Endeavour Group Limited

Thank you for standing by and welcome to the Endeavour Group Limited FY26 Results Management Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Jane Hertlicker, CEO. Please go ahead.

Good morning, everyone. Thanks for joining us today for Endeavour Group's four-year 26 results presentation. I'm Jane Hrdlicka, Chief Executive Officer of Endeavour Group, and I'm joined today by our Chief Financial Officer, Kate Beattie. I'd like to begin by acknowledging the Gadigal people as the traditional custodians of the land we're presenting from today, and pay my respects to their elders past, present and emerging. I'll begin the discussion on slide four, and speak briefly to the group's F26 highlights. As you know, F26 was a year of multiple parts. The first quarter of the year, we began pulling together the facts, looking through the lens of our numbers, the customer, the competitor, and our people to enable our strategy refresh while trading continued business as usual. The second quarter of the financial year, The two foundations of our strategy became clear, and the team started executing on value in Dan Murphy's immediately. The second half of the year, we continued to improve our focus on retail, not just on competing sharply on price, but on the detailed planning of a long list of initiatives which will continue to improve revenue growth as well as improve the bottom line. During the second half, we also began laying the foundations for major improvements to our hotel's business. There is no doubt that sales momentum is building in retail following our renewed focus on value and price leadership. Since the introduction of lower shelf prices late September 2025 and the increased competitive response to promotional activity that followed later in the first half, our retail business is consistently gaining share. The team has now delivered 10 consecutive months of sales growth. In hotels, we have a clear plan in place to deliver significant performance improvement across each of our pubs. At the core of this is simplifying the way we operate our pubs and enabling our teams serving customers to stay focused on delivering amazing hospitality and delivering profitable growth across each of our pubs. We've also reaffirmed our 300 million cost out target by F29. including 100 million in F27. While there is significant work to do to reset our foundation for high performance, we have talented people across our retail and hotels teams who care deeply about our customers and brands and are hungry to help. We've also strengthened our leadership team, bringing fresh perspectives and extensive experience from top-tier consumer brands. Together, we're building a more focused organization with the clarity and discipline to deliver against our potential. We now move to slide five. Our F26 results are clearly a reflection of the year of multiple parts. The investment in price is evident not only in the green shoots demonstrated by the above market retail revenue growth, but also in the gross margin impact. Group underlying earnings reflected our decision to invest in lower shelf prices for our customers and compete in the elevated promotional environment currently at planned retail. Our earnings were also impacted by higher cost of doing business as a result of inflation. This was partially offset by $40 million in cost reduction delivered in F26. As outlined in our ASX announcement on 5 August, the group incurred a pre-tax net expense of $372 million relating to significant items. Kate will provide details on these later in the presentation. During the year, the group announced the decision to revise our dividend payout policy to between 50% and 75% of underlying net profit after tax. In line with this policy, the board has declared a fully franked final dividend of 1.2 cents per chair, which represents a full year dividend payout ratio of 59%. Slide six provides a snapshot of our retail and our hotels business. Firstly, in retail, sales increased by 0.7% to $10 billion, with sales momentum steadily improving during the year. Excluding specialty businesses, Dan Murphy's and BWS delivered combined sales growth of 1%, increasing from 0.7% in half one to 1.4% in half two, with growth accelerating during the second half from 0.8% in Q3 to 2.2% in Q4. In hotels, sales growth grew by 4.2% to $2.2 billion for a full year. with hotels delivering sales growth of 4.4% in half one and 3.9% in half two. Growth in Q3 moderated to 3.7% as growing cost of living pressures impacted consumer spending. However, growth did recover in Q4 to 4.2% or 3.9% adjusting for the impact of the FIFA World Cup. If we turn now to slide eight, at our Investor Day in May, we outlined a clear strategy to strengthen the business and position Endeavor towards next phase of growth. Our strategy is anchored in deep customer insights and is built around three priorities. First, to strengthen our retail business by focusing on the requirements of each brand to best serve its core customers. For Dan Murphy's, this means price and range leadership, competitive and effective promotional activity, and adjusting our costs to best align to the customer needs in each of our stores. For BWS, we're also making progress better delivering our convenient shopping experience with a twist and always with nice value. we're also resetting our focus on excellence in retail fundamentals across both of our brands and will deliver significant value as we execute these planned initiatives. Second, we're unlocking the full potential of our hotels business by simplifying the operating model and increasing investment to fix the basics, improve performance, and enhance guest experience. After years of underinvestment, we are focused on executing the transformation of our hotels business while also tactically working to better compete every day for trading growth across food, beverage, accommodation, and gaming. Third, we're simplifying the way we work. By reducing complexity, releasing prep value in our asset base, Better leveraging data and technology across our portfolio and finding ways to take more costs out of our business, we will create greater capacity to invest where it delivers the strongest long-term shareholder returns. These priorities have already led to important decisions, including resetting the top team, a $300 million cost reduction program, restructuring our head office functions, including merchandising, the repositioning of our retail brands, increased focus and accelerated transformation and investment in hotels, optimization of the Pinnacle Drinks portfolio, and a revised dividend policy. Together, these initiatives provide a clear roadmap to build a stronger, simpler, and more competitive endeavor. If we move down to slide nine, I won't take you through all the details highlighted here, but the intent is to demonstrate the progress made to date against our strategy. We have transitioned from strategy reset, and our focus now is on execution. delivering against our priorities, investing with discipline, and continuing to simplify business. We are in it to win it, and we're out of the gates and into execution of a very comprehensive plan. Moving to slide 10, as a group, we are focused on multiple levers to improve the value of our business. We talk a lot about the customer and our very disciplined approach to delivering for them in a way that is differentiated, This will unlock revenue growth, but we also need to simplify the way we do things and improve our productivity across the business in the process. Getting rid of complexity unlocks trapped costs and enables us to operate with better experiences for our people and our customers every day. The cost reduction opportunity is significant, and we've identified $300 million in cost savings through to the end of F29, including $100 million in F27. 70% of the initiatives in F27 to deliver the cost-out target of $100 million have already been executed, with roughly $85 million of the total cost savings expected to come from retail and $15 million from hotels. Moving to slide 11, F27 will be a year of investment to support execution of our strategic roadmap. As foreshadowed at our Investor Strategy Day, we are targeting capex spend this year of between $550 million and $650 million. The increase in capital spend is material, but necessary to address both the earnings impact of historic underinvestment in the business, as well as to unlock future growth opportunities. we recently undertook a venue-by-venue network review of our hotel's portfolio. This identified remediation work needed across the network to both reduce costs and improve the revenue generation focus in each of our hotels. We estimate this will involve a total spend of up to $120 million over the next three years, with the majority of the building works required relating to roof repairs and replacement and related works. In the near term, this remediation span represents increased stay-in-business capital in our hotels, but it will reduce both capex and opex required for future R&M and improve the training environment for our guests and team members. Turning to slide 12, in F27, the group will increase growth capex by up to $60 million to begin executing a number of transformative initiatives. The incremental growth CapEx reflects additional investment in a number of areas critical to the performance of our business. This includes accelerated hotel renewals, our Simpler for Pubs program, digital data and e-commerce, retail media, and customer experience. All investments are made in accordance with our capital allocation framework, which targets returns in excess of a risk-adjusted RAC. As you would expect with the scale of transformation underway, there will also be an increase in OPEX of $40 to $60 million in F27, which includes additional investments in people and tools to execute our transformation program. The majority of this spend is for the life of the execution phase of F27 initiatives. F27 should be the highest year of initiative investments. All OpEx and CapEx investments are substantiated by business cases with timeframes for both payback and returns. Turning to slide 13. At our investor day in May, we outlined that over the course of the next three years, we intend to step up the level of renewals, repositioning, and light touch investments to improve the overall performance of our hotels portfolio. In F27, we expect to invest between 130 and 160 million to renew up to 75 venues, which is approximately double the number of venues we upgraded in F26. Moving to slide 14 and 1, Endeavor, which is the program established to separate our systems from Woolworths and simplify our technology landscape. Last year, the decision was made to accelerate the standalone ERP system implementation and defer the store system separation to start after the ERP program. I'm pleased to report that the ERP system build phase remains on track to complete in half one of F28. In F26, total expenditure of $70 million was below the previous guidance range of between $90 and $110 million. the lower expenditure reflects the mindful cost and value lens we are applying to these important separation projects. In F27, planned total expenditure is estimated to be between 125 and 145 million, reflecting delivery of ERP build combined with the retransment of the design phase of the storage transition. Now turning to slide 16. In DANS, we have returned our focus to delivering unbeatable value for our customers. This has clearly resonated delivering both sales growth and market share grains. In F26, highlights include market leading purchase intent and record value for money customer engagement scores. This in turn supported improved sales growth over the course of the year. We turn to slide 17. AWS is undisputed as Australia's most convenient drinks retailer with more than 1,450 stores nationwide and even more pathways to purchase through delivery partners and increasing the more locations. During the year, we continued to deepen our customer engagement with record online voice of customer scores, which helped us to achieve our record online sales of over 10% year on year. Supported by our in-app promotional offering, AppyDeals, the BWS app now has more than 730,000 monthly active users, which is up 15% versus last year, with over half of these being millennials and Gen Z. Turning to slide 18, these charts demonstrate how customer perception over market-leading value propositions are growing. During F26, Dan Murphy's and BWS both achieved record scores when customers were asked to what extent we satisfied or dissatisfied with value for money. This provides further evidence that customers are recognizing the value we are providing at a crucial time for the community, which is contributing to increased engagement with our brands. Slide 19 demonstrates that our improved customer value scores are translating into sales growth. We've delivered steady improvement in our quarterly sales growth, and that sales momentum continued to build in the first seven weeks of the new financial year. Turning to slide 20, in hotels, we achieved record trading results around key social occasions, including Christmas, Easter, and Anzac Day. Sales growth in food and bars benefited from renewal activity as well as improved ranging in menus. Gaming remained resilient, delivering mid-single-digit sales growth, supported by targeted investments in gaming room refurbishments and upgraded EGMs, with roughly 2,000 new cabinets installed across the fleet. Our PubPlus loyalty program now has over 750,000 active users, accounting for 32% of our F&B transactions. And our guest experience continues to strengthen, with our voice customer score achieving 9.1 out of 10. Turning to slide 21 and the last slide before I hand over to Kate, we completed 38 hotel renewals during the year, up from 27 in F25, and have been pleased with the strong performance uplift they are delivering. Our F24 cohort of renewed venues continues to deliver collectively over 20% ROI in the second year post-renewal. This is ahead of our 15% target. It is this track record that gives us the confidence that the capital we are allocating to accelerated hotel renewals is money well spent. I encourage you to get out and visit some of our newly renovated hotels. The Springwood Hotel in Brisbane or the Ranch in Sydney are two great places to start. I'll now hand over to Kate to take you through our financial results for the full year in more detail.

Thank you, Jane. I will start on slide 23. As you can see here our group sales were up 1.3% year on year following a first half sales increase of 0.9% as James highlighted sales growth in the second half was 1.7% and that reflects improved momentum in retail partially offset by softer hotels growth half on half. The underlying group EBIT which includes $40 million of one endeavour program costs in retail declined 8.7% with EBIT growth in hotels more than offset by a decline in retail. finance costs of $301 million were in line with prior year. Underlying profit before income tax of $544 million declined 13.1% versus F25 as a result of the lower retail earnings performance. As we previously flagged in our trading update on the 5th of August, F26 statutory earnings include the impact of $311 million of significant items post-tax or $372 million pre-tax. The significant items were predominantly non-cash in nature and relate to the write-down of carrying values for assets as well as cash costs associated with the implementation of the group's strategy review and associated restructuring. More detail on this is provided in the appendix to this presentation on slide 43. Moving to slide 24, the group generated $933 million of underlying operating cash flows and an underlying cash realisation ratio of 93%. The reduction in operating cash flow compared to prior year of $217 million is primarily due to lower earnings and changes in trade working capital. The trade working capital movement reflects our investment in higher inventory of fast moving products to mitigate fuel related supply chain risks. At year end this was $260 million higher year on year. This increase was partially offset by lower pinnacle inventory and favourable cash flow from trade payables optimisation. Underlying free cash flow was negative $182 million, lower than prior year, reflecting the reduction in operating cash flow I've just discussed, and an increase in payments associated with higher capital investment including in new stores, hotel renewals and gaming machines. Turning to slide 25, you can see that net debt has increased by $198 million due to the combined impact of accelerated investments in store and vendor renewals, lower earnings and higher inventory. Our underlying leverage ratio on a pre-AASB16 lease accounting basis was 1.9 times, within our target level of less than two times. At balance date, the group had $990 million in undrawn debt facilities with a weighted average facility maturity of four years, giving us ample funding headroom. In F27, full-year finance costs, including lease and debt interest expense, are expected to be between $330 and $340 million based on current interest rates, as of today, an increase on F26 driven by increased average net debt and increased average interest rate. Turning to slide 26, you can see gross capital expenditure increased in the year by $54 million. The increase compared to last year largely reflects network expansion in retail and our accelerated renewal program in hotels. In retail, we added 13 net new stores, being six new Dan Murphy's and seven new BWS stores. In hotels we completed 38 hotel renewals including 25 whole of venue repositioning projects. Net capital expenditure increased by $68 million after including $36 million in proceeds realised from asset sales. For F27 we are forecasting to spend $550 million to $650 million of capital including, as Jane has referenced, up to $60 million of incremental growth investment across a number of transformation initiatives. as well as a $25 to $50 million step up in hotel stay and business capex. It also includes a projected $45 to $60 million increase in One Endeavour technology transition capital as we reach the final stages of the ERP program. Turning to our segment results in a little more detail, starting with retail on slide 28. In the retail segment, sales increased by 0.7% to $10 billion. Gross profit margin declined by 86 basis points to 23.6%, reflecting investment in lower shelf prices and elevated levels of competitive promotional activity market-wide. Underlying cost of doing business increased by 1.6% or 2.8% excluding One Endeavour costs with inflationary headwinds including a 4% award wage mitigated by savings from cost reduction initiatives and lower One Endeavour technology program costs year-on-year. The lower GP margin combined with the net impact of elevated inflation on cost led to an underlying EBIT of $464 million, a decline of 17.6% compared to last year. The bridge chart on the bottom left of this slide shows an indicative sizing of these respective performance drivers. I'll turn now to the hotels' performance on slide 30. The hotels' business delivered overall sales growth of 4.2% compared to last year. Food and bath sales grew by 2.6% and 5% respectively. benefiting from renewal activity, optimised ranging and menus, and record trading around key event periods. Gaming growth of 4.4% benefited from accelerated investment in new gaming machines with approximately 2,000 new machines installed. Accommodation delivered strong growth at 9.3% with higher occupancy and increased daily rates, which was supported by renewals as well as a higher room count. Gross profit margin expanded by 7 basis points to 84.9% driven by a favourable sales mix with improved gaming performance. Underlying cost of doing business grew by 4.4% or 5.8% excluding one endeavour cost. Similar to retail, the 4% award wage increase was a headwind. The result also reflects high depreciation and amortisation associated with the accelerated EGM and renewal programs and higher site costs including rates, repairs and security as well as investments in guest experience, such as promotion stands and apps. Underlying EBIT grew by 4.1% to $462 million, with underlying EBIT margin materially in line with prior year at 21%. Again, the chart on the bottom left provides further indicative sizing of the EBIT drivers. I'll now hand back to Jane to take you through the outlook.