COLES GROUP LIMITED. — Interim / Quarterly Report 2021

Feb 16, 2021

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17 February 2021

The Manager Company Announcements Office Australian Securities Exchange

Dear Sir or Madam

Coles Group Limited – 2021 Half Year Results Presentation

Please find attached for immediate release to the market the 2021 Half Year Results Presentation for Coles Group Limited.

This announcement is authorised for release by the Board.

Yours faithfully,

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Daniella Pereira Company Secretary

Coles Group Limited ABN 11 004 089 936 800 Toorak Road Hawthorn East Victoria 3123 Australia PO Box 2000 Glen Iris Victoria 3146 Australia Telephone +61 3 9829 5111 www.colesgroup.com.au

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“Value the Australian Way” celebrates Coles’ role in sustainably feeding all Australians to help them lead healthier and happier lives .

2021 First Half Results Presentation and eCommerce Strategic Update 17 February 2021

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Disclaimer

This presentation contains summary information about Coles Group Limited (ACN 004 089 936) and its related bodies corporate (together, Coles) and Coles’ activities as at the date of this presentation. It is information given in summary form only and does not purport to be complete. It should be read in conjunction with Coles’ other periodic corporate reports and continuous disclosure announcements filed with the Australian Securities Exchange (ASX), available at www.asx.com.au

This presentation is for information purposes only and is not a prospectus or product disclosure statement, financial product or investment advice or a recommendation to acquire Coles shares or other securities. It has been prepared without taking into account the investment objectives, financial situation or needs of individuals. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own investment objectives, financial situation and needs and seek legal, taxation, business and/or financial advice appropriate to their circumstances.

No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Coles or its directors, employees or agents, nor any other person, accepts liability for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it, including, without limitation, any liability from fault or negligence on the part of Coles or its directors, employees, contractors or agents.

This presentation contains forward-looking statements in relation to Coles, including statements regarding Coles’ intent, belief, goals, objectives, initiatives, commitments or current expectations with respect to Coles’ business and operations, market conditions, results of operations and financial conditions, and risk management practices. Forward-looking statements can generally be identified by the use of words such as ‘forecast’, ‘estimate’, ‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’, ‘intend’, ‘outlook’ and ‘guidance’ and other similar expressions.

The forward-looking statements are based on Coles’ good faith assumptions as to the financial, market, risk, regulatory and other relevant environments that will exist and affect Coles’ business and operations in the future. Coles does not give any assurance that the assumptions will prove to be correct. The forward-looking statements involve known and unknown risks, uncertainties and assumptions and other important factors, many of which are beyond the control of Coles, that could cause the actual results, performance or achievements of Coles to be materially different to future results, performances or achievements expressed or implied by the statements.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as at the date of the presentation. Except as required by applicable laws or regulations, Coles does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in assumptions on which any such statement is based. Past performance is no guarantee of future performance.

Non-IFRS financial information

• This Results Presentation contains non-IFRS financial information which in the ordinary course, is not subject to audit or review.

• IFRS or Statutory financial information is financial information that is presented in accordance with all relevant accounting standards.

• Any non-IFRS financial information is clearly labelled to differentiate it from the Statutory/IFRS financial information.

• The use of non-IFRS information in the 2021 First Half Results Presentation provides readers of these documents with meaningful insights into Coles’ financial performance.

Balance sheet and cash flow information presented in this 2021 Half Year Results Presentation is consistent with the underlying information disclosed in the Appendix 4D Half Year Financial Report.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

1

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Coles helped lower the cost of living for the many additional Australians celebrating Christmas at home this year.

1H21 summary

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1H21 financial highlights

Continued strategic progress and strong balance sheet

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Total sales revenue EBIT Net profit after tax
$20.4bn $1,020m $560m
8.1% vs. pcp 12.1% vs. pcp 14.5% vs. pcp
Smarter Selling Gross operating Operating cash flow
on track to capex
$1,736m
deliver cost $532m
120% cash
savings in excess on an accrued
realisation
of $250m in FY21 basis
Dividend [1] Net debt Safety
19.7 TRIFR [2]
33 cents per Positive cash
15%
share fully- $38m
improvement
franked
vs. 2H20
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1 The Coles Board has declared a fully-franked interim dividend of 33 cents per share, a 10% increase on the interim dividend of the prior period with a record date of 1 March 2021 and a payment date of 26 March 2021. Coles retains its annual dividend target payout ratio of 80% to 90%. 2 Total Recordable Injury Frequency Rate.

3

Progress against strategy: Inspire Customers

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Supermarkets customer satisfaction improved by 3.9pp to 89.8% in H1

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Coles Click & Collect at renewed Prahran, Victoria.

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• eCommerce B2C sales growth of 61% with significant improvement in Perfect Order Rate and customer satisfaction

• Led the industry in removing door-to-door paper catalogues and the launch of coles&co, with customers citing an improved experience and more relevant specials with the digital catalogue

• Provided a tailored offer for customers with more than 340 range changes completed during the half

• Delivered trusted value by more than doubling the number of stores ranging Coles Best Buys to almost 200

• Own Brand revenue growth of 10% with 11 Own Brand products winning Product of the Year awards

• MasterChef collectable stainless-steel knives proved popular with home cooks

• Embedded refreshed Liquor strategy including opening three eCommerce dark stores to increase capacity, streamline order fulfilment and improve speed of delivery for customers, supporting strong eCommerce growth of 90%

• Completed roll out of new self-serve award winning Coffee Culture machines to 99% of the Coles Express network

Coles celebrated 10 years of ‘Down downs’, a key part of Coles’ commitment to deliver trusted value for customers.

4

Progress against strategy: Smarter Selling

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On track to deliver cost savings in excess of $250 million in FY21

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Customer packing benches have been rolled out to almost 300 stores.

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• Smarter Selling cost savings during the period include:

• Improved end-to-end flow of fresh goods to store with a more efficient supply chain providing greater shelf life for customers

• Profit protection measures through dynamic markdowns and loss prevention

• Data and technology enhancements in-store to reduce manual handling of cartons and improve availability for customers

• New Smarter Selling initiatives commenced during the half:

• Customer packing benches rolled out to almost 300 stores

• Paperless operations giving transport partners a frictionless experience as they enter and exit distribution centres

• Progress achieved on Ocado and Witron automation projects despite COVID-19 restrictions, with construction at the Melbourne Ocado customer fulfilment centre continuing and Sydney now underway, while structural work at Witron automated distribution centre in Queensland is continuing and approvals received on the New South Wales distribution centre

• Launched a new people and payroll system (myhub) through our strategic partnership with SAP, replacing 16 disparate people systems

• Transitioned Returnable Plastic Crates to CHEP to drive increased penetration of reusable crates for Coles’ fresh suppliers

• Tailored store format strategy with 30 supermarket renewals completed including 7 Format A, 10 Format C and 2 Coles Local supermarkets

Construction at the Melbourne Ocado online customer fulfilment centre progressed during the half.

5

Progress against strategy: Win Together

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Improvements in safety scores (TRIFR 15% improvement)

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Coles, official supermarket of the AFL and AFLW, was delighted to see the finals take place despite COVID-19.

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The Prime Minister’s Christmas card recognised the hard working front line workers during the COVID-19 pandemic, including Coles team member Gerren Lowe (bottom left).

• Focused on the mental wellness of team members including support of RUOK? Day and GEM program

• More than $580,000 raised for the Movember Foundation, the largest corporate contribution in Australia, to support mental health and cancer care

• Invested in safety including the launch of “Threatening Situations De-Escalation” training and delivery of company-wide Safety Week

• Entered into a 10-year agreement with CleanCo to source more than 90% of Queensland electricity requirements from renewable sources from July 2022

• Partnered with RED Group and Replas to pioneer and install a concrete slab carpark at Coles Horsham made partly out of recycled soft plastics recovered from the REDcycle program available in all Coles supermarkets

• Coles Local Chatswood opened with sustainability features including trolleys made from recycled plastic milk bottles and REDcycle plastics

• Extended Own Brand direct milk sourcing model by partnering with dairy farmers in WA

• Most successful Christmas fundraising campaign ever with almost $3.2 million raised for charity partners SecondBite and Redkite

• Extended partnership with Rowing Australia to support community participation in rowing and fuel the national rowing team

• Continued support of Little Athletics with over $520,000 in grants donated to more than 150 Little Athletics centres

6

Coles’ strategy tracker – significant progress in 18 months

KPIs	Progress
Reduced safety TRIFR	▪15% reduction in TRIFR compared to 2H20
Increased team member	▪Update to be provided at FY21 results announcement following annual
engagement	mysay team engagement survey
Improved customer	▪Customer satisfaction1 improved by 3.9pp to 89.8% in H1 compared to 85.9%
satisfaction	in 2H20
	▪Supermarkets headline sales revenue growth of 7.3%
Sales growth at least in	▪ABS total market growth of 10.6%2
line with the market	▪Supermarkets relative growth impacted by recent “local shopping” trends.
	Coles’ share improvingas COVID-19 restrictions ease
Increased sales density	▪Supermarket sales density increased by 7.7% YoY to $18,101/sqm ▪Liquor sales density increased by 15.5% YoY to $16,603/sqm
$1bn cost-out by FY23	▪On track to deliver cost savings in excess of $250 million in FY21
EBIT growth	▪Group EBIT growth of 12.1%
Cash realisation3 >100%	▪Cash realisation of 120%, on track for >100% in FY21

1 Supermarkets Customer satisfaction based on Tell Coles data.

2 Source: ABS Retail Trade Figures, Table 11. Retail Turnover, State by Industry Subgroup, Original. Total Food Retail excl. Liquor (Smkt & Grocery plus Other Specialised Food Retailing).

3 Cash realisation is calculated as operating cash flow excluding interest and tax, divided by EBITDA.

7

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We have made significant improvements to the Coles app as part of our strategy to build a seamless omnichannel customer experience.

eCommerce strategic update Ben Hassing, Chief Executive eCommerce

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Coles Online is building from 20 years’ experience

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Online sales Launched C&C
exceed $1bn Rapid (90 mins)
National C&C Launched Coles
rollout Plus membership
Ocado agreement
signed
FY21
Delivery fleet
upgraded FY20
Rover Power
Pick introduced FY19
to improve store
pick accuracy FY18
Almost doubled
FY17
Click&Collect capacity in
launched FY16 response to
Alexandria dark COVID-19
FY15
store launched
Contactless
FY11
C&C to boot of
Richmond dark car introduced
FY08
store launched
FY99
Call centre
opened
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Home Delivery launched

9

eCommerce supports how Coles inspires customers

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Leading

“Anytime, Anywhere, Anyhow” shopping

1 Provide a seamless, unified customer experience

• Merge commerce and content

• Converge online and offline channels

• Improve the end-to-end online offer and experience

2 Continually develop differentiated services

• Continually evolve customer offer (e.g. stepchange subscription and immediacy offer)

• Lead on range and service via Ocado automated fulfilment

• Digitise the in-store experience

Deliver through team engagement and pace of execution

3

• Collaborate cross-functionally and with key partners

• Move fast, with test and learn experimentation

• Unlock capability through data and technology

10

Our digitally engaged customers drive growth & loyalty

Shop offline, be informed digitally

Shop online, pick up at store Shop from home, (may also shop in store) deliver to home

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11

Omnichannel customers are our most valuable

Omnichannel vs single-channel customer spend, Q2 FY21

In-store spend Online spend

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2.1x
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Online-only

In-store only

Omnichannel

12

- We are building customer focused digital capabilities

Merging content and commerce…

…with enterprise capabilities providing a 360-view of customer, product and order

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Website

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Customer

Product

App

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Order

13

We are removing friction for customers

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Have It Price It

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Fulfil It

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Find It Display It

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Support It

14

Customer satisfaction is improving

Perfect order rate[1] and Online NPS[2]

Online NPS Perfect Order Rate

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3.8x
2.8x
Q3 FY20 Q4 FY20 Q1 FY21 Q2 FY21
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1 Perfect Order Rate represents the percentage of total Home Delivery orders (excluding Click&Collect) that were fulfilled on time without any missing items or substitution.

2 Online Net Promoter Score (NPS) is calculated as the percentage of customers that rate on a scale from 0 to 10 to their likelihood recommend Coles Online to a friend as 9 or 10 (promoters) minus the percentage of customers that provide a rating of 6 or less (detractors).

15

Online liquor has grown rapidly across all banners

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Online liquor sales growth
90%
H1 FY20 H1 FY21
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Notes : Supermarkets eCommerce sales reporting excludes liquor sales.

16

- Click&Collect Rapid: Order to pick up in 90 minutes

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Expanding to >400 locations across Australia

17

Coles Plus now available nationwide

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Free delivery for all Coles online orders over $100

Priority customer care

2x flybuys points on all Coles online purchases[#]

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Free delivery on one Liquorland online order over $50 per month

Access to 90-minute Click&Collect

Terms and conditions apply

18

Ocado partnership to deliver differentiation

Range

Customer experience

Operational efficiency

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• ~2x the range of in-store fulfilment

• Market-leading perfect order rate

• Inventory and network optimisation

• Reduced food waste and improved pick efficiency

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19

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Athletes Kelsey Lee-Barber, Sally Pearson, Matthew Denny and Jaryd Clifford with athletes from the Runaway Bay Little Athletics Centre in Queensland, one of the more than 150 sports clubs around Australia that received a grant from Coles to purchase brand new sports equipment.

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Group financial overview

– 1H21 results Group

Strong Group EBIT and NPAT growth

$m	1H21	1H20	Change
Sales revenue	20,378	18,846	8.1%
EBIT	1,020	910	12.1%
EBIT margin %	5.0	4.8	18bps
Net profit after tax	560	489	14.5%
Basic earnings per share1 (cents)	42.0	36.7	14.5%
Interim dividend per share2 (cents)	33.0	30.0	10.0%

1 Basic earnings per share attributable to equity holders of the Company from continuing operations.

2 Dividends announced.

21

– 1H21 results segment financials

Sales revenue and EBIT growth across all segments

$m	1H21	1H20	Change
Sales revenue
Supermarkets	17,800	16,583	7.3%
Liquor	1,946	1,691	15.1%
Express	632	572	10.5%
Group sales revenue	20,378	18,846	8.1%

Group sales revenue	20,378	18,846 8.1%	18,846 8.1%
$m	1H21	1H20	Change
EBIT
Supermarkets	903	789	14.4%
- EBIT margin(%)	5.1	4.8	31bps
Liquor	104	76	36.8%
- EBIT margin(%)	5.3	4.5	88bps
Express	32	28	14.3%
- EBIT margin(%)	5.0	4.9	9bps
Other1	(19)	17	N/M
Group EBIT	1,020	910	12.1%
- EBIT margin (%)	5.0	4.8	18bps

¹ Includes corporate costs, Coles’ 50% share of flybuys’ net result, the net gain or loss generated by Coles’ property portfolio and self-insurance provisions. N/M denotes not meaningful.

22

Operating cash flow

Cash realisation of 120%, on track for >100% in FY21

Cash flow

$m	1H21 1H20	1H21 1H20
EBIT	1,020	910
Depreciation and amortisation	782	755
EBITDA	1,802	1,665
Change in working capital 221 (220)
Change in provisions and other 134 91
Operating cash flow (excl. interest and tax) 2,157 1,536

Comments

• Working capital impacted by timing of the half year end resulting in fewer payments in 1H21 compared to 1H20, expected to reverse in 2H21

• Change in provisions as a result of higher employee entitlement provisions with fewer team members taking leave during COVID-19

Cash realisation[1]

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120%
92%
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1H21 1H20
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1 Cash realisation is calculated as operating cash flow excluding interest and tax, divided by EBITDA.

23

Capital expenditure

Increased investment in renewals, growth and efficiency initiatives

Capital expenditure breakdown

$m	1H21	1H20
Store renewals	141	76
Growth initiatives	134	64
Efficiency initiatives	167	88
Maintenance	90	87
Operating capital expenditure	532	316
Property acquisitions	55 35
Property divestments	(79) (209)
Net property capital expenditure	(24) (174)
Net capital expenditure	509 142

1H21 key capital expenditure initiatives

Store renewals	▪Store renewals across
	Supermarkets (30) and Liquor
	(26)
Growth	▪New stores in Supermarkets (11)
initiatives	and Liquor (20)
	▪Investment inOcado CFC
	construction
	▪Convenience offering roll out
Efficiency	▪Supply Chain Modernisation
initiatives	Project
	▪Investment in loss prevention
	and in-store initiatives
Maintenance	▪Refrigeration and electrical
	▪Lifecycle maintenance of
	stores and technology
Property	▪H1 net property inflow of $24m

24

Balance sheet

Investment grade credit metrics with flexibility for future growth

Balance sheet summary Comments

$m	3 Jan 2021	28 Jun 2020	5 Jan 2020
Inventories	2,423	2,166	2,473
Trade and other receivables	415	434	353
Trade and other payables	(4,173)	(3,737)	(3,665)
Working capital	(1,335)	(1,137)	(839)
PP&E and equity investments	4,496	4,344	4,139
Right-of-use assets	7,703 7,660 7,347
Intangibles	1,620 1,597 1,553
Provisions	(1,358)	(1,333)	(1,218)
Other	(64)	38	39
Capital employed	11,062	11,169	11,021
Net cash / (debt)	38 (362) (566)
Lease liabilities	(9,168)	(9,083)	(8,761)
Net tax balances	860	891	825
Total net assets	2,792	2,615	2,519

• Right-of-use assets of $7,703 million with lease additions and lease options becoming reasonably certain to be exercised partially offset by depreciation

• Net cash of $38 million and balance sheet leverage ratio of 2.9x[1]

• Inventory days impacted by change in recognition of duties and taxes on tobacco inventory and removal of fuel inventory, more than offset by Coles being able to manage inventory through the periods of heightened demand as a result of COVID-19

• Trade payable days impacted by the above as well as the timing of month end payments

Inventory and trade payable days

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33
31
30
29
Inventory days Trade payable days
1H21 1H20
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1 Calculated as gross debt less cash at bank and on deposit ($617m) add lease liabilities ($9,168m), divided by EBITDA for the 12 months ended 3 Jan 2021 ($3,394m).

25

Capital management

Fully-franked dividend up 10% and extended debt maturity profile at favourable rates

Dividend

• The Coles Board has declared a fully-franked interim dividend of 33 cents per share, a 10% increase on the interim dividend of the prior period with a record date of 1 March 2021 and a payment date of 26 March 2021

• Coles retains its annual target dividend payout ratio of 80% to 90%

Funding and liquidity

• Weighted average drawn down debt maturity of 7.4 years provides funding stability

• Undrawn facilities of $2.4bn, providing appropriate headroom

• Cash at bank and on deposit of $0.5bn

• Coles issued $150m five-year senior unsecured floating rate note and $300m 10-year senior unsecured fixed-rate medium-term note in August

• Coles is committed to retaining diversified funding sources and to extending the debt maturity profile over time

Credit ratings

• Coles is committed to solid investment grade credit ratings with S&P and Moody’s

Debt facility maturity profile ($m)

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1,004 1,389
286 ¹ 36 ¹ 250 300 300 300
FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
Drawn Undrawn
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Leverage ratio

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3.1
3.0
2.9 [2]
1H20 FY20 1H21
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1 Includes bank guarantees.

26

2 Leverage ratio calculated as net financial debt ($617m), add lease liabilities ($9,168m), divided by EBITDA $3,394m.

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Construction at the Queensland Witron automated distribution centre progressed during the half.

Supermarkets

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Supermarkets key metrics

Successful execution of Christmas campaign, range changes and eCommerce

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Total sales revenue Comp sales growth Sales per sqm
$17.8bn 7.2% $18,101
+7.3% vs. pcp vs. pcp +7.7% vs. pcp
Own Brand sales eCommerce sales Customer satisfaction
+9.8% +48.3% 89.8% (1H21)
vs. pcp vs. pcp +3.9pp on 2H20
Gross margin EBIT EBIT margin
25.8% $903m 5.1%
+71bps vs. pcp +14.4% vs. pcp +31bps vs. pcp
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28

Supermarkets 1H21 results

EBIT margin expansion in the first half

1H21 results

		Retail basis	Retail basis
$m	1H21	1H20	Change
Key P&L items
Sales revenue	17,800	16,583	7.3%
EBITDA	1,555	1,421	9.4%
EBIT	903	789	14.4%
Key metrics
Comparable sales growth (%)	7.2	2.0	520bps
Gross margin (%)	25.8	25.1	71bps
CODB (%)	(20.7)	(20.3)	(40)bps
EBIT margin (%)	5.1	4.8	31bps
Sales per square metre ($/m2)	18,101	16,800	7.7%
Price inflation (%)	2.3	1.7	63bps
Price in/(de)flation excl. tobacco and fresh (%)	0.7	0.4	25bps

Key commentary

• Sales growth driven by the successful execution of the Christmas campaign, range changes and strong growth in eCommerce sales

• Ongoing benefits from increased in-home consumption associated with COVID-19 also contributed positively to sales in the half

• eCommerce contributed $1 billion of sales revenue for the half, growing by 48% following investments in user experience and capacity

• Gross margin increased by 71bps driven by improved shelf margin from strategic sourcing initiatives as well as a more efficient supply chain due to the Smarter Selling program, despite additional business continuity costs as a result of industrial action at the Smeaton Grange distribution centre and COVID-19 costs

• CODB increased by 40bps largely due to cost inflation, strategic investments in digital and technology initiatives, and approximately $70 million of COVID-19 costs, partially offset by Smarter Selling benefits

29

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Premium categories such as gin, champagne, craft beer and seltzers continued to perform well, particularly over the Christmas period.

Liquor

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Liquor key metrics

Sales growth driven by strong performance across all banners, channels and categories, particularly eCommerce and larger format stores

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Total sales revenue Comp sales growth Online sales
$1.9bn 15.1%
+89.6%
+15.1% vs. pcp vs. pcp
vs. pcp
Local range FCLM [1] renewals Number of stores
126 70%
925
local lines of the fleet
+15 vs. FY20
launched renewed
Gross margin EBIT EBIT margin
21.5% $104m 5.3%
(34)bps vs. pcp +36.8% vs. pcp +88bps vs. pcp
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1 First Choice Liquor Market.

31

Liquor 1H21 results

EBIT grew strongly as a result of operating leverage partly offset by margin pressure from mix

1H21 results Key commentary

		Retail basis	Retail basis	▪ Progress made under the “Simplify and refocus” horizon of Liquor’s refreshed strategy ▪ Range changes implemented at Liquorland across key growth categories such as gin, rose, craft beer and ready-to-drink ▪ Local product contribution continued to grow with 126 local lines launched during the half ▪ Gross margin decreased by 34bps largely due to ongoing changes in mix as a result of COVID-19, with customers shifting towards more larger pack sizes ▪ CODB improved by 122bps largely driven by the volume growth from
$m	1H21	1H20	Change
Key P&L items
Sales revenue	1,946	1,691	15.1%
EBITDA	159	127	25.2%
EBIT	104	76	36.8%
Key metrics
Comparable sales growth (%)	15.1	1.5	1,365bps
Gross margin (%)	21.5	21.9	(34)bps
CODB (%)	(16.2)	(17.4)	122bps
EBIT margin (%)	5.3	4.5	88bps

• CODB improved by 122bps largely driven by the volume growth from higher sales fractionalising Liquor’s fixed cost base

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The Coles Express team in Alexandria, New South Wales. Coles customers and team members raised more than $580,000 for the Movember Foundation, the largest corporate contribution in Australia, to support mental health and cancer care.

Express

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Express key metrics

Strong c-store sales driven by local shopping

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----- Start of picture text -----

Total sales revenue C-store comp sales EBIT
growth
$632m 9.9% $32m
+10.5% vs. pcp vs. pcp +14.3% vs. pcp
1H21 weekly fuel Comp fuel volume Number of sites
volumes growth
55.5mL/wk (14.9)% 723
(13.8)% vs. pcp vs. pcp +10 vs. FY20
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Express 1H21 results

Strong c-store sales and favourable mix supported an increase in Express EBIT

1H21 results

	Retail basis	Retail basis	Retail basis
$m	1H21	1H20	Change
Key P&L items
C-store sale revenue	632	572	10.5%
EBITDA	103	95	8.4%
EBIT	32 28 14.3%
Key metrics
Comp c-store sales growth (%)	9.9	2.9	695bps
Weekly fuel volumes (mL)	55.5	64.4	(13.8)%
Fuel volume growth (%)	(13.8)	3.3	N/M
Comp fuel volume growth (%)	(14.9)	4.2	N/M
Gross margin (%)	50.9	56.2	(532)bps
CODB (%)	(45.8)	(51.2)	541bps
EBIT margin (%)	5.0	4.9	9bps

Key commentary

• Sales growth driven by the drinks category, supported by recent investments in fridges and targeted range reviews in healthier drink alternatives

• Improved momentum in Victoria following the easing of Government imposed COVID-19 restrictions also supported sales growth

• Average weekly fuel volumes of 55.5mL per week were recorded during the half with volumes improving in the second quarter

• CODB improved by 541bps as a result of a strong focus on cost control throughout the half

• Gross margin decreased by 532bps largely due to declining fuel volumes and lower fuel margin income

N/M denotes not meaningful.

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Coles Supermarkets has an Australian-first sourcing policy to provide customers with quality fresh produce supporting Australian farmers.

Outlook

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Outlook for remainder of FY21

• Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22.

• Coles will be cycling elevated sales from COVID-19 in Supermarkets late in the third quarter, for the remainder of the second half, and most of FY22 associated with:

• Pantry stocking

• People working and eating from home

• Customers shopping online to avoid physically shopping in-store

• More Australians in Australia due to border closures

• While the outlook remains uncertain, the following trends are likely:

• Some reversal of the local shopping trend as customers become more confident in shopping in larger centres resulting in stronger performance of shopping centre stores

• Increased movement as COVID-19 restrictions ease which will help restoration of fuel volumes closer to pre-COVID-19 levels

• Reduced immigration which has underpinned population growth, an important sales growth driver, in prior years

• Furthermore, the benefits of recent improvements in both employment numbers and consumer confidence may be partly offset by a reduction in fiscal stimulus measures introduced during the height of the pandemic

• Supermarkets comparable sales growth has continued to moderate and in the first six weeks of the third quarter was 3.3%. However, there continues to be significant variation in sales performance between states, store locations and from week-to-week as a result of customer shopping trends as well as any short-term outbreaks that have occurred around the country. In Online, sales growth has moderated to 37%. As the business begins to cycle the COVID-19 impacts in the second half of FY21, Supermarkets sales and EBIT growth are expected to face challenges relative to the prior corresponding period.

• Based on the current operating environment, Coles expects to incur COVID-19 costs of up to $10 million per month with the majority of costs to be related to store remuneration and cleaning and hygiene.

• In Liquor, sales remained elevated for the first six weeks of the third quarter with comparable sales growth of 12.5% cycling the impact of the bushfires in the prior corresponding period. Consistent with Supermarkets, Liquor will also be cycling the elevated sales due to COVID-19 which will present challenges given the fixed cost nature of the Liquor business. Investments in service and capability as part of Liquor’s refreshed strategy will continue in the second half.

• In Other, as outlined in FY20 results, net earnings from property operations are expected to be weighted to the first half.

• Gross operating capital expenditure for the full year is now expected to be approximately $1.1 billion (revising previous guidance of approximately $1 billion). The additional funds will be used to invest in opportunities that have arisen out of COVID-19 including Coles Local acceleration, eCommerce and operational efficiencies in stores such as the customer packing benches.

• Coles’ store network and format renewal program for FY21 remains unchanged with plans to renew approximately 65 stores and to open in the range of 15 to 20 new stores over the course of the year.

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The Australian women’s rowing team after Coles extended its partnership with Rowing Australia to fuel the women and men with healthy food and beverages.

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Q&A