Woolworths Group Limited (WOW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Woolworths Group Limited FY '23 Full Year Earnings Announcement. [Operator Instructions] I would now like to hand the conference over to Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.

Good morning, everyone, and welcome to Woolworths Group's full year results for the 2023 financial year. Joining me today are our CFO, Stephen Harrison, who will present our financial results a little later. Natalie Davis, Managing Director of Woolworths Supermarkets; Amanda Bardwell, Managing Director of WooliesX; Von Ingram, Managing Director of W Living; Spencer Sonn, Managing Director of Woolworths New Zealand; Dan Hake, Managing Director of BIG W; Guy Brent, Managing Director of The Woolworths Food Company and last but not least, Annette Karantoni, Managing Director of Primary Connect. I'm going to start and actually just talk through the slides if you've got the slide presentation that you see, you can follow the commentary in parallel. I am going to start on Slide 3 with the acknowledgment of country. And before we start the presentation, I would like to acknowledge the many traditional owners of the land on which we operate and pay our respects to their elders, past and present. We recognize the strength and enduring connection to the lands, waters and scars as the customs of the oldest continuing cultures on the planet. We remain committed to actively contributing to Australia's reconciliation journey to listening and learning, empowering more diverse voices and working together for a better tomorrow. I will start today with an overview of the group's performance and our progress on our strategic agenda. Steve will then present our financials before handing back to me to finish with current trading and -- before we move to questions. Just on Slide 4. Inflation and rising cost of living pressures on household budgets was the key issue in F '23 for both our customers and our teams. As a group, we prioritize delivering value convenience in response, and it remains our key priority as we move into FY '24. Our improved financial performance in FY '23 reflects a return to relative stability following the material disruption in the last 3 years. Group sales increased by 5.7% and with high growth in H2 as we finished cycling COVID impacts in the prior year and inflation remained elevated. Group EBIT growth of 15.8% was driven by higher sales and improved operating rhythm, the non-recurrence of $323 million of direct COVID costs and the benefits from our ongoing investments in our customers' teams and platforms over a number of years. Excluding direct COVID costs in the prior year, EBIT increased by 3.4%. On Slide 5, you will see our customer metrics remained largely stable over the year. However, value perception was impacted by the inflationary environment. As customers return to shopping more on weekends and in the evenings, some store controllable Voice of Customer measures were also intact as we worked hard to adjust team roster to effect more traditional shopping patterns. We recognize we need to do more in the year ahead to improve customer advocacy by delivering consistent customer shopping experiences and providing ever more value to our customers. While we have room to improve, I am encouraged and proud that our team continued to show care for our customers with that metric remaining our highest store controllable block metric across the group. On Slide 6, we wanted to highlight the shift back to pre-COVID customer behaviors. After many years of disruption, during the year, we saw customers shopping more frequently but with smaller baskets. Our customers are also using more shortcuts to find value, particularly our Saver Families own brands are growing strongly, particularly in the last quarter and especially in areas like e Pantry Essentials, such as rice, pasta and long last drinks. Our members are also unlocking extra value through Everyday Rewards with active Everyday Rewards handers continuing to grow. Inflation is impacting all parts of our group, but its impact on the cost of living is having uneven impacts on our customers, as shown on Slide 7. While inflation has been rising for much of the last 2 years, we have seen it begin to moderate in Q4, which has continued into the first quarter of F '24. In Australian Food Retail, item growth has been broadly flat in H2 despite higher inflation. The impact of cost delivering pressures on our Big W customers has been more pronounced than in our food business, as you would expect. H2 sales were below our initial expectations as customers cut back on discretionary items and the sector became increasingly competitive in particular in Q4. Pleasingly, while we are seeing our budget customers reduce their spend, mainstream and premium customer numbers are increasing, as customers traded to Big W for its value. On Slide 8, we, across the group, are responding to -- it shows how we across the group have responded to the challenging environment by delivering value to our customers in a number of different ways. This includes our seasonal prices drop campaigns with our latest price drop campaign for spring launch in this week, representing a saving of 17% on the basket of dropped products. Everyday Rewards members are increasingly looking for ways to save through boosters and bank for Christmas. And we also launched in-store member prices this week to add to the way our customer members can unlock additional value. BIG W has also played a role in delivering value for our customers with great prices and specials, particularly for key events such as back-to-school and our annual toy sale. As mentioned at the outset, value remains our #1 priority in F '24, and we remain focused on finding ways to help our customers and members stretch their dollar further every time they shop with us. On Slide 9, world value remains the key focus for all customers, demand for convenience and seamless connected shopping experiences continues to grow. Average weekly traffic to group digital platforms in F '23 increased by 16.3% and weekly average visits to Woolworths and Everyday Rewards website apps reached 16.3 million in Q4. For the first half, digital visits to our Food and Everyday Rewards app and web visits in F '23. WooliesX e-commerce sales reached $5.1 billion in F '23, which was up $3.7 billion or a CAGR of 38% on F '19. After some challenging normalization in the first half, e-commerce sales returned to growth of 13.2% in H2 with same day and express services growing rapidly as customers seek ever more convenience. Amazingly, over 80% of our e-commerce sales are now for fulfilled within 24 hours of order. I will skip over to Slide 10 and talk about some of the highlights across our Connected Group on the later slides. Then moving to Slide 11. Delivering sustainable growth in great and long-term shareholder value is only possible through investing in our customers' teams, communities and platforms. Having the right prices for our customers is paramount, and we continue to ensure that all of our businesses have a strong customer value proposition. But good prices are not enough. Customers also expect us to provide them with convenience and a good shopping experience. E-commerce and digital is an area where we have invested materially in recent years to meet customer demand and to build a strong foundation for future growth. We have also made good progress in our Value, Core and UP store and merchandising segmentation program in Woolworths Supermarkets. In terms of our team, we're not only focused on supporting our team through competitive pay, but also through delivering meaningful hours and careers through multiskilling opportunities as well as cross-store working, which has recently launched nationally to all team members. We are enhanced team members by running out everyday team and continue to prioritize safety, health and well-being with further investments planned in F '24 to upgrade team safety measures. Investments in our committee aligned to our purpose and sustainability commitments for a better tomorrow. I'm pleased to say that we have now not only removed single-use plastic bags, but also reusable plastic bags, which once the phase out completes equates to more than 350 million pure bags in circulation annually. As announced last week, we have also updated our food waste commitment called reducing hunger and food waste, which will see an additional $9 million of investment in our food relief partners across the group in F '24 to help address the issue of food and security. And finally, investments in our platforms, including our infrastructure is critical, enabling great efficiency -- greater efficiency and improving the resilience of our end-to-end value chain. Digital and analytics capabilities are also only increasing in importance, and we will continue to build on the strong foundation and momentum. I will touch on some of our supply chain progress in a later slide. On Slide 12, we wanted to provide some examples of how the group's adjacencies are increasingly contributing to growth. PFD had a strong year with sales growth supported by new customer growth. Our customer or may -- or retail as many call it media business Cartology, grew sales by 29% despite a more challenging advertising end markets with the Shopper Media integration now complete. Wiq also had a strong year to deliver over 30 high-value analytics use cases in the year and Primary Connect third-party business, PC+ also enjoyed strong growth. In our Everyday Needs businesses, BIG W is working in partnership with MyDeal with the BIG W range available since August last year on the MyDeal marketplace. And we expanded our online health offer with the acquisition of key technology and warehouse assets of Superpharmacy. Our proposed investment in Petstock remains subject to ACCC approval. Turning to Slide 13. Since we provided an update at H1, MSRDC and Melbourne Fresh DCs have reached new levels of consistency averaging 2.4 million cases and -- averaging 2.4 million and 1.4 million cartons per week, respectively. Development of new projects remains on track including the Moorebank precinct, where our national distribution center has transitioned to its commissioning and testing phase and is expected to launch in H1 of F'25. Our Christchurch Fresh DC in New Zealand and our Auburn e-commerce fulfillment center in Sydney are also on track to open in 2024. Slide 14 shows some highlights on our sustainability journey across our 3 pillars in F '23. Woolworths Group was recognized once again for our efforts on inclusion and belonging, achieving platinum status from the Australian Workplace Equality Index. We also launched our latest Innovate Reconciliation action plan in June of this year. Efforts to reduce our Scope 1 and 2 emissions in the year resulted in a 36% reduction from our baseline, and we announced our commitment to a fully electric home delivery fleet by 2030. On the product side, we are proud to maintain the title of healthiest owned brand for the fourth year in a row, and it is great to see our customers continuing to embrace our free food for kids with 30 million pieces of fruit shared in F '23. It's also important, I think, at this stage for me to acknowledge the tragedy of 2 of our team members, who lost their last lives during work this year in our Woolworths Supermarket and in our Minchinbury distribution center. We're deeply affected by this loss, and our thoughts remain with the family and friends and colleagues affected. Investigation into these events are ongoing and we are absolutely committed to ensuring learnings are acknowledged and rapidly implemented. Our teams deserve to go home safe. I will now turn over to Steve to talk about our financial results. and then come back to talk about our outlook. Thanks, Steve.

Thanks, Brad, and good morning, everyone. I'll start today on Slide 17 with the F '23 results summary for the group. Group sales for the year increased 5.7% to $64.3 billion with solid sales growth across all segments in F '23. In Half 2, sales benefited from a return to more normal trading conditions no longer cycling the impact of COVID and the impact of elevated inflation. Group's EBIT before significant items increased 15.8% to $3.116 billion with the group EBIT margin increasing 43 basis points to 4.8%. EBIT growth reflects sales growth, the non-recurrence of COVID costs in the prior year of $323 million, a more stable operating environment and the realization of benefits from investments we've made in recent years. Proven attributable to equity holders of the parent entity before CBB items was up 13.7% in on F '22 to $1.712 billion. The last 3 to 4 years has resulted in earnings volatility for the group with significant disruption from COVID, which is largely normalized in F '23. As we look back over the last 4 years and as presented on this page, sales have increased at a compound annual growth rate of 7.1% and EBIT increased at a 7.4% CAGR, which we believe reflects strong growth for the group over that period. And I'll discuss the dividend later in the capital management section. Turning to Slide 18 and our group trading performance. On this slide, we've laid out our F '23 trading performance by business units, showing the performance for the full year and for the second half. In Australian Food, F '23 total sales increased by 5%, with half 2 sales up 7.6%. Sales growth was driven by items returning to modest growth from mid-January, e-commerce returning to strong growth in the second half and the impact of elevated inflation in the half. Australian Food EBIT increased by 19.1% in F '23 with half 2 growth of 21.1%. Excluding the material COVID costs in the prior year of $211 million in Australian Food, F '23 EBIT increased by 9.5%. The EBIT increase, excluding the cycling of cover costs in the prior year reflects leverage achieved from sales growth, gross margin improvements primarily from improved promotional effectiveness, category and business mix changes and an improvement in underlying productivity from a return to a more normal stable operating environment. As you may recall, we also provided additional disclosure on WooliesX in Half 1 to show the profit contribution of e-com and our other WooliesX businesses. Woolworths Food Retail is our Woolworths Supermarkets and Metro Food stores and e-commerce. Woolworths Food Retail EBIT increased by 18.3% in F '23, largely driven by stores. E-comm directly attributable profit declined marginally on the prior year. However, that grew strongly in the second half as e-com sales returned to strong growth. WooliesX profit measured through directly attributable profit for e-com and EBIT for the balance of WooliesX increased by 23% to $181 million in F '23, a 4.9% decline in e-com DAP for the year, driven by the performance in Half 1 was more than offset by a 71% increase across the other WooliesX businesses, driven by another strong performance from Cartology in '23. Australian B2B sales increased by 17.4% in F '23, with half 2 sales growth slowing somewhat to 12% growth, while PFD had another strong result in Half 2. Australian B2B trading results were impacted by the sale of Summergate and the exit of our international business in the half. EBIT for F '23 increased by 13% to $63 million, but excluding exit costs and losses from discontinued businesses in B2B, EBIT would have increased by 68.7%. It was a very challenging year for New Zealand food in F '23 with EBIT declining by 21% to NZD 249 million. Despite continued challenges for customers and team from devastating weather events, in half 2, we did see more stability return to the business. And in Half 2, EBIT was up by 10.3% on the prior year and also up on Half 1. BIG W's first half performance delivered a strong F '23 result with sales up 8% and EBIT up 165% to $145 million. However, the sales environment became increasingly challenging over the year with half sales flat due to a decline in sales in Q4 of 5.7%. Half 2 EBIT declined by 64% to $11 million with flat sales, increased stock loss, higher wage costs impacting the result, despite strong iron-based productivity in BIG W. Our Other segment, which includes group costs, the performance of Quantum and MyDeal, property and our share of profits from Endeavour Group. The net loss for the year in Other was $185 million, which was in line with the guidance of $250 million, excluding our share of Endeavour Group earnings provided at the half. And for FY '24, we expect our net loss from the other segment to be in line with F '23 at $250 million, excluding our share of Endeavour earnings. Group also reported significant items of $117 million before tax in F '23, which included $76 million recognized in Half 1 and $41 million recognized in Half 2 relating to the revaluation of put option liabilities noncontrolled interest in PFD and Quantium, which we are required to review and, if necessary, revalue each reporting period. EBIT from continued operations, including significant items, increased by 4.6% to $1.618 billion in F '23. Moving to Slide 19 and our key balance sheet metrics. Average inventory days increased by 1.1 days to 29.7 days. This was largely driven by the impact of higher inventory holdings across the year to improve availability, together with the impact of inflation on inventory holders during the year. Closing inventory days declined by 0.6 days as inventory levels normalized, particularly in Q4. ROFE increased by 108 -- sorry, 120 basis points compared to '22 to 14.9%, and was up 71 basis points on half 1 F '23, largely driven by higher group EBIT. Now on to our capital management framework on Slide 20. Our capital management framework continues to serve us well as a way to create long-term value for our shareholders. In F '23, we generated operating cash flow of $6 billion before interest and tax, which was up 25% on the prior year. I'll describe some of the other highlights in the following slides. Moving to the cash flow on Slide 21. The group generated operating cash flow of $6 billion for the year. This was driven by a 10.4% increase in EBITDA and a working capital inflow of $439 million. The reduction in working capital was largely due to a reversion to more normal inventory levels following strong sales growth during the year and a gradual improvement in supply chain reliability, particularly in Q4. While these interest risks was flat on the prior year, non-lease interest increased by $74 million, reflecting higher floating rates and higher average net debt during the year. Cash tax paid declined by 30% compared to the prior year. In F '23, we're mainly paying F '22 tax liabilities with the decline in cash tax paid largely reflecting the decline in taxable earnings in F '22. Investing activities of $1.8 billion was below F '22, primarily due to the proceeds of $634 million on the partial sell-down in our Endeavour Group shareholding in December, and I'll provide a bit more detail on CapEx on the next slide. Finally, our cash realization ratio for the year was 113%, with working capital inflows and lower cash tax pay driving the strong result. Moving to Slide 22 and on CapEx. Operating CapEx for the year was $1.9 billion, broadly in line with F '22 and a little below our $2 billion guidance. The split between growth and sustaining CapEx was also consistent with the prior year. Within sustaining CapEx supply chain decline on the prior year, reflecting the lumpy nature of some of the investments in supply chain transformation, particularly the Moorebank precinct. This was offset by an increase in SIB investments and IT projects across the Group F'23. Growth CapEx was broadly in line with F '22, while the net investment in property increased year-on-year. CapEx also included $123 million on projects with strong sustainability benefits in areas such as refrigeration, solar, LED lighting and energy management. As we look forward to F '24, our operating CapEx is again expected to be approximately $2 billion. Moving to dividends and funding on Slide 23. The Board today approved a final dividend of $0.58 per share, an increase of 9.4% on the prior year, reflecting the strong earnings growth in the half. The F '23 dividend payout ratio of 73.6% is in line with our typical payout ratio in the range of 70% to 75%. Turning to debt. Net debt-to-EBITDA in F '23 declined to 2.6x from 3.2x in the prior year due to strong cash generation during the year and the increase in EBITDA However, the reduction in net debt also benefited from a cash inflow from the sale of a 5.5% stake in Endeavour Group in December, which will be used to fund the investment in Petstock Group, which remains subject to AOCC approval. We remain committed to solid investment-grade credit ratings and significant headroom under our current rates of BBB from S&P and Baa2 from Moody's. The group has $400 million in domestic maturing in April, which will be refinanced or repaid prior to maturity. Thank you, and I'll now hand back to Brad.

Thanks, Steve. Just moving in to Slide 42. Before I talk to current trading, we announced in July our plans to strengthen our transits connections and accelerate the transformation of our New Zealanders. The program includes store renewal plans for approximately 80 stores over the next 3 years, focusing on some of our older stores across our New Zealand port fleet. We will also roll out Everyday Rewards early next year in New Zealand and materially improve our fresh offer through the commissioning of our Auckland Fresh DC in 2024. For our team, we will continue to pay the team competitively, enhance team benefits and leverage existing group platforms to make Woolworth New Zealand a better place to work. We will also continue our sustainability efforts as a focus on grass root security support. Countdown Stores are being rebranded to Woolworths New Zealand, with our first converted store in launching on Thursday last week to a pleasing reaction from customers' team. I'm sure I'll get questions on that later. Turning now to our current trading and outlook on Slide 43. Sales in the first 8 weeks of the year have continued similar trends to Q4 with solid growth in our food businesses and BIG W sales declining on the prior year. In Australian Food, Woolworths Food retail sales growth was approximately 6.5% with stores and e-commerce growth remaining solid. Inflation has continued to moderate in the year-to-date, with item growth in the low single digits, benefiting from strong volume growth in foods and vegetables. Costs in F '24 will be impacted by material wage increases and inflation in energy and transport costs. However, we have good -- have made good progress in restoring our operating rhythm and our strong productivity plans in place. We remain cautiously optimistic about the year ahead. in food and our confidence in the plans we have. However, EBIT growth in Australian Food in F '24 does need to be viewed in the context of, as I mentioned, cost inflation and a strong focus on value for our customers. New Zealand Food sales have increased by approximately 4.5% in the year-to-date. We are clear on what we need to do and are committed to investing where appropriate to ensure we continue to improve our customer and team experiences. We're confident that this will lead to a better New Zealand business in the longer term for all of our stakeholders. But the short-term outlook remains challenging. BIG W sales momentum continues to be challenged with sales down approximately 6% on the prior year. While Big W has been impacted by the broader spending slowdown in Australia, some categories like everyday essentials are performing strongly. The outlook for the remainder of the year is uncertain. And as always, trading in Q2 will be key to the full year results. We are committed to helping our customers spend less every time they shop at Woolworths Group in '24 and we'll continue to innovate our various customer propositions to ensure we do so. I would like to end by thanking our hard working team for their tremendous efforts in F '23 and for making us better together. During COVID, we need it to be better together. And in F '22, '23, we wanted to be better together, and this is our real achievement. I will now turn the call over to the operator for questions. But can I please ask we limit it to 1 question per person to allow everyone to have a turn.

[Operator Instructions] The first question today comes from Michael Simotas from Jefferies.

My question is on gross margin in Australian Food. It was a very strong performance across both hubs. There's been a lot of conversation around stock loss and theft and you've mentioned it today as well. Can you give us a little bit more color on how theft transitioned across the halves? And in the past, you've given us some color on where your total stock loss sits, if you could give us any indication of that, that would be helpful, too, please.

Michael, let me -- it sounds like a couple of questions binded into one. Lastly, here from you, we can talk about Balmain, the Metro transition later, if you like. Why don't we just talk to the -- because everyone -- I know is going to be interested in this. I'm going to ask Steve to just walk through for everyone, if you don't mind, the gross margin bridge, and then we'll come specifically back to stock loss. I'll talk to broadly, but then Matthew will dive into just some of the factors there. Both of these are big topics, and we'll probably have shortened a couple of questions if we do it properly. So if you don't mind bearing with us if we just step through that in a very stepped way. So Steve, maybe you could just start on the gross margin evolution and then we'll come back to stock loss as a component of that.

Sure. Thanks, Brad. And you would see in our profit announcement disclosure that there is a 76 basis point improvement in gross margin. It is just worth referencing for those who didn't see it a couple of weeks ago, we have restated our gross margins to now include supply chain cost in our gross margin. And so some of that improvement in gross margin does actually reflect COVID cost in supply chain that we've removed in F'23, but we've tried to articulate that variance in the profit announcement. So the underlying improvement when you strip that out is just over 50 basis points. There's a number of drivers that we've continued to see cigarette sales decline in the teens, which whilst we make less absolute gross margin dollars does have a mix impact on the gross margin percentage, we've called out. One of the areas that we focus on with weak or dance the lease team is how do we optimize promotions and really drive our promotional optimization and proration effectiveness. And that has had a big impact for us as part of the drivers of the positive margin. Equally Cartology in our gross margin line, so Cartology, our retail media business continued to grow very strongly and had a very favorable contribution to gross margin. And then the...

We said there was 29% growth in Cartology revenue and included then, we've also got the Shopper Media acquisition, which started to have some benefits in Q4.

That's right. And then the other elements are there are just some category mix impact in there. Our long-life categories to grow slightly faster. We make more margin in long list. So there's a mix impact also driving those outcomes. There are some offsets. We did have some higher fuel costs and stock loss was a headwind for us. So that's probably the takeaway, Brad, to come back to you.

Yes. Steve. The only one I would add to that is because of us moving DCs into GP, some of our COVID costs that we took out of the business and cycle actually come out in GP -- DB -- excuse me, on so many numbers about it, just over $100 million of our COVID-related costs actually be into GP. So those were the positive factors. The negative factor, which is the one that you've alluded to, Michael, is the topic of stock loss. And we've got quite a few questions on it in the media call. And again, we'll just going through it end to end, if that's okay. It clearly was up over the year. The point I made in the media call is if you go back to pre-COVID time as it sort of was running in pre COVID time. So it was stock loss materially reduced during come primarily through all the good work we will do that Nat will talk to, but also because just there was just less movement of people. And therefore, this topic that has become very big on theft did materially ameliorate during that period. So it went back to where it was before, but it was an increase from what it was previously and was one of the drags. But Nat, maybe you could just give some color to some of the positive things we've done in stock loss as well as some of the negatives as well as that we can come back to the outlook.

Yes. And I would start by saying that stock loss has been a focus for us over the last 3 years and continues to be so. We definitely have seen a benefit to stock loss as we stabilized the business because often, particularly in fresh stock loss just reflects bad processes end-to-end. So as we've stabilized our business, we've made sure that we're sending the right amount of stock into stores and therefore, still don't have to clear or that stock at the end of the day. In Fresh over the last few years, we continue to have great benefits from our waste and markdown process and tool, and that's being driven through advanced analytics. So we've really simplified in Fresh, the number of times our store teams do markdowns. We've made it more consistent across different departments. And across the past few years, we've seen a real benefit in Fresh stock from reduction in clearance. I would also say that over the last month or so is we've had a lot of volume in our Fresh departments, particularly through the vegetables. That's also contributed to a lower stock loss figure in extra terms of velocity you get the less stock cost you get on items and the fresher the product for the customer. So that's been a real benefit to both our customers and to our stock loss results. We have, unfortunately, as Brad has mentioned, seen a step-up in what we call stock adjustments in long lines over the past 6 to 12 months. And that's particularly the case, I would say, for high-value items in Personal Care. So electric toothbrushes, for example, are items that we're very conscious we've seen an increase in theft. We've certainly been working towards how do we reduce that kind of headwind in our stores, and we prioritized this year in our capital envelope 2 major programs. One is scans, which is technology on our checkout, which really focuses on ensuring that all our customers are scanning product accurately through the checkout. And we're very conscious that we don't want to slow down our checkouts for the 99% of our customers who do the right thing. So we're very much focused on making sure that intervention in our self-checkout areas is as low as possible. And certainly, no more than what it was with the weights we've had on our go before. and then double welcome gates. And again, that just prevents anyone from taking a trolley full of goods and running out the entrance. So we've certainly seen in stores where we've put in can assist we put in the double welcome gates, we're seeing a reduction in that headwind on the stock loss and theft. And so at the end of the financial year, we were in over 474 stores, we've scanned assessed 447 supermarkets with double welcome gates. And we continue to roll that out over the course of this year. So we're now at over 500 of our stores having scan assist. I think we're making very good progress in terms of rolling that out across the fleet, and we plan to complete that rollout over this financial year.

So Mike, I hope that answers the question. In a group sense, actually, the biggest step-up in stock adjustments or theft have actually been in New Zealand and Big W. The New Zealand numbers have started to trend down materially in the last 2 months as Natalie alluded to inside Food, they've stabilized and slowly come down, but they certainly spiked to come down in New Zealand. And we've got a lot of work underway in BIG W. But in the second half, that was another spike. ScanAssist or the ever seen computer vision, computer video-based scanning is also not only been scaled up now Woolworths Supermarkets or 500 stores, but also into BIG W and into Woolworths New Zealand. So we're taking the technology much more, but it's nice to have it working at scale for us. And importantly, as Natalie referenced, can improve the customers' experience as much as a stock loss is better than having a scales on as we call it in checkout. But obviously, a big area going forward and a big area of focus for us, and we need to make sure we keep ahead of the curve on this one.

The next question comes from Tom Kierath from Barrenjoey.

Just a question on RP3. It looks like it's been really successful. Just trying to understand, I guess, what the impacts of that will be through FY '24 and how big an impact you saw in '23, if there's any numbers or color you can share on that program, please?

Yes. Tom, let me talk to broadly and then I'll pass over to Nate. This was an important program for giving us just a greater level of granularity in terms of when we wanted CTAs performed to make sure that our team got the right roster. So it was as much about the level of control and precision we had in the business as well as the cost reduction plan and was or 3 states for our team, right, task, right time and just getting the yield right that you do those. And so it is an incredibly important platform for delivering productivity but also for team experiences going forward. This rolled out in 2 markets. It's taken us 2 years to do that inside our Metro Food stores. But I'd just like to call out in the last 8 weeks, we've managed to roll it out in New Zealand as well. So it is a capability we're trying to build and roll out and a variant has been worked with and engaged with the BIG W. So it is some way that we would like to roll going forward. And so we think it just gives us a foundation, which is one of our key thematics for everything we want to do. In terms of some of the benefits that it's enabled I'll turn over to you, Nat, to just talk to some of the benefits.

Yes. It was a major initiative for us in the supermarkets. And it was really about getting the foundation right for us. So where we rolled out [ RC3 ], we also updated all of our labor standards. And so we actually had to reinvest money into certain parts of our stores like Fresh Convenience to update the standards and true that on our labor standards. But we spent a huge amount of time in every store working with our team to move the hours into the right place into the right department. And we did that very carefully because we wanted to make sure that actually the -- we're there with our customers were shopping our stores. And actually, therefore, it would be easier for our team to serve customers and to do all the tasks. So we're asking them to complete store. But we recognize that, that had a personal impact on our team because they may have spent the last few years being rostered on a Tuesday. We were now asking them to work a weekend day or a Sunday for example, or work in a different department. And so we spent quite a bit of time just making sure that we had really great conversations with our team and explained the why. We now are at the point where we would say that our hours are in the right place in stores. So we kind of measure that I would say we're at 80% of what RC3 I would say, and we think that's a good outcome. We continue to really focus on weekends and one of the trends we've continued to see throughout the year and into the first few weeks of this financial year, it's just customers shopping more and more weekend days. And so that's a continued focus for our store teams just to make sure that we've got the route right now is Sundays when customers are shopping our stores and the right leadership covers and coverage on our particular they get very busy. So RC3 that helps us to inform our productivity pipeline. And so we have a very strong pipeline of initiatives going forward that we know will improve customer experience and also create more efficiency and effectiveness. And for example, one of those business cases that kind of we've built based on our RC3 is our ESL, which we're now our electronic shelf labels, which we're now rolling out to stores outside of the renewal program as well as through our renewal program. Our team absolutely loves electronic shelf labels. They make life a lot simpler when we change over on promotion weeks. And as that creates a lot of productivity benefits for us in our stores. So it's been foundational, and I think it will help to inform a really good productivity pipeline.

Thanks, Nate. Hopefully, you get a sense of that, Tom. It is a key foundation enabling and ESL and the many other important initiatives. The ESL learning for us as a team is also applying out to the group, and that's the way you'll see us trying to work, take a great learning from one part of business and the client more broadly.

The next question comes from Lisa Deng from Goldman Sachs.

I have a question on e-commerce. It looks like there's a slide on the that actually shows the foot traffic is up 2.5x, but I think the sales are actually up 3.5x or more. Can we talk through how the traffic conversion basket are sort of progressing as we move? And then also, how do we think about incrementality of sales or consumer spend versus the store generated sales, please?

I think there are a few questions in one there as well. Lisa, let me give a high-level summary and we'll turn over to Amanda Bardwell. Firstly, if you just look at what we're trying to show in the slides was COVID actually brought forward a lot of demand for digital and e-commerce. But actually, once you normalize out that and look over a long-term time frame, the trend line is clear that it's an increasingly important part of what people do. And the numbers you see in the documents are the average e-commerce penetration for the year. But the exit rate obviously is much higher. We just along at the sales momentum we started to build in H2 as we let the COVID disruption that had brought forward previous sale. So that's what needs to be seen in the context. I think we're way past the issue of cannibalization, Lisa. So we're not happy to mention it. We see it as a different choice the customer makes for a different mission and get ready cannibalize so, but that's not the way we think about it is an incredibly important part of the overall customer experience at Woolworths, if they can shop stores and e-commerce. And we look at the overall sales, we get a much stickier customer experience at the shop physically and digitally. And I think if you pull any retailer globally who works in the space that will give you a very consistent view on this one. So we'll park that one, but rather come to just what's happening in e-commerce, the trend lines and the basket sizes we see as well as this. And I actually use the word myself of been quite stand on the 24-hour cycle for 80% of our orders but over to you, Amanda.

Yes. Thank you. And thanks, Lisa, for the question as well. I think -- can I just start by coming back to the digital conversations. I think it's really important. I think sometimes we're confusing digital traffic with e-commerce growth. And actually, we look at digital as Brad is talking to is a way of actually connecting with our customers, helping them shop, helping them save across both our stores and e-commerce. And so when we see the growth numbers in digital, that's actually fantastic for all of our channels, and it's better for customers as well. When we're looking at the conversion, actually, conversion is relatively steady for us. So we're delighted with the fact that we're seeing increasing numbers of customers connecting with us on digital. And then for those customers who want to shop in a particular way by e-commerce, converting into e-com. So we're very happy to see digital grow, and we hope that, that continues going forward. From an e-commerce perspective, again, it's been a really interesting year, Brad, as you say, the first half, we had the cycling out of COVID and the normalization of that. And then in the second half, there's been just a tremendous demand from our customers around convenience. And so in particular, looking for same-day convenience, express convenience. And so to see those numbers now, 80% of orders being fulfilled within 24 hours. And in particular, our direct to boot services, just continuing to see strong growth, mainly coming out of those same day direct-to-boot services and windows that we've opened up. We feel I'd say very positive about, yes, the digital growth, but equally the e-commerce growth. And then, Brad, just coming back to your point, we look at customers holistically. And most of our customers who shop e-commerce also shop our stores. And if they shop both at those channels, they generally spend about twice as much as a customer who only shops in one. And so it's a really important part of our strategy to look at it holistically at a customer level.

Thanks, Amanda. The only other point I think would be able to want to add is the most important segment for us right now in digital tools and e-commerce are Saver Families. And we're finding that Saver Families can get a lot of value out of both us and digital tools to plan their shopping, but then on occasion, of course, also doing an e-commerce transaction on the back end. So the role of digital is not in addition to value, it becomes a key part of delivering value, and that can also be true of an e-commerce order as well. So just fascinating to us, it's a much broader, more holistic opportunity than a narrow one.

Can I just ask then what's the penetration of the Boost office usage we've seen the growth, but what's the penetration?

But Lisa, why don't we come back to Everyday Rewards in the next sequence of questions, that's a different conversation, which is a very important one, but maybe we'll come back to it in the rotation.

The next question comes from Shaun Cousins from UBS.

Maybe just a question for Spencer. Can you just talk a little bit about, I guess, the trajectory we should think for New Zealand EBIT, the guidance in the second half was for it to be above the first half, and it's done that. But could you maybe sort of talk a bit about how you think about the catalyst to improve EBIT and maybe just touch on the sales to date. They seem to step down relative to where you were in the fourth quarter, that [ 4 5 relative to 8 3 ]. And inflation was 9.2% in the fourth quarter. I'm just curious if there was anything either step down in inflation or a step down in item growth or volume there that played out. But maybe just give us an idea about how the outlook for the New Zealand business is, please?

Thanks, Shaun. This is -- I don't know what the right technology is breaking down the wing and trying to see whether Spencer to talk about earnings outlook. We don't do that. We will talk about what is positive and what our challenges are in New Zealand. So I'll turn over to Spencer for that color. But as you know, we kind of avoid in particular, where there's a lot of volatility, which is and earnings outlook. So thank you for giving it a lash. So I'll turn it over to you, Spencer. Hopefully, you're online from New Zealand to talk about where we stand and some of the positive things we've seen, but some of the challenges that we're still working through.

Yes. Thanks, Brad, and Shaun, thanks for the question. I mean, I might just turn to the obvious, which is just where the customer finds themselves, which I think might just talk to where the performance has been just over the last little while, but New Zealand customers, all customers are under significant pressure, but the New Zealand customer in particular. And just to remind us, have been living with that sustained pressure for quite some time. So whilst we see inflation moderating across the group, it is much less so in New Zealand. Food inflation still sits at 9.6%. And actually, that's the first time in a year, Shaun, that that's dropped to single digits. So we're sitting well above that sort of the 12% mark. And that's meant that the cash rate is -- has increased and will probably remain higher for longer, which I think gives some indication of outlook and, I guess, our ability to start to see items lift materially and trade really sharpen. So cash slows putting pressure on customers. And just an interesting fact is that on average, New Zealand is about 26% of disposable income goes towards housing. So it's an extremely price-conscious market. And especially, we've seen that for families and the young people segment. And the market, of course, as you know, is intensely competitive. So that's what we play in. It plays to the discounts at the moment, the formidable discounted with 30% share. And then what we have seen increasingly of late is just the strength of the rest of market. And there's a number of value players in that space that's grown, but also just the strength of independence. And so I guess that's really what we compete against in this high inflationary environment, and we classically see the independents as offering them good value. Saying that, I think the transformation of the New Zealand business points to us doing the things that we need to do to really make ourselves more formidable in this market. And that includes a real focus on value. Much of what you see in the Australian supermarkets is what you're starting to land in New Zealand in terms of our value mechanics. The fact that we become always means that we can open up a larger range of our own brand products, and that's a big focus for us. I think Brad mentioned at the start of the call, just the state of our stores, but 40% of our stores are over 10 years and older. And so we've got a lot of work to do just to improve that customer experience and then very excitingly, Everyday Rewards coming to this market later on. So I guess the key themes are an intensely competitive market, a very strong set of value players, both in the formal sector and probably the informal sector, but what gives us confidence is we're focusing on the right things to start to deliver a sustainable growth in the medium term. It will probably still be challenging for the next little while whilst we land those, but that essentially is our focus.

Thanks, Spencer. Just a couple of points to add, Shaun. We are seeing inflation moderate in Australia. There's been a bit more of a lag in New Zealand, but we will start to see the same moderation at take place, which is much, much needed. The vegetable price deflation is starting to flow through to longer just given the -- I think was it the hurricane or cyclone that impacted.

Cyclone.

So we're all seeing that happen, which we think is very important. And we are also knowing at the moment in the process of resetting our price mechanics and line them up with Australia, and that's early days, but it also spend to be fair to say positive early resonance with our customers.

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

Brad, I'm not going to win any friends asking this question, but it needs to be addressed. The amount of money that Woolworths over the last journey has spent on its supply chain and particularly its stores, but particularly the supply chain has been in the many, many billions of dollars. But you had a death this year from an accident where one person died and two other people were seriously injured. Can you please tell us as investors what happened there? Because this is a serious event. I can't remember many companies that I've covered where there's been an accident of this level and particularly at your DCs where you're investing so much money that you've had an accident to this level. Now this is relevant to us as investors because we need to know the quality of your DCs. Now clearly, your DCs are nowhere near the level of standard operating procedure. Forget about productivity, we're talking about basic essentials of keeping workers safe. Your DCs are a mile behind benchmark as to where they should be. So I'd like to know what you're going to do here, what we as investors should expect? I'm assuming at the least, none of your management team are going to get bonuses this year. I'm assuming that. But could you go through, please and spell out what happened, what's the state of your DCs are in and what you're going to do to rectify this, please?

Thanks, David. It's a tough question and one that should be asked, so thank you. We're all of the items we may be just tell you that I don't feel good about it. I should just accommodate at the start. Firstly, for the fact, we actually lost an employee in Minchinbury, and we lost a contractor in the Jason Supermarket. The only two fatalities we can remember in 10 years in Woolworths, if not more. So this has not happened in our collective experience working together as a team and it's devastating. Now it is an important just position severity injury rate, which is the way we measure things. We've actually been making good progress. We have been keeping our team safer. We've had a lot of protocols in place that are doing that. And so this comes in contrast to that, and it could be easy to excuse them and we're not. We own them, and I'll talk to the consequences, but it is actually flies in the face of everything else that we're doing. We've actually been making great progress, but we do need to learn in and learn from both incidents. So if you want to know what we think about it and how we feel about things. In Jason Supermarket, a cleaner earlier hours this morning was cleaning out store. There was a teammate, a number of teams, I think, 5 o'clock in the morning or somewhere thereabouts. They're backed to cleaner, subcontracts and they're back to cleaner away into a corner. They got caught by the cleaner and crushed against the wall. And unfortunately, they passed away and none of us knew. And we felt terrible. We found it by 7:30 and we had to get the medics in. There's a full investigation taking place right now. There are a lot of extenuated circumstances, but we feel accountable for what happened. Amongst the many things we are doing about it is setting up our own proactive services, so that we can manage the right specs of equipment space and everything else and that's a part of our business that we just simply need to do a better job of. We've contracted that part, and we tend to in-source it and build the capabilities we need. And we've done that in 76 supermarkets. Committed to it, but also making sure that all our contractors are safe. And that was, I think, in November, correct me if I'm wrong. In Minchinbury, it was actually outside of the financial year, but in the context of it, we see it as in the financial year. It happened in our Minchinbury DC. And in the DC, as you know, that has been Polaris group for a very long time, our new automated solution, which we have in Melbourne, South, which you have been to or a new automated CFC. So it's a very traditional site where one of our team got killed in the pallet stacker. Again, this is under investigation as to what happened. They went to unlock the jam and consequences of being investigated right now. We have, of course, stopped using all those forms of pallet stack are doing a full review of them and how the process works. So those are the 2 incidents. In terms of what we're then doing outside of that is every piece of physical equipment is now being reviewed at Woolworths and how we use it. Because both of those were equipment related. There were 2 near misses, and it's good that people report near misses. We encourage it at August, I should say, with other forms of our icon with forms of physical equipment. So we reviewed all equipment and then we're coming back more broadly on the whole topic of safety and how we validate all of our safety procedures. In terms of consequence for management, I don't think you can ever monetize in any way someone's life. So let's not [indiscernible]. But in terms of the consequences, the overall bonus of Woolworths for everyone on the group bonus has been reduced by 10% as a starting point because of this, and it has been done in collaboration with our Board, but certainly at the behest of management to feel this is a minimum starting point. We will then go through the investigation and figure out what other consequences take place. So there's no doubt to put terrible weights and pale on a year that we had many achievements but it overwhelms all of them. In terms our DCs themselves, David, this in no way flies in the face of our current automation plans and the progress and the safety that does come with those plans. And it's very clear to us that the automated DCs, which follow the right processes are safer. So it doesn't -- you could say we should accelerate those plans, but actually, they're still going to take a while, which is why we need to do the full reboots that's going on inside the group.

The next question comes from Bryan Raymond from JPMorgan.

Just on the outlook commentary, you did as a bit of a cautious tone there in terms of food EBIT growth given the need for value and the cost pressures coming through the wage line. I was hoping you could expand on that a little bit further, particularly around if there's any sort of mitigation incrementally around whether it's or other methods around the wage pressure, and then gross margins are obviously very high by historical standards once you adjust the history for the, new accounting process. Is that sustainable in this environment if you think going to be important, yes.

Look, we're not giving earnings forecast, as we've talked to with Shaun. So we're just giving you a sense of the things we balance it as we go into the year. So we're not in an earnings outlook. We have to balance, as we did in '23, deliver value for our customers, making sure our team gets fairly paid for what they do and then trying to reconcile those back into an overall result and there are positive negatives in there, as you can imagine. So I don't think I can say more at this stage.

Okay. Possible to sneak another one and then given that it's a relatively quick.

I think that's fair, actually. Let me just say it's [indiscernible] question. Sorry, Lisa, but we live and do it.

Excellent. This should be a bit less challenging then on that front. Just in terms of this new Everyday Rewards member pricing, just interested in incrementality over your yellow and red tickets, if these are orange tickets. I haven't been installed to see them, but the incrementality there or is it just moving product around -- sorry, promotional dollars around and also the funding of the program, obviously, involved. But how do you see that playing out in terms of scale and those other elements versus your existing yellow and red programs?

It's got a lot of analogies. And this actually ironically does come back and I think I'll answer a you were going. If you think about everyday awards or you think about digital e-commerce and stores, we're trying to think very holistically from a customer perspective and what's their overall experience in Woolworths either as a customer, if you think about digital e-commerce and stores or as a member, if you think about everyday awards as a member shopping physical stores or digital stores or across the group. And so we're trying to backfill back to the member in this case and the overall value they get have being a member of Everyday Rewards. And so there's a whole series of mechanics that you need to think about in that context and how you bring them together to get the right outcome. Clearly, every time a customer scans the card, they get points, whether it's online or in store, either it's in supermarkets or BIG W and as well as a number of partners that is a base earned. Through that process, we get to learn a lot about the member and therefore, we get to personalize a lot of experiences for them as well as a lot of offers for them. So you always want to start with, of course, the size of your database and then trying to measure within that which one customers are active and get them to be as active as possible. So you can personalize their experiences with you as much as possible. And each customer does want to take a slightly different journey through our group. What we had laid on top of that a couple of years ago was then providing a personalized direct office to a customer that met their particular needs. And so things that either have shopped regularly all items that we thought we could suggest that they might want to add to their basket a new product, whatever. We call those boosts, but it really was just a personalized offer that the customer got in addition to that. In the last couple of years, and Dan Murphy's, I think, has been a poster child for this in Australia. You started to see a lot of retailers start bringing member pricing into store to give -- our members a chance to also get a price of a particular product in store. And when I say so, in physical and digital, by the way, not physical. But -- and the interesting question is how that is accretive to the overall experience. And the U.K. has done a lot of the fine, as you should be aware, with Tesco Clubcard and then everyone else responding to it, but it's become very driven by member pricing. We have looked at it. We've pulled the alternative into store a few times and get results. What it does for us is it reminds a customer that they are a member of Everyday Rewards, and it does prompt and, therefore, to scan their cards to get all the personalization. So it does help us with scan rate as we call it, and it reminds the customer. And it does actually then just add a little bit more value to their overall basket. So it provides some other benefits. It is in addition to our red and yellow programs. It would be fair to say that some of the offers that you see in the yellow program may become Orange Office or member price offers. Over time, if we think that the ability to do it gives a better experience for the customer member and for the supply concerned. But that's something we'll learn and evolve with it's right on as we go. So that's -- I don't know if I've missed anything, Amanda, that you would want to call out.

No, I think you've covered it. I think the summary then coming back to Lisa's question of we've got a very strong and growing active membership base. We've also got a very strong and growing group of members that are boosting. So they're taking advantage of those personalized specials that they need to actually take an additional action, which is to boost with the member pricing, it's actually much more accessible for all of our members to get more value because they only need to scan as they shop. And so I think we're just going to test and learn together with all of our banners across the group over the next 6 months, and then we'll assess on where we take it after that.

I mean when we look at it, we think there's amazing value inside Woolworths. And our challenge is actually making sure customers can find it, and they can appreciate it. So we're obsessional, as you would well know, on our price indices, which are looking in a good place and making sure there are affordable options in every store for every customer type. But actually, if you're going to just find it through physically walk in the store, you're not -- there's a chance you might miss it. So we've got a lot of digital initiatives that we're doing in the store. There's a lot of core value in our merchandising segmentation that Nate can talk to, but there's no doubt that we able to overlay a personalized experience for a customer strike member just enhances the probability that we can make sure that values delivered and then is the macro goal that we are focused on delivering. And with the program that's now got over 14 million members in it, over 9 million active members. It's something that we feel that we can do as a group and add value to all of the businesses.

The next question comes from Craig Woolford from MST Marquee.

My question's on CapEx, if I can. So the guidance for FY '24 is CapEx of $2 billion. Can you give a sense in 2 ways. One, what's the contribution that Moorebank has for that? And I'm really kind of asking about lumpy items and the motivation for the question is trying to understand where CapEx may settle in the medium term, thinking about those sustaining and growth buckets?

Yes. Thank you, Craig. I'm going to get Steve to answer. But one point, and I think everyone on the call understands this, but if you don't mind me just log in it. Some of the performance that we see in F '23, whether it's again, digital growth or e-commerce growth or even the resonance of our stores relates to the investments we made in previous years and CapEx. So there's no question it did help us in '23 in terms of where we sit right now and whether it's the platform that we've rolled out for assisted scan or whatever the case may be. So F '23 does need to be seen in the context of previous investments. In terms of prospective CapEx and the inherently lumpy nature of supply chain investments. I'll turn it over to Steve to give some color on where we stand.

Yes. Thanks, Brad. Craig, it's a good question. I mean CapEx, so looking at it in preparation of today, it's been pretty stable for the last few years around the sort of $1.8 billion, $1.9 billion level. We're calling out around $2 billion. We will continue to have spend [indiscernible] on our Moorebank facility and our supply chain CapEx program, just given where we're at on that program. They're just for context. We've just taken practical completion of the national distribution center from the builder, the automation contract that we're moving in the -- that's the national DC and the regional DC will follow the year after. So we still got a couple more years on that project. As with every year, there's a lot of list of opportunities for capital in our group. And so we're always focused on how we continue to sustain and maintain our business, keep our teams safe, renew our stores. But where do we best allocate the capital to drive the best returns for the group. There's a lot of focus on some of our productivity initiatives. We continue to roll out electronic shelf labels. We've got the second phase of our rollout of ScanAssist is very important against that stock loss initiative that we talked about. And so you'll see movements between categories, a little bit of lumpiness in supply chain. But overall, we think this sort of $2 billion is about the right level for us.

We're trying to run it on a 3-year window. So we find sort of look at it over 3 years, and it will sort of change up and down. And very important to call out in the thesis your accountability. Moorebank is the biggest individual project, we will commission I suspect, in just over $1.4 billion of investments. It's still early days, and we certainly need to keep highly focused on it, but our CapEx plan is tracking to budget as it is with our Auburn CFC. So two very important projects, full lots to be done but tracking to budget on both of those.

Can I just clarify, is Moorebank in the sustaining CapEx and that supply chain figure on Slide 22?

It is, Craig.

The next question comes from Phil Kimber from E&P Capital.

I just had a question thinking about cost growth into FY '24. And if we just focus on Australian Food. I think the growth in the second half was round numbers, 8% with a little bit of help from COVID costs dropping out. I mean is that a good starting point for thinking about FY '24? Or are there some other sort of large components that we should consider? Obviously, there's wage step-ups, but other things that we should consider about when we think about cost of doing business growth in FY '24.

Thanks, Phillip. So we're not focused on giving guidance. But maybe, Steve, if you can give some color to the considerations that sit there, in particular actually, just call it out maybe the DNA that's sitting there on the difference to that and some of the things we kind of balance.

Yes, happy to, Brad. So that number is not right for the second half. I feel there is certainly some benefit from cycling out of COVID cost at about $50 million of COVID costs in the second half of last year, although a number of those will have said in supply chain. But if you think about what drives our cost growth as a group wages and the cost of that team is half our cost base. It's well communicated what the fair work increase is going to be. The other big increase. So that was inflation on team cost and then inflation across other areas such as energy or some of our people-related costs like contractors for be it cleaning or repairs and maintenance or other big drivers. So inflation generally was about 2/3 of the inflation in gross terms. We obviously work hard at productivity, and we've known and expected the cost inflation was going to be higher in F '24 than in F '23. And so we do have a very robust productivity agenda for F '24 where we'd expect to generate more productivity saves in F'24 than we're able to in '23, just given the stage of disruption from COVID in '22 impacting our delivery of productivity in '23, we feel like we able to have a better run rate at '24. I think the other 1 is both Breakpoint out D&A, D&A did step up again, which is really just the consistency of our capital spend over a number of years. a little bit more in the second half that contributed to some of that higher cost growth in the second half. And I think probably the other element to just talk to is volume growth. We had negative volumes in the first half in Australian Food. We're back into just under 1% volume growth in the second half. And so a lot of the costs in our business relates to the volume we moved the boxes in our DC or the items that we put on the shortfall we canter checkout. So there's actually about a 5-point shift in volume between half 1 and half 2, which contributes to some of that volume growth across the 2 halves. But as we think about the year ahead, there are a number of cost pressures, but equally, we feel confident about a number of the productivity initiatives. I think that talked about some of them earlier. We know it's all ahead of us, but we're cautiously optimistic about our ability to offset a portion of that cost inflation.

The next question comes from Ross Curran from Macquarie.

I was just actually got a question about credit card book and Wpay. What are the plans around credit cards going forward?

Well, we've -- thanks for the question, Ross. As you would be aware, we are in the process of transitioning out of the arrangement we had with Macquarie Bank on credit cards. So that process is well underway. And therefore, we're actually out of provisioning credit cards. WPay is really just focused on being the most efficient possible payments merchant it can be for us. We've upgraded the platform that provides services to Woolworths Group, but it's actually also starting to grow with provided services to either retailers who have the same sort of broad need as Woolworths Group. It is another profit stream price also gives us some base volume back into the platform. So it's a merchant service, it's a merchant acquirer, not a credit card provider, Ross. We feel comfortable with where it is and the services it provides to us. Within that context, you may have noticed something that we still have a lot of work to do, which is on our digital wallet everyday pay. And so we still have a lot of work to do with activating our own digital wallet in the context of our website or inside our stores. So some work to be done there, but we're out of credit cards.

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

Brad, notwithstanding David's earlier comments, you've used the term operating rhythm in the printed results announcement, and you've talked about that over the last few years and trying to get that back, given the external pressures on the business and variability and things like that. So if we're in a period of smoother operating rhythm, if that's the right word, I wonder if you could just detail what you might talk to the Board about over a 3- or 5-year period, maybe the top 2 or 3 initiatives that you think will add meaningful shareholder value over that time. And I know that with little things added together, but I was wondering if you could just give us a guide as to in the Australian business, where you're turning your mind to now that, that operating rhythm seems to have come back into the business, please?

Yes. Let me -- I think there are a couple of questions there as well, Scott. So let me try and part. Firstly, I think your point gives me the opportunity to just talk to the very specific issue, which is our underlying process efficiency inside Woolworths Group and operating rhythm as is process efficiency, if you think about what it is for us. And one of the achievements for the year that you kind of get glossed over in all the results is when I -- when we look at all of our operating metrics and we look at what good looks like, virtually every operating metric in our group has gone back to being good. And good was sort of the hires we had in -- before COVID, it could be a store service level, an outbound service level and items per labor hour inside a store, scan right, the number of cartons per labor hour in the DC. Over the course of F '23 every one of our operating efficiency measures got to where it was pre COVID. There's a lot of conversation right now in the economy about this productivity malaise. I think our biggest achievement in the year was actually getting back and getting back to where good looks like. Now that will provide a real foundation for our results in F '24. And I wouldn't underestimate the importance of that as a productivity offset against the wage rates, never mind the other initiatives that you put on top. As always talk about the next initiative, but if your base operating efficiency is not there, it's. I just will never offset that. And it was terrific to get there and an amazing achievement, and that's true across every part of our group. I'm just -- and we only got there really in May, June. So -- and it's continued into the new year. And by the way, those underlying operating metrics and reflected into our customer scores in the last 8 weeks. One of the biggest measures of efficiency in the retail, of course, is having a product on a shelf when a customer wants it, right? I mean that is a moment of truth for all of us and our shelf availability be where it is and see the customers recognize in the last 8 weeks, I think we're all not in ahead of the table that says a lot about where we're at. So I think that is the most important thing. I think actually, we stabilized stock loss, which talks to what Nat talked to earlier, a good process that's implicit in there, provides the foundation. So everything else is interesting when you got that. It's like price. Once you've got price, you can talk to value, but if you don't have price, value doesn't count, initiatives don't count. If you look at what we're trying to do at the group and you look at the group strategy or the adjacencies we have, we feel that, that is definitely directionally correct. And it's how we continue to activate that. That is our priority in the next 3 years. So when you're talking to the Board where we go with everyday rewards and how we build a group membership program that adds immense value to our best customers who are our members is key. And so we've got a lot of work gone on how we activate that. But that shouldn't be expensive, all the individual business plans we have. Outside of that then, we haven't talked a lot about it now, but -- and I know David Errington often asks us questions on where we are on upgrading our DCs or our tech debt. We actually sit at today with probably the best position we've ever been in underlying IT infrastructure in our business. And you could say so what will that provide stability to the drive very creative productivity solutions using advanced analytics, whether we're doing Inch PRO AI or GenAI with just basic machine learning. So just good sense of decision-making. We now have a platform to drive a true optimization through analytics. And so that's -- I would call that out as a third thing. Many other things going on in the group, but we are not growth constrained in the midterm, but it is all based on fundamentals.

The next question comes from Adrian Lemme from Citi.

Might change track and talk about Big W, if I could. So with the unseasonably warm and dry weather we've seen this half, do you think that's been the main driver of the weakness you've seen in BIG W's apparel sales more recently? And how are the aged inventories in that business tracking there relative to the Street, please?

I don't think there's any exclusive people are adjusting based on their spend and how they change their spend and what they do with this then. So clearly, it will change timing and so on. And in the apparel business, we are in competition with other discounters, also specialty stores as well. So there's a lot going on in the space. I'm going to turn it to than to just give some color on what's going on in apparel, but I had promised someone to talk about Bobby Mania so you talked about our great colors for spring and apparel that make us very excited about the ability mix and match Bobby Pink.

We are selling a lot of pink right and maybe give some color and start with the question on winter. I would say that the one start to winter contributed in the early days to slower sales. But I would really describe it as a mix of largely around discretionary spend being deferred. And especially our budget customers and our budget families managing their spend much more closely. And then from an inventory perspective, we comfortable with our position. We're managing it very, very proactively make sure we get out of seasonal stock when we need to. And we do -- while we don't report it, we track a measure of inventory else, which is in excess and stock as a percent of telemetry that measure has actually improved year-on-year. So we think we're in a reasonably good position.

Thanks, Dan. Yes, I think I learned from a men's apparel is actually going quite well at Woolworths. So for all the man on the call coming shop out to W. It will be a new stands for all of you, and we've got some great value.

The next question comes from Ben Gilbert from Jarden.

Obviously it's a great result in the food business in the context of the market, but it does look like you're probably pipped just in Q4 from a growth standpoint and probably came in third behind Coles and Aldi and I appreciate the base effects. But just on the tech investment, and again, I fully appreciate you're getting good benefits on GM and the alternative revenue and I think someone were great. But do you think you're actually driving loyalty benefits from rewards at the moment because I know shoppers are cross shopping more, but it just doesn't seem like from what we can see, there are tangible evidence that you're driving top line market share from all the investment you made around the tech and rewards?

Thanks, Ben. Well, it's the last question to you get us fired up at the end of what all the stuff we need to do in the year that lies ahead. Look, when we think about sales, we're actually thinking about customers and are we retaining customers, we're building basket with customers, are we building loyalty. Our data suggests we do that in Q4. So we feel our customers -- and we look at how they're shopping us and what our annual quarterly sales out of them, it feels very good and very solid. So we don't take that for granted. We got to win our customers' loyalty every day. But actually, when we look at share of customer, customer momentum, the customer spend inside Australian Food or across the group actually was a very, very pleasing quarter and we actually report that number to the Board. And then within the context of that, I should add that when we look at our pricing guide rails of making sure we delivered value to customer, we had Q4 probably our best quarter in that sense, and we exited with been exactly where we wanted to be pricing-wise. So we saw it as a good quarter. I always like to -- of course, we'd love to have the rights of sales, but that's how we look at it, and we felt in a good position on that. On Everyday Rewards, we still need to continue to scale up our program and how we use it. But we think there's no doubt that it makes a better experience for customers shopping Woolworths Group and then hopefully in that term will make them sticky to us. If I just look at digital -- given this is -- I think I lost question poll, I can go a bit more expansively. Not only is the digital growth going up, which we think is key. But the #1 area that has grown is how customers are using our various tools to help them manage their shopping with Woolworths, of which shopping lists or list, as we call it, has had material growth. And there are close to 1 million people who use our list inside our digital platform is the way that they engage with us. And what a privilege it is to have the ability to have them do that and then to be able to add more and more capabilities of have you forgotten into the list or has a great value alternative to whatever the case may be. So we are seeing the digital platform work as a group. We added it all up your firm we get more digital business and physical, but that's not the point, the point is people are starting their shopping experience with us digital, and that's critically important for us. If you look at rewards, what we have seen over the year, but in the last quarter is, most agenda rewards customers are spending more with us than just a customer who's not engaged towards member. We lucky enough that our customers are also spending more with us, but our rewards customers are spending more. And we think that, that's critically important because so we get to crystallize experience more for them and hopefully in return, they spend a little bit more with us. And then critically for us, if we look at BIG W and as alluded to in the chart we put in the document, but more than -- all of our growth of BIG W has come from our Everyday Rewards members come in and spending a bit more in BIG W. And we're using everyday awards, there's an ability to introduce customers who can find value in BIG W and hadn't previously come in and doing that in BIG W,and that's been really, really exciting for us. And on a formal microscale, we've seen the same with MyDeal. We had no questions on MyDeal. Essentially, our marketplace business in the GMV sense was up year-on-year. MyDeal was slightly down, but if you had that in everyday market, they were actually up year-on-year. But again, if you look through the growth inside my deal, Everyday Rewards has been a critical component to drive an overall marketplace growth. So as per the previous question from Adrian, we've got a lot to do, Ben, as you might imagine, on everything, but in particular, digital and rewards, but the signs are very promising at this point in our journey, but love to do. Thank you, everyone, for all of your questions as always. I'm always cognizant, as we talk to you, yes, we're halfway through week 9 of the new financial year, we've only got a couple of weeks left before talk Q1 sales. So I look forward to engaging with you all there. As we like to say the truth is in our stores, whether digitally or physically, so encore to get out there, see the experience you get in our store. Hopefully, you'll see what we believe which is at a more consistent, more compelling experience for all of our customers in Newfield. Thank you very much.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.