COVENTRY GROUP LIMITED — Interim / Quarterly Report 2021

Feb 25, 2021

==> picture [72 x 129] intentionally omitted <==

==> picture [1411 x 677] intentionally omitted <==

----- Start of picture text -----

FY21 Half Year Results
New financing facility with the NAB
26 February 2021
----- End of picture text -----

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

ASX: CYG

==> picture [323 x 617] intentionally omitted <==

We value the health, safety and wellbeing of our people first and foremost.

Our aspiration is for zero incidents

==> picture [245 x 99] intentionally omitted <==

Health, Safety and Wellbeing

The health, safety and wellbeing of our people is our number one priority

• 5 Lost Time Injuries (LTI’s) for a total of 38 lost days for H1 FY21.

• Detailed root cause analysis (RCA) investigations are completed for all LTI’s and serious near misses. These are reviewed by the Coventry Leadership Team (CLT) to ensure we learn from each incident, improve our safety systems and eliminate risks

• Safety audits are now completed as part of our due diligence process when acquiring businesses.

• We continue to prioritise the health, safety and wellbeing of our people during the COVID-19 pandemic.

Commitment to improving our health, safety and wellbeing systems in FY21

• Introduced new RCA investigation tool and procedure for LTI’s and serious near misses.

• Dedicated safety managers being recruited for each business unit.

• Introducing new safety app to streamline safety audits and actions

• Improving steel and manual handling systems in the Nubco network. Improving return to work and rehabilitation procedures.

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

Trade Distribution (TD)

Comprises Konnect and Artia Australia (KAA), Konnect and Artia New Zealand (KANZ), and Nubco. Supplies a range of fastening systems, cabinet hardware systems, industrial and construction products through a network of 47 branches in Australia and 15 branches in New Zealand. Customers are in the industrial, manufacturing, construction, infrastructure, agriculture and mining sectors.

==> picture [245 x 99] intentionally omitted <==

TD

Business Overview

We supply a range of fastening systems, industrial products and hydraulics, lubrication, fire suppression and refueling systems, cabinet hardware systems and other products.

Fluid Systems (FS)

Comprises Cooper Fluid Systems (CFS, Torque Industries and HIS Hose. Designs, manufactures and sells hydraulics, lubrication, fire suppression and refuelling systems and products through 15 branches in Australia. Customers are in the mining, manufacturing, defence, recycling and agriculture sectors.

FS

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

ASX: CYG

==> picture [323 x 617] intentionally omitted <==

Corporate Snapshot

Key Market Metrics

SHARE PRICE

MARKET NET ASSETS CAPITALISATION 31 Dec 2020 $ $ 92.7M 104.7M

SHARES ON ISSUE 90.0M

25 February 2021 $1.03

We acknowledge the support of our substantial Shareholders

9.2[%]

26.5[%]

6.9[%]

9.5[%]

5.0[%]

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [51 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 15] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

Our journey to profitable sustainable growth

==> picture [1229 x 639] intentionally omitted <==

----- Start of picture text -----

FY20
Base year - FY17
Sales $247.6m
Sales $151.0m Right strategy, right people, right markets
EBITDA $6.6m
EBITDA -$9.7m
Net assets $102.1m
Net assets $61.6m
Changes in
Board and HIS Hose
Leadership acquisition
Torque Industries
Team
Dec 2020
acquisition
Capital raising NAB financing
Covid-19
Return to small
$15.0m arrangement
pandemic
AA Gaskets positive EBITDA in secured
Oct 2018
FY19
divestment
Nov 2017
Nubco
acquisition
Capital raising
$27.6m
Feb 2019
2017 2018 2019 2020 2021
----- End of picture text -----

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [51 x 13] intentionally omitted <==

==> picture [87 x 15] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

H1 FY21 Trading update

Net assets

Acquisitions

Financing arrangements

COVID-19

H1 FY21 Trading update

Trading performance continued to improve during H1 FY21.

Sales for H1 FY21 of $138.1m up +12.5% on the prior year including acquisitions and +11.9% excluding acquisitions. Includes $5.5m of the large $8.0m order previously reported.

Fluid Systems (FS) sales H1 FY21 up +21.1% on the prior year. Trade Distribution (TD) sales H1 FY21 up +7.5% on the prior year.

Group underlying EBITDA of $7.0m ($4.0m FY20), a +$3.0m improvement compared with the prior corresponding period.

The Group has a solid balance sheet with Net Assets of $104.7m as at 31 December 2020. Inventory levels have been increased to minimise the impact of global supply chain issues.

Completed the acquisition of the business and assets of H.I.S. Hose Pty. Ltd. (“H.I.S. Hose”), funded through the Company’s existing debt facility.

Entered a new financing arrangement including a $45.0m Borrowing Base facility with the National Australia Bank (NAB), subject to final documentation.

All business units are currently fully operational.

Note: Underlying EBIT, EBITDA and Net Assets exclude the impact of AASB 16 - Leases

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

H1 FY21 Financial results

==> picture [323 x 617] intentionally omitted <==

EBITDA up +74.5% on prior year

($m)	H1 FY21 inc. acquisitions	H1 FY21 exc. acquisitions	H1 FY20	% change inc. acquisitions
Revenue from sale of goods	138.1	137.3	122.7	+12.5%
EBIT	5.5	5.5	2.6	+118.9%
EBITDA	7.0	7.0	4.0	+74.5%
Net profit after tax	2.3	2.3	2.0	+18.6%
Net debt	-11.2
Net tangible assets	48.4

EBITDA $m

Sales $m

• Sales +12.5% (including acquisitions) compared to prior corresponding period (PCP)

• ➢ Sales +11.9% excluding acquisitions compared to PCP

• ➢ Sales of $138.1m (FY20: $122.7m)

• ➢ Solid +21.1% in Fluid Systems (FS) and +7.5% in Trade Distribution (TD)

• Underlying EBITDA of +$7.0m (including acquisitions) a $3.0m improvement on PCP.

• Underlying EBIT of +$5.5m (including acquisitions)

• Statutory profit after tax +$2.3m

• ➢ Net profit increase of +$0.3m on PCP

• No interim dividend declared

Note: Underlying EBIT and EBITDA exclude the impact of AASB 16 - Leases

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

H1 FY21 Financial results

FS EBITDA up +31.1% for on prior year TD EBITDA up +46.5% for on prior year

Fluid Systems

Fluid Systems

• An excellent half for the FS division with sales up +21.1% and EBITDA up +31.1% on the prior year.

($m)	H1 FY21 inc. acquisitions	H1 FY21 exc. acquisitions	H1 FY20	% change inc. acquisitions
Revenue from sale of goods	55.6	54.9	46.0	+21.1%
EBIT	6.4	6.3	4.8	+32.5%
EBITDA	6.7	6.7	5.1	+31.1%

• $5.5m of the large $8.0m order reported in the Q1 update has been delivered to date.

• The acquisition of H.I.S Hose was completed on 1 December 2020. Integration is progressing to plan.

Trade Distribution

($m)	H1 FY21 inc. acquisitions	H1 FY21 exc. acquisitions	H1 FY20	% change inc. acquisitions
Revenue from sale of goods	82.5	82.5	76.6	+7.5%
EBIT	5.3	5.3	3.6	+50.1%
EBITDA	5.7	5.7	3.9	+46.5%

Trade distribution

• TD sales H1 FY21 up +7.5% and

• EBITDA up +46.5% on the prior year.

• All business units in TD have improved contribution in H1.

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

ASX: CYG

==> picture [323 x 617] intentionally omitted <==

H1 FY21 Financial results

• The Group has a solid balance sheet.

• The Group continues to take action to manage inventory levels, debtor collections and operating costs to improve our cash position

• Net assets as at 31 December of $104.7m.

• Net tangible assets of $48.4m.

• Net debt as at 31 December of -$11.2m.

• Inventory levels have been increased to ensure high customer service levels while there are supply chain issues resulting from the COVID-19 pandemic and ahead of Chinese New Year.

• Acquisition related payments impacted cash flow by $5.5m.

• Tax losses of $74.2m available for use in Australia

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

Markets

• Industrial – performing well

• Commercial construction – performing well – expect some slow down in calendar year 2021

• Infrastructure – market is expanding and will continue to do so with significant Federal and State Government spend commitments

• • Oil and gas – expect a recovery in FY21

• Cabinet making – performing well, slow recovery in Melbourne

• • Roofing and cladding – performing well

• Agriculture and aquaculture – performing well and expected to grow

Key wins/recent developments

• Supply chain optimisation project completed

• Two new branches planned in New Zealand

• Mount Gambier branch, Mount Manganui and Auckland CBD branches expanded, Gold Coast and Burnie store makeover

• Successful commissioning of Off-Coil Bender in Nubco

Trade Distribution

COVID-19

• No Government JobKeeper support received in Australia

• Minimal impact from Melbourne lockdown and stage 3 restrictions in Auckland

• New Zealand Government lockdown resulted in lost sales of between $2.2m to $3.2m in FY20. Received wage subsidy during enforced New Zealand Government lockdown

• Supply chain disruption overseas and locally is being managed

• Internet ordering capability project has been accelerated

• Nubco is a beneficiary of growth in DIY and renovations markets

Opportunities

• Store expansion Australia and New Zealand

• Product range expansion

• Increasing size and capability of business development and sales representative field team

• Steel reinforcing and concrete formwork market growth

• Fixing underperforming branches with a combination of sales, margin and cost initiatives

• Infrastructure market and large national customers

• Digital customer enhancement – e-commerce

• • Acquisitions

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

Fluid Systems

==> picture [323 x 617] intentionally omitted <==

Markets

• Mining resources

• Iron Ore – performing very well and expected to stay solid

• Coal – some softness in thermal coal market

• Defence – major opportunity for FS

• Transport – growing sector

• Agriculture – growing sector

• Recycling – growing sector

• Infrastructure – growing sector

Key wins/recent developments

• Major refueling systems mining and resources customer order $8.0m delivered Sep 20 through to Jan 21

• Relocation and merge of Coopers and Torque operations to new custom built facility in Adelaide

• Completion of the HIS Hose acquisition 1 Dec 2020

• New branch opening in Q3 FY21.

COVID-19

• No Government JobKeeper support received

• Minimal impact from COVID-19

• Supply chain disruption overseas and locally is being managed

Opportunities

• Delivery of additional services and geographic branch expansion

• Expand hydraulic cylinder market share – investment already made into required equipment

• Expand hydraulics, fluid dispensing and refuelling systems capabilities and customers

• Increase exposure to other sectors such as agriculture, oil & gas, defence, transport, recycling and manufacturing

• Acquisitions

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

HIS Hose acquisition

==> picture [323 x 617] intentionally omitted <==

Coventry Group acquires the business and assets of HIS Hose

• Completed the acquisition of the business and assets of H.I.S. Hose Pty. Ltd. (“HIS Hose”) on 1 December 2020, funded through the company’s existing debt facility

• H.I.S. Hose Pty Ltd is a market leader in the supply of industrial hose, fittings, flexible ducting and associated equipment including pneumatic and hydraulic components in Victoria

• H.I.S. Hose operates 3 store locations across Melbourne with its Head Office and largest branch in West Sunshine and branches in Campbellfield and Dandenong. It has a diversified customer base across industrial, manufacturing, government departments, marine, waste and agriculture industries, with little exposure to mining and resources. H.I.S. Hose has a strong value proposition and loyal customer base

• In FY20, H.I.S. Hose generated sales revenue of $11.5m and adjusted EBITDA of $1.2m. The acquisition represents a multiple of 4.0x FY20 EBITDA and is projected to be EPS accretive in FY21

• This acquisition offers tangible synergies that will benefit Coventry Group’s Fluid Systems business, including procurement cost savings and knowledge transfer

• H.I.S. Hose will operate as the Victorian regional operation of Fluid Systems

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

ASX: CYG

Strategic rationale

==> picture [323 x 617] intentionally omitted <==

The HIS Hose acquisition is aligned to our Group growth strategy and acquisition strategy

Acquisition criteria	HIS Hose	Alignment with CGL Group strategy
Industrial Supply market	Excellent fit for Coventry Group and Fluid Systems segment. Provides geographical expansion (Victoria) and further diversification outside of the mining and resources sector
Turnover scale	A$11.5m turnover
Profitable business	Adjusted EBITDA $1.2m at 9.4% of sales
Disciplined approach to value	Multiple of 4.0 (EBITDA)
Management to be retained	Owners to be retained for handover General Manager contracted for three years
Clear post-acquisition integration strategy	Will operate as the Victorian region operation of Fluid Systems CGL operating system transition July 2020
Conservative funding strategy	Using existing finance facility

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

New financing arrangements

==> picture [323 x 617] intentionally omitted <==

Partnership with the National Australia Bank

• The Coventry Group has entered a new 3 year financing arrangement with the National Australia Bank (NAB), subject to final documentation. The financing agreement provides a holistic banking offering including:

• A $45m Borrowing Base Facility against eligible inventory and debtors. The facility limit is scalable for future growth. Subject to final documentation intended financial close is 31/03/21.

• A $5.0m Senior Secured Ancillary Facility to provide security for Transactional Banking, Bank Guarantees, FX, and any other transactional facilities required by the Coventry Group. The intention is for these facilities to transition to NAB over next 3 months.

• We are very pleased to be partnering with the NAB.

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

==> picture [323 x 617] intentionally omitted <==

Outlook

With a positive start in H1 FY21, the Group remains cautiously optimistic for the FY21 financial year

• The markets in which FS and TD operate are to date performing well. Whilst pleased to report positive growth in the first half, we are not providing full year guidance due to continuing COVID-19 uncertainty.

• The business has substantial operating leverage as sales grow. There are limited additional operating costs required to support sales growth – the majority of incremental gross margin will drop to the EBITDA line.

• There are significant growth opportunities across all segments of the business – market share gains, new branches, product range extension and acquisitions.

• Significant tax losses available to offset against future profits.

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

==> picture [87 x 14] intentionally omitted <==

----- Start of picture text -----

ASX: CYG
----- End of picture text -----

Disclaimer

==> picture [323 x 617] intentionally omitted <==

Reliance on third party information

The information and views expressed in this presentation were prepared by Coventry Group Ltd (the Company ) and may contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. No responsibility or liability is accepted by the Company, its officers, employees, agents or contractors for any errors, misstatements in or omissions from this presentation.

Presentation is a summary only

This presentation is information in a summary form only and does not purport to be complete. It should be read in conjunction with the Company’s 2021 half year financial report. Any information or opinions expressed in this Presentation are subject to change without notice and the Company is not under any obligation to update or keep current the information contained within this presentation.

Not investment advice

This presentation is not intended and should not be considered to be the giving of investment advice by the Company or any of its shareholders, directors, officers, agents, employees or advisers. The information provided in this presentation has been prepared without taking into account the recipient’s investment objectives, financial circumstances or particular needs. Each party to whom this presentation is made available must make its own independent assessment of the Company after making such investigations and taking such advice as may be deemed necessary.

No offer of securities

Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell Company securities in any jurisdiction.

Forward looking statements

This presentation may include forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, these statements are not guarantees or predictions of future performance, and involve both known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control. As a result, actual results or developments may differ materially from those expressed in the statements contained in this presentation. Investors are cautioned that statements contained in the presentation are not guarantees or projections of future performance and actual results or developments may differ materially from those projected in forward-looking statements.

No liability

To the maximum extent permitted by law, neither the Company nor its related bodies corporate, directors, employees or agents, nor any other person, accepts any liability, including without limitation any liability arising from fault or negligence, for any direct, indirect or consequential loss arising from the use of this presentation or its contents or otherwise arising in connection with it.

For more information, please contact:

Robert Bulluss

CEO and Managing Director Coventry Group Ltd (03) 9205 8219

Authorised for release by the Board of Directors of Coventry Group Limited.

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

ASX: CYG

==> picture [1584 x 677] intentionally omitted <==

==> picture [245 x 99] intentionally omitted <==

==> picture [34 x 44] intentionally omitted <==

==> picture [33 x 44] intentionally omitted <==

==> picture [52 x 13] intentionally omitted <==

==> picture [361 x 42] intentionally omitted <==

ASX: CYG