Woolworths EGM questions in June 2021

Question 1. When the Endeavour Group demerger move was first announced in mid-2019, Woolworths CEO Brad Banducci told ABC's The Business that 7% or “a bit less than” $700 million of Endeavour Group's total revenue was from poker machines, based on 2017-18 figures. Did that figure exclude Bruce Mathieson's 25% stake and all state government poker machine taxes and what is our gross gaming revenue?

Chair Gordon Cairns: So, thank you, Stephen, for that question. I'm very comfortable with the disclosures that we've given in the demerger booklet. I'm happy to relay them to you again. For financial year '20, our revenue for the Endeavour Group was $10.6 billion, of which 88% of that revenue was retail and 12% was our hospitality business. Our earnings for financial year '20, were $693 million. Again, 77% of that was retail and 23% of that was hospitality. We think that these are the appropriate metrics for shareholders to decide on the performance of the business and I'm happy to leave it at that. We stand by our earlier claims, which accorded with the accounting standards.

Question 2. The arts industry has been smashed by COVID. Endeavour Group will be Australia's largest for profit funder of musicians in our 330 pubs. Do you know roughly how much we spend on musicians each year and can this be increased coming out of COVID to help the music industry get back on its feet?

Chair Gordon Cairns: Thank you, Stephen. That question is definitely beyond my pay grade. As an old rock ‘n' roller though, I'm - yes, there's a man here who's an old rock ‘n' roller as well I'm sure that the Endeavour Board will continue to ensure the support for the music industry in Australia so thank you, Stephen. Another question online?

Question 3. The explanatory memorandum indicates that Endeavour Group is likely to expand aggressively after the Woolworths demerger, in contrast to the hand-break on hotel acquisitions which Woolworths has applied since 2013. Could Peter Hearl and Steve Donohue comment on the prospect of Endeavour buying more pubs and expanding its pokies fleet, something that hasn't happened over the past 8 years.

Chair Gordon Cairns: So thank you, Stephen. You're wracking up a number of questions here. We maybe should have had you just as a sole questioner for today's meeting. First of all, let me correct you. We did not put a handbrake on the acquisition of pubs and poky machines in the Endeavour Group. The truth of the matter is that we had to prioritise our capital spending, which is our role as a Board and that priority started off with supermarkets who got the majority of our capital spending. Then the development of WooliesX, which got the second largest tranche. Then our stance with the hotels business was to optimise their return on capital and the way that we suggested they do that was to first of all pay down debt, which they did and secondly, within that portfolio, to sell pubs that were earning less than weighted average cost of capital. So it was a much more sophisticated process than simply apply a handbrake. In terms of the Endeavour Group going forward, that's entirely a matter for the Endeavour Board. The thing I would say is, the growth options are actually unlimited and where they decide that to be, whether it be in more Dan Murphy's or more BWS or acquisitions or whatever is entirely up to them. The bottom line is, we feel very confident that as a standalone Company, they will not be constrained by lack of growth opportunities.

Question 4. Which of the proxy advisors have put out reports ahead of today's meeting and are they all in favour? Could chair Gordon Cairns also comment on whether he personally supports the Federal Government's proposed crackdown on proxy advisers or whether he feels the current system should be retained?

Chair Gordon Cairns: : Did someone applaud there? So in answer to the second part of your question, I have stated my views privately and I would remain confident in the views that I've stated and I think it's appropriate that I state those views privately. The BCA have a position and the AICD have a position, as do the proxy advisors and I've spoken to all of them, which I think is my obligation as the Chair. In terms of the first part of your question, I'm going to have to refer - ask Kate here, but my understanding is that all the proxy advisors have voted in favour of the resolution?

Kate Eastoe: That's correct, yes.

Gordon Cairns: That's correct. Thank you for confirming that, Kate. Any more questions from Stephen?

Question 5. Brad Banducci was running the drinks business when the Dan Murphy's project in Darwin near 3 vulnerable Indigenous communities was first proposed. Why did he keep backing it for almost 5 years despite the building opposition which eventually become both unstoppable and embarrassing? What lessons have we learnt?

Chair Gordon Cairns: So let me take that question because the decision to continue with Darwin was a Board decision. So we don't sheet responsibility home to individuals and it was approved at all stages by the Board. We've acknowledged publicly in the Gilbert Report that we could have done better and that we've learned the lessons from our failings in the past and intend to put the appropriate rectification in place. I think that's the best response. Yes?

Question 6. Did Bruce Mathieson senior have veto rights over the appointment of the proposed independent directors of Endeavour Group and did he meet with all of them individually before providing his approval?

Chair Gordon Cairns: The answer to that is, no one Director has veto rights and therefore the composition of the Board was done on a consultative basis with unanimity. Yes?

Question 7. In 2019, CEO Brad Banducci told investors the Woolworths gaming unit was “about two-and-a-half times smaller than Crown and about half the size of Star”. Isn't the truth that gamblers only lost $1.412 billion on the 9,653 poker machines at the 5 casinos venues run by Crown and Star in 2018-19. What is the equivalent figure from Endeavour's 12,364 machines and do you agree that Endeavour is easily Australia's biggest poker machine operator?

Chair Gordon Cairns: So Stephen, I recall you asked this question at the AGM and I'm going to give you the same answer again, which is the treatment of gaming revenue and associated tax is in accordance with accounting standards, which require that revenue is reported net of any taxes collected on behalf of a third party. Woolworths considers this basis for disclosure appropriate and accounts were also signed off by our auditors. Another question?

Question 8. Are there any differences between the Endeavour and Woolworths constitutions, particularly on issues such as the qualification requirements for external candidates to nominate for the board.

Chair Gordon Cairns: I don't actually know the answer to the constitution question but I do know that the qualifications for candidates to both boards are that they should be outstanding non-executive directors who have the capacity to serve on the boards and the qualifications. Yes?

Question 9. The AFR reported that private equity bidders for Endeavour were spooked by the proposal to introduce cashless poker machines in NSW and a government issued card for all gamblers. How big a threat is this to Endeavour's profits and why wasn't this risk issue canvassed in the explanatory memorandum or the independent expert's report?

Chair Gordon Cairns: To the best of my knowledge, that wasn't the reason for private equity's lack of interest, so you know, as far as I'm concerned, that was not an issue. If that is an issue going forward, it will clearly be on the Endeavour Group's risk register and reported in their annual report. Yes? That wasn't the real reason for PE lack of interest. If it is an issue, it will be on the Endeavour risk register.

Question 10. The Crown Royal Commission in Victoria recently discovered that Crown Melbourne had potentially underpaid around $200 million in poker machine tax. Have we checked that we have been paying the right amount of poker machines tax on our 12,363 machines and do we deduct loyalty program costs before calculating taxable revenue as Crown Melbourne was doing? “Operations not relevant to proposed demerger”.

Chair Gordon Cairns: That's an operational question I don't think is relevant in any way, shape or form to the proposed demerger so I propose not to deal with that question here in the AGM.

Operator: Chairman, I have a question from shareholder Stephen Mayne.

Gordon Cairns: So let me just check the mood of the room here. I think I've been very generous in allowing Stephen to ask a number of questions, but it's getting to the stage where he's dominating proceedings and I'd like to get a feel from the room and for those online, are you comfortable that I cut these questions off, that with - yes. Yes. I think we've had enough questions from Stephen so in the most polite way that I can Stephen, I think I've given you absolute licence to ask as many questions as are appropriate but I think we can now give other shareholders the opportunity. Are there any questions from the floor? Are there any other questions online? There's a question from microphone two?

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There was no vote or discernible commentary on the shutdown and, of course, it was impossible to get feedback from those watching online. Indeed, the only subsequent reference was this shareholder chiding Cairns for refusing to answer the pokies revenue question in the following terms, drawing out another repeat of the misleading $700m claim when the true figure is around $1.5 billion:

Operator: I have a question from Smart Art and Design Pty Ltd. The question reads, why are you avoiding questions around pokie revenue? Wouldn't a more transparent approach eliminate the repetition of the questions and help shareholders understand how much income is impacted?

Gordon Cairns: So thank you for that question. I am not avoiding the question. The reason I didn't go into detail is because we have previously stated that gaming revenue is around about $700 million, which is less than 50% of hotels revenue, and so I didn't see the need to repeat that or go into detail as we've already got it on the public record.

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