Food and drink trump gambling growth at Endeavour

Retail EBIT fell 1.2 per cent to $658 million, missing some analysts’ expectations.

Its 354 hotel businesses (including five managed clubs) surged back to life in its first period of unrestricted trading since 2019. Sales jumped 31 per cent to $2 billion over the 2023 year, and EBIT also gained strongly by nearly 36 per cent to $428 million.

More activity at the group’s venues, such as the Crows Nest Hotel on Sydney’s lower north shore, has contributed to growth in the past year. Louie Douvis

Chief executive Steve Donohue told investors that although its wine business was not immune to consumers putting a brake on spending, he was not seeing any trading down by consumers. He called out the strong growth in the sales of luxury and premium wines in its Paragon Wine Estates portfolio, including Shingleback Wine in South Australia’s McLaren Vale which was purchased last year, and the high-profile Cape Mentelle Winery in the Margaret River it snapped up from France’s LVMH in May.

“In terms of trade down, I’ve said before, we’re not seeing it. We continue to not see it in any material way,” he said.

“I think the ‘watch outs’ are the ultra-premium champagne and the reopening of international travel with such gusto, as we’ve seen recently in the last half, means that there’ll be a fair bit of leakage back to travel retail with duty-free spirits up like 60 per cent.”

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Endeavour has been buying small wineries as part of its growth strategy. It recently appointed advisory Luminis Partners, with speculation mounting it could make a play for House of Arras’ sparkling wine business and the Bay of Fires brand – both put on the market by Accolade Wines. Endeavour also retained bankers at Citi, who are long-term providers of advice.

Mr Donohue said the premix ready-to-drink space was “going faster and bigger” than it ever had before, pointing to lemon-flavoured beverages such as Kirin’s Hard Solo which recently sold out in some Dan Murphy’s shops.

He said disciplined cost management remained a key focus through the year, enabling the group to effectively address economy-wide inflationary pressures.

The company delivered $60 million in cost savings over the year, and is targeting another $200 million in savings over the next two years under its “EndeavourGo” program through better staff rostering and supply chain initiatives.

He noted that food and beverage sales were strong and volumes and average selling prices showed year-on-year growth.

“Gaming was the first part of the business to recover post-pandemic and therefore was the lowest growth driver in the 2023 financial year,” he said.

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He said pubs and clubs ramped up live events and entertainment, with 487 events hosted during the year – a 59 per cent increase over the year before as part of the lure to get people back in the doors.

Mr Donohue said he was happy with the positive momentum in the first six weeks of the new financial year as customer demand remained stable.

“Our hotels remain well positioned as an affordable destination for social occasions,” he added.

The board declared a final dividend of 7.5¢ a share, payable on September 27. This is lower than a year ago at 7.7¢ per share. But total dividends for the year reached 21.8¢, up 7.9 per cent from a year ago.

Responsible gambling

Endeavour is the largest owner of poker machines in Australia, and the third-largest gaming operator after Crown Resorts and The Star.

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Mr Donohue previously flagged that he would reduce gaming hours in the group’s Victorian pubs by the end of August to show it was proactively engaged in harm minimisation for gamblers, and beat the state government’s deadline for new reforms.

Mr Donohue said the Victorian plans were well advanced and a responsible gambling program called “Player Protect” was under way. One of the initiatives is training 3000 team members in responsible gambling practices and new trials, such as a digital wallet trial at the Crows Nest hotel on Sydney’s lower north shore.

Endeavour Group CEO Steve Donohue says the hotels business came back to life in its first unrestricted period since the pandemic hit 2019. 

The self exclusion enhancement, which can be delivered through the use of facial recognition technology, is already being used in South Australia. Endeavour is running a trial in NSW and in talks with the Queensland government about extending it.

“The market will assume what the market chooses to assume about impacts on performance of the gaming sector. I feel, as evidenced by our continued confidence in expanding our network, as though we can participate in that change in a positive way,” he told investors.

MST Marquee head of consumer research Craig Woolford estimates that gaming represents 30 per cent to 35 per cent of group EBIT and the risk to company earnings could be 33 per cent in the medium term, although he expects any risk is from 2026 or beyond.

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He added that Endeavour reported a softer second-half result showing the impact of higher operating costs more than offsetting the growth in revenue in the hotels segment.

“We expect the shares to remain weak near-term given cost pressures may prevent earnings growth in FY24,” he said in a note.

The stock fell 3.17 per cent to $5.81 in on Wednesday afternoon. Over the past year, shares in Endeavour are down about 29 per cent.

Source: afr.com

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