Earnings Call: H2 2021

Aug 26, 2021

Financial year 2021. As mentioned, I'm Steve Donoghue, and I'm the Group CEO and Managing Director for Endeavour Group, and I'm joined today by Shane Gannon, our Chief Financial Officer. I'd like to begin by acknowledging the traditional custodians of the land on which I'm based today here in Surry Hills, the Gadigal people of the Eora Nation. And I'd like to acknowledge the traditional custodians of the land on which each of you tuning in today are working and living on. And I pay my respects to Elders past, present and future. Before I step through some of the detail of our results, I wanted to take a moment to recognize the work that our team has done to define us, the Endeavour Group. Slide 2 covers our brand, our purpose, our values and our ways of working, some of which we've actually just put the finishing touches on. And you'll regularly hear me and others from the team across Endeavour refer to our imprint, which is embodied in the circular device in our logo. It's a nod to the imprint that a bottle leaves on a surface when it touches it and it's a constant reminder to all of us at Endeavour to remain conscious of our personal imprint on one another and on the communities we live in and serve. Our purpose, Creating a more sociable future together guides our strategy. It recognizes the positive memorable moments that all of our team love enabling and drives us forward with good intent. And given the current COVID challenges, it means more to us than ever before. Briefly on our new values of sorry, values and ways of working, It starts with being real for us as a team and what that means is showing care for one another and our customers and really being ourselves and doing our jobs with Citi. Being inclusive or the fact that we are inclusive is a really important one for us too because in our business we welcome everybody. You're welcome in our stores, You're welcome in our pubs and our wineries and we're a team that reflects the diversity of the communities that we live in and serve. And we're responsible for a team that does like to have fun and Our job is to enable funds, but the thing that we take most seriously is our responsibility as operators of licensed businesses and we're committed to doing the right thing. Working with Spirit, I've personally grown up in this trade and I can vouch for the passion with which all of our teams approach life at work. And being in a team is a big part of your life at Endeavour Group. In aggregate, we are a large team. We're over 28,000 team members, But we're actually made up of thousands of smaller teams banding together to drive collective outcomes. And Endeavoring Forever sorry, Endeavoring for Better He's a reference to our name being more about what we do than who we are, always striving for better customer community and business outcomes. So moving on to our results for F21. It certainly was a challenging year, but one equally full of achievements. Key amongst them was the demerger from Woolworths Group, which took place only a couple of months ago. And I'd like to again take a moment to thank everybody who supported us through that, including the teams at Endeavour Group, the teams at Woolworths Group and all of the external support teams we had alongside us. Obviously, the other significant factor in the year was the impact of COVID and I'm sure many of you will recall the initial demand spikes that we saw in our retail business where our team had to cope with days that traded like Christmas Eve, but we didn't get any notice. And in hotels, of course, we've had 169 days where any number of our hotels were closed due to restrictions. And these impacts were felt most materially in Victoria and Queensland. I'd like to recognize in particular the way our hotels team managed through all of that disruption, managing costs through the multiple openings and closings of hotels It's sometimes only hours notice and especially the extraordinary efforts we went to support social distancing measures, check ins and other COVID safe initiatives. Of course, we rightly had a high frequency of regulatory inspections across our hotel network throughout the year and many thousands of them in fact. And again, I'm proud of the unblemished compliance record of our teams throughout Australia that live our values every day. Shane will talk a bit more to the detail of our Financial results, but at the top line, we delivered $11,600,000,000 in sales, which is an increase of 9.3% on the prior year. EBITDA of $899,000,000 an increase of 22.1 percent, net profit after tax at $445,000,000 and the Board has approved a $0.07 final dividend. Critically, we We chose to continue to invest in the ongoing transformation of the group with over $300,000,000 in capital investments. We invested in new teams to support our journey as a separately listed company and welcome many new team members and partners supporting our digital developments, an area where we look to continue to take another step forward in F 2020 2. As I mentioned in my opening comments, we remain committed to recognizing our imprint across Endeavour Group and Officer. New support mechanisms for hotel customers with the voluntary pre commitment capabilities in our Monty's app and the rollout of technology that supports players who choose to self Scoot from gaming with facial recognition technology in South Australia. These investments in supporting responsible gambling were on top of our ongoing harm minimization Officer in the drink space, as well as a variety of other environmental and social initiatives. Moving forward to Slide 7. On Slide 7, we show a breakdown between the retail and the hotels results, which again, Shane will elaborate on, but in summary, both businesses performed well. Retail was up 9.6 percent to sales of $10,200,000,000 and EBIT was up 17.6 percent to $669,000,000 The hotel's numbers also showing good growth off the very challenging prior year with sales growth of 7.3 percent to $1,400,000,000 and EBIT growth of 49.1 percent to $261,000,000 Over to Slide 8. Slide 8 captures how we think about progressing our business and a few of the F21 outcomes. Across the top there, you'll see knowing our customers and it's really encouraging to see the The improvements that we've had in customer service through the course of the year, our combined retail voice of customer metric Increased actually in context of all the challenges of COVID to 75. It was up 2 points on the prior year, which is just an enormous Result, I think, in context of the challenges that the team faced through the COVID events. And then further in our Hotels business, we track The online feedback that we get from customers related to their dining experiences and their accommodation experiences and we had a solid result there too with a 4.2 average out of 5. We grew our customer engagement through the MyDance program as well with an increase of 20% in participation in that program to $5,500,000 And our digital numbers were a very significant achievement for us in the year. We managed to grow ourselves to $859,000,000 which was a real standout I think in the overall result. And that number there you see, the 115 plus hotels with contactless pay and order capability has actually grown since the end of the financial year to net over 200 hotels where customers can enjoy a meal or order a drink without having to leave their table. We continue to expand and enhance our network and open 33 new retail stores, 2 thirds of them BWS, 1 third Dan Murphy's and really pleasingly reactivated the growth in our hotel network and welcomed 5 new hotels to the group. The ongoing renewal programs have also delivered outstanding results for us with 64 retail renewals and 24 hotel renewals. And we continue to optimize the group and in particular I'm pleased with the fact that we're able to welcome so many new suppliers to our large group of suppliers that we had pre existing some in excess of 2,000 supplies. But as COVID kicked off and there was challenges for suppliers accessing customers through their regular Restaurant channels, if you like, we opened up access to small suppliers to participate in our marketplace platform, which was, I think positive for both of them and us. And we've also upgraded a number of our electronic gaming machines across the fleet. In fact, we've managed to take the average age of a gaming Shane, down by 1 year from just over 9 years to a bit less than 8.5 years and that number continues to fall. And I've already touched on, I think the approach we take to being one team, so I'll let that stand. Just moving forward now to Slide 10. Officer. This is a reference to how we create the outcomes that I've just talked about in our businesses and it shows on this slide The achievements of what we describe as our enabling teams across Endeavour X and Pinnacle. I think the big Theme for us in the year from an e commerce standpoint was the lock in of the penetration of e comm. So You'll see there that our online penetration went up 157 basis points to 8.4%. Interestingly, During the peaks of lockdowns, that was when we saw the most growth in that penetration number. But as lockdowns eased, it has remained as high as it was through the lockdown, which is I think a testament to the quality of customer experience that we've increasingly been able to offer through our investments in our Officer, web and app platforms. Further to that, in recent trade, our penetrations extended some 10% of overall sales. So it continues to grow quite considerably for us. And also interesting, I think, is The fact that the customer sentiment to us in terms of our digital experience is marginally higher than the overall customer sentiment that we have for retail. So a very positive outcome for us there. And one last statistic is that given the recent lockdowns in Canberra, we've actually seen our Dan Murphy's Officer, accelerate to 1 third of its sales being facilitated through our digital platform. So we're really pleased that the return on investment that we're getting with the digital investments that have been enabled by the Endeavor X team. And then further to our Pinnacle Drinks business, Officer. It is a record for the team to have generated 530 plus new products and they weren't just any old products, They were products that have been recognized as very high quality by both our teams who love selling them, but also have met with some critical acclaim throughout the industries that we operate in. We're also really pleased to welcome our new team at Oak Ridge, You can leave Dave Bignall, our Chief Winemaker, who then of course has more recently promptly gone on to win the best Chardonnay from James Halliday in the last week or so. And that's just one award in context of the many hundreds that were achieved throughout the course of F21 by our winemaking and product teams in Pinnacle Drinks. We also were really pleased to win the Best Wine of Show at the Barossa Wine Show last year and we took our best International sorry, Best Portfolio at the San Francisco International Wine Competition. So continued success Officer on the part of both the Enabling teams in Endeavour X and Pinnacle Drinks. I'm going to pass now to Shane who's going to step us through some of the financial details. Okay. Thanks, Steve, and good afternoon, everyone. Like Steve, I'm delighted to present today on behalf of the team at Endeavour and it is particularly pleasing to be able to speak to such a strong set of numbers. As you can see from this highlight slide, we generated strong top line sales growth which in turn flowed through into EBIT and operating cash flow. This provided the financial flexibility to reinvest over $300,000,000 back into the business and to declare a distribution to our shareholders by way of a $0.07 per share fully franked final dividend. And we entered the New Year with a strong balance sheet, which gives us the ability Continued investing in our core business activities combined with growth opportunities. Turn To the next slide 13, total group sales for the year grew by 9% to $11,600,000,000 with both retail and hotels recording higher sales in the prior period. As you can see, retail benefited from the COVID induced shift to home consumption, While hotels recovered somewhat from the prior year, we continue to experience COVID related business interruptions, which negatively impacted both sales and EBIT. The group EBIT of $899,000,000 was up 22% on the prior year. This included corporate overheads of 31,000,000 This level of spend is consistent with the forecast provided at the time of the demerger that is annualized costs between $55,000,000 $60,000,000 Finance costs of $247,000,000 includes interest paid to Woolworths on intercompany loans. Post demerger, the intercompany loans were replaced by Endeavour's new syndicated and revolving credit facilities. Turning now to our retail business. Sales were up 9.6 percent to a record $10,200,000,000 benefiting from the COVID driven shift From on premise to in home consumption and increasing demand for premium products. There was particularly strong growth in craft beer, champagne and gin As well as no alcohol and low alcohol alternatives. Sales growth spiked in the Q4 of the prior financial year when COVID first started and remained elevated through the first half of the twenty twenty one financial year. As you can see, the strong sales Performance flowed through to higher gross margin, which was also supported by lower promotional intensity in the market and an increased share of sales in our Pinnacle Drinks products. This was partially offset by a higher CODB margin where the benefits of elevated sales in leverage of the fixed cost base were impacted by a number of 1 off costs and targeted investments, particularly in technology and digital customer experience. The resulting EBIT of 669,000,000 was up 17.6% compared to the equivalent F 2020 period. On Hotels, As you know, F21 has been a challenging another challenging year for our hotels with COVID-nineteen closures reducing sales and adding costs. To illustrate the extent to normal operations, we only had 195 days last year when all of our venues were trading. We were particularly hard hit by closures in quarter 1 and 2, especially in Victoria. And unfortunately, the benefits of improved trading conditions and Increased optimism in the second half of the financial year had been subsequently eroded by the outbreak of the delta variant in New South Wales and now beyond. However, as you can see, we did report higher sales and EBIT up 7.3% and 49 point 1% respectively, but these are comparisons against the prior year which was also impacted by COVID. While sales growth was limited by external factors, We were able to control costs within the business to record a healthy EBIT to sales margin of 18.4%. Now turning to the balance sheet. Looking at working capital first, it is pleasing to note that in a period where our retail businesses delivered strong sales growth, We did not experience a commensurate increase in trade working capital due to the commitment to disciplined inventory management. As I mentioned earlier, Endeavour has a strong balance sheet which will support our ongoing growth initiatives. And in particular, I want to draw your attention to our property portfolio and our intangible assets. Our freehold assets include 6 retail, 49 hotels and 1 assets. The book value of $630,000,000 is well supported by current market values and we believe by further development Officer on a number of these sites. Intangible assets include $2,000,000,000 of liquor and gaming licenses, which underpin our license to trade and are a core source of competitive advantage in a tight regulatory environment. Cash and liquidity. The ability of our business to generate strong cash flows was demonstrated by the fact that operating cash flow for the period was 1,100,000,000 This equates to a strong cash realization ratio of 117%, which although elevated demonstrates the core cash generated Strength of the business. I should also point out when looking at the group's cash flow statements in our accounts, please bear in mind that the statutory F 2020 comparable covers group activities for approximately 5 months. Endeavour was historically Has historically been funded through a combination of internally generated cash flows as well as financing facilities for Woolworths Group. As I mentioned earlier, on the merger these intercompany facilities were replaced by Endeavour's external financing facilities In aggregate, totaling $2,500,000,000 consisting of a 5 year $1,000,000,000 syndicated credit facility, A 4 year $900,000,000 syndicated credit facility and 3 year bilateral loan facilities totaling 600,000,000 It is worth noting at June 2021 Endeavour Group's net debt was $1,300,000,000 consisting of $1,700,000,000 of drawn Facilities offset by CAD400 1,000,000 cash on hand. Importantly, the group had approximately CAD800 1,000,000 undrawn facilities and free cash available. Capital expenditure. This slide provides a snapshot of how we categorize our capital expenditure program As well as giving some guidance as to how we allocated $312,000,000 spent on the business in F21. For the coming year, we are budgeting to spend somewhere between $300,000,000 $350,000,000 with the allocations expected to be similar to F 21. And finally, capital allocation. One of the key priorities for the Endeavour management team has been to refine our growth strategies. And as Steve indicated, we expect to be in a position to share outcomes of the work we're doing at a later date. As part of this work, we are developing an allocation of Capital framework that we believe will optimize returns to our shareholders. We are fortunate to have started our journey as a standalone company with a strong balance sheet. And as you've seen, with businesses which are very cash generated, we have also communicated our current priorities which include Developing a capital structure consistent with achieving an investment grade profile, providing attractive dividends to our shareholders And targeting capital expenditure which enables us to invest in attractive growth options. As we develop further our strategy and prioritize our Officer. We'll also be looking for ways to further leverage our balance sheet, which one area particular focus on how we might better use Utilize the not insignificant property interest we hold. Needless to say, Endeavour has a long list of opportunities and significantly more than we have The physical and financial capacity to deliver on in the short term. One of our tasks over the next few months is to prioritize These opportunities and determine which of them have the capacity to add the greatest value for stakeholders. So on that note, I'll now hand back to Steve for his concluding remarks. Thanks, Shane. So I was going to step forward into our priorities for F 'twenty two and perhaps obviously 1st and foremost, Officer. We continue to manage and respond to COVID impacts and that involves both encouraging and enabling our to get vaccinated and we've done that through a variety of means, not least of all providing 8 hours leave for everybody to get vaccinated. Also I want to acknowledge that particularly the team that are working in our stores in New South Wales and Victoria at the moment are doing it tough and we've provided extensive support to them in a variety of forms. That's a big priority for us. And further to that, we're very focused on maintaining Ability, given the fact that we've only recently demerged from Woolworths Group. But I do also want to thank Woolworths Group for their ongoing Court. Manifests particularly through our partnerships and as recently as last week, we had some real challenges in our Sydney D. CEO that were COVID related and Woolworths went above and beyond to support Endeavour with actually outstanding outcomes given the circumstances. We of course want to sustain our growth momentum and that is exemplified through acquisitions like the Terry Hills Tavern, which I'm sure you saw recently, which we did in partnership with Charter Hall and that's an acquisition that will help us activate both our retail and hotel network expansion alongside of course our existing renewal programs that play out across the group. We're also going to continue to invest along the lines that we did in F21, particularly in digital with the capabilities that we need there, but importantly also building out the process changes and the capabilities that we need for our teams to have, all of which are focused on continuing our long term growth trajectory. And lastly, we're working really hard on our sustainability strategy at the moment and we're targeting to launch that in Q2 of this year actually. So looking forward, just to touch on the initial F 'twenty two trade, which is covered on Slide 20 who. The theme here is obviously volatility and that's particularly true for our hotels business given that we're closed in New South Wales and Victoria. We're feeling good about the retail numbers given the cycling of last year and they've continued to improve throughout that 8 week period that you see represented in this table. Really importantly, we remain focused on supporting our teams, both those that are working and those that can't through what we all recognize is a really challenging time. So to close with Slide 23, we of course in our business continue to benefit from that natural hedge that exists between our on and off premise Businesses in Hotels and Retail. And notwithstanding the volatility of some confidence from the solid F21 results we've just spoken about, We intend to continue to invest in delivering for customers and be responsive to the challenges that COVID presents. So thanks for your attention and I'd now like to open the floor Officer. Your first question comes from Phil Kimber from Evans and Partners. Please go ahead. Good day. My question was just whether you could provide sort of any sort of further color Around the hotel business, I understand none of us know how long the lockdowns are going to work. But for example, Woolworths last So you provided they mentioned that the losses on a monthly basis were something like $30,000,000 to $35,000,000 That was obviously when we were in I think that was when we were in a complete or larger lockdown. So could you give any sort of insights there for us Officer to get some sort of sense of what losses you're making while things are shut down. Thanks, Phil. Appreciate the question. Yes, you're right. That's true. Woolies did provide that guidance and at that time It was a relatively straightforward proposition. We've talked a lot about the extent to which we're able to provide similar nature of visibility. The situation back then was that it was pretty straightforward. We were shut down everywhere and that was easy to communicate on. The challenge we face at the moment is the variation in requirements on a state by state basis. So from 1 week to the next, It is changing and that's not just related to the lockdowns themselves, but also to capacity adjustments in the markets where we're still able to continue to trade. So certainly, Victoria and Queensland are our 2 biggest markets And when they are not trading, it is it has the most detrimental impact on it. But I would say that When we were able to get hotels open again and this was a big question for us as we were going through the lockdowns of last year, We saw a very, very rapid return to strong sales out of them. And it was a big question for us as to whether customers or patrons at hotels were going to sort of Lose their appetite for hotels as it were, but the opposite was true. People came back really, really quickly and Continue to do so in the markets where we don't have that level of lockdown, for example, in Queensland presently and clearly in WA in South Australia. So we've got to the stage where we don't think we can provide that level of detail just on the basis that it is moving around so much and it would require us to come back quite regularly. But I think you can interpret, I guess, the best you can from the 8 weeks numbers that we've provided here. Sure. And just on your point where you said that people come back, I mean, is there an element of catch up, so what you might lose Officer. While the lockdowns or restrictions are on, some of that comes back, I don't know, pent up demand or what have you? Or Is there no real clear consistent trend on that on being able to claw back some of the lost trade? What we're learning is that things are changing so much over time. So what happened in the re openings in round 1 isn't necessarily what happened of Round 2 because the sentiment and the position of customers and patrons has changed over that time. There was pent up demand though last time we had that national shutdown and reopening. And look, I think based on my Feel as to customer sentiment at the moment, we would expect to see something like that in New South Wales and Queensland, but a lot of that actually depends on the to which you are able to open. So if we open with considerable density limits or Certain areas of the hotel that aren't able to open, that obviously has flow on effects and impacts on us as well. So that's also part of the reason why it's hard to predict what's going to happen in the future. That's right. Thank you. Thank you. Your next question comes from Grant Saligari from Credit Suisse. Please go ahead. Hi, Steve and Shane congratulations on a maiden result. Good to see. Just repeat to Slide 18 And look, I apologize because I'm probably going to sound like a staff record on this. But what I'm trying to work out is what EPS accretion It's got to do with allocation of capital for growth CapEx because we've got cost of debt at 3% or 4%. So EPS accretion doesn't seem to me to be all that material guideline, I guess, for allocating capital. And I say that in a sense that I'm just trying to understand where free cash flow and return on capital actually He comes into the thinking on capital allocation, particularly as it pertains to hotels, where we've currently got yields on hotels being transacted at around 4%. So just interested in your comments around capital allocation And sort of the return thresholds you think about, please? Yes. Thanks, Grant. Appreciate the Question, I'll just touch on the way we're thinking about capital allocations for hotels and let Shane talk to the beginning of your questions. I think historically, we've perhaps allocated a little less capital on balance to hotels than perhaps they require and certainly We're getting that balance right, but you're right about the relative returns in hotels compared to retail, which is why We've been very focused on the way we allocate capital into hotels. And I made a comment about reducing the average age of our gaming fleet and we've made good steps there. We probably haven't had the same level of emphasis on that in the past that we have had in the last little while and certainly intend to in the future. And the returns from doing that are obviously when we're up and trading very rapid and second actually only to Get out of capital to invest in our digital transformation, particularly in retail. So I think the approach is Changing is the point to share and that we're becoming much more forensic about the areas that we invest in to maximize the returns. But I'll let Shane try and address that. Yes, if I can just expand on follow from Steve's comment and hopefully that gets to your EPS question. If you look at the sort of split that we have at the moment, typically it's around almost half of the CapEx is in the sustaining core, which The returns are more stay in business, so the returns are low and growth. We've had some terrific examples of Sort of double sort of team sort of returns on our investments. So in the renewals and the rollout of new stores, It's been very positive. So that's sort of assisted us in terms of our earnings growth. I think I believe That there is more we can do in the hotels in terms of improving the earnings from our existing portfolio. So there is a If you like a similar theme that we can pursue because at the end of the day, what I would say to you is what Endeavour is good at is running pubs And we think that with the right capital allocation, the right sort of areas, we can continue to enhance that growth and that will go to the, If you like short, medium term earnings growth, but we also want to be longer term as well. And the efforts We're applying to things like Digital and Pinnacle, I think are terrific stories that, yes, they're providing some And platforms today, but I think there's also some significant upside in the longer term that we can pursue. So I'm not giving you a direct answer about capital allocation beyond saying that at the moment sort of similar to F 2020. But I do believe over time there's an opportunity for us to enhance our earnings per share from just our existing portfolio, particularly in hotels And equally allocate some capital to those long term opportunities, which I think is being led particularly from Endeavour X. And just to book in Shane's point, Grant, during the first lockdowns in Victoria, we took the opportunity to roll out Ticket in ticket out capabilities across our gaming fleet and that gives us a good return and we've also done the same thing in South Australia. So I I was going to make the point that you can only really get the returns once you've got the hotels up and going, but we've taken the opportunity whilst they've not been open to really sort of blow through the network, if you like, some investments that we know are going to return for us and indeed actually when we were up and going. Okay. Well, thank you and peace to life. Thank you. Your next question comes from David Errington from Bank of America. Please go ahead. Hi, Steve. Shane. Steve, can I follow on from your investment in your hotels because The feedback and I'd like to hear what your response to this is, but the feedback is that Endeavour has been starved of capital in its hotels And particularly in the gaming machines where you said your average life is 9 years, you've been able to bring that down to 8.5? Officer. The feedback I'm hearing is that it should be a lot lower than that. And but more importantly, The payback that you get, which I think you just alluded to there, the payback on replacing those machines is significant. Like it's really quick. And certainly people in the industry tell me that it's as low as 6 months payback. So can you give us a bit of an overview as to the upside Potential that you could bring to the hotels business by a refurbishment not only of your gaming machines, but the venues them Officer. What sort of payback are you likely to get? And do you have the capability and the capacity and I suppose the appetite To go ahead and do that, because I see that as a big opportunity for you at Endeavour is to really do stuff that Woolworths just didn't have the appetite to do. David, thanks for the question. Really appreciate it. Yes, look, I think The proof will be in the pudding in the end, but certainly what we've started to do and as I was saying to Grant have already done is make Yes, serious but considered investments in improving the player experience basically. But we don't just do it for purposes of improving the player experience. We're also Using our investments to improve the approach we take to responsibility when it comes to gaming. And I'll just talk briefly to the South Australian example. So We've rolled out ticket in ticket out technology and banknote acceptors into our machines in South Australia. But I think really interestingly, we were required to institute facial recognition technology in South Australia, so that those that had chosen Officer. On the self exclusion register would be more readily identifiable. And I just thought that was a fantastic Example of being able to blend an improved player experience with an improved responsibility outcome. So I wouldn't like you to think that our pursuit in this space is Purely a commercial one, there is also an opportunity for us to take a leadership role in the responsible services gaming that We consider central to the way we go about things. The other thing to note and I'll pass to Shane for some more comments in a second is that We're not just activating the hotel, we're activating retail on the hotel side as well. And if you look at the Sunnybank Hotel up in Queensland, it's probably one of the better examples where we've just renewed a BWS Drive thru and it looks fantastic and is trading really, really well. And we've actually just upgraded the gaming room there and it's popped up the rankings in Queensland. So So I think number 1 or number 2 as a result of that gaming room upgrade. So it's not just about the machine, it's also about the environment for the players. And one of the important elements Associated with that gaming room is the sports bar that Bruce and the team have built next door, which is proven to be really, really popular. So I think what I've come to learn is it's the elements of the hotel including the retail parts which create the total outcome for us from a financial perspective. In that particular site, We've also got a Dan Murphy's which we're about to start a renewal on as well with our New South Melbourne format. So I'll let Shane talk to the financial or the detail of the numbers, But the proof will be the proof of the pudding will be in the eating once we've got a bit more runway behind us. But we're very focused on being quite forensic with the way we to increase the mix of investment from a capital standpoint back in hotels. Shane? Just to expand on David, I think you're hitting on a really great opportunity for Endeavour. I think I want to add to the Officer for Endeavour. I want to add to the comments on gaming, but the elements that go into that Particular location, that space I think is good opportunity for us based on our knowledge of how to run those hotels to enhance the return that we get from those sites. And it's not just the ones we own, it's also the ones that we have an operating lease. And What I believe is the opportunity for us. We do a terrific job in the retail side. As I said to you earlier, Identifying the renewals or new sites and this sort of call it mid teens return Yowie is in some cases on the low side. So there is some good opportunity. I think we can continue to Expand that experience and do something similar in the hotel. So it's a great tension to have those options. It also goes to the whole Point around optimizing your capital base. So what's the best use of your capital and that's where we'll start to sort of unpack Yes, even our balance sheet at the moment and make sure that the capital is being allocated in the most effective way. But you're hitting on a good point. It's a really good question. If you got 8.5 years for the average machine, what is optimal? What would be your optimal? David, apologies, I should have answered that part of your question. Look, gaming, as I think everybody knows, is a technology business, obviously. There's also a fashion business and different games have different levels of appeal over different Spent of time. And what we've determined to do is to progressively reduce the average age probably down to somewhere between 5 7 initially and then we'll take stock again. But it would be imprudent to upgrade the whole fleet or a very large chunk of the fleet very quickly Given the importance of continuing to follow the preferences of players as time goes by, not dissimilar situation To that which you find in any category, wine if you like, making sure you're keeping abreast of the trend. So we're going to be really careful about how we do it, but the point is We're going to do it and we're going to track it and we'll obviously continue to report on the outcomes that come from that. I look forward to the upside from Steve and Shane. Thanks for your answers. Thanks, Dave. We do too, David. Thank you. Your next question comes from Brian Raymond from JPMorgan. Please go ahead. Good afternoon. Mine is just on hotels as well. Just trying to get a feel for the underlying performance. I know it's very messy period and will continue to be messy For a while, but you mentioned in the presentation, you had 195 days where all hotels were open During the period, I'd be interested if you could pull out sort of how they tracked, maybe even on a few of you over those days or perhaps even just a state Left disrupted maybe Queensland given how important it is for you and how their lockdowns were relatively short compared to other states. Just to get a feel for how the underlying revenue and earnings performance is looking for the business. Yes. Thanks, Brian. So much time has elapsed that it is hard to have the anchor point, but if you go back to F 2019, which is the only really relevant anchor point, you're getting What we experienced and it's different in every single market for sure, but what we experienced was good Single digit growth of F 2019, which of course you have to half. So if you're growing at 8% and 9% then your average is 4% to 4.5%. Officer. And that was encouraging and it was slightly different across what the hotel team called the various drivers. When When you think of a hotel, don't just think of 1 revenue line, you've got a gaming revenue line, you've got a bars revenue line, you've got accommodation revenue line And you've got a food revenue line and they all returned to different degrees. Perhaps unsurprisingly, the accommodation Line was the one that was the slowest to improve, but improvement did actually and We were tracking quite well with both Victoria and New South Wales with accommodation prior to these latest lockdowns. So It returned a lot more strongly than what we'd anticipated. And Western Australia in truth is probably the most stable market as is probably Tasmania. And we continue to see quite consistent single digit growth like year on year there where you're not cycling the same extent of lockdown. Noting of course that in Western Australia, there is no gaming in the hotel network in Western Australia, so that's not a factor. Variable is what I would say and hard to predict is the reality for the way these things come back. Okay, great. And then just a follow on from that is Just given all this disruption in hotels, the potential for you guys to consolidate some of the sector further, it's quite a fragmented industry. But I know cap rates are very, very tight at the moment. Leasehold, last I checked, was somewhat more appealing for for Avaya. Is there opportunities out there, do you think, particularly in New South Wales? We are a bit underweight and we do have a long lockdown. Some of these smaller players Officer. That would be useful to build out your portfolio in New South Wales or anywhere else for that matter. Yes. I think you make a key point with the cap rates. That's the first challenge and I think there's a good example of the model of a viable approach for us of Terry Hill Tavern acquisition, in particular because of its capacity to activate our retail network as well. And it has a Relatively low requirement for capital investment, we can jump in and operate it. So really to the specifics of your question as it relates to New South Wales, it will Very much depend on the inventory that becomes available in the market and the demand for us. We You're right, we do have an opportunity to expand our business in New South Wales, but just getting access to the opportunities is the key. Shane, do you have time? Ryan, the only thing I'd add is in my short time here, one of the advantages again of Endeavour is the experienced management group that we have in the hotel site. So to your point, there are opportunities to emerge and we've demonstrated acquisitions as Steve highlighted with Terry Hills, But we're not prepared to participate in sort of crazy or sort of very aggressive low cap rate sort of environment. I think there's enough opportunities for us where we can add our operating capability to pay a fair price and enhance our earnings from that operating experience. I think that's a good point. We have to be disciplined about it. We're not just buying pubs for the sake of pubs and certainly not at some of the astronomical prices, we're buying pubs that fit our profile and our network. Officer. Your next question comes from Michael Simotis from Jefferies. Please go ahead. Good afternoon. My question is on the profitability of Your retail business. So margins expanded quite nicely, but obviously sales were elevated. You've also called out some one off costs during the period. So I was just hoping you could quantify those one off costs And give you some sense of how we should think about the profitability of that business going forward. And I'll note that margins Notwithstanding that strong trading period are well below where they peaked in 2018. So just how should we think about that going forward and just trying to pull out the COVID benefit from those one off costs. Thanks, Michael. Appreciate the question. Yes, I think It is a valid observation obviously the fact that we've had continued strength, if you like, in the gross profit line and I'll come to that first and then touch a bit on CODB and welcome Shane's comments. So, yes, what's Clearly what's played out in context of COVID is a shift out of the other channels into the retail channel and the consequence of that has meant that There is a lower frequency in terms of promotions. So the investments required to generate sales have been diminished somewhat as a result. But that's sort of happening to us, if you like. I think the things that we're doing to support better outcomes are really key here too. And First amongst them is the efforts of the Pinnacle team in conjunction with the group buying team to really create very compelling customer propositions in the form of the products that are flowing through. So that's probably the thing that I'd point to as the key initiative from us. The other thing to be aware of that's happening in terms of what customers are buying is a very significant swing to premium And that's played out most actively in our Dan Murphy's business, which of course has that sort of nice dichotomy, if you like, of the lowest prices, but also the Biggest range and in having the biggest range, they've also got the most premium range. So as customers have sort of endured COVID, they're very much sought to treat themselves and Dan Murphy's is certainly a destination from that. So they've been a very big beneficiary, if you like, of that customer move. One of the other things that's going on in the retail mix space is a shift towards the spirit category. So Ordinarily, that would actually present quite a big problem for us. But when you consider the explosion of gin that's taken place, It's actually offset the mix challenge. So we make a higher margin out of wine than we do spirits. But when you consider the fact that it wasn't that long ago, I'm sure you'll remember that probably the most premium We had might have been something like Tanqueray. We now have boutique and craft jeans that price up into the 100 of dollars per bottle and people are desperate to get them. So the The returns that you get out of those sorts of things is certainly very appealing for us and great for customers who love the product. On the cost side of things, Certainly, the salary remediation issue has played out in those numbers and you see that reflected there, But also our ongoing investments in enabling digital and I think the fact that we've got e commerce penetration now that's hovering around the 10% mark Officer. It's a good result, but we're not finished yet because we're still really not meeting the demand of customers, I think from a Supply side standpoint, so we'll keep doing a lot of work there. But we did nearly 100,000 orders last week in our on demand business alone. And Sure enough, it is marginally more costly for us to fulfill that demand, but it's a very market leading solution that we're able to provide and Taking businesses like Jimmy Brings and their last mile capability and activating it across the whole retail network is what's been enabled there. We're working really hard on reducing those costs is the other thing and finding ways to optimize that so that we can put some further downward pressure on our CODD. But At the moment, the upside in GP is more than covering some of those challenges in CODP. Shane, any other? Just in terms of one off costs, we don't provide the Specifics of it, but costs that would typically has been some asset write downs and some provisioning that we've Taken in those results and there's also increase in the provisions around the remediation of salaries and wages. So they're typical Those one off costs, but to Steve's point, the other big driver in terms of that increased margin has been the investments in technology and digital platform, which I think by all measures, it is being well supported by the performance in the marketplace. Officer. And margins were a lot higher in 2018 than what you did in 2021 even though you had The benefit from COVID, what's changed in the business? And should that peak level of margins that you saw in 2018 be an Inspirational target or you don't think you'll ever be able to see those again? To be honest with Michael, I'll have to go back and recheck our 2018 numbers. I'm not sure that 7.1 percent EBIT. All right. Okay. What you've got in there It's the reset year I think for Dan Murphy's, which I think Brad's probably spent quite a lot of time talking through the sort of leveraging up of Dan's ability to to come back and reinvest in the business, particularly from a digital standpoint. We had in about it must be 3 years ago, we had to make some not Significant write offs of some of the tech investments we've made because we were they actually weren't very effective and that was evident through the customer feedback and the lack of take up we'd had. So it wasn't appropriate to not invest in digital or not invest In a way that was ineffective and that's probably the thing that's made the biggest change for us is the way we're investing in digital. So our aspirations Going forward, we'll I think it will depend a little bit on how effective we are at the results we're getting over the course a coming financial. So perhaps judge us in a year's time on where you think we're at. But we're certainly looking to Continue, as I say, to invest in these areas in pursuit of improving the overall outcome and that includes our profitability. Great. Thank you. Thank you. Your next question comes from Craig Woolford from MSG Marquee. Please go ahead. Afternoon, Steve and Shane. I might kick this continue on the cost Question, just like it is a significant increase. So you're talking about them as one off, Shane. If they are one off, they will come out In FY 'twenty two, some of them sound like things that might still repeat year to year, albeit there might be a different level. And is it A fact where is your online profitability? Is the growth in costs here a function of The growth in online and does online profitability match your store profits in retail? I'll let Shane go back on the one offs although I think you probably tell. Let me just quickly cover that. Okay. So look, Yes. From my experience Craig, it's sort of beyond the remediation of salaries and wages, the other adjustments in provisioning and so forth Officer. Decisions that are taken on the time at the time. Are they going to happen next year and the year after? I can't tell you. We'd like to have one offs down to 0, But it's just the circumstances that prevail in the F21 year. In terms of The online investments in digital? Yes. I mean, we would expect in F 2020 2 to be in excess of $1,000,000,000 of trade in e commerce And we're well progressed towards achieving a number like that based on the result we had in F21 and what we believe we'll do in F22. Having a $1,000,000,000 e commerce business that is at the moment on the measures we're using actually profitable, I think is a testament to the efforts that the teams have put into maximizing the returns on the investments we've made so far. Is it as profitable as the bricks business that supports it, If you isolate one from the other, no. But it was an area where we improved our profitability considerably more than we did in any other part of the business, Some 200 basis points improvement in profitability in our e commerce business over the last 12 months. So That's not enough. We need to go again and we will go again, but it will come from both the efficiency programs that are rolling out across retail and our last mile delivery services as well as continued investments in providing the customer service that's needed to generate the best returns. And Big efforts were made in towards the end of F21 and it's still ongoing in the beginning of F22 around our personalization capability in the Mydance platform and that's already delivering actually better results than we'd forecast when we set the program up. And as you've heard me say, we've had quite significant increases in the participation in MyBans. And when you couple that with Being able to increase conversion rates through both our web and app platforms, that is really where you're going to get your bang for buck. And That gin example I gave a little more. People are really looking to explore and discover new products and we've built platforms that will enable that In a not dissimilar way to a music provider might do or a TV streaming service might do, that's the sort of aspiration that we Scott for our digital platforms with the Ann Murphy's and to a somewhat different degree with BWS. And just that measure of profitability, it sounds, Steve, like you've got, is it similar to what Woolworths has done historically in sort of a directly Attributable profit? Yes, that's right. We probably need to review it again. I mean, we rightly fell in line I'm with the way Woolies was doing it and that was entirely appropriate. But as Woolies, I think, will do and Greg can speak for himself for sure, but we'll go back and continually review it and Probably allocate more cost to it to really put ourselves under more pressure to improve it more rapidly than we otherwise might. Yes. Okay. Understood. Thanks. Thanks, Steve. Thanks, Shane. Thanks, Craig. Thank you. Your next question comes from Ben Gilbert from Jarden. Please go ahead. Good afternoon guys. It's pretty straightforward one for me. I think just sitting around the working capital and how you think about that build looking So I think historically you carried a reasonable amount of inventory in the group. And if you see a need to rebuild that or if we think this is sort of an appropriate level of working capital as we sort of enter up the year. Good day, Ben. Thanks for the question. Look, the retail business is where the working capital is held and the retail business being the biggest beneficiary of the spikes in demand. So that's obviously had a positive impact for us. There's the risk of a bit of deleverage, of course, in that area as sales moderate or return to sort of the mean. There's Lots of opportunities though for us to improve in that space. And one small example I'll give you is the fact that we haven't yet, perhaps surprisingly turned on all of the Inventory management systems in the Dan Murphy's business that New World has built and benefited from for so many years now. We're in the process of rolling that out now. So We believe that we can improve the stock turns in Dan Murphy's not insignificantly just by activating what is now quite old technology matter of fact I could bore you with a list of 20 other things that we're doing in that space, but there's this combination of factors of The top line potentially coming off as COVID impacts moderate, but also our opportunity to refocus our efforts on improving outcomes in the retail side of things. Thanks guys. So it sounds like in terms of if we think about it just from an inventory days perspective, there might be a couple of days call it to sort of Push up to as the inventory normalizes, but there's still a lot of initiatives in place to keep that at these sort of lower levels, if you like, versus history? Yes. I mean, is it 2 steps forward, 1 step back, 1 step forward, 2 steps back. It's hard to tell, but our focus will be more on the former and trying to make it net net positive. Okay. That's awesome. Thanks very much. Thanks Ben. Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead. Hi guys. More questions on the pubs. What do you think is realistically achievable when you talk about Acquisitions of additional hotels. And should we be sort of thinking of them coming in ones or twos? Or are there any multi site opportunities available to you. Yes. Thanks, Richard. Without wanting to say, I'm glad we're actually small in the hotel space. There's over 6,000 hotels in the country. We've got 339 of them. So if you consider that relative to our retail penetration, there is lots of headroom. The point or the challenge I suppose is we were talking about before is the profile of the remaining sort of 5,500 Pubs that are out there and whether they meet our needs and also access to them from willingness to sell standpoint. We can manage through the construct of whether We're taking both leasehold and freehold or partnering with somebody to manage the freehold side of things. Executionally and operationally, We can get it done. It will come down to the access in the market and the majority of that 5,500 odd pubs is owned by private operators. And more often you find that there's a 1, 2, 3 or 4 pub sort of grouping. There's a number a very small number of larger groups and you'll know who they are. But they're not a big set and Time will tell, I suppose, the extent to which they are appropriate for us to consider or what to be considered by us for that matter, let alone what happens with the many, many other owner operators that are out there. So, I mean, obviously with the over the 5,500, There's only a subset of those that you'd ever even be interested in. You think about it that way, I mean, do you have a hit list of targeted pubs that you'd like to go after or that you think would be Yes. Potentially viable to fit your format and your mode? And if so, what's What we talk realistically, it's not going to be 5,500. Is it 1,000 pubs? Is it 500? How big is the sort of target list? I'm going to have to take the question on notice primarily because we haven't crunched it to the extent that we might like to have. What I can say though is that we're in the process of doing that. So there's a very scientific approach that we take growing our retail network and we do this in partnership with Woolworths through the network planning team. They've got very high capability with With respect to understanding where we operate today and where the white space opportunities lie. We're in the process of ingesting the hotel data into that system at the moment so that we can make similar sorts of decisions. And it's important to remember that there's that correlation between the retail outcome and the hotel outcome that we consider when we're playing forward And so the truth is, Richard, that we're going to get much better at this space and we will in due course have I guess a list of preferences, but it's certainly a number far, far less than 5,500 that's for sure. Shane, where you're going Look, once again just to highlight the earlier point, Richard, and that is there's no doubt we'll continue to look for opportunities for Officer. But the opportunity still emerges leveraging off the sort of intelligence we have around markets from the retail side that will help us Look at ways we can enhance the hotel side as well. And when you talk about 339 hotels, There's opportunities to reinvest. So instead of paying in a yield of 4%, I can tell you a better way of investing my capital and that is Other assets that we think we can get sort of mid teens sort of return. So I love to find pubs, Hotels, definitely think that's a great opportunity, but we do have some opportunities right in front of us and that's Something that just needs to be come to the fore, leveraging off the experience in the retail side. Yes, good question. Can Can I just ask one question exactly on that then because when you started the year with 3 34 pubs, You renewed 26. I mean that's roughly 13 years on average Papa, I would have thought that sounds like a big number or a long number. Do you have any targets in terms of Yes. The number of renewals or any rules of thumb you can guide us on what's appropriate for a public in terms of how frequently it does need a renewal? I'm going to let Shane answer because he's very passionate about this one, but my best attempt at the answer is we're going to be far more scientific about it. Shane, what would you add? It's probably along those lines and everyone's got a view on hotels. We've all spent a bit of time in a hotel. But look, I think we're just going to leverage off the good intelligence capability we've got on the retail side of how we evaluate these Shane is and when is it optimal to be investing in those assets. I'm not saying we're going to raise out and reinvest on the 339 hotels, but I bet you there's quite a few hotels there that we can target and get a much better return on our dollar. It's really like everything Endeavour. It's blending the capabilities of one team with the capabilities of another. And if you look What Bruce Matheson Jr. Knows about pubs, it's more than I would ever dream to know probably about retail. So if you can take that level of knowledge and combine it with the Financial discipline and acumen in the group capabilities we've got, we believe really positively that we've got a good way forward. Right. Look forward to more details as they evolve. Thank you. Thank you. We might I think we're going to run tight on time, so we might have to make this the last question. Yes. Thank you. Thank you. Your last question comes from Shaun Cousins from UBS. Please go ahead. Thanks. Good afternoon. Just a question on wine. Just are you seeing any benefit in terms of sourcing, given the China market's largely closed? And Maybe you've highlighted Pinnacle quite a bit during your presentation. Could you just highlight maybe what your private label share is right now in wine please? Thanks, Sean. Nice to hear from you. We're not going to talk to the penetration of Pinnacle or Wine or any of those sorts of because we're much more focused actually on getting awards and getting recognition for the products and even more importantly getting recognized by our customers. So we think One will follow the other and it probably ebbs and flows over time as well. So that's not one that's in the public domain at the moment. To your question on the impacts, there's a lot of light and shade in the wine trade as You know and certainly the demand that has significantly increased from the UK as an example has Added somewhat to the dynamic that was initially heavily impacted by the China trade decisions. What it's meant In reality for us, there's actually a bit of pressure in some areas in certainly our we've got a not immaterial bottling and wine services business that operates out of South Australia. And we've had to take some steps in that to keep it a viable business. So that's been pretty challenging for us in truth. But Thankfully, that exposure is diminished in the scheme of the whole group. In terms of an access, the question of access, there's certainly More access to A, B and C grade quality fruit that's coming out of the Barossa and we'll take advantage of that to the best of our capability given the brand portfolio that we've gotten. I think if you were to treat yourself to Krondorf wine, you would find that it's increasingly higher quality by nature of the access to fruit that we've got not only from our vineyards, but on the vineyards that we're able to contract at the moment in areas like the Barossa. Thanks. And just in terms of the UK, do you think that a lot of that strength has actually been driven by lockdown In terms of as you get to people out and about, you get on premise where Australian wine doesn't sort of participate to the same degree as it does maybe in grocery. Are you sort of seeing that as a potential sort of I guess factor that will reduce the degree of U. K. Demand and hence an opportunity for your business? Look, it's hard enough keeping abreast of what's going on in Australia, let alone the UK in truth. But what I think you see in the UK is this The same sort of phenomenon of a switch to at home consumption as they have and continue to emerge from COVID, I suspect you'll see a swing back in the other direction. So that might release more entry level product into the Australian market, but time will tell that's absolute A complete conjecture, I have no idea. We'll have to wait and see. In the meantime, I think it's good news for Australian wine producers. The fact that there has been Sustained and elevated demand from the UK in light of the challenges that we face with China. Fantastic. Thanks, Steve. Thank you. Okay. I think that will bring us to a close. So I very much appreciate everybody's attendance in today's session and appreciate Your questions, look forward to being able to report on the opening up of our business, in particular in New South Wales and Victoria as COVID restrictions inevitably ease in the hopefully not too distant future. But thank you for shopping in our stores. We look forward to welcoming