Ladies and gentlemen thank you for standing by and welcome to the Wesfarmers 2020 Half Year Results Briefing. Your lines will be muted during the briefing. However, you will have an opportunity to ask questions immediately afterward and instructions will be provided on how to do this at this time. This call is also being webcast live on the Wesfarmers website and can be accessed from the homepage of wesfarmers.com.au. I would now like to hand the call over to the Managing Director of Wesfarmers Limited, Mr. Rob Scott.

Hello, everyone, and welcome to Wesfarmers 2020 half year results briefing. I'm joined today by each of our divisional managing directors and also our CFO, Anthony Gianotti. Officeworks is represented by acting Managing Director, Michael Howard, while Sarah Hunter is on parental leave. I'll begin with an overview of the group performance for the last half year, following which Anthony will provide commentary on the group's other businesses, balance sheets and cash flow. The divisional managing directors will then provide an overview of the performance and outlook for their respective businesses and then I'll conclude with some comments on the outlook for the group before taking questions. I just wanted to start on slide 4, which is around sustainable value creation. Now this slide will be a familiar slide to you and it reinforces our primary objective, which is to deliver satisfactory returns to shareholders. We recognize we can only achieve this over the long-term if we create shared value for all our stakeholders and this also includes taking care of the environment. Now there's no better example of this in action than our long-term commitment to communities. And I think it is worth reflecting on the group's response to the Australian bushfire relief and recovery efforts over the last few months. So turning to slide 5, I just wanted to make a few remarks before we get into the financials. Now like everyone across the country, we were shocked and saddened by the devastating fires that have affected communities across Australia. Together with our team and customers Wesfarmers has contributed over $4 million to the bushfire relief and recovery efforts. In addition to financial support, our businesses were uniquely placed to directly assist many local communities where we have an on the ground presence in our businesses. This included providing extra supplies of critically and urgently needed products, ranging from respirator masks to backup batteries, cleaning products and so forth. Now this wouldn't be possible without the tireless efforts of our team across our various businesses and I'd like to take this opportunity to thank all of them for the contribution they've made to the communities. Now we'll turn to the financial overview on slide 6. You can see that for the first time we've reflected the adoption of AASB 16, the new lease accounting standards. But for the purposes of comparison, we will focus on the performance excluding the impact of AASB 16 and Anthony will talk to this in more detail. So at a group level, revenue increased by 6%, a pleasing result that reflects strong sales growth in our retail businesses including Bunnings, Kmart and Officeworks. The group net profit after tax from continuing operations for the half increased 5.7% to $1.1 billion, a result that was underpinned by the strong performances of the group's largest businesses in Bunnings and Kmart as well as solid ongoing performances from WesCEF and Officeworks. Strong cash flow generation was also a highlight for the half, which as Anthony will share later reflects our continued focus on working capital management and disciplined capital expenditure. Our directors have declared a fully franked interim dividend of $0.75 per share. As flagged previously, the change in the dividend from the previous corresponding period reflects the demerger of Coles as well as the divestment of Bengalla. You would have also seen that last night we sold down 4.9% of our shareholding in Coles. At the time of the demerger, we made a decision to retain a strategic 15% stake in the business to demonstrate our ongoing commitment to Coles and in recognition of the strategic collaboration between Coles and Wesfarmers in flybuys. We have been very pleased with the performance of our investment in Coles and felt it was timely to take some profit on our investment. We will retain a significant 10.1% interest in Coles, a level which will also allow us to retain our nominee director on the board. This continues to reinforce the ongoing collaboration between Coles and Wesfarmers through flybuys and our commitment to develop this business in the future. Turning to slide 7 and the sales performance of our divisions, sales growth accelerated in the majority of our businesses. At Target, total sales growth was impacted by ongoing optimization of the store network. The overall sales growth was also supported by continued strong growth in online sales, which increased 35% for the half. The improvement in our e-commerce sales continues to complement our existing store networks with sales density improving across the group's retail businesses. Turning to slide 8 on earnings performance. Each of our divisional managing directors will cover their businesses in more detail but I wanted to make a few overall comments. As we noted previously, a number of our divisions faced cost headwinds during the half, largely as a result of higher personnel cost for new enterprise agreements and payroll remediation, increased investment in digital and technology and the impact of the lower Australian dollar on cost of goods sold. As the divisional managing directors will cover in more detail, we've made reasonable progress offsetting some of these cost measures -- cost pressures through productivity initiatives and sales growth. But these pressures have had an impact on earnings for the half. Bunnings delivered another strong result with ongoing growth in sales and earnings. Bunnings continues to benefit from the diversity of its customer base and the resilience of its product offering, while in recent months it has significantly strengthened its e-commerce offer. As we flagged at our AGM, the performance of the Kmart Group over the half was mixed. In Kmart Ian Bailey and the team have addressed a number of issues that impacted operational performance in the prior half and have delivered a significant increase in sales momentum. Despite the ongoing progress in optimizing the store network, the performance of Target was below our expectations, along with continued investment in retail technology and digital capabilities this has impacted the overall result for the Kmart Group. Given the relative size of Kmart and Target, the return to strong sales momentum in Kmart was particularly pleasing and highlights Kmart's strengths in product innovation and delivering great value to customers. Officeworks has delivered another strong result as it relates to sales growth and continues to benefit from its investment in its omni-channel offer customer value as well as new and expanded product ranges. There's been a lot of investment going to the office business recently which Michael will talk to. Moving on to Industrials, the WesCEF business continued its solid performance. We continue to see strong demand from key markets in our chemicals energy and fertilizers business. The performance of industrial and safety reflects the disappointing performance of Blackwoods as well as the one-off impact of payroll remediation costs during the period. Following the payroll errors previously identified and announced last year, all of Wesfarmers businesses have conducted extensive reviews of their respective payroll systems and processes. As a result of these reviews some additional payroll errors have been identified. Immediate steps have been taken to start the process of rectifying these issues and notifying and repaying affected team members, and to ensure accuracy in the future. The group's first half results include the impact of estimated remediation costs and associated expenses. We have separately disclosed the estimated cost relating to Target and industrial and safety to support the understanding of underlying earnings for these businesses. The review did not identify any material errors in remaining businesses. Moving to divisional return on capital on slide 9. Following the acquisitions of Catch Group and Kidman Resources capital employed has increased in Kmart Group and WesCEF but our commitment to disciplined capital allocation has not changed. Anthony can talk more to this in his section, but I've already mentioned the pleasing cash flow generating the performance across the operating divisions, which reflects an ongoing strong focus on working capital management and disciplined CapEx. Turning to slide 10, our businesses have their own unique strategies, but all remain focused on delivering sustainable growth over the long term. It's clear from the results released today that providing better value to our customers is more important than ever. Kmart's reported sales growth this half is a great example of the importance that its customers place on being able to buy quality products at incredible prices. From a group perspective, we are pleased to support our divisions investing for the long-term. The launch of the expanded Officeworks back-to-school program during the half and the investment in Geeks2U are great examples of this. All businesses continue to invest in their data and digital capabilities, with highlights this half including the rollout of click and collect across Bunnings Australian stores. Pleasing progress continues in relation to the group's digital strategy, with a number of divisions successfully implementing initiatives in conjunction with the group's advanced analytics center. We will also continue to build on our unique capabilities and platforms. During the half, we completed the acquisitions of Catch and Kidman, as I mentioned, whilst modest investments both provide new growth platforms that will benefit from the group's existing capabilities and support shareholder returns over the long term. I'll now hand over to Anthony, who will talk in more detail to the group's balance sheet and cash flows.

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, our statutory results for the half reflect the adoption of AASB 16 for the first time. To assist with providing a better understanding of the performance of our operations, the commentary in our disclosures is focused on our pre-AASB 16 results to align with the basis of preparation of our prior period results, which have not been restated. Our commentary is also focused on continuing operations given our reported results in the prior period, included significant contributions from discontinued operations and significant items. With that background, I'll start with an overview of other business performance on slide 13. In total, other businesses and corporate overheads reported a net profit of AUD 72 million for the half. This compared to a profit of AUD 27 million in the prior period. Within this result earnings from associates and joint ventures were AUD 134 million, an increase of AUD 69 million. The increase primarily reflects the recognition of a full period of earnings from Wesfarmers share of Coles net profit after tax. The result also benefited from stronger property revaluations in the Bunnings Warehouse Property Trust. Our corporate earnings were AUD 2 million for the half compared to a profit of AUD 27 million in the prior period. The decrease reflects the non-repeat of the one-off AUD 33 million gain in the prior period from the revaluation of our investment in Barminco as well as a reduction in the contribution from the value sharing arrangement entered into as part of the sale of the Curragh coal mine, which fell AUD7 million to AUD9 million for the half. Other earnings also include the AUD28 million of annualized benefit in operating costs transferred to Coles following the demerger. Corporate overheads of AUD68 million was AUD6 million lower than the prior corresponding period. Turning now to operating cash flows on slide 14, divisional cash generation during the half was a highlight and increased 11 percentage points to 126%. The strong cash flow performance reflects our strict working capital management and disciplined approach to capital expenditure as well as the cash generative nature of our portfolio. At a Group level, our cash realization of 117% was up 19 percentage points on the prior period. The Group's cash flow performance benefited from the strong divisional cash generation and higher dividends received from associates -- from our associates including the receipt of our Coles dividend for the first time following the demerger. Overall, reported cash flows from operating activities decreased as the prior period included operating cash flows from Coles and our other divested businesses. Turning now to working capital and free cash flow on slide 15. The Group recorded a favorable working capital movement during the half, although this movement was below the inflow from the prior half we're pleased that with this positive result as our businesses continue to maintain good working capital disciplines. The relative decrease was primarily due to the unfavorable timing of shipments and foreign exchange rate movements within the fertilizers business and this was partly offset by improved inventory management across both Bunnings and Kmart. Reported free cash flows during the half were lower than the prior corresponding period due to the acquisitions of Kidman and Catch during the period, which totaled approximately AUD1 billion. This compares to the prior period, which includes operating cash flows from discontinued businesses as well as AUD1.1 billion of net proceeds from the divestments of Bengalla, Quadrant and KTAS. Turning to capital expenditure on slide 16. Gross capital expenditure from continuing operations of AUD455 million was in line with the prior period. Capital expenditure in Bunnings increased due to the continued investment in developing the digital offer while capital expenditure in WesCEF increased as a result of the investment in the Covalent Lithium joint venture following our acquisition of Kidman Resources. Lower capital expenditure in Kmart Group reflects delayed timing of store refurbishments in Kmart and lower capital investment in Target. Proceeds from disposals was in line with the prior half of AUD248 million, which included AUD224 million of property disposals in Bunnings. In total this resulted in net capital expenditure of AUD207 million, which was broadly in line with the prior period. For the 2020 financial year, we expect that net capital expenditure for the Group will be between AUD500 million and AUD700 million. As always this will be dependent on the level of freehold property activity within Bunnings. Turning now to the impact from the adoption of the new lease accounting standard on slide 17. As you will have seen our statutory results reflect the adoption of AASB 16, which has brought leases onto our balance sheet for the first time. Wesfarmers has recognized lease liabilities of AUD7.3 billion and a corresponding right-of-use asset of AUD6.4 billion. In terms of impact on our reported profit and loss, the adoption of AASB 16 has resulted in a AUD580 million decrease in occupancy expenses, which is offset by a AUD464 million increase in depreciation associated with the right-of-use assets and an increase in interest on lease increase of AUD119 million. Overall, these result seen significant changes through our reported EBITDA and our reported EBIT. As I've already mentioned, we have gone to some effort to present our results on a comparable basis, but clearly detailing the impact of AASB 16 at both a divisional and at a group level. As previously announced, the adoption of AASB 16 also reduces the gains on sale recognized on sale and leaseback transactions. For the half this resulted in AUD20 million reduction in property contribution in Bunnings. The lower realized gain on sale will be offset through lower depreciation over the life of the relevant leases. While the adoption has been – has had a significant impact on the presentation of our financial statements, I think it's important to note that the standard has not materially impacted the group's reported NPAT and has not resulted in any change to our cash flows, debt covenants or our credit ratings. Importantly, the standard will also not impact the group's decision-making processes, which have always considered leases as a form of capital. We've included further information on the impact of AASB 16 on our balance sheet, profit and loss and cash flow in the appendix to this presentation on Slides 48 to 50. Turning now to Slide 18 in the group's balance sheet and debt management. The group's balance sheet remains strong with net financial debt excluding lease liabilities at the end of the half of AUD2.3 billion. This is broadly in line with the position at the end of the most recent financial year but up AUD1.9 billion on the prior corresponding half. The increase reflects the acquisition of Kidman and Catch during the half, as well as the payment of the special dividend in April last year. Finance costs decreased AUD28 million on the prior corresponding period due to a lower average debt levels and a decrease in our effective cost of debt to approximately 4.8%. Our all-in effective cost of debt will continue to decline as our longer-term bond debt matures over the coming years starting with the repayment of a AUD350 million medium-term note with a coupon of 4.75% in March this year. During the half, we continued to maintain our strong investment-grade credit ratings from both S&P and Moody's. The group retains a well-balanced debt maturity profile and appropriate diversification of funding sources. As Rob mentioned earlier, we announced yesterday that the group has sold a 4.9% interest in Coles. Gross proceeds from the transaction are approximately AUD1 billion before tax and we expect to recognize a pre-tax gain on the sale of approximately AUD160 million. Consistent with our usual practice, we will finalize the tax implications of the transaction and assess our future capital requirements. This assessment will include looking at opportunities to return proceeds to shareholders in the most tax effective manner. Turning now to Slide 19 and the management of our lease portfolio. Wesfarmers' undiscounted lease liabilities totaled AUD8.7 billion at the end of the half. The group's average lease tenure weighted by dollar commitments also decreased to five years during – to five years due to the continued disciplined management of leases across our retail book businesses. We continue to focus on lease adjusted return on capital, as I mentioned before as a key metric for determining our network investment decisions across portfolio. Turning to slide 20, and dividends and capital management, again as Rob mentioned, the Board declared a fully-franked ordinary interim dividend of AUD 0.75 per share. The interim dividend reflects the earnings from continuing operations and the group's interest in Coles and is in line with our historic payout ratio. This dividend is consistent with our dividend policy, which seeks to maximize the value of franking credits to shareholders while having regard to current year earnings, credit metrics, and forecast cash flow requirements. The interim dividend will be paid on the 31st of March to shareholders on the company's register on the 25th of February. The group will again provide shareholders with the option to participate in the dividend investment plan. Given our strong cash flow performance and credit metrics, it is our expectation that shares for the plan will be purchased on market. And with that, I'll now hand over to Mike Schneider.

Thanks, Anthony, and hi, everyone. First and foremost, I'd like to start by acknowledging the Bunnings team for their hard work throughout the half and in particular their local support during the devastating bushfires across Australia. As always, our team has stepped up provided, products time and services to those in need, supported emergency services and those who lost their homes, businesses and livelihoods. In addition, close to 100 of our own Bunnings team have taken paid time away from work to fight fires as members of volunteer emergency services and defense force reserves. I'd like to sincerely thank them for their commitment and brave efforts. Our thoughts are with the many Australian communities that have been affected by the fires and our stores will continue to offer their support to these communities as we always do. Now on to our results. Starting at slide 22, it's been another busy start to the year right across our Bunnings business. Pleasingly, safety our number one team measure improved 13% to 10.4% in terms of total reportable injury frequency or TRIFR down from 12% in the previous corresponding period. We are pleased to continue to see our safety results improve, but any injury to any one of our team is one too many and this continues to be a focus area for us to ensure every one of our team members goes home safely every day. Operating revenue increased 5.3% to AUD 7.276 billion for the half with earnings increasing 3.1% to AUD 961 million. Turning now to slide 23. Total store sales growth of 5.8% was achieved during the half with an increase of 4.7% store-on-store sales. We saw growth in consumer and commercial markets across all our major trading regions and this result was pleasing given it was achieved despite significantly lower housing construction activity across Australia. As we foreshadowed in the full year results, there was a lower net contribution from property, and when this is excluded earnings are up 4.3%. Similarly, we incurred additional operating costs of AUD 10 million associated with the development of the digital offer as noted in our full year results. Additional store costs associated with fulfilling online sales are being offset by productivity efficiencies. Solid earnings, ongoing property recycling and a strong working capital focus underpin the return on capital of 52.2%. Turning to slide 24. We remain focused on disciplined execution of our strategic agenda throughout the half. Bunnings continues to operate in a highly competitive market, and we continue to work hard to strengthen our offer and ensure we are chosen by our customers. Building relationships with our customers over the long-term ensures we understand and can respond to their changing needs. It builds trust and allows us to create a more meaningful series of interactions with them. We continue to invest in our store network opening 8 new trading locations including one replacement trade center and completing 8 upgrades and expansions to keep our stores current across the existing store network. These ongoing improvements ensure we continue to reach new markets and create the best possible experience for our customers. Through our supplier partnerships, we remain focused on expanding our product range and investing in innovation to ensure we are meeting our customers' changing needs and continue to invest in customer value to deliver a highly competitive offer. As always this continues to be underpinned by our strong commitment to our clear policy of lowest prices which is backed up by a price guarantee. We're seeing more demand for smart home products as customers look for ways to make their homes more secure, safe at convenience or a system to be able to stay in their homes longer. Smart home products now stretch beyond just lighting and have been incorporated into the broader home for example watering systems and Bunnings has an opportunity to provide the entire offer, a unique point of difference and convenience for our customers. We've also seen a strong trend towards indoor plants, artificial plants and indoor/outdoor pots as customers add a more natural feel to their interiors. We are also seeing continued innovation in categories such as paint with Dulex’s new renovators range, eliminating the needs to do the hours of prep work, double what's required and enabling our customers to simply paint over most surfaces in their bathroom, kitchen or laundry for example things like carts and cabinets and we've also added porters paint to our offer. The simplicity, ease and power that a lot of products now have, means that some of the core DIY skills that previous generations may have needed to get started aren't used as often anymore. So we're focused on educating and engaging customers in different ways. Our new content series, Make It Yours was launched this half. House on YouTube and Instagram it focuses on stylish and affordable cosmetic updates for our customers' homes. We've been really pleased with the response in this series which has enabled us to connect with our customers in a different way. As we build out our offer to meet the changing needs of our customers, we continue to expand our installation and assembly offers with 35 services now available. We have continued to focus on ensuring that our team members have the knowledge and skills to provide expert advice to customers about their product choices or projects. We are incorporating digital technology and live streaming as a part of our learning modules to make it even easier for our team members to gain access to training and we saw a solid increase in team member training hours and attendances this half. For the commercial business we're seeing pleasing growth in the PowerPass program. And we continue to focus on deepening relationships and making our offer even more relevant and convenient for our trade customers. We now have over 700,000 active PowerPass customers and we've increased engagement with them through our store network as well as digital tools like the PowerPass app which has now had over 100,000 downloads since its launch. We also expanded our product and services partnerships with PowerPass customers now having access to special offers through partners like Evari Insurance and MYOB where they have the ability to link their PowerPass account transactions directly to their accounting software. We continue to look at ways to help our trade customers run and grow their businesses, making it more efficient and easier for them to manage. We also announced this half that we have entered into an agreement to acquire the South Australian retailer Adelaide Tools, pending regulatory approval. While it is a small transaction, we are committed to it and are currently working through the regulatory process. We continue to invest in our data and digital capabilities this half, completing the click and collect rollout in Australia, which has had great PR from our customers. We're finding that customers are using click and collect for large project-based purchases and are shopping in-store for additional products when they come in to pick up their orders. We continue to progress the click and deliver rollout to additional stores across South Australia, Northern Territory and Victoria, following on from initial store trials in Tasmania and the ACT. Customers can now order for delivery from more than 100 stores in our network, and we will continue to expand this in the coming months. The engagement from customers with our click and collect and click and deliver offers has enabled us to provide great service, both in-store and online, 24 hours, 7 days a week to ensure a seamless experience for our customers. We launched our online marketplace, Bunnings MarketLink in November, which allowed us to deliver a curated range of home and lifestyle products through our trusted sellers program, literally everything from the front gate to the back fence. While it's still early days, we've seen positive response from our customers, and we're also delighted by the response from our trusted sellers, we're able to leverage the existing strong traffic through the Bunnings website. We are continuing the use of analytics for inventory optimization and sales and store productivity, optimizing stock by store, improved sales productivity and more efficient stock flows deliver store labor productivity improvements, which enable us to invest more in customer service. Now turning to slide 25. We expect moderated trading conditions to continue in the second half as customers are expected to remain cautious, while significant weather events and bushfires continue to impact communities around Australia. We continue to focus on our strategy of creating better experiences for our customers in-store and developing our wider digital capabilities. As part of this continued investment in data and digital, we want to ensure we have the right access to world-class capability. We will be establishing a Bunnings Technology Center in Bangalore, India, which is an extension of our existing team and complements our focus on building our internal technology, digital and data capabilities to deliver the best possible customer experience for our customers, team members and suppliers, as well as drive insights to improve our business. We will also focus on building out the click and collect offer in New Zealand this calendar year. We will further expand our installation and assembly services this half with many new offerings underway, including installation services for bathroom cabinetry, towel rolls and TV wall brackets, to name a few. We will continue to respond to customer demand in this area. We have 13 new stores currently under construction and five upgrades and expansions due to be completed this half. As always, we will continue to support the local communities in which our stores operate. Since November last year, we have helped raise over $1.4 million for communities affected by the devastating drought and bushfires, and our local teams will continue to offer their support in the communities in which they operate on the long road to recovery. I would again like to thank our amazing team and our suppliers for their contribution to this half's results. That's it for me, and I'll now hand over to Ian Bailey.

Thanks, Mike, and hello, everyone. Please turn to page 27 for an overview of Kmart Group's performance summary. Kmart Group delivered revenue of $5 billion for the half, a 7.6% increase on the prior corresponding period. Driven by the continued strong performance of Kmart. Earnings for the half were $345 million, including a provision of $9 million for a one-off payroll remediation costs in Target incurred over a 10-year period. Any payroll errors are unacceptable and we are taking immediate steps to rectify the issues and notify and repay affected team members. Excluding these one-off remediation costs, earnings were down 7.6% on last year with Target performing below expectations. The results of the half also included cash since acquisition on the 12th of August 2019. The Group's safety format has improved significantly during the half. The total recordable injury frequency rate decreased from 16 to 21 in the prior corresponding period. This reflects ongoing initiatives to improve safety across stores, distribution centers and store support offices. Turning now to slide 28. During the period, Kmart sales grew by AUD241 million on the prior year, more than offsetting a decline of AUD67 million in Target. Total sales growth of 7.6% was achieved in Kmart due to the continued focus on lowest price positioning and stronger operational execution relative to the prior year, supported by enhancements to the product range, which delivered growth across all categories but especially so in women swear and home. Target sales were below expectations declining 4.3%. The sales decline was driven by store closures and a reduction in customer transactions with key categories in apparel performing poorly. Under Wesfarmer's ownership Catch has generated AUD155 million of revenue with gross transaction value growing by 21.4%. During the period, Catch implemented a number of initiatives to strengthen the customer offer; including enhancements to Club Catch and offering click and collect across a number of Target stores. Turning now to slide 29. Kmart delivered strong growth in earnings in line with sales growth during the half despite unfavorable foreign exchange rate impacts and higher team member wages due to the implementation of the new enterprise agreement. This reflects came out strong market position and improved execution of its strategy. Despite the strong performance of Kmart, total earnings for the half were lower than the prior year due to a significant decrease in Target's earnings as a result of weaker sales performance. The result also reflects the investment of approximately AUD15 million to develop retail technology and digital capabilities including our investment in Anko USA. Effective capital management remains a focus with inventory levels well controlled throughout the half. Kmart Group continues to optimize the store network with Kmart opening five new stores including one replacement and completed 10 refurbishments during the half while Target closed four stores bringing the total stores to 521 across the Kmart Group. Turning now to Slide 30. Kmart remains well-positioned in the market and we'll continue to focus on maintaining its price leadership position. Kmart's relentless focus on reducing costs and improving operational productivity will help mitigate the expected cost headwinds from lower exchange rates and higher team member wages in the second half. Target's performance is unlikely to improve materially in the near-term, but the business will continue to focus on enhancing its product offering destination categories and further reduce operational costs by accelerating the optimization of the store network and leveraging Kmart Group. To meet evolving customer expectations and shopping behaviors, Kmart Group will continue to increase its investment in digital capability including through Catch, which remains focused on growing its gross transactional value. The business is closely monitoring the impact of coronavirus outbreak on supplier operations, identify delays to product flows at this stage are minor. However, the situation is evolving rapidly and new information comes to light daily. Finally I'd like to take this opportunity to thank our team members across the Kmart Group and their hard work and support. It's been a very intense period with bushfires in Australia and coronavirus in China. I couldn't be more proud of our team and how they have responded. Thank you, and I'll now hand over to David.

Thanks, Ian and we're now moving to Page 31. The Industrials division comprises WesCEF and the Industrial and Safety portfolios. The current half year result reflect a strong operational result from the WesCEF business, albeit impacted by commodity prices and increased competition offset by a very disappointing result across the Industrial and Safety Portfolio. Whilst we have seen sustained improvement in the leading service metrics for the backwards business, it is taking longer than anticipated to see earnings materialize. I want to commend the hard work by all the teams in the past year of activity. The payroll remediation team deserves special mention for working tirelessly to ensure all our current teammates were completed by the 31 of December and all former teammates will be completed by June 30 this year. Turning now to WesCEF. An increased focus on safety saw total recordable injury frequency rate fall to 3.1 versus 5.3 for the prior corresponding period, one of our lowest results ever. This continuing downward trend is testimony to the ongoing efforts of Ian Hansen and his team to continue to focus on improving the safety outcomes for our teammates. The EBIT result of $174 million was down on the prior year. The result represented small revenue growth but a decrease in key commodity prices and some margin compression due to the competitive environment. The result includes expenditure on the exploration portfolio acquired as part of the acquisition of Kidman Resources and the Decipher business, which is not yet profitable. Turning now to the overview. Chemicals delivered a result broadly in line with the prior period. The ammonia and ammonium nitrate businesses continue to experience robust demand. This is primarily driven by the iron ore sector in Western Australia with customers expanding or replacing mines in the Pilbara. We expect the Burrup plant to come online between March and September of this year. The strength in the gold price helped buoy demand for our sodium cyanide business. The business performed well with strong plant availability and production performance for the period. The Kleenheat business was impacted significantly by lower Saudi CP in the period, the reference contract price for our LPG sales. The fertilizer business benefited from late seasonal rains, which carried demand over into the early part of this financial year. Now turning to the outlook for WesCEF. The various plant performances across availability and production volume is expected to remain stable. The end markets we serve, primarily in iron ore and gold in the chemicals portfolio are expected to remain robust. We are however monitoring carefully the impact of any disruptions to trade flows in China. There is also likely to be continued moderation in earnings as the Burrup plant comes online. Kleenheat will continue to face intense competition and discounting in natural gas retailing in Western Australia. And in fertilizers, we expect there to be caution amongst growers for the upcoming season given the lower harvest outcome in calendar year FY 2019 for Western Australia. Turning now to Industrial and Safety, pleasingly the total reportable injury frequency rate declined significantly to 4.1%. The earnings performance of Industrial and Safety was impacted by disappointing half year in Blackwoods and coupled with a number of discrete headwinds in each of Workwear Group, Coregas and GreenCap. The result includes a AUD15 million one-off payroll remediation cost incurred in the Industrial and Safety division during the half, bringing the total to AUD23 million that we announced at last year's AGM. Excluding the payroll remediation costs, earnings of AUD21 million or a 50% decline on the prior year, the drivers of which are set out in the following slide. For Blackwoods, the earnings decline in Blackwoods was driven by a shift in revenue mix. We saw sales growth in strategic customers and in Western Australia but that was more than offset by sales declines in other segments on the East Coast. Earnings were further impacted due to our continued investment in customer service and digital capabilities such as the ERP system, its implementation of which is currently delayed and other restructuring initiatives. As previously announced, we implemented a new regional leadership structure midway through the half year period. This structure supports a stronger local customer-facing teams in field sales, inside sales and branches to deliver an improved end-to-end customer experience, to increase the customer ownership at a local level and to promote a customer-centric sales culture. Our merchandising supply chain and support functions have been streamlined, but remain a national function. Since the implementation of this structure service metrics such as customer feedback and NPS have improved markedly. DIFOT continues to be consistently above 95%. For Workwear Group, earnings declined due to primarily deferred end-to-end programs in our uniform business, the underperformance of some of our small to medium enterprise customers and a weakness in the U.K. market, along with the impact of foreign exchange on sourcing costs. Prior period earnings did also benefit from one-off insurance proceeds and the profit from our divested network of retail stores. In Coregas, revenues increased during the period, but earnings were slightly lower primarily due to higher raw material and freight costs. And in GreenCap earnings were in line with the prior period, driven by lower revenue in the expert services offset by improved utilization and growth in our online services. Turning now to the outlook for industrial and safety. Blackwoods is focused on regaining sales momentum in the Eastern states, as well as continued investment in the ERP system. A material impact – a material improvement in Blackwoods performance is not expected until these initiatives are complete. Workwear Group continues to focus on its end-to-end sales program, along with the continued investment in digital tools to drive cost and operating efficiencies to meet competitive challenges. Coregas earnings are expected to be impacted by competitive pressures and higher input and distribution costs. I'll now pass over to Michael.

Thanks, David, and hello, everyone. I'm pleased to be joining you today to report that Officeworks has continued to deliver revenue and earnings growth during the half just completed. Turning to slide 39, our focus on the safety, health and well-being of our team remains paramount, which is why we're pleased to see a 35% reduction in our total reportable injury frequency rate to 7.1%. There's still more to do in this space, but we're pleased with the progress we're making. From a financial perspective, revenue grew by 11.9% to AUD 1.2 billion during the half. Earnings grew 3.9% to AUD 79 million. Turning to slide 40, sales momentum was underpinned by robust transaction growth as our every channel offer continued to resonate with customers. Strong sales growth was delivered in stores and online. The price trust we have built with customers is particularly important to us. And we continue to work hard to ensure, we're able to deliver low prices. At the same time, we understand that low prices alone are not always enough. So we also maintained our focus on providing customers with the widest range and great service. In responding to the needs and wants of our customers, we launched our back-to-school program before Christmas this year, with very positive results. Our product range continued to evolve with new and expanded products in categories such as art and education supplies. We also continued to invest in the customer experience with enhancements to our mobile app and our online checkout process. Pleasing momentum was maintained in the business-to-business segment as that part of our business continued to deliver strong sales growth. Turning to slide 41. Earnings growth was impacted by the need for ongoing investment in price to ensure we maintain our low-price credentials, as well as changes in sales mix. Productivity improvements helped to partially offset the increase in cost to doing business, including the investment we are making in increasing team member wages following the implementation of our new EBA for store team members during the half. Return on capital finished the half at 16.9% as the business invested in working capital to support the strong sales growth, as well as remaining focused on investing in long-term growth initiatives, including the acquisition of Geeks2U in March 2019. The focus on maintaining a disciplined approach to capital management remains core to the way we run the business. Turning to Slide 42, having a healthy and engaged team that is safe and feel that they belong is key to the success of our business. Our new store enterprise agreement was approved by the Fair Work Commission in October and successfully implemented during the half. Delivering an easy and engaging customer experience has remained a focus which was reflected in an improvement in our customer satisfaction levels. Officeworks is committed to operating a responsible and sustainable business that supports the communities in which we live and work. Highlights from this half include our Wall of Hands fundraising initiative which saw team members raised more than $800,000 through customer donations for the Australian Literacy & Numeracy Foundation. We're also able to recycle 84% of our operational waste. During the half we commenced selling our Geeks2U offer in our stores and online. We continue to run a number of trials in this space with a favorable response from customers thus far. The expansion of our Townsville store in far North Queensland was completed in October with a number of the range, layout and service initiatives trialed in our Mentone store in Victoria included in the scope of works. Turning to Slide 43, in terms of outlook we remain focused on making bigger things happen for our team, our customers and the communities in which we live and work. All these stakeholders are integral to the success of our business. We will continue to drive long-term growth by executing our strategic agenda. Earnings growth in the second half is expected to be moderated by continued investment in price, team and technology. I'd like to take this opportunity to recognize and thank the Officeworks team for delivering another half of positive progress. The team and I are looking forward to building on our recent progress to continue to deliver satisfactory returns to shareholders over the long term. Thanks and back to you Rob.

Thanks very much Michael. Now turning to Slide 45 just for the outlook. Going forward our portfolio of cash generative businesses with leading market positions are well-placed to deliver satisfactory returns to shareholders over the long term. Given our commitment to retaining a strong balance sheet combined with diversity and resilience of within the portfolio, the group remains well-positioned for a range of economic conditions. All of our divisions are closely monitoring the impact of the coronavirus, particularly the recommencement of supply operations in affected regions. We will continue to accelerate plans to address the unsatisfactory performance in industrial and safety and Target. We will remain disciplined in our approach to capital allocation when considering opportunities to invest within our businesses or new opportunities to create value for shareholders. And that brings us to the end of the briefing. We'd now be happy to take any to take any questions.

[Operator Instructions] Your first question comes from the line of Bryan Raymond from Citi. Please ask your question.

Good afternoon. My first one is just on Bunnings and the store rollout relative to the online performance in the business or the online rollout I should say over the next few years. Can you just give us a quick update on where online is up to in terms of states that have delivery enabled and they couldn't collect as widely available now, but where delivery is available? And also what the investment into the second half in terms of cost is likely to be? And then maybe we can talk to the store rollout plans once online up and running if that needs to be reassessed?

Thanks Bryan. Actually I'll answer it can answer reverse we've spent no plans to change our sort of -- sort of net change new store rollout plan over time. It's always a little bit of lumpiness, particularly with some of the more complex developments. In terms of the online offers, it's great we've now click and collect up and running nationally in Australia. And as I said, we'll be heading to New Zealand throughout this calendar year. We've got click and delivery now in South Australia, Northern Territory, Tassie and the ACT, and a number of stores in Victoria, and it's just a progressive rollout as we go forward. I'd envisage probably over the next sort of 10 or 11 months, that will sort of roll out nationally.

And the investment, it was 10 million in the first half. You previously called out 20 for the full year 2020. Is that the same or has that changed?

Yes, we're on we're on track for that. As you remember from the full year results, we called out 10 in the second half of the FY 2019 year. So turning to the first and we'll be obviously cycling over that 10 in the second half so year 2020 for the year.

Right. Okay. That’s right. And then just in terms of coronavirus just to move on to that one, in terms of -- I guess, there's two elements to it, supply chain risk. I imagine, Kmart, Target and Bunnings are most impacted. But it probably is much more broad than that and then also the shopping center foot traffic. It would be great if we could -- certainly for the department store that shopping center foot traffic looks like a bit of a risk. I'm not sure if you saw the synergies results today. They called out a 6% to 8% decline in foot traffic across their portfolio. Just wondering if there's any risk to consensus numbers on second half 2020 for Kmart Group? And then also if you could talk to any supply chain risk that you see coming in the business over the next sort of 6 months or so.

It's Ian here. The first one is, we can't say we've seen any impact yet across our network around slower visitation to shopping centers outside of any other trends that are running. So we've, if anything, we've probably seen the world returning to normal in Australia post January and the bushfires. So I haven't seen anything on that front. We're watching the supply chain piece very closely, of course. We've got quite extensive teams in China and Hong Kong, who are very personally impacted by this. So we're doing a great deal of work to try and help and support those team members who are in a very difficult situation at the moment. But despite that, they're doing their best to maintain close contact with our factories so that we can be very close to understanding what the likely impacts will be. At this stage, the identified impacts are pretty modest and we're talking of some products still being on time, some being delayed by a week, others by a couple of weeks. But of course, there's a lot of unknowns as to exactly when all of the employees will get back into the factories, when they're able to move through the country. And also, obviously, then how that starts then to cascade through the supply chain through to Australia. So at the moment, we've identified pretty modest impacts, but we're watching it very closely.

So you have to come to the consensus sales over the second half, essentially, then on that basis that you got in a major disruption.

I mean, obviously, we've got a lot of stock in the stores, there's a lot of stock on water, and we're talking about the China-based products as a subset of the total, of which some of those are on time. So it's quite difficult to pinpoint exactly. If we saw a really extended period of non production, then I think it would be a much bigger topic as we get into half one of next financial year rather than the back half of this year.

I am sorry and just to follow-up on that, just in terms of your supply chain issues that plagued your results over the last sort of 12 months or so. Obviously, your sales growth is much better in the December half. But is that all sorted out now in terms of what you're experiencing with out of stocks and the volume coming through to some of those big trading stores driving some issues through execution or is that still an ongoing issue?

No, no, absolutely. It's been solved. You learn a lot when you make a few mistakes and we learned a great deal from last year's trading. And we've been progressively putting actions into play. And we would have had some of our highest levels of performance from product availability and supply chain efficiency as well as store productivity in the first half. That's all played into our ability to absorb the FX headwinds and some of the wage increases and the new agreement that we've had in place, which are in tens of millions of dollars when you add those up. So the ability of the business to knock out a profit growth in line with sales growth in that context really goes to a good operational execution.

Great. And then just a final follow-up just on Bunnings for that coronavirus impact on supply chain. I know you got to have direct source primarily, but in terms of what suppliers are saying particularly out of the world and others are flagging anything that down the track that could be a bit of a risk for supply chain in the Bunnings business.

It's probably quite similar to what Ian was saying Bryan is at this stage. No immediate impact. We've got good stock in-store, we've got good stock in supply warehouses and a lot of stock as you know and noted does come through our vendors. Longer-term into the first half of next year is dragged on. There would be some stuff we have to look at around some of the seasonal products, but a lot of our products are also sourced locally. So we split out depending on the category that we play in but nothing in the short-term.

Thanks.

Your next question comes from the line of Grant Saligari from Credit Suisse. Please ask your question.

Good afternoon. It's really hard to pick apart that industrial and safety results. But I mean a couple of things surprised me is, one, was that the revenue was down 2%. So I'm just wondering whether you can elaborate a little on what's actually -- what are the factors there we should be considering in terms of external competition affecting that result versus simply an ERP system and some other internal issues that have obviously been challenging within the Blackwoods business?

Look the best way to describe that would be to say that we've got a bit of a two-speed business at the moment. Clearly our largest strategic customers and the West Australian market has been performing quite strongly. And the Eastern states whether it's been impacted by uncertainty with respect to the bushfires and some of the issues that have gone on, but we've certainly seen a more marked decline period-on-period in the Eastern states and in some of our smaller customers. So that's part of the focus of the renewed regional sales structure to ensure that we can get back and reconnect with some of those more localized customers. And that's the focus for the next six to 12 months.

And the ERP system?

Look the ERP system is primarily a cost issue in the -- while you're going through a process like this you've got to have an element of manual handling to ensure that you can retain those high service levels of sort of 95% plus from a DIFOT perspective. So as a result of the delay and some of the difficulties that we've encountered as a result of the implementation, we've had to carry some of those costs forward, which is obviously impacted on the EBIT line.

Okay. Thank you. And just a second question if I could on Bunnings. Again it's exhibiting either some pressures on the gross profit line or a lot of additional cost coming in through the digital initiatives. So I'm just wondering whether you can elaborate on what's influencing the result this half. For example, one of the things we've noticed there's a lot more price changes coming through the Bunnings business as you're entering the technology categories and some of the broader categories forcing you to defend your lowest price. So interested if you can help us understand the some of those competitive pressures versus some of the costs that you put into the business from a digital perspective in Bunnings, please?

Yes, thanks Grant. Look, obviously your point to be really clear probably the full year and now sort of calling out the invest in digital and that's really about sort of setting the business up for long-term success, which is a thing that we've always focused on. We're passionate of our customer, we're passionate about price. So we drive the policy of loss prices really hard. There are some categories that have a little bit more volatility in and you're quite right smart home is one of those as is probably the broader tech space. So it's really about making sure that we're doing all the things now that have a fantastic Bunnings business set up for five and 10 years down the track. And that's really I guess what we've always been about and that's what the focus is on.

So you've removed or you're in the process of removing lowest prices or just the beginning from your signage. And some industry commentators are suggesting that you'll struggle to sustain the lowest price guarantee. What's your view on that?

We've changed a little bit of marketing creative. I think the commentary that's been made around our ability to defend and our commitment to lowest prices is incredibly really informed.

Okay. Thanks. Thanks, Mike.

Your next question comes from the line of David Errington from Merrill Lynch. Please ask your question.

Good morning, Rob and afternoon to Ian and the team, can I ask a question specifically on Target? On my numbers when Ian said, I love this comment that you learn a lot from when you make mistakes. So I can certainly resonate that. But when he said that Kmart sales were in line with earnings growth, which is at 5.5%. And when you do your backward math and you look at the end-of-line result I get that Target's earnings went backwards this half by 50 million to 60 million. Now I didn't have Target making that much in the first half, which means the Target is basically either breakeven or into losses now in the first half is where you should be making money. Now the worry that I've got here is when Ian said that you performed very poorly in apparel because that's largely the only business that you're in apparel in Target my understanding, which means that I don't know what's happened in Target. But can Ian go through what went wrong there as to in apparel? What – something must have really badly go wrong for those earnings to go backwards as much as they did.

I'll let Ian talk to that David?

Thanks. That’s all right. Hi, David, it’s Ian here. Let me regard a couple of those questions. I think first of all within the numbers, obviously within that Target number we've got some one-off costs. I recall out the remediation cost for the wages that was called out explicitly within that number. We also did some other changes within the business during the half around, the number of team members that we've got within the support office. And so as we took some redundancy costs there as well which we haven't called out separately but of course they're embedded in the numbers. Now what happened on the sales line, it disappointed. It was below where we would have liked it to be. And I think we've called out it was a poor result. I think we would all accept that it's a very competitive market where Target plays. And when we get the product right we get rewarded. And when we get it slightly wrong we get punished. And clearly we had too many products that were on the wrong side of that equation. And so you go to so why – why was that? I mean, we've been working on a strategy for Target with Marina and myself for the last little while. The buying teams are making choices as we're formulating that strategy and cascading it through. And you can see that those choices on average haven't played out as well as we would have liked. I don't think that's sending through any lack of hard work from the team, but I think it recognizes that it's a difficult challenge to get this product offer exactly right. So we're working hard on it. So, we still see there's an opportunity within a power within Target. It's not the only category that we have. Toys remains a big category and home remains a big category within that business as well. And they performed to a higher level than apparel which is why we called out the apparel element of the overall offer.

Are you sitting on a heap of poor stock Ian?

No. We're taking our pain. David. So that's one of the reasons, why with the relatively modest decline in earnings. The – oh sorry, in sales it's flowed through to earnings, because we've taken the hit. So inventory is fine, although, I'd still say, we're going to be taking some clearance as we go through this half, but it isn't because of a buildup of inventory. It's because of the product that we – that we're landing still isn't hitting the mark as we would like.

You still got a lot of stores there, Ian. You got a lot of stores. What would be – I mean, Anthony called out I think you've got 8.7 billion of undiscounted leases across the group. What would be the undiscounted leases in Target? Would it be AUD 2 billion? It has to be wouldn't it be up around that number?

Let's – just a couple of other points, David. And I'll come to that one. The first one is, is Target profitable? The answer is yes. So we do make money on a full year basis and we make money in the half. So the business remains profitable. The – in terms of the lease liability, we've been consistently reducing that. So when you look at the big stores, we're now down to about five and half years is the average lease tenure that we're down to, and the small stores are less than two. So that lease liability, I don't have that actual – that total number in front of me, but it is reducing.

Anthony do you have it? What's the lease ability of the undiscounted lease liability is for Target?

Yeah, I have. So, David for Target, the undiscounted lease liability is around 1.6 billion.

Okay. Thanks that. And just one final one these payroll remediation, I know, it's not significant. I know that it's a tiny amount. But it did happen in your two underperforming businesses industrial safety and in Target. I know, it's immaterial it's over 10 years. Is there anything to make of that though, Rob? I mean, these remediations in – I mean, I suppose it's too insignificant to make a deal, but I did raise my eyebrows that the only two businesses that you didn't – this issue became alive was in your two worst performers. I don't know, if I'm making anything of that, or not, but I did raise my eyebrows at it.

David, it's a fair question to ask. When you get into the detail here a lot of the circumstances are quite unique and different – certainly, different – somewhat different issues across the various industrial businesses and Target. I think one of the complicating factors in Industrials as you know, the history of this division, it's come about through many, many small businesses that have come together over the years. So the complexity of the payroll systems were enormous in the complexity of the various industrial instruments that we need to comply with were enormous. The Target issues are not dissimilar to issues that we've seen in other retailers. And as we've called out particular issues around issues like time and attendance and the visibility on that particularly for salaried team members, department managers, as an example. So, some somewhat different issues, but I wouldn't say, there's necessarily a correlation between the overall business performance in these issues.

Okay. Well, thanks, Rob, thanks, Anthony and thanks Ian for your answer. I appreciate it.

Your next question comes from the line of Shaun Cousins from JPMorgan. Please ask your question.

Thanks. Good afternoon. Just a question on industrial and safety. I think the ERP issues were sort of discussed there in terms of Blackwoods and to what needs to change there. What needs to change in Coregas and Workwear? Are they just poorly positioned businesses within their industries? And when do you actually get a return on capital above your cost of capital in this business? Because, it's been disappointing for many years and even though it's small, it still quite hurts your earnings as a group as it continues to decline. I mean, you well down your peak of 190 million EBIT. So how are you going to get this business to stop damaging your profitability to your earnings growth?

Shaun, it's David. Look it's something that I wake up every day very, very focused on. As I called out in the commentary, we did have a little bit of a perfect storm with respect to some of these businesses. As I called out the two main drivers of the Workwear Group underperformance were some reasonably material indent ships. And as you know with uniforms indents can be many millions of dollars within a particular month cycle. And when they shift by one or two months as a result of other external events or customer preferences that can shift reporting within the period. And then also with Workwear Group, as a result of frankly some of the issues impacting uniforms globally we had some particular weakness in our U. K. business in particular in this half. Now we've taken steps to address that and remediate that. Those remediation efforts cost money and that tends to exacerbate some of these impacts. So I feel very confident in the trajectory we have within the Workwear Group business. There's been an enormous amount of optimization and streamlining of that business both in terms of extraction of COGS to make sure that we are price competitive. I feel very confident about that both in the industrial work way space and in the uniform space and then also ensuring our back-end systems and processes are optimized and there is been some very significant restructuring efforts with respect to achieving that. So that's Workwear. And I'm now very confident in the team's ability to continue that momentum once we get through this difficult period. With respect to Coregas, again, and I don't want to make excuses, but we had one particular impact on one particular aspect of cost of goods sold for a product that is reasonably rare and hard to source in this part of the world and there was a three or four-month gap there where we had to go out and source product at a significantly increased cost in order to ensure that we could continue to meet the demands of our customers. That issue has been broadly addressed. And clearly there's a lag effect as a result of needing to them pass on some of those price rises through the customers as a result of changing global commodity prices. So I hope that answers both your questions. And that I think, I'm quite proud of the momentum in particular that Alan's got at Coregas in terms of a number of additional contracts that he's won. I think, I called out previously the work that he's done in healthcare, where we now supply 70% of New South Wales helps hospital gas demand. That implementation has gone incredibly smoothly. And I think that we'll start to see the benefit of some of those programs come through as we move forward.

And what does this business look like on an EBIT sort of return on capital basis? Because I mean, you've told us about the perfect storm I'm really hopeful here we can talk about the reverse of that where everything goes swimmingly. But sort of what is sort of like a good EBIT and a good return on capital in this business look like please?

Look, I think it's probably too early to say exactly what that looks like. And clearly current performance is unacceptable and we are very focused on addressing the number of issues that are impacting the business at the moment. I would hope that by the full year, we start to get a more stabilized environment and then we can then start to provide more guidance as to what we expect maintainable earnings to be for the future.

Okay. A question maybe for you or for Rob. Can this business generate its cost of capital?

Well, Shaun, Rob here. Look we think it should be out to you. There's obviously been a number of structural organizational issues that we've been contending with. There's also been some areas that have arguably been self-inflicted. So it's within our control to address a number of these issues. The capital intensity of the different businesses are quite different. So a business like Coregas, there's a fairly substantial investment in particularly cylinders and the ASUs and processing facilities. Businesses like Workwear Group and Blackwoods, when you get your supply chain working effectively, the incremental returns on capital can be quite strong. So a lot of work on getting the platform right and the systems right. And that's partly what why we keep persevering to be honest because we can see that longer-term opportunity. There's money to be made here but – but frankly we need to move faster. So not happy with the result but an enormous amount of focus going into getting it right.

Okay. And my other question is just around Officeworks. Just obviously a reasonable – a very strong sort of sales sort of performance there. You highlighted some weakness in the second half. Can you just talk a little bit about how we should think about the second half EBIT outlook? Does EBIT grow in the second half? And just given your comments around sort of labor cost price investments and I assume there's also some FX headwinds there? Will EBIT grow in the second half? Is that what you're hoping on the back of operating leverage and/ or but will it come at lower margins like you've had in the first half please?

Hi Shaun, I think it will be a combination of – yes, we're still expecting from a gross margin perspective that the pressure is still on from a price perspective. So like we've done in the first half, we need to continue to invest in price to maintain our price credentials with customers. Pressure on costs as well and that was part of the first half stories, we would expect into the second half we've obviously only just implemented our EBA late in the first half. And so we'll get a full half of that in the second half. So we would expect that those cost pressures to continue. We're working hard to find productivity initiatives to at least partially offset those initiatives. But we've always been a business that's aspired to growth in each half and overall that's what we'll continue to do.

Great. Thanks Michael.

Your next question comes from the line of Andrew McLennan from Goldman Sachs. Please ask your question.

Afternoon everyone. Firstly my question on Bunnings and your progress in trade. I know that you alluded to potential for transactions. You've got Adelaide Tools outstanding at the moment. But I'm just wondering if you could just talk a bit more about your progress within trade sales, maybe in terms of your estimates of market share or alternately what kind of penetration growth you're getting to demonstrate your progress there. And also whether or not acquisitions are going to be with the Adelaide Tools is indicative small sort of specialty add-ons to whether there's something more significant you can do in the trade space. So that's the first one. And then I've got a question about chem managing into it?

Thanks Andrew. Obviously we don't sort of talk about market share by category. But what we are really focused on is just fantastic engagement with the customer base that we have. So the investments we're making into PowerPass to growth of customers in that has been really pleasing. Thrilled with the uptake of the online piece of that, so the PowerPass app which gives the trade customer the opportunity to do a whole set of things away from the store and actually transact through the device as well. We see enormous opportunity for growth in trade both through engaging our existing customer base better a lot of work going into personalization which is leveraging the data analytics platform for the business and really connecting -- and engaging with those trade customers more and a lot of work going into sort of resetting a number of foundations in the way that the sort of sales forces go-to-market and connect with customers. More broadly and as I said at Strategy Day last year, we've got very low share in categories like industrial tools which is why we see and strongly believe in the sort of acquisition rationale for Adelaide Tools, but also in categories like electrical back of wall plumbing and hard surface flooring. So we continue to sort of look at those. And the contemplation we have is, where we make things to undertake an acquisition we'll look at that and where it makes sense to stand -- send something up under our own steam we'll do that as well. Categories like landscape trade is one that we haven't focused on a lot in the past and we've been rolling out a series of landscape hubs which some of you would have saw when we did the store to last year. When things like that are really allowing us to connect and resonate with the trade customers. So happy with the progress on the agenda what's to do but an enormous runway for growth.

Do you think -- just a follow on with that do you think you're increasing your percentage of sales within the trade space at the moment?

Well I think like any part of our business the opportunity to expand the market then expand the share of the market that we get to participate in. And the engagement we've got with our existing trade customers continues to grow well. And I think it's one of the reasons that it sort of underpins the resilience of the broader Bunnings model.

Okay. Thank you. And just in relation to the chemicals, energy and fertilizers division, you're all flagging yet again, an expectation of potential oversupply in I&M, particularly, EGAN, you have been mitigating the risk through extending contracts, providing or trying to mitigate the impacts as best you can, but it now looks like we're really getting to the point. And can you maybe provide any indication around whether or not you can hang on to existing profit levels in second half 2020 and into fiscal 2021 within the Chemicals division based on how you're seeing the market at the moment.

Look, you're right to call that out, Andrew, it's something that we have been preparing for a while. Again, I'll say quite strongly. I think the team has done a great job of blending that impact. And all we can do is be guided by the very public statements that have been made by the operator of that plant in terms of making that balancing assessment of how much in we retain in spot sales, how much we go out and secure contracts. I think we feel quite good about the contracted position we have. And clearly, there will be a blend of margin over time as a result of those mix of contracts and as they ebb and flow. I think we've been probably surprised on the upside as to the level of demand and volume coming out of the Pilbara overall, which is helping to alleviate some of those concerns. But I think there's still a reasonable degree of uncertainty as to exactly how that balance is going to play out. And so I think there's no more guidance to give at this stage until we see that plant up and running. And then until we see -- people have got concerns about exactly what the impact is going to be as a result of some of the disruptions in China. And so we're staying very core to our customers to ensure that we monitor that. And we'll keep everyone updated as that market develops?

Okay, thank you.

Your next question comes from the line of Michael Simotas from Jefferies. Please ask your question.

Hi, everyone. The first question from me is on Bunnings and just the shape of the P&L. 4.7% like-for-like sales growth. That's a pretty healthy clip. I would have thought that would be enough to generate a little bit of operating leverage, perhaps enough to fund the investment in digital. But when I look at the margin ex property, it was down a bit. If you adjust out the digital investment, it was about flat, which on face value suggests there were no operating leverage. Is there anything going on in the mix there, or is that just investment that's required in the business to support that level of sales growth?

There's always a little bit of shift market between commercial and consumer, it's not a material sort of thing, the sort of shift in category mix as I said. There's a big event on price and service, making sure we stay really relevant and can for the customer. And as I'm saying earlier, the focus we have is on the long term, deliberately called out the digital piece so that everyone can understand the sort of scale and discipline that we're focusing on, to drive that piece of the agenda. But the rest is all about establishing the business for really good long-term growth 5 to 10 years out.

Yes. And is it a deliberate strategy to reinvest the operating leverage that you can deliver, or are those two factors independent of one another?

Well, I think we've always said that we model our gross margins going down because it's about focusing on value per customer. And at end of the day, job number one is to be chosen by customers, and we do that through a really well-run business and a really strong focus. And part of that focus is about putting in the frameworks and the structures to be able to run the business successfully as we get bigger and stronger.

Okay. Thank you. And then just a related question. You talked a little bit about mix towards commercial. Can you just talk generally about the performance of the business in trade versus consumer and how much of that is market factors versus the work that you're doing? Some of the industry feedback suggests that the consumer side of things actually got fairly strong late last calendar year, but from a market perspective trade fairly subdued?

There's no doubt that on the construction side, new housing starts and lower and that's pretty well understood. House insurance has been interesting clearance rate on options are high but stock remains low. I think, I spoke about that at full year. We've seen as I said in my nights, we've seen growth in all our major trading regions in consumer and commercial and I think it just speaks to the fact that the model and that mix of discretionary necessity does create a good sense of resilience. But we don't call out the difference in growth rates between commercial and consumer.

Yeah, okay. And then just last one on that. You mentioned bushfires. Is there anything you can call out positively or negatively for sales during that period across the various categories?

I think bushfires and storms is some pretty lag whether around. I think the reality is when you have significant smokes markets like the ACT and a lot of advice going out to the community about not being outdoors that will have a natural impact on some projects that customers do outside often get asked a question off the back of that of what does that mean for rebuild and recovery. We understand that as these community put their lives businesses and livelihoods back together, we want to be there to support them from a community point of view, from a product point of view but they do take time because inevitably there's changes in building codes and regulations. So those things will play out. But I think well if you're on the Eastern seaboard, you live through some pretty unbelievable weather and some pretty horrific circumstances. So that just has a bit of a toll in the short-term of people being outdoors, but they tend to balance out over the long-term.

Okay. Thank you. That make sense.

The next question comes from the line of Ben Gilbert from UBS. Please ask your question.

Good afternoon. Just first one around banning. Sorry, Mike I think you're getting most of the questions today. Just wanted to cover Michael's question from -- because just in terms of the competitiveness, I was wondering how you're seeing the competitive backdrop in hardware, because some of your competitors talked to see you guys probably creating a bit of price towards the end of last year. And I was just wondering, how are you seeing that competitive backdrop. What you're seeing around underlying inflation across the business. I know it's a difficult one to get some of your products. But if you could just talk to those two would be helpful? Thanks.

Yeah, the market contrary to some popular opinion. The market is incredibly competitive whether it's consumer or commercial. We've got specialists in the physical store network, in a digital environment on the environment. And it's not just traditional players in any one category. And if you look at home automation across three big businesses, you've got Amazon, Bunnings and JV all competing hard. That's probably not a traditional competitor set to where we played five or 10 years ago, we consider more of the trade plays. On price, we are incredibly disciplined on the policy of lower prices. All of our market research shows that our adherence to that internally is incredibly strong. We've, obviously, got the price guarantee to back it up. So I'm quite surprised by any view that price is creeping up. The focus is obviously on gross margins going down and that drives price because that drops for us in choice for the consumer. So for us it's really about making sure we're aware of who our competitors are, making sure that our offer is really relevant by seasonally, promotionally and sort of locally and then making sure we've got an offer that's priced to sort of build trust with the customer.

So did you – if you look at your sort of three or four big core categories, did you see inflation in those categories over the second quarter?

No.

No, okay. And then just a second one on Bunnings I was just a bit – I appreciate the housing backdrop but we look back the last 10, 20 years, your sales have historically been a perfect correlated to house prices by wealth effect sort of the weekend warriors, et cetera getting out. I was just interested in sort of the thinking behind sort of some of that more cautious commentary around trading, particularly given that you had a pretty good half just gone as well?

Yes. I think I made the point before that with housing, it's one thing to sort of read the headlines sort of talk about 60%, 70%, 80% clearance rate and it's another to sort of look at the stock that's actually coming onto the market. So product is moving on the market when it's there but there's just not a lot of stock on the market. And obviously, as we sort of touched on it's been a pretty interesting period from a climate weather point of view over the last sort of eight, 10, 12 weeks. So we'd rather be sensible about the way we're sort of viewing the world rather than overly bullish or negative because we want to make sure that we sort of run the business efficiently.

And just final one for me to Ian or Rob, just on Catch, I know it's a very small part of the business but I presume there are reasonably big plans for that. Just how are you thinking about that business looking forward and particularly around expanding that marketplace offering and target across all parts of the business? And I'm thinking about sort of whether that sort of goes and gets tied into Bunnings, bigger push into appliances these sort of categories even food. And I also asked a similar question before but just in terms of how you're thinking is continuing to evolve with that business?

Ben, I'll just touch on that and then let Ian talk to it. One, what we're focused on at the moment is mostly trying to fuel the growth of Catch and really leverage on some of the unique assets and capabilities we have across the Kmart Group and across the broader group. And that's – that's what the short-term focus is. We do – we would like to see this business expand. There are added benefits that will flow through across the group just in terms of fast-tracking digital and technology capabilities. We've been very impressed by the Catch team. They said we've fitted in well to the Wesfarmers Group. And actually our group structure I think allows groups like this to flourish a lot better than some other corporates because of our divisional autonomy model. What we're not going to do is we're not going to give a running commentary on all of the strategic decisions we're going to make. Our digital competitors don't do that. So unfortunately you read about what we do after the event rather than getting a commentary in advance. But Ian can probably talk to just some of the more tactical things that we're focused on.

Yes, sure. Thanks, Rob. So we've already made a number of additions to the Catch business. So we've expanded Club Catch out across Kmart and target so that Club Catch members can get free delivery over AUD45. So that's been a really positive initiative. We've also started click and collect Catch products into Target stores and we'll continue to expand that across all Kmart and Target stores, as we line up the technology and the processes to enable that. And we've also had a pop-up store in one of the Target stores in Melbourne as well, which has been highly successful. So there are little tactical things that we've been putting in place just to bring the businesses a little closer together whilst retaining the independence of Catch as a stand-alone business and retaining the culture of that business, which is what we intend to do. Now in terms of those growth opportunities you mentioned, there's a number of really viable growth plans for us with the Catch business and that's exactly what we're doing going through now is we're looking at those and prioritizing, which ones to go after and what order.

Great. Thanks very much.

Your next question comes from the line of Richard Barwick from CLSA. Please ask your question.

Thank you. First question is to either you Rob or Anthony. I just want to talk about the decision to sell the 5% stake in cars. And just to clarify the comments as to where the AUD 1 billion cash that's coming in how – where that will be deployed. Why decide to sell now? And what's – why is it important to retain that 10.1% if at all?

Sure, Richard. I'll talk to the logic around the decision to sell the 4.9% and then Anthony can talk more to proceeds and capital management. So as we said at the time of demerger, the demerger of Coles was the largest ever demerger in Australian history. We felt that Wesfarmers retaining a 15% significant stake was an important sign of our – the confidence we had within the Coles business that would facilitate a smoother transition to cause the listed company and also provide an ongoing connection between the two groups to support, what we see is some exciting opportunities to collaborate in the areas of flybuys in particular. And also to help support the various transition service agreements that we needed to work through. We're now 15 months down the track. We're really pleased with how the demerger has gone. We've been pleased with the Coles performance. We've seen the share price increase not just of Wesfarmers, but clearly of Coles. And we just felt, it was worth taking some profit. We still feel that Coles is a good investment. We're pleased with the work that the team is doing. And we feel that, that logic around retaining a seat at the table and retaining that skin in the game, and connection is going to be important for flybuyers going forward. So that's why we're retaining the 10.1% stake, which gives us the right to retain a nominee director, or to nominate a director on the Coles board. I'll let Anthony talk to the -- yeah.

So Rob, does that mean that 10.1 is something that you're going to hang onto indefinitely?

Yeah. So Richard, we – as with every one of our investments and businesses, we never make any long-term commitments, because we are focused on active portfolio management when it makes sense for shareholders. At this stage, we think the right thing for our shareholders and the right thing for our businesses and the exciting opportunities around – digital flybuys is to retain the stake in Coles. But we'll monitor that over time. But the logic of retaining a 10.1% stake and not less is a sign that we – is a signal that we see an importance in retaining that connectivity for a period of time.

Okay.

Hi, Richard, it's Anthony. Just on considerations around return of the capital, obviously, we are still – we haven't got the capital yet, so it's around AUD 1 billion of gross proceeds. We need to work through what the tax consequences in relation to that, will though obviously then need to assess, what our capital requirements are going forward. As you know, we would be focused on how if we do decide to return capital to shareholders how do we do that in the most tax effective way. You'll be aware that, we tend not to hold on to franking credits. We don't believe they have any value to us as a company any value to our shareholders. And as you know, we paid a fully-franked dividend of AUD 1 per share so about AUD 1.1 billion about this time last year. So we're not sitting on a huge surplus franking credit balance. So obviously that has implications on our ability to get that back to shareholders tax effectively. So we'll continue to look at ways in which we can do that over the coming months.

Okay. Thank you. I got two other smaller questions. One for Ian on Target, I thought your explanation as to sort of what the problem was in this period was very clear. But I'm still wondering about where to go from here. Because you've basically said that you've got product that's yet to land, but you know it won't work. And so you're going to have to be pretty decisive in making sure you clear that stuff through as well. Do you feel like you've corrected or being able to redirect your buying back towards what your customers are wanting? Or how long is this sort of a wrong product for the stores at least as a potential to apparel, how long until you get through on the other side of that?

Thanks Richard. It's a good question and one that we're spending a lot of time on as I'm sure you can imagine. So I think my call out on the ongoing clearance is really for product that's already in the business which is flowing through in the ordinary call. As we go into the next season as we go in towards winter then obviously we're going to be watching those sales very closely. I think what we are though is we're reluctant to call out we're going to see a dramatic improvement when our track record in recent times has been less than impressive. But clearly as we start moving forward, we should see more of that buying landing in the way that we would like. What I would say though is and the experience we had within Kmart going back 10 years is the same. It takes out a lot of energy and time to get buying teams fully aligned to the strategy so that all the individual decisions made by the teams are fully joined up and connected. So I would see this being an improvement over time versus there's a magic moment when suddenly it clicks.

Okay. All right. Thank you and just a really quick one for Michael on Officeworks. Yes, sort – can you hear me?

Yes, I can hear you.

There was echo on the line, just for second. The strong sales result just surprised that the weakness or didn't flow through as neatly through in terms of earnings. And you've made a real point of focusing on price competitiveness. And it seems like you've really upped the ante there. What was the catalyst for that? Is there some sort of competitor response or a move by consumers or your customers to different channels? It just seems like quite a dramatic change and it's has had quite an impact in terms of the flow-through to earnings?

Yes. Richard I wouldn't say necessarily it's been a dramatic change. Certainly the half was very intense from a competitive point of view. Perhaps there were some things around Black Friday, Cyber Monday and particularly the lead up to Christmas and Boxing Day where even more competitive than they usually are. So that required us to maintain our price credentials and invest pretty heavily in price. But also I think there's some changes in our sales mix to some lower-margin categories. Consumer appetite for technologies is very strong at the moment and particularly around those events and Christmas. So they're probably the two major factors in terms of the pressure on gross margins.

Okay, all right. That’s helpful as well.

Thank you.

The next question comes from the line of Ross Curran from Macquarie. Please ask your question. Q – Ross Curran: Hi team. Sorry to circle back to Target again, but just one sort of final question on it. The 50 stores you have planned to shut down in the Target network, is there a dramatic difference in the profitability of that subset of stores relative to Target as a whole? And does shutting the stores alone fix the problem in Target? Does that return us to exceptional levels of performance or is this something more fundamental than the rest of the business?

Obviously we're going to close the stores which are the poorest performers, which I know you get that piece. Most -- there's a number of stores which lose money to contribution level, and there's a number which are pretty line ball. So obviously, closing stores where the contribution level of zero doesn't really move the profit number of the organization unless we can extract other costs as we go through the process. So I think the real estate piece is an important element of how we approach target in the future, but I don't think it's the only one. Q – Ross Curran: Thank you.

Your next question comes from the line of Phillip Kimber from Evans & Partners. Please ask your question.

Hi, guys. Sorry, I'll just continue last one on target. And maybe this is for Rob. It's lost over $1 billion of revenue in the last 10 years and over $300 million of EBIT. Is it time to get more aggressive on this business because it feels like a lot of work and energy has been going into it, but it's still not generating an acceptable level of return.

Yes, Phil, it's a good question. If you reflect over the last decade, we have seen quite a remarkable change to the competitive dynamics in particularly mid-market retail. And I'm not just talking about -- I'm not just talking about digital disruption here. I'm also talking about an influx of international competitors, the strength and the growth of Kmart. So over that 10-year period, we have seen a decline in Target, but I think that also talks to the changing shape of the retail landscape. But then we've also seen a phenomenal growth and success of the Kmart proposition. So from a group point of view, we've clearly created value. Your points noted that we do need to start thinking in more detail around what we can do to improve the performance here. Ian has talked to some of that. I guess, what we've set up in the last couple of years, particularly through the growth in digital, expanding our digital platforms. Through even Catch and trying to bring together some of the synergies around Asian sourcing, it gives us the capacity to tackle synergies and opportunities that, frankly, we just won't get up to do in the past. So we'll give more thought to that. I know Ian and Marina and the team are looking at what more can we do to improve performance.

Okay, thank you. And then one for chemical, we said, particularly the chemical business, I think it says the earnings broadly in line with prior year, but it looks like volumes were strong. So it seems like a margin issue. When we look -- think about the business going forward, have the most of the contracts rolled over now, so that the margin side of the equation starts to moderate, but it's the volume part of the equation that is where the risk lies once PARP gets up and running?

Look, that's a reasonably complicated question and multiple sort of moving pieces. I think we're multiple sort of moving pieces. I think we're not anticipating a significant shift in overall volume. Because clearly, the plants are running at or near capacity in terms of raw output. Now clearly, that can be augmented by imports. It's really where the product ends up, whether it ends up in fertilizer grade, ammonium nitrate, explosive ammonium nitrate, it doesn’t go domestically, it doesn't go to export. And so that's part of the mix equation that we've been really rolling over and blending over the last 18 months. And we'll continue to do that. And it's really down to the level of risk we want to take in terms of holding tons back in the spot market. Now we have the benefit and the reason we don't go into breaking this out it is a key competitive advantage, the ability to blend that product across our end markets. They have different margin implications, but again I'd reemphasize that I think the team has done a good job of retaining the optionality to divert more tonnes into higher-margin product. And we talk about the -- but let's all just make sure that we also stay focused on the core end markets of where this product ends up primarily in the Pilbara has been more robust than we had anticipated. And so it's a matter of continuing to stay very close to our customers to understand their demands to look for product innovation where we can and to continue to manage that margin mix. So I hope that answers your question, but it's hard to go into any more detail without getting into competitively sensitive information.

Okay. Thanks.

Your next question comes from the line of Johannes Faul from Morningstar. Please ask your question.

Thanks for taking my question. My first one was on Officeworks. I just was wondering with the school sales or back-to-school sales starting sooner basically bringing forward in the first half, how do we think about the sales momentum going in the second half? Was that material to the sales in the second half in your mind?

Yeah, the way we thought about that. We actually think it's a different customer that were shopping pre-Christmas. We think it was the customers perhaps wanted to get it all out of the way before Christmas. And so we don't think we were necessarily tapping into those customers particularly well historically. We know, we always did well around January because we had the customers that left it quite light in the piece before they fulfill. We think this is quite a different customer. And we're really pleased with how that played out through December.

Okay, great. And I'm not sure if you wanted to comment on January, but then this January sales from where basically back up thesis?

We've been pleased with how January has played out, but we'll stand back now that back-to-school is largely finished and do our PIOs as we do every year. And look for the things that we did well and look at the things that didn't go so well and look to improve for next year.

Great, thanks. And then I had a quick one on Bunnings. In terms of the PowerPass members. I understand it's exclusive to trade customers. And I think you have 700,000 active members currently. Are those basically all trades people in Australia? Does that mean you have an extensive database there and have very good feed-through on the trade I guess sector in Australia, or is there still room to grow that number?

We certainly see room for growth. It actually is across Australia and New Zealand that number. So we see, obviously, the investment we're making the next-generation of trade. So a lot of the investments PowerPass -- the PowerPass apprentice program as well. So, obviously, trying to grow business as they come through. It's not strictly trade alone. It is small business. So organizations within ABN where it makes sense for them to have a PowerPass account. We've got a mechanism for doing that. So we do see good runway for growth.

All right. Thanks, Mike.

Thank you. And there are no further questions at this time.

Okay. Thanks very much everyone. Thanks for your patience. If there's any further questions please call Erik and the team. All the best. Thanks.

Thank you. Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may all disconnect.