Coventry Group LTD
Annual Report 2022

Plain-text annual report

Results for announcement to the market Full Year Ended 30 June 2022 Revenue Earnings before interest, taxes, depreciation and amortisation from continuing operations Profit before tax Up Up Up ABN 37 008 670 102 11.7% to $'000 322,324 16.1% to 15,505 93.0% to 7,342 Profit after tax attributable to members Down 33.2% to 4,841 Dividends (distributions) Amount per security Franked amount per security Final dividend 3.5 cents 3.5 cents Record date for determining entitlements to the 30 September 2022 Date the dividends are payable 14 October 2022 Dividend reinvestment plan (DRP) The Company’s Dividend Reinvestment Plan enables eligible shareholders to reinvest their dividend in additional shares in the Company. Net Tangible Assets Per Security As at 30 June 2022 As at 30 June 2021 0.40 0.41 The financial statements have been audited and an unmodified opinion has been issued. Coventry Group Limited advises that its Annual General Meeting will be held on Friday 21 October 2022. The time and other details relating to the meeting will be advised in the Notice of Meeting to be sent to all Shareholders and released to the ASX after dispatch. In accordance with ASX Listing Rules, valid nominations for the position of Director are required to be lodged at the registered office of the Company by 5.00pm (AEST) 2 September 2022. ANNUAL REPORT 2022 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 VALUES AT COVENTRY GROUP, WE VALUE FAIRNESS, INTEGRITY, RESPECT, SAFETY AND TEAMWORK ABOVE ALL, WE VALUE OUR PEOPLE, OUR CUSTOMERS AND OUR SUPPLIERS 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 CONTENTS Chairman's Report Chief Executive Officer's Report Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements: 1. Significant accounting policies 2. Segment information 3. Business Combinations 4. Auditor's remuneration 5. Employment costs 6. Finance income and finance expenses 7. Taxes 8. Earnings per share 9. Cash and cash equivalents 10. Trade and other receivables 11. Inventories 12. Parent entity disclosures 13. Property, plant and equipment 14. Right-of-use assets 15. Intangible assets 16. Impairment of non-financial assets 17. Trade and other payables 18. Interest-bearing loans and borrowings 19. Provisions 20. Share-based payments 21. Capital and reserves 22. Financial risk management 23. Leases 24. Controlled entities 25. Reconciliation of cash flows from operating activities 26. Related parties 27. Significant items 28. Events occurring after the reporting period Directors' Report Directors' Declaration Lead Auditor's Independence Declaration under S307C of the Corporations Act 2001 Independent Auditor's Report Shareholder Information Corporate Directory 4 6 12 13 14 16 18 19 19 26 31 33 33 33 34 35 37 37 37 38 39 40 41 41 43 43 44 44 45 46 51 52 53 53 54 54 56 75 76 77 81 84 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 CHAIRMAN’S REPORT FY22 RESULTS Coventry achieved solid growth in 2022 with pleasing contributions from all our businesses across Australia and New Zealand. Despite continuing COVID-19 disruptions and worsening macroeconomic conditions, the markets in which we operate remained buoyant throughout the period. Sales revenue was up 11.7% to 322.3m, while earnings before interest and tax improved 17.0% to $12.4m. Our vision at Coventry is to be a leading industrial supply and services group in Australia and New Zealand and strong progress was made with our growth strategy in 2022. This strategy is underpinned by our value proposition of quality products, stock availability, expertise, agility and geographic coverage. Aligned with this strategy, two acquisitions were successfully completed during the period and two greenfield branches were added to the Company’s network. In addition, nine branch refurbishments/relocations were completed as part of planned upgrades over the medium term in order to better service our customers’ needs. These strategic initiatives were funded from the Company’s existing debt facility and improving cash flow. In each of our segments, opportunities for organic, greenfield and acquisition growth exist. The Board and management assess each opportunity through the lens of refined growth criteria and judicious capital management. The Group continues to have a strong working capital position with Current Assets exceeding Current Liabilities by $27.7m. The Group has substantial Australian tax losses of $76.7m against which a Deferred Tax Asset of $14.3m has been recognised in its Statement of Financial Position. 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 DIVIDENDS PEOPLE The Board has declared a final dividend of 3.5 cents per share, fully franked. The Company’s Dividend Reinvestment Plan remains active, enabling eligible shareholders to reinvest their dividend in additional shares in the Company. EXECUTIVE REMUNERATION The Company Executive and Director Incentive Plan provides for the granting or issuing of Performance Rights to eligible Executives in accordance with its terms and subject to the terms and performance hurdles set by the Board. The CEO and Managing Director’s total remuneration includes a Plan award and, as required by the ASX Listing Rules, the Company will seek shareholder approval to grant him Performance Rights for his participation in the Plan for 2023. Full particulars will be published in the Notice of Annual General Meeting for the meeting to be held on 21 October 2022. I would like to thank my Board colleagues for their continuing contribution and guidance in 2022. On behalf of the Board, I would like to thank our colleagues throughout the business who have been resilient and adaptable through another demanding period and remained committed to the Company’s values in supporting our customers and each other. The solid financial result achieved for the period is a testament to the strong commitment of all the people at Coventry. To our shareholders, my continuing thanks for your ongoing support. OUTLOOK We are cautiously optimistic that the momentum the Group currently has will largely continue. However, given market uncertainty we will not be providing full year guidance but will continue to provide quarterly trading updates to the market. Neil G. Cathie Chairman of the Board of Directors C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 CHIEF EXECUTIVE OFFICER’S REPORT FY22 was another year of significant disruption in a difficult macroenvironment. Our teams have overcome many obstacles to produce another positive result and my thanks go to every person in the Group for their effort, expertise and professionalism. We are pleased to report that the Coventry Group’s Sales and EBITDA improved for a fifth consecutive year. The strong results were achieved against a backdrop of a second New Zealand Government enforced lockdown (loss of $3.0m sales and $750k EBITDA), construction shutdowns in Australia, on-going global supply chain issues, stock shortages, unprecedented price inflation, rising fuel and freight costs, cost and wage inflation and labour and skills shortages. Some of these challenges are expected to remain in FY23, along with the impact of rising interest rates. We are confident that we have the right strategy, the right people, and operate in the right markets to continue our journey of sustainable profitable growth. Our consistent delivery of sales growth and improved profit results are proof that our strong value proposition and commitment to our core values deliver results. HEALTH, SAFETY AND WELLBEING Our Safety-First program continued in FY22. The Group prioritises the Health, Safety and Wellbeing of our people along with our customers, suppliers and communities. We aspire to zero LTI’s and zero impact on our people. During FY22 we had four Lost Time Injuries (LTI’s) down from seven the previous year and 13 in FY20. All incidents and serious near misses are reviewed by our safety team and the Coventry Leadership Team (CLT) to ensure we share lessons and improve safety systems. During FY22 we commenced the phased rollout across the business of the safety management platform Donesafe, giving our people the ability to easily complete checklists and inspections, report hazards and submit COVID testing and isolation information. Hazard identification and resolution increased dramatically following the introduction of the Hazard Identification module in Donesafe. PEOPLE We continue to live our values of Fairness, Integrity, Respect, Safety and Teamwork (FIRST), doing the right thing in all our interactions with our people, customers, suppliers and communities. The recruitment market has become extremely competitive yet our reputation for having a values- based culture is delivering positive employee attraction and retention outcomes for the Group. During the year: • We conducted an Employee Engagement Survey and identified four key areas of improvement which are currently being actioned; • We undertook Diversity and Cultural Awareness training; • Our HR Team implemented our new Recognition Program; • We celebrated International Women’s Day with a series of forums and guest speakers on ‘Breaking the Bias’ topics. Two of our leading women also shared their career journeys; and • We upgraded our Employee Assistance Program in Australia ensuring quality services are available to assist our people and their immediate families in the areas of mental health and wellbeing. ENVIRONMENT, SOCIAL AND GOVERNANCE From an environmental perspective, we are in the process of establishing our carbon footprint for our scope 1 and scope 2 emissions and have commenced implementing reduction strategies to reduce our impact on the environment. As part of World Environment Day we conducted site eco- audits on water and energy usage and we are currently applying knowledge obtained across the business. We are also developing waste and recycling system upgrades for our major sites, starting at our Group Head Office in Thomastown. From a social perspective, we supported our people and communities including: • During the New Zealand Government enforced lockdown we retained all employees and paid them in full; • Supporting our employees who needed to isolate due to contracting COVID-19 or being close contacts; • Rebuilding our Lismore branch which was destroyed during the NSW February floods while keeping all employees employed and paid during the process and assisting employees personally impacted; • Our Matched Giving and Workplace Giving programs saw us support charity organisations across Australia and New Zealand. This includes, Australia’s Biggest Morning Tea and the Pink Ribbon Breakfast in New Zealand, both raising funds to support cancer research and the Movember foundation which makes a difference in mental health, suicide prevention and men’s health. 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 From a governance perspective we continued to conduct internal risk reviews to ensure the continuity of our business and published the Group’s second Modern Slavery Statement. As part of this, we updated our Code of Conduct, conducted supplier audits on our top 10 local suppliers and updated our Terms and Conditions to ensure our people, customers and suppliers, are all working towards the same common goal of eradicating modern slavery. BUSINESS PERFORMANCE Trading performance improved during FY22 with the Group delivering both sales and profit growth. The Group achieved sales growth for FY22 of 11.7% to $322.3m ($288.5m FY21) and a 16.1% increase in EBITDA to $15.5m ($13.4m FY21) despite the loss of $750k EBITDA due to the NZ Government enforced lockdown across August and September 2021 and other global and COVID-19 related disruption. Group EBIT for FY22 was $12.4m ($10.6m FY21) and net profit for the year was $4.8m ($7.2m FY21). The Group has a solid balance sheet with Net Assets of $113.6m and Net Tangible Assets of $36.1m as at 30 June 2022. At 30 June 2022 the Group had net debt of $33.1m. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 7 Chief Executive Officer’s Report (continued) BUSINESS PERFORMANCE .FY22 GROUP SALES GROWTH FY22 GROUP SALES FY21 GROUP SALES 11.7% $322.3m $288.5m 322.3 TRADING PERFORMANCE IMPROVED DURING FY22 WITH THE GROUP DELIVERING BOTH SALES AND PROFIT GROWTH. net debt $33.1m net tangible assets net assets $36.1m $113.6m 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Chief Executive Officer’s Report (continued) FLUID SYSTEMS (FS) FS comprises our Cooper Fluid Systems (CFS), Torque Industries (Torque), HIS Hose (HIS) and Fluid Power Services (FPS) businesses. FS designs, manufactures, sells and services hydraulics, lubrication, fire suppression and refuelling systems and products through 15 branches across Australia. In FY22, FS had positive sales growth of 9.0% but EBITDA declined mainly due to a one-off large order of $7.9m delivered and charged in FY21 and not repeated in FY22. FS EBITDA in FY22 of $12.9m compared to $13.8m in FY21. FS was particularly impacted by labour and skills shortages requiring it to incur above normal overtime and hire labour to deliver on our customer’s needs. We expanded our Redcliffe operation to an additional site and closed our unprofitable Mt Isa branch during the year. Both HIS and FPS performed to expectations and integrations have progressed to plan. Our FS General Manager, Bruce Carter, retires at the end of September after 40 plus years of service to the Group. I would like to acknowledge Bruce’s considerable contribution to the success of the Coventry Group. Pleasingly, Brody Sewell, who has worked for FS for the past 15 years, has been promoted to the role of FS General Manager and has completed a managed handover from Bruce. FS is positioned for further growth in the coming years as we expect their core markets of mining and resources, defence and agriculture to perform well. We can increase market share through our value proposition, expansion of our product and service offering, expanding our hydraulics capabilities and further diversification into sectors outside of the mining and resources sector. FS has demonstrated through various cycles, that it has the capability to scale according to prevailing market conditions. TRADE DISTRIBUTION (TD) Our Trade Distribution segment has expanded to a network of 66 branches across Australia and New Zealand. It comprises our Konnect and Artia Australia (KAA) division which now includes Fraser Coast Bolts (FCB), Trade Distribution New Zealand (TDNZ) which now includes GHL, and Nubco in Tasmania. TD supplies a range of fastening systems, cabinet hardware systems, industrial and construction products and temporary fencing to customers in the manufacturing, construction, infrastructure, agriculture and mining sectors. TD sales for the year were up 13.4% on the prior year. EBITDA for TD was $16.1m compared to $11.7m in FY21. Konnect and Artia Australia (KAA) KAA delivered another material improvement in profitability, up $2.4m on the prior year. This was despite the impact of the construction industry shutdowns, adverse weather events and COVID-19 related absenteeism. To achieve the result, KAA improved their value proposition, service levels and reputation in the marketplace. The store network was upgraded with store makeovers completed in Bunbury, Lismore and Redcliffe and branch relocations to larger facilities in better locations completed in Artarmon, Wollongong and the Sunshine Coast. The store network was expanded with a new branch in Rockhampton and we added FCB (Hervey Bay) through acquisition. Trade Distribution New Zealand (TDNZ) TDNZ delivered positive sales and EBITDA growth while navigating another government enforced lockdown, global supply chain issues causing stock shortages in some key product lines and other COVID-19 issues. The opening of a new branch in Invercargill late in FY21 and the addition of GHL through acquisition takes our branch footprint to 18. We also relocated our Albany branch to a larger facility and refurbished our Dunedin branch. Nubco Nubco delivered a second consecutive year of very strong sales and EBITDA growth. The business managed significant price inflation through the year, in particular on its steel products. During the year we invested in our Devonport retail branch. The Tasmanian economy is performing well and we are confident we can continue to grow in this market. CENTRAL SERVICES Our facility with the National Australia Bank was increased to $55.0m during the year. The move to the National Australia Bank in Australia for transactional banking is now largely complete. We are in the process of moving our New Zealand banking to Bank of New Zealand. Corporate costs are currently running at 4.6% of sales (4.7% FY21). We expect productivity projects will allow us to continue to reduce corporate cost % to sales in FY23. TECHNOLOGY A project to select a new Enterprise Resource Planning (ERP) system to replace our ageing Oracle system was completed and the Board has approved a two and half year project to implement Microsoft Dynamics 365 Finance and Operations as our core ERP platform. The system will integrate seamlessly with our existing Microsoft systems including Office, SharePoint, Teams, Power BI and Customer Relationship Management (CRM) system. Significant work has occurred to build an experienced project team to deliver the project with appropriate governance in place. Our Digital Customer Engagement project to deliver online and mobility solutions for customers, a CRM system and a user-friendly Point of Sale module is now well advanced. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 9 Chief Executive Officer’s Report (continued) ACQUISITIONS Our FY21 acquisitions, HIS Hose and Fluid Power Services both performed to expectations and the integration of these businesses has progressed to plan. We completed two acquisitions during the year acquiring the business and assets of: • Goudie Holdings Limited and NZ Plank Hire Limited (“GHL”); and • Fraser Coast Bolts and Industrial Supplies (“FCB”) funded through the Groups’ existing debt facility. Both acquisitions have performed to expectations since joining the Group at the start of April 2022. GOUDIE HOLDINGS LIMITED We acquired New Zealand based GHL for NZ$9.0m cash. GHL is Auckland’s leading specialist in temporary fencing sales and hire and scaffolding plank hire into our existing construction and infrastructure markets. GHL expands Coventry Group’s Trade Distribution presence in New Zealand. FRASER COAST BOLTS AND INDUSTRIAL SUPPLIES We acquired Queensland based FCB for A$2.8m cash. FCB is a leading provider of fasteners and industrial supplies in the Hervey Bay and Bundaberg regions in Queensland. FCB expands Coventry Group’s Konnect and Artia Australia branch network. SIGNIFICANT ITEMS The FY22 result was impacted by a number of one-off significant items: • Costs relating to acquisitions ($1m) • Cloud based computing costs required due to change in accounting standard ($0.4m) non-cash • Restructuring and other costs ($1.0m). NET ASSETS/WORKING CAPITAL The Group has a solid balance sheet with Net Tangible Assets of $36.1m and Net Assets of $113.6m compared to $109.8m in FY21. Initiatives to reduce working capital and maximise cash generation remain a key focus area for the Group. The Group has tax losses of $76.6m available for use in Australia and franking credits of $9.9m available at balance date. NET DEBT POSITION Net debt of $33.1m at 30 June 2022 (net debt of $16.3m at 30 June 2021). Net debt was impacted by: • Acquisition related payments ($10.0m) • Price inflation impact on inventory valuation ($7.0m) • Increasing stock holdings to maintain service levels during FY21 due to global supply chain issues ($4.8m) • Capital expenditure ($5.4m) 1 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Chief Executive Officer’s Report (continued) Our priority has been to maintain service levels to our customers. In FY23 we have set up a dedicated project team empowered to reduce inventory levels. We will continue to tightly manage collections and manage operating costs to improve our cash position. I would like to acknowledge the support received from the Board and thank the Coventry Leadership Team and every person in the Group for their contribution during the year. We faced many challenges during the year and responded well. We remain confident that we will deliver sustainable profitable growth to our shareholders. Regardless of the challenges we face, we will stay true to our values and do the right thing. Robert J Bulluss Chief Executive Officer and Managing Director OUTLOOK We are cautiously optimistic that the momentum the Group currently has will largely continue. The future is not without challenges with COVID-19, global supply chain issues and material shortages, competition for labour and skills, rising freight and fuel costs, cost inflation and wage inflation. Our people have proven to be resilient and we are confident that we will continue to successfully navigate the volatile macroenvironment. We are fully focussed on our People, Customers and our Suppliers, and applying our values of Fairness, Integrity, Respect, Safety and Teamwork. We remain confident that we have the right strategy, the right people and operate in the right markets to continue our journey of sustainable profitable growth. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 1 Coventry Group Ltd and its controlled entities CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the year ended 30 June 2022 NOTE Revenue from sale of goods Cost of sales Gross profit Other income Employment costs 2022 $’000 2021 $’000 322,324 288,522 (195,689) (178,366) 126,635 110,156 4,097 3,002 5 (74,057) (64,030) Depreciation and amortisation expense (14,142) (11,819) Occupancy costs Communication costs Freight Vehicle operating costs Significant items Other expenses Profit before financial income and tax Financial income Financial expense Net financial expense Profit before income tax Income tax benefit/(expense) Profit for the year Earnings per share: Basic earnings per share: Diluted earnings per share: (1,946) (3,330) (8,006) (2,215) (2,149) (2,008) (3,373) (6,889) (1,814) (2,344) (12,663) (11,250) 12,224 9,631 318 (5,200) (4,882) 7,342 (2,501) 4,841 281 (6,108) (5,827) 3,804 3,442 7,246 5.3 cents 8.1 cents 5.2 cents 7.9 cents 27 6 6 6 7 8 8 The consolidated statement of profit or loss is to be read in conjunction with the accompanying notes to the consolidated financial statements. 1 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Coventry Group Ltd and its controlled entities CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2022 Profit for the year Other comprehensive income items that may be reclassified to profit or loss: Foreign currency translation differences Effective portion of changes in fair value of cash flow hedges Deferred tax recognised in equity Other comprehensive income for the year, net of income tax NOTE 2022 $’000 4,841 (638) 267 - (371) 2021 $’000 7,246 (166) 32 338 204 Total comprehensive income for the year 4,470 7,450 The consolidated statement of comprehensive income is to be read in conjunction with the accompanying notes to the consolidated financial statements. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 3 Coventry Group Ltd and its controlled entities CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the year ended 30 June 2022 Assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other current assets Income tax refundable Total current assets Other receivables Deferred tax assets Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Liabilities Trade and other payables Employee benefits Interest-bearing loans and borrowings Lease liability Provisions (current) Income tax payable Total current liabilities Employee benefits Other payables Provisions Lease liability Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Profit reserve Accumulated losses Total equity NOTE 9 10 11 10 10 10 7 13 14 15 17 18 17 19 21 2022 $’000 15,319 48,020 73,767 2,668 4,587 - 2021 $’000 8,221 43,464 63,913 3,958 3,481 200 144,361 123,237 1,604 21,845 13,190 42,168 55,630 1,817 23,778 9,180 41,449 49,211 134,437 125,435 278,798 248,672 48,875 7,513 48,411 10,830 741 286 116,656 374 734 2,206 45,237 48,551 49,117 6,773 24,500 9,304 - - 89,694 410 340 3,771 44,689 49,210 165,207 138,904 113,591 109,768 151,618 (4,038) 9,366 (43,355) 113,591 149,773 (3,896) 7,246 (43,355) 109,768 The consolidated statement of financial position is to be read in conjunction with the accompanying notes to the consolidated financial statements. 1 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 5 Coventry Group Ltd and its controlled entities CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2022 Hedge reserve Translation reserve Other reserve Total reserves Profit reserve Share capital Accumulated losses Total equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2021 32 (1,980) (1,948) (3,896) 7,246 149,773 (43,355) 109,768 Total comprehensive income/(loss) for the year Profit for the year Other comprehensive income/(loss): Foreign currency translation differences Effective portion of changes in fair value of cash flow hedges - - - (638) 267 - Total other comprehensive income/(loss) 267 (638) Total comprehensive income/(loss) for the year Transactions with owners, recorded directly in equity Share issue Share issue costs Equity-settled share- based payments Dividends Transfer to Profit Reserve 267 (638) - - - - - - - - - - - - - - - - - - (638) 267 (371) (371) - - 229 229 - - - - - - - - - - - - (2,721) 4,841 - - - - - 1,851 (6) - - - 4,841 4,841 - - - (638) 267 (371) 4,841 4,470 - - - - 1,851 (6) 229 (2,721) (4,841) - Balance at 30 June 2022 299 (2,618) (1,719) (4,038) 9,366 151,618 (43,355) 113,591 Amounts are stated net of tax The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes to the consolidated financial statements. 1 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Coventry Group Ltd and its controlled entities - Consolidated statement of changes in equity (continued) Hedge reserve Translation reserve Other reserve Total reserves Profit reserve Share capital Accumulated losses Total equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2020, as previously reported Impact of restatement * Restated balance at 1 July 2020 Total comprehensive income/(loss) for the year Profit for the year Other comprehensive income/(loss): Foreign currency translation differences Effective portion of changes in fair value of cash flow hedges Deferred tax recognised in equity Total other comprehensive income/(loss) Total comprehensive income/(loss) for the year Transactions with owners, recorded directly in equity Share issue Share issue costs Equity-settled share- based payments Transfer to Profit Reserve 0 - - - - 32 - 32 32 - - - - (1,814) (3,574) (5,388) - - - (1,814) (3,574) (5,388) - (166) - - - - - - (166) 32 338 338 (166) 338 204 (166) 338 204 - - - - 1,288 1,288 - - - - - - 7,246 - - - - - - - - - - - - 149,617 (42,109) 102,120 - (1,246) (1,246) 149,617 (43,355) 100,874 - - - - - - 158 (2) - - 7,246 7,246 - - - - (166) 32 338 204 7,246 7,450 - - - 158 (2) 1,288 (7,246) - Balance at 30 June 2021 32 (1,980) (1,948) (3,896) 7,246 149,773 (43,355) 109,768 * During the prior year, historicial financial information was restated to account for the impact of the change in accounting policy relating to Software-as- a-Service arrangements. Amounts are stated net of tax The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes to the consolidated financial statements. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 7 Coventry Group Ltd and its controlled entities CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2022 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash from operations Interest paid Income taxes (paid) Net cash from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Payment for acquisitions of business, net of cash acquired Interest received Acquisition of property, plant and equipment Acquisition of intangible assets Net cash (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Share issue costs Dividends paid Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of movements in exchange rates on cash and cash equivalents NOTE 2022 $’000 2021 $’000 355,524 304,301 (339,690) (291,627) 25 13 15 21 15,834 (5,010) (186) 10,638 147 (10,365) 269 (4,278) (123) 12,674 (5,245) (470) 6,959 41 (7,590) 281 (3,519) (224) (14,350) (11,011) 492,556 315,844 (468,645) (302,213) (11,107) (8,735) (6) (1,556) 11,242 7,530 8,221 (432) (2) - 4,894 842 7,542 (163) 8,221 Cash and cash equivalents at 30 June 9 15,319 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes to the consolidated financial statements. 1 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Coventry Group Ltd and its controlled entities NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2022 1. SIGNIFICANT ACCOUNTING POLICIES Going Concern Coventry Group Ltd (the “Company”) is a for profit company domiciled in Australia. The address of the Company’s registered office is 235 Settlement Road Thomastown VIC 3074 Australia. The consolidated financial statements (“financial report” or “consolidated financial report”) of the Company for the financial year ended 30 June 2022 comprises the Company and its controlled entities (together referred to as the “Group”). During the year the Company has entered into a deed of cross-guarantee with its subsidiary entities. Under the deed of cross-guarantee, each body has guaranteed that the debts to each creditor of each other body which is a party to the deed will be paid in full in accordance with the deed. The financial report was authorised for issue by the Directors on 26 August 2022. In preparing the financial report, the Directors have made an assessment of the ability of the Group to continue as a going concern, which includes consideration of ongoing compliance with financial debt covenants (see note 18), the continuity of business operations, realisation of assets and settlement of liabilities in the ordinary course of business and at the amounts stated in the financial report. The Directors have a reasonable expectation that the Group will have adequate resources to continue to meet its obligations as they fall due. (c) New and amended standards adopted by the Group The following new and amended standards are not expected to have a significant impact on the Group’s consolidated financial statements. • COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16). (a) Statement of compliance • Annual Improvements to IFRS Standards 2018-2020. This financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group complies with the International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). (b) Basis of preparation The financial report is presented in Australian dollars, which is the Company’s functional currency. The financial report is prepared on the historical cost basis except for certain financial assets and liabilities (including share-based payments and derivative financial instruments) which are stated at their fair value. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016 and in accordance with that Instrument, amounts in the financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. The Group has consistently applied the accounting policies (as set out in Note 1(d) – 1(u)) to all years presented in this consolidated financial report. • Property, Plant & Equipment: Proceeds before Intended Use (Amendments to IAS 16). • Reference to Conceptual Framework (Amendments to IFRS 3). • Classification of Liabilities as Current or Non-current (Amendments to IAS 1). • IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts. • Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). • Definition of Accounting Estimates (Amendments to IAS 8). There are no significant new standards or interpretations not yet adopted. Standards issued but not yet effective The Group has not early adopted the following new or amended standards issued but not yet effective. The standards are not expected to have a significant impact on the Group’s consolidated financial statement. • Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37). • Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 1 9 Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in the consolidated statement of profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. 1. Significant accounting policies (continued) (d) Basis of consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in the consolidated statement of profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Controlled entities Controlled entities are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Investments in controlled entities are carried at their cost of acquisition in the Company’s financial statements, net of impairment write downs. Intra- group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. 2 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 (h) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost less loss allowance. (i) Property, plant and equipment All classes of property, plant and equipment are stated at cost less depreciation and any accumulated impairment loss. Depreciation Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives from the date that they are installed and are ready for use. The estimated useful lives for each class of asset are: Depreciation Rate 5% - 40% Class of Fixed Asset Plant and Equipment (j) Intangibles Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 1(d). Goodwill is not amortised, but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Computer software Computer software comprises licence costs and direct costs incurred in preparing for the operation of that software, including associated process re-engineering costs. Computer software is measured at cost less accumulated amortisation and impairment losses. Computer software costs that have been categorised as a Software-as-a-Service (SaaS) arrangement are recognised as an expense in the consolidated statement of profit or loss. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and presented in the translation reserve in equity. However, if the operation is a non- wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. (f) Cash and cash equivalents Cash and cash equivalents comprise cash balances and short-term deposits with a maturity of three months or less at inception date. (g) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on weighted average cost. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads. An impairment allowance is made for obsolete, damaged and slow-moving inventories. 1. Significant accounting policies (continued) (e) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency differences arising on translation are recognised in the consolidated statement of profit or loss. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 2 1 1. Significant accounting policies (continued) Other intangible assets Brand names and customer relationships acquired in a business combination are recognised at fair value at the acquisition date. Brand names have an indefinite useful life and are measured at cost less accumulated impairment losses. Customer relationships have a finite useful life and are measured at cost less accumulated amortisation and any accumulated impairment losses. Amortisation Except for goodwill and brand names, intangible assets are amortised on a straight-line basis in the consolidated statement of profit or loss over their estimated useful lives, from the date that they are available for use. In current and comparative periods, customer relationships was estimated to have a useful life of 10 years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (k) Financial Instruments Investments and other financial assets The Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (“FVPL”), transaction costs that are directly attributable to the acquisition of the financial asset. Transactions costs of financial assets carried at FVPL are expensed in the consolidated statement of profit or loss. Impairment of financial assets The Group assesses on a forward-looking basis the expected credit losses associated with its instruments carried at amortised cost and fair value through other comprehensive income (“OCI”). The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same type of contract. The Group has concluded that the expected loss rates of trade receivables are a reasonable approximation to the loss rates for the contract assets. (l) I mpairment of assets (financial and non-financial) Non-financial Goodwill and intangible assets that have an indefinite useful life are not amortised but are tested annually for impairment in accordance with AASB 136. Other assets are tested for impairment whenever events or circumstances arise that indicate that the carrying amount of the asset may be impaired. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs of disposal and value in use. Financial Financial assets are tested for impairment at each financial year end. (m) Employee benefits A provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. These benefits include wages and salaries, annual leave and long service leave. Sick leave is non-vesting and has not been provided for. (n) Provisions A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Make good Provision for make good in respect of leased properties is recognised where appropriate based on the estimated cost to be incurred to restore premises to the required condition under the relevant lease agreements. (o) Trade and other payables Trade and other payables are stated at amortised cost. 2 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 1. Significant accounting policies (continued) (p) Revenue and other income Revenue is recognised when control of a good or service transfers to a customer. Determining the timing of the transfer of control – at a point in time or over time - requires judgement. Sale of goods – revenue recognised at a point in time Revenue from the sale of goods that are not subject to contract manufacturing arrangements is measured at the fair value of the consideration received or receivable, net of returns, rebates and goods and services tax payable to the taxation authority. Revenue is recognised when a customer obtains control of the promised goods and the Group has satisfied its performance obligation in relation to the promised goods. In determining when control of promised goods passes to the customer, the Group considers a variety of factors including a present right to payment, physical possession, legal title, the transfer of significant risk and rewards of ownership of the goods and customer acceptance of the asset. The timing of the transfer of control to the customers for the sale of goods occurs either: • When the goods are despatched or delivered in line with the Incoterms as detailed in the relevant contract of sale or purchase order for the goods. The Group sells a significant proportion of its products on Free- In-Store/ Delivered at Place Incoterms. This means the Groups control of the goods passes when the product is delivered to the agreed destination; • When they are made available to the customer and ownership transfers prior to despatch as detailed in the relevant contract of sale or purchase order for the goods; or • On notification (following stocktake) that the product has been used when the goods are consignment products located at customers’ premises. Where cash consideration has been received but the revenue recognition criteria has not been met, such amounts have been recorded on the consolidated statement of financial position as a contract liability. Sale of goods – contract manufacturing and supply revenue recognised over time The Group has determined that for bundled contract manufacturing comprising design, build, install and service elements, the customer controls the goods once the goods are finished and installed on premises in accordance with the relevant contract. This is because under the contract, goods are manufactured to a customer’s specification, and if a firm order that is placed by the customer in accordance with the agreement is terminated, the Group is entitled to a reimbursement of the costs incurred in manufacturing the goods, including a reasonable margin. Therefore, revenue for the agreements and the associated costs are recognised over time. That is, before the goods are delivered to the customer’ premises. Invoices issued according to contractual terms and amounts not yet invoiced are presented as contract assets. (q) Leases Leases in which the Group is a lessee The Group recognises all lease liabilities and corresponding right-of-use assets, with the exception of short-term (12 months or fewer) and low value leases, on the balance sheet. Lease liabilities are initially measured at the net present value of future lease payments and extension options expected to be exercised. Variable lease payments not dependent on an index or rate are excluded from the calculation of lease liabilities. Payments are discounted at the incremental borrowing rate of the lessee. Non-lease components are excluded from the projection of future lease payments and recorded separately within operating costs on a straight-line basis. The right-of-use asset, resulting from a lease arrangement, at initial recognition reflects the lease liability, initial direct costs and any lease payments made before the commencement date of the lease less any lease incentives plus, where applicable, provision for dismantling and restoration. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 2 3 (s) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences only to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for the Group. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. 1. Significant accounting policies (continued) The Group recognises depreciation of right-of- use assets and interest on lease liabilities in the consolidated statement of profit or loss over the lease term. Repayments of lease liabilities are separated into a principal portion (presented within financing activities) and interest portion (which the Group presents in operating activities) in the cash flow statement. Leases in which the Group is a lessor The Group sub-leases some of its properties. The Group has applied the guidance set out in AASB 16 to classify these as either a finance lease or operating lease. Operating leases Rental income is recognised in the statement of profit or loss as other income. Finance leases The Group recognises an investment in sub-lease in the statement of financial position. Rental income is recognised in the consolidated statement of profit or loss as interest income. Finance sub-leases are classified with reference to the right-of-use asset arising from the head lease. (r) Finance income and finance costs Finance income comprises interest income on funds invested and on finance leases where the Group is a lessor. Interest income is recognised as it accrues in the consolidated statement of profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings and leases. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in the consolidated statement of profit or loss using the effective interest method. Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. 2 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 1. Significant accounting policies (continued) Tax consolidation The Company and its wholly owned Australian resident entities have formed a tax consolidated group with effect from 1 November 2002 and are therefore taxed as a single entity from that date. The head entity within the tax consolidated group is Coventry Group Ltd. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the controlled entities is assumed by the head entity in the tax consolidated group and recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax consolidated group to the extent that it is probable that future taxable profits of the tax consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only. (t) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables in the statement of financial position are stated with the amount of GST included. Cash flows are included in the statement of cash flows on a gross basis. (u) Accounting estimates and judgements In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expense. The estimates and associated assumptions are based on historical experience and on other factors it believes to be reasonable under the circumstances, the results of which form the basis of the reported amounts that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are: • estimation of current tax payable, current tax expense and recovery of deferred tax assets based on forecasted taxable profit – note 1(s) and note 7 • estimated useful life of intangible assets – note 1(j) • revenue recognition: whether revenue from made-to-order products is recognised over time or at a point in time – note 1(p) and note 2(b) • estimated impairment of non- financial assets and measurement of the recoverable amount of cash generating units – note 16 • valuation of inventories – note 1(g) • valuation of trade receivables – note 1 (k) and note 22 • estimation of lease term under AASB16 – note 1 (q) • estimation of fair value of assets acquired and liabilities assumed in business combinations, and fair value of consideration transferred (including contingent consideration) – note 3 • estimation of share-based payment arrangements – note 20. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 2 5 2. SEGMENT INFORMATION (a) Description of segments The Group has reportable segments as described below. For each of the strategic reportable segments, the CEO reviews internal management accounts on a monthly basis. The following summary describes the operations of each of the Group’s reportable segments: Trade Distribution Includes the importation, distribution and marketing of industrial fasteners, industrial hardware supplies and associated products, temporary fencing, and cabinet making hardware. Fluid Systems Includes the design, manufacture, distribution, installation and maintenance of lubrication and hydraulic fluid systems and hoses. 2 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 2. Segment Information (continued) (b) Segment information Information regarding the results of each reportable segment is included below. Information about reportable segments# Trade Distribution Fluid Systems Other business units and consolidation adjustments Total reportable segments 30 June 2022 $’000 $’000 $’000 $’000 Segment revenue Inter-segment revenue 193,044 129,763 - - Revenue from external customers 193,044 129,763 - - - - - - 322,807 - 322,807 318,972 3,835 322,807 192,232 126,740 812 3,023 193,044 129,763 16,148 12,901 (13,544) 15,505 Timing of revenue recognition at point in time over time Total EBITDA## Depreciation and amortisation 977 891 1,282 3,150 EBIT## 15,171 12,010 (14,826) 12,355 # EBITDA and EBIT are non-IFRS measures and reflect how management measures performance of the Group. ## EBITDA is earnings before interest, tax, depreciation, amortisation and has been adjusted as a result of AASB16 to exclude leases and significant items. EBIT is earnings before interest and tax and has been adjusted to exclude leases and significant items. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 2 7 2. Segment Information (continued) Information about reportable segments# Trade Distribution Fluid Systems Other business units and consolidation adjustments Total reportable segments 30 June 2021 $’000 $’000 $’000 $’000 Segment revenue Inter-segment revenue 170,285 119,027 - - Revenue from external customers 170,285 119,027 Timing of revenue recognition at point in time over time Total 170,285 115,018 - 4,009 170,285 119,027 (60) - (60) (60) - (60) 289,252 - 289,252 285,243 4,009 289,252 EBITDA## 11,737 13,844 (12,224) 13,357 Depreciation and amortisation 677 774 1,344 2,795 EBIT## 11,060 13,070 (13,568) 10,562 # EBITDA and EBIT are non-IFRS measures and reflect how management measures performance of the Group. ## EBITDA is earnings before interest, tax, depreciation, amortisation and has been adjusted as a result of AASB16 to exclude leases and significant items. EBIT is earnings before interest and tax and has been adjusted to exclude leases and significant items. 2 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 2 9 2. Segment Information (continued) (c) Other segment information i. Segment Revenue A reconciliation of segment revenue to total revenue from the sale of goods in the consolidated statement of profit or loss is provided as follows: Total segment revenue Foreign exchange translation variance Total revenue ii. Segment Operating Profit/(Loss) 2022 $’000 2021 $’000 322,807 289,252 (483) (730) 322,324 288,522 The performance of the Group’s reportable segments is based on EBIT. Reconciliation of EBIT to operating profit/(loss) in the consolidated statement of profit or loss is provided as follows: Total segment Underlying EBIT Foreign exchange translation variance Significant items Net financing expense, excluding interest on lease liabilities (AASB16) Income tax benefit/(expense) Reversal of amortisation associated with change in accounting policy relating to software-as-a-service Impact of AASB16 NOTE 27 2022 $’000 2021 $’000 12,355 10,562 (15) (2,149) (1,006) (3,116) (38) (2,344) (2,089) 2,669 206 289 Depreciation of right-of-use assets 14 (11,202) Net Interest on lease liabilities and sub-lease investment Reversal of net rent and lease payments and receivables Income tax benefit Total operating profit (d) Geographic information (3,877) 13,031 614 4,841 (9,315) (3,739) 10,478 773 7,246 Revenue based on the geographic location of customers were Australia $279,331,000 (2021:$249,027,000) and New Zealand $42,993,000 (2021: $39,495,000). 3 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 3. BUSINESS COMBINATIONS (a) Current period business combinations As the acquisitions have recently occurred the fair value of assets and liabilities are presented as provisional amounts. If new information obtained within one year of the date of the acquisition about facts and circumstances that existed at the date of acquisition and which identify differences in fair value, then the accounting for the acquisition will be revised. Acquisition of Goudie Holdings Limited and NZ Plank Hire Limited (“GHL”) On 31 March 2022, the Group acquired the business and certain assets and liabilities of GHL, a specialist in temporary fencing sales and hire and scaffolding plank hire in Auckland. The Group incurred acquisition-related costs of $45,000 on legal fees and due diligence costs. These costs have been expensed in the consolidated statement of profit or loss in the year incurred. The goodwill is attributable to GHL’s strong historic profit performance and potential for further growth and expansion. The acquisition offers tangible synergies that will benefit the Group’s Trade Distribution business including joint customer opportunities, group buying benefits and strong New Zealand presence. Acquisition of Fraser Coast Bolts and Industrial Supplies (“FCB”) On 1 April 2022, the Group acquired the business and certain assets of FCB, a leading provider of fasteners and industrial supplies in the Hervey Bay and Bundaberg regions in Queensland. The Group incurred acquisition-related costs of $5,000 on legal fees and due diligence costs. These costs have been expensed in the consolidated statement of profit or loss in the year incurred. The goodwill is attributable to FCB’s strong market position in a region that has not been previously serviced by the Trade Distributions network. The acquisition offers synergies including excellent growth opportunities and buying benefits across the Trade Distribution business. Summary of business combinations during the period Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration Cash paid Cash retention payable Total Fair value of net assets acquired Inventories Other current assets Property, plant and equipment (note 13) Deferred tax assets Right-of-use assets (note 14) Brand names (note 15) Other payables Employee benefits Deferred tax liabilities Lease liabilities Total identifiable net assets acquired Goodwill on consolidation (note 15) Total GHL $’000 7,802 - 7,802 1,538 4 2,004 28 649 560 (71) (70) (157) (649) 3,836 3,966 7,802 FCB $’000 2,513 280 2,793 222 - 45 31 378 - - (30) - (378) 268 2,525 2,793 Total $’000 10,315 280 10,595 1,760 4 2,049 59 1,027 560 (71) (100) (157) (1,027) 4,104 6,491 10,595 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 1 3. Business Combinations (continued) Revenue and profit contribution (b) Prior period business combination provisional The acquisition of GHL contributed revenues of $2,058,000 and net profit of $402,000 to the Group for the period from 31 March 2022 to 30 June 2022 (three months trading). The acquisition of FCB contributed revenues of $706,000 and net profit of $169,000 to the Group for the period from 1 April 2022 to 30 June 2022 (three months trading). If the acquisitions had occurred on 1 July 2021, the Group’s estimated consolidated revenue and estimated consolidated profit after tax for the year ended 30 June 2022 would have been $330,572,000 and $6,290,000 respectively. amounts finalised At 30 June 2021 the amounts disclosed as the fair value of the identifiable assets and liabilities acquired in the business combination of Fluid Power Services (FPS) on 30 April 2021 were presented as provisional amounts. The amounts have been finalised and resulted in an increase to goodwill of $249,000 representing $249,000 post-tax inventory adjustments after a detailed assessment of fair values. The final acquisition accounting for FPS is summarised below: FPS $’000 1,646 200 1,846 239 69 127 295 (68) (295) 367 1,479 1,846 Purchase consideration Cash paid Cash payable Total Fair value of net assets acquired Inventories Property, plant and equipment (note 13) Net deferred tax assets Right-of-use assets (note 14) Employee benefits Lease liabilities Total identifiable net assets acquired Goodwill on consolidation (note 15) Total 3 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 4. AUDITOR’S REMUNERATION Audit services 2022 $ 2021 $ Engagement of audit and review of financial reports 327,720 290,000 Other services Amounts paid and payable to KPMG: Transaction services Taxation services Sustainability services Total non-audit services * Services relating to transactions that did not complete. 5. EMPLOYMENT COSTS Wages and salaries Liability for annual leave and long service leave Contributions to superannuation funds Payroll taxes Other associated personnel expenses Total 6. FINANCE INCOME AND FINANCE EXPENSES Interest income from other entities Net foreign exchange gain Financial income Interest expense Interest expense on lease liabilities Net foreign exchange loss Financial expenses Net financial expense 586,676* 11,954 11,054 10,000 7,688 - 609,684 17,688 2022 $’000 2021 $’000 57,374 50,557 5,614 5,638 3,458 1,973 4,417 4,686 2,881 1,489 74,057 64,030 2022 $’000 269 49 318 (1,115) (4,085) - (5,200) (4,882) 2021 $’000 281 - 281 (1,359) (3,980) (769) (6,108) (5,827) C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 3 7. TAXES Current tax expense Current year Tax recognised in the profit or loss Deferred tax expense Recognition of previously unrecognised Deferred Tax Assets (DTA) Origination and reversal of temporary differences Total deferred tax (benefit) 2022 $’000 2,764 2,764 - (263) (263) 2021 $’000 2,530 2,530 (5,039) (933) (5,972) Total income tax expense/(benefit) 2,501 (3,442) Reconciliation of effective tax rate Profit from operations for the period Total income tax loss/(benefit) Profit before income tax Income tax using the Company’s domestic tax rate of 30% Non-deductible expenditure Recognition of previously unrecognised DTA Effect of lower tax rate applicable to foreign controlled entity 4,841 2,501 7,342 2,203 332 - (34) 7,246 (3,442) 3,804 1,141 460 (5,039) (4) Total income tax expense/(benefit) 2,501 (3,442) 3 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 7. Taxes (continued) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net Trade and other receivables Inventories Property, plant and equipment Right-of-use assets Intangible assets Employee benefits Trade and other payables Provisions Lease liability Other items 2022 $’000 83 1,336 2,360 - - 2,354 1,054 125 2021 $’000 103 1,505 2,360 - - 2,146 943 144 17,445 16,972 174 347 Tax losses carried forward 14,346 16,424 2022 $’000 (49) - - 2021 $’000 (2) - - 2022 $’000 34 1,336 2,360 2021 $’000 101 1,505 2,360 (12,525) (12,323) (12,525) (12,323) (4,785) (4,816) (4,785) (4,816) - (73) - - - - - (25) - - - - 2,354 2,146 981 125 918 144 17,445 16,972 174 14,346 347 16,424 23,778 - Tax assets/(liabilities) 39,277 40,944 (17,432) (17,166) 21,845 Set off of deferred tax liability (17,432) (17,166) 17,432 17,166 - Net deferred tax asset 21,845 23,778 - - 21,845 23,778 Within the Group Australian operations there are unutilised carried forward tax losses of $76,605,343 (2021: $77,302,653). During the financial year, the group recognised nil (2021: $5,039,398) deferred tax assets against these carried forward tax losses, for a cumulative total of $18,151,234. The Group has determined it is probable that future taxable profits would be available for use against tax losses. 8. EARNINGS PER SHARE 2022 2021 Weighted average of shares in year used in basic earnings per share (number) 91,013,828 89,960,819 Weighted average of dilutive rights outstanding (number) 1,628,068 1,732,978 Weighted average of shares in year used in calculating dilutive earnings per share (number) 92,641,896 91,693,797 Earnings used in basic and diluted earnings per share calculation ($) 4,841,336 7,246,280 Earnings/(loss) per share (cents) Diluted earnings/(loss) per share (cents) 5.3 cents 8.1 cents 5.2 cents 7.9 cents C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 5 3 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 9. CASH AND CASH EQUIVALENTS Cash and cash equivalents 10. TRADE AND OTHER RECEIVABLES Current Trade receivables Loss allowance (note 22(a)) Net investment in sub-lease Total Other receivables Prepayments Non-current Net investment in sub-lease 2022 $’000 15,319 2022 $’000 48,036 (229) 47,807 213 48,020 2,668 4,587 7,255 2021 $’000 8,221 2021 $’000 43,565 (291) 43,274 190 43,464 3,958 3,481 7,439 1,604 1,817 Total trade and other receivables 56,879 52,720 During the year the Group recognised interest income of $208,000 on sub-lease receivables. Information about the Group’s exposure to credit risk, foreign currency risk and interest rate risk is disclosed in note 22. 11. INVENTORIES Work in progress Finished goods Provision for obsolescence Net Inventory balance 2022 $’000 5,463 72,796 (4,492) 73,767 2021 $’000 2,952 66,019 (5,058) 63,913 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 7 12. PARENT ENTITY DISCLOSURES As at, and throughout the financial year ending 30 June 2022 the parent company of the Group was Coventry Group Ltd. Assets 2022 $’000 6,134 180 6,314 2021 $’000 (459) 25 (434) 99,152 87,767 242,554 230,147 96,253 92,915 125,642 121,596 151,618 149,773 2,034 5,675 1,652 - (42,415) (42,874) 116,912 108,551 Results of the parent entity Profit/(loss) for the year Other comprehensive income Total comprehensive income/(loss) for the year after tax Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising: Issued capital Reserves Profit reserve Accumulated losses Total equity 3 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 13. PROPERTY, PLANT AND EQUIPMENT Cost at 1 July 2021 Accumulated Depreciation at 1 July 2021 Carrying amounts at 1 July 2021 Additions Additions through business combinations (note 3) Depreciation charge for the year Disposals Effect of movements in foreign exchange Carrying amounts at 30 June 2022 Cost at 1 July 2020 Accumulated Depreciation at 1 July 2020 Carrying amounts at 1 July 2020 Additions Additions through business combinations (note 3) Depreciation charge for the year Disposals Effect of movements in foreign exchange Carrying amounts at 30 June 2021 $’000 50,021 (40,841) 9,180 4,278 2,049 (2,054) (172) (91) 13,190 46,517 (39,740) 6,777 3,519 390 (1,454) (49) (3) 9,180 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 3 9 14. RIGHT-OF-USE ASSETS Carrying amounts at 1 July 2021 Additions Acquisitions through business combinations (note 3) Terminations Lease reassessments Depreciation for the period Effect of movements in foreign exchange Carrying amount at 30 June 2022 Property Vehicles $’000 38,159 2,267 1,027 - 4,072 (8,140) (158) 37,227 $’000 3,290 2,865 - - 1,885 (3,062) (37) 4,941 Total $’000 41,449 5,132 1,027 - 5,957 (11,202) (195) 42,168 Carrying amounts at 1 July 2020 35,591 4,244 39,835 Additions Acquisitions through business combinations (note 3) Terminations Lease reassessments Depreciation for the period Effect of movements in foreign exchange Carrying amount at 30 June 2021 5,297 1,419 - 3,171 942 - (16) 139 6,239 1,419 (16) 3,310 (7,298) (2,017) (9,315) (21) 38,159 (2) 3,290 (23) 41,449 4 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Goodwill Brand name Customer relationships Computer software 15. INTANGIBLE ASSETS Carrying amounts at 1 July 2021 Additions Additions through business combinations (note 3) Amortisation for the year Effect of movements in foreign exchange $’000 30,310 - 6,740 - (101) $’000 11,376 - 560 - (17) Total $’000 49,211 123 7,300 (886) (118) $’000 2,846 123 - (276) - $’000 4,679 - - (610) - 4,069 Carrying amounts at 30 June 2022 36,949 11,919 2,693 55,630 Carrying amounts at 1 July 2020, as previously reported 26,395 11,376 5,289 4,842 47,902 Impact of restatement - - - (1,780) (1,780) Restated balance at 1 July 2020 26,395 11,376 5,289 3,062 46,122 Additions Amortisation for the year 3,915 - - - Carrying amounts at 30 June 2021 30,310 11,376 - (610) 4,679 224 4,139 (440) (1,050) 2,846 49,211 16. IMPAIRMENT OF NON-FINANCIAL ASSETS For the purpose of impairment testing, goodwill and indefinite life intangible assets are allocated to the Group’s reportable segments. The aggregate carrying amounts of goodwill and indefinite life intangible assets allocated to each CGU are as follows. 2022 2021 Goodwill Brand Name Total Goodwill Brand Name $’000 $’000 $’000 $’000 $’000 Total $’000 Fluid Systems 15,682 - 15,682 15,433 - 15,433 Trade Distribution 21,267 11,919 33,186 14,877 11,376 26,253 Total 36,949 11,919 48,868 30,310 11,376 41,686 The key assumptions used in the value in use calculations include projected sales growth, projected gross margins, terminal growth rate, improvements in working capital and the discount rate. These assumptions are based on historical experience and projected performance. Budget and forecast calculations cover a period of five years. A long-term growth rate is determined and applied to project future cash flows after the fifth year. For the year ended 30 June 2022, the Group’s value in use model showed the recoverable amount exceeded the carrying amount of both the Trade Distribution and Fluid Systems CGUs. The values assigned to the key assumptions were: Fluid Systems • Sales growth at 7.11% for FY23, 8.00% for FY24, 7.00% for FY25, 6.00% for FY26 and 8.00% for FY27 • Terminal growth 2.5% • Post-tax WACC of 9.13% Trade Distribution • Sales growth at 14.40% for FY23, 10.68% for FY24, 8.55% for FY25, 7.65% for FY26 and 8.00% for FY27 • Terminal growth 2.5% • Post-tax WACC of 9.13% C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 4 1 4 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 17. TRADE AND OTHER PAYABLES The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 22. Trade payables Other trade payables and accrued expenses Total trade and other payables Current Non-current Total trade and other payables 18. I NTEREST-BEARING LOANS AND BORROWINGS Current Borrowing facility Total interest-bearing loans and borrowings 2022 $’000 36,920 12,689 49,609 48,875 734 49,609 2022 $’000 48,411 48,411 2021 $’000 40,766 8,691 49,457 49,117 340 49,457 2021 $’000 24,500 24,500 Non-cash investing and financing activities Guarantee facility There were no non-cash investing and financing activities. Borrowing Base facility The Group has a $55.0 million Borrowing Base facility against eligible inventory and debtors with a current expiry of March 2024 (2021: $45.0 million). This is a revolving facility on fixed term periods, and is subject to quarterly financial covenants. The overall facility is secured by General Security Deeds with Australian and New Zealand entities as well as Rights of Entry to eligible inventory locations. The facility is subject to a floating interest on funds drawn. The facility limit is scalable for future growth. In addition to the borrowing facilities above, the Group has a $5.0 million Standby Letter of Credit to provide security for Transactional Banking, Bank Guarantees, FX and other transactional facilities up to the limit specified in each individual guarantee. ANZ Facilities The Group maintains a small residual intraday facility with ANZ which will be closed upon full transition of transactional banking to the NAB. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 4 3 19. PROVISIONS Make good Warranties $’000 3,281 (671) (79) 2,531 $’000 490 128 (202) 416 Balance at 1 July 2021 Provisions increased/(decreased) Provisions used Balance at 30 June 2022 20. SHARE-BASED PAYMENTS Executive and Director Incentive Plan Total $’000 3,771 (543) (281) 2,947 An Executive and Director Incentive Plan was re-approved by shareholders in 2021. The Plan governs the future granting of performance rights and issue of shares based on annual Company performance. Vesting of performance rights may vary subject to the extent performance hurdles have been met and the exercise of Board discretion. On vesting, the performance rights entitle the recipient to receive fully paid shares in the Company. The following share-based payments existed at 30 June 2022: 30 June 2022 30 June 2021 Number of performance rights Weighted average fair value Number of performance rights Weighted average fair value Outstanding at the beginning of the year 1,732,978 $0.9962 1,262,406 $1.2558 Granted Forfeited Exercised Lapsed 572,424 $1.7900 1,424,504 $0.9500 - - (751,432) $1.3000 (677,334) $1.0134 (202,500) $1.1622 - - - - Outstanding at the end of the year 1,628,068 $1.2681 1,732,978 $0.9962 Total expenses arising from share-based payment transactions during the year were as follows: • $1,002,052 relating to FY22 recognised in Employment costs 4 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 21. CAPITAL AND RESERVES Ordinary shares Ordinary shares 2022 ‘000 2021 ‘000 Share capital On issue at 1 July 90,012 89,809 Hedge reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition in the consolidated statement of profit or loss as the hedged cash flows affect profit or loss. Profit reserve The profit reserve comprises retained profits since the reserve was first established in the 2021 financial year. Conversion of performance rights Dividend reinvestment plan 677 741 203 Dividends - On issue at 30 June 91,430 90,012 Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. Nature and purpose of reserves Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the functional currency of the reporting entity, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Share based payments reserve The share-based payment reserve comprises the fair value of shares and options that are yet to vest under share-based payment arrangements. The Board has declared a final dividend of 3.5 cents per share, fully franked, in relation to the year ended 30 June 2022. The Company’s Dividend Reinvestment Plan enables eligible shareholders to reinvest their dividend in additional shares in the Company. A final dividend of $2.7 million (3 cents per share, fully franked) in relation to the financial year ended 30 June 2021 was declared and paid by the Group in the financial year ended 30 June 2022. Final dividend paid includes dividend reinvested of $1.2 million. Company 2022 ‘000 2021 ‘000 9,903 11,069 Dividend franking account 30 per cent franking credits available to shareholders of the Company for subsequent financial years C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 4 5 22. FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from their use of financial instruments: • Credit risk • Liquidity risk • Market risk The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 – Quoted (unadjusted) (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s cash and cash equivalents and receivables from customers. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: market prices in active markets for identical assets or liabilities • Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group has not disclosed the fair values of the Level 1 financial instruments detailed below including cash and cash equivalents, short term trade receivables and payables, borrowing facility and lease liabilities because their carrying amounts are a reasonable approximation of fair value. Cash and cash equivalents Trade receivables Total Trade and other receivables Note 9 10 Carrying amount 2022 ‘000 15,319 49,624 64,943 2021 ‘000 8,221 45,281 53,502 The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. The Group has no significant concentration of customer base. Management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group’s terms and conditions of trade have been amended to incorporate the Personal Property Security legislation. The Group does not normally require collateral in respect of trade and other receivables. The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was Australia $44,403,000 (2021: $40,248,000) and New Zealand $5,220,000 (2021: $5,033,000). Cash at bank and short-term or long-term deposits are held with Australian and New Zealand banks with acceptable credit ratings. 4 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 22. Financial Risk Management (continued) Impairment of Trade Receivables The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics, days past due and historic credit loss data. The loss allowance as at 30 June 2022 was determined as follows for trade receivables: Current More than 30 days past due More than 60 days past due More than 120 days past due Total 30 June 2022 Australia Expected loss rate (%) Gross carrying amount ($’000) / balance outstanding as reporting date Loss allowance ($’000) New Zealand Expected loss rate (%) Gross carrying amount ($’000) / balance outstanding at reporting date Loss allowance ($’000) 30 June 2021 Australia Expected loss rate (%) Gross carrying amount ($’000) / balance outstanding as reporting date Loss allowance ($’000) New Zealand Expected loss rate (%) Gross carrying amount ($’000) / balance outstanding at reporting date Loss allowance ($’000) 0.0% 40,460 - 0.0% 5,041 - 0.0% 36,363 - 0.0% 4,949 - 0.1% 1,424 1 0.1% 74 - 0.1% 1,279 1 1.2% 586 7 1.9% 60 1 47.6% 342 163 76.1% 75 57 1.7% 65.8% 491 8 336 221 0.1% 2.0% 76.6% 29 - 39 1 79 60 42,812 171 5,250 58 38,469 230 5,096 61 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 4 7 4 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 22. Financial Risk Management (continued) (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group maintains a $55 million Borrowing Base facility on which interest is payable at prevailing market rates. Maturities of financial liabilities The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 2022 Carrying amount Contractual cash flow 6 mths or less 6-12 mths 1-2 years $’000 $’000 $’000 49,609 (49,609) (48,604) 48,411 56,067 (48,411) (48,411) $’000 (271) - $’000 (423) - (71,702) (7,640) (6,668) (11,986) (45,408) More than 2 years $’000 (311) - Non derivative financial liabilities Trade and other payables Borrowing facility Lease liability Total 154,087 (169,722) (104,655) (6,939) (12,409) (45,719) The outflows associated with forward contracts used for hedging are US$5.7 million (A$7.9 million), 2021: US$5.2 million (A$6.9 million) and will have been made within 11 months or less 2021 Carrying amount Contractual cash flow 6 mths or less 6-12 mths 1-2 years $’000 $’000 $’000 $’000 Non derivative financial liabilities Trade and other payables Borrowing facility Lease liability 49,457 (49,457) (49,117) 24,500 53,994 (24,500) (24,500) (71,929) (6,412) - - (6,137) (6,137) Total 127,951 (145,886) (80,029) More than 2 years $’000 - - $’000 (340) - (10,900) (48,480) (11,240) (48,480) C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 4 9 Borrowings Lease liabilities Total liabilities from financing activities $’000 $’000 $’000 24,500 492,556 53,994 78,494 - 492,556 (468,645) (11,107) (479,752) - - - 12,351 12,351 1,027 (198) 1,027 (198) 48,411 56,067 104,478 10,869 315,844 52,287 63,156 - 315,844 (302,213) (9,261) (311,474) - - - 6,239 1,419 3,310 6,239 1,419 3,310 24,500 53,994 78,494 22. Financial Risk Management (continued) Changes in liabilities arising from financing activities 30 June 20221 Opening balance at the beginning of the financial year Proceeds Repayments New leases, reassessments and disposals Assumed in business combinations Effects of movement in foreign exchange Closing balance 30 June 20211 Opening balance at the beginning of the financial year Proceeds Repayments New leases, reassessments and disposals Assumed in business combinations (note 3) Lease reassessments Closing balance 1 Repayments are presented net of interest expense 5 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 22. Financial Risk Management (continued) (c) Market risk Capital management Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group defines capital as cash, banking facilities and equity. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Currency risk Interest rate risk The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than the Australian dollar. The currencies giving rise to this risk are primarily US dollars and Euros. The Group adopts a policy of obtaining, foreign currency forward contracts to hedge its exposure to USD foreign currency risks. The Group’s interest rate risk arises primarily from interest- bearing liabilities with variable interest rates where interest rate movements can impact the Group’s cash flow exposures. At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: Variable rate financial assets Borrowing facility Total Carrying amount 2022 $’000 15,319 2021 $’000 8,221 (48,411) (24,500) (33,092) (16,283) Fair value sensitivity analysis for fixed rate instruments The Group does not account for any material fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss. 23. LEASES Leases as lessee Non-cancellable short-term or low value leases are payable as follows: Less than one year Between one and five years More than five years Total 2022 $’000 73 - - 73 2021 $’000 52 - - 52 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 1 23. Leases (continued) The Group leases various premises, plant and equipment and motor vehicles under short-term or low value leases. The leases run for 12 months or less or are of low value. Lease payments are reviewed periodically to reflect market rentals. None of the leases include contingent rentals. During the financial year ended 30 June 2022 the Group recognised $313,000 (2021: $215,000) as an expense in the consolidated statement of profit or loss in respect of short-term or low value leases. Leases as lessor At the end of the reporting period, the future minimum lease payments under non-cancellable leases are receivable as follows: Less than one year Between one and five years More than five years Total 2022 $’000 934 1,838 200 2021 $’000 976 412 316 2,972 1,704 During the financial year ended 30 June 2022, the Group recognised $1,058,000 (2021: $729,000) as income in the consolidated statement of profit or loss. 24. CONTROLLED ENTITIES COV Holdings (Aust) Pty Ltd Coventry Group (NZ) Limited COV Holdings (NZ) Pty Ltd (i) Nubco Proprietary Limited Country of Incorporation Ownership interest 2022 2021 % Australia New Zealand New Zealand Australia % 100 100 100 100 % 100 100 100 100 The ultimate parent entity is Coventry Group Ltd. (i) The company is a 100% controlled entity of COV Holdings (Aust) Pty Ltd and operates in New Zealand. Deed of Cross Guarantee During the year the Company has entered into a deed of cross-guarantee with its subsidiary entities. All entities listed in the table above are parties to the deed under which each company guarantees the debts of the others. Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, Nubco Proprietary Limited is relieved from the Corporations Act requirements to prepare a financial report and directors’ report. 5 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 25. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Note 6 7 Cash flows from operating activities Profit/(loss) for the period Adjustments for: Equity-settled share-based payments Depreciation and amortisation Other non-cash or non-operating exceptional items Interest income from other entities Interest expense Net gain on disposal of property, plant and equipment Income tax expense/(benefit) Operating profit before changes in working capital and provisions Change in trade and other receivables Change in inventories Change in trade and other payables Change in provisions and employee benefits Operating profit after changes in working capital and provisions Interest paid Income taxes paid Net cash from operating activities 26. RELATED PARTIES Transactions with key management personnel Key management personnel compensation comprised the following: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Share-based payments true-up Total 2022 $’000 4,841 916 14,142 512 (269) 5,200 31 2,501 27,874 (3,972) (8,450) (150) 532 15,834 (5,010) (186) 10,638 2021 $’000 7,246 1,288 11,819 (173) (281) 5,339 71 (3,442) 21,867 (11,887) (7,638) 9,597 735 12,674 (5,245) (470) 6,959 2022 $’000 2021 $’000 1,363,330 1,048,024 82,867 162,083 455,129 - 71,810 123,696 372,587 318,569 2,063,409 1,934,686 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 3 26. Related Parties (continued) Apart from the details disclosed in this note, no director has entered into a material contract with the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. Key management personnel transactions From time to time, key management personnel may purchase goods from companies within the Group on the same terms as apply to other employees of the Group. The value of these transactions is insignificant. Transactions with other related parties The Group has a related party relationship with its controlled entities (see Note 24). Transactions between the parent entity and its controlled entities are eliminated on consolidation and are not disclosed. 27. SIGNIFICANT ITEMS The following significant costs were incurred in the year ended 30 June 2022. Borrowing costs were incurred in the current financial year relating to refinancing activities during the year. Share-based payment expense true-up (non cash) Borrowing costs Software-as-a-Service costs Acquisition costs on transactions not completed Acquisition costs on completed transactions Other Total 2022 $’000 - - 437 917 50 745 2021 $’000 619 415 507 - 22 781 2,149 2,344 28. EVENTS OCCURRING AFTER THE REPORTING PERIOD The Board has declared a final dividend of 3.5 cents per share, fully franked, in relation to the year ended 30 June 2022. On 25 July 2022 the Company announced an on-market buy-back of a maximum of 9,143,035 ordinary fully paid shares (up to 10% of issued capital) in the Company from the period 10 August 2022 to 10 August 2023. Other than the matters outlined elsewhere in the Groups financial statements, no other matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods. 5 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 5 Coventry Group Ltd and its controlled entities DIRECTORS’ REPORT For the year ended 30 June 2022 The directors present their report together with the consolidated financial report of the Group comprising Coventry Group Ltd (the “Company”) and its controlled entities for the year ended 30 June 2022. CONTENTS OF DIRECTORS’ REPORT 1. Directors 2. Principal activities 3. Consolidated results 4. Dividends 5. Review of operations and results 6. Earnings per share 7. Significant change in the company’s affairs 8. Events subsequent to reporting date 9. Likely developments 10. Remuneration report - audited 10.1 Key Management Personnel (KMPs) 10.2 Principles used to determine the nature and amount of compensation 10.3 Details of compensation 10.4 Service contracts 10.5 Director share movement 11. Environmental regulation 12. Insurance of officers 13. Corporate governance 14. Non-audit services 15. Lead auditor’s independence declaration 16. Company secretary 17. Rounding off Directors’ Declaration Lead Auditor’s Declaration under S307C of the Corporations Act 2001 Independent Auditor’s Report Shareholder Information Corporate Directory 5 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 58 62 62 62 63 64 64 64 64 64 65 70 71 71 72 72 72 73 73 73 74 75 76 77 81 84 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 7 1. DIRECTORS Information on Directors The directors of the Company at any time during or since the end of the financial year and up to the date of this report are: NEIL GEORGE CATHIE FCPA, GAICD, FCIS ANDREW WILLIAM NISBET GAICD JAMES SCOTT CHARLES TODD B.Comm, LLB, FFin, MAICD INDEPENDENT INDEPENDENT INDEPENDENT NON-EXECUTIVE CHAIRMAN NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Chairman of Remuneration Committee Member of Audit and Risk Committee Member of Audit and Risk Committee Member of Remuneration Committee Chairman of Audit and Risk Committee Member of Remuneration Committee Mr Cathie was appointed as a Director of the Company in September 2014 and as Chairman in January 2015. He has extensive experience in very relevant areas including having a 27 year career at Australia’s largest and most successful plumbing and bathroom distributor, ASX listed Reece Limited, during which time he served as its Chief Financial Officer, Company Secretary and General Manager, Finance and IT. Mr Cathie is a Non-Executive Director of Experience Co. Limited (since 2019) and was a Non-Executive Director of Millennium Services Group Limited from 16 October 2018 to 7 March 2019. He is also an independent advisor and Chair at Middendorp Electric and independent advisor at Bowens Timber & Hardware. Other than those listed above, he held no other listed company directorships during the past three financial years. Mr Nisbet was appointed as a Director of the Company in October 2017. During his extensive career at ASX listed Reece Limited he held a variety of senior leadership roles, from Marketing to Merchandising, IT, Supply Chain Transformation, Innovation and the management of a number of Strategic Business Units, including the Reece expansion into New Zealand. Mr Nisbet is a graduate of the Australian Institute of Company Directors. he continues to consult to businesses on strategy and works with SME’s in setting up their advisory boards. He held no other listed company directorships during the past three financial years. Mr Todd was appointed as a Director of the Company on 3 September 2018. Mr Todd is an experienced company director, corporate adviser and investor. He commenced his career in investment banking, and has taken active roles with, and invested in, a range of public and private companies. He was until recently Managing Director of Wolseley Private Equity, an independent private equity firm which he co-founded in 1999. He is also a Non-Executive Director of three other ASX listed companies; IVE Group Limited (since June 2015), HRL Holdings Limited (since March 2018) and Bapcor Limited (since September 2020). Other than those listed above, he held no other listed company directorships during the past three financial years. 5 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 ROBERT JAMES BULLUSS FCPA, GAICD, B Bus (Acc) MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr Bulluss was appointed Chief Executive Officer on 3 May 2017 and Managing Director and Chief Executive Officer on 29 August 2017. He was previously Chief Finance Officer (CFO) of the Company from October 2016 to April 2017. Prior to joining the Company he was CFO for over 15 years for the Australasian division of Bunzl plc. He held no other listed company directorships during the past three financial years TONY HOWARTH AO FAICD (Life), SF FIN (Life) ALEX WHITE B.Bus (EconFin) NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Member of Audit and Risk Committee Member of Remuneration Committee Member of Audit and Risk Committee Member of Remuneration Committee Mr Howarth was appointed as a Director of the Company on 4 May 2020. Mr Howarth has a strong background in the banking and finance industry having held executive positions in government, regional and major banks as well as building societies and stockbroking companies. He has broad based industry experience from his time as President of the Australian Chamber of Commerce and Industry and Australian International Chamber of Commerce, as well as Chair of Catholic Health Australia. He has had a long involvement with the University of Western Australia and is an Adjunct Professor at the UWA Business School. He is also a Non-Executive Director of Alinta Energy, BWP Management Ltd, and Viburnum Funds as well as the Chairman of St John of God Foundation Inc. Mr Howarth was a Non-Executive Director of Wesfarmers Ltd from 2007 to 2019 and Chairman of MMA Offshore Ltd from 2006 to 2017. Previously he had been Chairman of Home Building Society and Deputy Chairman of Bank of Queensland Ltd. He has held no other listed company directorships during the past three financial years. Mr White was appointed as a Director of the Company on 1 March 2022. Mr White is a Director of Richmond Hill Capital (“RH Capital”) and is jointly responsible for managing its RH High Conviction Fund. Mr White has over fifteen years of corporate and investment management experience and prior to co-founding RH Capital, he was jointly responsible for the portfolio management of the VF High Conviction Fund at Viburnum Funds for six years. Mr White joined Viburnum following over three years with Cooper Investors, a privately owned specialist investment manager, where he focused on investment research for CI Australian Equities Fund and CI Brunswick Fund. He previously gained industry experience working for Fletcher Building as a Strategy Analyst and as a Credit Analyst for ratings agency Standard and Poor’s. Mr White is currently a Director of the following ASX listed companies: • MOQ Digital Limited (appointed June 2019) • HRL Holdings (appointed March 2021). C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 5 9 DIRECTORS’ INTERESTS As at the date of this report particulars of the relevant interest of each director in the securities of the Company are as follows: NG Cathie RJ Bulluss AW Nisbet JSC Todd A White # T Howarth # Number of Ordinary Shares 850,000 658,056 135,269 118,977 31,241 - # Mr Howarth and Mr White have declared their indirect interests in the shares of the Company as being shareholders of Viburnum Funds Pty Ltd, Richmond Hill Capital Pty Ltd and Rat Pack Adventures Pty Ltd respectively, who are major shareholders of the Company. During the 2021/22 financial year and as at the date of this report no director has declared any interest in a contract or proposed contract with the Company, the nature of which would be required to be reported in accordance with subsection 300(11)(d) of the Corporations Act 2001. 6 0 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 DIRECTORS’ MEETINGS The following table sets out the number of meetings of the Company’s board of directors and each board committee, held during the year ended 30 June 2022, and the number of meetings attended by each director. NG Cathie RJ Bulluss AW Nisbet JSC Todd T Howarth A White Board of Directors Held Eligible to attend Attended Audit & Risk Committee Held Eligible to attend Attended Remuneration Committee Held Eligible to attend Attended 11 11 11 3 3 3 3 3 3 11 11 11 3 0 3 3 0 0 11 11 11 3 3 3 3 3 3 11 11 11 3 3 3 3 3 3 11 11 11 3 3 3 3 3 3 11 3 3 3 1 1 3 1 1 Note: Directors may pass resolutions in writing without a formal meeting being convened. Such resolutions are deemed by the Company’s Constitution to be meetings. The above table does not include such meetings. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 6 1 2. PRINCIPAL ACTIVITIES 3. CONSOLIDATED RESULTS The principal activities of the Group during the financial year were: Results of the Group were as follows: Trade Distribution • The importation, distribution and marketing of industrial fasteners, stainless steel fasteners, construction fasteners, specialised fastener products and systems, industrial hardware and associated industrial tools and consumables • Importation, distribution and marketing of hardware, components and finished products to the commercial cabinet making, joinery and shop fitting industries 2022 2021 $‘000 $‘000 Revenue from sale of goods 322,324 288,522 Profit/(loss) before tax 7,342 3,804 Income tax benefit/(expense) (2,501) 3,442 • Temporary fencing sales and hire and scaffolding plank hire. Profit after tax for the year 4,841 7,246 Fluid Systems • design and installation of lubrication systems • distribution of hose, connectors, fittings and hydraulic hose assemblies • design and supply of service truck components • installation of fire suppression systems • design and distribution of fluid handling systems, pneumatic component sales and sale of hydraulic associated products and consumables • rock hammer service and repair. 4. DIVIDENDS The Board has declared a final dividend of 3.5 cents per share, fully franked, in relation to the year ended 30 June 2022. 6 2 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 5. REVIEW OF OPERATIONS AND RESULTS People Our Safety-First program continued in FY22. The Group prioritises the Health, Safety and Wellbeing of our people along with our customers, suppliers and communities. We aspire to zero LTI’s and zero impact on our people. During FY22 we had 4 Lost Time Injuries (LTI’s) down from 7 the previous year and 13 in FY20. We remain fully focussed on our People, Customers and our Suppliers, and applying our values of Fairness, Integrity, Respect, Safety and Teamwork (FIRST). Financial performance# The opening of a new branch in Invercargill late in FY21 and the addition of GHL through acquisition takes our branch footprint to 18. We also relocated our Albany branch to a larger facility and refurbished our Dunedin branch. Konnect and Artia Australia (KAA) KAA delivered another material improvement in profitability up $2.4m on the prior year. This was despite the impact of the construction industry shutdowns, adverse weather events and COVID-19 related absenteeism. To achieve the result, KAA improved their value proposition, service levels and reputation in the marketplace. The store network was upgraded with store makeovers completed in Bunbury, Lismore and Redcliffe and branch relocations to larger facilities in better locations completed in Artarmon, Wollongong and the Sunshine Coast. The store network was expanded with a new branch in Rockhampton and we added FCB (Hervey Bay) through acquisition. FY22 FY21 % change Nubco Nubco delivered a second consecutive year of very strong sales and EBITDA growth. The business managed significant price inflation through the year, in particular on its steel products. During the year we invested in our Devonport retail branch. The Tasmanian economy is performing well and we are confident we can continue to grow in this market. Revenue from sale of goods EBIT## EBITDA## Net Profit after tax Net debt $M $M 322.3 288.5 +11.7% 12.4 15.5 4.8 33.1 10.6 +17% 13.4 +16.1% 7.2 -49.7% 16.3 Net tangible assets 113.6 109.8 +3.5% # EBITDA and EBIT are non-IFRS measures and reflect how management measure performance of the Group. Non-IFRS measures have not been subjected to audit. ## EBITDA is earnings before interest, tax, depreciation, amortisation and has been adjusted to exclude leases and significant items. EBIT is earnings before interest and tax and has been adjusted to exclude leases and significant items. Review of businesses Fluid Systems (FS) In FY22 FS had positive sales growth of 9.0% but EBITDA declined mainly due to a one-off large order of $7.9m delivered and charged in FY21 and not repeated in FY22. FS EBITDA in FY22 of $12.9m compared to $13.8m in FY21. FS was particularly impacted by labour and skills shortages requiring us to incur above normal overtime and hire labour to deliver on our customer’s needs. We expanded our Redcliffe operation to an additional site and closed our unprofitable Mt Isa branch during the year. Both HIS and FPS performed to expectations and integrations have progressed to plan. Trade Distribution (TD) TD sales for the year were up 13.4% on the prior year. EBITDA for TD was $16.1m compared to $11.7m in FY21. Trade Distribution New Zealand (TDNZ) TDNZ delivered positive sales and EBITDA growth while navigating another Government enforced lockdown, global supply chain issues causing stock shortages in some key product lines and other COVID-19 issues. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 6 3 6. EARNINGS PER SHARE Basic earnings per share and diluted earnings per share for the year ended 30 June 2022 was 5.3 cents and 5.2 cents respectively. This compares to a basic earnings per share and diluted earnings per share for the previous year of 8.1 cents and 7.9 cents respectively. 7. SIGNIFICANT CHANGE IN THE COMPANY’S AFFAIRS In the opinion of the Directors, there have been no other significant changes in the Group’s state of affairs during the financial year. 8. EVENTS SUBSEQUENT TO REPORTING DATE The Board has declared a final dividend of 3.5 cents per share, fully franked, in relation to the year ended 30 June 2022. On 25 July 2022 the Company announced an on-market buy-back of a maximum of 9,143,035 ordinary fully paid shares (up to 10% of issued capital) in the Company from the period 10 August 2022 to 10 August 2023. Other than the matters outlined elsewhere in the Groups financial statements, no other matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations, results of operations or state of affairs of the Group in subsequent accounting periods. 9. LIKELY DEVELOPMENTS The Group will continue to implement its five-year strategy and continue to operate in the markets in which it currently participates. 10. REMUNERATION REPORT - AUDITED Remuneration is referred to as compensation throughout this remuneration report. 10.1 Key Management Personnel (KMPs) KMPs are the persons who have authority and responsibility for planning, directing and controlling the activities of the Company and the Group. The following were KMPs of the Group at any time during the reporting period and unless otherwise indicated were KMPs for the entire period: Key Management Personnel RJ Jackson Directors NG Cathie RJ Bulluss (CEO and Managing Director) AW Nisbet JSC Todd T Howarth A White* * A White was appointed to the Board on 1 March 2022. 6 4 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 10.2 Principles used to determine the nature and amount of compensation Non-executive directors Non-executive directors receive cash fees for their board and committee work. They are eligible to participate in the Executive and Director Incentive Plan which was re-approved by shareholders at the Annual General Meeting of the Company in October 2020. Non-executive directors’ cash fees are determined within an aggregate directors’ fees pool limit, which is periodically recommended for approval by shareholders. The total pool currently stands at $550,000 (2021: $550,000) per annum, and was last approved by shareholders in November 2004 with effect from 1 July 2004. The Board determines the allocation of the maximum amount approved by shareholders amongst the respective directors, having regard to their duties and responsibilities. Directors’ fees are not directly linked to Company performance. Non-executive directors do not receive termination benefits. There is no provision for retirement allowances to be paid to non-executive directors. As at 30 June 2022 the non-executive directors’ fees were allocated as follows (includes statutory superannuation contributions): Chairman (inclusive of Board and Committee work) 130,000 100,800 Chair of Audit and Risk Committee (inclusive of Board and Committee work) Non-executive Directors (inclusive of Board and Committee work) 85,000 80,000 75,600 75,600 2022 $ 2021 $ C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 6 5 10.2 Principles used to determine the nature and amount of compensation (continued) Executive pay Remuneration policies Remuneration of directors and senior executives is the responsibility of the Remuneration Committee. The Committee has resolved to set remuneration packages which are appropriate in the context of the company’s size, complexity and performance but which will attract the calibre of executive required to drive necessary change in order to enhance performance. The Committee seeks external advice in relation to these matters where necessary. Remuneration for the CEO and senior executives currently comprises three elements: 1. Fixed, cash-based remuneration which includes salary, superannuation and benefits 2. Eligibility to participate in the Company’s short-term incentive plan (STI Plan) 3. Eligibility to participate in the Company’s long-term share based Executive and Director Incentive Plan (LTI Plan) The CEO and senior executives have employment contracts with notice periods executable by either party. There are no arrangements in place to provide the CEO or any senior executive with a retirement benefit other than those which accrue by law. Superannuation contributions are paid at the superannuation guarantee rate. Cash incentives under the STI Plan of up to 65% of fixed annual compensation are payable to the CEO and senior executives based on financial and non-financial measures framed around the Company’s trading performance and each individual’s performance. The LTI Plan was re-approved by shareholders at the 2020 annual general meeting. This share-based plan provides for the granting or issuing of performance rights in accordance with its terms and subject to the terms and performance hurdles set by the Board. Business Performance In considering the Group’s performance and benefits for shareholder wealth, the remuneration committee have regard to the following financial performance metrics in respect of the current financial year and the previous four financial years. 2022 $’000 2021 $’000 2020 $’000 2019 $’000 2018 $’000 Sales revenue 322,324 288,522 247,567 202,346 168,050 EBITDA (i) EBIT NPAT Dividends paid Share price at year end ($) 15,505 12,355 4,841 2,721 1.33 13,357 10.561 7,246 - 1.45 6,637 4,026 (455) - 0.57 2,811 1,145 (1,426) - 0.91 (4,748) (6,085) (8,301) - 1.35 (i) EBITDA is the key financial performance target considered in setting the Short-Term Incentive (STI). (ii) Where applicable, comparative information has been restated for the effects of the application of new accounting standards. 6 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 6 7 10.2 Principles used to determine the nature and amount of compensation (continued) Performance Rights (PR’s) PR’s Key Inputs Measurement date 10-day VWAP (iii) $0.8482 $0.6021 $1.4210 FY20 Performance Period FY21 Performance Period FY22 Performance Period No. of PR’s granted Grant date Share price at Grant Date Vesting date (1) (i) Vesting date (2) (i) Vesting date (3) (i) % of PR’s vested - Vesting date (1) % of PR’s vested – Vesting date (2) % of PR’s vested – Vesting date (3) No. of eligible PR’s vested – Vesting date (2) No. of eligible PR’s vested – Vesting date (3) No. of PR’s lapsed & forfeited No. of eligible PR’s exercised up to 30 June 2022 No. of PR’s remaining to be vested and/or exercised subject to service conditions 1,164,237 1,424,504 (iv) 572,424 25.10.2019 29.10.2020 22.10.2021 $1.30 $0.95 $1.79 01.09.2020 01.09.2021 01.09.2022 (ii) N/A N/A 01.09.2022 (ii) 01.09.2023 (ii) 01.09.2023 (ii) 01.09.2024 (ii) 33.3% 33.3% N/A N/A N/A N/A N/A N/A 846,318 211,944 N/A N/A - 474,835 N/A N/A N/A N/A N/A N/A - - 105,975 949,669 572,424 No. of eligible PR’s vested - Vesting date (1) 317,919 474,835 Share-based payments recognised as an expense in the financial statements of the Company. FY20 FY21 FY22 No. of performance rights issued 1,164,237 1,424,504 572,424 No. of eligible performance Rights vested (iv) Share price at Grant Date 317,919 474,835 $1.30 $0.95 N/A (ii) $1.79 Share-based payments expense (v) $413,295 $826,989 $1,002,052 (i) Subject to service conditions. (ii) Vesting determination not yet made. (iii) Used to calculate grant of Performance Rights. (iv) Performance rights granted in relation to FY21 and FY22 will vest in accordance with performance and employment conditions and in three separate annual vesting events. Consequently, the share-based payments expense for FY21 and FY22 is recognised based on graded vesting and the probability that 100% of participants will receive 100% of their grant over a three-year period (v) Share-based payment expense ‘true up’ in FY21 ($618,921) presented as a one-off non-cash significant item in that period. 6 8 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 10.2 Principles used to determine the nature and amount of compensation (continued) Performance Rights Commentary In FY22, one third of the performance rights that were vested to the CEO and Managing Director (R Bulluss) in relation to the FY19 performance period, one third in relation to the FY20 performance period and one third in relation to the FY21 performance period, were vested and exercised. One third of the performance rights that were vested to six other Company senior executives in relation to the FY19 performance period, one third in relation to the FY20 performance period and one third in relation to the FY21 performance period were also vested and exercised in FY22. In relation to FY22, the CEO and Managing Director (R Bulluss) was granted 163,617 performance rights under the terms of the LTI Plan following the successful passing of a resolution at the 2021 Annual General Meeting of the Company. These performance rights had a performance period that ended on 30 June 2022 with performance and employment conditions set by the Board. The Board has not yet made a determination in relation to the vesting of FY22 Performance Rights. In relation to FY22, an offer to participate in the LTI Plan was made to a number of other Company senior executives. The total performance rights granted was 408,807. These Performance Rights had a performance period that ended on 30 June 2022 with performance and employment conditions set by the Board. The Board has not yet made a determination in relation to the vesting of FY22 performance rights. It is intended that the CEO and Managing Director will participate in the LTI Plan in relation to FY23. The maximum face value of the CEO’s FY23 grant is based on an LTI opportunity of 50% of his fixed annual remuneration. The number of performance rights to be granted is determined by dividing the maximum face value by the 10-day volume weighted average price (VWAP) of the Company’s shares preceding the start of the performance period, being the 10 trading days up to and including 30 June 2022. The performance rights will vest at the Board’s discretion, taking into consideration internal EBIT per share year on year growth targets refined as FY23 progresses (Absolute measure 65%) and performance of the Coventry share price as measured against the ASX Small Ordinaries Index (Relative measure 35%). An appropriate resolution will be put to the 2022 Annual General Meeting of the Company. It is intended that a number of senior executives will participate in the LTI Plan in relation to FY23. The maximum face value of each senior executive’s FY23 grant is based on an LTI opportunity of 25% to 40% of his or her fixed annual remuneration. The number of performance rights to be granted is determined by dividing the maximum face value by the 10-day volume weighted average price (VWAP) of the Company’s shares preceding the start of the performance period, being the 10 trading days up to and including 30 June 2022. The performance rights will vest in the same manner as outlined for the CEO and Managing Director. 10.3 Details of compensation The following table provides the details, nature and amount of elements of compensation for the key management personnel of the Company and the Group for the year ended 30 June 2022. Short-term Post-employment Proportion of remuneration performance related STI cash bonus Non-monetary benefits Total Super- annuation (i) Long-service & annual leave provision accrual Share-based payment (ii) Cash salary, leave paid and fees $ 118,182 92,055 440,934 398,306 72,727 69,041 77,273 69,041 72,727 69,041 17,260 - 799,103 697,484 322,470 314,357 322,470 314,357 $ - - 134,300 20,100 - - - - - - - - 134,300 20,100 107,457 16,083 107,457 16,083 Directors NG Cathie - Chairman RJ Bulluss (ii) AW Nisbet JSC Todd T Howarth A White (appointed 1 March 2022) Total directors' remuneration Key Management Personnel RJ Jackson (ii) Total key management personnel remuneration Total directors' and key management personnel remuneration 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 $ $ - - - - - - - - - - - - - - - - - - - - 118,182 92,055 575,234 418,406 72,727 69,041 77,273 69,041 72,727 69,041 17,260 - 933,403 717,584 429,927 330,440 429,927 330,440 1,363,330 1,048,024 $ 11,818 8,745 23,568 21,694 7,273 6,559 7,727 6,559 7,273 6,559 1,640 - 59,299 50,116 23,568 21,694 23,568 21,694 82,867 71,810 Total (ii) $ 130,000 100,800 977,523 749,464 80,000 75,600 85,000 75,600 80,000 75,600 18,900 - $ - - $ - - 89,302 66,385 289,418 242,979 - - - - - - - - - - - - - - - 89,302 66,385 72,781 57,311 72,781 57,311 289,418 1,371,423 242,979 1,077,064 165,711 129,608 - 691,986 539,052 691,986 129,608 539,052 - - 43.35% 35.10% - - - - - - - - - - 39.48% 27.03% - - - - 1,121,574 241,757 1,011,841 36,183 162,083 455,129 2,063,409 123,696 372,587 1,616,117 Premiums in respect of the Directors’ and Officers’ insurance policy are not included above, as the policy does not specify the premium paid in respect of individual directors and officers. (i) Includes statutory superannuation contributions and additional voluntary contributions. (ii) Share-based payment true-up amounts incurred in FY21 in relation to FY19 and FY20 (RJ Bulluss $207,752; RJ Jackson $110,817) reported in the expense recognition table on page 68 and detailed in Note 27, are not reflected in the total above. Including these true-up amounts, total share based payment expense for RJ Bulluss and RJ Jackson would be $450,731 and $240,425 respectively and total remuneration would be $957,216 and $649,869 respectively. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 7 0 10.4 Service contracts • The contract provides for • The contract provides for Compensation and other terms of employment for the CEO and Managing Director and other key management personnel are formalised in employment contracts. Major provisions of the contracts relating to compensation are set out below: Robert Bulluss, CEO and Managing Director • The contract has no fixed term. • Fixed annual compensation to be reviewed annually by the Remuneration Committee. • Long service leave is payable by the Company in accordance with relevant state legislation. participation in short-term and long-term incentive plans. participation in short-term and long-term incentive plans. • Other than for an act that may have a serious detrimental effect on the Company, such as wilful disobedience, fraud or misconduct, termination of employment requires six months’ notice by the Company. Rodney Jackson, Chief Financial Officer • The contract has no fixed term. • Fixed annual compensation to be reviewed annually by the Remuneration Committee. • Long service leave is payable by the Company in accordance with relevant state legislation. • Other than for an act that may have a serious detrimental effect on the Company, such as wilful disobedience, fraud or misconduct, termination of employment requires eighteen weeks’ notice by the Company. 10.5 Director share movement The movement during the reporting period in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Held at 30 June 2021 Purchases (includes DRP allotments) Conversion of Performance Rights Sales / Cancelled Held at Resignation / Retirement Held at 30 June 2022 Directors NG Cathie AW Nisbet RJ Bulluss JSC Todd T Howarth# A White*# Key Management Personnel 801,394 119,885 437,295 116,746 - - 37,878 15,384 8,357 2,231 - 31,241 - - 212,404 - - - RJ Jackson 129,785 4,645 113,299 - - - - - - - - - - - - - - 850,000 135,269 658,056 118,977 - 31,241 247,729 * A White was appointed to the Board on 1 March 2022. # Mr Howarth and Mr White have declared their indirect interests in the shares of the Company as being shareholders of Viburnum Funds Pty Ltd, Richmond Hill Capital Pty Ltd and Rat Pack Adventures Pty Ltd respectively, who are major shareholders of the Company. End of remuneration report. 7 1 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 11. ENVIRONMENTAL REGULATION 12. INSURANCE OF OFFICERS The Group is not subject to any specific environmental regulation. The Group mainly operates from warehousing and distribution facilities throughout Australia and New Zealand which have general obligations under environmental legislation of the respective statutory authorities in relation to pollution prevention. The Company has reviewed its obligations under the National Greenhouse & Energy Reporting Act 2007 (the Act). As the Group is under the minimum greenhouse and energy thresholds stipulated in the Act, there are no registration and reporting requirements that have to be complied with as at the date of this report. For the financial year ended 30 June 2022 and as at the date of this report, the Group has not been prosecuted nor incurred any infringement penalty for environmental incidents. During the financial year the Company has paid premiums in respect of contracts insuring the directors and officers of the Company against certain liabilities incurred in those capacities. The contracts prohibit further disclosure of the nature of the liabilities and the amounts of the premiums. 13. CORPORATE GOVERNANCE The Statement of Corporate Governance Practices is disclosed on the Company’s website. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 7 2 14. NON-AUDIT SERVICES 15. LEAD AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration made in accordance with Section 307C of the Corporations Act 2001 forms part of this directors’ report. 16. COMPANY SECRETARY Mr Mark Licciardo is the founder of Mertons Corporate Services, now part of Acclime Australia and is the Company Secretary. During the year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001, for the following reasons: • all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Company’s Audit and Risk Committee to ensure they do not impact the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out in Note 4 to the full financial report. 17. ROUNDING OFF The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the directors. N.G. CATHIE Chairman Melbourne 26 August 2022 R.J. BULLUSS CEO and Managing Director Melbourne 26 August 2022 Coventry Group Ltd and its controlled entities DIRECTORS’ DECLARATION 1. IN THE OPINION OF THE DIRECTORS OF COVENTRY GROUP LTD (“THE GROUP”): a) the financial statements and notes, and the remuneration report in the directors’ report, set out on pages 64 to 71, are in accordance with the Corporations Act 2001, including: b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a) of the full financial report; c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. i. giving a true and fair view of the Group’s financial 2. The directors have been given the declarations by position as at 30 June 2022 and of their performance, for the financial year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; the chief executive officer and chief financial officer for the financial year ended 30 June 2022 pursuant to Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors. N.G. CATHIE Chairman Melbourne 26 August 2022 R.J. BULLUSS CEO and Managing Director Melbourne 26 August 2022 7 5 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 KMPG LEAD AUDITOR’S INDEPENDENCE DECLARATION C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 7 6 KMPG INDEPENDENT AUDITOR’S REPORT 7 7 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 KMPG Independent Auditor’s Report C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 7 8 KMPG Independent Auditor’s Report 7 9 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 KMPG Independent Auditor’s Report C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 8 0 Coventry Group Ltd SHAREHOLDER INFORMATION As at 24 August 2022 Ordinary Shares Number % of Total 23,788,961 14,227,253 12,485,912 3,508,232 3,418,238 3,134,744 1,746,914 1,484,542 1,382,586 1,167,130 1,154,736 1,000,000 823,291 748,899 658,056 520,960 480,000 455,333 450,000 400,000 26.02 15.56 13.66 3.84 3.74 3.43 1.91 1.62 1.51 1.28 1.26 1.09 0.90 0.82 0.72 0.57 0.52 0.50 0.49 0.44 73,205,653 80.07 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED ONE FUND SERVICES LTD CITICORP NOMINEES PTY LIMITED ONE MANAGED INVT FUNDS LTD BNP PARIBAS NOMS PTY LTD ONE MANAGED INVT FUNDS LTD <1 A/C> DORSETT INVESTMENTS PTY LTD DIXSON TRUST PTY LIMITED BNP PARIBAS NOMINEES PTY LTD MRS ANNE KYLE BNP PARIBAS NOMS (NZ) LTD DIXSON TRUST PTY LIMITED MR ROBERT BULLUSS ROMNEY LODGE PTY LTD MR GEOFFREY KYLE ELLAND ROAD PTY LTD ARUMA BEACH PTY LTD TPSC SMIRK PTY LTD Total 8 1 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 DISTRIBUTION OF SHAREHOLDING Number of holders % Number of shares Size of holding 1 – 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Total 395 646 212 302 52 24.66 40.22 13.20 18.74 224,465 1,621,648 1,571,837 9,749,769 3.18 78,262,634 1,607 100.00 91,430,353 100.00 % 0.25 1.77 1.72 10.66 85.60 Unmarketable parcels field information 400 84 Minimum Parcel Size Holders Units 7,986 SUBSTANTIAL SHAREHOLDERS The Company’s register of substantial shareholders showed the following particulars as at 24 August 2022. Name of Substantial Shareholder Extent of Interest (Number of Shares) Date of last notification Viburnum Funds Pty Ltd 25,696,019 20/05/2021 Richmond Hill Capital Pty Ltd 14,780,901 04/10/2021 Sandon Capital Pty Ltd 9,874,432 06/07/2022 Castle Point Funds Management 6,210,518 16/10/2021 DUMAC Inc. 4,498,152 23/12/2019 C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 8 2 UNQUOTED EQUITY SECURITIES Nil. SECURITIES SUBJECT TO VOLUNTARY ESCROW There are no securities on issue subject to voluntary escrow. VOTING RIGHTS Each member present at a general meeting of the Company in person or by proxy, attorney or official representative is entitled: • on a show of hands - to one vote • on a poll - to one vote for each share held There are no other classes of equity securities. ON-MARKET BUY-BACK On 25 July 2022 the Company announced an on-market buy-back of a maximum of 9,143,035 ordinary fully paid shares (up to 10% of issued capital) in the Company from the period 10 August 2022 to 10 August 2023. 8 3 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 Coventry Group Ltd CORPORATE DIRECTORY Coventry Group ABN 37 008 670 102 Registered and Principal Administrative Office 235 Settlement Road, Thomastown, Victoria 3074 Postal Address P O Box 526 Thomastown, Victoria 3074 Website www.cgl.com.au Secretary Mark Licciardo Bankers National Australia Bank Limited Australian and New Zealand Banking Group Limited Bank of New Zealand Auditors KPMG Tower Two Collins Square 727 Collins Street Melbourne, Victoria 3008 Share Registry Computershare Limited Yarra Falls 452 Johnston Street, Abbotsford Melbourne Victoria 3067 or GPO Box 2975 Melbourne, Victoria 3000 Telephone from within Australia: 1300 763 414 Telephone from outside Australia: (+61) 3 9415 5000 Facsimile: +(61) 3 9473 2500 Email: web.queries@computershare.com.au Website: www.investorcentre.com Securities Exchange Listing The Company’s shares are listed on the ASX Limited and trade under the code CYG. The home exchange is Melbourne. Shareholder Enquiries/Change of Address Shareholders wishing to enquire about their shareholdings, dividend payments, or change their address should contact the Company’s share registry. C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 | 8 4 8 6 | C O V E N T R Y G R O U P L T D A N N U A L R E P O R T 2 0 2 2 

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