Western Midstream Partners, LP Price & Performance (WES)

Thanks very much. Well, good morning and good afternoon, everyone, and welcome to our half year results briefing. So today, I'm joined by our divisional managing directors and our CFO, Anthony Giannotti. To begin, I'll talk to the group's performance and key highlights across the portfolio, and then Anthony will provide more detail on our financial performance. I'll conclude with some comments on the group's outlook. And Anthony, our divisional MDs and I would then welcome any questions that you may have. So I'll start on Slide four, which is a slide that you will be familiar with. The West Pharma's objective is to deliver a satisfactory return to shareholders, which we define as a top quartile total shareholder return over the long term. And we acknowledge that we can only achieve this if we anticipate the needs of our customers, look after our team, treat suppliers fairly and ethically, contribute positively to communities in which we operate, take care of the environment and act with integrity and honor And this half has once again provided us with many opportunities to demonstrate progress in these areas and you'll hear this throughout our presentation. So turning to Slide five, and there are three points I'd like to highlight from today's result.

First, our financial performance. It was pleasing to deliver growth in sales, earnings and dividends in what was a challenging trading environment with many households and B2B [indiscernible] As a result, the Board determined to pay a fully franked dividend of $0.95 per share, a 4.1% increase on the prior corresponding period. The second point is that this result demonstrates strong execution across the group's portfolio of businesses. Our divisions continued to benefit from their proactive productivity initiatives, and this enabled reinvestment in their customer offers, delivering even greater value, service and convenience for customers. And there's also been a lot of transformation and growth activity that will set our divisions up well for the future. It was particularly pleasing to see the group's largest divisions performing well, with Bunnings and Kmart Group's strong value credentials continuing to resonate driving growth in transactions, sales and earnings. The third point is I wanted to note that we undertook a number of port portfolio actions to improve shareholder returns and renew the portfolio. And some of which I'll talk to shortly. This is another result that demonstrates the resilience of our portfolio of businesses and the capacity of our divisions to adapt and prosper in tough markets.

I'm also confident that we're entering 2025 with our businesses in better shape to manage risks, but also to better benefit from any improvement that may occur in economic activity. Turning to Slide six, I won't step through every division in detail on this slide, but I'll describe a few highlights from the half and then Anthony can talk to some of the financial results. Bunnings demonstrated the resilience of this offer and continued to grow sales and earnings despite challenging market conditions, particularly in residential construction. Kmart Group's result builds on the very strong performance delivered last year as they continue to drive growth offer. This result also includes the integration of Kmart and Target systems and processes, which has simplified operations and also the ongoing digitization of operations global sourcing and supply chain functions. Wessef delivered solid operating results for the half supported by the Chemicals business and the Covalent JV continued to make good progress at the Kwinana Lithium Hydroxide Refinery with construction 95% complete and commissioning 50% complete at the end of the half. [indiscernible] Health, we continued to invest in transformation activities and have been encouraged by the progress and performance of the consumer segment comprising Priceline, Media Aesthetics, and Digital Health that grew transactions, sales and earnings.

Health's result was impacted by the wholesale segment which experienced higher supply chain costs with our There were also one off costs associated with an outsourcing of support functions One Digital, which comprises our shared data asset One Data and membership program One Pass continued to drive incremental sales for our retail and health divisions, leveraging the group's unique data and digital assets and omni channel capabilities. And work is underway to develop a group retail media network, which will leverage the group's significant omni channel audiences. Turning to Slide seven. This slide sets out some of the recent portfolio actions and demonstrates the group's financial discipline and focus on shareholder returns. First, in December, we announced the sale of Corgas, to a subsidiary of Nippon Sanso for $770,000,000 Now while this sale is subject to certain consents and approvals, it's a great example of our disciplined approach to portfolio management. The sale recognizes Corgas' strong growth in recent years and gives customers and team members the opportunity to join Nippon Sanso a leading global industrial gas company. More recently, we announced the wind down of cash, which includes the transfer of cash fulfillment centers to Kmart Group and digital some digital capabilities to our retail divisions.

This decision will improve Wesfarmers' earnings in FY '26 as we eliminate the businesses' losses. It will also strengthen our retail division's omnichannel offers and improve Kmart Group earnings. The move to next day delivery for much of Kmart and Target's East Coast operations will be a great outcome for their customers. During the half, we also completed the divestment of Wessex LPG and LNG distribution businesses, which will improve Wessef's financial returns. And we also completed incremental bolt on acquisitions, expanding Officeworks' digital education offer and also supporting Health's digital strategy. Turning to Slide eight. During the half, we continued to deliver better outcomes for the environment, our people, our suppliers and the communities in which we operate. The group's TRIFA improved from 10.9% to 9.9% at the end of the half. This was largely driven by an improvement in Bunnings, where we're starting to see the results of a multiyear program to create a safe workplace. We continue to embed climate resilience in our businesses acknowledging its link with long term value creation. And during the half, our divisions achieved a 2.5% reduction in scope one and two emissions. And a source of pride for our teams is the $55,000,000 of direct and indirect community contributions made during the half.

Supporting more than 8,000 community Now turning to Slide nine, you can see the summarized performance of the group, but I'll hand over to Anthony, who will talk in more detail to divisional performance and the group's balance sheet and cash flows.

Thanks, Rob, and hello, everyone. I'll start on Slide 11 in the presentation where we've provided some further details on the sales performance across the group. I'll speak to sales and earnings performance for each of the divisions on the next slide, But at an overall level, we were pleased with our ability to deliver good sales growth in what was a challenging retail environment. This was particularly the case for our largest divisions, Bunnings and Kmart Group, which performed well as their everyday low prices, market leading offers and strong execution drove growth in transactions and sales. Turning to Slide 12. At a total level, divisional earnings grew 4% for the half and on a combined basis, Bunnings and Kmart Group increased earnings by 4.4%. Our retail businesses continued to execute well during the period, enabling them to deliver great value to customers and benefit from their continued investments in efficiency and productivity. Our retail divisions remained focused on keeping prices low and investing in the omni channel customer experience. This supported growth in sales and allowed our businesses to mitigate cost headwinds and to fractionalize costs. I'll now step through the divisional results in a bit more detail.

Firstly, in Bunnings, sales growth of 3.1% was supported by growth in both consumer and commercial segments. Higher growth in the consumer segment was supported by sustained demand for repair and maintenance products, growth in digital sales and strong demand for new and expanded product ranges. Commercial sales growth was supported by higher demand from trades and organizations, which was partially offset by lower demand from builders, where activity remains impacted by the subdued residential construction environment. During the half, Bunting's maintained its strong cost discipline and continued to invest in business improvement initiatives to support ongoing reinvestment in price and experience for customers. Overall, excluding the net impact of property contributions, Bunting's earnings increased 3.2% to 1,320,000,000.00 for the half. Kmart Group delivered earnings of $644,000,000 for the half, an increase of 7.2%. This result is off the back of a significant increase in earnings in the prior corresponding period with the division reporting 36% growth on a two year basis. Kmart Group continued to benefit from its strong value credentials and unique ANCO product offer, which supported growth in units sold, transactions and customer numbers. Minor reductions in items per basket and average sell price in an inflationary environment demonstrated customers' focus on value and Kmart Group's commitment to low prices.

Importantly, the earnings result was supported by the successful execution of long standing productivity initiatives, including the integration of Target systems and processes, which helped mitigate cost pressures and the impact of a lower Australian dollar. In Wesif, earnings increased 2.9% to $177,000,000 with higher earnings across all businesses partially offset by the impact of losses from our lithium business which remained in ramp up during the half. Favorable ammonium nitrate re contracting outcomes and strong demand across the gold mining sector resulted in higher earnings in chemicals despite the impact from lower global commodity prices. In Clean Heat, earnings benefited from a higher Saudi contract price which was partially offset by higher WA natural gas costs. In fertilizers, earnings improved as a result of higher sales volumes with a strong end to the 2024 growing season. In lithium, WesF's sale of spodumene concentrate in the first half contributed a loss of $24,000,000 This loss reflected lower market pricing and higher unit costs of The reported loss also includes WesF's share of co Valence corporate and overhead costs. In Officeworks, sales increased 4.7% and earnings increased 1.2% to $87,000,000 for the half. The result was supported by above market growth in technology, and an increase in demand across key categories as Officeworks everyday low prices and value resonated with customers.

Pleasing sales growth to consumer customers, including during the Black Friday, period were partially offset by softer sales growth to business customers. This is reflecting the challenging conditions effect Earnings growth was also impacted by one off costs associated with the acquisition of Box of Books and the closure of Sirekonomy. As well as increased competitive intensity in technology categories. In Industrial and Safety, revenue declined 1.9%, reflecting the challenging economic conditions affecting customer demand. Particularly across strategic customers in the mining and manufacturing sectors. Earnings decreased 8.2% to $45,000,000 This result includes one off restructuring costs of $7,000,000 to reset the operating model and the cost base in both Blackwoods and Workwear Group. With the benefits from these actions expected to be realized in the second half. The restructuring initiatives are expected to mitigate ongoing cost pressures and support sustainable earnings growth by leveraging the recent investment in new ERP systems across both Blackwoods and Workwear Group. Earnings excluding the restructuring cost increased 6.1% to $52,000,000 In Wesfarmers Health, we saw continued focus on transformation activities to accelerate growth and improve returns. Earnings of $28,000,000 included $4,000,000 of restructuring costs as well as $9,000,000 in non cash amortization expenses relating to business acquisitions. Pleased with the performance of the Consumer segment.

Priceline strong performance was driven by strategic price reductions on key value lines network expansion and the launch of new and exclusive brands. Medi Aesthetics performance improved from actions taken to optimize the network following the acquisition of Silk, including the closure of 34 unprofited [indiscernible] were clear skincare clinics. This stronger performance in Consumer was off supply chain costs during the half. This was primarily due to higher last mile fulfillment costs impacted by inflationary pressures and the renewal of recent freight contracts. Wholesale has a supply chain cost out program underway and is expected to benefit from investments to optimize the network including from the recently constructed fully automated fulfillment center in Brisbane, and the construction of a new DC in Cairns. Catch reported a loss of $39,000,000 for the half which was in line with the preliminary half year earnings result which we announced in January. Catch will cease to trade in the fourth quarter of the twenty twenty five expected to be between $50,000,000 and $60,000,000 These costs will be incurred in the second half of this financial year and do not include the operating losses from Catch as the business continues to trade through the second half.

Turning now to Slide 13 on other businesses. Our other businesses and corporate overheads reported a loss of $88,000,000 which was a $7,000,000 improvement on the prior half. The key driver was the impact of upward property revalue BWP increasing from $13,000,000 in the prior half to $35,000,000 Group overheads were broadly in line with the prior corresponding period, while other corporate earnings were lower, driven by a lower group insurance result. Finally, we continue to develop capabilities in One Digital, in OnePass member numbers and retention rates continue to increase through the half with OnePass members shopping more frequently and spending more across the group's brands after joining the program. As previously mentioned, the benefits of incremental sales from OnePass member spend and improved personalization are reflected within the Retail division's sales and earnings. Turning to working capital and cash flow on Slide 14. Overall, the working capital and cash flow position remains strong during the half with cash realization across our retail businesses of 113%. Despite the strong performance in cash realization, divisional operating cash flows decreased 6.3% primarily as a result of cycling a significant increase in cash flows in the prior half which benefited from normalization in Wessef's net working capital in its fertilizer business.

The half in this half, the divisional cash flow result reflected net working capital investment in Bunnings, to support higher customer demand and in WesF to support the up upcoming fertilizers growing season. At a group level, operating cash flows decreased 11.1% to $2,600,000,000 due to the lower cash flow from divisions and higher tax paid during the half. Overall, we're comfortable with the inventory health across the group. With good stock availability across all of our retail businesses and improved stock turn in Bunnings, Officeworks and Health, compared to the prior corresponding period. Free cash flows for the half were $2,000,000,000 in line with the prior corresponding period as lower operating cash flows were partially offset by the acquisitions of Silk and Instant Scripts in the first half of the twenty twenty four financial year. Moving now to capital expenditure on Slide 15. The group invested gross CapEx of $594,000,000 during the half which was 2.9% higher than the prior corresponding period. This was driven by new store and expansion projects in Bunnings and partially offset by reduced spend in Wessev following the completion of commissioning activities at the Mount Holland Concentrator in the 2024 financial year. Proceeds from the sale of PP and E increased for the period reflecting higher property activity at Bunnings.

As a result, net capital expenditure for the half declined slightly For the full year, we do expect net capital expenditure for the group to be in the range of $1,100,000,000 to $1,300,000,000 which is in line with our previous guidance. Turning to balance sheet and debt management on Slide 16. The strength of our balance sheet continues to provide the group with significant flexibility and capacity to support investment in growth initiatives. Net financial debt decreased by $400,000,000 over the half and the group's cost of funds of 3.92% were broadly in line with the position at the thirty June. Our debt maturity profile improved slightly during the half with a weighted average term to maturity of four point six years. Our other finance costs, including capitalized interest, increased 3.2% to $97,000,000 Our key credit metrics improved during the half and the group maintains considerable debt headroom within our targeted rating band. At the end of the half, the group had available unused bank financing for And finally to dividends on Slide 17. As Rob has already mentioned, the Board has determined to pay a fully franked interim dividend of $0.95 per share and this is consistent with our dividend policy, which considers available franking credits balance sheet position, credit metrics and our cash flow generation.

In line with what we've done in recent practice, the group does intend to purchase shares on market to satisfy any shares that will be issued as part of the group's dividend investment plan. And with that, I'll now hand back to Rob to cover outlook. Thanks, Anthony. And turning to Slide 19. Before covering outlook, I wanted to comment on the positioning of the group's portfolio. We have high quality businesses that provide us with a platform for long term value creation. Our retail divisions have market leading positions strong value credentials and broad customer appeal. WesF has strategic manufacturing capabilities supporting customers in large critical industries, including in iron ore, gold and agriculture. Our businesses will continue to drive growth by expanding addressable markets, and executing productivity and efficiency initiatives also has exposure to new and growing earnings streams, linked to the demand for lithium hydroxide and the health sector and also new strategies, so Finally, the strength of the group's balance sheet as Anthony said, creates optionality to deploy capital across our portfolio and taking advantage of opportunities that might arise. So turning to the group outlook on Slide Wesfarmers remains focused on generating top quartile TSR over the long term, and we continue to invest to strengthen our current divisions and develop platforms for future growth.

Australian consumer demand remains supported by strong employment and continued population growth, but higher costs remain a challenge for many households and businesses. Cost of living and cost of doing business pressures are expected to continue. Despite the recent modest easing of interest rates. While this drop in interest rates will provide some relief for many house [indiscernible] for additional demand and investment. Weak domestic productivity and geopolitical developments add uncertainty to the economic outlook and broader market conditions. Now our divisions are well positioned to mitigate these impacts continuing to focus on executing productivity initiatives including investments in technology to digitize their operations. The group's retail businesses are expected to benefit from their strong value credentials and expanding addressable markets. Bunnings, Kmart, and Officeworks will retain their focus on enhancing the customer experience and delivering even greater value service and convenience for customers. For the first six weeks of the second half of this financial year, Bunnings and Officeworks maintained solid sales momentum with sales growth broadly in line with the first half. And Kmart Group sales growth was stronger compared to the first half, supported by its unique ANCO product offer. Now obviously, the value of Wesfarmers is underpinned by the quality and performance of our larger divisions, and we remain confident of their growth prospects in the years ahead.

And consistent with our long term focus, we're also optimistic for our new and developing businesses that have a minimal contribution to earnings at the moment but represent significant potential over the next three to five years. And this includes our health division, our lithium joint venture and Retail Media opportunity. Along with our joint venture partner SQM, Wesfarmers remains focused on the development of the covalent lithium project which includes an integrated lithium mine, concentrator and refinery. First product from the hydroxide refinery is expected mid calendar year twenty twenty five in line with prior guidance, with production to ramp up over the following eighteen months. In parallel with ramp up, Product qualification with contracted customers will also commence which could take up to nine months. We purposely retained balance sheet flexibility and will continue to improve the portfolio through our disciplined approach to capital allocation in our existing business and with new growth opportunities. Before we open for questions, I would like to take a moment to recognize [indiscernible] This will be Iain's last results briefing as Managing Director of the Kmart Group as he retires from the position in April to be succeeded by Alex Poeszka. Over many years, Ian has made an outstanding contribution to the trusted Australian brand.

We thank Ian and are pleased that he will remain with West Pharma serving as the Chairman of ANCO Global and supporting a smooth leadership transition. With that, we're now very happy to take your questions.

Thank you. We do ask that you limit your questions to one per caller.

And that clarifying questions are concise. You may then rejoin the queue for any additional questions. First question comes from Michael Smotis with Jefferies.

Hi, everyone.

My question just relates to balancing the outlook for costs as well as the productivity initiatives and benefits that you've got in the pipeline. So how do you see costs in the next six to twelve months based on what we've seen re COGS and CODB combined. And then on the other side of the equation, do you think you can continue to offset the cost pressures that you've got with productivity like you have over the last twelve or eighteen months? Yes, Michael, I might Rob here, I'll make some opening remarks. I might hand over initially to Mike and Ian just to provide a bit of context from their businesses given the importance of their businesses. I'd say that all of our divisions have demonstrated in recent years a lot of capacity to drive continuous improvement in productivity. And we are finding that there are more opportunities that are are available to drive productivity given the new technology solutions that we have available and also better leveraging our data insights, they have been key drivers. So I think we have a very strong capability across our businesses around that. Although we've made good progress in recent years, there's still a lot to go after.

So I think that I think that's an important consideration. The other thing is that despite despite what you might interpret as some cautionary comments about cost pressures and inflation, the reality is that inflation is improving. So we should recognize that inflation last year was very high in relative terms and it is improving. We called out the Aussie dollar impact Now we've talked about that many times over the years and I think we have demonstrated our capacity particularly in businesses such as Kmart and Bunnings to manage the effects of change in currency better than most. But I might initially let Mike talk to that and then Ian can provide more detail. Thanks, Robin. Hi, Michael.

To answer the question, can we offset, absolutely. We've got very strong productivity initiatives right across the board at Bunnings which are around making our stores simpler to operate investments in fulfillment, our Lavater North fulfillment center in Victoria and a new one to be opened in Waco in Queensland strip some cost out of supply chain and last mile delivery and even our investment into our own team members, running deliveries gives us a much better sort of returns profile. And from a from a COGS point of view, there's inflation and deflation that sort runs through the different departments. When you think about Bunnings, there's so many different categories with different domestic and global markets. So you sort of see that that move around a little bit. But there's definitely upward pressure on cost through things like energy, workers' compensation, some transport costs as well. So it is a balancing act, but we've got very disciplined programs right across the business. Our operations team have stripped tens of thousands of hours of unnecessary task out so that we can, as Anthony said earlier, invest more in the experience for our customers. But that balancing act will continue. But yes, I'm very confident that we've got the balance right to continue to make the business easier to run and much more productive to deliver that better return for customers.

Thanks. Thanks, Mike. And Michael, just a couple of additional comments for me, so I don't repeat.

What Robin and Mike have already said.

I think we've got a bit more used to managing inflation in the cost base over the last couple of years. So when we came out of COVID, it was a new thing. And I guess we haven't had that experience for quite some time. I think we've got a lot more experience of it now. So we're much more used to adjusting our price is both up and down so that we give the best value to consumers and we're always going to make sure that we we price our products super competitively in the market So I'd say that piece is there and we understand that probably a greater extent in an inflationary environment than we did before. And then we're going to continue to work on productivity initiatives to help offset as much as we can. But I'd say as you look in the outlook, sometimes we'll be able to do that really well, other times we won't have to move prices if that's what happens if something like the exchange rate stays as low as it is. For an extended period, then that will obviously have to flow through into cost of goods at some point.

Thank you.

Your next question comes from Tom Keirath with Barringelli. Please go ahead.

Good day, guys. Just got one on CapEx. It's been kind of low for a while now, especially when I exclude the investment you made in Covalent. I suppose two ways to look at it. One is that the businesses aren't as capital intensive as they used to be.

Or the second one is that you just don't have the, I guess, the opportunities for growth and hence pulling back on the investment there. So I'd just be interested in your comments on how you're looking at the CapEx side? Yes. Thanks, Tom. Look, I think it's clearly been a lot of one off projects in CapEx over the last couple of years, but there's certainly [indiscernible] across the other businesses. And of course, there's a lot in there. There's businesses that have come and gone through that period. And if you look at and a good example, I guess, is in Bunnings at the moment, you'll see the CapEx numbers up quite a bit on the previous half. As we've talked about a lot in Bunnings, the property activity will be very irregular. So there'll be periods when there's a lot greater level of investment, where there's more property activity Obviously, COVID slowed some of that product that sorry, the rollout of stores And Mike will talk in a bit more detail about what's coming in the next sort of six to twelve months. In relation to that. So I don't think there's our capital intensity hasn't changed.

There will always be periods where there's a bit further investment in things like supply chain. And we've continued to invest in supply chain across all of our businesses And we've talked about Mike's talked about the rollout of WACO, which will happen over time We've talked about the rollout of new DCs in health. So we continue to make investments in CapEx. So I think we do have probably businesses that are a little bit more efficient around how we invest capital. But there's certainly no shortage of opportunities to continue to invest. I think Tom Rob here. The other the other element to investment is a very significant part of the investment that's going on around technology and digital doesn't show up in the CapEx line because nowadays a lot of that cost is OpEx related through software as a service and so forth. So if I just take data and digital, looked at this the other day. We've invested ex [indiscernible] across the group in data and digital related activities. Now a lot of that is flowing through the P and L. In fact, only a smaller portion of that has actually hit the CapEx line. So I think it's also important to recognize that that element of investment in the group.

Is it wide quantify that impact on the P and L or the margins because the margins for most of the businesses are still very healthy and kind of above or well above where they were pre COVID. I'd just be interested in any quantification around that?

Look, I ultimately, you just look you just need to look at the ultimate earnings, right? Look, we are very whether we're investing in new stores, DCs or technology, we expect a return. That's how we think about it. So ultimately, the best judge of are we getting a return on all of this investment is an enabling growth. You'll see that in our sales line and our profit line and the return on capital. [indiscernible] Great. Thanks, guys. Your next question comes from Sean Cousins with UBS.

Thanks. Good afternoon from Sydney. Maybe just just for Ian, in Kmart Group, what drove the margin expansion in the division? And you've called out a couple of factors there, strong apparel, mix to ANCO, I assume that is adding ANCO into target More into the the most material there, target getting better and then productivity, which we've discussed there. I guess one of the questions we have seen or we have is that seen increased promotional intensity across apparel, general merchandise, retail, that may have required Kmart to reinvest more of its cost savings and hence maybe didn't not expand margins. I'm just curious, did you notice that more competitive environment? And maybe more generally, just going back to some of those margin expansion drivers in the period, please?

Yes. Thanks, Sean. I think you covered a lot of them. So obviously, you covered off the apparel, the move of Anco into Target, which is only about 25% of the product offer, but at a healthier margin than the [indiscernible] And the other driver, which you didn't cover off was fact we brought the two businesses together as one operating model. And that's enabled us to be more efficient as an overall operation and drop our cost base because of that And did you see heightened competition in the market in terms of one of the themes I think of the first half 'twenty four result when you had a dramatic amount of margin expansion you probably were able to retain more of the cost savings that you generated. Did you have to redeploy more of it in this period?

Yes. It is it was a very competitive half. I'd say we're anticipating that will continue. I mean, I think Despite interest rates following by a few basis points, most [indiscernible] And I think all retailers are trying to figure out how they respond to that. We're always going to try for that lowest price and maintain that lowest price position. You'll see that we called out within the result that we had a slight slight reduction in our average sell price during the half, which was because we decided to invest in price and maintain that leadership. In that leadership place. But clearly, we had enough in the tank in terms of productivity and efficiency that we could manage that.

Great.

You, Ian, and thanks for answering the questions over the years on Came up.

Thank you. The next question comes from David Arington with Bank of America.

Good morning, good afternoon team. Thank you. I'd like to delve a little bit into WESF, if I may, try to understand a few things. The first question or there's a third couple of parts. I'm trying to gain the ammonium nitrate renegotiated contracts. If you could if Aaron could say what percentage of the contracts were renegotiated And would that mean then that we expect or can expect further upside potential in that.

And the second part of my question is in lithium. I don't think it's too an unreasonable question to ask Rob. I know this commercial sensitivities blah, blah, blah, blah, blah. But the current hydroxide price is US 9,300 a tonne would your operation be profitable at that price if the current if the current spot price were to retain. And I'd like your reaction to what Kent Masters said in the weekend press which really did concern me when he made the comment at a markets conference, Kent Masters, the CEO of Albemarle, He said that they believe that Western Australia does not have chemical processing capability needed to build or operate a plant of technical proficiency that is required In other words, they believe that it's going to be too difficult to build a hydroxide facility to operate it because Western Australia doesn't have the technical capabilities I'd really like you to answer that because that worried me a lot. Because that concerns me that if you guys can't get your hydroxide plant right, there could be a big hole punch through West Pharma. So that's where my question is coming from. So if you could address those issues, that'd be really appreciated.

Okay. Thanks, David. Aaron here. Just so we've got three questions there. Just start with the ammonium nitrate one.

As you can imagine over the last, I think we've flagged at these these briefings over three to five years that the market was in a state of oversupply for a period and that's obviously been tightening up in Western Australia as the Pilbara in particular the iron ore mines have been increasing production. We've entered a phase in the last year or so where where the market has got closer to balance and when you look at our peers in the ammonium nitrate space in Australia, they've all made comments around pricing improving as they as contracts rolled and were re contracted. The same thing a occurred for us over here and we're benefiting from that. A lot of those contracts obviously can't go into the specifics of the individual contracts but they are typically three to five year kind of rolling agreements. I think the benefit that we've called out in this result I wouldn't then start going and annualizing that again and again as we roll forward. I think those benefits will remain in our earnings, but we're starting to cycle the benefits of those existing in prior periods. I'll just turn to lithium hydroxide if if that's okay.

On that topic, on that Aaron, if you got three to five years. So at what percentage of the contracts would have been renegotiated? In this little period It's actually been a period over the last year or so that those contracts have been renegotiated, David. What I'm saying is when you look at the half year result now where we've called it out, I wouldn't go and annualize that for a full twelve months because we've already seen the benefit of that over a rolling twelve month period now. [indiscernible] Just moving on to on to hydroxide and really your comments around where pricing is at the moment. Think it's important to look at the timeline of the project. So we're still committed as we've outlined here that mid calendar 2025 we expect to hit first product. Commissioning is going well on the plant. But we do expect it's going to take upward of eighteen months to ramp that facility up and that's no different to really what the experience we've seen at least on the concentrator side out at the mine site that it will it will take that period. Clearly, once you move from that critical date for us to prove first product, and then get to a full ramp up period, you're going to get the fractionalization benefits of those increased volumes to the cost So I think we've flagged before that clearly in the early phase of the lithium hydroxide project coming online, they're not going to be our long run target cost per tonne production.

We do have you mentioned today's spot price. I think it's important we've flagged before that we do have benefits like many, many players in the lithium industry when selling to Tier one customers. There are pricing mechanisms and struck facing into the spot price. So that's also another important distinction. But I think when we look at the project, alongside SQM, when we see the long run cost position of our vertically integrated procuring spodumene from the mine gate ourselves. We're avoiding all of the transport costs that Chinese refiners, etcetera, have to deal with. When you look at that vertically integrated operation once we hit full production run rates and get to fractionalize that cost, We still think it's a viable and beneficial project for West Okay.

Sorry, David, Rob here. Just to answer your final question, around the our capacity to actually develop and operate successfully a refinery in Western Australia. Look, as you'd imagine, before we made this investment, we asked ourselves the same question. And it was a real benefit of partnering with SQM. So some are with SQM's international expertise and expertise in processing that provided a level of technical knowledge and experience that complemented the very significant capabilities that Aaron and his team have in developing and operating major chemical facilities in Western Australia. So at the end of the day, time will tell and we'll be able to answer your question a lot more precisely in twelve to eighteen months' time.

But so far at least, the team the team in Covalent have done an exceptional job of developing a project in a highly inflationary environment in line with budget, commissioning of the refinery is, I think, as of this week, about 64% complete.

So far so good, but obviously the next six months are critical. And we feel that we have adequate experience, capability together with our team at SQM to commission this and run it successfully. We also benefit from the fact that we committed a lot of this CapEx before the inflationary cycle really started to hit. Probably is stating the obvious, but to try and build what we are building If you tried to start today, it would cost a hell of a lot more than what it cost us when we started this process a number of years ago. So cautiously optimistic about capacity, but at the end of the day, time will tell in the next six to twelve months.

No. Thanks Rob. Your next question comes from Lisa Ding with Goldman Sachs.

Hi, everyone. I wanted to ask a question on health. So even though it's not exactly the largest contributor to profit, it's actually third largest revenue contributor, I think 13% of revenue and actually the second highest growth in terms of revenue for the half at 9%. What I wanted to ask is, it's been three years since the acquisition, like has it surprised you in how long it's taken to basically reposition the business? And are we past the hardest lifting parts of what we need to do to that in order start seeing the returns come through because it is an important part of that growth driver, especially revenue?

Hi, Lisa. Thank you.

It's Emily here. I think we're always pretty clear that it was a a multiyear transformation journey. What we're really pleased is about is how our consumer businesses are performing. That is a key part of the earnings growth driver into the future. Right across all of our consumer businesses, we have seen really pleasing uplifts in the half, and we're happy with how that's coming together. We are I think, disappointed at the earnings uplift in this half due to some one off supply chain costs, as Anthony called out, but we are positive around the trajectory for the future and increasing earnings over time. And I think Rob also called out the investments that we're making. In the half, we also took we had some restructuring restructure the cost base of this business And sometimes things take slightly longer than you'd hope for, and I think we're currently in that position, but we're feeling very positive about our ability to continue to build the earnings profile over time.

Are we saying the hardest part or the highest restructuring costs or a kind of behind us and going forward, we're looking at incremental improvements?

I think it's hard to say precisely the point that we're at. We're going to continue to make investments to deliver increased earnings growth into the future. We are continuing to invest in our network strategy, which is a combination of CapEx and OpEx. And that's really the point in the journey that we're at.

Your next question comes from Brian Raymond with JPMorgan. Please go ahead.

Hi, guys. Thanks for taking the question. Just on Kmart margins, just a follow-up there from some of the earlier questions. The The impact that you've seen over the last few years particularly FY 'twenty four and now first up 'twenty five from some of those efficiency programs.

Outlined a lot of those already, I won't run through them all. Are they fully in the base now Or is that something that we should expect ongoing uplifts from on a year on year basis? And then just the second part of the question is, the Katz fulfillment centers for Kmart, just how that impacts online unit economics for Kmart given You've got looks like about $1,000,000,000 of sales coming through in FY 2025 from online. Much that can get fulfilled through the catch fulfillment centers what's the sort of benefit that you might see from that? Just interested in future Thanks. Yes. Thanks, Brian.

There's some things which are now coming into our base. So the bringing the two businesses together clearly that's a benefit that we get into the base and then that that's there going forward. So broadly speaking, that's pretty close to being complete. When you look at the work we've been doing on digitized [indiscernible] we have extracted benefit and value, we see more benefit and value to be extracted. But of course, we still sit in that inflationary environment. So that's the counterbalance, which I think you've got to sort of factor in as well. But yes, I wouldn't say we're at the end of the road on productivity. But certainly some of those things are now in the base. When you look at the Unity economics of online, we've been picking from stores for a large number of years and as the business has got bigger and bigger, we've gotten the point gone past the point of efficiency to the point of inefficiency within store picking, which is the central facilities now make sense to us and it improves our unit economics. Clearly, we've got to get those facilities up and running with us later on in this half.

So we'll start getting those benefits in next year, not this year. In terms of financial year. And that will really be able to help us distribute to customers in Victoria and New South Wales primarily. So clearly two biggest markets and it will be the majority of deliveries in those markets will come out of those locations. I should say that's home delivery and not click and collect. We'll still pick click and collect within our stores and that $1,000,000,000 odd number that you quoted includes click and collect as well as home delivery. Your next question comes from Adrian Lemmy with Citi.

Good day, team. Look, Congrats on the solid results in Bonniesville.

Happy with our consumers going. I was just interested how favorable you found the weather over the summer period? I mean my observation would be it was quite dry and nice weather at least on the East Coast Of Australia.

If you got any insight there, I mean I've noticed that in my local store there hasn't been much clearance of like seasonal product like outdoor furniture, for example, if I compare it to last year. Yes. Thanks, Adrian.

The weather in certain markets was quite good. And I think we've talked weather over the years, and I think you've sort of got to take the good with the bad. Over time. So we don't place enormous amounts of emphasis on that. I think what you saw particularly in the sort of outdoor and barbecue categories, was a real shift in capability in the team and the new ranges and the quality of those products our ability to source better, really gave customers an opportunity to sort of buy something different, new and quite differentiated but at an incredible price, which means that as we've sort of gone through the season, customers have responded well to that. And we've done the hard work sort of June, July, 2024 to sort of work on clearing what was ranges that were at the end [indiscernible] their sort of useful life. And I think I've said this before, but in the types of categories in which we play, we tend to sort of see the trends sit pretty consistently over sort of two or three seasons. So there is also no need at this point in time to be looking to sort of clear the current inventory because that will sort of broadly carry through into the twenty twenty five summer and into the start of twenty twenty six.

So that's been pretty clean. And I think that the thing that's sort of important to reflect on particularly inside the result is unit growth. So whilst we're pleased with top line sales, the volumes of inventory and the volumes of stock that we were to put through the business, the response to Black Friday, Halloween and Festive were all really, really good. And I think combined with a strong spring in many markets, we're up really moving significant amounts of product and not need to deal with any clearance activity and that's left us pretty clean going into the second half as well.

Thanks.

That's very helpful, Mike.

Could I just ask a follow-up there just in terms of the volumes there like clearly you've done so well in cleaning and pets. I imagine that's kind of helping that story. In those two categories, do you think now with it's getting harder now to do those those lines up. What do you think is still a long growth runway in those two categories? You.

I think as long as your value credentials are strong, you earn the right to be chosen. I think that's what we've always tried to do rather than sort of scattergun the sort of range. We're very disciplined in our ranging architecture. Different categories we're participating in more shops, they're all driving really pleasing stories in terms of return on space and stock turn improvement in sort of gross margin return on space, which is the main inventory productivity measure that we use at Bunnings, So I think across the board, we've sort of seen really sort of solid activity. But they do drive some traffic to store, but the core categories of outdoor tools, paint, all of these categories have continued to sort of grow and evolve and innovate. And I think when we're together for the operational briefing day, one of the things we want want to clearly illustrate is that it's great to bring some new categories in, but there's actually genuine and deep transformation in existing categories, which is going to continue to drive growth because it's bringing innovation to the market and that's what customers really value alongside the value credentials that we have.

Thanks, Mike. I look forward to seeing at that day. Thank you.

Your next question comes from Caleb Wheatley with Macquarie.

Hi, Rob and My question is back on Kmart Group and the ANCO brand.

So called out strong pipeline opportunities with some of the major global retailers. Can you just talk a bit more detail about [indiscernible] [indiscernible] But because Kmart starts to become a bit more of a halt sense, I know that you're trialing some offshore direct retail stores, Nanko as well. But how should we think about ANCO expansion in the context of Kmart Group, Yes. Thank you. I think first up, we're always going to focus on Australia and New Zealand and make sure we keep growing our our core business in those two markets because obviously the vast majority of the business that we have today and super important And ANCO is clearly a critical component that drives the ongoing success of those businesses. So the first thing is we wouldn't take our eye off that as a core focus. But equally, yes, we started that process now of taking our products into new markets. We've said in particularly in Europe and North America we want to go to market as a wholesaler working in partnership with some of the large retailers and we're doing that both as a product brand as I itself, and we're also doing it supporting other brands such as Mattel and Fisher Price and Wooden Toys, which we've been doing for some time.

And we see those as we still see those as good opportunities for the future. When we look at Asia, we'd rather go direct and that's what we're doing in The Philippines is opening stores with a partner in that market because we believe there's a better opportunity to create value in those markets by creating our own retail footprint. So what would our business look like in the future? We should see an increasingly large business both from wholesale and ideally from physical stores in Asia. But as we've called out, super early days for that business, the numbers in the current results are completely immaterial. And at the moment, it's an intent and a plan. And we've now got to turn it into reality.

And I guess you could see that more and more if there is traction with some of those [indiscernible] in terms of capacity and production of [indiscernible] categories or product to go and meet that wholesaling demand? Is there much more investment or work required to to get factories up to facilitate that or how should we think about that part of the process Yes, we're learning a lot already on that and some of the initial orders that we've had with some of our partners are pretty material. So in some cases, the same same volumes as we're already producing in some cases ahead of that. We have a very mature supply base We do not run to 100% capacity within those those suppliers. So we have a lot of ability to expand within our additional of the existing supply base. And we have an excellent team spread throughout Asia who can find new sources, new factories for us. If we need additional capacity. So it's something that's very much on our mind. And if we saw a rapid scaling would put us under a bit more pressure, but I think we've got the skills and resources in place to manage that.

That's great. Thank you. Your next question comes from Craig Walford with MST Marquis.

Hi, Robin. Tim, I think I'll ask a question around the lithium part of your business and it's more of a fundamental as opposed to just interested in understanding industry settings as you're going forward, you're about to commission the lithium hydroxide If we think about the supply, what the cost curve looks like and the demand outlook, are all those things still within your business case and how could that impact the medium term return on capital [indiscernible] achieve in co payment?

Yes, thanks. I think just when you look at the industry side of things, our investment case was very much predicated on not making predictions on long run price as and really benchmarking starting with the core assets would sit on the cost curve. I think since the time we've invested in Mount Hollander made the acquisition, there's there's clearly been new discoveries and new entrants into the global supply chain for lithium. But when we benchmark the mine and have a look at what's likely to come into the supply over the the towards the end of the decade. Mount Holland is still very competitive from a gray tonnage and just where logistically where it's located here to be able to feed the refinery in Kwinana. Still places it in a good position on the cost curve and that that hasn't really changed. So I think the fundamentals behind the original purchase and where it sits in the industry is still valid. I think When we look at overall demand for lithium chemical, we're still confident that you need many more amount Hollands or Brian assets around the world to come into the supply chain to meet a base case forecast of the increase in demand.

There's been some upside I think in energy storage and larger scale batteries that we probably didn't factor into our view. So I think the premise around having a vertically integrated at least Australian producers in the lithium industry is to be able to supply from the mine gate at cost a the chemical refinery in Kwinana and then take that product as one of the few, I suppose, non China supply chain players in the industry to sell into Tier one battery customers of the world. That That thesis is still valid and I think what is what is going to serve Wesfarmers shareholders well in the long term.

Aaron. So I think just to be clear, you're saying most of I guess advantage on the where you sit on the cost curve is a function of the Mount Holland How do you see the refinery bidding within that overall position on the cost curve?

Yes.

I think, look with any commodity conversion, business, you do need to start with a high quality resource up stream.

And we've spoken around I've talked about the quality of Mount Holland. I do think that is a fundamental point, however. When you look at the refinery, I think the challenges on building a refinery in a place like West Australia versus Asia is probably more on the CapEx side of things. So that's clearly and I think Rob's spoke earlier around inflation and what we've dealt with on that side of things. That's That's clearly an element that that makes building these kind of operations more challenging here versus other locations. But when you look at the OpEx side things, there are significant benefits in being able to feed or refine from a wholly owned West Australian mine rather than having to transport spodumene over large distances from Australia to China, etcetera. So there's wins and losses on the OpEx side, but I think that's probably more of a CapEx argument that you're discussing. Thanks, Aaron.

Your next question comes from Ben Gilbert with Jarden.

I'll say, Rob and Tim. [indiscernible] Could you give us any idea around, especially you got a few businesses in record, but how big you think it is today when you look at Ipswich? And the reason I ask is, look at your comps, you've got Woolridge and Kennewares over 500, Coles probably pushing 200, Amazon pushing 200, then a bunch of others, I'm talking million dollars there, coming in.

Just where do you sit today? And are you going to give us disclosure around that? Moving forward given you say it's going to be a material driver Do you think you can get to $10,000,000 say within the next few years that have 30%, 40% margin? [indiscernible] Ben, I'm I'll just touch on this Look, we're already doing a bit our retail businesses health business is already doing a bit of retail media business at the moment. I'd say it's It'd be significant if you added it all up but it's not significant enough for us to be calling out specifically at the moment. The types of numbers that you mentioned are certainly the the the size of our digital audiences, the quality of the brands and the both the in store and the digital platforms that we have there's no reason why we couldn't realize that type of opportunity. But as I said, that's a medium longer term opportunity. Look, I wouldn't wouldn't propose we're unlikely to be disclosing giving you like a six monthly run rate over the next year or so what we will do is Nicole might I'll let Nicole just just talk at a broader level about how we're thinking about it.

But we'll talk in more specifics at the Strategy Day on the opportunity. Yes.

Thanks, Rob.

Look, Ben, we're well positioned given our scale and uniqueness and the fact that we do have 12,000,000 customers in our shared data assets. So that's rich first party data It's across all life stages. They have propensity to spend.

So working together as a group, I think, is really important. We're really at the stage now where we're looking at building out that single tech platform that is multi tenanted that actually gives us the opportunity to look at closed loop reporting and going out with the divisions and meeting with their suppliers and their customers and understanding the importance of that. I think has been critical in the last phase. But as Rob said, we do believe this will be drive incremental revenue and earnings for the divisions, but we'll share more at the strategy day.

That's really helpful. Thank you. Whoops. Carrying on from that for sort of taking a connecting question. Globally, you look at people that are doing really retail media really well and maximizing it. Or if I look at Walmart, for instance, and arguably appreciate very different business, but in aggregate, you serve pretty much everyone in Australia. Across pretty much the whole house at the moment. Or from front to back is sort of running stocks to in the middle as well. How important is supply chain terms of trading into that? Because if you look at Amazon that's I don't know the proven movie to $10,000,000,000 of turnover this year in Australia. A lot of capacity and well ahead of everyone. You need to start rethinking being, I suppose, yourselves are probably the only one who could really match the CapEx and serve everyone around supply chain.

And then bringing 3P into maximize that major opportunity for Moores. Is that something you thinking about or is even on the horizon? Ben, is that question is your question is not about retail media, it's more about our capacity to keep growing digital e commerce side, Yes.

And it sort of flows on because maximizing I was like, you look at water.

Okay. Yes. It's driving 50% incremental earnings each quarter and it's a 3P capability, which builds on supply chain and maximizing eyeballs and it exponentially increases that media opportunity, but also your reach into people's households.

Yes.

Well, first I'll answer it a couple of ways and others could add to it. As I mentioned earlier, we've grown our digital transactions by five times in the last last five years. So there's been very significant growth We are but I also wouldn't lose sight of the value of our store networks. The value of store network in terms of how we engage with customers, the assets that we have that is critical. Supply chain, I think once again, also needs to be thought of not just in the context of the distribution centers that we are investing in. And the example we gave earlier of Ian came out and Target leveraging the centralized fulfillment centers, office work, would arguably have some of the most efficient state of the art e commerce fulfillment centers in the country But shouldn't lose sight of the the value and the power of our stores. As fulfillment assets in their own right So we certainly don't feel that we're constrained by our supply chain We'll continue to invest in them and grow. But I feel that in terms of continuing to grow our omni channel business, which is both in store, click and collect digitally enabled sales more generally, we are certainly not constrained in any way.

And in fact, I'd go I'd go further to say that I actually think that the quality of our brands, the extensive store networks we have are a point of difference that many of our competitors in this space don't have.

Quick. Appreciate it.

Thanks. Your next question comes from Richard Barwick with CLSA.

Please go ahead.

Thank you. Hi, all. I've got another question on lithium Aaron. So you've obviously provided us a pretty clear view on FY 2025 and terms of the way we should be thinking about earnings. But FY 'twenty six is obviously gets a lot tougher to understand because you've got the the increased spodumene production but then also the ramp up of refining.

So the delta in the potential delta from the earnings impact could be pretty material you just give us a sense of how the earnings might be phased And I mean ultimately what we're trying to get to is is can lithium actually deliver positive earnings in 2026 or is that really only an FY 2027 story?

Yes, thanks. So FY '26 is a difficult year as you flagged because you're obviously going from a transition of first product at the refinery and as I flagged an eighteen month ramp up period, I think it from what we've seen on other whether it's our existing operations when we've ramped those up or looking at other refineries, it's probably unlike to be a linear journey from day zero the end of that eighteen month period. I think it's fair to assume it's probably more back ended as as you start to make improvements. So clearly feeding the refinery with spodumene is an unknown at the moment how we go through that ramp up period, but I think it is going to be more of a back ended process along that eighteen month journey. Which means we're going to FY 'twenty six still be selling or required sell spodumene into the market. So I think we've been fairly open with where we sit on a spodumene front Clearly, that means in the refinery phase, you're not getting the benefits of those that full tonnage on your fractionalization at cost. So it would be challenging in FY 2026 to generate profit on the hydroxide side. [indiscernible] really what you're saying is probably even more likely at the second half FY 'twenty seven story as well.

Yes, I think I think FY 2027 is you're starting to get to a period where [indiscernible] the refineries, the bulk consumer of spodumene and we can start to look at where our cost position sits and really start to get the benefits of tonnage. Okay. That's helpful. Thanks, Aaron. The next question comes from Phil Kimber with E and P Capital.

Thanks. I just wanted to ask a question on Priceline. You mentioned in the strong performance driven by price reductions on key value lines. So just wanted to get a sense of What you're thinking for that business? Is that going to go up against category killer type prices and how it's so, how can you do that [indiscernible] [indiscernible] [indiscernible] That's my question. Thanks. [indiscernible] I think Priceline has a clear positioning in the market. We're really focused on value, and value takes a number of forms. It's about competing on these key key value lines, which is what we've been investing in. It's also about bringing new and exclusive products to market. And it's about leveraging our extensive loyalty program to bring kind of new and differentiated sort of promotions to the market as well as network growth. So that's the strategy and that's what we've been pleased with the progress over the last six months.

All right.

Thank you. Your next question comes from Sean Cousins with UBS.

Please go ahead. Thank you. I just have a question for Sarah in Officework.

I guess maybe just a bit call out or quantify what the collective costs say from box of books and economy sort of was and how much that weighed on The first half does any of that kick into the second half and benefits of Range how this was discussed at the Strategy Day, How are you seeing any benefit, if at all, from AI product Does Officeworks have the service capabilities to sell that? And also selling going a little bit more into TVs with the Sony range as well, please.

Yes. Thanks, Sean, for the question. Look, the costs related Cyconomomy and Boxer Books were one off costs in the first half. And you should think about those as mid single digits impact to EBT. In terms of range, I look forward sharing a bit more of our progress at the Strategy Day. But But we've been really pleased with above market growth in technology in the first half and we're excited about the new product launches that will come through this calendar year. So look forward to chatting to you about it at Strategy Day.

Fantastic. Thanks, sir. Your next question comes from Lisa Ding with Goldman Sachs.

Please go ahead. Hi. Just a follow-up on the marketplace, the Fannings marketplace. Can we talk a little bit about how we're executing it, what we see as potential sort of medium term opportunity and then the differences potentially in the economic there from a potentially lower revenue but higher margin type shape of growth things.

Thanks, Louis. Look, we're really happy with our our marketplace. It's been growing very, very strongly. We've got well over 100,000 SKUs heading to 200,000 SKUs and fantastic array of sellers We are very disciplined. It's what I would call a curated marketplace, so it fits the strategic framework of Bunnings. If you sort of think about that front gate to back fence. So we're looking for complementary products that our customers are looking for to improve their homes. So it might be in a betting category or sporting goods category, where we don't think we have an natural ability to sort of service that in a warehouse format. What's particularly useful about our marketplace is that it's built into the the broader Bunnings digital ecosystem. So you can transact your marketplace product while you're buying your regular products. That will be fulfilled by the seller. And we take a commission on the way through. So we look at it really through both GMV, which is starting to become a significant number, albeit not material to the overall Bunnings number, but quite significant when you look at other marketplaces. In fact, our growth is probably out stripping some of those, and we're really happy with that.

So and then that will flows through to revenue. We'll continue to sort of build that out and we're going to expand a little bit at strategy day on how we want to evolve the marketplace to sort of do other things than simple products, but into some more sort of service oriented stuff as well.

I guess broad level, are we thinking that it will be a material contributor to the Bunnings growth going forward? Or is it still a test and line phase?

I'm confident that it will be a material contributor yet.

Very confident that it's going to be a strong performer. The materiality will really be decision for us in terms of how many partners we want to partner with and we want to make sure that the customer experience is high and that there's nothing in there that dilutes trust. But yes, it's well past test and learn. It's a deeply embedded part of the business. We've got a fantastic [indiscernible] that's a real positive for us. So, yes, excited to see where it goes. And the materiality question will answer itself in the form of time.

Thank you. Your next question comes from Michael Samotis with Jefferies.

Thanks for taking another one. Just on Catch, hoping to get a better understanding of what it looks like in the second half. So you've called off costs called out costs associated with the transition and closure of $50,000,000 to $60,000,000 stock write offs included in that number? And the reason I ask is just trying to understand whether you're likely to take a significant gross margin hit in the operating loss from the business in the second half. Yes. Thanks, Michael. It's Anthony. I can answer that question. So So yes, so in the $50,000,000 to $60,000,000 that we've called out about half of that is non cash, half of that is cash. So we do have provisions in Malaysia to write down of stock within that one off cost. So in terms of sort of operating losses, which I guess, is where you're getting to for the second half, haven't given specific guidance, but and it will depend a little bit on exactly when Catch closes, but we have said that will occur in the final quarter of the financial [indiscernible] operating losses than we incurred in the first half.

Is probably one way to read it.

Yes, that's really helpful. Thank you. Your next question comes from Craig Walford with MST Marquis.

Thank you for the follow-up. This is very much an accounting question as if I look at Slide 60, which has got information on your lease liabilities, there's a reduction year on year in the lease liabilities for fundings There's also one for Kmart. And because appreciation and amortization these days includes the lease component to that. Just trying to understand the outlook there. I noticed the Bunnings had a very small movement in depreciation for first half twenty five versus the previous corresponding period. So like understand why we're seeing a reduction in liabilities and a small delta in the depreciation for most of your retail businesses.

Yes, thanks. Yes, you'll find that the lease liability will move depending on the minimum lease commitments that we have across various leases. So it will depend on the lease profile and when new leases are entered into. So it will move around a little bit depending on when lease renewals come up and if there's new leases, what the minimum lease term is. So that's generally what determines how big or small that is. So for example, if we entered into a whole bunch of new leases in a particular period, then that would significantly increase both the asset and the liability. And you'll find that will move depending on basically what the weighted average minimum lease term is over a particular period. So it's probably not that predictable. Obviously, as we continue to open new stores, then of course that would generally go up. But it might not necessarily go up in a linear fashion.

Low increase in the money depreciation movement on the previous corresponding period.

It Are you talking about depreciation associated with the lease liability or sorry, the lease asset Or are you talking more generally around depreciation?

Well, I don't think we get further disclosure, but it was $4.00 $8,000,000 last year total depreciation and amortization for Bunnings and $411,000,000 so it's only a $3,000,000 Yes, it's only it's a very small variance, yes. [indiscernible] That is all the time we have for questions today. We will follow-up any remaining questions. Thank you. I'll now hand the call back to Rob Scott.

Thanks very much everyone. And as we said, please contact Dan and the team if there are further questions. Have a good day.

That concludes our conference for today. You for participating. You may now disconnect.