of years, where we won't be positive relative to the market. But over the long term, we are focused on outperformance. Now if I look at the results on a 5-year and a 10-year basis as well as our results since listing, you'll see that we have delivered on our aspiration of superior top quartile TSR. And how does this happen? Well, I believe it is very much focused on the operational excellence of our divisions. And if you look at the performance of a lot of our major divisions, you will see that their performance on most operational and financial metrics exceeds the performance of many of their listed peers. Active portfolio management is also critical because, quite simply, the businesses and the opportunities that are going to create value in the next 10 years and not necessarily the same opportunities that created value 10 or 20 years ago. Financial discipline, including a focus on distributing our franking credits and our earnings back to shareholders, is also an important part of long-term value creation. And then finally, maintaining a very lean corporate office, consistent with our divisional autonomy approach. And in fact, what is a great thing about the Wesfarmers model is how scalable it is. And the corporate center, the corporate office, of which we have about just over 200 people, including our Workers' Compensation management teams, hasn't grown materially as the group has grown over time. So turning on to the next slide on Slide 7. You've heard our CFO, Anthony Gianotti, talk about this in recent years. And this is really about disciplined financial management, which is a long-standing feature of the Wesfarmers model. Now as set out on this slide, we seek to create long-term shareholder value in various ways. It's about delivering growth, building resilience and importantly, maintaining flexibility. Now Wesfarmers' long-term perspective and capabilities as an active and disciplined allocator of capital allow us to invest through the cycle to support growth and returns. Now you saw this through COVID at a time of enormous external disruption and pressure, our businesses continue to invest in their teams, in their businesses. And we really made some fantastic progress through COVID in terms of developing platforms for future growth, which you'll hear about today. We also know that some of the strongest returning investment opportunities come through investing in our existing businesses, and it's pleasing that we have such a strong pipeline of opportunities across the group. We expect net capital expenditure for the 2023 financial year of between $1.1 billion and $1.2 billion, with much of this related to growth CapEx. Something I think that is underestimated in Wesfarmers is the capital efficiency of our businesses, so we get a lot of value from this investment. Now underscoring our approach to capital allocation is a very strict focus on investment criteria and strong commercial disciplines, and this discipline is very much embedded within our divisions in addition to our corporate center. Now in the middle section of this slide, we also talk to our focus on productivity, which has been an incredible focus since coming out of COVID, but it has been a long-standing focus within our divisions. Now maintaining efficient cost structures allows us to deliver great value to our customers. Now this is coming about through longer-term investments in automation, digitization and the modernization of our operations, and our divisions will talk about this today. But there have also been some shorter-term opportunities to reset some of the processes that we were forced to adjust through COVID to meet the rapidly changing customer demands and volume growth. But through that investment, it did lead to some inefficiencies, but we're well progressed at getting these processes back to a far more efficient footing. Now we also have a good degree of flexibility in our cost structure through activity-based store remuneration models, and we've progressed enterprise agreements that further enhance this while providing strong benefits to our team and enabling a focus on labor productivity. Now finally, we maintain a strong balance sheet with significant headroom against our A3 and A- credit ratings with Moody's and S&P, respectively. And we have undrawn bank facilities of about $2 billion. Our flexible balance sheet allows us to support investment in our existing businesses, manage volatility and uncertainty in the external environment and to take advantage of value-accretive opportunities that may arise as a result of these markets conditions. Now turning to Slide 8, and this offers some reflections on the way in which we have renewed the portfolio over the last 5 years. Overall, Wesfarmers' portfolio has been strengthened through the addition of new capabilities and platforms for growth and through a focus on high-quality businesses that provide every day and essential products to retail, commercial and industrial customers. To do this, we've made changes to the portfolio, where we see that those changes have supported our long-term TSR aspirations. We've exited businesses because they were either lower growth, presented operational or sustainability issues or where we had an opportunity to realize the price that we considered was in the best interest of our shareholders. Through the Target store closure and conversion program in Kmart Group, we were able to face into some of the structural challenges in Target and reallocate capital towards higher returning opportunities in Kmart. We've developed and acquired new data and digital capabilities that complement the compelling omnichannel offers being progressed within the retail divisions. And we've also established significant new platforms for growth through Covalent Lithium and Wesfarmers Health. So a lot of change for the better within the portfolio. Now turning to Slide 9. Now shortly, you'll hear from our divisional managing directors, but I wanted to make some high-level comments on our current portfolio of businesses, which, I believe, offers quite a unique combination of both resilience and growth. Bunnings has demonstrated its capacity to grow its proposition and expand its offer over many years now. The nature of its product coverage across all aspects of the home from construction to improvements, to repairs and maintenance, gives demand for its products a level of resilience throughout all phases of the cycle. Now post COVID, Mike Schneider and the Bunnings team have really stepped up their focus on expanding their addressable market, as you'll hear about today. Now we continue to see the development and expansion of the Bunnings offer across the commercial side and also, importantly, the consumer side. Now Kmart is a clear value leader. And as cost of living pressures affect many households, it is a great time to have the lowest prices on everyday necessities. Kmart has evolved to be as much a product development company as a retailer, and these unique product development capabilities and scale offer structural cost advantages. We see opportunities for Kmart to extend its price leadership and profitably grow share of wallet, supported by its cost advantage and continuing to develop its omnichannel offer. We're pleased that Target is now a smaller and more profitable business with a focus on online and a differentiated customer offer, especially in apparel and soft home. The Kmart and Target teams continue to investigate opportunities to leverage the capabilities and scale of the broader division. WesCEF has been and continues to be an important platform for shareholder value creation for the group. Its businesses play a significant role in supporting critical industries, and the division is considering a number of attractive opportunities to expand production capacity as well as progressing the Covalent Lithium project, along with other projects that can support global decarbonization. Now with Officeworks, Officeworks is one of Australia's most successful and sophisticated omnichannel businesses and is focused on driving profitable growth in its key markets. Officeworks continues to evolve its range for both households and businesses while also extracting productivity and efficiency benefits from investments in its supply chain and technology that have taken place in recent years. Industrial and Safety has made good progress improving performance across all of its businesses in recent years. The division maintains its focus on improving its customer value proposition, enhancing operational capabilities and providing an easy and reliable experience for its customers. And Wesfarmers Health is another exciting platform for growth for the group with opportunities for expansion in logical adjacencies and in digital health. At API, transformation activities are underway with a plan in place to improve financial performance. At Catch, we have taken decisive action this year to address some performance issues. And as Nicole will discuss today, we've seen some pleasing improvements in recent months, but there is still much more to do. And OneDigital continues to invest in developing the capabilities that will enable it to provide incremental value-added services and insights for our divisions and for our customers. And although it's still relatively nascent, early results suggest that the OnePass value proposition is resonating with customers and delivering value to our divisions. So turning to Slide 10. As I mentioned earlier, having established significant growth platforms across the group, we are now very much focused on execution and value realization. And that is not to say we won't consider new opportunities, rather it just highlights the significant opportunities that are currently underway across the group. You'll hear more about these from our divisional MDs, but I wanted to share some of the highlights. Completion of the Covalent Lithium project will support a significant new earnings stream for WesCEF and Wesfarmers starting with the sale of spodumene concentrate early next calendar year. Ian Hansen will update you on the good progress being made on construction of the integrated project later today. We have a great team in WesCEF and Covalent who are focused on execution of project and who have a deep understanding and respect for the complexity of such operations. We're pleased to have established our presence in the attractive health, wellness and beauty market through the acquisition of API and execution of the turnaround and transformation plans represents a big opportunity for the health team. There are also some broader opportunities, as I mentioned, in adjacencies such as digital health and broader consumer health and well-being. And the team are actively considering these in a very disciplined manner. Now regarding our offer to acquire SILK, we note that the company has received a nonbinding offer we decided not to exercise our matching rights which expired yesterday. We will finalize our due diligence and we'll continue to monitor the situation with SILK. But as always, we'll maintain our disciplined approach to M&A. In Bunnings, there's been considerable investment over recent years to progress its Whole of Build commercial strategy. This has included changes within the warehouse and trade center networks, the acquisition and development of the Tarkett Depot and Beaumont Tiles specialist brands and more recently, the expansion of frame and trust capabilities. Our supply chain capabilities across all businesses continues to evolve, and we've invested to modernize, automate and digitize processes, and our MDs will talk about this today. In the retail businesses, we continue to optimize our store formats and networks, and we're expanding our ranges in addressable markets through product development and merchandising capabilities. Examples of this would include Bunning's recent move into pets and the opportunity for Kmart with the Anko brand in offshore markets. And then finally, with WesCEF, as I've mentioned, there are significant opportunities for capacity expansion. Turning to Slide 11. As I mentioned earlier, in recent years, we've spoken quite deliberately about our -- the investment and opportunities in building our data and digital ecosystem capabilities. Now while this investment is ongoing, we've progressed from a point in 2018, where we had relatively limited e-commerce and data capabilities in some businesses to now having a very strong and, in some cases, market-leading capability in our retail divisions. We also have deeper customer insights across our brands and collectively through our shared data platform, OneData and together with the OnePass membership program that appeals to our most valuable customer cohort and delivers additional value and convenience when shopping across all of our brands. Now I'm conscious that the word ecosystem has become a bit of a buzzword, and some people would validly question the value of building an ecosystem for the sake of it. To put it very simply, the ecosystem is nothing more than a way of describing our approach to connecting our data and digital assets and digital platforms in a manner that enables us to deliver more value to our customers and more value for our retail brands. It's all about being a stronger omnichannel retailer, and we are already starting to see the benefits. Importantly, we are setting this up in a very modular way such that we're preserving portfolio management flexibility across all of our divisions, and those of you that understand the way that technology is evolving in the data and digital space would understand we have the capacity to maintain that flexibility and still deliver our objectives. Now what makes our ecosystem so powerful? It's not just the data. It's the 1,800 stores across our network in almost every community of Australia. It's brands like Bunnings and Kmart, programs like Flybuys and OnePass, and it's the 210 million digital interactions that customers have across our digital platforms each month. We've been really encouraged by the progress to date with OnePass, and Nicole will talk more about it today. There will be a lot more to come with this program in FY '24. Turning to Slide 12. This framework we first presented in our 2022 annual report, and it illustrates how we think about value creation in connection with our most material sustainability focus areas. Sustainability has long been integrated into Wesfarmers' approach to allocation and the oversight and management of our businesses. We know that through responsible and disciplined investment, we make our businesses more resilient and create value for our stakeholders in a number of very important ways, as outlined on this slide. Now I wanted to, on Slide 13, just make a few comments on the current operating environment, and there are 3 key points that give me confidence in the positioning of Wesfarmers. Now before I get into the current environment, I wanted to make a fairly obvious statement that, at times, I feel people have been overlooking. And that is over the last year, we have transitioned from what was a highly abnormal environment for households and businesses during COVID. It was a time of unparalleled government stimulus, constraints on supply chains and purchasing behavior and ultra-low interest rates. Now some retailers that were struggling going into COVID enjoyed a short-term benefit in terms of performance. I'd say that now the honeymoon is very much over. And it was also one of the only times in at least the last few decades that I can recall where value wasn't as important for households. When they had very high levels of accumulated savings, very low interest rates, value was not as important. So it certainly hasn't come as a surprise to see a reversion to the normal post-COVID. And in some cases, we're seeing a tougher consumer environment. It was very predictable, and I feel that our businesses are very well prepared. We've been expecting this for a good 18 months or more. Now it's been encouraging on the positive side to see population growth accelerate out of COVID and return to more normal levels, and this is clearly a positive for many of our businesses. So there are 3 things that give me confidence in the current environment. The first is that the majority of our businesses provide essential and everyday products to retail, commercial and industrial customers, and that gives us quite a strong level of resilience across the portfolio. Secondly, our businesses are known for their strong value credentials and everyday low prices. With elevated inflation and continued cost of living pressures, we expect value to become even more important for customers, and we are seeing that today. We've seen evidence of this in our sales data and our customer surveys with more customers trading down between categories and increasing their share of spend on more value-orientated products. Now this benefits us not just by reinforcing the core of what our businesses do. But we're also seeing a trading down into some of our businesses, which is improving the number of customers that are trading with us. Now finally, as I said earlier, we're well advanced with productivity initiatives to mitigate cost pressures, which I mentioned earlier includes the longer-term -- longer-running initiatives around automation and digitization as well as more tactical opportunities coming out of COVID. And being -- having very low cost of doing business, certainly in retail, is a really powerful, competitive advantage in the current market. So then turning to my final slide before we take some questions. In summary, our value-creating strategies, our operating model and our current portfolio provides us with a unique combination of resilience as well as opportunities for long-term growth. Our businesses are well positioned for the current environment and are well placed with our cost structures, our inventory positions and our offers to customers. We actually feel quite a degree of confidence in terms of how well we are positioned competitively in this market. We have a strong and flexible balance sheet that provides the capacity to support continued investment and the ability to take advantage of value-accretive opportunities that may arise. Now I'll hand over to Nicole Sheffield. And after Nicole, Anthony, Nicole and Naomi will join me to answer your questions. Thank you.

Thank you, Rob. And good morning, everyone. For those of you who I haven't met, I'm Nicole Sheffield, the Managing Director of Wesfarmers OneDigital. At the last Strategy Briefing Day, we were a newly-formed division. And actually, OnePass was mere 2 weeks old. So I'm very pleased to share with you today the plan ahead and actually show the strong progress that we've been making. To begin, let's take a look back at the year and the progress that we've made across the division. So turning to Slide 16. FY '23 has actually been a foundational year for OneDigital. We launched OnePass on May 16 of '22 with launch partners, Kmart, Target and Catch and Bunnings joined in early December. And later that month, we launched an Australia First when we partnered with Disney+. These trusted known brands have helped us rapidly scale the membership base. And during the year, we've also begun to launch in-store awards, recognizing the importance of an omnichannel proposition as a key differentiator for OnePass. We also continued to build and evolve the shared data asset using our data to help drive decisions in the divisions. These include personalization, developing better products and benefits and stronger in-store and digital engagement to support our customers. We are also rapidly evolving our AI capabilities to determine future applications and ensure a focus on responsible use. Some exploratory use cases across the group include inventory management, team member rostering and workforce management. At Bunnings, OneData and the Bunnings internal team are using machine learning to test a new markdown model, which provides flexibility in clearing products. Catch is at the start of the turnaround phase with decisive action underway, I will touch on shortly. And just this month, we also signed a formal partnership agreement with Flybuys, which will enable attribute sharing to help build out the shared data asset further and cement our partnership into the future for OnePass. Critically, underpinning all of this work is a strong privacy, security and data governance framework, driving the use of customer and divisional data across the ecosystem. Turning to Slide 17. You may be familiar with the ecosystem by now. We are all about the Australian household. Our retail businesses have been serving them for over 100-plus years. But through our ecosystem, we are able to serve them more frequently, driving more value in any channel they choose to interact with. The cumulative effect of our brands helps us understand these households more, build stronger data knowledge and build even more compelling offers, products and interactions. The ecosystem surrounding this household can create network effects between the Wesfarmers retail brands, Kmart, Bunnings, Target, Catch, Officeworks and in time, Priceline. The more our customers shop with these brands, the deeper our understanding of them. And through using insights from OneData, Flybuys and OnePass, we can drive new customer missions and profitable growth. I will speak shortly on the mutually beneficial relationship between OnePass and Flybuys and how they complement and coexist in the ecosystem. Turning to Slide 18. The vision for OnePass has not changed. The OnePass membership builds deeper engagement with our most valuable customers through the most compelling omnichannel experience. To do this, we need to stay true to our member principles. We need to be easy to use and remove any friction around sign-up, payment and use. We need to elevate our members to feel like the deals they are getting are made just for them and they continuously receive additional benefits and rewards for being a OnePass member. And critically, our final member principle is to ensure we act responsibly with their personal information. So let's turn to what we've learned about the value and frequency of the OnePass shopper. Turning to Slide 19. There is one thing to have a strategy or a PowerPoint, but it's quite another thing when you go live. And we have learned an enormous amount about our customers in the past 12 months. We know they are critical to our future. They are skewed younger than the traditional Wesfarmers shopper. We know most have a family, and we have found these members like shopping online, but they also really like shopping in store. Overwhelmingly, these customers are more valuable to Wesfarmers. They shop more frequently. They have doubled the number of transactions than a non-OnePass member. They are 15x more likely to complete an online transaction versus non-OnePass baskets and they spend more. OnePass members spend on average $1,000 online across the group per annum. And as the program grows, we're seeing strong encouraging signs in customer behavior with members linking up their account and cross shopping across the retail brands. We know there is an enormous value in our members. There is a strong strategy in place to scale the program further to not only retain these members, but attract new custom cohorts across the retail ecosystem. Turning now to Slide 20. We have a number of exciting product enhancements and features coming to the OnePass program. Most importantly, we will be launching an enhanced customer value proposition later this year with a strong focus on new in-store benefits and an enhanced delivery offer as well as expanded rewards and benefits. Officeworks will be joining the program in half 1 FY '24, and we're actively exploring other opportunities across the group. These major enhancements are in addition to the continued expansion of benefits and features. For example, just this week, we launched a 2-week free trial for the OnePass and Disney+ bundle. We also have a number of big Disney promotions planned in the coming months, which will leverage our strong retail partners. And we'll launch enhanced customer and team member support across all our brands. Turning to Slide 21. So as I mentioned earlier, we are looking at ways of building on a strong mutually beneficial OnePass and Flybuys relationship. These programs are complementary. They both play an important role in the OneDigital and Wesfarmers retail ecosystem, and there are clear benefits for both parties. At OnePass, we received access to a new, highly-engaged point savvy shopper who scans each and every time they shop. And Flybuys connects with a younger, more digitally savvy consumer with new opportunities to provide even more benefits as our ecosystem evolves. Now moving on to Catch. Turning to Slide 22. Firstly, as Rob mentioned at the time, the result at the half was unacceptable. Since then, we have made clear, decisive actions to stabilize the business and turn around performance, and we are seeing early signs of improvement. This has included delivering on the actions we signaled at the half. We have made changes to our leadership team. We've also significantly reduced our headcount by 37% to lower costs. We've exited unprofitable ranges in the 1P business and cleared excess inventory and executed initiatives to reduce fulfillment costs and marketing spend. While it is early, we are seeing some green shoots in our recent results. We have reduced losses every month since October last year, and we are seeing improved customer NPS scores. Since the start of the financial year, we've exited approximately 25% of our 1P range. as we are focused on providing a more targeted, profitable offer. Our new Moorebank fulfillment center has reduced its peak and pack cost per unit by over 25% through core system improvements and moving to a more optimized labor model. And while we are pleased with these recent results, we have recognized there is much more to be done. Turning to Slide 23. For FY '24, we are laser-focused on building on recent actions and results. And on this slide, we have highlighted 4 key initiatives. Firstly, we will further reduce our 1P range to create a more profitable 1P proposition. We will continue to exit unprofitable lines and clear through excess inventory. The 1P range will also be reshaped to focus on curating a more targeted range for our most loyal customers, which are young families. The range will include a focus on categories that we know are in demand for these customers, categories such as basic apparel, homewares, baby and pantry items. Across our 2 fulfillment centers, we have a program to efficiency and productivity initiatives and expect to see ongoing improvements in cost, delivery speed and reliability. In FY '24, the team will exit a large majority of its big and bulky stock, which will increase productivity site, and we are also investing in new technology that will reduce the need for large box packaging on smaller items, which also will reduce packaging costs and wastage. In the second half, Catch implemented strong controls and cost disciplines across the business, and further actions will be taken to lower discretionary costs and reduce and rephase technology spend where we can. And lastly, we see Catch as a beneficiary of the further growth in OnePass. Catch is uniquely positioned to benefit from increased traffic and cross-shopping activity as OnePass scales. And we already see from the data that Catch's most frequent shoppers are OnePass subscribers. Turning to Slide 24. So I've spoken to some of the more tactical actions to address performance. But ultimately, the success of Catch will come from a consistent delivery of a strong value proposition for our customers. As mentioned previously, we know that our most loyal customers are young families. So as Catch reduces and reshapes its 1P range, we are making sure that we're arranging the categories that matter most to Australian families, which will help maximize customer frequency and increase customer lifetime value. To make sure we have a successful model, we are initially focused on improving our core areas of our proposition by providing our customers with everyday value, free and reliable delivery, a compelling range with an extensive 3P and targeted 1P range and valuable loyalty and rewards programs. Through OnePass and Flybuys, our Catch customers will receive access to benefits, rewards and greater personalization, which will promote increased frequency of shop and deliver enhanced value across the ecosystem. Turning to Slide 25. To summarize, OneDigital has progressed well for the past 12 months, and we will continue to invest in developing capabilities that complement the group's omnichannel offer and to support a stronger customer experience in store and online. OnePass has an exciting pipeline of enhancements to our customer value proposition coming up, and we have taken decisive actions to address the underperformance in Catch. While there are early signs of improvement, we know there's much work to do. In closing, we are excited for the value that OneDigital will create for our customers and for our divisions. Thank you. I'd now like to invite Rob, Anthony and Naomi to the stage. We will be happy to take your questions.

We start over here? Or -- David Errington. Rob, can you elaborate a on your comment, where you said you thought the capital efficiency of your businesses is underappreciated by the market and that you are a CapEx-light model? Can you go into that, please? Because I'm noticing with Bunnings and Kmart, a large part of the growth initiatives are more front ended, like you're leveraging scale or you're expanding your offer and you're relying upon low price every day. Can you go into why you're such a capital-light? Because I'm a little bit not concerned. But when you look at like the supermarkets of the retailers, they're really going deep into automated distribution, logistics. We don't hear much about that. Maybe we may today on Kmart and Bunnings. But you don't seem to focus as much on the productivity side there, you're more focused on the front end. So if you could give us an overall holistic view as to why capital light is an advantage. Are you pushing the envelope too hard? Maybe you might need to go a bit deeper cost efficiency side. And that Bunnings, Kmart site, is there a lot going behind the scenes that we're not seeing that maybe you'd like to call that holistically?

Sure, David. Look, I'm glad you asked the question because I think it's a really important feature of our businesses. And I'd start with the perspective -- from a capital allocation point of view, we start off from the perspective that the capital available for our divisions is unlimited. What is limited is the number of opportunities that will deliver long-term value creation. So we don't -- we deliberately at Wesfarmers don't undertake a capital rationing approach. So if the division needs capital to invest in long-term value creation and if it stacks up financially, then that capital will be available. I guess if you think about -- and I'll talk specifically about retail to start with, if you think about the types of investments that are going on in our retail businesses, first of all, our stores are relatively low cost to manage that. The Officeworks and Bunnings stores, the warehouse format is an inherently lower cost capital model. And then with the supply chain, yes, we are investing significantly in supply chain. For example, Kmart has just gone through opening a new -- is in the process of opening a new DC in New Zealand. There are a number of other projects going on. Officeworks opened a new one in Melbourne just last year, and there will be more to come. But when I compare the complexity of what we need to do in supply chain compared to some -- you gave the example of some of the supermarkets, we don't have to deal with the complexity of frozen, fresh ambient. So the investment required is nowhere near as significant. The other point I'd mention is that the nature of our investment in our businesses is evolving, particularly as more of our investment goes into technology-related projects. And this is very much the case with a lot of the automation technology and productivity enhancing initiatives. And if you think about a lot of the investment that Kmart has made in recent years with the RFID tracking within store, a lot of that investment is OpEx-related investment rather than CapEx-related investment. If you go back 10 years ago, a lot of our investment 10 to 15 years ago in technology was very much investing in infrastructure. Nowadays, the investment is more around Software-as-a-Service. So the costs are flowing through more of the P&L than the balance sheet. So look, we feel -- and as I called out, we feel really good about the investment we're making in productivity-enhancing initiatives. There'll be an opportunity today for the managing directors specifically about what they're doing in supply chain, what they're doing in other areas. The final point I'd make on capital efficiency is the WesCEF division, which has generated very strong returns on capital over the years, has a very different type of profile with investment. The investment there is very much on plant and equipment and tends to be lumpier because the CapEx is really by expansions in capacity, new plants, debottlenecking initiatives. So we're going through one of those phases at the moment with a very significant investment into the lithium project. But what we've demonstrated over the years within WesCEF, while our CapEx might spike when we're going through one of these capacity expansions, ultimately, the returns on capital we generate over time are quite attractive.

It's Michael Simotas from Jefferies. My question is on OnePass. You've got a lot more value planned for customers next year. Do you think what you've got in the pipeline is enough to give you critical mass to get the membership base that you need? And how do you think about the investment in that customer value proposition and the returns that you get both in the OneDigital business and then across the divisions?

Yes. We're very confident with the pipeline in terms of what we're delivering for both ourselves and the divisions. We've done a lot of customer research, and our customer value proposition will extend enormously, I think. And the value will be seen in store. I think our partnership with Flybuys also opens up those 8 million active customers to be involved with OnePass. From a -- overall OneDigital perspective, it isn't just about acquiring those customers, it's about that frequency of use that customer lifetime value. So we're also working closely with the divisions to understand their own digital strategies and how OnePass not just complements them but accelerates them and not just from an online perspective but an in-store perspective. So I think that at this stage, our pipeline is very strong. Research is proving very positive. And all the signals indicate that OnePass pass is going to be a really important part of not just OneDigital, but the Wesfarmers division's digital plans.

And is that a net cost as you put that value in next year with returns to come later?

Yes.

I think -- look, there's some initial net costs given we're going through significant setup phase. So clearly, when you're launching a new proposition and you're making investments in your systems to enable the program to come to life, there is a net cost. So there is -- there will be a net cost in FY '24. But actually, when you look into the detail of the payback on investment, it's pretty strong, and the great thing about the investment we're making here is there's a lot of transparency around the investment we're making and then the value that is being realized. And across our divisions, yes, our divisions have various ways in which they invest in customer activity both from a promotional point of view some businesses where promotions are more relevant to different types of marketing and customer engagement. And OnePass will just be another one of these tools. And in some ways, I find it's more attractive to be investing in something we can control rather than paying third parties for the privilege.

It's Bryan Raymond, JPMorgan. You called out earlier your low-cost model, particularly in store, which I would agree with. I just wanted to sort of dovetail into the wage discussion that's pretty all-consuming at the moment, I think, across -- with the Fairwork Commission coming out in a few weeks. So obviously, I've noted you're ABA in Bunnings, which are being proposed. But just wanted to talk more broadly to wage pressure in the business, where you think you might have an advantage over some of your competitors. And from our perspective, it'd be interesting to know how much wage is it contributing to your cost base or as a proportion of sales and where you see risk or opportunity as a result of the wage situation.

Sure. Well, Bryan, look, I think I'll let our divisional managing directors get into more detail on that because it will be -- there will be slightly different approaches and strategies across our different divisions. But look, I'd start from the point of view of coming out of COVID. Something I think we did really well across our divisions was supported our teams through a very difficult time. And we maintain very high levels of team member engagement across our businesses, strong and constructive relationships with our team and unions, and we're very well progressed across all of our businesses in terms of getting EBAs locked away for the future. Now the wage pressure that we're seeing is something that is happening across the entire market. This is certainly not a Wesfarmers issue, and it is shining a light on productivity challenges. Because what we've seen in the market, and these comments are very market-related, we've actually seen a downturn in productivity -- of labor productivity coming out of COVID. So it's quite challenging for businesses to push wage rates up at a fairly high level at a time when productivity is going backwards. So that's why we've, for the last 18 months or more coming out of COVID, really been doubling down on this. Based on my understanding of our plans across our divisions, I think we're in very good shape. We -- a lot of the investment we've been making in the systems that I mentioned is going to drive labor productivity, and that enables us to share some of the benefit with our team members in higher wages. The other point I'd note is that all of our retail businesses have relatively low cost of doing business. So obviously, there are some retail businesses that rely on a very high gross margin and very high cost of doing business. We generally have a very low cost of doing business because of the nature of our model, and we also have a lower gross margin, but we still generate good margins and good returns. Now in an environment where wage rates are going up materially and labor productivity is under pressure, you'd much rather be starting from a base like ours, where you have low cost of doing business and also have some flexibility based into your rostering systems, which I'll let our managing directors talk about. So in summary, there are some fairly significant challenges in the market there. Like we're coming through -- we're going through a period where COGS pressure is coming back. So some of the imported cost pressures are abating. Notwithstanding exchange rate will always provide some volatility there. But more domestic cost, cost of doing business pressures are increasing. And I feel we're pretty well positioned to manage that.

It's Ben Gilbert here from Jarden. If I think -- a retail question, if I think about retail was sort of range price and service for the 3 key components, it seems like you've got price pretty well across all portfolio. But if you look at the brands that you've got -- you've seen to have a massive opportunity still around pushing range and that whole centralized fulfillment position we're talking about that before. But we -- there's a bit of a playbook you've seen offshore now with what Home Depot has done, what a number of players have done in terms of centralized fulfillment, pushing unless is leveraging range. It just doesn't feel like not easy for us to say you guys are taking advantage of that as aggressively or quickly as you should. And I suppose the question is, do you envisage more investment around centralized fulfillment endless aisles over the next couple of years? Would you look to do that on a brand basis, i.e., Bunnings with what say Home Depot has done? Or would you look to aggregate like what some of your competitors in Australia are looking to do?

Ben, look, I'll make some high-level remarks, but I'll let Mike talk more specifically in his presentation in terms of the analogy to Home Depot and what may be there for Bunnings. But look, I think when you look at the experiences offshore and you dive into the detail, you'll find that -- you'll see retailers quoting that they have access to millions of SKUs, right? But when you get into the detail and look at how many of those SKUs are really contributing to sales and profit, there will be a much, much lower number. But they like talking about this very extended range to convey a message of real range authority. So look, over time, I think there's no doubt that we will expand our range out, but it needn't be millions of SKUs. And it also needn't be us holding millions of SKUs within our DCs. And as some of the examples you'll see offshore, when they are quoting millions of SKUs, a lot of that inventory is actually held by suppliers and sometimes doesn't actually even go through the retailers' supply chain network, it can often be fulfilled from a supplier direct to the customer. So I think over time, we will continue to see some expansion of range. There may potentially be some opportunities around collaboration through centralized fulfillment. But I'd see it as being a more incremental process rather than us having to go out and spend billions of dollars on centralized fulfillment capabilities.

Yes. So it's not necessarily sort of spending $0.5 billion on a share like what Kohl's have done, but having a lot more of these rapid fulfillment centers, then you've got a couple of around Australia, just giving yourself the position because it's almost -- you have that range of authority and you get people decide you're doing. But if you've got Amazon, there's a $220-odd million in Australia and pushes to $300 million and go bullies, keeps pushing so for retail, you then start losing that leadership position you've got viables at the moment. That's sort of my question lies there.

Yes. No, I see what you are saying, look, I think without question, our supply chain capabilities will evolve, and it will ultimately lead to a better delivery experience. I think what -- Sarah can talk to this today because if you just think about the comparison to Amazon, well, actually Officeworks fulfillment solution, which is a combination of leveraging the 170-plus stores around the country, together with some elements of centralized fulfillment, enables us to deliver a far superior delivery proposition across a much larger number of post codes in Australia to Amazon. So I wouldn't underestimate the power of our store network and also our regional distribution centers to play a role there. Now there's clearly more we can do. But I see that evolving over time. And I think Sarah is probably, within Officeworks, is probably the most advanced in that area. And I think when she talks about that in Officeworks, hopefully, that will shed a light on what some of the opportunities are in the divisions over time.

It's Lisa Deng from Goldman Sachs. It's a question on OneDigital. So Wesfarmers group, we've clearly got one of pools of consumer data assets in Australia. I just wanted to maybe ask Nicole to expand on where we are in terms of stitching a lot of these different siloed pools of consumer data assets together, whether it's Flybuys, Sister Club, Catch, OnePass. And also, what are some of the top sort of if we just narrow it down because we actually talked about quite a test cases that we're doing, what are the top use cases that you believe to be able to provide scaled benefits and how long will it take to get there?

Yes. Thank you. Look, in terms of our shared data asset and the progress that we're making, it's considerable. So we have managed to get the transaction data from all of the divisions, Flybuys data. We've had attributes from that Flybuys data. That's all been ingested. And it's definitely -- and now we also have OnePass, which obviously gives us a much broader consent framework. So in terms of our data availability, it's there -- a lot of those use cases we can't do on our own. We have to work closely with the divisions. What has also happened over time is the division's data capabilities have really accelerated, and so they've also built out strong divisional capability. So we really see ourselves as working in partnership with them in terms of their particular use cases. So we don't just come and say this is a use case we think. So really, a lot of those use cases, for example, I use the Bunnings markdown tool, that's actually really about driving efficiencies and really particularly for their merchandise teams, which is really the customer here, how do we create a tool that improves how they mark down and how they're actually able to mark down depending on location, post code. In terms of Catch, we've done unit economics tool, which we'll be rolling out in the next few weeks, which is really going to help us with our 1P range and really reducing that 1P range and understanding where actually the profitable elements of those products are because we've got a lot of products. But actually, once we add fulfillment in, the cost of fulfilling them actually makes them unprofitable. So it's working together with those divisions to understand what is the use case that's going to make the greatest benefit, I guess. As OnePass scales, we'll get obviously more opportunities, more consent. And I suspect that, that will mean working closely in terms of marketing and personalization efficiencies that you get once you build that out. So -- and we certainly have done that, particularly with the Kmart Group, who have a very advanced digital data capability themselves. So -- but I think it's early days. From a roadmap perspective, the roadmap is quite strong.

So would you just say -- just to follow on. Those couple of cases that you illustrated, have they been, I guess, sold into the operating divisions for scaling at this point? Or are we still working to formulate what it might look like? And it might be a little while yet before they're convinced and will scale?

We're building them. They're built, right? When you take the Bunnings markdown to all, there's weekly meetings with those teams. There's actually teams working together that will be coming in a matter of weeks, months, if not weeks.

Okay. So they're getting rolled out across the division.

The Catch example is live right now in pilot, and we're using it to actually make about our 1P range. And the personalization work -- was worked with Kmart 6 months ago. So those examples are operating examples.

Craig Woolford from MST Marquee. On one of your slides, you talked about the supply chain modernization as a growth opportunity, and then another one you've given us 30 DCs. How far through the supply chain modernization are you and give more detail as to what that looks like? And I am interested in the philosophy that Wesfarmers would apply to investment in this area, which may be more about just having to invest to meet the market and therefore not delivering a return on investment versus required to meet your investment hurdles.

Craig, I think -- look, I think it would be better for each of our managing directors to talk about supply chain modernization within their context because -- I'll make some high-level remarks, but I think it would be more relevant for them to discuss it. So if I take a business like Officeworks, Officeworks are already very well progressed in having -- they have a very workable model for store fulfillment, inbound international imported product, together with e-commerce. We have also now have a model for a dedicated, centralized e-commerce fulfillment solution with a high level of automation. So of course, there will always be additional upgrades that will occur in different states over time to support the growth of our businesses, but we have a very well-defined, best-in-class model expansion. Businesses like Kmart, and Ian can talk about this more at the moment, Kmart has been fulfilling virtually all of e-commerce fulfillment from stores that has been leveraging the capability with Catch in Moorebank with -- fulfilled by Catch as they look to expand capacity within their supply chain. They will look at ways leveraging that investment, both to support the growth of the network -- the store network, together with more centralized home delivery opportunities. And then I'll let Mike talk to his as well. Look, overall, we always take a focus on long-term value creation. And most major investments in distribution centers will always involve a bit of a short-term hit to earnings. At the moment, there's nothing that is standing in our way around the financial -- the longer-term financial returns. It is really important to consider -- there is a certain capability that we need to keep delivering around the customer experience, and we do see some of this business as stay in business type of investment. But I wouldn't say that's changed materially now to how we thought about it in recent years.

Shaun Cousins, UBS. Just a question on OneDigital. At the moment, it's a cost to the business. Can you just clarify, further to Mike's question, around the additional costs in fiscal '24, does that take it above the $100 million? Or does that reverse some of the one-offs, maybe about that? And then more generally, you made the comment in May last year that this would be profitable. Can you get to profitability in OneDigital on the back of subscribers, retail media? Or is it only internally once there's divisional being -- divisions are being charged for use of the OneDigital services and also they provide some internal sort of recognition of the sales uplift they get, so for us, from an external perspective, we continue to see this as an ongoing cost center. Yet internally, you might see it then. And when do you ultimately get to some profitability, please?

I'd touch on that. So we will provide -- at the full year results will provide a bit more guidance on the spend we're expecting next year. But I'd say, just by way of very broad commentary, this year, we expect to spend less than the $100 million that we mentioned. And that's more just a phasing issue, but it will be a bit less than that, and then we'd expect the investment next year to be less than it is this year. In terms of being profitable, yes, our comments are really around that we expect that the -- we will demand actually that the profit that is generated through the incremental sales, the new revenue streams over time is more than the cash investment that we're making. Now we'll continue to decide -- well, we look at this on an aggregated basis. So at the end of the day, what we worry about at Wesfarmers is creating value for our shareholders. If that means that the OneDigital team still has a bit of a cost center, and we can see the logic in making that investment, then we're okay with that, subject to there being a corresponding benefit and more within our divisions. So over time, I do expect that the cost that we are reporting centrally within OneDigital will decline over time. And in the long term, potentially, it could be a profit center in its own right. But what is most important is that we're generating more value across our group than the investment that we're making.

And will you be able to actually provide that indication? And say, hey, this is still a cost that we see externally in your other division. But actually, it's now kicked in to actually be profitable for the group so we can get some comfort around -- at actually, generating value for share.

Yes. Look, I think ultimately, it should be fairly clear to you in terms of judging the performance of our divisions over time and comparing our performance to our competitors, looking at what the financial returns of our divisions are and then having a regard as well to the investment that we're continuing to make in OneDigital. So look, I think there will be enough evidence around that. Look, there is -- we made a deliberate decision to separately call out these operating costs. So we're showing you the costs, we're not reporting the benefits. But I can assure you that internally, there's a very strong focus on that.

It's Johannes Faul here from Morningstar. I had a question for Nicole, on Catch and the ranging or basically the targeting on the young families that you mentioned. And I I'm trying to understand how that offering will differ from Kmart, say, as a consumer, do I go to Catch or Kmart to buy my basic apparels of baby. What's the differentiation there?

Yes. We're spending a lot of time understanding existing catch customers, which are young families. So they're already our loyal active customers and they time-poor. Now the reality is the ranging will be quite different. Catch is a high-low, e-commerce provider that really looks at brands and ensuring that we have the right brands that can deliver great value. We're definitely still very much going to our deals heritage, I guess is very important to us. So in terms of value and deals, that's going to be really important for Catch. But really looking at who are those frequent shoppers, who are those members that are currently using Catch and making sure that the 1P range is really relevant to them. From our perspective, we've kind of broken it up into 3 parts. 1/3 of it is kind of the deals basis, 1/3 is actually brands that resonate, and then a 1/3 is seasonal. And a lot of that is as well pantry items and things that require frequency of shop that actually is already resonating, and we'll continue to focus on those.

Okay. Great. And just cutting down on those 1P that you obviously be stocking. Will you be losing a large part of, I guess, the spectrum of customers by focusing on these young families? Is that the expectation?

No. I think, look, at the moment, we've got 2.7 million active customers a month on Catch, and we anticipate we'll be holding those. I think it's -- and growing those. I think from the perspective of -- at either end, there'll still be the deal hunter, They'll always be the bargain shopper, and there's an element of those that will always use Catch. They're just not our frequently active customer that we'll be targeting. But we anticipate -- the ability is that's our core. There will be also those other savvy shoppers that we think Catch actually resonates with that is really important to us.

It's Ross Curran from Macquarie. So Anthony, I'm going to pick up a question asked back in -- a few months ago because they promised you to answer it today. It's about cost of capital. So as lithium becomes a bigger portion of the business going forward from calendar '24, the volatility in the group's top line and earnings will we around a bit more than it has done in the past. So how are you thinking about cost of capital at a group level given that expected increase in volatility? And then once you've got that in place in the business, how do you think about your balance sheet and your dividend settings going forward?

So thanks, Ross, for the question. Look, we take a long-term view to the way we view cost of capital. And I think we talked a lot when interest rates were very low that we didn't necessarily drop our hurdle rates and our cost of capital in terms of taking a longer-term view, which I think is proven to be correct. So I think we tend to take a much longer-term view. We understand and we're used to having businesses in the portfolio that have volatility. So you'll recall, we used to own coal businesses, we used to own insurance, and they were quite volatile. So what we -- when we have businesses like that, we look through the cycle. We understand what the earnings profile looks like, and we take a much longer-term view to that. So when we're assessing projects that have greater levels of volatility, generally we'll apply a higher risk margin to the hurdle rates that we have for those types of investments. So essentially, it's not that different. We do have regard to volatility in terms of overall returns. We feel that the level of volatility we've got in the portfolio with lithium does not necessarily fundamentally change our approach to dividends. Obviously, our approach to franking, and you've heard a lot about, our view is that we need to get franking credits back to shareholders. We don't have a progressive dividend policy. So we will pay a fairly fixed payout ratio, and you've seen that fairly consistent over a long period of time between 85% and 90%. So really, that doesn't change our profile. And then looking at that specific investment, lithium in a bit more detail, as Ian has talked about before, we're very focused on where we sit in the cost curve because we know that we can't predict pricing, but what we can control and predict is where do we sit on the cost curve, understand the demand profile and understand that through the cycle, what sort of return we should be generating in that business.

And I got a question from Phil Wensley at Paradise, who just asked, can you talk about whether OnePass and Flybuys needs to be merged into 1 common loyalty offering?

Phil, well, as Nicole presented earlier, the 2 programs are fundamentally different, and we tried to convey that in the slide. So Flybuys is a very broad-based coalition loyalty program. It's a free program. It covers a very broad range of businesses across Wesfarmers, across Kohl's and some other third parties as well. The OnePass program is -- it's a paid membership program. And in exchange for paying a monthly fee, you get additional benefits, and there are benefits that can only be delivered through the brands that participate. And there's a very clear financial transaction between a OnePass member and the business that is part of that program. So as Nicole said, I actually see the programs is very complementary. Kohl's, obviously, have their own subscription program as well. that works alongside Flybuys. What we're seeing in the world of loyalty and data and digital programs at the moment is we're seeing a lot of partnerships evolve, and I think we'll see more of them over time. And as we set out today, we're really pleased with how complementary the Flybuys program is with OnePass. We think that OnePass is a material benefit for Flybuys members that are prepared to pay that monthly fee, and it will become even better when we start to incorporate some in-store features next financial year. And we think that OnePass provides additional benefits for Flybuys. So we think they're very complementary.

We've had a number of questions online, and we'll get back to those shareholders after this session. But I will ask one from Miles Cody, who asks Catch is a loss-making business, why not write it off, sell it and move on rather than investing more valuable capital.

Yes. Look, we -- over the years, we've had various businesses that have gone through difficult times, and we try and adopt a very objective assessment of what is the best thing to do in terms of creating shareholder value. Like I -- actually, I remember many, many years ago now when Anthony and I were in the insurance division and we went through some natural disasters and our earnings dropped from about $200 million to $2 million, I'll tell you why it's not good being a Divisional Managing Director when that happens. And we are asked many of those questions. Those same questions. What are you doing in insurance? Aren't you better to write it off and get out, sell it today? Well, that was clearly one of the most stupid times to sell an insurance business. What do we do? We kind of went about doing what we needed to do to improve performance. We materially strengthened the business. And then opportunistically, someone came along and offered us a lot of money for it, and that was a fantastic outcome for shareholders. We've also had businesses. As you know, Target went through some very difficult times a number of years ago. By undertaking the store conversion program, doing some very heavy lifting there, we've emerged with a much stronger, more profitable business and a much stronger, more profitable Kmart. So we look at this very closely. I think while I hope that Nicole conveyed our sense of urgency and focus on improving the losses, we're not going to tolerate losses forever. But at the end of the day, what we're focused on is trying to do what is right for shareholders and create more value from where we are today.

Thanks. We'll take a break for morning tea. For those in the room, we'll come back at 10:00 a.m. For those online, the webcast will pause.

Thank you. [Break]

All right. Good morning, everyone. For those I haven't met before, my name is Mike Schneider, and I'm the Managing Director of Bunnings. It's a great opportunity to speak to you today. As we head into the 30th year of the Bunnings Warehouse format, we continue to demonstrate a strong track record of sales and earnings growth through a variety of economic cycles. We've always been really focused on delivering long-term growth and expanding the addressable market and, of course, the role we play in it. And that focus hasn't changed. This expansion of the addressable market comes through network and category evolution across both our consumer and commercial segments as well as across all the different channels in which we operate. So that's in store, online, in home and on site. The addressable market, as we think about it today, is estimated to be approximately $100 billion across both the Australian and New Zealand business. And I guess for me, regardless of the prevailing conditions, our goal is to always outperform the market. And 30 years on, our strategy remains really simple and compelling: lowest prices, widest range and, of course, the best experience. We must have a laser-sharp focus on continuing to meet the needs of our customers, work hard to be chosen, look for opportunities to grow and expand into categories that we know our customers want and need. This evolving offer has proven to be really resilient across many market cycles, which reflects a mix of discretionary and necessity spending. Throughout COVID-19, we experienced unprecedented demand and sales growth. But we do know conditions are tightening, and we know we need to do more to continue to achieving our growth aspirations across the group. We remain incredibly disciplined on delivering long-term returns over the long run. So we're doubling down on business productivity and customer value through the period to support stronger business growth both now and into the future. And turning to Slide 29. In enabling this growth, we've not stood still. We've delivered a significant series of transformation projects since 2018, much of which was in the midst of a global pandemic where we faced many operational challenges given we remained open and trading as an essential retailer. These projects are now underpinning our capacity to grow, improve the customer experience and realize productivity benefits across our business. And I'm incredibly proud and grateful to the work our team and suppliers have done in continuing to serve and maintain the trust of our customers through this challenging time whilst in parallel delivering significant projects that have step-changed the nature of our business. In 2019, we launched Click & Collect and the Bunnings Marketplace. And with COVID hitting in early 2020, projects that would normally take months of testing and learning were rolled out in weeks, like our Drive & Collect service providing a fast and contactless way for our customers to collect purchases, and this continues to be a key part of our customer offer. Not only launching a website, we then replatformed the consumer website and launched a dedicated site for tradies, along with our Product Finder app, which helps our customers find what they need when they're in our stores. [ Cotton Seals ] is our consumer app, which goes live later this year, and we're trialing a team member delivery this year to expand and improve our last-mile capabilities. Our supply chain continues to evolve in a logical manner, including the opening of a pilot fulfillment center and transport management center at North Laverton in Victoria. Our strong trade growth demonstrates the success we're seeing in deepening relationships with our trade customers, and we continue to find innovative solutions to help them grow and run their businesses. We launched our PowerPass app in 2019, making it easier for trade customers to shop with us wherever they are. We acquired Adelaide Tools, now Tool Kit Depot in 2020 and, of course, Beaumont Tiles in 2021. In 2021, we also launched the new format trade service area to improve the in-store experience for our trade customers, and we continue to expand our frame and truss capabilities. We've innovated our ranges as well, expanding garage storage and introducing a moving-home range and, most recently, our expanded pet offer, which is performing really well. We've also launched Flybuys and OnePass. For our team, a variety of tools and solutions have been deployed to make their jobs easier and for them to be more productive with new rostering platforms across Australia and our team management tool, Workday, plus our communications platform, Workplace. Of course, all this was achieved while still seeing incredible growth of the business throughout the period. On Slide 30, we operate in an increasingly competitive environment with a myriad of demand drivers. These often move in opposite directions, providing a level of resilience to aggregate demand. When our customers face budget pressures, we generally see them taking on more DIY projects and a strong take-up of our value lines. And in high-churn environments, we see demand as customers prepare homes for sales or personalize them post-purchase. In lower-churn environments, we see demand to keep existing properties fresh. Interstate and international migration drive activity both across consumer and commercial. And lifestyle trends play a role, too, with a shift to hybrid work, a recent example that's driving demand for creating and maintaining home workspaces. Put simply, across the cycle and regardless of drivers, there's always a need to build, improve, maintain and enjoy our homes. We're focused on delivering the strongest customer offer across the whole of home. For our consumer offer, it's about ensuring we have the products our customers want, literally everything from the front gate to the back fence. For commercial customers, we're offering solutions for the whole of build, starting our relationship from the very beginning of the planning process through to fit-out, fixings and the rest of build. And for small businesses and organizations, it's all about supplying the materials they need across their sites to keep their businesses or operations running smoothly. Overall, it's still about delivering the lowest price, widest range and best experience for every one of our customers so we continue to earn the right to be chosen. To stay focused in challenging times, our strategic growth agenda for the next year will be focused around 4 simple themes: care, grow, simplify and evolve. Caring for our customers, suppliers, environment and, of course, our communities, maintaining a steadfast commitment to ensuring our team members go home safe every single day. You'll hear more about our sustainability and community initiatives shortly, but we remain committed to reducing our environmental impact. And with our suppliers, we want to be more than just a partner, deepening real partnerships we enjoy with so many and building new relationships as our categories grow and change. Our growth agenda is all about ensuring we have the best customer offer, building new capabilities to set Bunnings up for the future, delivering growth across the range and continuing to innovate and expand our products and services. It's also about accelerating data and digital capabilities to support customers shopping across channels and driving productivity and, of course, strengthening our commercial offer to help our trade customers run and grow their businesses. We want to simplify processes, get back to basics to ensure we have the best operations and operating as efficiently as we can so that we can reinvest in lower prices and a more profitable business. Of course, we'll continue to evolve key projects across supply chain, data and tech as well as optimize the way we consider space utilization across our store network. We've long recognized the value of attracting and retaining a high-performing team with industry-leading benefits, and we remain committed to this. We want our team to see Bunnings as a true career path regardless of where in the organization they work, ensuring that everyone has access to the right learning to keep building skills, capabilities and confidence. Our permanent team member retention rate remains industry-leading and ensures we retain a knowledgeable and engaged team as well as representing a significant cost-of-doing-business advantage. There's nothing more important to us than keeping our teams safe. Our team injury measure isn't where we want it to be, and we are redoubling our efforts in this space with a new injury prevention program as well as changes to our injury management programs. And complementing this is a focus on eliminating life-threatening risks. Sustainability remains an integral part of ensuring our business stays relevant and profitable into the future. And we're well on the way to achieving 100% renewable electricity by 2025, with around 65% renewable energy currently powering our network. Pleasingly, in New Zealand, we've already reached 100% renewable electricity across the network. We have a clear pathway in place to achieve net zero Scope 1 and 2 emissions by 2030 and continue to deepen our Scope 3 reporting. We continue to generate solar power and now have solar PV systems installed at over, I should say, 110 of our locations. The work our stores do in the local communities continues to be an integral part of our DNA, from our community barbecues to hands-on local projects, along with DIY workshops, in-store family events, and of course, they continue to be there for their communities and emergency services in the face of natural disasters. I'd now like to spend some time talking about how we're delivering for customers across consumer and commercial whilst retaining a razor-like focus on cost, productivity and growth. We have a long-standing commitment to being a lowest-cost operator, ensuring our offer represents value to our customers. And we know that is increasingly important. With cost of living pressures, we see real opportunities to deepen trust and loyalty with our customers by continuing to focus on value. We know customers value a mix of brands they know and love, along with value-oriented alternatives. And we continue to look at opportunities to strengthen supplier relationships and also introduce new owned brands where they make sense. We're focused on growth across all of our product categories, but we're also interested in identifying clear opportunities where we can achieve step-out growth by expanding the addressable market. The launch of our pet range is a great example that's been our most category -- most significant category reshape in 2 decades. We're seeing an excellent response not only from customers but also suppliers. And equally, we've long had the capability of building our owned brands. Our newest brand, Citeco, is a great example of where our team identified an opportunity in the market to build range authority and offer customers really attractive price points across ladders, site safety and PPE. This builds on the work we've done over a number of years to create other owned brands like Matador and Trojan with real brand equity that offer our customers not only value but choice. Cleaning is another area where we have strengthened our range authority in response to the elevated and sustained customer demand we saw emerge during the pandemic. We've introduced more market-leading brands that consistently attract higher-frequency purchases. Alongside this, we've made improvements to in-aisle presentation and marketing initiatives to build stronger awareness. For us, it's all about establishing Bunnings as a true destination for every homeowner, business and light industrial cleaner, offering great value products that our customers use every day. We think there are even more opportunities for this category, and we're exploring options for an even wider range alongside our space optimization work. We're constantly looking for opportunities to enhance our offer through the expansion of current ranges or targeting new categories where we see demand. Bunnings operates in and is a part of many rural communities across Australia and New Zealand. And we're looking at how we can refine and tailor the Bunnings offer in these categories to meet the needs of customers. Outdoor living has long been a part of our core range. And within this, we see recreation as a key opportunity. And smart home is already a growth category for us with new opportunities continuing to open up as new technologies help people stay at home longer and make their homes more accessible and safe. For our builders and tradies, we see a real opportunity to expand our commercial paint offer as well as others so we can better address the finishing stages of their projects. We're doubling down on our much loved in-store experience as well with more DIY workshops and family nights. These free events are hugely popular and center on helping customers complete projects around the home that they might otherwise have put off and engage them in our in-store environment. We continue to use digital platforms to enhance the bricks-and-mortar experience. For example, customers can now use their Bunnings app to create a shopping list, find products, collect Flybuys points and store and receive their receipts digitally. Soon, we'll enhance this capability, making shopping even easier with barcode scanning for product discovery reviews, e-commerce in the Bunnings app to access full product ranges in-store or at home. We continue to enhance our digital tools to provide inspiration to our customers, both pre- and post-shop, engaging our customers and creating a more personalized experience no matter where they're shopping with us. We continue to create content to further inspire our customers, recently completing our fifth house renovation series, creating incredible material for the very successful Make It Happen series. And here's a snapshot of this work. [Presentation]

So what we're trying to do with this content is to... [Presentation]

I'll double-check the video ends that time. What we're trying to do is, with this, continue to inspire and really make DIY that much more accessible and entertaining because our customers do tell us that when they master one project, it really does give them confidence to try another one. And there is an enormous appetite for this content. Of course, it's also about trying to stay relevant. Younger customers often start their DIY journey on their mobile looking for the latest ideas and trends to tackle their DIY projects. We also see a lot of growth prospects for us in the commercial business. We have a highly-diversified customer base, spanning trades, small builders and a range of businesses, both large and small. For our builders, our focus is on the whole of build, building capability to service customers with a strong offer at every stage of the build, from the frame to fix to fit-out and, of course, the finishing stage of the build as well. In terms of frame to fix, the customer here for us is the builder. So it's all about connecting early in the building project, maximizing the opportunities to build an understanding of the project and to be chosen as a partner of choice for that whole of build. The way we're growing our frame and truss offer is a deliberate initiative to reach customers early. And it gives us the opportunity to really understand the products a builder needs for their entire project and consider how we can best provide these. In the fit-out space, it's about bringing credible offers to customers across bathrooms, appliances, kitchens and flooring. Our Building Solutions Studios provide a showroom experience with extended ranges to builders and tradies. And the acquisition of Beaumont Tiles has helped to fill in an important gap with a market-leading commercial tiles and hard surfaces offer. In the finishing stage, a good example of what we've achieved is landscaping, creating a specialist offer and one-stop shop for our customers. And as I mentioned earlier, we're increasingly interested in the commercial paint space and will explore opportunities with paint suppliers across the market to build a credible, trusted and value-accretive offer. We want to equip our tradies well with the right equipment for their work, with tools, safety and workwear all a focus. This is about reaching customers where they need us and making it easier to do business. Our new [ 1 3 ] for trade services centralize customer service, helping quickly get customers what they need and removing a huge number of calls from our stores. This is where Tool Kit Depot also plays an increasingly important role with its strong specialist range offers. In the organization space, it is all about B2B relationships across small business and industries such as government, insurance, aged care, education, franchisee and membership organizations. And we see big opportunities for growth in this area across a number of those industries. Our specialist formats complement our core commercial offer. We opened 2 new frame and truss plants this year at Truganina in Victoria and Minto in New South Wales, with Wacol in Queensland opening later this year. These plants incorporate automation and centralized customer engagement, which enable us to drive low-cost solutions with high-quality products. There's also opportunities for cross-selling across the group for a seamless experience for our commercial customers with PowerPass at the core of that proposition. This year, we'll launch Beaumont Tiles into Western Australia and are expanding Tool Kit Depot on to the East Coast, with the first stores in Queensland and Victoria now open, along with online fulfillment here in New South Wales. So let's talk a bit more about our focus on productivity and cost. We're absolutely focused on staying true to our low-cost business model. We're reinvesting team member time away from task and back into service, using technology and having redeployed over 2.4 million hours of tasks since 2020. Excitingly, another million hours is earmarked for the financial year ahead. Pictured here are some of the trials we're undertaking, using robots to optimize our space and stock replenishment with overnight aisle scanning. What we're aiming to do here is reduce team member hours spent locating hand stock to be filled or completing gap and price checks we've also improved the picking app for our team, and we're trialing electronic shelf labeling to further save team member hours. There are a number of key projects underway to optimize stock management and inventory productivity. We're looking at demand and replenishment capabilities for stronger forward planning with our suppliers, which improve stock ordering and flow into our stores. And we're enhancing our product information management platform to enable greater accuracy of our product data right across the business. Whether it's our retail or our commercial customers, we know our relationships are one built over a lifetime rather than in a single transaction. We've long thought deeply about different life stages and what we can do to strengthen our connection with customers based on their needs and interests and where they are in their life and career. This is a differentiator in our service and productivity models through how this comes to life in our stores. For our retail customers, it's a journey that spans childhood through to retirement. And for commercial customers, it's a relationship that can easily span over 40 years, starting from a young apprentice through to business owner. Just as we look to maximize the quality of every interaction in our store, our investment in data and digital is driving deeper customer engagement and insight online. We're utilizing data in many ways across the business to make smarter ranging decisions and give customers a more personalized experience as well as simplify our operations. This is creating value from both a growth and productivity point of view. And we're using Flybuys and OnePass to create extra value for customers when they shop with us and enabling us to understand them better. This is enabling us to personalize content and marketing, including e-mails tailored to a customer's local store. We can share great value product recommendations and suggest helpful how-to content online to assist customers to make the most of their purchases. PowerPass now has around 1.1 million active members and continues to be centered around growing engagement for commercial customers to help them run and grow their businesses. And more than ever, we're rewarding them with tailored offers for having a deeper and more frequent relationship with us. Our supply chain continues to evolve to bring efficiencies, flexibility and reliability to support our continued online and commercial growth. As I've said before, we're taking a logical and incremental approach to improve our supply chain by focusing on 3 key areas: supporting direct sourcing growth through an increase in efficiencies in our DCs; optimizing store replenishment, enabling the store network to be safer, more productive and increased product availability; and enhancing last-mile capabilities. This is increasing capacity and capability at our fulfillment center and looking at opportunities to efficiently use our stores as hubs to enable the best last-mile experience for customers at the lowest cost. Our unique supply chain model leverages supplier investment in warehousing and store replenishment. And this brings cost efficiencies for Bunnings and gives us huge flexibility as customer preferences evolve. We are seeing benefits from increasing our coordination of supplier activity to stores through a dedicated Bunnings control center, and we will continue to scale this capability in the coming months. Our warehouse format, located in the middle of major population centers with ample car parking, gives us a unique competitive advantage for fulfillment and places the last mile close to the customer. Leveraging this, we're piloting our own last-mile delivery by having a team at selected stores complete same-day and next-day deliveries as part of their broader store duties. So far, this pilot has been really successful, achieving very high customer satisfaction scores at a lower cost to serve than existing last-mile options. So we'll be piloting this approach in more stores ahead of determining whether to scale this more broadly. Across global sourcing, replenishment and fulfillment, we're taking an incremental approach to building capability and piloting enhancements. Across all of these areas, focus remains on ensuring safety, sustainability, productivity, team capability and return on capital are all acceptable. A significant driver of future growth will come from opportunities to optimize space as well as growing space. Our store network continues to grow as a mix of small, medium and large format stores to cater for the needs of the local communities where they operate. Our small-format stores are perfect for smaller regions or community with a tailored range where our medium warehouses have more space for greater core product range. And of course, our large warehouses allow us to incorporate the whole range and utilize more space for showroom experiences and create even more dedicated space for our trade customers. Previously, we try and accommodate most of our core range in every store. Now through analytics and space optimization, we can better understand the ranges and categories at each site, adjusting core lines we carry at each store. We can also optimize stock weight and positioning to ensure key items are held in project quantities that are always in stock. This is achieving greater sales productivity with a couple of examples being pets and fixings with the introduction of our pet range, we've reduced the space taken by large playgrounds, shaping the macro space in our stores. And in fixings, we've expanded the space and depth -- stock depth of screws or tightening up on nails as customer preferences change, with the net impact being strong sales growth at the micro space level. Through our online offer, customers know they also have access to our entire range online. So in store, we can finally use the variety of formats to better meet local market and customer needs. We have robust expansion plans across our store network and across our various brands with strong ambitions to grow TKD, and we're very excited about the Beaumont Tiles expansion into Western Australia. Over the next 5 years, we see lots of runway ahead for growth through expansion of retail space at existing sites and through the establishment of new and replacement stores. Over this period, we expect to add a number of new Bunnings branded stores serving communities such as Tempe and Frenchs Forest here in Sydney. We're also planning to serve existing communities with stronger and expanded offers through store replacements. One example is our new Wonthaggi warehouse in Victoria, which will be 4,000 square meters larger than the existing small-format store. Similar examples include expansions at Lismore and North Penrith in New South Wales, collectively adding 6,000 square meters to our offer. And we have strong development programs in place informed by a continued analysis of how demographics are shifting, so we can identify the right formats and sites to meet evolving community demand. Overall, we have more than 50 Bunnings brand projects in the pipeline at various stages across new stores, replacements and expansions. In moving to outlook and bringing this presentation to a close, we're incredibly excited about what lies ahead for our business. As always, we remain focused on performing -- outperforming the market and delivering the very best offer for our customers, ensuring we are chosen first every time. Our steadfast focus is on ensuring we are operating at the lowest cost, driving operational efficiencies and productivity right across our business. Thanks for your time today, and I look forward to taking questions shortly.

Well, good morning, everyone. My name is Ian Bailey. I'm the Managing Director for Kmart Group, and I'm very much looking forward to sharing our strategy today. Last year, I talked about the unique advantages afforded by our business model and outlined clear strategic priorities to grow our share of the customers' wallet. These strategies remain consistent. And over the last year, we have made significant progress to realize the value from the investments we have made while continuing to build capabilities, which will deliver sustainable growth over the long term. Turning now to Slide 49. Kmart and Target have clearly differentiated customer propositions. As a leading product development company, Kmart provides the lowest prices on a broad range of everyday items. The offer has broad appeal and generates strong engagement across all customer segments irrespective of customer -- sorry, irrespective of income levels. Target today is a simpler and more focused business, with apparel and soft home being core to the offer. While maintaining differentiation between the brands is critical, we leverage combined scale of the group and collaborate where it makes commercial sense. We also leverage OneDigital to enhance customer insights and accelerate new capabilities such as centralized online fulfillment. Turning now to Slide 50. Kmart Group is a leader in sustainability. As the largest retailer in our category, we are focused on finding scalable solutions. And when we do, we aim to be first to market on mass. This approach leads to more effective and affordable solutions to the sustainability issues faced by all retailers and means we can help lead the way for Australian retail. We have demonstrated a strong track record and continue to progress on our existing commitments, for example, BCI cotton. We're also working towards our target of net zero Scope 1 and 2 emissions by 2030. We continue to focus on opportunities that make our business more circular with a specific focus on increasingly designing products with sustainability in mind. Turning now to Slide 52, and I'll first cover Kmart. We remain committed to our strategy for Kmart, which many of you will be familiar with. Our purpose of making everyday living brighter is anchored on saving customers' money on the everyday items they need and bringing products customers want to a price point they can afford. With the return of value being essential for customers, our purpose has never been more important. Families, everyday items and lowest price all drive volume, enabling substantial economies of scale. Our 2 strategies remain unchanged: providing a great place to shop that is simple to run and better products at even lower prices. Today, I'll cover a third strategy, which is to develop new and profitable channels to market via our Anko brand, the focus of which is to expand our global wholesale business. 10-1-6. While $10 billion of revenue, $1 billion of EBT and 6 stock turns has always been our aspiration, when this was established, Kmart was close to a $5 billion business. And on a rolling 12-month basis, we're now circa $8 billion and well on the way to achieving our aspirational objective. Finally, our values are important to us and help us to operate effectively and attract and retain talent. Turning now to Slide 53. I will outline how our scale drives competitive advantages. Lowest price leadership is fundamental to Kmart's historical and future success. Last year, we called out market-leading product brand capabilities and structural CODB advantages in enabling lowest price leadership whilst being profitable. Kmart has strengthened both advantages over the last 12 months by further increases in scale and delivering on digital capabilities to drive performance. The Anko brand revenue is now approaching $6 billion and growing strongly. Anko is the #1 or #2 brand in most categories with substantially lower average prices and a more focused assortment. The net result is the units of each item that we buy is much greater than the rest of the market. This, combined with our world-class direct product development capability, unlocks lowest-cost sourcing and our ability to buy better than our competitors. Comp sales growth when in advance of inflation has further fragmented our cost of doing business, enabling modest price increases in an inflationary environment to extend Kmart's low price leadership. Kmart has invested in a number of technology platforms and data assets, which will enable ongoing operational improvements designed to grow revenue and reduce operational costs, further enhancing Kmart's scale and low price position. Some examples of this include digitizations of store and merchandise processes, including tools to support automated planning, ranging and markdown optimization as well as initiatives to grow revenue such as our 3D design and prototyping tool. Turning now to Slide 54, and I'll outline our strategic growth priorities. Kmart is focused on syncing customer and growing share of wallet. With our average customer spending $480 with us per annum, we see substantial potential to further grow share of wallet by executing on 5 strategic priorities. A great place to shop that is simple to run will be delivered by developing a winning omnichannel proposition and by digitizing our in-store operating model. Kmart will leverage its product development capabilities and digitize its sourcing and supply chain to deliver better products at even lower prices. We will also explore new and profitable channels to market as we look to expand Anko into new markets globally. The next few slides will go into more detail on the 5 strategic priorities. Turning now to Slide 55, where I'll talk about leveraging our product development capabilities. Kmart operates in a large, growing and yet highly fragmented market. We continue to review the addressable market and look for areas of potential expansion. There is significant opportunity to grow share of wallet by expanding share in existing categories through range improvements and expansions and enhancing our product offerings in growing demographics. Beauty and storage are examples of existing categories where we are looking to build out our current range, offering comprehensive ranges of solutions for our customers. Beauty is a category where we see a strong consumer demand for value, especially amongst younger customers. Storage is a category where our products delivered with design and value in mind have historically been well received by customers, but further opportunities exist to expand the breadth of the offer. From a customer perspective, Gen Z is a growing demographic, which provides opportunities to develop further range adjacencies. Turning now to Slide 56. I'll cover digitization of our sourcing and supply chain. We are well progressed with our strategy to digitize sourcing and supply chain operations. Our long-term vision here is threefold. First, dramatically reduce lead times in product development and sourcing so that we have the most on-trend product ranges. Second, improved ability to match supply with demand. In periods of stability, our availability is good and the opportunities to maintain that availability in periods of rapid change. Third, reducing end-to-end costs to further reinforce our lowest cost position. We have made good progress from these initiatives in the last 12 months. And for example, our use of 3D design and prototyping has delivered promising sales increases in pilot departments, and we are now actively scaling this tool across apparel whilst also reducing lead times and costs. Our use of overseas stock buffering has reduced order lead times by almost 30 days in core volume lines, and that represents nearly 1/4 of our annual sales. This model is also helping drive deeper relationships and visibility with our supplier partners, further helping their efficiencies. We have also developed a more holistic approach to sourcing fabrics across the business. This has helped us more than halve the number of fabric options in our library, resulting in cost savings through consolidated volume and improved consistency and quality of fabrics. Overall, we expect this suite of initiatives to drive higher sales through better availability and better products and higher gross margin through lower markdowns and reduced cost of goods. Turning now to Slide 57. I will talk to digitization of our in-store experience and operating model. The use of data and technology will continue to improve the in-store experience and make our stores simpler to run. Over the last year, we have successfully completed the nationwide rollout of our RFID inventory tracking technology and have realized benefits from digitization of our backfill process through improved on-shelf availability for customers. We are looking to roll this technology across New Zealand in the coming financial year and see material benefits in both sales and cost of doing business over the medium term through the future applications highlighted on this slide. Now turning to Slide 58, and I'll talk to our winning omnichannel strategy enabled by loyalty and personalization. Last year, I talked about our priorities to accelerate our online growth and leverage our data to develop a personalization capability, which better connects customers with our products. We have made good progress in both of these areas, and they now form critical enablers of an integrated omnichannel strategy. We know omnichannel customers shop with us more frequently and many customers start their journey online. Last year, we had just launched the Kmart app as we saw this as an important channel for our customers to engage with us more closely. We have seen strong growth in user numbers with the app and that conversion rates are double that of our website. We are continuing to improve our customer experience on the app through value-added services such as digital receipts and express checkout capabilities. We have continued to build the Kmart Group data asset, which now enables us to reach over 7.5 million customers through at least one channel. We know that increasing the level of personalization that customers experience, both in-store and online, will result in more engaged customers, higher sales and lower customer retention costs. Kmart's social content is also an important part of our digital ecosystem. The Kmart brand resonates strongly with customers and attracts a significant community following. Our user-generated content offers a powerful, organic marketing channel for our business. Finally, we continue to enhance the experience for customers in-store as our store network sets us apart from our purely digital competitors. Execution of initiatives such as our 4-hour Click & Collect, as well as our Direct to Boot service, which is currently in trial phase, enabled us to leverage our omnichannel footprint to deliver greater convenience for our customers and a growing share of wallet whilst augmenting profitability of the online channel. Turning now to Slide 59. I'll discuss the expansion of Anko into new product line -- sorry, into new markets globally. Kmart already competes with many of the world's biggest and best retailers but only offers products to 30 million people, those in Australia and New Zealand. Kmart has world-class sourcing and product development capabilities and a scale that can compete on the global stage. The combination of Kmart's capabilities in range curation, product design, sourcing scale, continued range development, all supported by established category performance, is a differentiated position to traditional wholesalers or sourcing agents. The value proposition is geared to working with retailers who are seeking to improve productivity from existing space and by rapidly accelerating the quality of the value offer -- of their value offer in general merchandise. Anko can deliver this in months relative to years if the retailers try to do this themselves. This business is in its infancy and will not be a material contributor for a number of years even if successful. However, the setup costs are negligible to serve new business. Therefore, this is a strategy that has upside potential over time with very little downside risk if not successful. Turning now to Slide 60. In Canada, we have launched Anko with Hudson's Bay Company via a store-in-store concept with Zellers. The range includes product categories within apparel, toys, pets and home. And we are now actively exploring opportunities in Europe as the next step. Turning to Slide 61, and I'll recap on Kmart's vision. In summary, Kmart wins through lowest price and has a cost advantage through scale as a result of being #1 or #2 in most categories with capabilities which are hard to replicate. Despite this, Kmart has modest market share in most categories, and the overall share of wallet for customers is low. There is a significant market to go after. Kmart has built the foundations required to leverage technology and data to further enhance our existing business model. Kmart's future is to build on its existing capabilities by continuously improving day-to-day operations and making step improvements through emerging capabilities, which are now coming online to drive profitable growth. The uniqueness of our business model also opens up the opportunity to take the Anko brand to overseas markets and to develop new and profitable revenue channels. Turning to Slide 63. I'll now cover Target. Our vision of Target is to bring affordable quality for everyday life. We are on a relentless mission to make great quality products truly affordable for Australian families. We are very clear in our customer and category proposition and with our offer focused on destination categories, which are apparel and soft home. Following our business reset, Target is now a smaller, simpler business. Target is profitable, and our absolute priority is commercially managing the business to maintain consistent profitability. Turning to Slide 64. We've defined a customer proposition that is supported by clear value, product and channel strategies. From a product perspective, we are a destination for apparel and soft home and continue to focus on delivering affordable quality as our key differentiator. Target wins when we deliver products that are equivalent to those in specialty stores at a fraction of the price. Target's brand remains a key asset in delivering these strategies. Turning now to Slide 65, and I'll talk to Target's digital progress. Online is a meaningful channel, and we know most of our customer journeys start on either the site or via our app. The app is well rated, and we know it's being used by a higher-value and more frequent shopper base. While we have an existing profitable base, we know we have a clear opportunity to improve. We are seeking to drive higher apparel participation through improved user experience and initiatives to improve online availability. We will also further optimize our fulfillment proposition by more -- while heavily leveraging our distribution centers to increase productivity, shorten lead times and enhance the service options available to customers. Turning now to Slide 67. I'll take a moment to address some observations on customer behavior in the current trading environment. Customers are increasingly seeking value across all income levels. As cost of living pressures increase, low prices will become even more important to our customers. We've already seen some signs that our low price leadership is resonating strongly with many customers. And customer numbers have grown over the last 12 months, and shopping frequency has also increased. We have seen an increase in annual spend with growth across all demographics, including low, middle and high affluent segments. Kmart, with its low price leadership, has been the primary beneficiary of these customer trends and the driver of the strong customer metrics we are achieving. In Target, we have seen greater variability in customer behavior across demographics and product categories. We are seeing customers seek better value, and products that offer equivalent quality to specialty stores at half the price continue to perform well. Now to outlook. In Kmart, the focus is on driving share of wallet growth by extending low-price leadership, ongoing improvements and expansion of the product offer and execution of our omnichannel strategy by building closer personalized relationships with our customers. We will also continue to explore opportunities to bring the Anko brand to new markets. Target will be focused on maintaining a low cost base, continuing to improve the product offer and to draw customers from higher-priced specialty stores by delivering exceptional value, affordable quality and growing online. Finally, I'd like to thank the Kmart and Target team members for their very hard work and their dedication to our customers. And with that, I'll hand over to Sarah.

Thanks, Ian. And good morning, everyone. For those of you I haven't met, I'm Sarah Hunter, the Managing Director of Officeworks. Turning to Slide 70. Officeworks' purpose, to help make bigger things happen; and our vision, to inspire Australians to work, learn, create and connect, remain consistent, as do our 5 strategies that provide our road map to driving profitable growth in a productive and efficient way, enabling us to deliver sustainable long-term growth for shareholders. Turning to Slide 71. I wanted to start with some of the initiatives and activities we have underway to drive productivity and efficiency across our business. These actions set us up for success, ensuring we have both the capacity and the cost structure to deliver on our growth strategies. This slide shows some of the investments and initiatives we have made in recent years as well as some of the ongoing and future opportunities. To me, what's exciting is that some of the longer-running investments we've been making are now just getting to the point of being able to realize the full extent of their benefits. We've been modernizing our supply chain operations and have invested in our semi-automated customer fulfillment center in Derrimut, Victoria, which has increased productivity by 30% and increased throughput capacity by over 100%. Last month, we opened our new import distribution center in Altona with our partner, Austpac. It's a much more efficient operation, providing us with increased throughput capacity of over 50% and consolidating 3 warehouses into 1. And later this year, we will open our new semi-automated CFC in Perth. These are major projects that support future growth as well as the expansion of our private-label range while allowing us to increase efficiency by optimizing the allocation of volume across our network and, of course, while continuing to offer our customers a fabulous same-day and next-day delivery offer. We have improved inventory management and availability, making good progress in recent years through the increased use of technology in-store. Our recently announced multiyear partnership with RELEX is part of the transformation of our demand planning and inventory management processes and systems, which commenced in May this year. When complete, we will have an end-to-end view of inventory across our operations for the first time, enabling improved availability, lower working capital and freeing up team member time in stores for service. We've made investments to drive efficiency and improve customer experience in stores. For example, investing in new self-serve printers and new photo kiosk equipment, which supported a 30% increase in customer usage of self-serve and improved NPS. We see further opportunities to utilize technology to create an easier and more engaging experience for customers in store and increase productivity, including continued improvements in planning and rostering our workforce and digitizing our processes to drive efficiency and also allowing for increased team member time for service and improved NPS. Turning to Slide 72. Officeworks has a track record of delivering strong long-term sales and earnings growth. We continue to grow our business by evolving our offer to address our customers' changing needs, helping them to work, learn, create and connect. These are our 4 customer missions that are our focus areas across our broad customer base, which includes personal shoppers, like students, parents, hobbyists and flexible workers; and business customers, like micro, small, mid and large businesses; as well as schools, early learning centers and government agencies. And our offer to meet each of these 4 missions is underpinned by the credentials that our customers know and trust: our everyday low prices supported by our Price Beat Guarantee, our widest range supported by our extensive range of quality private-label products and our great service, supported by our strong every channel offer for both personal and business customers. Turning to Slide 73. With 12% market share, we've grown share in recent years, but we still have significant opportunities to grow share with both personal and business customers in our current market. There also remains potential to grow into adjacent markets as customers change how they work, learn, create and connect, and technology changes products and services. We've been growing above the market in technology, and technology now accounts for more than half of our current addressable market. We have growing authority in key technology categories, with 32% of customers now quoting Officeworks as their first choice for technology products. And our growth in this market has been supported by the strong supplier partnerships we have built in recent years. As both personal and business customers needs change and products evolve to embrace these changes, we are presented with new category adjacencies. For example, being the leading retailer of monitors in Australia has given us the opportunity to explore new solutions to support a hybrid work environment such as connected screens in the home, something that has become possible as work and home converge. Similarly, today, our sales and gaming represent more than $200 million across furniture and technology peripherals, and we see significant opportunity in this growth segment. And with new products and changing customer technology needs, we are also presented with new service opportunities, for example, in telco or installation or cybersecurity through our Geeks2U business. In stationery, we will continue to increase share with strong availability in the products we are known for, introducing new and exclusive products and strengthening our private brands. A great case study is what we've done in A4 paper, which is a declining market, but we have grown from #3 in the market with 20% share 3 years ago to #1 in the market with 28% share with strong sales growth and margin expansion as well as bringing new customers to Officeworks because of our availability. Similarly, in arts and craft, we'll continue to expand our Born range and introduce new and exclusive products. New categories introduced such as adult art and craft have been seeing significant growth. Art and craft now has sales over $70 million per annum, tripling over the last 4 years. And in print and create, we see good opportunities to continue to expand our offer following recent investments to improve both the equipment and customer experience in store and online as well as increasing penetration in the B2B market where our share is just 1%. Turning to Slide 74. As we navigate a challenging economic environment, our ongoing investment in everyday low prices underpinned by the productivity plans mentioned earlier will continue to ensure we can provide trusted value for customers. Our private-label ranges also play a key role, ensuring our customers can get great quality products at low prices. Our brands Keji, J.Burrows, Otto, Born and Kadink provide products in traditional and growing categories with price points that are resonating with customers. And in the key stationery, education and art categories, private label represents more than 40% of sales and growing. And in recent weeks, we've seen our Keji and J.Burrows brands growing at double digit versus national brands, which are holding flat. Our customers are definitely looking for value, and our everyday low price position, Price Beat Guarantee, coupled with our strong private-label offer, will position us well to outperform in this market. And we're always looking for new ways to bring our customers even more value through their shopping experience and reward their loyalty. Our partnerships with Flybuys and our soon-to-launch partnership with OnePass are great opportunities for our customers to receive even more value when shopping at Officeworks. In addition to investing in value, we've been continuing to invest in improving our service proposition, which now includes same-day delivery to nearly 700 postcodes and next-day delivery to almost 1,500 postcodes, to our Click & Collect and the new I'm on my way service and now to our delivery through our recent partnership with DoorDash. And of course, in addition to our delivery offer, we continue to invest in our online platforms, renewing our stores, continuing our property strategy to build new stores and relocate stores and investing in service, investing across every channel. Our customer marketable database is now sizable currently at 4.3 million customers, enabling us to offer a more personalized experience and targeted offers at scale. A recent example was a campaign targeting customers who purchase technology hardware with e-mails showcasing relevant accessories, resulting in a 150% increase in spend per customer. And we continue to invest and leverage our data and digital capabilities, unlocking further growth and customer service opportunities. And finally, we know that fantastic content inspires customers to try something new. It grows customer participation and the basket and is supporting our growth into new adjacencies. And last year, we launched our Officeworks magazine, our TikTok channel and improved our Noteworthy content hub. Turning to Slide 75 and our business customers where we have a strong ambition to double the size of our B2B business. While we have strong and frequent engagement with micro, small and midsized businesses, there are still significant opportunities to increase share of wallet and become the principal partner with these customers rather than just their top-up shop. And of course, attracting new business customers to Officeworks. Our everyday low price pricing, coupled with our every channel convenience and strong delivery offer, allow our customers to shop with us when they want, how they want with trust and confidence in price. However, our current B2B platform is end-of-life. So we will be replacing it and improving the productivity of supporting processes, enabling our growth plans to scale with a seamless and engaging experience for our business customers. We've been growing our education segment and now have relationships with over 4,000 schools. And this year, our education business will deliver almost $50 million in sales. We are the primary provider to over 200 schools with our bulk book list service active in all states. And this year, we'll launch our parent pay offer, allowing us to become a primary partner to schools who have an operating model where parents pay for the book list rather than the school pays for the book list. This will see us unlock 80% of a $2 billion addressable market, up from 20%. And our Flexiworks platform supports businesses to equip their employees to work from anywhere, providing a range of fit-for-purpose office supplies, furniture and technology as well as cost control and simplification of administrative tasks for the company. And we now have over 120 companies onboarded onto Flexiworks. Sustainability matters for our business customers. And our partnership with Circonomy is now enabling us to offer life cycle management solutions for our B2B customers' used or unwanted office furniture, of course, when they refit their office space with Officeworks. Turning to Slide 76. We continue to prioritize and invest in improving the safety, health and well-being of our team members. We're focused on attracting, retaining and developing our team and ensuring they have the skills, not just to do today's roles but also future roles as well as having opportunities to progress and build their career at Officeworks. We actively foster our culture, and we want our team to be engaged and feel they belong. We value the benefits that engagement and diversity bring to our team and our business. We have a mature and integrated approach to sustainability, and we are on track to net zero 2030 on and our target of being 100% renewable energy by 2025. And our recycling levels sit at 88% of operational waste as we work towards our target of 92%. Again, the Circonomy partnership sets us apart from our competitors, enabling us to collect, repair, repurpose and resell damaged or customer-return products around Australia. This partnership has and will be leveraged to differentiate our offer, enabling growth with business customers. Turning to Slide 77. Officeworks remains focused on delivering profitable growth in its core markets and continued expansion into adjacent markets. We will continue to respond to evolving customer needs and expectations by being a trusted retailer that provides solutions across work, learn, create and connect with a best-in-class every channel experience. Officeworks is leveraging the investments it's made over the last few years and is focused on delivering the full financial benefits from the supply chain modernization program. We also continue to progress broader efficiency and productivity initiatives that will deliver further cost benefits, ensuring that we capitalize on revenue growth. And as we navigate this economic -- this current economic environment, we know that continuing to invest in everyday low prices and widest range is critical for both personal and business customers and that delivering great service that is relevant because it's personalized and rewarding through Flybuys points, the benefits of OnePass and our business account offer, will ensure our customers don't want to shop anywhere else for all they need to work, learn, create and connect. Thank you, and I'll ask Ian and Mike to come up to the stage for Q&A.

Craig Woolford here from MST Marquee. It's probably a question for Bunnings. Through the journey we've been on through COVID, there's been debate about how much is pull-forward demand in certain categories versus underlying demand growth with changes of behavior and how we work and play. I'm interested in what you're seeing because from the Australian Bureau of Statistics data, we're seeing a dip into negative sales for the hardware industry. What are you seeing fundamentally? Are you seeing some of those categories that may have been benefited from pull-forward of COVID unwind? And what's your perspective over the next year?

Yes. Thanks, Craig. I think well, I'll sort of answer it in 2 parts. Obviously, the commercial side of the business, we can continue to see quite a strong pipeline of not only new projects but existing projects flowing through. So there's quite a tail to run on that. And as we look across the other categories and given the diversity of those, we see categories that are experiencing good growth. So I touched on cleaning and obviously new categories like pets. And then there are others where there probably has been a bit of pull-forward. If I look at paint as an example, I think probably every Australian has got few hundred liters of paint sitting in their shed. But that doesn't mean that consumers aren't coming into store and we're not seeing more customers. It's been fantastic to sort of see the fact that with people working at home more, with people making those investments into their homes and gardens, so they continue to sort of want to keep that upkeep there. And the other thing for me that's been positive has been the underlying resilience of the housing price in the market and the fact that houses are continuing to buy and sell at good prices. So it's clear that people see that as an asset they want to continue to invest in.

Mike, I trust you're not going to be offended by this question. I'm sure you're going to want to get on the front foot...

Well, it's depend on the question, I guess.

There you go. Your safety. In the first half, we saw a significant increase in the safety. I think you went from 12.5% to 16.9%. You called it out. It's not where you want it. And safety dropped from 8.6% to 7%. Can you address -- and the only reason I'm asking this is that you also called out that you think you can pull out 1 million hours on your rostering. Is this what -- first of all, why did your safety really blow out? Two, is it a labor problem? Have you got the wrong type of labor? Three, have you -- are you [ under ] in the labor in? Do you need to put more labor in because I'm trying to work out, that's a big blowout in safety. And are your labor costs likely to increase rather than decrease because you go for productivity issues?

Yes. Look, it's a really important question, and we take safety incredibly seriously, and the result is disappointing. What is underlying, and we sort of -- I tried to call this out at the half is that most of that was some adjustments in the way that we were accounting for the injuries rather than a change in the actual number of industries. We're aligning with some of the internal Wesfarmers reporting on what is a medically-reported injury or lost time injury, those sorts of things. So for one of a better term, there was some internal accounting that wasn't done very well, which is very, very disappointing because we pride ourselves on very high standards on everything that we do. So there wasn't -- it wasn't like more people were being injured. We were actually catching more of those injuries and reporting them more accurately. We don't see a connection between the productivity in store and the safety issues that you sort of touched on. What we've been endeavoring to those 2.4 million hours that I talked about that we've taken from tasks since 2020 have been redeployed into service. And our primary focus is always on resourcing the front line much more than we're looking to take costs out. It's always going to have a support office or a back office sort of process. We really want to invest more into the front end. We're investing into new rostering technology, which I touched on. So we've got a new platform by UKG, which gives us much more flexibility and adaptability in getting rosters covered and getting team members in. And for sure, we saw not only rapid sales growth through the pandemic, but we had to resource that very quickly as well. So there's definitely some correlation between you and team, less experienced team, being a little bit more at risk from an injury point of view...

That's where it's going.

We're driving that down. And our run rate at the moment is actually really, really clear...

Well, my observation in Bunnings stores is that you are downscaling the labor a little. They're younger. They seem a little bit less experienced. And I have been in stores a little bit where they have been a little bit mavericky. Is there a cost issue here? Or are you very confident there's not?

No, I'm very confident there's not. And our internal data probably doesn't support what you're seeing, but every store is going to be different and that mix is...

[indiscernible] support, though, with the safety going on.

Yes. Look, look, as I said, the safety result is really disappointing. And as I mentioned, more of that was the way that we were accounting rather than there being 10 injuries and suddenly 20. I'm happy to sort of give you some more detail about that...

But you're happy there's no correlation between downscaling your costs in labor, that you can still get productivity, in the actual setting.

Absolutely. Yes, absolutely.

It's Ben Gilbert, here from Jarden. Sort of, Mike, I have a question for you. Just around the space optimization that you're talking to in stores. Just wondering if you can give us an idea of how far through that you are. Obviously, appreciate pets coming [indiscernible] clean. But do you think that you've taken too much of a [indiscernible] view between a 16,000, 17,000 square meter [indiscernible]? And should we expect to see lifts or significant lifts in productivity over the next 1, 2, 3, 4 years on a per square meter basis as you get smart around that?

Yes. It's a really exciting time. And I think you've touched on something important. It is very early in the journey for us. So some of that macro space work with pets has been a real eye on for us in terms of what we can actually free up and think about and equally shifting the range assortment between store formats is the other thing at that macro space level that we think we can unlock. So I think over the next 2, 3, 4 years, we will see some really solid opportunities to improve in-stock and availability of the products that really matter relative to not only the size of the store, but the location of the store as well. So there's difference between a regional store or a rural store and a metropolitan store. And really, that's come from 2 things: one, having an online offer, which means that customers can shop the whole range online, and also the investments we're making into analytics and space technology to be able to free that up. So I think over the next few years, we'll have quite a bit to say on that.

And just a follow-up for that. Just as you move into one of these sort of more FMCG-type categories with cleaning and pet, presumably in the low margin [indiscernible] equipment. So how do we think about -- and I know you guys don't focus on margin, you folks on EBIT dollars, but you still report it, we still look at it. Would -- is there a scenario where you envisage could be margin dilutive at the EBIT line, but significantly more productive from a sales perspective?

Yes. So with something like [ playground ], we haven't exited the range. We recognize it's a considered purchase, it's an online purchase. So that sale is still happening. We just don't need to take the retail space in store. When you look at blended margins across a category like pets and the mix of food into accessories and into shelters, the blended margin is consistent with the broader business. And I think the unique packaging sizes and things that we're bringing to market also create an opportunity, create value for customers, but also mean that the margins hold up as well.

Bryan Raymond from JPMorgan. Another one for Mike. Just on that productivity piece you talked about around labor. I mentioned earlier the new ABI that's currently being proposed. I'd be interested in how these 2 interrelate because clearly that ABI has got some pretty interesting elements to it. If it gets approved, it's obviously a 4-day week, [ penalty ] rates in the mornings, a number of other things that are changing. What would that have done to your wage costs in isolation if it was already in place? And then also how much of this productivity can be there to offset it? Yes, just interested in the interrelationship there.

Look, we've been really pleased with the interaction with the union and delegates. It goes to vote with our team over the next week or so. And the feedback from the team is very positive. I think it's really important to reinforce it with something like the 4-day week. It's not 5 days of pay for 4 days of work. It's a 5-day working week compressed into 4. And the thing that we're looking to do there, and it probably speaks a little bit to David's question is actually have a roster that moves a team member, a full-time team member across the cycle of rosters from, say, a Monday to Thursday through to Thursday to Sunday and increase expert -- experience coverage on a weekend. And then inside the agreement, there's a range of different trade-offs. So there might be an increase in a penalty rate in one part of their shift, but decreases in other parts of the shift to enable other things to be done. So for example, overnight fill, in our stores, which is a much safer way to handle stock when the store is closed, and we have got customers and vehicles in our store. All those things are taken into consideration. And I think it's important to reflect on the fact that Bunnings has long had an ABI that's been very different to read our rewards. We've had bank of [indiscernible]. We've had other incentives and benefits in there for our team members. So there's some arbitrage between those as we sort of bring this new one out. It's very, very commercial in the way that it's being structured, and it is very immaterial to our overall salaries and wages, payments in terms of the aggregate cost.

And in terms of the flexibility in our productivity pace, if you're doing longer shifts, I would imagine there'd be some trade-off there around flexibility because there'd be peak times, ideally as a retailer, you'd like to have your staff working very discrete, short shift, if that's possible, but I understand it's a trade-off.

The nature of the service model is one that's sort of self-service with service. So the team members are engaging not only in product related tasks like filling stock, gap checks and labeling and ticketing, but they're engaging customers, having conversations around projects. The most important thing for us is really good coverage across our peak trading days, which is towards the end of the week and the weekend. So having that ability to move team members through that is really important. And at the heart of all of this, I've really deeply connected teams where there are meaningful conversations between leaders and team members about rosters and shape of roster and task and status of work, which means teams are sort of moving through those at lots of different times. And the advantage in remunerating well, really caring for our team, really focusing on retention is you do get really great discretionary effort, which is why I think, in general, the way that people see and receive the service our team members offer is well received.

Tom Kierath from Barrenjoey. A question for Mike. Just on the roll out, I think last year, you said 15 to 20 stores a year. And this year, you're saying 10 stores. Are you -- just -- have I got that right? And...

I'd have to check. I have to double check what we said last year. Look, Tom, we have certainly said -- the net -- the net outlook as being sort of 0 to 5 for a little while now. And some of that is a byproduct of quite stepped-up costs in construction and timing. And some of that's actually even getting a builder to commit to a set price on a contract and we're not going to expose ourselves to sort of the variabilities of that. We do have a good pipeline, things like Tempe and Frenchs Forest here in Sydney. And a lot of the network now is a reshape. So I think about Melbourne, we've got one [indiscernible] where we're replacing a small format store with a warehouse. We're doing in Preston in the northern suburbs of Melbourne, [ Northland ], which is our fourth ever Bunnings Warehouse. It's long past. It's used by [indiscernible] in terms of a really compelling offer for our customers. So we're building a brand-new store, gives us thousands more in square meterage. So that's sort of the way we're thinking about alongside that space optimization work. So there's no less desire to open new stores. It's clearly markets -- fewer markets where we don't have a presence. If I look at somewhere like Cairns, we're really keen to go from 3 stores to 4 stores, and we've got some plans to expand and renovate a couple of those stores and identified a new market where we can go, but they are taking time and there is some complexity with the cost of construction and doing that in a way where the returns are acceptable.

And just on Tool Kit Depot, like you've seen a lot of store growth there in the last few years. Are you starting to see now a decline in sales in the Bunnings business in power tools? And how do you kind of look at that evolution going forward?

Yes. It's really interesting. Obviously, we've got stores where we've got Bunnings, there's Total Tools or Sydney tools and there may be a Tool Kit Depot. We've introduced Tool Kit Depot in a couple of markets, Queensland and Western Australia, where there is no other specialist player, but there is a Bunnings, and it's really interesting to see the fact that there is almost no cannibalization. It's a different customer. The customer we're looking at with TKD is either a trade that's looking for more specialist tools beyond the range. So if you take Makita, we might have 200 Makita lines in Bunnings Warehouse, but Tool Kit Depot might have 300 because it's got that extended range. And the other customer that is really participating in that is all the [indiscernible] that you see in the CBDs doing that construction work, and that's a very different customer to the builder customer, we're targeting through the warehouse format.

It's Lisa from Goldman Sachs. Sorry, just one more for Mike. In terms of the commercial opportunity, we've clearly talked about that being a key focus for several years now. So at this point, can you please update us on your views on the total addressable market of that segment, where we are with all the organic and inorganic business that we made in terms of market share and then where -- at this current level of investments, where do we see that naturally kind of going to over the medium term?

We don't really look at the market as a discrete market. It's sort of the total addressable market being sort of that circa $100 billion. And clearly, when you look at commercial, it could be more than that. And I thought the slide Sarah has it sort of talks about sort of immediate and then broader markets is probably a good way to think about it. Really, we're looking at the markets in which we're operating now, which is focused on builders and trades and organizations. And the aspiration for the business is to have a commercial business, it's a similar size of scale to the consumer business. So ultimately, sort of a 50-50 sort of split, not because we're slowing growth in consumer, but we're doing more to drive growth in commercial, and the capital outlays are reasonably modest. Obviously, there's some acquisition work with Beaumont Tiles and Tool Kit Depot. Tool Kit Depot is a very small business. Beaumont Tiles, a little bit bigger. And it's about deepening those connections. So commercial is sort of getting close to 40% of our overall revenue. I think last time we spoke sort of 35%, 36% or probably more 37%, 38% now. The margin mix of that very similar to what we see on the consumer side, and we do see good runway for growth because our pipeline is there, and you can sort of see it a little bit more clearly than consumer because people are signing contracts and doing those projects. So hopefully, that sort of answers that for you.

So the EBIT -- our margin profile is very similar?

Because of the type of customers. So we're not chasing heavy industrial, commercial construction like office towers and things like that. We're talking about small to medium builders and trades and [indiscernible], the Jim's franchise group, those sorts of things, who are buying across a really broad assortment of products in the store, not just in 1 or 2 narrow categories.

It's Michael Simotas from Jefferies. I've got a question for all of 3 you, actually. If you look at some of the key inputs, they've started to move into deflation. But then domestically, energy, labor, freight, et cetera, is still inflationary. How is that likely to translate to your prices over the short to medium term? And to what extent do you think you can mitigate the underlying inflation you've still got domestically with both that COGS relief as well as productivity measures that you've got?

Yes. I mean I guess we've probably got the best line of sight to cost of goods with the amount of products, which we source direct. And you're right, there's a number of input costs, which are falling, things like cotton is obviously down from where it was at its peak through COVID. And we're seeing that now starting to come through in the cost of goods. The big variable is FX. And of course, I think the last time I checked, it was like 65-point something. So it's back down at that level. So of course, if it sits at that level, then that's an inflationary impact in cost of goods, which as opposed to the raw material cost, which is falling. So I'd say that dynamic is significant. And as that number keeps on moving, that's going to have a material impact on the net outcome. In the -- within the case of Kmart Group, what we know is that our prices will move at a slower rate than our competitors if they do need to move up. And we have moved prices as we've gone through the last period of time of inflation, but they've moved up at a much slower rate, and we've extended our price leadership, and we've seen that through our customer tracking data and customers are sort of recognizing us for that growth in that leadership position. I think when you look at the cost of doing business side of the equation, I think you're all across it. We all know the power bills are going up. We know that wage bill will increase. We will obviously look at productivity measures to improve that. It's one of the reasons why we're investing in a lot of the digital tools that enable us to roster more effectively so that we can have the right team members in the store at the right time that can help us deliver a better product -- a better, more productive outcome. So again, we think our cost of doing business will generally rise at the same, if not lower than the rest of the market with the activities that we're doing. We're very confident we can manage cost of goods more effectively than others. So we see a relative win in all scenarios, the absolute difficult to tell, primarily because of FX.

Look, I agree with Ian. Certainly, we are seeing headwinds domestically, and we have seen the cost of shipping, for example, come down and FX, well, I'm not a currency trader. But I think what we've tried to really make sure we set up for is 2 things. One is recognizing our price guarantee position in our everyday low price position, we check prices twice a day. We use AI and machine learning to support the level of price change. And so we've really set up our team -- our merch team have really set up to and a very sophisticated understanding how they need to move pricing, recognizing input costs and also recognizing where the market is. It's a highly competitive market. We can't be out of market, and we have an everyday low price position. And we've built that. So we need to ensure our productivity plan continues to not only mitigate inflationary local pressures, but also continues to enable us to invest in price in a really competitive environment. So that is our plan. That's what I outlined today. We are very focused on making sure we deliver those productivity initiatives. Then you get the productivity loop, you can invest back in price and keep growing transactions and customer trust.