Earnings decline for Endeavour Drinks, but confidence high for future success

30 August, 2019 by Andy Young

Woolworths has delivered its results for the 2019 financial year which as a whole delivered increased sales, earnings before interest and tax (EBIT) and net profit after tax, despite challenges in some of its businesses, including Endeavour Drinks Group.

CEO Brad Banducci said that the group had a challenging start to the year, but a strong second half meant the year ended with good momentum. Group sales and profit momentum improved in the second with normalised sales and EBIT growth of four per cent and 10 per cent for H2. Group online sales continued to grow strongly, increasing by 32 per cent on a normalised basis compared to the prior year to $2.5bn.

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For EDG, EBIT for the year was $474m, 9.7 per cent down from $516m last year, while the hotels business’ EBIT was $261m, a one per cent increase on last year.

Speaking about the result, Chief Financial Officer, Stephen Harrison, said: “The underlying performance did improve in the second half but the EBIT does include a $21m impairment charge related to intangibles associated to Summergate in China. Excluding this, EBIT declined by six per cent in FY19.

“The hotel business had a better second half with strong growth from bars, food and accommodation with gaming more subdued.”

Talking about EDG as a whole, Banducci said: “We have been speaking for some time about accelerating innovation in drinks and evolving the business to meet rapidly changing customer needs.

“While the financial performance of Endeavour Drinks in FY19 was below our aspirations we have taken a number of positives during the year driven by our ambition to connect everyone with a drinks experience they will love and we are seeing some very pleasing early signs of improvement.

“The biggest changes are happening at Dan Murphy’s with the repositioning of the business focused on discovery. Customer 1st ranging, which has been very successful in our food business and BWS, is well underway in Dan Murphy’s.”

He added: “Endeavour X was established during the year to ensure a consistent digital experience across Dan’s, BWS and the other Endeavour Drinks businesses and we have made very good progress in this contest offering increasing convenience to customers.

“In FY20 we have more work to do to continue to build operating momentum with Endeavour Drinks as we work towards the separation of Endeavour Drinks and ALH in calendar 2020.

“Endeavour Drinks’ sales improved in H2 driven by more settled weather and early progress on our refreshed strategy. We have begun to reposition Dan Murphy’s in a rapidly evolving drinks market, delivering improvements in service, range, price and convenience, and while early days, the results are very encouraging.

“BWS continued to perform strongly driven by Customer 1st Ranging, as well as leading in convenience options for customers.”

Talking about the group as a whole, Banducci said: “In summary, we are pleased with the progress we made during the year and have exited F19 with good momentum across the Group. In F20, we expect the uncertain consumer environment and input cost pressures to remain as well as an impact from new enterprise agreements. However, we are well placed to respond to these challenges and are excited about what we can achieve together in F20.”

Woolworths Group Chairman, Gordon Cairns, added: “The Group’s focus on creating value for shareholders has been delivered through a stronger trading performance, particularly in the second half, and further Portfolio optimisation.

“Highlights included the $1.7bn share buy-back following the successful sale of Petrol and the recently announced intention to merge and subsequently separate Endeavour Drinks and ALH. The Group’s financial position remains strong with the Board declaring a fully franked final dividend of 57 cps bringing the full year dividend to 102 cps, a 9.7 per cent improvement on the prior year.”