COVENTRY GROUP LIMITED — Management Reports 2011

May 22, 2011

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Coventry Group Ltd

ABN 37 008 670 102

“REPOSITIONING THE PORTFOLIO”

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Roger Flynn Executive Chairman

Tony Hockley Chief Financial Officer

Market Update May 2011

The Inheritance – The Journey Begins (mid 2007)

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A DIFFICULT STARTING POINT IN 2007

• Group revenues $450m

• EBIT Pre „NRIs‟ $20m

• 4 bus segments - industrial

• auto (in 4 states/territories)

• bitumen

• gaskets

BUT

• • Costly and flawed ERP (Oracle) implementation had cost $18m, was only - ≈30% complete and had harmed businesses where it had been installed - $10.4m write off in F2007 from system carrying value

• Net debt peaked at $83m June „07

• Poorly performing auto business in QLD and NT ($8.8m write off in F2007)

• Committed to move of HQ + auto WA distribution centre in late 2007  major business disruption and cost

• Senior executive team needed to be addressed

• A number of businesses not strategically well positioned

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Actions Taken (Prior to current transactions)

EARLY CHANGES WERE MADE TO THE BUSINESS PORTFOLIO

• Exit Bitumen Products (at premium to NTA)

• acquirer (Downer EDI) much better positioned to develop

• required capex was significant if stayed in

• Exit Auto QLD (at premium to NTA)

• acquirer (Bursons) much better positioned to develop (Melbourne DC could supply)

• release funds for debt reduction

• Exit Auto NT (at premium to NTA)

• business more retail orientated to that of acquirer (Repco)

• release funds for debt reduction

• Close marginal branches for fastening products

• Minor investment in Cooper Fluid Systems business notably entry into South Australia and branch extension in QLD

• Open branches in strategic growth areas, including auto

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ADDRESSED THE BALANCE SHEET & ELIMINATED DEBT

Net debt reduced from peak of $83m to $6m by:

• Halting dividends (recommenced September 09 and maintained since)

• Minimising CAPEX

• Sale of businesses without potential

• Sale of freehold properties / motor vehicle fleet

Net Debt

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• Working capital reduction

Debt : Equity % June ‟07 45% Dec ‟10 2% Now Cash Surplus

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OPERATIONAL ISSUES HAVE BEEN ADDRESSED

• Change in senior executive team – CEO, CFO, CIO and GMs auto and gaskets but also next level of management

• Driving the ERP implementation

• completed in June 2009

• total cost $25m

• now very stable and strong support to businesses

• Move group headquarters and auto business base (including DC) not without pain but now operating very efficiently and effectively

• Significantly improve productivity and customer service levels

• Significantly improve safety performance

• Relocate Artia distribution to modern facility in Melbourne

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SNAKES AND LADDERS ALONG THE WAY

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The “Speed Bumps”

• GFC impacted some businesses severely especially industrial fasteners and the legacy remains still (depressed construction, off-shore fabrication, etc)

• The move of the auto WA business (including DC) was highly disruptive

• The New Zealand economy has performed much worse than had been anticipated

The “Wins”

• Resource activity has been very strong and supportive to particularly Cooper Fluid Systems

• Gaskets has been in a very favourable market position

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Exiting Auto Businesses in WA/SA

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THE DECISION TO EXIT AUTO WA/SA STEMMED FROM A RATIONAL ASSESSMENT OF THE CHANGED INDUSTRY STRUCTURE & OUTLOOK

• Tough decision as auto was foundation of Coventry Group

• Business had been profitable in 20th century

• However in 21st century the market for after market parts had become difficult

• proliferation of makes/models

• decline in traditional Ford and Holden dependency

• greater reliability of motor vehicles

• increased demand for customer service keeping pressure on margins

• Assessment was that market for after market parts was in slow decline with continuing pressure on margins with current operators on 5% EBIT/sales

• Market required greater consolidation. “Get bigger or get out.”

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The Factors in the Decision to Exit

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BURSON & AHG CAN ACHIEVE MAJOR SYNERGIES

NOT AVAILABLE TO CYG & THUS VALUE PAY ABOVE THE CONTINUING VALUE TO CYG SHAREHOLDERS

• Both auto businesses in Western Australia and South Australia had returned to low levels of profitability

• The opportunity arose to:

• Exit South Australian business to Bursons at a premium to NTA. Bursons will operate more efficiently via their Melbourne based DC.

• Exit Western Australian business to AHG at a premium to NTA. AHG will consolidate their strong position in car retail and after market supply to market.

• Both acquirers will employ the majority of Coventry staff and take over all relevant property and operating leases

• The effective enterprise value paid is a double digit multiple of current EBIT

• The real estate associated with these businesses will be available for sale

• AHG will utilise the IT and DC services of Coventry for a 12 month period (recovering fixed costs)

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Financial Implications

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IF SALE TO AHG COMPLETES ON SCHEDULE MOST OF $70M INFLOW EXPECTED JULY – DEC 2011

• Key mile stones are:

• early May completion of sale of South Australian business

• early July completion of sale of Western Australian business targeted

• July onwards active marketing of real estate

• Coventry will collect receivables and pay payables in the 2/3 months following completion

• If all property is sold at expected values, the total cash income from these transactions should be ≈$70m generated in the period MayDecember 2011 predominately.

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The Continuing Businesses

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COVENTRY FASTENERS & HPF ARE STRONG LEADING PLAYERS WELL POSITIONED FOR CYCLICAL RECOVERY

• Geographic Markets : All states of Australia (QLD/WA largest), New Zealand

• Divisional Office

• : Perth, (56 branches)

• Dimensions

• : Sales $130m

Employees 500

EBIT: sales 2% currently but has historically been 9% Cap Empl $40m

• Key Markets

• : Infrastructure, construction (non-residential), fabrication

• Key Competitors

• : Blackwoods and many independents and multi-nationals

• Market Position

• : Strongest player in specialised fastening products

• Key Economic Drivers

• : Non-residential construction, infrastructure spend (public & private), general manufacturing activity

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The Continuing Businesses (Cont’d)

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COOPER FLUID SYSTEMS IS WELL LED & WELL PLACED TO CONTINUE GROWING

• Geographic Markets : WA, QLD, SA and small amount of export

• • Divisional Office : Brisbane, (7 branches)

• Dimensions

: Sales $60m

Employees 120

EBIT strong %

Cap Empl $16m

• Key Markets

• : Hydraulic hose/fittings to resource industry equipment

• Key Competitors / : Many – fragmented market Market Position

• Key Economic : Resource related activity Drivers

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The Continuing Businesses (Cont’d)

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ARTIA (CABINET FURNITURE AND HARDWARE) HAS A SMALL MARKET SHARE WITH GROWTH POTENTIAL

• Geographic Markets : All states of Australia and New Zealand

• Divisional Office : Melbourne, (8 branches)

• Dimensions

: Sales $30m

Employees 95

EBIT is currently breakeven

Cap Empl $14m

• Key Markets

• : Kitchen renovation, office furnishings, hospitality furnishing

• Key Competitors / : Many – fragmented market Market Position

• Key Economic Drivers

• : General level of domestic activity

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The Continuing Businesses (Cont’d)

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GASKETS IS THE MARKET LEADER & PERFORMING WELL

• Geographic Markets : Australia and New Zealand

• Divisional Office

: Melbourne, (2 branches)

• Dimensions

: Sales $12m

Employees 60

EBIT strong (≈20%)

Cap Empl $12m

• Key Markets

• : Auto repairers, performance vehicles (after market not OEM)

• Key Competitors / Market Position

• Key Economic Drivers

• : Market leader

Key competitor is ACL Gaskets (in administration) : Level of vehicle repairs, sensitive to fuel price and price of new motor vehicles

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Stocktake of Coventrys Key Strengths

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SKILLS WE WILL LOOK TO LEVERAGE

• Good understanding of Australian and New Zealand industrial “landscape”

• Good manager of complex transaction driven businesses ie. large numbers of:

• employees

• customers

• suppliers

• SKU‟s

• locations/distribution points/activities

• Good manager/developer of brands

• Strong logistics and IT capability

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Repositioning the Portfolio

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Coventry Group Going Forward

Post the auto transactions the Coventry Group will have the resources to:

• undertake capital management initiatives – the Group has $19m in franking credits ie. enough to fully frank $44m of dividends

• invest in selected areas of current business portfolio to expedite growth

• invest in areas that have strong synergy with the current business portfolio

• invest in new business areas where these call for strengths that the Group possesses

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Repositioning the Portfolio

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Coventry Group Going Forward (Cont)

Seeking investment opportunities for some time but hindered by:

• the paucity of opportunity

• unrealistic price expectations

• the lack of ready capital funds to invest

• senior management pre-occupation with transactions now announced

NOW

• cash generated from the auto transactions removes one of these restrictions

• appointed a highly experienced external advisor to focus on this area

• leadership attention on growth

However all investments will be carefully assessed and responsibly executed to ensure the shareholder value is maintained and enhanced.

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