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Coles investment in supply chain boosts company revenue

In the supermarket giant’s full-year results released today, Coles’ has reported profit growth for the first time in four years. Net profit from continuing operations rose 7.1 per cent to $951 million. Coles credits its performance to pop-up distribution centres, stock replenishment system and advanced data analytics.

In its full-year sales report released on Tuesday August 18, Coles reported full year sales revenue increased by 6.9 per cent to $37.4 billion with sales revenue growth across all segments.

Coles Group earnings before interest and tax (EBIT) achieved growth for the first time in four years, increasing by 4.7 per cent to $1.76 billion.

Sales at Coles’  supermarket sector was up 6.8 per cent to $33 billion for the full year, with comparable sales growth of 5.9 per cent.

“Coles supply chain performed well despite the extraordinary strains of increased demand for pantry and ambient lines during the panic buying period,” the Group stated in the results.

“This performance was helped by recent investment in capacity, including pop-up distribution centres, but also the integrated stock replenishment system and advanced data analytics to improve availability.”

In the fourth quarter, COVID-19 factors continued to have an impact on both the level and mix of supermarket sales. Following a subdued and socially distanced Easter, sales improved as a result of increased in-home consumption.

Coles stated the fourth quarter also brought continuing higher COVID-19 related operating costs of approximately $170 million due to the one-off thank you payment to team members in stores and distribution centres, extra safety cleaning costs and supermarket greeters.

“The incremental costs also include operating the pop-up distribution centres and costs incurred following positive COVID-19 cases in the Laverton distribution centre in the last week of the financial year,” the Group stated.

Steven Cain, Coles Group CEO, said unforeseen challenges including drought, devastating bushfires, and the ongoing COVID-19 global pandemic has “provided the greatest test of our lifetime”.

“We are experiencing things we never thought we would see in a supermarket, or for that matter Australia. Coles for its part has become a designated essential service,” he said.

“We have successfully executed the first year of our strategic plan, restored group profit growth for the first time in four years, and are on track to grow long-term shareholder value. The interim and final dividend payments totalling $767 million importantly benefit millions of Australians.”

COLES ONLINE DURING COVID-19

Coles Online sales revenue grew by 18.1 per cent for the year after services were temporarily disrupted in March and April during the COVID-19 pandemic.

Investing heavily in Online throughout the year, Coles is expanding capacity in Home Delivery, largely through extended pick times and the recruitment of additional drivers. Click & Collect capacity was predominantly delivered through the expansion of contactless Click & Collect.

The Group stated that using advanced data analytics to ensure the right product was offered in the right store took place across the majority of categories and on a more regular basis, capturing the latest innovation in the market in areas such as ready meals, health foods, coffee and pet food.

“Coles continued to optimise the network as part of its tailored store format strategy with 70 store renewals completed during the year, representing the biggest renewal program since 2012.”

Coles’ optimised store network and formats is already transforming the make-up and performance of its extensive store network with plans to renew approximately 65 stores and to open in the range of 15 to 20 new stores in FY21, including five stores that were delayed in FY20 due to COVID-19.

AUTOMATED DC DEVELOPMENT

“Property, plant and equipment and equity investments remained relatively stable year on year, while property acquisitions moderated,” Coles stated.

At the end of the reporting period there were 824 Coles Supermarkets. For the year, eight new store openings and five closures were completed.

Leases have now been signed for the two Ocado sites in Sydney and Melbourne.

Development and construction of the Witron ambient automated distribution centres and the Ocado online fulfilment centres will continue next year and beyond.

Approximately $100 million of capital expenditure was also incurred in relation to the Witron ambient automated distribution centres with the Queensland distribution centre build commencing during the year.

Coles continued to optimise its property portfolio with a focus on redevelopment activities, in addition to the further divestment of recently developed assets to benefit from a strong Australian property market, resulting in a net property inflow of $167 million and in-line with guidance provided at the interim result. This contributed to net capital expenditure of $666 million for the year.

Gross operating capital expenditure is expected to be approximately $1 billion and includes increased investment on the Witron ambient automated distribution centres as the project enters its third year.

Coles also expects net property capex to be approximately $100 million in FY21 and incur incremental operating expenditure related to project implementation costs, as project activities peak in FY22 and FY23.

In FY22, Coles expects these costs to be up to $75 million. Further detail on these costs will be provided as the project progresses.

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