Coles Group Ltd. (CLEGY) Q2 2023 Earnings Call Transcript

Coles Group Ltd. (OTCPK:CLEGY) Q2 2023 Earnings Conference Call February 20, 2023 6:00 PM ET

Company Participants

Steven Cain - Chief Executive Officer

James Graham - Chairman

Leah Weckert - Chief Executive Officer-Elect

Charlie Elias - Chief Financial Officer

Matt Swindells - Chief Operating Officer & Sustainability

Darren Blackhurst - Liquor Chief

Conference Call Participants

David Errington - Bank of America

Adrian Lemme - Citi

Michael Simotas - Jefferies

Shaun Cousins - UBS

Ross Curran - Macquarie

Tom Kierath - Barrenjoey

Craig Woolford - MST Marquee

Lisa Deng - Goldman Sachs

Ben Gilbert - Jarden

Richard Barwick - CLSA

Bryan Raymond - JPMorgan

Phil Kimber - E&P

Operator

Thank you for standing by, and welcome to the Coles Group First Half 2023 Results Announcement. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.

Steven Cain

Okay. Thank you and good morning, everyone, from the Coles Melbourne Store Support Center for our half year results for FY 2023. I wish to acknowledge the traditional custodians of this land, on which we meet today, the Wurundjeri peoples of the Kulin nation. We acknowledge their strength and resilience and pay our respects to their elders past, present, and emerging.

Joining me on the call this morning is our Chairman, who would like to say a few words before we begin our formal presentation and Leah Weckert, our CEO Elect. I've also got Matt Swindells here, our Chief Operating Officer and Sustainability. We've got Ben Hassing, who is our eCommerce Chief; and we've got Darren Blackhurst, who is our liquor chief. So, we've got a fair squad. And of course, we've got Charlie Elias, our Chief Financial Officer, right next to me here as well.

So, without any further ado, I might hand over to you, James, to say a few words.

James Graham

Thank you very much, Stevec, and good morning, everyone. Today is a really important day in the history of Coles. As you will all be aware, earlier this morning, we advised the stock exchange that after five years of leading Coles as Managing Director and Chief Executive, Steven will be retiring. And from the first of May, Leah Weckert will be appointed as the next Chief Executive of this great Australian company.

Let me just start by saying what an outstanding job Steven has done as leader over a time of unprecedented change and progress for this business. Steven was first appointed in early 2018 when the Coles Group was a wholly-owned division of Wesfarmers. When Steven commenced as Chief Executive later that year, he led the company through its demerger and the establishment of Coles as a major Australian ASX-listed company.

Since that time, we have seen extraordinary progress in the development of Coles, its team, its business, and through some very tough challenging COVID years. Steven brought his detailed understanding of the retail industry to develop a clear and differentiated strategy for Coles, which has very clearly underpinned our development since that time.

We have seen the parallel creation of a world-class leadership team under Steven, which has driven the successful growth of the business in what is a most progressive and competitive marketplace.

Some of the highlights during Steven's leadership have included the commitments made to new technology to improve our long-term business efficiency, perhaps best illustrated by the forthcoming opening of our first world-leading automated distribution center in Queensland.

Also, by the expansion of our business and customer engagement, as illustrated in the growth of our online supermarkets and liquor businesses and by our ranking as one of the most trusted consumer brands in Australia.

We've also shown significant progress in meeting new targets in our sustainability initiatives and in furthering our community engagement. All of this has been achieved, whilst building a strong financial position and creating attractive returns for shareholders.

However, the true success of business is reflected in its capacity to build a strong team, which generates its own leadership succession when the time comes. This is the fortunate position which we have at Coles, and I am delighted on behalf of the Board to announce that the next era of leadership will be established by Leah Weckert, as Managing Director and Chief Executive.

Whilst I am sure that Leah will be very well known to you, I think it is worth recalling the breadth of her experience since joining Coles in 2011. With a background in engineering, science and business, Leah joined Coles from McKenzie and since that time, has held leadership roles across merchandise strategy and innovation, supermarket store operations, people and culture and subsequently in her role as Group Chief Financial Officer through demerger and beyond, and more recently as Chief Executive, Commercial and Express.

Leah has a business and leadership reputation throughout the Coles business, which makes her the ideal appointment to succeed Steven when she takes on the role from the beginning of May. The Board is delighted that the strength of the business established over the last five years by Steven, will continue to be dynamically progressed under Leah Weckert's leadership over the period ahead.

Thank you, and I will now pass back to Steven.

Steven Cain

Thanks, James, those kind words, which I've written down in my little book here that we find of you. Thank you also for the support that you and the rest of the Board have given us and me in particular, over the last five years. The insights and resilience have been extraordinary.

It's been a privilege to lead Coles and the team here for the benefit of all stakeholders, through demerger, bushfires, COVID, floods and the current situation, the new normal and still be able to execute our strategy of growing long-term shareholder value and being one of Australia's most trusted consumer brands.

Leah, congratulations on being my successor in May and becoming the first woman to lead this great company. I wish you and the team continued success. Do you want to add a few words, and I'll do the rest?

Leah Weckert

Thank you, Steven, and thank you for those guide words. I'm honored to be appointed as the next CEO of Coles. There's a really exciting future ahead as we continue to execute the strategy, and I'm looking forward to working with the team on delivering it. I'd also like to just take the chance to thank both the Board and Steven for their support. I'll hand back to you.

Steven Cain

Thank you. So, back to business. For those of you, who've got the deck in front of you, we're starting on Slide 4, which is the first half highlights. We made good progress, again on executing our strategy in the last six months with group sales revenue up around 4% and EBIT up around 10%. Both of these measures are on a continuing operations basis, which excludes Coles Express.

These were achieved despite cycling COVID-19 lockdowns and the ongoing supply chain disruptions experienced during the half from residual COVID-19 and flood impacts. I'll talk more to this in a minute.

Once again, our team has shown amazing resilience and care in responding with essential food and drinks for the local communities impacted by the floods in New South Wales and Victoria. For our customers, we remain one of Australia's most trusted brands and delivered trusted value through our various value campaigns. We have the most extensive owned brand range in Australia, and this was recognized with more than 350 awards in Supermarkets and Liquor.

Our Smarter Selling program is more important than ever. And we delivered benefits of approximately AUD100 million in the half and are on track to deliver the AUD1 billion we targeted four years ago. We achieved a key milestone at our first automated distribution center in Queensland with handover from Witron now complete and the sites receiving inbound inventories. I'll have more to say on Witron a little bit later on.

For our shareholders, the Coles Board declared a fully franked interim dividend of AUD0.36 per share, which is 9% up on the prior year. And finally, early in the half, we announced the sale of our Coal Express business, to Viva Energy for AUD300 million, allowing us to focus on our omni-channel Supermarket and Liquor business. With ACCC and further approvals now in place, we expect that deal to complete in the fourth quarter of FY 2023.

Moving on to Slide 5, which are the financial highlights. With Coles Express being classified as a discontinued operation and focusing on measures on a continuing basis, sales hit AUD20.8 billion and on a three-year basis, sales revenue increased by almost 14%.

EBIT hit AUD1.1 billion, which is 20% up on a three-year basis if we look through the COVID experience. And net profit after-tax increased by 11% to AUD616 million. Gross operating capital expenditure was AUD623 million. Operating cash flow was AUD 2 billion, and cash realization a strong 108%. And we have maintained a very strong and flexible balance sheet with a net debt position of AUD362 million. Finally, from a safety point of view, I am very pleased to say we continue to make progress with our tripper improving 8% on the second half of FY 2022.

Moving on to Slide 6, which is all about supply chain resilience. As I mentioned, many of our suppliers are facing ongoing challenges from worker, pallet and raw material shortages, which is impacting our availability. Dipot [ph] in the first half was well below pre-COVID levels. And from a first half perspective, was the lowest we've seen. So we've seen worse in half twos in the past when we've been impacted by COVID. But in terms of everybody thinking that there is recovery around, there's plenty of pain in the supply chain, which we need to deal with.

Obviously, some of the COVID knock-ons have impacted things like bottled water and pet food. Different reasons there, but bottle water, packaging and pallet issues and dry pet food, again, a number of issues, but a lot of it down to worker shortages in rural locations where pet food factories are located.

We talked about this in the last set of results, but what we've seen is fresh produce supply is impacted by the floods in New South Wales and Queensland. And then we've seen the knock-on impact of people buying frozen foods for that in terms of transferring out to products that aren't available or because they may have been better value at the time.

The floods have also significantly impacted our rail network across Australia and particularly to WA and Far North Queensland, all up in the half, more than 100 days of disruption, and that does not account for the time to replenish inventory to normal trading levels, which can often be at the same time again. So the supply to WA and Far North Queensland is something that we and the country need to work on improving if the weather continues to be unpredictable and severe.

The chicken and egg story, which you may have seen part of over the weekend and at the back of last week. But what we are seeing is, obviously, chicken becoming more popular over time as the most -- best value meat protein, and we've obviously seen people moving into free range eggs from caged eggs, and we were very much leading the charge in that regard. What we're seeing in Australia is reduced productivity and fertility which, along with the consumer demand, is impacting availability in some of those key categories.

We faced supply challenges many times before, particularly during COVID, but improving the resilience of both the coal supply chain and the national food supply chain is really important. And, obviously, that will result in better customer satisfaction for us and obviously, a sales opportunity as well.

I'll now take you through some of the achievements in terms of inspiring customers on slide nine. We know how important it is to be trusted, and we were once again recognized as one of Australia's most trusted brands in the December 2022, Roy Morgan Net Trust rankings.

We delivered trusted value through the locked and dropped-and-locked value campaigns, which focused on lowering the cost of living with more than 1,500 prices locked and prices reduced on a further 500 products. We have, as a result of its success, extended the dropped-and-locked campaign with more than 300 items dropped and locked until after Easter.

We've also expanded our popular Coles Finest certified carbon neutral beef range to customers in New South Wales, Tasmania and South Australia. Our Flybuys partnership goes from strength to strength, and it's never been more important from a customer perspective.

We introduced Flybuys member pricing in the half. We digitized the Coles Express fuel dockets and we offered greater personalized value through individually tailored offers, which resulted in greater membership overall and greater usage of Flybuys customers seek better value.

In eCommerce, we expanded our supermarkets immediacy offer through Rapid Click-and-Collect, where a customer can now order to pick up in under 60 minutes. We launched our unified website and with our app, customers can now have a fully native experience in the app completing a shop without any web redirects, making it easy for customers to shop anytime, anyhow, anywhere.

Finally, we accelerated investment in our Retail Media platform, which we rebranded as Coles 360, focusing on technology and talent. This business is dedicated to helping FMCG companies create sustainable growth through more meaningful connections between customers and their favorite brands. We believe Coles 360 can become a trusted media provider in the Australian market.

On to the next strategic pillar, Smarter Selling on slide 10. As we mentioned earlier, we've delivered about 100 million of efficiencies in the half with a third going into the growth from cost of doing business.

Key entities in the half included continued rollout of TACOs, which are Trolley-Assisted Checkouts. Hopefully, many people on this call have had the benefit of using those. I certainly have. We've had continued energy reductions through the implementation of demand-based heating, ventilation, and cooling in 120 stores. And we continue to roll out proper protection measures to tackle theft in stores such as trolley wheel locks and the installation of front entry gates. Hopefully, none of you have experienced those things in-store.

I have spoken about dynamic markdowns before, but we've now rolled this into the Bakery department following successful deployment in fresh produce, meat, and dairy.

You'll be glad to hear that with the Smarter Selling program due to conclude this financial year, planning for Smarter Selling too is well advanced. We saw other efficiencies in the business through the rollout of fresh produce easy ordering to almost 300 stores, enabling improved availability and freshness for customers through AI technology.

In terms of our optimized store strategy, 10 new super markets were opened during the half and 15 supermarkets renewed, including our latest innovation store at Southland, which hopefully many of you had the opportunity to see, including the fresh herb garden plastic, which is great.

In Liquor, we saw 16 new liquor store openings and 128 renewals, including the very popular Black & White into about -- well, into 112 stores.

Now to our final strategic pillar, Win Together on slide 11. I am pleased to report our sustainability achievements with -- across many streams of work in the business. Firstly, starting with safer choices. We've now introduced a safety index to capture lead and lag indicators. And this, along with a continued focus on critical risks, including manual handling, fleet safety, and mental well-being contributed to the 8% improvement in TRIFR. We strive to be a great place to work and to foster an inclusive and supportive environment.

During the half, we launched our First Nations team member network committee to help shape indigenous engagement at Coles. We also delivered five indigenous cultural immersion programs across the Northern Territory and Broom in West Australia, where our Coles Managers spent time on country meeting indigenous leaders, immersing themselves in local culture, traditions, native ingredients and food and gaining a deeper understanding of some of the challenging -- the challenges facing indigenous Australians. The program also provides the opportunity for Coles leaders to reflect on what Coles can do to be a more inclusive workplace and a workplace of choice for indigenous team members.

Pleasingly, in our October 2022 team Mitel's survey, might say, my pool survey rather, we recorded our highest employee engagement score, a 1% improvement on the prior survey in May 2022. Coles customers also contributed more than AUD 1.8 million through the Coles second buy Christmas appeal supporting disadvantaged families and community organizations with much needed food.

Finally, we note that we are a team that is better together working with all of our stakeholders to bring about positive change. Our community partnerships are a large part of this, and we're ranked number one for the third year in a row in the giving large report for contributing the largest percentage of profit to the community amongst Australia's leading organizations in 2022. We were also ranked number five in the World Benchmarking Alliance's corporate human rights benchmark and the number one supermarket globally in recognition of our commitment to the protection and promotion of human rights across our operations and supply chains, an extremely important focus for our business and our team.

Moving on to our transformation projects. First, an update on our automated distribution centers on Slide 12. As we've mentioned, I'm pleased that we've taken a hold of our Witron automated DC in Redbank, Queensland. We have site leadership and we have inventory arriving on site. I'm expecting to open this particular Witron facility on April 27 subject to everything going well. And I have to say, we've -- a few of us have been multiple times. This is a site to behold. It's the largest automated DC in the southern hemisphere, and we look forward to being able to take you around that facility in due course.

As we look at our automation projects, I'm more confident than ever that they were the right investment for Coles at the right time, and that's particularly so in the face of increasing wage costs across the nation and globally. At our Witron site in Kemps Creek, New South Wales the external building works are complete and Witron is installing its automation with a view that that will be completed in the third quarter of FY 2024.

Just to remind you of the benefits of Witron, it's a safer work environment, because there's less money pulling, there is reduce lead time, because we've got a lot of our slower-moving ambient products in these DCs than we have today, that means it gets to stores faster. And these sites consolidate five of our existing DCs into two and operate at two-thirds of the cost. So, a big efficiency play and long-term strategic advantage from a cost to serve perspective.

Moving on to our two automated CFCs. I'm pleased to say that the OSP or Ocado Smart Platform, integration with our own e-commerce systems, which we've talked about in the past as well as the digital customer experience and fulfillment are progressing well, as is our development of our ranges for the future.

In partnership with Ocado, we're making progress in the development of both our New South Wales and Victorian centers. The fit-out of these facilities, especially The Hive and Grid are unique in Australia, requiring complex construction management work systems to be developed and implemented.

As advised by James at the 2022 AGM, there has been a construction delay at the New South Wales site. An assessment is ongoing to determine what further impact there may be on schedule commissioning. However, based on information from Ocado, we are working towards the Victorian CFC being commissioned ahead of the New South Wales One with an incremental ramp-up period commencing mid-2024, as previously advised, and the New South Wales CFC now in the second half of FY 2024.

The revised time line is not currently expected to have a material impact on Cole's estimated total capital expenditure project. The good news is that our Truganina site here in Melbourne is that recruitment is underway. Key leadership is in place. And the first spoke has been identified in Dandenong and construction has commenced. In Sydney, the management team were in place. Training is underway, and the first spoke has been identified in Alexandria, and agreements are in place.

Just to recap on the benefits of these two Ocado CFCs, we will be able to deliver the best by far, delivered in full on-time metric in Australia with an extended range. And that delivered for a long time is the number one pain point for customers in e-commerce. Some of our fresh range products will have a guaranteed shelf life for the first time. There are, obviously, operating efficiencies from the automation, and we'll be able to access new catchments that we don't serve today through the hub and spoke model. So we're all looking forward to seeing those on the ground.

Moving on to our strategy tracker on slide 14. I've talked to safety. In terms of MPS, our supermarkets and liquor declined during the half with supermarkets impacted by supplier availability challenges and, of course, rising supplier cost prices, while liquor was mainly impacted by product availability. Pleasingly, liquor NPS improved in the latter part of the second quarter during the important Christmas and New Year period.

Gross retail sales growth was in line with the first half ABS market growth of 5.6% despite the availability challenges we faced. Smarter selling remains on track and EBIT growth, as I've said was around 10% and cash utilization of AUD108 million.

Now with that, I might hand over to Charlie to take you through the financials in a bit more detail before returning at the end with an outlook statement. Charlie?

Charlie Elias

Great. Thank you, Steven, and good morning, everyone. I'm now on slide 16, which shows our group results. I'll firstly talk to the results on a continuing operations basis. So if you look at sales revenue, it increased by 3.9% to over AUD20.8 billion. EBIT increased by 9.9% and EBIT was positively impacted by the Sparta selling benefits of approximately AUD100 million and a net reduction of direct COVID-19 costs with approximately AUD20 million incurred in this half compared to approximately AUD150 million in the prior corresponding period.

This helped offset underlying cost inflation and impacts from availability and the supply chain challenges that Steven mentioned earlier, whilst also reinvesting in the business.

Net profit after-tax also increased by 11.4%, with basic earnings per share increased by 11.6% to AUD0.463. On a continuing and discontinued operations basis, that is included in the Express segment of net profit after tax is 17.1% and basic EPS increased by 17.2% to 48.3%. As Steven mentioned, the Board declared a fully franked interim dividend of AUD0.36 per share, a 9.1% increase on the prior corresponding period.

So if we turn to the segment financials on the next slide. We've presented these to separate continuing and discontinued operations to reflect the agreement that we entered into to sell the Express business to Viva. Our Supermarket sales increased by 4.6% year-on-year or 13.6% on a three-year basis, driven by strong trade plans across the half, particularly the locked -- dropped and locked value campaigns, solid trading over Christmas period and the customer continuity program such as the glassware campaign also supported the solid sales.

Supermarkets EBIT increased by 10.6% to AUD991 million with the higher sales smarter selling benefits, the lower COVID-19 costs offsetting underlying cost inflation, continued investments in digital and e-com and operating costs in relation to the Witron and Ocado transformation progress.

On a three-year basis, the Supermarket EBIT increased by 25.6%, with EBIT margin expanding by over 50 basis points over the three-year period. In Liquor, revenue declined by 2.4% but increased 15.4% on a three-year basis. In the half, the business cycled approximately 15 weeks of COVID-19-related on-prem closures and restrictions in the prior corresponding breed in Victoria, New South Wales and the ACT. If you exclude these lockdowns, sales revenue growth was positive.

Liquor EBIT declined by 19.2% to AUD80 million, largely driven by lower sales revenue across the fixed cost base of the business. Increases in store team member ran relative to the prior year following the Fair Work decision. Coupled with this, the increased paying paid to team members earlier compared to when it was in prior years.

Transformation costs were also incurred, including the Liquor renewal and format development program. Steven has already mentioned the 128 store renewals in the half as well as investments in e-com and core IT systems.

Turning to discontinued operations. Express revenue increased by 5% year-on-year and 6% on a three-year basis as the business cycled lower fuel volumes and the store sales in the prior corresponding period as a result of the COVID-19 lockdowns.

Sales growth was again driven by the food to go category, particularly hot, fast food and coffee, partly offset by continuing decline in tobacco sales. On the 21st of September, when the Express business was recognized on the balance sheet as an asset held-for-sales, D&A of the assets ceased from that date. As such, there was AUD36 million of notional depreciation and amortization that would have been recognized had the business not being held-for-sale. Taking that into account on an underlying basis, EBIT increased to AUD25 million.

Finally, the other segment, which comprises corporate costs, property earnings and Coles' 50% share in Flybuys JV reported net cost of AUD13 million for the half. Other was positively impacted by net increases in property sales during the period.

Now, if I turn to the operating cash flow on slide 18. Operating cash flow, excluding interest and tax, was AUD2 billion with a cash realization of 108%. This was driven by a reduction in working capital, reflecting the higher trade payables consistent with the seasonal Christmas and New Year trading activity, as well as the timing of year-end payments.

This was particularly offset by increased inventory as a result of the cost price increases and increased stock holdings to provide additional support over the Christmas trade. Lower cash flow from provisions largely reflect the reduction in employee entitlement provisions, which has partly offset the working capital movement.

Now, to go to the capital expenditure slide on slide 19. Gross operating CapEx on an accrued basis was AUD623 million, an increase of AUD205 million compared to the prior corresponding period. CapEx was again focused on growth and efficiency initiatives, and I'll take you through that in a little bit more detail.

Firstly, within supermarkets, CapEx increased due to investments in Witron and Ocado transformation projects. And Steve has already provided an update on those, but we have incurred approximately AUD900 million of the planned AUD1.37 billion CapEx to-date.

In addition to these growth and efficiency initiatives, CapEx was also incurred in relation to new stores and renewals, with 10 supermarkets opened and 15 supermarkets renewed in the half.

Other efficiency-related CapEx includes investments in service transformation, including the trolley-assisted checkouts or TACOs and the Fresh Produce Easy Ordering program.

In Liquor, CapEx increased during the half, driven by new store openings and renewals, with 16 new liquor stores and 128 renewals as well as investments in the IT systems.

We continue to optimize the prior property portfolio with net property capital expenditure reducing by AUD35 million compared to the prior period. This was driven by higher property investments in the half, resulting in a net property inflow of AUD69 million.

So, if we turn to the balance sheet. As of the 1st of January, we reported negative working capital of AUD1.7 billion, capital employed of AUD11. 5 billion, and net assets of AUD3.4 billion. We have maintained a strong balance sheet with investment-grade metrics, which will provide flexibility for future growth, starting with working capital, which improved by AUD124 million compared to the prior period. And as I previously mentioned, this was due to higher trade power consistent with the seasonal and New Year trade and the timing of year-end payments, partly offset by inventory price -- the inventory price increases and increased stock holdings.

Total net assets improved to AUD3.4 billion, most notably from movements in property plant equipment and equity investments, which increased by AUD328 million compared to the prior period and the net increase in the recognition of assets held for sale and associated liabilities reflected from expressed discontinued operations and property assets.

Net debt, excluding lease liabilities of AUD362 million, was AUD144 million lower compared to the full year net debt position. So, I'll talk more about this in the next slide. We retain our existing annual dividend payout ratio to target 80% to 90% franked to the maximum extent possible.

The Coles Board has declared a fully franked interim dividend of AUD0.36 per share, which has a payment date of the 30th of March of 2023. We have extended our debt maturity profile and continue to maintain access to our diverse funding sources. We do not have any material debt maturing until FY 2025.

Finally, on credit ratings, we remain committed to a solid investment-grade ratings with S&P and Moody's, which provides us, again, with flexibility to invest in further growth.

I will now turn to slide 32, which I know many of you would know -- recognize a slide from prior presentations. As Steven said, there are still challenges that we are facing, but I believe we are extremely well positioned to navigate the current macroeconomic environment. And we do have actions in place to respond. We discussed these points at the full year and provide an update here.

Firstly, on rising cost of living pressures our customers are facing. We are seeing customer behavior shifting to more value-oriented choices as a result of higher inflation and with interest rates and their cost of energy increasing.

Another factor here is that, there's a potential shift to in-home consumption from food services in a high inflationary environment. Our response has not changed. We continue to invest in trusted value for our customers through an extensive exclusive to Coles range of more than 6,000 products and more than 1,700 exclusive liquor brand products.

We'll continue to deliver value campaigns in supermarket dropped-and-locked and Flybuys member pricing and lower prices for longer in liquor. For those that still want restaurant quality food at home, our Coles Finest products offers an affordable alternative to eating out.

Regarding our cost to serve, our Smarter Selling program’s continue to help offset cost increases and allows us to invest in the business. As Steven just said, planning for the next phase Smarter Selling 2.0 is well advanced.

We have renewable energy agreements and hedging programs in place to offset rising energy costs and making further investment in profit protection measures to tackle in-store.

Finally, before I hand it back to Steven, on COVID-19, all fought the COVID hangover as there are still impacts into the business. As such, we have continued focusing on managing absenteeism through flexible rostering and team mix optimization and believe we are well positioned to benefit from increased population growth and immigration.

With that, I'll hand it back to Steve, who will take us through the -- Steven to take us through the outlook before we get into Q&A.

Steven Cain

Thank you, Charlie. So in the current quarter, pleasingly, supermarkets volume returned to growth from mid-January. We're, obviously, still experiencing supplier input cost pressures, particularly in the packaged goods area. And that's a lot to do with wages and energy.

However, inflation is expected to moderate from the peak in Q2 throughout the balance of this year, particularly in related to anything that comes from the farm, and we're currently seeing that there's quite a bit of produce now in deflation.

We're expecting that more customers will be value conscious as cost of living pressures rise, particularly the fixed rate mortgages coming off and in energy prices. We've got the largest own brand portfolio in Australia, dropped-and-locked prices and Australia's favorite loyalty program Flybuys and are well positioned to meet the diverse requirements of our customer base.

In liquor, we expect earnings to return to growth in the second half, as we exit COVID cycling and focus on building sales momentum, partially assisted by the February excise increase and, of course, continuing to drive the ELB program.

Our Smarter Selling program in the second half will continue to offset inflationary cost pressures, headwinds in markdowns and stock loss as a result of increasing theft and allow us to reinvest in the business.

In other costs, we still expect to see a net increase of approximately AUD 10 million for the full year compared to FY 2022, including corporate costs and property sales. With our Redbank automated DC beginning to ramp up in the fourth quarter of FY 2023 and the phasing of the CFCs, we now expect implementation operating expenditure to be approximately AUD 120 million for FY 20203. We previously advised AUD 140 million.

Capital expenditure is unchanged in the range of AUD 1.2 billion to AUD 1.4 billion, including the four automation projects. Depreciation, amortization is now expected to be approximately AUD 1.55 billion for the full year for continuing operations with AUD 35 million for the Express discontinued operations, we previously advised AUD 1.7 billion, which assumed no Express divestment.

We're well positioned, and we've got some clear tailwinds with the opportunity to improve availability, population growth, which we can all see, I think, on the streets of Australia and in the universities and in the cafes and restaurants so on, but we will see a moderation in hospitality, which will benefit the supermarket business as well. You won't like this one, but finally, we are set up for an excellent Easter with the widest range of sweet and savory hub cross bonds and the launch of Coles finest land, which uses new technology to ensure it is the tenderest and tastiest around.

In liquor, we continue to build our successful low and no alcohol ranges, including our ELB Tinnies ultra low alcohol beer award-winning brackets. And in our RTD range, our Naked Life’s non-alcoholic classic G&T and Margarita.

Thank you for listening. I'll now hand back to the operator for Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from David Errington with Bank of America. Please go ahead.

David Errington

Morning, Steve. Morning, Charlie, and congratulations, Leah. I'm really pleased for you. First woman CEO of Coles. That's a terrific outcome and a great achievement. So congratulations. Steve, I'd like to please go to Page 6 of your presentation. And this slide shows how much the supply chain is being impacted, which you've given quite a bit of conversation to it. As financial analysts, what really interests me is the latency in productivity improvement in terms of financial performance that is at your disposal once we can get back into normal conditions. So maybe you can -- or you or Matt can go into a bit of detail as to who's wearing the cost of this? Because I imagine very supply chains, supermarkets very fast moving supply chains, 80% availability must be a massive drag to someone, whether the suppliers are wearing it. I can't believe that you're not wearing those costs in your supply chain. So what can we expect going forward in terms of latent improvement? Is it just availability but -- or is it costs? If you could go into that, that would be really appreciated because I think that is a really key metric in supply chains, not only for Coles, but also supply as well.

Steven Cain

Yeah. Good morning, and thanks, David. Yeah, no, we all share your views on this one, which is there's benefits to be had in sales. Obviously, we've definitely missed some sales over the last six months and in P7, and we've still got a long way to go. It's fair to say that the whole industry is wearing the costs at the moment, but it has been very start, stop, which is always costly.

When I reflect back on the last 10 halves at Coles, there's only been one-half in 10 where we've had what I would describe as a normal operating atmosphere. And so part of this, you have to stand back from and say, is this just the new normal and what do we control and have influence on? And then there's things like rail networks where clearly you're also in the hands of state and federal governments as well. So there's no easy fix to what we're experiencing, but there's clearly opportunity from more efficient supply chains and higher sales.

Matt, do you want to have a crack at this first and maybe see if Leah has got anything to add?

Matt Swindells

Thank you. And thanks for the question, David. It is highly disruptive for the teams all the way through the supply chain and both for Coles or any retailer and the supplier. So you're right in your evaluation.

The teams in the center have to spend a materially larger proportion of their time on just getting product to our customers. So there's an opportunity cost of what you're focused on then the cost of transport disruption itself. So when the rail line goes out, we will divert a road and clearly, that comes at a more premium price and the distances from the Eastern Seaboard to Western Australia are material. And then you've got the cost at the other end of the supply chain, which is either in the distribution centers that have to extend hours to receive products or the store team members that have to extend some of their windows for receiving loads and replenishing.

The priority has to remain on keeping the supply chain safe and keeping availability as the number one priority for customers. Ordinarily, we would probably have two or three of these events in a year, mainly across to Western Australia, maybe the old cyclone through Queensland.

I think the point here is that if anyone expected availability to return to normal post-COVID, and that was induced by mainly panic buying rather than supply chain disruption, it's not happening. So our customers and our team members are still frustrated with availability issues. But the root cause of those are now more widespread and more complex. And I think because of that, it's going to take a little bit longer to unwind as the end-to-end supply chains recover. It's not been helped by the natural elements of flood and fires and cyclones that have come through. So it's a multitude of impacts.

Leah Weckert

And the only thing I'd add to that is that as Steven said, it is felt by the whole industry. So many of the -- well, most of those factors, the map just outlined that relevant to Cole also impact our suppliers as well.

David Errington

Yeah. And as a follow-up, and I'll finish after this. But bringing on a highly automated DC, I mean, it looks like everything has gone according to plan in terms of the construction. But does it concern you, Matt, Leah that you're bringing on an automated DC with disruptions still likely to be there, or do you think that the plant will be okay to handle such a low availability?

Matt Swindells

No, I think, David, it gives us more resilience in the locations. If I think about Queensland, we're currently shipping products out of New South Wales from our Eastern Creek national distribution center up into stores throughout Queensland, having Red Bank, the Witron facility open, brings that inventory closer to the consumer. And so as we think now about supply chain resilience, having a facility that's got twice the volume on half the footprint means we can extend the range, and include some really smart algorithms around safety stock. So we should get better anchor. Does it fix all of the problems that we would encounter when our inbound fulfillment levels are low? No. But it certainly gives us a better opportunity.

David Errington

Okay. Thank you. Thanks for your answers. And again, well done, Leah. Congratulations.

Leah Weckert

Thanks,

Operator

The next question comes from Adrian Lemme with Citi. Please go ahead.

Adrian Lemme

Hi, team. Congrats on the results and congrats to Leah on your appointment. We're hearing of consumers' shopping patterns returning to some level of pre-COVID pattern in terms of less work from home and relatively weaker regional performance. I'd expect this is benefiting Coles. But can you talk to what you're seeing, please, but perhaps in terms of foot traffic and other metrics?

Steven Cain

Yeah. Good morning, Adrian, thanks for the question. We did say last time out that we were seeing local shopping unwinding, and that was certainly the case when it came to foot traffic and looking across the various store cohort. So when we look at the percentage of sales that are in each of the cohorts now versus pre-COVID, they're getting to a very -- they're not quite there, but they're getting back to a very similar level. And the main difference is there's a slight increase in neighborhood versus pre-COVID and city center stores are not like where they were before him. But I think I – in the first wave of COVID, I think I always – I mentioned, World Square as being our biggest transaction store in the country in – that's based in Sydney there.

I think it sort of maxed out before COVID had 80-odd thousand transactions per week. At the peak of COVID, it got down to just over 40,000 transactions a week and back to high 60s on the back of more people going to CBD and obviously students returning as well. So CBD is not quite back to where we were beforehand. A little bit of stickiness in neighborhood, but shopping centers are definitely back in business. And really, our sales would have been as I hope you appreciate, they have been much better had we had availability in some of these categories. And why that's important is obviously, a lot of the specialists that are out there, the freight veg guys and the butchers and so on, they're obviously buying – when these products are in short supply, they're obviously buying them in much smaller quantities than we are.

And obviously, we have the highest ethical sourcing standards in the industry. And so the combination of us requiring large volumes and ethically sourced means that when supply is tight, we do get impacted, which is obviously something we need to think about and improve on over time. But that's why you probably don't see all of that sort of local shift happening. But in terms of the feed that create the local shift, that's definitely happening and transactions in the half and in the quarter and currently are up significantly on prior year.

Adrian Lemme

Thanks very much for that color, Steve. That's very helpful. Could I just sneak in one follow-up? Just on – in terms of the value range products that Coles has, are you seeing it make an outsized contribution to the performance, particularly in the second quarter versus the first quarter, given the cost-conscious consumer at the moment? Thanks.

Leah Weckert

We're definitely seeing strong growth in own brands and that was in both the second quarter and we've seen it continue into the third quarter. And then within that, there's a couple of trends that are occurring. One is, if you took meat, for example, we're seeing customers move from more expensive cuts like a steak into less expensive cuts like minced or gravy-based cut.

And then the second thing is in the core grocery areas. We are seeing really strong growth there in areas like pasta and rice, oil, where we think our brand performed particularly strongly and trade out of proprietary. That's probably the sort of the key ones that we're seeing that are indicating that some customers are definitely moving to value.

Adrian Lemme

Thanks very much Leah.

Operator

Next question comes from Michael Simotas with Jefferies. Please go ahead.

Michael Simotas

Good morning everyone. We've got a fire alarm, so let me know if you can't hear me, but well done, Steve, great job since the demerger and congratulations, Leah.

Steve, I'm just interested in the timing of your stepping down. You've been through a few tough years. It looks like there's a light at the end of the tunnel. You've got a few major investments underway. I thought you might have wanted to stick around to see the fruits of some of those investments. So, maybe you could just talk us through your rationale, please?

Steven Cain

Yes. Mike, I'm going to hand over to the Chairman first, but you may have gathered by now I don't like lights at the end of the tunnel. I like it quite hard, and but anyway, James.

James Graham

Michael, it's James Graham. I think it's interesting as I reflect back, it's almost exactly five years ago to the day that I sat down with Steven when he was about to be appointed to the position of Managing Director of Coles. And talked to Steven about really, what was the time horizon that he would have in mind in taking on this very substantial role.

And Steven said to me, and I remember very clear, he said, James, this will be my last Executive role. I really think five years is going to be the right timeframe because I want to then be left with some time to do other bits and pieces in my life.

And so, I mean, whilst these things are always under review, we've kind of had that as indicative template. And the great thing, as I said earlier, is that under Steven's leadership, the Executive team that drive this business has been put together and is a really strong and deep team. And they have worked together as a really strong team.

And you know many of the -- if not all of the leadership team. And I think it's quite clear to everyone that Leah is a standout in terms of the experience that she's had, her -- the breadth of commercial perspective that she has, the reputation she's created inside Coles. And Coles is a very busy business. In fact, almost across the whole time of my involvement, I've never found Coles to be other than extremely busy, dealing with a great set of opportunities for how to grow and develop the business for the future. So it's no surprise to me that at any point of time, there are going to be lots of new opportunities, lots of great things that can be seen to be next in line and around the corner. But it's a really good time.

Steven's achieved what he set out to achieve. And I think for those who have been following ever since what was at the middle of 2019, where the whole clarity of the strategy was laid out and the growth of success against all of that in the intervening period has really been affirmation of the commitment that Steven made and gave right from the outset.

So I think it's -- we're in great position for the next era, but it's also fantastic but we've been able to achieve the success for shareholders, community, customers, team members that's so demonstrable that has taken place over these last five years.

Steven Cain

Thanks, James. And just to add, Michael, I mean, I know I don't look it, but I'm 60 next year. And I won't wait for you to respond on that one, but I have actually been waiting for this moment for about 35 years and eventually head into retirement. And I'd like a bit of time off before thinking about what next from a non-executive point of view, but that's not really what I'm focused on today. I've still got a couple of months left as CEO, and I want to make sure that we give Leah a really smooth transition into her being the CEO.

We're in great shape with the projects, and they're all at a fairly advanced stage. Leah was -- sat beside me the day we signed Witron. Sat beside me the day we signed Ocado. And I don't think there's anything I know about those projects that she doesn't. And on all of them, Matt leads Witron himself and then Ben and Charlie are very much on Ocado as well.

We have an excellent team. We have excellent relationships with both of those companies, and we spend a lot of time internationally with them to make sure that this is a success. However, they're not short-term programs, and they're certainly not switch it on and you get to 100% within 24 hours. These machines take some time to get to full optimization and you're already talking about a couple of years to achieve that. But most importantly, the benefits of these two projects, whether it's about the efficiency of Witron or the customer offer at Ocado, they will benefit Coles for the next 10 to 15 years. So these are very, very long-term contracts.

And by the time they've all been finished, I wouldn't be surprised if there's been some further change at Coles. So that's the nature of big long-term contracts in business. And I have to say, my five years has felt a bit more like seven or eight, to be honest. It's not been what I thought I was signing up to five years ago that, as I mentioned earlier, I think we've had one quiet half intent since I arrived. So I'm certainly looking forward to a break, and I'll be cheering on from the sidelines. And I'm hoping that I will be one of the first lucky Ocado Coles customers here in Melbourne.

Michael Simotas

Thanks for the comments. Just another quick question, if I can, on the move into positive volume growth in January. That's nice to see. What do you think is driving that, given inflation is still elevated, restaurant spend doesn't seem to be letting up yet and stock availability is still a drag?

Steve Cain

Well, a couple of things that we called out. If we look last year, this next few months was the peak of the rail derailment in WA, which I think, Matt, was the longest ever outage.

Matt Swindells

200 kilometers washed down.

Steve Cain

Yes. So 200 kilometers of the rail track disappeared. The roads were down for a period. That's the biggest disruption that WA has ever seen. And our availability at the peak of that in WA was quite significant. And it's fair to say that we probably held less stock over there than others, which is obviously something we're thinking about and reviewing, but it does impact the way we range and so on. It impacts us the most.

So we've got that as a benefit as well as just general disruption last year. So, again, the way we source meat, as I've talked to you about in terms of high volume, but ethically sourced, if one of those factories goes down, which a few of them did during Omicron, then it severely impacts our supply. We're benefiting from the fact that I think all of our meat factories are in good -- I'm touching wood here, but all of our meat factories are in good form.

Obviously, chicken is a little bit different. But on the red meat side, we're in a very good spot at the most. So we've got some natural benefits there. But what we are seeing is the underlying business is very strong. And foot flow is good. People are returning to shopping centers and people want value. And we think we've got the best value out there, if people are looking for shopping on a budget.

Michael Simotas

Okay. Great. Thank you.

Operator

The next question comes from Shaun Cousins with UBS. Please go ahead.

Shaun Cousins

Thanks. Good morning and congrats, Leah. Maybe for James, just I've got two questions, one on the CEO change and one on implementation costs. James, could you describe the CEO change process that you went through? And did Coles consider external and other internal candidates, please?

James Graham

Thanks, Shaun. First of all, let me just say, we're a very large employer of people. So over every -- during every year, we keep a pretty close eye on not only what's going on with the team members inside Coles, but we keep a pretty close eye on what's going on in Australia and globally on people who may be of interest to us.

Every year, we would have a formal session with Steven and our People and Culture Committee, looking at the depth of our management talent, looking at the succession opportunities for all of the key leadership positions, to ensure that we were well prepared for the future and to ensure that in the event that some are anticipated or unfortunate incident was to occur that we were really in strong position going forward.

As we move closer towards the end of the service five-year time horizon, the Board thought that they should do a review. And so we actually had an independent party to a global review for us of everyone in retailing who potentially could be considered as a person who might be able to succeed Steven. And we did that because we wanted to make sure that in appointing the next leader, we're appointing the best person available that we could identify for Coles, for its future success.

And so we went through that exercise. And as you would have detected from my earlier comments, the Board's assessment in terms of Leah and her capacity to really lead and really continue to make a difference for the growth of Coles was the standout compared with what we came down to the sort of a narrow group of other external persons who, in the alternative, could have been considered. And we had that work done for us by one of the leading global participants in that industry.

Shaun Cousins

Okay. Great. Thanks, James. And then maybe for Charlie, your implementation costs were extraordinarily low in the first half 2023. I think you guided to pre-D&A was some AUD 115 million and you only -- if we think that first half, second half, maybe if it was to be even, that would imply some AUD 57 million and you only incurred AUD 17 million. So arguably, the difference there based on what we knew previously is AUD 40 million of which drove all of your beat relative to consensus EBITDA. Can you maybe talk about what is the split now of the new guidance of AUD 120 million between OpEx and D&A? And why was it so -- why is it so second half skewed because it just looks like it's very much flat as the first half result that you've delivered in supermarkets, please?

Charlie Elias

Yes. Shaun, really good question. Firstly, I don't think we guided in terms of a 50-50 split…

Shaun Cousins

We had no other option to choose, yes. Sorry, pardon me. I think people were going in the absence of that. You didn't provide anything, that's true, but I think it's -- that was the basis. I don't think it was unreasonable.

Charlie Elias

Yes. So Shaun, the split was the project implementation cost of about AUD 115 million is what we guided and AUD 25 million in relation to depreciation. So total impact is about -- was AUD 140 million. We did spend AUD 17 million in the first half, and we do expect to spend the balance in the second half.

We did pull out though that, obviously, when you move into the second half and as we are incurring at the moment, Witron is actually in a ramp-up phase, right? So we are incurring things like double running costs. The depreciation is absolutely only a second half phenomenon, because we effectively took position, if you like, that facility when you do recognize the D&A in January. So it was always going to be second half skewed because of the ramp-up, the depreciation going into the second half. So we do not -- we do expect the total now inclusive of depreciation to be AUD 120 million.

Shaun Cousins

Okay. And then so the way we think about that then is, it should still be AUD25 million D&A, but it's actually the implementation OpEx there, which now has come down from AUD115 million to AUD95 million. Is that how we should think about that?

Charlie Elias

Yeah, approximately.

Shaun Cousins

Okay. Thank you very much. Thanks Charlie. Thanks James.

Operator

The next question comes from Ross Curran with Macquarie. Please go ahead.

Ross Curran

Hi, team. Just first, I was wondering about wage negotiations. We're seeing quite a bit of pressure on wages over New Zealand. Can you talk us through how the negotiations with the unions are going for your Australian business at the moment?

Steven Cain

Yes. Well, the good news is we've completed a number of EBAs recently in distribution space. One EBA that we will be conducting is, obviously, the supermarkets one, and that will be during the course of this year.

Matt, is there anything else?

Matt Swindells

I don't think so. I think we've got a good track record of working in partnership with our team members in the supply chain together our outcomes for them and in the last six months, on the top of my head, I think we've closed out about three EBAs and our third parties are doing another two. So we're in a good space.

Steven Cain

Yeah.

Ross Curran

Well, so we should be thinking mid single-digit increases. Is that what we expect for the next two to three years?

Steven Cain

Well, that's a good question, but one we probably don't entirely have the answer for at the moment. I mean part -- some of this -- there's obviously an EBA process to go through where you go through what are the benefits and what are the productivity things that might -- what are the benefits for the employees and what are the productivity benefits that might come to Coles and those type of things. But there's also the work number that gets passed down that will always have some influence on people and then where the minimum wage is there relative to where we are and we're above the minimum wage. And, obviously, we look forward to concluding the next EBA.

Charlie Elias

And Steven, I think it's worth reminding. I think the first half result did include the fact that the fair work outcome or decision last year, or last half was 4.6%. So that is reflected in the actual result for the half.

Ross Curran

Thanks. Can I also just ask around the comments around stock loss and theft? As we move to put these tocos in, can you just talk us through how you're actually protecting inventory?

Steven Cain

How we -- sorry, Ross, what was that last, protecting inventory? How are we protecting inventory? Matt's looking ready for action here. Go on, Matt.

Matt Swindells

So there are a number of ways. And what I would point out is that when we have customers go through assisted checkouts and we've broadly moved over the last probably two decades from zero up to a large proportion of our customers now core to us and form a self-service. The product recognition that a customer can execute at a checkout knowing the products that -- the baskets are the ones they selected is pretty high.

So I wouldn't always assume the self-checkout as a loss in a traditional sense of theft, there is a higher level of product recognition. We are seeing elevated theft in Coles. It's also been seen with our contacts in the industry through Australia and it's also been seen overseas. This is one of those post-COVID trends that's definitely playing out. We've invested more in both team member training. So we would like to over service all of our customers, first, but also make sure that everybody is capable and able of diffusing potential difficult situations with customers because team member safety is clearly paramount.

And then in addition, and Steven talked to this in his opening comments. We ran a program that we call target hardening over the last two years that's shown some of our bigger stock loss improvements. We're going back around that. There's new technology out there, whether that's trolley stops or whether that's smart gates, and this really uses artificial intelligence and smarter technology to detect whether or not a customer has gone through a normal process or whether someone perhaps has forgotten to pay. We can have an intervention with the team member and correct that. So there's a number of technology solutions that we're rolling out alongside team member training.

Ross Curran

Great. Thank you very much.

Operator

The next question comes from Tom Kierath with Barrenjoey. Please go ahead.

Tom Kierath

Good morning, guys. Just a question on the gross margin expansion in the supermarket business, I think you called out one of the drivers as being lower COVID costs, I think, about $130 million. Can you just give us a split of that between GM and CIB, please?

Steven Cain

Yeah. So in terms of – if we look at gross margin, there was actually lower COVID costs through the period. I don't think we specifically split that out historically. But it is a meaningful portion, especially in relation to supply chain. If you recall, our supply chain costs are in gross margin. And therefore, that's where it manifests itself sort of mainly. But there are other things that other drivers in gross margin, not just the cycling of COVID cost, but certainly sort of smarter selling benefits that we've just spoken about in terms of the initiatives.

There's also elements around what we normally do day in, day out with our ranging and strategic sourcing sort of activities. But we've seen those sort of a positive impact on gross margin but some of the other impacts include waste markdowns and obviously, stock loss that we've just spoken about.

Tom Kierath

So is it like the majority of the 130 million, like over 100% or trying to get underlying gross margin moves?

Steven Cain

Yeah. Look, in terms of growth – look, in terms of gross profit, essentially, if we sort of look at a split probably 40-plus percent of the COVID costs were in GP in the supply chain.

Tom Kierath

Cool. Thanks. And just the second one. The liquid business looks like it's doing pretty well, especially relative to Endeavour. I see that you've done a heap of renewals. Can maybe just talk us through what the impact you're seeing post re-furb or renewal? And then kind of how far that program is through? Thanks.

Steven Cain

Thanks, Tom. Darrin, do you want to take that one?

Darren Blackhurst

Yeah. I mean, we've been ramping up the Liquor black and white renewal program. We're now up to about 370, 371 stores now that we've converted, and it's performing really well. It's resonating well with customers, as I said last time, it's not just, a, change in color. We've been working through ranging particularly local and ELB representation in the shops. And to give you an idea about Southland, it's got sort of almost approaching sort of 400 local lines now, which has materially changed the shape of the sales in that shop. And we're seeing good conversion rates, improvement from all supermarket shipments. That's helping us drive the business.

Steven Cain

Okay, Tom, does that answer the question?

Tom Kierath

Yes, thanks guys.

Steven Cain

Thank you.

Operator

The next question comes from Craig Woolford with MST Marquee. Please go ahead.

Craig Woolford

Hi Steven and congratulations Leah on the promotion. Great to see. Just with the inflation comments that you provided, it seems because you said inflation is moderating from a peak, but then your commentary towards the end of the presentation seems to suggest it was largely associated with produce. Can you give us a sense of whether you think we've seen the peak in packaged grocery inflation?

Steven Cain

Yes, good morning Craig. Leah, do you want to take that one?

Leah Weckert

Sure. So, hi Craig, how are you doing? Thanks for the kind words. So, -- I mean if we look at the half, we did see the inflation step-up quarter-on-quarter. And we had the two counteracting effects happening. So, packaged increased quarter-on-quarter and so that was really driven by the CPIs that we're seeing coming through the grocery space that also the farmgate price for milk, which impacts dairy, which we included in the package number.

And then you had fresh, which decreased quarter-on-quarter. And so that was really because of the impacts that we've seen in fresh produce where Q1 was heavily impacted from the flooding, which you'll remember the iceberg lettuce and the cost of that and that was quite a prominent part of Q1.

And then as we came into Q2, we saw quite a few vegetable lines that we're moving into deflation. So, things like tomatoes, capsicum, and broccoli. Now, that was partially offset by what we were seeing in meat and deli and particularly in the white meat space, so that both in poultry and pork, which were inflationary position.

So, it's a very complex set of movement scenarios. It's somewhat difficult to kind of predict where it goes. But I think what our expectation is, is that we are expecting cost pressures to remain, but we are expecting them to start see some moderation.

And the pressures we think we'll continue to see in areas like dairy, energy, and wages, but we would expect some moderation starting to come through in areas like freight, wheat, packaging, and potentially in that walk space as well. So, you get that kind of all into the mix, and the question is what it will look like.

I mean we're starting in this half to actually cycle over the top of when the significant initiative started to come through. So, that would kind of also say that if we've got some moderating factor something through, and we're starting to cycle the significant inflation that we saw last year, that's the number rate a bit. Does that help?

Craig Woolford

Yes, that does. That makes it much clearer, particularly on the packaging side. Thank you. And just a second one on Ocado. Obviously, the CapEx still seems in line. Yes, the opening date might be delayed, particularly for New South Wales. What about the business case in terms of sales and profitability? Is there any revision to what you expect in a contribution from Ocado both on sales and returns?

Steven Cain

Yes. Thanks. A really good question, Craig. We're not currently expecting any sort of material revision to the business case. Clearly, there's a little bit of phasing that you get with New South Wales, obviously, going into the sort of half two. So that will work its way through. But generally speaking, from both a CapEx and implementation OpEx perspective as well, I think we've clearly guided that we're not expecting at this point any upticks in the implementation costs.

Craig Woolford

Okay. Thanks, Charlie.

Operator

Your next question comes from Lisa Deng with Goldman Sachs. Please go ahead.

Lisa Deng

Hi, guys and congratulations, Leah. Just a question on supply chain. So would we be able to get understanding on how much as a percentage of sales is actually supply chain-related costs that's sitting above the GP line in the first half? And then also with moderating costs as well as we tone of the wood tons coming on. What is that view into the second half, please? That's the first question.

James Graham

Lisa, I'll send you my model after this. Lisa, we -- it's not a number we disclose. I think you've got the view from both Matt and Steve, and I think as we work through some of the disruption elements on the supply chain. So they're not immaterial, clearly, in terms of what has been impacted by not only cost perspective, but also as Leah mentioned on the top line perspective in terms of lost sales as well. But Lisa, we don't break those out for obvious reasons.

Lisa Deng

Got it. And the implementation cost is mainly sitting in that GP line, right, because it's supply chain?

James Graham

The implementation costs for Ocado...

Lisa Deng

Ocado and the 120 for this year – sorry, 120 minus 25. The 95.

James Graham

The Ocado costs are sitting in CODB and the Witron costs will be split between gross margin and CODB

Lisa Deng

Okay. And then a follow-up on implementation costs into 2024. Is there any change to that earlier 2020, I think we guided to during the full year?

James Graham

Yes. Look, we haven't provided further guidance to that, Lisa. Look, given the sort of phasing we sort of expect, you could expect that the $20 million differential initial would move into FY 2024. But beyond that, I'm not giving any further guidance at this point.

Lisa Deng

Got it. Thank you.

Operator

Your next question comes from Ben Gilbert with Jarden. Please go ahead.

Ben Gilbert

Echo everyone's comments to you Steven and Leah. Just the first question for me. Just in terms of saying that volumes are moving back towards flat. How are you thinking about the outlook for market growth this year? Because we're seeing numbers in the US and the UK at the moment that it's gotten the market growing anywhere from sort of 8% to 11%, 12%. Is that conceivable? Do you think the grocery market could put that sort of growth spread out for the first six, nine, 12 months of this calendar year?

Steven Cain

Good morning, Ben. Well, there's a few components to that question, which is why we've tried to for the first time in a while, talk about volumes, so that it makes it a bit easier to sort of work out where the sales are heading because ultimately, the sales are a combination of what you think the volume growth is plus the inflation anything you think might be added in from a mix perspective. Because, obviously, the average sale price is different to the inflation number as well. So we've tried to be transparent in that regard to help you.

I mean, what we have said is, volume is moderately positive. And we've said that inflation is going to be coming down, more or less, month by month. We don't know where that will end up. But you've got to believe that ultimately, a lot of it in the medium term is going to depend on where wages inflation ends up and to some extent, the impact of energy and interest rates. But wages will become a more important driver of inflation going forward.

I think when you look around the world, there's no doubt that inflation in other parts is higher than what it is here. And we didn't peak at the -- we've effectively peaked at between that 7 and 8 sort of level; some of the overseas markets are sort of well into double digits.

And so, I don't see inflation driven market growth being as high as some of the markets we've seen overseas. However, I expect the food market here to be more resilient than overseas, simply because there's a lot of Australians who are in a relatively good space still.

James Graham

Steven, I might -- just a couple of things. I mean, I think we've spent a little bit of time talking about a little bit of a macroeconomic environment. We do -- so if you look sort of forward, Steven has spoken about the volumes, and I guess elements around inflation. But as we also spoke a little bit of availability. So as we can see availability improve, we'd expect that to be a sort of a positive tailwind, but obviously, a lot of work to get that in shape with our suppliers.

We should see benefit as population growth continues to -- and immigration levels certainly improve. But also, as cost of living pressures sort of increase, I think we're really well positioned, obviously, with our value position in the marketplace.

But if there is a switch from -- into in-home dining or in-home consumption, I think we're really well placed to sort of work through that as well. So, I think, we are actually well placed in that sort of current environment to ensure the top line is as solid as possible through this half and beyond.

Ben Gilbert

That's helpful. Thanks. And just second one for me. Just on Coles 360. It's obviously great to see you guys pushing more aggressively into that space. I think, the talk in sort of some of the industry journals is, your friends up north are doing upwards of $300 million a year out of their media business. How quickly can you scale that? Because in theory, that's a $100 million, $200 million type opportunity at a pretty healthy margin over the next couple of years.

Can you give us any idea around where you are in terms of scaling up the Coles Radio after years? But how you are in terms of scaling that? Do you think you can scale up more quickly, given some of the discussions have already been done from suppliers trying to get turns and sort of showing your ways and capabilities?

Leah Weckert

Well, it's great to hear that you had hopefully made that point. Obviously, it was only months -- launched a few months ago, and we're in the early stages of providing the services to our customers.

I think it would be fair to say we've been really pleased with the performance of the business so far. And there probably are opportunities going forward for us to accelerate some components of it, but that will be part of our planning that we'll be doing as we sort of head into this budget cycle in terms of just how hard will we want to push that.

Steven Cain

And it's fair to say the P&L is currently in a couple of places at the moment, and there's already media income there in various parts. But we did make a very conscious decision last year to significantly increase the resources that we're putting into the area and brought Paul Brooks in, who was the Sales Director of Channel 9 to come and lead that for us. And obviously, he's building a very good team here at Coles.

Ben Gilbert

Fantastic. Thank you.

Operator

Your next question comes from Richard Barwick with CLSA. Please go ahead.

Richard Barwick

Hi, guys. I just want to talk about the availability and in-stock levels. So you've talked about it being an industry-wide issue, which seems fairly clear. But do you have a view or do you have any metrics to compare your in-stock levels relative to your competitors? I mean you did call out that the voice of the customer or the NPS has been negatively impacted by stock availability. Do you see that yourselves as any better or any weaker position compared to competitors?

Steven Cain

Yes. Thanks, Richard. It's a good question and one we contemplate a lot on this table, as you'd imagine. I think what you got to -- starting with what is Coles and what are we trying to do? We don't have as wide a range as some of our competitors. We try to keep the ranging tight, but tailored from an efficiency perspective and a shopability perspective.

And we also have obviously some significant ambitions on the private label front and where possible in the past particularly on the fresh foods business, we've tried to sign up for longer-term contracts that provide us with a great cost but also are ethically sourced. So, if you take us to versus our competitors, we're similar in some ways, but we're also quite different.

And so if you take the list we've provided on this Slide 6 and you go down it. The drive pet food is an industry branded issue. The bottled water was a private label issue that was unique to us through our supply agreement. Fresh produce is an industry issue. But as I've said before, if you an independent supermarket or in the fruit and veg business, it's far easier to source from different places and in smaller quantity than it is for us.

Frozen vegetables is industry-wide, albeit we did have an Australian-only frozen veg sourcing policy, and we have decided to start sourcing some of that from overseas to supplement what's available locally.

If you look at the WA rail, we do probably ship more from the East Coast to the West Coast. And again, we'll see some of that changing over time, as we increase stock holding in WA, but also start thinking about more supply from that region. Far North Queensland, again, is mostly an industry thing. And with both WA and Far North Queensland, the majority of product does go by rail. And if the rail is down, it's actually very difficult to replace it quickly or totally by road.

And then on chicken and eggs, again, some of that industry, you'll have seen that reported by Inghams last week. But again, we did have one of our ex suppliers close down, which impacted us. And the rest of it is a bit more industry-wide, I would say.

So there's one or two things that are unique to us. What's definitely true in the last six months is if you're a smaller player, much sourcing part, small volumes where you went particularly focused on how ethically sourced it was, then you would have had a much better in-stock position than us. But again, it's something I'd expect us to improve on over the coming months.

Richard Barwick

Thank you. I guess, I'm just trying to get my head around the idea that improving availability should be a tailwind because in these instances, a lot of them are industry related. I mean, people haven't gone hungry because they have -- couldn't get the products that you're talking about, they would have substituted into something else. And for the most part, the examples you've given have impacted everybody. So it's not a case of someone who couldn't buy something from Coles and so they've gone and shop somewhere else. So once you have better availability, maybe, I don't know, a little bit more of an explanation to just show how that would actually dovetail into a sales outcome when, as I say, people would have substituted.

Steven Cain

I have definitely been in business long enough to know that availability drives sales. And in fact, it's the driver of sales. Let me give you some examples. I've been all around the country in the last few months to see it for myself. I have been to SA, WA, Queensland and New South Wales. And then various parts of Victoria, and I've looked at every single competitor as I go around, whether they're a big competitor or whether they're a little one. And it is very different, not only by competitor, but by location as well.

And so in Victoria, for example, I went into -- when we had limited eggs and water, I went into the local Costco, and there were customers in that. I'll send you a photo, if you want, because I took it. There's a customer in there, whose trolley has only got eggs and water in. And so what you've always got to realize is that most people in Australia shop in two or three different locations. They're going to city centers, they're going to shopping centers, they're going to Costco that are hopefully coming to Coles more than anywhere else.

But the fact is you either, as you say, substitute when you're in the store or substitute through a competitor or you go without. And people are -- customers are making that decision up in their mind all of the time. I can tell you, I went to some of our stores, and we didn't have an egg, now an egg is quite important, and that situation has been resolved now. But we've got to make -- in absolute case, you're going to get an egg from somewhere else. You won't say, I won't have an egg, with my Bacon and egg. And so there are some things that are quite different. And then when you look at things like our chicken. Our chicken is RSPCA-approved, it isn't always our RSPCA approved elsewhere. And so when you go, some people will find that important that the people won't. But there's a lot of things that impact what people buy. And I definitely – I would take a lot of convincing – if someone came into me tomorrow for an interview and said that availability doesn't drive sales. I don't think, I'd recruit them, to be honest.

I think it's actually – it's quite important in the health scheme of things. And it's important from a – an online perspective is rather because as far easier as you say, to substitute in stores than it is online. And obviously, once availability does get impacted, people want to closer look at themselves as well to make sure they know what's going on. So that's a long story, which hopefully sort of says – and we get a sales – a lost sales report every week, by the way. So we think we know what we lose every week from our availability situation. And I can tell you it's not zero. And I wouldn't be writing a slide about it. If it was anything close to zero as well. It's actually fairly significant.

Richard Barwick

Okay. All right. Thank you. Just one more quick follow-up. COVID costs, the fact that you've called out there's down AUD 130 million lower than AUD 150 million, obviously, implies AUD 20 million in this half, presumably more or most associated with absentees managing that? You just confirm that and the likelihood or the expectation of – do you think we'll get those costs, or are they just going to keep on lingering into the second half as well?

Charlie Elias

Yeah. So absolutely. In terms of absenteeism is probably the biggest driver in terms of COVID cost. The impact for the half was about AUD 20 million. So yes, pretty much 90% of that was actually related to absenteeism the like. Again, I think, so looking forward, we still feel there will be an element of COVID cost impacts, but certainly at the lower level rather than the elevated levels we've seen historically.

Richard Barwick

But do you think it's expected to reduce, Charlie, so lower than 20% into the second half?

Charlie Elias

Again, I'm not sure I have it, to be honest, with a forecast in front of me. I think the direct cost will reduce clear, and these are direct costs. But obviously, but absence has increased through that.

Matt Swindells

Yeah, absolutely. The majority of it is coming back. It's not settled yet. So it almost got back down to pre-COVD normal. And before I popped the champagne cork, it went back up again, but it's not the level it was.

Richard Barwick

Okay. All right. Thanks very much.

Operator

Next question comes from Bryan Raymond with JPMorgan. Please go ahead.

Bryan Raymond

Thanks. Just echo everyone’s comments on congratulations. But just moving on my questions. Just on the cost base, I'm just trying to get my head around the gross margin and CODB picture in the half. Gross margins were up. It looks like about half of the upside in gross margins was driven by COVID cost online, which makes sense. But I would have thought some of these logistics pressures would have weighed on that. So clearly, price competition and promotional participation might still be subdued. I'm just trying to understand, how that was still up given all those logistics costs pressures? That's my first one. And then my second question will be on CODB, but perhaps could you address that and that on the gross margin side first? Thanks.

Charlie Elias

Thanks Bryan. Let me just go, I think in terms of the gross profit, I think -- you're pretty much at the waterfall there with all the various items, but let me sort of just sort of walk you through some of the key larger movements.

I guess on the positive front through gross margin, what we did see is obviously direct COVID cost, mainly in relation to the supply chain logistics part obviously improve on a PCP basis. We -- Steven spoke about and started at some of the smarter selling initiatives that we've sort of undertaken and they are a positive tailwind specifically around some of the loss protection measures that were put in place.

As you know, one of the things that the business has been focused on over a number of years is continually improving gross profit through its strategic sourcing through the sort of ranging and mix and the like. So, all those were sort of positive factors into gross margin.

We did see, though, obviously, stock loss rates increase higher than we thought logistics costs were certainly up as well given the various cost pressures. So, we are seeing sort of pluses and minuses through that sort of gross margin. But net-net, it did -- gross profit was up by about 43 basis points -- sorry -- yes, 43 basis points.

In terms of the CODB line, again, lots of noise in the CODB line, right? Clearly, wage growth. I think as wage and salary growth, a significant portion of that. We continue to obviously invest in strategic investments like the IT and e-com that we mentioned sort of earlier.

That's the line also that you'll get the Ocado CapEx and OpEx of Witron and Ocado CapEx and OpEx through. But there are some other items is generally to sort of factor through, and that includes things like the property expenses.

So, some of the tenancy and rates that sort of come through property, they're linked to sales. And therefore, you do see an uptick in sort of tenancy costs through that. But obviously, on a positive front, clearly, significantly less COVID cost, which was positive and two-thirds of the Smarter Selling or two-thirds of the AUD100 million is actually -- was realized in the CODB line. So, lots of moving parts, but net-net, I think, quite good improvements there in GP and some positive negatives there in the CODB line.

Bryan Raymond

Right. Just if I can just follow-up on the CODB side. On my numbers, it looks like a circa 9% underlying cash CODB growth, ex-COVID costs. You can -- there's lots of ins and outs you just went through. But it's quite a high run rate.

I understand you've got mid-single-digit wage rate increases, rent is probably similar. But you've also got flat volumes online sales declined and logistics costs are obviously in COGS. I'm just trying to understand that run rate -- that high single-digit run rate and how that should persist going forward? If so, the benefit from COVID costs unwinding will fade over the next two halves. I'm just trying to understand if that's kind of a level that we should be starting to think about for our underlying cost growth going forward.

Charlie Elias

Yes. So, in terms of what -- clearly, again, lots of noise in the result. Clearly, again, we shouldn't forget also the sort of the indirect impact that we're seeing through the COVID costs that we spoke about earlier, like the availability and other issues that we've sort of called out. But we are continuing to make transformation investments, certainly in the IT and digital e-com. The other thing that cycles through works its way for a CODB line is depreciation and amortization. So you would have seen that, that has increased over the last 1.5 years, two years as we've obviously our capital expenditure moved from, say, circa AUD1 billion to that sort of AUD1.2 billion, AUD1.4 billion range. So you see that going into CODB as well.

Bryan Raymond

Yes. Sorry, I was quoting numbers on a cash CODB so ex D&A basis. But yes, no, I appreciate that at the total cost line. The final question just on these issues for me as a follow-up is gross margins are up 140 basis points now versus first half 2020, despite obviously being in a challenging environment, logistics-wise. Are these sustainable levels? I mean maybe this one for Leah given her roll going forward.

But it just -- it feels like it's stepped up meaningfully, not just for you but for your competitors as well. I'm just trying to square that up versus what we're seeing on the cost side -- operating cost side, I should say. It feels like it's moved a lot. I'm just trying to work out whether that's the new normal or whether we should be factoring in some unwind of some benefits you've had over the last three years.

Steven Cain

That's a really good question for the CEO, but let me just have a first stab at it. The things that we're not going to stop doing is, look, start selling and, as we said earlier, smarter selling, one-third of the Smarter Selling initiatives have actually been in the gross profit line. And if you look at the last 3.5 years, we're obviously coming to the end of Smarter Selling 1, which will deliver AUD1 billion by June 30.

One-third of the initiatives have been in the GP line, right? So some of the things that we've worked through and have been really, really important. We're obviously working through what a Smarter Selling 2 look like. But it's fair to say that Smarter Selling is part of our DNA.

The other thing that I think we are going to stop doing and we've been doing quite successfully is working really well with our suppliers. I mean our relationship with our suppliers and how we work with them in relation to strategically sourcing some of the excellent work our team does around ranging and in-stores and mix.

They all sort of work into the sort of the GP line. Obviously, going forward, one of the things that we'll see in the GP line is some of the benefits of Witron. And obviously, I know we haven't called out what that number will be. But you can expect to see that in the GP line, obviously, going forward has a positive impact on logistics costs. Leah, did you want to add anything?

Leah Weckert

I think that was an excellent answer.

Steven Cain

Okay, Bryan. I think that was okay?

Bryan Raymond

Thank you very much. Appreciate it.

Operator

The next question comes from Phil Kimber with E&P. Please go ahead.

Phil Kimber

Hi, guys. Congratulations to you both. The question I had on its slide, Slide 17, you show EBITDA for the – the Supermarkets, Liquor and total, I'm really interested in the Supermarket business. It's gone up by AUD124 million this half versus a year ago. And you said COVID costs dropped by AUD130 million. Now I know they don't all sit within supermarkets, but I think the vast majority -- so it looks like let's call it, EBITDA sort of flat without the COVID costs coming out. And that's actually a little bit different to your fiscal 2022 year, where it grew in round numbers about 5%. So I'm just wondering, is it -- did availability get that much worse in this half versus last year to create that flat sort of underlying outcome ex-COVID costs, or is there something else we should be thinking about?

Steve Cain

Yes. Look, again, a really good question. I think one of the things that’s -- unfortunately, I'd love it for it to be that simple, but it's not quite that -- just that simple. There's lots of moving parts, right, to sort of work through that EBITDA line. So one of the items you identified is clearly COVID cost and the reduction there. And they're sort of positive.

The other positive element there is, again, smarter selling costs that work their way through. But there were a number of headwinds. We asked -- we were cycling -- again, we just -- we shouldn't forget this last year, we were cycling quite significant headwinds as sort of the half that's just gone in relation to the lockdowns and the elevated sort of sales that was there.

Clearly, the availability and supply chain challenges, they continue to impact the sort of -- down front [ph] numbers and the like. And also the inflation in our own cost base that we sort of worked through. So lots of things there, including the investments I spoke about.

I guess one of the things that you might want to sort of look at is perhaps, look through the year-on-year growth. And one of the reasons we provided the three-year growth is trying to give you a different sort of read through that as well that might take some of the noise out of that result.

Phil Kimber

Sure. And a very quick one. D&A, I think you had previously said you wrote it in this release, AUD 1.7 million. Obviously, you need to adjust for the Coles Express business coming out, but this year will be lower. Like with Witron and Ocado, can we just assume that the delay just -- that just gets pushed out a year? So that big step-up will now happen in FY 2024, just for various delays. I'm just trying to understand if you fundamentally change your D&A target or it's just a timing issue?

Steve Cain

Yes. So, certainly -- firstly, the D&A targets got nothing to do with Witron and Ocado. So the targets that I gave -- sorry, the previous notes that we gave in relation to the depreciation for Witron and Ocado, they still stand.

The basic change is really simple. Last year, the full year, we guided AUD 1.6 billion for D&A we've now got -- but that was assuming a full year of Express going forward. When we announced the sale of Express on the 22 of September, basically under accounting rules, you stop depreciating and amortizing the Express assets.

And so the Express depreciation for the year will only be about AUD 35 million. And just to give you a comparison, Express last year's total D&A was about AUD 140 million or AUD 145 million for the year. So it just gives you a bit of an idea.

So what we're finding is, giving you a AUD 1.55 billion for D&A for the continuing operations, which actually includes liquor and supers. And you'll see a number in addition to that of $35 million with respect to the Express business.

Phil Kimber

Okay. I mean, that number was also stepping up. So next year, that AUD 1.55 billion, does that step up again, which I think you'd called out previously in the Strategy Day that there was going to be some material step-up. I get that Coles Express needs to come out of it now. But in an underlying sense, is it still stepping up over the coming years?

Steve Cain

Yes. So, clearly, CapEx will actually step that up. But more importantly, probably the biggest impact next year will be the fact that you get Witron for a full year, for example, rather than for six months. And just sort of noting that obviously, that includes the -- all the AASB 16 sort of depreciation. So it will step up in relation to CapEx, but specifically, you get a full year of Witron.

Phil Kimber

Yes. Great. Thank you.

Operator

Your next question comes from Nicole Phang [ph] with Rimor Equity Research. Please go ahead.

Unidentified Analyst

Good morning. Thank you for taking my question, and all the best with the transition and changeover. I would just like to further focus on the reported EBIT margin, particularly for the supermarket division that expanded in the recent half already as discussed, due to some of the elements in the near-term moving parts?

However, considering the EBIT margin history for full supermarket, now there was some ASP effect in there. But the supermarket EBIT margin is trending closer towards that kind of FY 2015, FY 2016 peak period, etching close to the 5.5%. Now history suggests there are some limits to supermarket margins. One, would you agree with this? And secondly, thinking more longer-term, can you perhaps think of anything that's structurally changed and putting aside the near-term moving parts already discussed that could result in the margin trending closer to that peak level, specifically for supermarket and longer-term?

Steven Cain

Yes, Nicole, that's an answer I could happily spend three hours going through all the things that might impact the supermarkets P&L over the next few years. When you go back to that -- the period you're referring to, that was obviously some interesting circumstances around price differentials and then there was a fairly significant price discontinuity that was closed in a short period of time. And that doesn't -- that sort of price differential -- there's a -- we think there's a price differential, but it's something that we focus on moving forward through private label development and all of the other things that we talk about to deliver good value.

If you stand back from our P&L over the last three or four years, where as we've seen, we've seen 20-odd percent profit growth, margin expansion, but also some CODB growth as well. It's actually being driven by strategic initiatives, which are ongoing -- and so as Charlie and Leah and Matt have referred to this morning, we do have a strategic sourcing program with suppliers. We do have a smarter selling program, which impacts the gross profit. We are seeing some very positive mix changes over the years. Three or four years ago, the range in coals was quite flat wherever you went in the country. It's now more tailored. It needs to be a lot more tailored, but we're catering much better for the tale of two cities that we talked about.

Our premium range just continues to improve. And our entry level pricing continues to improve the various competitors. And so we've got a very positive mix benefit that's come through over the last few years, as we've improved the ranges and the sourcing, things like Witron will impact the GP as we've talked to because it's a more efficient way of distributing product in Australia.

And then if we look at CODB, obviously, that's what smarter selling is designed to do, notwithstanding, the fact that there are some inflationary pressures in the business. So if your GP initiatives coming off, annual smarter selling initiatives comes off, then you should have an EBIT percentage that looks fairly healthy. But clearly, if there are discontinuities in the market or something else unforeseen happens, then clearly, it can go the other way as well. But I'm hoping the fact we've done this for four years now, sort of, demonstrates that these are strategic programs that are driving the P&L.

And what I've said for many, many years about Australia is that the supermarkets in Australia invest more CapEx as a percentage of their sales than anywhere else in the world. And if you take our own investment that's going into either driving sales growth profitably, or it's to do with making this business far more efficient and if we weren't investing the sums of money we are, we wouldn't have access to projects like Witron and Ocado, which, as I've been saying for four years are game changes in this country, and we'll further benefit Coles for decades to come. So I think the improvement is strategic in the P&L. It's planned. And I think there's more good stuff to come, but you can never forecast what's going to happen in the market like this.

Charlie Elias

And I think, Steven, if I can recall, just to add also, in addition to the strategic considerations that Steven has mentioned, which obviously all true. When you look at 2014 and 2015, the accountants did change a bit later in 2019 with AASB 16. So it doesn't make the EBIT percentages comparable as well as if you recall, prior to AASB 16, you had the lease rental cost, which cycled through EBIT.

But now we may split that between depreciation and interest. You've got interest below clearly the EBIT line of that element. So there was a change, obviously, in 2019. So just be careful when you compare that historically, but to future EBIT.

Unidentified Analyst

No, absolutely. Thank you very much. Hence, the recent number is quite attractive relative to the history, but thank you very much for that commentary.

Charlie Elias

Thank you.

Operator

Thank you. There are no further questions at this time. I'll now hand it back to Mr. Cain for closing remarks.

Steven Cain

Okay. Thank you, and thanks for all of the questions this morning. I've seen some speculation that this is my last results announcement. Everyone we're pleased to hear it isn't. So we've got the Q3 sales on the Friday, the 28th of April, and that will be my last results announcement. And hopefully, I'll be fronting up with the same bunch of colleagues around me.

Hopefully, we've demonstrated that the business has passed through COVID in good health. This business is in really good shape for the future. We've got some -- we've got three tailwinds for the first time in as long as I can remember, and we've got an outstanding investment program ahead of us.

I hope that, we can serve you well in Coles up to Easter. And we look forward to seeing some of you in a bit more detail this week and next. So thank you very much.