Woolworths has reported its half-year results, which have shown the business continues to be impacted by COVID-19, particularly its hotels.
The group also updated the progress of the separation of Endeavour Drinks and ALH Group and the subsequent merger of those businesses to create Endeavour Group.
When the plans were initially announced in July 2019, the restructure and merger were due to be completed in February 2020, with the intention to then separate Endeavour Group and list on the ASK later that year.
The pandemic saw Woolworths postpone the separation until this calendar year as the group wanted to prioritise its COVID response during that uncertain operating environment. Woolworths said that despite the postponement work continued to prepare Endeavour Group for separation and now expects the process to take place in June 2021, most likely through a demerger.
Woolworths Group Chairman, Gordon Cairns, said: “Following the onset of COVID last year, our main priority was the safety of our customers, team and communities. With the easing of operating restrictions and more resilient trading from Hotels than initially expected, we are now targeting June for the separation.
“It will lead to a simplified Woolworths Group with a greater focus on its core food and everyday needs businesses and will allow Endeavour Group to accelerate its own growth aspirations. The Board remains confident that a separation will maximise long-term shareholder value.
“As previously announced, Peter Hearl has been appointed Chairman-elect of Endeavour Group and Steve Donohue has been appointed CEO-elect, subject to approval of the demerger. Further board and management announcements will be made in due course.”
As for its first-half results Woolworths reported strong sales growth across all the group’s businesses except Hotels. Overall sales increased 10.6 per cent to $35.8bn. For Endeavour Drinks total sales for the half increased by 19 per cent to $5.7bn, with comparable sales increasing 17.5 per cent.
The group said that COVID continued to drive elevated in-home consumption although this was at more moderate levels than the previous two quarters as on-premise restrictions were eased.
Woolworths CEO Brad Banducci said: “Endeavour Drinks sales continued to benefit from increased at-home consumption and trading up with Dan Murphy’s and BWS both maintaining strong sales growth during the half and achieving record Christmas Eve sales. Spirits and RTDs were the strongest performing categories during the half, driven by ongoing innovation in the gin and seltzer categories.
“Total sales increased by 19.0 per cent and EBIT grew 24.1 per cent, despite higher costs associated with COVID, team wages, and investment in digital and eCommerce. Through EndeavourX, demand for eCommerce services remained high, with sales growth of 50.2 per cent and penetration reaching 8.5 per cent in the half.”
EBIT for Endeavour Drinks increased by 24.1 per cent to $419m, with a 30 bps improvement in the EBIT margin to 7.4 per cent.
However as organisations such Retail Drinks Australia and Alcohol Beverages Australia have emphasised recently, the growth of in-home consumption has come because of on-premise lockdowns and restrictions.
This is reflected in the sales for the Woolworths hotels business, with sales declining by 27.5 per cent for the half to $667m, reflecting the ongoing impact of COVID restrictions on trading.
Woolworths said: “Although all venues had reopened by the end of the half, some restrictions on hotel capacity and social distancing requirements remained in place in all states and territories.
“Victorian venues, which were closed at the beginning of August, reopened in early November with material restrictions, which were eased particularly in November and December. Other states were also impacted by temporary mandated closures when localised COVID outbreaks occurred.
“As a result of the reduction in sales, EBIT declined 45.4 per cent on the prior year to $122m but was a material improvement on the H2 F20 loss of $52m.”
Speaking about the overall Group’s performance in the first half, Banducci said: “I am incredibly proud of the achievements of our team during the half, which went well beyond our financial results. We supported our customers, whether they wanted to shop in store or online, and were able to do this in a safe and convenient way. We also provided them with great value and inspiration as they spent more time at home.
“We employed a record number of team members over the Christmas trading period and continued our focus on supporting our team’s mental wellbeing.
“The first half of F21 continued to be impacted by COVID, with elevated sales and higher costs as we worked to maintain a COVIDSafe environment for our customers and team. While we have all been living in this uncertain environment now for 12 months, ongoing localised outbreaks remind us that we need to remain both vigilant and agile.
Cairns, added: “Over the last six months we have delivered a strong result for our customers, team, supplier partners and shareholders, while still making progress on our longer-term strategic priorities. We had previously indicated that we were targeting calendar 2021 for a potential separation of Endeavour Group.
“Our plans are progressing well, with June the most likely date. Further announcements on timelines and other relevant details will be made in due course. Reflecting our strong result and confidence in the Group to continue to deliver for all of our stakeholders, the Board has declared a dividend of 53 cents per share, up 15.2 per cent on the prior year.”