Endeavour Group demerger

Endeavour Group suffers 55% profit drop

June 23, 2020
By Alana House

Woolworths has revealed that Endeavour Group is expecting a 55% profit drop due to COVID-19.

Endeavour Group’s hotels were closed for about eight weeks, as a result, its EBIT is expected to be $160-$170 million (FY19 EBIT was $355 million).

However, it’s not all bad news for its liquor business – sales are on the rise for Endeavour Drinks, with 9.3% growth in Q3 and 21.4% in Q4 to date.

During its trading update this morning, Woolworths also flagged one-off costs of $591 million to restructure its supply chain and drinks business and repay staff.

Endeavour Group separation postponed to late 2021

The Woolworths Group Board decided in March to defer the planned separation of Endeavour Group due to the impact of COVID-19 on hotels.

Endeavour new suppliers

However, the majority of the costs for the restructure of Endeavour Drinks and merger with ALH to enable the separation of Endeavour Group have been incurred in FY20.

In HY20, costs of $51 million were incurred with a further $179 million expected in the second half. These costs primarily consisted of stamp duty, external consultants and advisors, dedicated internal resources and IT related costs. Despite the deferral, the estimated total cost to complete the transformation and separation remains in line with the original estimate of $275 million.

“Trading has remained strong in Q4 to date, with the exception of Hotels where venues were closed until the end of May and have just begun to enter different stages of reopening,” Woolworths Group CEO, Brad Banducci, said.

“In Australian Food and Endeavour Drinks, sales growth improved in May and June following a more subdued April impacted by unusual trading patterns around Easter and Anzac Day.

“Hotels have begun to reopen but around two thirds of our venues are in Victoria and Queensland where operating conditions remain more restricted, particularly for gaming. As a result, sales remain materially below prior year levels and the Hotels business is expected to continue to be loss-making until more venues operate with a full service offer.

“Given the continued uncertainty around Hotels operating at ‘normal’ levels, it appears unlikely that a separation could take place before the second half of the 2021 calendar year.”

ALH staff payment shortfall

In HY20, costs of $80 million were incurred reflecting interest and other remediation costs associated with payment shortfalls for retail salaried team members across Woolworths Group’s retail businesses subject to the General Retail Industry Award (GRIA).

It represented management’s best estimate of payment shortfalls against a range of potential outcomes and reflected the progress of the review at that date.

A further $105 million is expected to be recorded to reflect costs associated with ongoing remediation efforts. This includes additional historical retail time and attendance records, accrued interest on back-payments yet to be completed, and the extension of the review to other awards applicable across the Group.

As part of this review, payment shortfalls have been identified for salaried venue team members within ALH Hotels, employed under the Hospitality Industry General Award (HIGA). The review has identified salaried venue team members were not paid in full compliance with the Group’s obligations under HIGA based on an analysis of F18 and F19 time and attendance data.

The total cost of remediation is expected to be approximately $390 million (excluding interest and other costs).

Banducci, said: “The Group remains committed to fully rectifying any payment shortfalls across all Group businesses as quickly as possible. We thank everyone for their patience through this process.”

Endeavour staff receive shares bonus

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