Strong first half for Woolworths hit by increased underpayment costs

26 February, 2020 by Andy Young

Woolworths and Endeavour Drinks has released its results for the first half of the financial year, which have revealed sales and EBIT growth, but also that costs related to its underpayment of staff have increased.

Group sales from continuing operations increased 6.0 per cent and EBIT from continuing operations before significant items increased by 11.4 per cent. For Endeavour Drinks total sales growth was 4.7 per cent, while EBIT grew 6.7 per cent.

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Speaking about the increased underpayment costs, Woolworths CEO Brad Banducci said: “Despite the strong result, as announced on 30 October, we are disappointed to have let many salaried store team members down through the discovery of shortfalls versus the General Retail Industry Award (GRIA).

“We have made progress on addressing this issue, with $69m of payments made in the half to impacted salaried store team members.

“With further data analysis, and an expanded scope to include all Group businesses covered by the GRIA, we have also updated our original estimate to a gross before-tax cost of $315m ($265m net of provisions recognised in F19) relating to salary payment shortfalls and $80m of interest and other costs. For the purposes of the presentation of our financial statements, we have restated our historical results to reflect the impact in the period to which it related.

“We are working hard to finalise the review and repay impacted team members as soon as possible and thank our team for their patience and support through this process.”

Speaking about the Endeavour Group result, Banducci added: “On 3 February, Endeavour Group was created following a shareholder-approved restructure with the merger of ALH and Endeavour Drinks completed on 4 February. We continue to progress the separation of Endeavour Group through either a demerger or value-accretive alternative with a Chairman, CEO and COO/CFO elects now appointed and continue to target completion this calendar year.

“Endeavour Drinks’ H1 total sales growth was 4.7 per cent with Q2 comparable sales growth of 1.8 per cent following several store openings over the last 12 months including nine Dan Murphy’s in the half. Trading in Q2 was impacted by subdued market conditions and competitor promotional activity, particularly over the Christmas and New Year period. EBIT2 growth of 6.7 per cent was supported by penetration growth of Pinnacle Drinks’ brands.

“Hotels had a very strong half with total sales growth of 6.2 per cent, comparable sales growth of 4.7 per cent and EBIT2 growth of 8.3 per cent. All categories improved sales with Bars and Food the highlights. In Q2, sales also benefitted from the strong execution of Christmas and New Year events.”

Looking at the sales breakdown, the company said that growth in the Spirits category, particularly Gin and Vodka, was strong for both businesses, with Wine volumes, particularly Champagne, more subdued. Beer sales were solid, supported by the growing popularity of craft and mid-strength beer.

Summarising the group’s first half, Banducci said: ““It was a half with many positives but also material challenges. While some of the challenges will continue to be felt in the second half, as a business, we also have a lot to be positive about as we look forward to moving from ownership to partnership with Endeavour Group, building out the Woolworths Group digital retail ecosystem and working with our partners and other stakeholders to create a better tomorrow.”

Woolworths Group Chairman, Gordon Cairns, added: “At last year’s AGM, I said that culture was critical to the success of Woolworths Group and part of a strong culture is to recognise when we have made mistakes and address them as quickly as possible. We deeply regret the salaried team member payment shortfalls and want to reassure the team and shareholders that we are addressing them as quickly as possible.

“Pleasingly, the Group delivered a strong trading result and improved shareholder returns in the half, and we made good progress on many strategic initiatives including the proposed separation of Endeavour Group.

“The Group’s financial position remains strong and reflecting the continued confidence in the Group’s outlook, the Board has declared a fully-franked interim dividend of 46 cps, up 2.2 per cent. Excluding non-comparable Petrol earnings in the prior year, the dividend increased 9.5 per cent.”