Grant O'Brien - Managing Director and Chief Executive Officer David P. Marr - Chief Financial Officer Bradford Banducci - Managing Director Australian Food and Liquor Dave J.

Chambers - Director of Woolworths Supermarket Matt Tyson - Managing Director of Home Improvement Alastair McGeorge - Managing Director of Big W Penny Winn - Director of Group Retail Services

Grant Saligari - Credit Suisse Group AG Michael Simotas - Deutsche Bank Securities David Errington - Bank of America Merrill Lynch Shaun R. Cousins - JPMorgan Chase & Co.

Craig Woolford - Citigroup Inc. Andrew McLennan - Commonwealth Bank of Australia Thomas Kierath - Morgan Stanley Louis J.

Capparelli - Evans & Partners Pty. Ltd.

David Thomas - CLSA Phillip Kimber - Goldman Sachs & Co. Craig Stafford - UBS Bryan Raymond - Macquarie Securities Group

Thank you. Good morning everyone and thanks for making the time for this call.

With me today, just so that you're aware, is David Marr, our CFO; Brad Banducci, our new Managing Director of Australian Food and Liquor, Dave Chambers, our new Director of Woolworths Supermarket; Matt Tyson, our Managing Director of Home Improvement; Alastair McGeorge, our Managing Director of Big W; Penny Winn, our Director of Group Retail Services. In the first half of the financial year 2015, Woolworths Limited delivered net profit after tax before significant items of AUD1.4 billion.

That was up a pleasing 4.7% on the previous year with growth in earnings per share before significant items of 4%. The ongoing profitability of the Company has underpinned the Board's ability to declare a fully franked dividend for the half of AUD0.67 per share.

Group sales were AUD32.4 billion, up 1.8% or 3.4% when you exclude Petrol. The Group EBIT before significant items was AUD2.1 billion, up 4%.

In Australian Food, Liquor and Petrol, EBIT increased strongly by 7.3% on the prior half year, despite a sales result which was below our expectation. The sales momentum in October and November showed improvement, however trading in December and into January was subdued.

Liquor continues to perform well and is the clear market leader across its formats on price, offer, convenience and innovation. In Petrol during the half we announced changes to our agreement with Caltex which enabled us to focus our efforts on our operated site and deliver further improvements to our convenience offer.

Countdown supermarkets continue to deliver profit growth despite price inflation and ongoing subdued grocery market conditions in New Zealand. As previously advised, the General Merchandise result has continued to be impacted by our ongoing Big W business transformation.

Today we're acting to accelerate the alignment of our inventory to our customer strategy. A key part of driving the transformation is clearing excess stock.

To expedite this, a provision of AUD148.2 million or AUD103.7 million after tax has been raised. Hotel earnings were impacted by the additional Victorian gaming tax, which came into effect in May 2014, as well as the divestment of a portfolio of freehold hotel sites in October.

Excluding these, earnings before interest and tax was in line with the prior year. Home Improvement continues to deliver against the plan that we announced in August but that was focused on new store format and range improvement, and a revised store rollout plan.

December store openings in Adelaide and Brisbane featuring the new format are delivering encouraging early results. Online sales increased more than 20% on the previous half year.

We continue to lead the market in innovation, having launched Dan Murphy's Connections and the Simply Connect partnership with eBay. So to summarize, in the first half Woolworths has delivered steady profits but on softer sales.

We've delivered within the range we set out to and we could continue to do so, but to maintain market leadership over the long-term we need strong sales momentum. That comes from winning the customer on all aspects of the offer every day.

Of course, price is the primary driver and over the past few years customers' prioritization of price has been accelerating. So we're taking action.

We've been building a pipeline of more than AUD500 million of cost savings to invest lower prices. I'm convinced that we now require the flexibility to invest beyond cost savings to ensure customers switch and stay with Woolworths.

We've taken a series of proactive steps and important decisions which I would now like to take you through. You've seen from our market release that we've revised our profit guidance.

In doing so, we're choosing to prioritize investment in the Australian Supermarket business. Of course all of our efforts will be on restoring sales momentum and continuing to deliver profit growth, but in the short-term our focus is on investment in cheaper prices and better service for customers.

I want us to have the flexibility to invest in some of our short-term profitability to deliver sustainable long-term growth. This, added to flexibility, means we won't be beaten on price and the beneficiaries will be Woolworths' customers.

As we shift gears, I'm also changing our leadership team in Supermarket. Recently I accepted Tjeerd Jegen's resignation and I would like to thank him for his passion and dedication to Woolworths whilst he was in the role and for the innovations that he brought to the business, such as the Collectibles program, the relationship we have with Jamie Oliver and the in store offers, of which sushi is an example.

I'm delighted to announce today our current Managing Director of the Woolworths Liquor Group, Brad Banducci, will take the new role of Managing Director, Australian Food and Liquor. Brad will continue to have carriage of Liquor until a new appointment is made.

The Woolworths Liquor Group is an undisputed market leader and the best example of winning the hearts and minds, and wallets, of Australian customers. Brad and his team have driven that success.

Brad will partner with Dave Chambers, who for the past four years has been the Managing Director of Countdown in New Zealand, and he will become the Director of Woolworths Supermarkets here in Australia, reporting to Brad. Dave is a highly respected and experienced supermarket retailer, who's honed his skills in the tough and price-sensitive New Zealand market.

Together Brad and Dave bring the right mix of experience and the ability to create a winning operating culture. In January we kicked off a strategic review of the Australian Supermarket business, which has identified significant opportunities for performance improvement and of future growth.

Brad and Dave and his team will now take these findings forward as they form their strategy. But let me be clear, I've taken action to back Brad, Dave and their team with an unprecedented investment into the customer offer.

My intention is to conduct an investor strategy day in Sydney on May 6, at which Brad and Dave and the rest of the business leaders, will outline their plans for growth. I'd like to ask Dave Marr now to comment on the financial results and also highlights from the balance sheet.

Thanks Dave.

Thanks Grant. Good morning everyone.

I'll now highlight some key financial aspects for the - from the first half of the 2015 financial year. Turning first to the balance sheet, and I'm referring to page 13 of the investor presentation pack, at the end of the half year we had net assets of AUD11.2 billion, which is an increase of AUD1.1 billion over the prior half.

Inventory of AUD4.8 billion increased by approximately AUD55 million since the prior half, primarily attributable to two aspects. Firstly, the continued rollout of new stores.

We opened a net 121 additional stores since the prior half, and these exclude the Caltex operated fuel sites. Secondly, additional stock that's being sourced internationally which continues to contribute to the Group's higher GP margin.

These two points have been somewhat offset by the inventory component of the General Merchandise transformation provision that was announced today. Closing inventory was down 0.4 of a day to 38.5 days, and I'll touch on average inventory days shortly.

The net investment inventory of AUD386 million, is an increase of AUD300 million from the prior half, impacted by a lower HY15 trade payables balance, driven by two factors. Firstly, Australian Food and Liquor inventory was purchased and paid for earlier in December in anticipation of a stronger sales result, which did not materialize, as Grant's touched on in the - earlier.

Secondly, on the deliberate focus to reduce inventory intake in both our General Merchandise and Home Improvements businesses in line with their strategy. Both of these cases resulted in higher inventory balances relative to payables in the half.

Fixed assets and investments of AUD10.2 billion increased by approximately AUD200 million from the half, and this reflects the ongoing rollout of new stores, 163 new stores added to the network and 209 store refurbs, as well as ongoing investment in property development. These were offset by depreciation and assets sold, which included the Hotel portfolio sold in October.

Intangible assets at AUD6.4 billion increased by AUD150 million since the prior half, and this is primarily attributable to the higher New Zealand supermarkets' intangibles on the back of the strengthening New Zealand dollar against the Aussie dollar, as well as intangibles relating to the - all the business acquisitions as previously advised. Net repayable debt of AUD3.2 billion decreased by AUD320 million in the half, and this reflects both the proceeds from the disposal of the Hotel sites in October offset by the higher investment in industry that I mentioned earlier.

Other financial liabilities of AUD975 million increased to AUD180 million and this increase is largely attributable to the change in the value of the Lowe's put option in our Home Improvement business. Turning to inventory days, average inventory days increased by 1.2 days to 39.4 days, as of - for the half.

This is driven by new stores, predominantly 13 new stores opened in Masters, as well as the additional internationally sourced inventory, predominantly in Liquor. Excluding Home Improvement and this incremental globally sourced inventory, our average inventory days decreased by 0.7 of a day across the Group.

Turning to the return on funds employed, return on funds employed before significant items was 14.5%, which is down 47 basis points in the prior half. Excluding the investments in our Home Improvement business, which remained in its development phase, proceeds before significant items across our mature businesses increased by 14 basis points on the prior half, reflecting both the increased profitability of those businesses as well as the ongoing capital investment to growth.

With respect to the cash flow, our free cash flow generated by the Group before movement in borrowing and the payment of dividends was AUD1.3 billion. Cash flows from operating activities before interest and tax was AUD2.3 billion.

Comparative to the prior year, operating cash flow was impacted by, firstly, the timing, differences in the timing of creditor payments relative to the reporting date. We had additional month-end payments this year versus last year.

Secondly, the lower HY 2015 trade payables balance, particularly in Australian Food and Liquor where inventory was purchased and paid for earlier in the month in anticipation of a stronger sales result. Finally, the incremental investment in internationally sourced inventory.

Several of these factors are timing issues only. Tax payments increased, driven by higher tax instalment rates in FY 2015 which is just a timing and our effective tax rate remains at approximately 30%.

Cash used in investing activities was AUD334 million and that includes the ongoing expenditure on both property development and plant and equipment, as well as the acquisition of businesses, as previously advised. The decrease of AUD740 million compared to the prior year predominantly relates to the proceeds of sale from the sale of the 54 freehold hotel sites.

CapEx is outlined in the pack. In relation to the first half CapEx, capital expenditure excluding property development, increased AUD30 million in the half, driven by increased store refurbishment activities, ongoing investment in our new merchandise system, as well as the replacement of our gaming systems in line with our commitment to introduce voluntary pre-commitment, and some early spends in respect to Galaxy, sorry, Mercury 2.

Net property development CapEx, excluding the AUD600 million proceeds from the Hotel sites, decreased by AUD50 million and this is predominantly driven by higher sales, higher proceeds from the sale of property. In relation to the current forecast for the full-year, the full-year forecast is reduced by approximately AUD240 million from the forecast we provided in August.

This reflects lower property development spend across the Group, most notably in Home Improvement. As we've previously advised, CapEx will fluctuate from period-to-period.

In particular, property development spend, which is influenced by council and regulatory approvals. We have maintained our disciplined focus on ensuring that all spend meets the required return and is aligned to our strategy.

Page 17 outlines the shareholder payout summary and the Board today has announced a fully franked interim dividend of AUD0.57 per share, an increase of 3.1% on the prior half. The half year payout ratio before significant items of approximately 60% is consistent with the prior half also.

As the slide shows, we have a strong track record of delivering returns to shareholders, demonstrated by the compound half year growth rate of approximately 11% in returns since 2013. Your pack also includes some additional information in the appendices around Group sales, gross profit and CODB margin.

Thank you. I'll now hand you back to Grant.

Thanks David. We'll open it up to questions now.

Thank you. Good morning.

Grant, just I guess to be clear on the strategy you're embarking on with Supermarkets, you're indicating AUD500 million of cost savings over the medium-term, and I think you're saying that you'll invest more than that over that period of time in price and service. So if that's correct, could you give some indication of where those cost savings are coming from and then for the timeframe?

Yes, thanks Grant. We've got clear line of sight on the AUD500 million that we've spoken about in the release today.

The lion's share of that comes from areas such as supply chain. We've made a good start to the Mercury 2 program and an element of those savings are already starting to flow into our business and will in increasing volume flow into our business over the next couple of years.

We've looked at our structures and our resources above stores, which is another area for improvement and, again, we've got good line of sight there. There are areas that we call not for resale.

Now, what that means is that that's the goods that we buy for this business that are not sold within any of our trading divisions. It might be equipment or services that support the stores.

We've identified some, again, significant savings in there over the course of the next number of years that we are confident we can bring to become fuel for the growth that we're talking about here. I think shrinkage is the other big one.

That's always an opportunity in a business like ours, not just in Supermarkets but that's where a big piece of it lay, but in all areas of our business shrinkage is an opportunity, it's a big number and it's a number that we've demonstrated before that we can improve and we plan to do so here. So we've got opportunities well beyond the AUD500 million we've just called out, because we're confident about it, the AUD500 that we're talking about in today's release.

Today's release is about the intention to bring forward some of those cost savings that we've identified but in order to do that we're going to use some of the profit that the business will generate over the course of the balance of this year. That's because we want to get going now.

We've been working on these cost savings for a period of time with this in mind but we're going to bring this forward. And that's why there's the change in the guidance.

We could have made guidance and we had a clear line of sight to make guidance. We're choosing to invest.

Thank you for that. Just a second question from me, if I could.

The Masters loss this period, I mean, it widened. That's pretty troubling, I guess.

Could you give us some indication as to whether there was any particular one-off in that loss associated with, for example, the range changes you're doing? I guess, how can we be confident that the new strategies are likely to stabilize and then reduce the losses in that business?

Yes we are confident they will and but we also said previously that that was unlikely to show itself in this financial year, but to answer your question specifically, Grant, the changes that we're making are not their own providing a head wind for our profitability. The costs that the business has incurred, not surprisingly, are coming really from the stores that we opened last year.

That's the continued drag on the cost line, but having said that the things that we said we were going work on, whether that be range or the rollout of the stores or the new format, are all well and truly on track. We've carefully said in the release that we're happy and encouraged by early results, and that's where we want to leave that at this stage, that we're making the progress we said we would make.

Thank you.

Good morning everyone. If you sort of look at the AUD500 million cost savings you've got to some price investment and I know you've implied that you'll do a little bit more than that it's about 1% of your sales base.

Can you give us some indication of how much you think you need to invest to position the business where you need it to be?

Yes Michael, this is the start. But what I'm going to be pretty careful on today is Brad's new into the chair and most of this is going to occur in the Supermarket division and whilst I've conducted a review during January of the Supermarket business and it's shown both the opportunities for improvement, but also the opportunities for real growth, Brad and his team will be given the next number of weeks in order to have some more forensic plans on where that money will be spent.

But that's what we plan to do at the Investor Day in May, is bring those plans and share them with analysts, investors alike. But for us, this is the just the beginning.

As I said, this is something we've been working towards and building and so therefore the program that we've built into the business over the course of the last year is a program that's designed to continue to make our business efficient on an ongoing basis. That's where these early costs have come from but there's more to come and the - where that cost out will be aimed at in detail will be laid out by Brad and his team in May.

Okay, and something that seems to be increasingly called out by industry participants is issues with on-shelf availability in Woolworths relative to the very good job that was done on that front in the past. Is that something you plan to invest in as well?

Yes. I don't think our on-shelf availability was as good as it could be at various stages in the quarter, particularly towards the end.

The sort of labor you have in stores, there's always a balance, a balance between cost and your sales line. I think we could have invested more and the plan is to invest more.

In fact, Michael, that investment's already in place but we'll be looking to increase that over the coming couple of months again.

Good morning Grant. Grant, I'm a bit confused at the moment.

Effectively, the feedback that we and everyone else has been receiving, I mean, it's pretty uniform, is that in that first and second quarter - and I think you even alluded to it yourself at the end of the first quarter - that everyone was saying, and there's evidence that you were putting prices up. Suppliers - and we talk to many of them, I mean, I cover them - they were all telling me that you were putting prices up independent of what they were doing.

And when you do your talk - when we do our walks through the stores, the store managers in every store we visited were very open in saying that they were given the order to cut costs in terms of servicing. You know, the order was only stock at night and stop stocking during the day in order to cut costs.

Now you're basically saying that you're going to reverse that strategy in order to get price perception back and if you're going to reinvest back into the business, and that's causing an earnings downgrade today, which I know Woolworths don't take very lightly. They never downgrade earnings, if at all possible.

And I think the Chairman actually came out in November and reaffirmed, you're not going to miss your targets. Well, today you said you are.

I'm just wondering where you're at with Supermarkets, because what is it? Is it a price perception?

Are you putting prices up? Are you taking costs out?

I mean, I really am confused right now as to just where Supermarkets is at. And obviously, you take it seriously, because the Head of Supermarkets is now gone.

I'm just really confused as to where your Supermarket business is at right now?

So I undertook a review of our Supermarket business in January, David, to satisfy myself in respect to the business. And a couple of things were clear to me.

Our price perception isn't where it needs to be yet. You've heard that from me before.

I called that out before. That our price perception isn't where it needs to be and in the latter part of the quarter, our in-store execution wasn't where it needed to be either.

And availability, as Michael said earlier, was one of those areas. It's really clear that today - and in answer to your question, to be really clear, we're investing in prices.

We've been competitive, but we need to be cheaper. And in order for us to be cheaper, we need to invest.

And that's what we're going to do today. So I can't be clearer than that.

That's what we're going to do. So prices are going to come down over the coming months and with the intention that that obviously aid our price perception, but more importantly increase the number of units that customers are putting into their baskets.

The investment is also covering labor in stores, so that we've got the sort of availability that we need. The decision - some of the decisions that you talked about taking night-fill and putting it at night-time, rather than the day and those sort of things are actually not bad decisions, David, in their own right.

They're sensible decisions from a cost point of view. That's actually not taking out silly costs.

That's actually good cost that comes out of the business. So just a number of things that you talked about are in that camp, but I don't want to - I don't want to deflect anything of what you said in respect to that.

I want to be really clear as to where I see our Supermarket business at the moment. We've been competitive, we need to be cheaper.

And we're going to invest in price. We need to have higher levels of service in our stores, so we're going to invest in service.

And that's the platform that I'm giving Brad, so that he has got the flexibility to address the sorts of things that we're talking about here. And he has got the freedom to act to put these things into place.

And we want to start now. And that's why, as you rightly say, we reconfirmed guidance in October and we could indeed meet guidance.

There's a clear line of sight to guidance here. But my recommendation was a very strong one about us investing in our business.

We're the market leader. We're the market leader by some way, but we're not going to enjoy that in a continued way, unless we provide the prices, the service and the store environments that a market leader should.

And, Grant, my second question, it's a top level question, but I think highly relevant today. Why stop with your strategic review in Supermarkets?

Because Supermarkets in terms of EBIT delivered today, I mean, your sales have obviously fallen; you haven't called out second quarter like-for-likes which I would be interested to hear what they are. But EBIT delivered, where you're really stalling in my observation is Masters, Big W and gaming is coming off.

When do you basically say, look, enough is enough? We've tried in Masters.

It's now too big a cost for our business and we walk away and you revert back to a really great Supermarket business, rather than pursue suboptimal strategies in what is basically causing shareholders a lot of value in chasing an unsustainable and unachievable goal.

The question is a fair one. In relation to home improvement, Big W and gaming, I'll take them all one at a time.

You're exactly right. Where the Supermarket business goes, the Group goes.

So very clearly, that's an important business for us and it's a big and robust and successful business that will continue to grow its profit and to your point, at 7.3% it outgrew the market from a profit point of view. And we could continue to do that, but it's actually in the long-term interests of protecting that profit and growing the business in a profitable way that the decision to invest is the right one.

In respect to Masters, we've been really clear and we've got again a good line of sight to the sort of profitability that we think that business can deliver, but it's long-term. But it's quarantined from the rest of the business.

We don't make decisions in the Supermarket based on what's happening in Masters. We've made significant improvements, completely aligned to what we shared with the market in August and we've made good progress towards that.

So - and that'll become more evident, I guess, to the marketplace over the coming months, as to exactly how those changes that we set out are, in fact, performing. Secondly, in relation to Big W, Big W was a profitable business for us at the end of financial year 2013.

It reported sales growth and profit growth both of them being reasonable numbers. But we took the decision to proactively reset that business and we said that it would take us FY 2014 and FY 2015 to do it.

And that's exactly what we're doing. The investment or the provision that we're taking today is to provide or allow us to expedite that plan.

And that is to remove the less productive stock out of the way, so that we can get more quickly to the ranges, the new ranges that we want to offer customers in Big W. I've also been really clear that we expect to return to profit growth in the FY 2016 for Big W and we remain confident in respect to that.

Gaming, David, again, might not be visible at the moment, but gaming is improving for us and as long as it continues on this path at the moment, we will be sharing with the market some much more buoyant gaming numbers going forward. We’ve actually got quite a bit of faith in the growth available to us from a same venue perspective in the hotel's business.

So I've got a clear view of what each of these businesses are capable of and will, at the May investor day, look forward to sharing those with you. But in gaming and Home Improvement and Big W, we've got growth engines of the future and when you look at this business, and you've been following it for a long time, we've got great benefit from adding the New Zealand business to it, the Hotels business to it and more recently the Liquor business to the Woolworths Group.

And the businesses that we're talking about here are the sort of future growth vehicles that we've been adding over the course of the last 20 years.

Great. Thanks very much for taking my question.

Just a question regarding Food and Liquor like-for-like sales growth. Things seem to go well in the start of these quarters in that the first quarter seemed to start well.

The second quarter seemed to start well in October and November. Can you talk a bit about the slowdown that occurred in December and January, whether or not December and January sales were flat or were negative and when did the issues in the business go from a price perception at a marketing issue, whereas it looks as though now you've got to invest price.

When did that change?

So in the respect to your first point, Shaun, about the softer end of the quarters, your commentary is right. We had a lower end to the first quarter, but that was more to do with the gap in our trade plan, which I called out at the end of the first quarter sales.

We didn't lap as well as we should have done the Collectibles program from the same time in the previous year. And in respect to Christmas, our promotional planning simply wasn't as - or our promotional plan didn't deliver what we expected it would in the December, January period.

So for different reasons, but both as a matter of fact were softer ends to the quarter. There's no real pattern there or no deliberate plan on our part for them to be softer.

We would obviously have liked them both to be more robust than they were. December, we've called out that December and January were flat.

In relation to the actions, the connections of that to the actions we're taking, we simply need higher levels of sales momentum to continue to enjoy the leadership we do. And my very clear action from today is that we're moving on that and we're going to invest.

We’re going to invest in price because I want our prices to move from competitive to being consistently cheaper and that's a contract that we'll take and make with the customers and we'll get the benefit from that. Not only in top line sales, but also in price perception.

So we're bringing that investment forward. We've started it and we're confident we've got the team that have got the capability to make that happen.

Brad and Dave will be given the opportunity to turn those intentions into more detailed plans and confident that we'll get the reaction that we need from that.

Okay, great. And just in my second question, maybe for Brad, can you talk a bit about your supermarket expertise, given that's about 85% of the EBIT of the division and how comfortable you are with the Food and Liquor margin that the Company has and whether or not you see that as sustainable, particularly given the need to reinvest and, I guess, given that price perception takes some time to change, it can't be turned around in a quarter.

Thank you for the question. Let me start by saying that I've always been puzzled in Australia.

We've put a lot of emphasis on one person when we talk about retail, and what's pretty clear to me is that retail is a team game. And I think that's important, so as you ask me the question, really the question is will we have or do we have the right team to drive the business?

And that's something I'm going to be working on pretty closely with Grant in the next four weeks, but clearly having Dave here with me from New Zealand is a key component in that but we'll continue to work on the rest of the team structure. In terms of my specific experience, prior to joining the Group, I spent 15 years actually working generally as a consultant in retail, but that was in the U.S.

New Zealand and Australia. So I have spent 15 years in grocery retail, certainly in a consulting capacity.

My next experience, of course, was then in CellarMasters, where I drove what is a very competitive portion of the market in terms of direct selling of wine and obviously for the last four years it's been looking after the Liquor Group, which I would have to say and I would suggest hopefully you would agree is an incredibly competitive retail market landscape. So I feel like I've got the right experience, but as I say, this is not about an individual and it's about the team and should probably let Dave say a few words in turn about his experience in New Zealand and how the team bolted together and perhaps I can then come back to the questions around margins.

Good morning, guys. Did you want Dave to respond?

I'm not sure whether he was supposed to respond there.

Yes. Thanks, Craig.

Thanks for doing that. We'll let Dave respond now and then there's a question that related to margins, I think, that Brad still needs to answer from Shaun.

So we'll do that and then we'll get back to you, Craig, with your question. So, Dave, did you just want to talk about your experience.

Yes. Sure.

Thanks, Brad. Thanks Craig.

[indiscernible] really excited about.

Quite - I don't know whether you can hear me. It's quite difficult to hear, Dave.

I'll just swap microphones for a sec, Craig. Can you just - you talk for a minute and…

Sorry. Is that better?

Yes. That's much better.

That’s much better. Thank you.

So what I was saying, fully concur with Brad. It is about the team and we'll work through our team structures and the people in place.

But Woollies has got some terrific team already. And I'm really excited about the opportunities to make sure that Woollies competes more strongly in the marketplace than perhaps has been possible in recent times.

New Zealand is a low growth market. I think stats for New Zealand came out.

The total food and supermarket and grocery industry only grew at 1.3%, so to operate in a market with some higher growth, potential available is also really exciting. So looking forward to getting into it from next week.

Just coming back for a moment to the margin question. I think as Grant has said previously, margin is an outcome.

It's not an input. So the focus really that we have in the next weeks is eight weeks is working through how we win the customer and the margin conversation, I think, will continue at the investor roadshow.

But the focus is entirely on winning the customer.

So, Craig, we'll come back to your question now, if you don't mind. Thanks for that.

No problem. Thanks, Grant.

You've talked about price investment. I just want to make sure I can understand that very clearly.

So you're talking about actual price investment or is it price perception? And when you say you want price leadership, are you referencing Aldi in that as well?

Craig, we don't want to give our complete strategy away, except to say that when we say price investment, we mean price investment. Both shelf.

Promo.

Promotion. But that's - I would also say that part of the investment we're talking about is also about the communication of that, as well, which will help drive perception obviously.

Sure. My other question is fairly high level.

I think businesses as large as Woolworth are typically fairly slow moving. How can we be sure that this isn't a more deep-seated problem?

And the reason I ask that question is that for a couple of years now the Supermarket business has delivered on an earnings outcome with flat COD to CODB percentage which implies significant cost savings already. And it's not clear where they've actually come from.

There's no cost saving program being called out. These are large, hundreds of millions of dollars of savings that the Company has made.

So it feels like staffing levels has been cut back progressively over a fairly lengthy timeframe, rather than just being a problem in the recent period. So I'd be interested in your views about how significant the investment needs to be, given the reduction in costs seems to have been going on for some time already.

It has, Craig. You're right and you will have heard me say before that it's part of our DNA.

The ability for Woolworths to remove cost is not something that's happened in the last couple of years. It's been something that has been a feature of this business for the last 20 that I've been involved in anyway.

And not just in big programs like Refresh and Mercury. It's something that's done every day and explains part of the reason why the business has been able to provide such profitable growth over the years.

You're right. They're big numbers, because of the scale of business.

But it's the scale of the business that provides the opportunities to find efficiencies in every corner and we’ve never gone looking in one place, such as labor, to use your example. I said quite specifically a moment ago about how big a prize something like shrinkage is in a business like ours.

It's a massive number and a massive opportunity therefore to become more efficient. And you don't have to become too much more efficient to drive significant savings that you can then invest back into the business.

So for us, what we're signalling more than anything else is we're stepping that up. It's not that we're starting it.

We're stepping it up and I've been really at pains today to talk about the fact that the majority of this comes from above store locations so that we can actually invest back into store. And again, what we've been talking about in respect of the uses of this investment, it's not just price.

It's about labor in stores. And we've already acted to increase our labor in stores during this month and there's more investment made into the stores in areas of value to the customer and areas that are going to improve our presentation to customers.

So my simple answer to that is cost of doing business reduction in the form of efficiency is in our DNA. And our ability to do that rather than be a question is evidenced, I think, in how this business has been run for the last 20 years.

Good morning, everyone. Grant, good afternoon.

Grant, I know we're all harping on about this and my apologies for the repetition. But we've seen a significant number of years where Woolworths has underperformed in terms of sales growth, just not growing.

And at the same time, as everyone has discussed, margins have continued to march up. There is no doubt that 5, 10 years ago, Woolworths had a commanding lead in the market, not just on price leadership, but more importantly or just as importantly, cost leadership.

Arguably, you still have cost leadership, given those huge margins. But it seems very difficult to understand how an investment in price, even of AUD500 million could try and turn this around when both of your major competitors in Coles and Aldi are going to continue to be as aggressive as they have been in the last couple of years.

If the UK is any guide, when it comes to reinvesting in price, to unwind deterioration in market share decline is going to take a lot more than you're earmarking here. I mean, how can we gain confidence in your ability to turn this around, given the weak momentum we've seen extending for a number of years now?

Yes, I think the - a couple of points I'd make is the AUD500 million we're flagging today is the start. This is not a program, a short-term program at all.

Our ability to provide market leading prices to our customers ongoing is going to be connected and we're making that connection very directly today. It's connected to our ability to make our business more and more and more efficient.

And that's the way of the future. We've had an ability to do that.

And as you said, I think, cost leadership is something that's sustained our business. We very clearly believe that we've got the wherewithal to take that cost leadership to a new level.

And that's what we're focused on here. The reason for putting the AUD500 million number into the release today is to just give our confidence, but really just to give a flavor as to what we've got.

Our ability to compete in the market place with Aldi and Coles, we're very confident about. But what we are undeniably doing is taking that competition to a new level.

I've got to say, though, we will, as always, be pretty disciplined and rational about how we do it. It isn't just a matter of putting a large amount of money on the table and thinking that fixes everything.

It doesn't. We have to be measured and deliberate and in order to get these investments that we're talking about to produce profitable outcomes and growth that we need.

So the plans that go with the numbers and the commentary will be made clearer in May. And I think that's when I'd ask you to make your judgment as to the speed at which growth will result from there.

Morning, Grant and team. Could I ask a question on just the process of appointing Brad.

Did you look overseas? Obviously a lot of UK retailers have been through the Aldi phenomenon and more competition there.

Was it a global search or just how did you come up with appointing Brad to the new role?

Yes, good question. Thanks.

The process for both Dave and Brad was pretty straightforward actually. Part of the reason why we've been able to move at speed is because our succession plans are so solid, so clear.

Not just to me, but to our Board and everyone who sits on that succession plan. So the answer is a really simple one.

We were really confident in the Supermarket division that we had someone that was capable of stepping into that role and having the capability from day one to run and grow the business. And he was MD of our Liquor business at the time.

So Bard brings the advantage of knowing our business, participating in our business and has got, as I said, the capability to run a supermarket business quite clearly. Dave, likewise, Dave has acted in the role of leading the Supermarket division on occasions already, leading up to this and that’s been part of his succession program.

So the ability to act quickly is entirely based on the fact that we've got and had really detailed and robust succession plans in place.

Thanks, and if I can ask another one on the actual result. Obviously, you're not providing the profitability of the Petrol business.

But can I ask you if much has changed there in terms of profitability versus the second half 2014? Because I guess, if it hasn't it looks like the EBIT margins in Food and Liquor have gone up by kind of more than they ever have in a six month period.

So I guess that the point is that the starting point for your margins is probably too high.

I think - sorry, Tom. I think I got the question.

You're quite hard to hear, but I think the question was around the margins in Food, Liquor and Petrol and the contribution of fuel to that. And I think the answer to that is two-fold.

One of which is the change in the number of fuel stores that we had. We shared with the market that our partnership with Caltex had changed slightly.

And the result of that was that there would be 131 joint ventures we call them sites removed from the agreement. Of that 131, 90 still will and on an ongoing basis accept our vouchers, but that's reduced our petrol sales number and that reduction has obviously swung a sales mix change in the Food, Liquor and Petrol Group.

Petrol is at a much lower margin, so if you remove lower margin sales, it increases the overall margin. And that's, I would say, the lion's share of it.

The other is that there's been a higher margin in the fuel business over the course of the last quarter, particularly as fuel prices reduced quite sharply, which has led to an increased profit result in the fuel business. So the margin issues and I'll just check with Dave if he wants to add anything, but they are the major ones that are in my mind anyway.

No, I think that's it. Tom, the fuel margin itself was really on the back of the reduction in fuel price, which is a short term phenomenon.

Afternoon, Grant and team. Just two questions from me, both to David, if that's okay.

Just the first one is just interested in sort of fleshing out the inventory move in the Supermarkets division a bit more. Just how that impacts in terms of particularly around rebates, these sorts of things going forward, if you've had these sort of softer months, does that then push out rebates and what you're able to pull through from supplies?

Yes, do you want me to answer that one first Ben?

Yes. That would be great.

Yes, thanks, Dave.

I mean, it manifests itself in a couple of areas, as you can, both in the balance sheet and cash flow. And then your question is the knock-on implication in the P&L.

Inventory overall has been pretty well managed, particularly in Supermarket. The issue that came up in December was we've brought more stock in our Food and Liquor business, earlier in the month in December, in preparation for a pretty big trade plan.

That stock came in. It was paid for obviously through a normal payment cycle, but sales plan didn't materialize.

So you ended up having this imbalance, temporary imbalance, between inventory, even though that was at the right sort of level and payment - payables, because those payables have been actually paid. We’ve had a look at that in January and most of that has reversed, so I don't see this as a long term issue.

It's back to the same point that we've been talking about, then, which is a pretty disappointing trade result in December.

Right. And just a second one from me, to David again, just wondering how Quantium is accounted for in your accounts.

Is that consolidated into grocery, or how does that get shown in your accounts?

No, it's separated out as an associate, it's on the associate, share of associates line. It's not material, as you'd expect.

Thank you. I've got one question on the Food and Liquor business and one on the hardware.

Firstly on Food and Liquor, you talk about price perception, but when I look at the sort of margin expansion you guys have had since 2007, you've gone basically from 5% margins to 7% margins. So is that a euphemism to say price perception, or is it price reality, that the reality is you guys are more expensive than your competitors and that it's more than just a perception?

Yes, Lou, I'll answer the, I guess, the margin one first, and it relates to a couple of the other questions, I guess. Is the ability for us to continue to grow the business profitably we've, it's been a combination of increased sales, improving our margin, but also reducing our cost.

I think we've been really clear in calling out over the last few years how a deep reduction in costs has contributed to our increase in profit, as it has again this year. The increase in margin doesn't necessarily relate to increase in prices.

It relates to being able to buy better, it relates to mix, and we quite often talk about our goal, and we achieved it again this quarter, of growing our fresh faster than we grow the rest of our business. And that brings a very positive mix with it, and we've done that now for years on end.

So as you improve your mix, that's not increased prices. The price perception question is quite separate to those, and I guess I'm not arguing with your question around price perception.

But the clear message that I want to give today is that we've been competitive, there's no two ways about that, but we need to get cheaper. That's what we're doing and that's what this investment will give us the flexibility to do.

Now, just as a follow-up, if I may. The only way that manifests itself to us is looking at your EBIT margin.

Are you calling, like, some sort of step down in EBIT margins going forward?

I'm calling quite clearly, I'm calling that for this financial year, Lou. We've said very clearly that, whilst we could have a clear line of sight through to delivering within guidance this year we can, there's a clear line of sight for us to deliver profit within our guidance again this year.

But we're choosing not to, we're choosing to bring forward investment so that we can work on improving our sales momentum. So we're bringing that investment forward.

What's important for us is to deliver profitable growth at an EBIT level ongoing, to answer your point specifically, and we think these actions today will actually ensure that.

Hi Grant, David here. Just a quick one on sales.

I think you called our your comp sales at 1.2% for the second quarter. Can you give us a bit more color on how that evolved throughout the quarter, given that I think, you know, it was 2.1% in the first quarter and you were suggesting that October was strong.

I was wondering if you could sort of give us some color, of whether it was negative in December and how it might have gone in January and February?

The quarter that we're reporting on jumped around. So we had a number in the early part that was more akin to how we finished the previous quarter.

We had strong improvement in November, and then, as we've said we've had softer sales in December and January. That's the shape of it, and that's why we've made the decision to invest to get sales momentum to a higher level.

We're very keen to do that, we've started the investment, and our expectation is that that increased investment will lead to obviously increased sales and growth for the business.

Were those comps negative, or you're not prepared to say?

We don't call out individual month comps.

Yes, fine. Just is there any reason why you're not going to give us Food and Liquor EBIT going forward, or is that the case going forward, that number won't be given?

Yes, Dave we’ve talked about that really for two quarters now, but I'll let David give you the specifics. It's got to do with the change in fuel discount.

Yes, David, you might recall, as part of the ACCC undertaking, the petrol discount needs to be reported in the Petrol P&L, despite the fact that the majority of the benefit sits in Supermarket. So for us it didn't make any sense in separating those out.

Because whilst it would have been consistent, as you look forward, it's actually consistently incorrect. So we called out at the full-year, we would consolidate those into Food, Liquor and Petrol.

Thanks for taking another one. You guys have said in the past fairly consistently that you have the cheapest basket in the industry amongst four-line supermarkets.

Is that still the case?

I think we're signalling we're not cheap enough, Michael, and that's what the investment is about. What we've said in the past in relation to the baskets that we measure it on stands.

But that's actually immaterial.

Okay.

We're talking today about investing to get even cheaper. So clearly we’ve been confident of our pricing in the past, we remain competitive, but I'm not walking away from the fact that we're signalling very strongly today that we're going to invest deeper into cost, into prices, we need to be cheaper.

Okay. And obviously we can ask in May after you've done some more work on it.

But what happens if your major competitors just match prices, and then it becomes a little bit of a race to the bottom?

Yes, we're pretty disciplined, Michael, as you know, you've been following us for a while. We're not irrational in how we'll go about doing this, and we'll be careful with the moneys that we invest, that we get the returns that we need.

We can't predict what the competition will do. Our first contract is with our customers, and that is to make sure that they've got the prices they need to be confident.

We're the market leader, we should have market leading prices, we should have market leading service, we should have market leading stores. These investments will ensure that that's the case.

Hi Grant. Just wondered if you could provide a bit more color on that second quarter slowdown in comp.

Was it traffic that basically was the issue, or was it basket size? Just trying to get more of an understanding of what changed.

Yes, less items in basket, Phil, if I had to pin it to one thing, it's less items in basket.

Okay, and is that, I mean, I guess coming back to that pricing question about perception. I mean do you think it really is price that's the problem and that's going to solve it, or is it other issues such as labor in store and on-shelf availability?

I mean, can you give us a sense of the weightings of what you think is the most important in those factors, to try and change the momentum in sales?

Yes, it’s a good question and allows me to say that it's not just about price, it's not. It's about in store service, it's about the in store experience, and it's about the quality of the team that makes up the Supermarket division.

Price, because of the nature of it, will inevitably get the bigger share of that. Labor is certainly already got part of what we've invested this month and we'll get more as we go forward.

But quite naturally, because of the way the business works and the cost of goods sold element of our P&L, it means that the investment in price and communication of price is going to be the largest part of that pie. Again, we'll give more details in May.

I'm not trying to set up May as being the answer to everything, but you'll get a greater flavor of what that split is and some of the actions that go with it, once Dave and Brad have worked through the details of their plan. But quite naturally, the sort of split I've just outlined is what we would expect.

Good afternoon, Grant. Just two quick questions from me.

Just in light of the change, or the modification of your strategy, can you just talk to your store rollout plans with respect to productivity of new stores versus existing. Wouldn't mind some commentary around that.

Secondly, given your franking balance, any prospect of capital management in the next couple of halves?

I’ll answer the first bit and I'll ask Dave to make a comment on the franking credits, Craig, if that's okay. In relation to the stores, our guide in relation to new stores has been between 20 and 30 and looking at our pipeline over the next year, it'll be on the high side of the 20 to 30 in terms new stores.

I think we did call out in the release that in terms of refurbishment, there'll be a significant increase in refurbishment in the balance of this year and next year. So we know that refurbishments increase the productivity of your store base.

We've been pretty clear in saying we’ve had a different strategy for different reasons. We've been more focused on new stores on the ground in the past four years, because we've had an opportunity to take sites and increase our footprint and in turn increase our share.

Quite clearly we're signaling that we're going to increase the investment that we're making in our refurbishments, which will directly help comparable sales on a store-by-store basis.

Is your return on capital fee a refurbishment, I'm imagining that's a lot higher than the new stores. How do you sort of rank those by priority?

No, it's actually the other way around. I forgot to give Dave the opportunity to answer it on franking credits, which I'll do as soon as I finish this.

But no, it's the other way around, we get greater returns from new stores than we do from refurbishments, but it's not an either/or, it's a mixture of both. We've had our mixture skewed to new stores that mixture will be shifted back being more evenly widened between new stores and refurbishments going forward.

Dave, do you want to talk about franking?

Yes sure. I would say Craig, obviously you know we mange our balance sheet pretty carefully within our credit rating metrics.

We are very conscious of the value of the franking credit, certainly for domestic shareholders. I think historically we've got a pretty good record of returning funds to shareholders, but it's an area we continue to monitor, but its not something that I can say today is eminent, but its certainly something we keep a pretty close eye on.

Hi Grant. I just wanted to shift tack onto Big W, I'm sure there'll be more detail on that down the track as well.

But firstly a technical question. Of that provision of AUD148 million, what amount relates to inventory write-down?

The second question, where is your thinking at the moment about the positioning of that business, in terms of hard goods and soft goods?

I’ll answer the last bit first and I’ll ask Dave to talk about the provision. One of the things that we were pleased about in the Big W business in the period that we're reporting on is the performance of our soft goods.

Now, we think that can be a whole lot better, but there was good and positive same store growth in the soft goods section. That's because we're quite deliberately moving towards that and shrinking the hard good.

So Craig, you wouldn't be surprised to know that we had improved sales in soft and declining sales in hard, that's part of the transformation that's going on. I think the other thing that I would call out in respect to the Big W result is that our profitability for quarter two was higher than the corresponding quarter in the year before, which gives us the sort of increase in confidence that we talk about when we look towards FY’16.

But David, did you want to talk about the inventory piece?

Yes, Craig we - of the 148 we haven’t called out the breakdown separately. There's a couple of other things in there other than inventory, but inventory certainly represents the majority of the…

All right, thank you.

Thank you. I never got to ask my question on hardware.

Just on that, losses widening over the period on a PCP basis, but sequentially they have narrowed. Can we look forward to that as a trend?

Also, what sort of feel can we get for the losses narrowing substantially to the point where, you know, you'd reach breakeven?

Well, we've been very careful to release ourselves from the shackles of that sort of guidance. Your observations in relation to the profitability of the business are accurate and are moving in the right direction.

We're very focused on the three items [indiscernible] store rollout and the like, and getting those in the place. We're focused on delivering those, knowing that the delivery of those will be ultimately what determines the speed to profitability for this business.

It's not a question of profitability, it's a question of speed at the moment. We've got two new format stores only on the ground, we'll have more by the end of the year.

The early signs are good, if that continues to be the case then we'll have a clearer picture of the speed to profitability. But we've been, we're very careful in respect to talking about the business, except to say, as we've called out in the release that the performance of the actions taken that we said we would in August have been pleasing.

Just a follow-up before I get cut off. The new store format, do they have a breakeven point or a sales per store figure that's different from the existing network?

Again, I just want to keep our cards close to the chest. Obviously that's the objective, but those new stores have been open since Boxing Day only so…

Yes.

But that's, both in terms of mix, in terms of layout, in terms of range density, all of the things that Matt talked about before are in those stores and we're seeing very clearly what the outcomes of those are. At this point in time, all we're saying is that the progress on those new store formats was pleasing.

Thanks, guys. Just a question on Aussie Food and Liquor and the tobacco category.

Obviously there's been some tobacco excise increases in December 2013 and September of 2014. Can you just talk about how the business has performed ex-tobacco, because I understand that's a decent chunk of your sales and would have grown a fair bit during those periods when the excises went up?

Yes, thanks Tom. My understanding, you are exactly right there was a really big excise increase in September last year and a follow-up one in September of this year.

From our point of view, that's been met with a corresponding reduction in volume so from a comp sales point of view, on my reading, and I'll just look to David if we took out cigarettes, our comp sales would have actually improved, is my reading of it.

Yes, they would have improved overall. We haven't called out a number on that, but yes, there would have been some improvement.

So the tobacco category was down even though pricing went up 15% or so?

Which is volume issue.

Right. Okay, thanks.

Hi guys. You've called our subdued Food and Liquor conditions in January.

Just interested in your views across the broader business, Home Improvement, general merchandise, et cetera. Has that been a similar trend, or have you seen other conditions?

I mean, we have seen pretty positive trends across the market from other retailers reporting over February, so just interested in your view there?

Yes, we cover quite a few categories across the Group, as you know, and the simple answer to your question is it's patchy. Certainly in terms of Food, it was below our expectations.

But the other businesses are basically trading in line with where we expected them to be.

Okay. You have a clear preference for internal candidates for senior management, as we've seen in Food and Liquor.

Are you looking at external candidates to replace Brad and David in their previous roles, and do you actually see the value of fresh ideas in the business, when you do see the potential to make some changes at the top?

Yes, and I think we've clearly demonstrated that in recent appointments. Matt Tyson is a good example of that, Alastair is a good example of that, both Matt coming from B&Q and Alistair most recently from New Look.

But I would say those fresh eyes also extend to Brad and Dave. Brad possibly has been in the Woolworths Group has been in quite a different business to the one he's now got charge of and Dave brings the great advantage of operating in a Food and Liquor business, as it is in New Zealand, but in a new market.

So in a way we've, whilst they're internal appointments in Dave and Brad, they're a new set of eyes. So to your specific question about whether or not we'll look in Brad and Dave's replacement externally, again I'd just point to our succession plans.

We’ve got names against those replacements. The reason why we haven't announced those immediately is that we will simply just catch our breath and look at what our options are in respect to New Zealand and Liquor down the track.

But to be clear, Brad maintains stewardship of Liquor at this particular point in time.

Thank you. Probably David, this is a question for you.

Can you explain the big increase in receivables, where that actually came from, because most of your business is a cash received business. And the other one, David, provisions, even though you had AUD150 million increase in provisions for Big W, when I look at your balance sheet, your provisions really only increased by about AUD50 million, AUD60 million.

And that's despite bond rates having fallen, which would have meant your long dated provisions for long service leave and employee entitlements would have gone up. I'm surprised your provisions didn't go up a lot.

Were there provision releases in this result? Because the cash realization was a bit below where I would have expected it to be.

Okay, a few bits in that, David. So no provision releases in this result.

Cash realization basically back to the point that we talked about earlier around their operating cash flow. Our operating cash flow was impacted by those two points that I touched on.

Firstly, there's a timing point of, the month end creditor run accounted for quite a bit versus last year and also, the way we brought inventory into our Food and Liquor business, expecting a big uplift on that, which didn't materialize. So in effect, we bought the stock in, sold the stock, sorry, paid for the stock, but still had some of the stock.

So that's what popped out as an issue with respect to the cash realization. It's all back to the net increase in investment at inventory, which is more the payable side than the inventory side.

Yes.

With respect to receivables, there's two points. One is, some of the businesses we acquired came with receivable balances, so particularly the trade businesses in home, timber and hardware, which we've called and the other is essentially a development receivable on the sale of one of our big supermarkets.

So that part of that sale came with a long term receivable which is being paid back over a number of years.

Okay, thanks David.

You bet. End of Q&A

Thanks to everyone for your questions today, and we look forward to talking to you at various times over the coming weeks. Thank you.