I'd now like to hand the conference over to Robert Bulluss, Chief Executive Officer and Managing Director, and Rod Jackson, Chief Financial Officer of the Coventry Group. Please go ahead.
Thank you. Hi, everyone. I'm Robert Bulluss, the CEO and Managing Director of the Coventry Group, and also have with me Rod, our CFO, so today I'm gonna cover off on the following areas. Firstly, the results for FY 2024. Secondly, an update on how our markets are trading. Third, updates on our key strategic initiatives, and then finally, just a bit of a discussion around our growth opportunities across the business units. At the end of the session, there'll be an opportunity for questions. So firstly, to the FY 2024 results, our trading performance improved during FY 2024, delivering sales and pre-AASB 16 EBITDA year-on-year growth. Further references I'll make now to EBITDA during the teleconference will be always to EBITDA pre-AASB 16 and also before significant items.
Very pleasingly, this is our seventh consecutive year of sales and EBITDA growth. Key highlights in the FY 2024 results were sales growth of 3.4% to AUD 378 million, and positive EBITDA growth, up 22.4% to AUD 20.8 million. The Buy and Sell Side Margin Initiatives that we put in place last year had a big impact on that result. Statutory net profit for the year was AUD 700,000. This was lower than the previous year, but largely due to the AUD 9.1 million of investment into our ERP system upgrade. The ERP project is progressing well, more detail on that later, but we currently have 11 of the Fluid Systems branches and our pilot K&A NZ branch live, along with finance.
We also completed the acquisition of Steelmasters, creating a larger and more profitable specialist fastener business across Australia and New Zealand. The board has declared a fully franked dividend at 3.75 cents per share. This is our fourth consecutive dividend, and our aim is to maintain dividend payments as long as the business has the capacity to do so. The balance sheet remains strong. We have net tangible assets of AUD 34.7 million, and net assets of AUD 143.1 million. For the second consecutive year, our working capital management delivered a strong cash conversion rate, this year at 112.1%, just slightly less than the previous year at 112.5%.
Net debt at AUD 47.3 million, up on the previous year, but a good result as we outlaid over AUD 13 million for the Steelmasters acquisition, on top of the capital raise, AUD 9.1 million for the ERP project, and AUD 4.5 million for capital expenditure. With the ERP project, we've got around AUD 3.2- 3.3 million to go, and we're expecting a slightly higher CapEx run rate during FY 2025, due to the Steelmasters business coming into the group, and also our store build program as we continue to accelerate that. On top of our AUD 55 million NAB financing facility, the NAB also provided us with a new revolving cash advance facility of AUD 25 million to accommodate acquisitions.
So we're getting great support out of the NAB. The positive result was achieved despite external factors, including interest rates impacting discretionary spend and construction and housing markets, continuing high wage inflation, which is now leveling back out again, steel price deflation, which has also leveled out, ongoing labor and skill shortages, forcing us to use high levels of overtime and high labor in Fluid Systems, and of course, the double-dip recession in New Zealand, and later in the financial year, slowing activities on the eastern seaboard of Australia. We do expect the market softness currently being experienced on the east coast of Australia and in New Zealand will be short-lived. From a business unit perspective, Fluid Systems had another very strong year, with sales for the year of AUD 159.2 million, up 7.5% on the prior year.
Fluid Systems, EBITDA was up a very strong 23.5% to AUD 19 million, compared to AUD 15.4 million in FY 2023. Trade Distribution had sales for the year of AUD 212.1 million, up 1% on the prior year. EBITDA was down 1.3% to AUD 16.8 million, compared to AUD 17 million the previous year. And within that, a positive result in Konnect and Artia Australia was offset by the Konnect and Artia New Zealand and Nubco results, which were down. Corporate costs, we lowered to 4.3% of group sales from 4.6% of group sales the previous year, with our target there being 4%. So moving to the outlook now for our markets moving forward.
The businesses within each business segment continue to successfully provide specialized industrial products, services, and customized solutions to our customers throughout Australia and New Zealand. As I mentioned earlier, we expect the market softness currently being experienced on the east coast of Australia and in New Zealand will be short-lived. In the meantime, we continue to focus on what we can control in the markets where we have single-digit market share.... Our emphasis on specialization is the key to this, and is underpinned by our customer value proposition of quality products, stock availability, expertise, agility, and our growing branch network. For our Fluid Systems business unit, demand remains robust for our products and services, and we are seeing little negative impact on this business unit. The work to increase our engineering team and customized solutions has opened new markets for us.
We expect our key markets of mining resources, manufacturing, recycling, transport, agriculture, and defense to continue to perform, and I guess to sort of preempt potential questions around the talk in the media at the moment about China and the mining resources sector. It's worth pointing out that the miners that we deal with are blue chip and have blue chip mines. These mines don't close, have a very low cost to extract, so we don't expect any real impact there. On top of that, as we speak at the moment, we can't keep up with the available work. That's been the case for some time. We do significant levels of overtime, and we are also reducing our exposure over time to that mining and resources sector.
So we're increasing our growth into other sectors, we're increasing our engineering solutions capability, and we're taking advantage of the move to automation and electrification, which goes across all of the market segments that we operate in. So we remain positive about that market. For Konnect and Artia Australia, demand is different by geographical segment. We've still seen demand in WA to be positive. For a slowdown in Queensland, that's now heading back to normal. It is slower in the other seaboard states, but we expect that to improve in the near term rather than the long term. For our Konnect and Artia in New Zealand business, the economy over there has been challenging. Our reduction in sales there has been a lot less than many other businesses in our sector.
We think that shows the strength of our operations there. As that economy bounces back, as they reduce interest rates, we expect that to trigger orders for projects that we're currently quoting. And overall, our view is the economy will improve over the financial year, and we expect to return to sales growth year on year in FY 23. Our Nubco business has struggled due to increased competition in the steel and power tool markets, combined with deflation on steel products. We continue to work on our strong value proposition to win a greater share of the market, and are increasing our focus on the fastener market in Tasmania. So by sector, mining resources, the sectors we're in and the commodities we play in, we think those sectors will continue to perform. There's still a lot of infrastructure projects to continue to support the economy.
Commercial and residential construction markets will improve once interest rate relief and inflation is back at normal levels. Our core industrial and manufacturing markets will improve as activity increases in the other markets we service, and all of our secondary markets, which are very big growth opportunities for us, continue to perform well, so these markets include agriculture and aquaculture, renewable energy, oil and gas, and defense and recycling, so moving into some of our key initiatives and projects, the most important one, of course, is the ERP upgrade project. The project at this stage is progressing very well. The key objectives out of this project are to improve customer service and to improve productivity. Microsoft D365 is a leading-edge technology with the capability for us to continually take advantage of improvements being made to the system.
We've got a very experienced project team, and project partners, and dedicated subject matter experts from the business running the project. I'm very pleased at this stage to advise that we've successfully migrated eleven of our fifteen Fluid Systems branches onto the system, with very limited impact on trade, and as of Monday, we now have our pilot Konnect and Artia New Zealand site live and operating with no impact on trade there as well. In addition, our finance team are now operating on D365 and the other systems, in particular Oracle, so we're running a dual function there at the moment. They've managed to close the first month in with no issues. All key functions are working as planned. We can pay our bills, we can transact with the banks through EDI, with our customers and suppliers.
All of those key operations are working. So at this stage, our confidence grows as we tick off each project milestone. The next stage is to bring the final Fluid Systems branches onto the system. Then we'll bring the rest of New Zealand on, with the last stage moving back to Australia to bring our Konnect and Artia Australia branches on. So at this stage, we're still on target to complete the project in December 2024, largely on time and on budget. The other big initiative last year, as I mentioned earlier, was our buy and sell side margin initiatives. These had a material impact on our ability to grow profit during FY 2025, despite slower sales growth. Those gains will be maintained through FY 2025, and there is some further rewards there in the KA business.
Of course, as the markets come back to us and we get back to stronger sales growth, those sales will be at those higher margin levels as well. Still some further work just to finish off the buying benefits that flow from the Steelmasters acquisition, and also some further sell side initiatives. Another key area of focus is accelerating profitable growth in our Konnect and Artia Australia business. We've worked on multiple fronts, including fixing underperforming branches, delivering store makeovers, store relocations, and new stores. Our two new stores in Yatala and Karratha both had profitable months in July, and we've also seen improved margin management and improved supply chain and marketing capability in that business as well.
So we continue to repair the damage of the past and remain confident that we can build that business up to the hundred store level that we've been promising. From a debt management perspective, our focus on inventory and debtor management and sensible investment in capital expenditure resulted in that cash conversion result of 112.1%. And as I said earlier, that's second consecutive positive result there. The investment in the D365 project and the technology that we get from that will provide us with more opportunities to improve stock availability and also reduce inventory levels across the business or stock days across the business. So we look forward to getting that in, getting it properly configured, and taking advantages of that system moving forward.
Last thing I just wanna touch on again is the growth opportunity for the group. For FY 2025, sales growth is gonna be our key priority and our key initiative. Both the Trade Distribution and Fluid Systems business units have, at best, single-digit market share. Our markets are ripe for consolidation through both organic growth and also through acquisitions. In Trade Distribution, the key initiatives there are, again, increasing share of wallet with existing customers and winning new customers through a value proposition based on specialization and our superior customer service levels. We'll then also aim to open two to three new stores across FY 2025, do a number of branch relocations and also branch refurbishments, which will get us closer to having the entire network in the shape that we want it.
Wherever we do these relocations or trades or upgrades, we pretty much immediately see a return on that investment with increased sales, so, it's been a very positive program for us. It is absolutely critical for success that we have the right branch manager. When we get the right branch manager, they get the right people in, and that's a key element for success. The Australian business, as I said, we wanna get that up to the hundred, branches plus, and we're also looking at getting to 2025 plus in New Zealand. If you have a look at our Australian business size compared to New Zealand, and look at the population between Australia and New Zealand, we absolutely should have a business that's twice as big as what it currently is in Australia. We'll continue our initiatives around improving trading and gross margin.
We will continue to enhance the capability in our sales and marketing team, and we're also building digital capability with a go live imminent for the Nubco online store. And then we've got D365 coming, which will improve our customer service and productivity. It'll make us a far more attractive place for people to work with the cutting-edge technology, and really will make it quite difficult for our competitors to keep up with us at that stage. In Fluid Systems, we'll continue to expand sales in our existing markets, but also look to diversify into markets outside of mining and resources. We have some work to do around expanding and relocating facilities to accommodate growth, continue to increase our engineering capability, and develop capabilities for the move from manual processes to automated and electric systems.
And this is a paradigm shift in the market. We're at the leading edge of it and turning it into a positive paradigm shift for the business. We've also got some options for branches in new geographical regions as well, for the Fluid Systems business. And then, of course, on top of that, we'll continue to look for acquisition opportunities, but only highly profitable businesses that are an exact match and fit for our existing core operations. From a group perspective, strategic priorities for FY 2025 are ensuring we have the right people for growth, accelerating organic growth and improving margins, particularly in Trade Distribution, continuing to focus on right-sizing inventories and cash conversion, delivering the remaining stages of the ERP upgrade project to schedule and budget, and reinforcing with customers our focus on specialization.
So we remain committed to leveraging the scale benefits of the platform established over recent years in all parts of our business. In summary, the group operates in multi-billion-dollar fragmented markets where we have single-digit market shares. We've got clear plans for accelerating profitable growth. We operate in the right markets, have a successful strategy, and have the right people to deliver sustainable, profitable growth. So thank you. We'll now answer any questions you have.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're using a speakerphone, please pick up the handset to ask your question. Your first question comes from Daniel Ireland, from Petra Capital. Please go ahead.
Hi, Rob and Rod. Well done on the result. I just had a question on the gross margin. So you singled out in the presentation that you've seen quite an improvement. Can you just clarify as to where you're expecting gross margin improvement to come from going forward? Is that gonna be more of your sales initiatives, or is it rising prices? Just a bit more color on that.
Yeah, thanks for the question, Daniel, so it's a combination of things. That's what occurred during FY 2024. We looked at many levers on both the buying side and the sell side to achieve that 2.3% increase that we highlighted. In FY 2025, there is a little bit more work to be done on the buying side, particularly around some of the buying synergies that we're achieving through the Steelmasters acquisition. We'll continue to work with our suppliers to improve terms where we can, but we're also working on the sell side. Again, just tweaking where we're, I guess, underpricing ourselves in the market for the service that we're providing, so we're providing a premium service, and we deserve to get paid accordingly for that. There's lots of little things, not any big bang that we're doing there.
Okay. So businesses like the Konnect and Artia Australia business, I mean, is there an opportunity there to increase the margins just in that particular division? Can that sort of bring the overall gross margin up, do you think, or?
Look, the answer is yes, there is definitely an opportunity to improve the margins in that Konnect and Artia Australia business. More focus this year on the sell side, where we're just not charging the right level of pricing.
Yeah. Okay. And then just with the ERP program, so everything looks on track, so that's good news. I just wanted to try and get a better understanding as to when you might start to see some of the benefit coming through from that. I mean, is it too early to start to see that, say, in the second half of twenty-five, do you think? Or is it gonna be a little later than that, maybe the following financial year?
Look, I think we will definitely start to see some of the benefits in the second half of the year. Already when you look at the New Zealand business go live in, you know, three, we're in day three, and already the customers are saying the service is better because of the point of sale that we've put in place there. It will take us the rest of this year to continue to configure the system. The way Microsoft D365 works is you can do a particular process 10 different ways. You've got to decide the way that suits your business best. So we'll continue to fine-tune all of that.
It will take, you know, six to 12 months for the configuration around the demand planning, so our stock ordering to maximize itself and get the stock availability up to the right levels, but we should start seeing some benefit from that. And then there's already work being done to take advantage of some of the analytics, the CRM, that will help the sales guys, and adding in a whole lot of clever tools that will make the sales team more efficient in the way they go about selling the market. So I think we'll start to see benefits second half of the year, FY 2026, that should accelerate.
Yeah, and just one final question, just on the July update that you provided in the presentation. You said that sales increased, including those acquisitions at 8%, and I just wanted to get a feel for what the July month is like for the group overall. Is it evenly divided, say, in that July month, or is that quite a small contribution to the overall year, or can you just give us a bit of a feel for what that contributes to the financial year, that July month?
July for us is really just a normal month, if you like.
Okay.
You know, the business units have sort of followed the same trend as they were following in the second half of last year.
Yeah. Okay. Thanks very much, guys.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Nick Sladen, from LSN Capital. Please go ahead.
Good afternoon. Can you hear me?
Yep, can hear you loud and clear, Nick.
Just interested in your views on the balance sheet. Obviously, Steelmasters is being integrated. You've sort of alluded to potential M&A opportunities, net debt around AUD 47.7 million at the balance date, but you've also announced a buyback, I noticed, about a week or so ago. Can you just sort of put some context around M&A versus share buyback, which has been announced? Just trying to understand how you're thinking.
Yeah, so the buyback is just a renewal of that buyback's been sitting there for a number of years. We just renew it in case we want to use it. At this point, there's no intention at board level to activate that, so that's that bit of it. From an M&A perspective, our net debt level is above our target rate at the moment of 1.5 times EBITDA. Of course, acquisitions don't always come when you want them to, but you know, so potentially, if we had something fantastic come across our desk and we could fit it into the debt, we might have a look at it.
Otherwise, really, the priority at the moment will be to get the ERP project done, eliminate that cost, continue to grow the business so that we push the profits into the business, and take advantage of the tax losses that we've got sitting there in Australia, and really try and pull that debt level down pretty quickly to give us a facility that's larger and easy for us to use within our metrics.
So the second half of FY 2025, you obviously should see the elimination of the ERP costs?
Correct, yes.
No tax, obviously from a cash perspective, no tax.
Except for in New Zealand. We do pay tax in New Zealand-
Sorry. Yep.
but none in Australia.
Okay. All right, no problems and where... You know, what sort of, what sort of timeframe do you think you could be able to get back to that one and a half times?
Our target is to be back below the one and a half by the end of this financial year, FY 2025.
Okay, thanks.
Thank you. Your next question comes from Simon Conn from IML. Please go ahead.
Hi, Rob, can you hear me?
Yep, I can hear you. Hi, Simon.
Yep. Yeah, just a quick question. I think one of your shareholders has raised the issue of whether Fluid Systems belongs within the group, or whether it's worth more to someone else. You might have already touched on this, but just your view on the strategic value of holding that compared to maybe the price it might attract in the market and price implied by the current share price.
Fluid Systems, for me, is an important part of the group. It's currently our fastest growing and one of the most profitable bits, so it's pretty important to the overall results for the group at the moment. As you can see, we've just committed a lot of money into it with the ERP project and used that business as our pilot. You know, when you look at the two sides of the market, Trade Distribution and Fluid Systems, we've got single digit share in both of them. They're both fragmented, ripe with opportunity for organic and acquisition growth. So, my view is they're both important, and they give us a bit of a natural hedge being in different industries and different markets.
Right. In terms of, I know it was historically mining exposed, but can you just talk about the diversification strategy you've had in place for a couple of years, and, it's now in market exposure? Can you give us sort of a split in terms of revenue?
Yeah, sure. So when I joined, the Fluid Systems business was 95% mining and resources. By the end of last year, we were down below 70. On our current trend, within two years, we should have a fifty-fifty split between mining resources and the other sectors. The other sectors are just as large, if you like, as the mining sector as far as opportunity for us, and have the same sort of things around the opportunity to do the engineered solutions work and also the automation and electrification work. So, yeah, we'll continue to even that out and reduce the exposure we've got to any change in the mining cycle. But at the moment, you know, we still are quite positive about the outlook for us, at least in that sector.
Rob, one last question. Can you just you mentioned electrification. Obviously, there's been a lot of, there's a lot of growth going on in that sector. Can you just talk about what you do in that sector and how you play in the electrification of the Australian economy?
Yeah. So at a very high level, I can, due to my lack of technical capability, but when you look at hydraulics and lubrication, what you're effectively doing is either moving a fluid from one place to another or stopping it from going to another place to another. All of that in the past has been done by a manual lever. Now, what's happening now is all of those manual levers will be gradually removed, and there will be an electric motor in place to do that. You'll be able to do that movement remotely. You'll be able to do diagnostics on it remotely.
We're at the forefront of putting systems onto hydraulics and lubrication systems where we can test in situ the quality of the fluid, whereas in the past, you've got to take a sample, take it away, get it tested, come back. So it's all very proactive type of stuff that we're doing there. So as I say, we're at the forefront. We're ahead of our competitors at the moment in some of the stuff that we're doing there. But that's a huge, huge opportunity for us.
All right. Thanks, Rob.
Thank you. There are no further questions at this time. I'll now hand back to Robert Bulluss for closing remarks.
Okay, thank you. My final words are the same as previous years. We operate in the right markets, got the right strategy, got the right people, and we've got clear plans for accelerating profitable growth and increasing shareholder returns. So look forward to providing further updates throughout the year. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.