Endeavour Group Ltd Annual Shareholders Meeting Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Kingston - K Capital - Analyst : Well, the microphone was a bit low. Good morning, Chair of David Kingston K capital. I'd like to make a few comments as per the corporations act before asking two questions. Well, it's been a tough year. Major shareholder fight with the Chair, previous Chair, multiple board changes very well-regarded CEO stepping down and Woolworths exit. But the elephant in the room is the share price. Chair you have over four thou 400,000 shareholders. Stock is 45% down from the 2022 peak of over $8. That's a fall in market capitalization of around $7 billion. For a major company dealing in stable industries of liquor and hotels. Endeavour's performance has been concerning, 83% of group sales come from retail but retail margins, EBIT sales margins are only 6.7% compared to the much higher hotel margins of 21.2%. Therefore, in looking at the company to put it in context, the ultimate issue in any company is the profit driver. The split at EBIT level is 60% retail, 40% hotels. Before commenting on those, it's interesting to note Endeavour is a great category killer, it's got a great market share. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 11:00PM, EDV.AX - Endeavour Group Ltd Annual Shareholders Meeting But it has a declining and lower multiple than other category killers. On the ASX two leaders are bunnings and Chemist Warehouse with huge multiples. We then have Coles and Woolworths who are currently having a couple of challenges, but in terms of market rating and multiple Endeavor is lagging the others. If you look specifically Chair at a couple of specific issues, the retail division with Dan Murphy's and BWS has over 40% of the retail market well done to Woolworths Endeavor and Steve Donohue for achieving that huge share. In contrast, Coles Liquor Land is struggling. But Endeavour has just issued a downgrade in the earnings of the liquor retail business. A very big decline in EBIT operating margin from 8% in first half FY24, down around about 10% to 7% to 7.5% in first half '25, that's a big decline. That did surprise the stock market. Yes, it reflected the soft economy, ongoing decline in alcohol consumption per capita and a significant rise in cost, but it did surprise the market and disappointed it's probably a range of reasons, but I'd also mention that not quite sure about the Pinnacle Drinks brand, which releases a huge number of products. Very surprised, it actually owns boutique wineries, which is a very, very challenging business. But let me move briefly to the hotel's division. It's a great division for the largest hotel group in Australia, with over 350 hotels. It contributes 40% of EBIT profit. Hotels were trading solidly with revenue up 2.5% but costs are rising significantly. Endeavor says the pub drive is a food bar, gaming, and accommodation, but in reality, the most substantial profit driver by a wide margin is gaming. But also point out that most of the hotels are leaseholds with substantial and increasing rent obligations to pay. Before asking questions Chair, I'd just make some comments on gaming profits and increasing regulation. 40% of the hotel's revenue is derived from gaming, but the profit margin on gaming is very high. While Endeavour has avoided providing a profit split generated by gaming in its hotels. I would estimate that gaming delivers over two thirds of the hotels division's net profit. Therefore, in turn, I would estimate gaming would represent near 30% of Endeavor Group's profit. So gaming is extremely important to Endeavor. As we all know, most form of gaming in recent years have been subject to a substantial rise in regulation. Mandatory carded gaming has recently been introduced at Crown Melbourne Casino and Star Sydney Casino. Anecdotal reports indicate that pokies profits have fallen by at least 20%. As you know, carter gaming trials for pubs are presently being undertaken. So potentially mandatory carded pokies might be introduced to pubs. So while pro poky profits seem to be holding up okay, in most pubs, which is the key driver of your hotels division. There is a real regulatory risk and it seems that cap rates have increased for most gaming pubs in the sales market and gaming skewed pub values have reduced. So my first question Chair, if mandatory carded gaming is introduced in pubs, what reduction of Endeavour hotels pokies profit would you expect is a fall similar to casinos likely? Would you like me to ask a second question now or wait? Sure. No, go ahead please. Second question, pertains to rentals on largely your hotels are leaseholds, you have some freeholds. The challenge of leaseholds is that rentals keep going up now, that's fine when revenue goes up. But if the hotels hit a revenue and pre-rented profit hurdle the substantial and growing rental profits are going to be a concern. In particular Chair, the iconic pubs that you have leased from charter hall ALE subject to an uncapped market rent review in 2028. Certainly, ALE have previously indicated that a number of their hotels are materially under rented potentially to the tune of 30% and therefore lease payments on those hotels may well rise substantially in 2028. But I suppose the challenge is that for every one of your hotels that's leased. Each and every year, the rental payments go up. As I said, fine if your hotel profits going up but difficult if they plateau. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 11:00PM, EDV.AX - Endeavour Group Ltd Annual Shareholders Meeting So my second question Chair is if you could perhaps give shareholders a guide as to the expected average rental increase on the pub on the ALE pubs in 2028. And what impact would that have on Endeavor hotels profit? Thank you.

Question: David Kingston - K Capital - Analyst : Just a quick one Chair. In note 4.2 to the accounts, you've got $930 million of franking credits, which is a huge amount relative to your market cap of $7.7 billion. What is the board looking to do to pass those valuable franking credits through to shareholders? Are you looking at a special dividend because the franking credits are quarantine in the company and they're not doing the company any good, but shareholders would like to see them. Thank you.

Question: David Kingston - K Capital - Analyst : Again, just a quick one in the presentation. You have encouraged shareholders by indicating that from 2026 onwards, you are expecting to deliver a 10% total shareholder return. Given the fact that hasn't been delivered in recent years. Mr. Chair, could you please clarify your level of confidence in achieving that 10% total shareholder return from 2026 onwards, please? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 11:00PM, EDV.AX - Endeavour Group Ltd Annual Shareholders Meeting

Question: David Kingston - K Capital - Analyst : Hello. Can I just clarify Mr. Chair? Why is that target from 2026 onwards rather than 2025?

Question: David Kingston - K Capital - Analyst : Chair, I appreciate the insights of the of Peter margin as to whether the 2026 target over a cycle of 10% total shareholder return. Is that conservative, is it soft, how confident is Peter margin achieving it. I presume the ROIs of Endeavor is higher than that and it's particularly relevant share given the loss of shareholder value over recent years. Most shareholders are vitally focused on total shareholder return. It's been a challenging couple of years. Thank you for your clarification before, but I'd appreciate Peter Margin's views about whether 10% over a cycle from 2026. Is that a lowball target, is it highly conservative or do you think you can achieve a lot more Mr. Margin? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 11:00PM, EDV.AX - Endeavour Group Ltd Annual Shareholders Meeting

Question: David Kingston - K Capital - Analyst : Quick comment Chair, I'd like to support the board in its move towards financial outcomes. So I respectfully disagree with the ASA spokesperson. I think most shareholders here are most focused on total shareholder return, which is a combination of dividends and also capital gain. So I thoroughly support the move towards financial goals. Thank you.