My name is Neil Cathie, and I'm the chairman of Coventry Group Ltd. Today's meeting is a hybrid meeting, both in Melbourne and online via the Zoom webinar platform. This allows shareholders, proxy holders, and guests to attend the meeting virtually. Shareholders and proxy holders have the ability to ask questions, cast votes. I would like now to introduce the members of the board, in no particular order, James Todd, Tony Howarth, Alex White, and next door to me, Robert Bulluss, CEO and MD. We also have in attendance our new director, as of Monday, Daniel Colombo, our CFO, Rod Jackson, and Robyn Fry, and Pradeep Kaur from Acclime Australia. And actually, Mark Licciardo is also here, mate.
And I'm here on time.
Thank you very much. Officially, our company secretary. Our external auditor, KPMG, is represented today by Simon Dunbar, who's also here, who will be able to respond to any questions relating to the FY2024 audit. Also in attendance is our share registry, Computershare, represented by Julian Mazza, acting as returning officer, as he's done over time. My Remuneration Report is contained in the 2024 annual report, and I don't intend to repeat that content here. Much more important that you hear from Robert, who will add an overview of FY2024 financial year, current state of the business and the future shape of the. I would remind everyone in attendance that this is a formal meeting of shareholders.
While visitors are welcome, only members of the company, proxy holders, or appointed representatives are permitted to submit questions in person or online. Questions can be submitted online at any time, stating the steps outlined on the screen. Type your question in the chat room window, stating your name, organization you represent, and send to the meeting moderator, titled 2024 AGM Questions. Meeting moderator, questions. I will address questions as I move through the respective items, and at the end of the meeting, there will be an opportunity.
Due to the hybrid nature of the event, Computershare will be facilitating voting on the formal part of this meeting, both in person and using their online voting platform, accessible on your desktop or internet-enabled device, as detailed in the shareholder letter sent to you on the twenty-sixth of September, twenty twenty-four, and posted on the ASX market announcements page and commentary website. Eligible shareholders who have not already voted by proxy and wishing to cast a vote, please follow the steps as outlined on the screen and submit your vote at any time during the meeting. Vote. As the meeting has been properly constituted and the company secretary has advised the quorum is present, I declare the meeting open. Notice convening a meeting, having been provided to shareholders, will be taken as read.
Resolutions two and three are subject to voting exclusions, as outlined in the notice of the general meeting. As chairman of the meeting, I intend to vote in favor on all voted proxies on all resolutions. The minutes of the eighty-seventh annual general meeting, held on the twentieth of October two thousand and twenty-three, have been signed as true and correct by the chair. Ladies and gentlemen, the first item of ordinary business is the consideration of the financial report, directors' report, and auditors' report for the year ended thirty June twenty twenty-four. These were circulated as part of the notice, which members received in hard copy, if they so elected, or were able to access on our website. I will now hand over to our Managing Director and CEO, Robert. Over to you, Robert.
Thank you. I stand up. We just want a couple of spots. Yeah. One. One more. Yep, thank you. Got that. Yeah. All right, so I'm going to start with this graph today, because it shows an important part of the story. Over the last seven years, coming on eight years now, and continual sales and profit growth during that period. But what's important about it is that's been delivered through a number of difficult periods that we've gone through. So very early on, the business was in saving mode, it was losing a lot of money, had been badly broken structurally, and needed a lot of repair. So that was the first stage. Second stage we went through was trying to get Konnect, the Konnect business, back on track and to rebuild that. A lot of investment went into that.
We were fortunate enough during that period to do two very good acquisitions, which helped us get the business back to just a break-even point at that point. We then moved on into a growth phase, continuing to fix the Konnect business, and got hit by COVID, and that slowed us down again. So our ability to roll out stores, to store makeovers, and those sort of things during that period was quite restricted. In the last two years, we spent a lot of time, a lot of effort, and a lot of investment getting the last piece of the jigsaw puzzle put together, which is the ERP system. And that part of the life cycle of the business is nearly finished at this point, so we'll complete that by the end of this calendar year. We're on track.
We've got a large part of the users are already on it, and a large part of the business frame. So the growth was still there through all of that difficult stage that we went through. End of this year, that legacy period is done, okay? And we will basically be able to focus the entire business on the growth story loop, and that growth story is big. We have probably 2.5%-3% market share in all of the markets that we operate in, the major ones, Fluid Systems and the Konnect businesses. We will have their systems available to us. We have a great team of people, and we'll be able to really start to accelerate that growth story from this point on.
So for those investors who've stuck with us, real exciting part of the journey is about to start in calendar year 2025. Just really, really quickly on the strategy, this has largely remained unchanged over the journey to date. Very, very importantly, we spent a lot of time making sure we've got the right people in the business and the right culture. We're continuing to invest more and more into the people. Yesterday, we had three first-year graduates present to us. It was just a sensational session that we had with those, and we're very proud of what we've achieved with those people and what they'll do for our business. Most important thing moving forward, though, is that we want to build this into a much, much larger business. As I said, it's a growth story now.
We want to get up to that AUD 500 million turnover, that 10% EBITDA as quickly as we can on a sustainable basis. We've got strategies in place to achieve that. Last year was very much about the margin story, so as economy started to slow off a bit, we really concentrated on trying to get more trading gross margin to the business. Did a whole bunch of buy-side initiatives and a whole bunch of sell-side initiatives. That was very successful leading on into FY 2025. So as sales come back to us, and it has been a bit slow, economies are a bit tight at the moment, the sales growth we're gonna get is gonna be at those high margins.
That helps us accelerate to that 10% EBITDA a lot quicker than what we've been able to, and we're still down at these levels. Very, very important process, still working on that, particularly in the Konnect Australia business. All right, so the markets at the moment, it's fair to say, New Zealand market's been problematic for quite some time now. We do have some confidence that that's about to come back to us. That 75 basis points come off the interest rates over there, which is gonna help. I think going into 2025, we think the markets are gonna pick up a bit. We do have early indicators around level of fence hire, plank hire, and galvanizing that we're doing, which has all hit the bottom and starting to come back up again. They're early indicators of improvement there.
In Australia, mining resources sector is still very, very strong, so that really sets our Fluids business up for success. Building and construction has come off to some extent, particularly resi. Infrastructure projects are still there, but what we've seen in the southern states, South Australia, Tasmania, Victoria, to a lesser extent, New South Wales, they have dropped away. I think most of them will come back as we see interest rate cuts. Victoria's probably gonna be problematic for some time to come. But overall, we still think our markets will outperform the general economy the longer term. So confident about that. I've probably already touched on this bit, the only other thing I'll call out here just on the labor, we're still fighting to get enough labor for our Fluid Systems business in particular.
It's eased across some of the other roles that we're trying to fill, but still particularly difficult in Fluids to get the trades and engineers that we want to be able to do the work. That drives into a much higher overtime, much higher need to use hire labor. That's not as profitable for us when we're doing it that way. What we're trying to do, build the environment in Fluids to make sure we're attracting those people into the business to help accelerate the growth opportunity, which is very big from an organic perspective from that side of the business. So just to have a look, we've done quite a bit of research trying to just verify what we think about the markets, the size of them, what the growth opportunity is.
Looking at the numbers that we're getting from some of the research firms, the size of the fastener market alone in Australia is over AUD 3 billion. Only 80% of our sales go into that market. We've got 20% of our sales into others. Again, really, 2.5-3% is what we've got in that market. Even if we accelerate up to 100 stores, which is our plan, and I'll talk to that in a minute, we still only have 6 or 7% of the market this time with the growth intentions. I don't know where they will go, but there's a lot faster. From a Fluids perspective, going forward, predicting globally that the market's gonna grow at around 6.5%, so much higher than normal GDP.
There's a lot going on in that particular sector, particularly around automation, electrification, Industry 4.0. So these are really new product categories, new segments that are emerging, that are a really, really big organic opportunity. And as I said, if we can get more resources, we will be able to expand our capability there. We've done a great job with the engineering teams, that gives us the capability to do customized solutions. That's a more effective use of our labor as well. So, a really good opportunity there on top of the fasteners opportunity. So I'm not gonna go into all of this in detail, but the, the thing that we love about the business is the size of the opportunity and the amount of things that we can do.
So really, the job for us as the leadership team and the board is to allocate capital to the best place, to the best growth opportunity that we've got. So we've spent quite a bit of time on that. Clearly, we think the Konnect business is the biggest opportunity with the store build program that we've put in place, but also the Fluids business as well. That's a similar size market share of only 3% or 4%. So lots and lots of things that we can attack our markets, and we're very close now to having the systems, the service, the people all in place to deliver on them. The ERP projects, I'll just touch on that while we're here. We now have over half of our users on that system.
The remaining ones will be on by the end of this calendar year, probably now train 650 of the 800 users that will go onto the system. All of the go lives have been successful to date. We expect that system will give us considerable productivity and customer service gains going into next year, and really puts us ahead of all the competition as far as technology. So we've spent two and a half years to get here. Anyone else has got to do the same thing with the same investment to get to the same levels we have now. So very excited about what that's gonna do for us, assist us, better utilization of our energy tech growth opportunities. Value proposition, really unchanged from, what we've seen before, if you've been to one of these.
Quality products is critical to us in the industry we're in. High stock availability, that's only gonna get better. We've run at around 90% using manual systems. In the first three months, post go live and Fluids, we're already up to about 95%, which surprised even us that we've got to that point, but we'll get that to probably 97%, maybe 98% across the whole group. So a significant improvement in our ability to service our customers. We go from strength to strength with the people that we've got. Still very agile, so we carry like a small business. If a customer wants something, we will get it to them, and then our geographic coverage is only getting bigger and bigger, so close to 100 locations across Australia.
Again, I think we've proven through hard times that we can grow the business. So as I said earlier, from this point on, it just gets a lot easier for us, and we're looking forward to the next phase, which is just really focused on that growth and delivering that. So just looking at the fastener side of it, which is the real priority for us now. We have a look at the opportunity, and we look right across Australia and New Zealand, for that matter, to try and highlight exactly where we think the store opportunities are. So sitting behind here, we've got names against the ones that we don't have. If you have a look at Queensland, we've got 19 branches now. Victoria and New South Wales, we've got only 18 between those two states.
Population of, I don't know, twelve million compared to two in Queensland. So that gives you an idea of our lack of stores in this particular region and our ability to grow. Now, we can do a lot of that through greenfields, a little bit of it, probably through acquisition as well. Some places, it's gonna be hard to dislodge a business that's been there for forty years and has a lot of customer follow. A lot of it, we think, through new stores, and I'll give a couple of examples of those more recent ones that have come. So for a greenfield site, what do you need? What are the ingredients that are required for success? The first thing and most important thing is the right team.
What we know is, if we get the right branch manager, they'll get the right team for us, and that creates success. Second thing is the location and the size of the property. So we know what size we want. It needs to be on the right street. We want traffic going past it. We want to be able to paint it yellow, so you can see it from a long way away. And there's a few other ingredients in there that are really, really important to us. We then put the investment in. It's not great, what we have to do, probably AUD 225,000-AUD 250,000 to get the store set up, AUD 300,000 of stock. That's the investment we need to make to get going.
If we get it right and get enough demand in that region before we set up, pretty close to a break-even point when we start. So that's the point, get someone in, developing business in that area, right branch manager over that way to go. So this is our plan. It won't go exactly to this, but in FY 2025, we are targeting five new stores. Got some ideas around a couple of little bolt-ons, as well, but really, it's more about the greenfield opportunity here, rather than the acquisitions. A few of those along the way, but what we want to do is develop a professional approach and team, and invest this line here to make sure we get this right. That's our greatest opportunity. Get to exactly a hundred stores in the future.
Or earlier.
Or earlier. Thanks. So this is just a bit of an idea of the economies of it. It doesn't take too long, as I said, to get back to a break-even position, AUD 1 million in sales, and you're going to be making money. Really, we want our stores to be AUD 2 million plus. There'll always be some variations to that. We've got some much bigger ones, and some smaller ones that only operate on a smaller platform, depending on the location. But generally, that's about the mark we're looking for, and those stores need to make 20% contribution to get us to that overall 10% revenue target. So a couple of more recent examples. The first one on the left is a real success story. You'll probably recognize where this one is, Campbellfield.
But opened only in June, to date, in September? Yeah, September, they made 23% contribution, that branch, on about AUD 200,000 of sales. Now, that's a unique one. That's probably unusual to get to that sort of level so quickly, but we just got all of the ingredients right on that one. The second one here took a bit longer, but is now pumping out AUD 200,000-AUD 250,000 of sales per month. Not quite at the 20% yet, but we expect that to get there very quickly. In both cases, the right branch manager, right location, invested the money, and a very, very good return. So it won't always work like that, but that's the blueprint. So to Q1 was a tougher quarter for us.
Two key contributing factors to that. The first one is the economies. As I said earlier, New Zealand, problematic. Parts of Australia are problematic as well. Then the second piece was the D365. Now, it is disruptive during those go live periods. We've trained 600 people across the business. That takes time out of their day to do that properly. And when we do the cutovers, we basically have to shut the branch for two days to load all the data. So we bring some of the sales forward, some of them after, but we do miss some of it. So they're the two key things. We'll have a little bit of a flow on D365 as we finish off Konnect this quarter, but October at the moment, sales are looking stronger, particularly in the facilities business.
They're now past that D365. So I think as the year goes on, it should start to improve. Come into year twenty twenty-five, we're a lot more confident about our ability to generate sales, so the last page, just to reemphasize, seven years of growth during the difficult times, got a very, very clear blueprint strategy for how to continue to grow the business. We've got the right people. We're very, very confident that we can execute on that strategy that we've got. Over the longer term, our markets will perform, confident about that as well, and specialization in those businesses is quite critical. So we'll stick to what we've been doing. Konnect, we'll be a fastener specialist. Fluids will be a hydraulic and lubrication specialist. Just make sure we focus on what we do well, so I think exciting times for us.
Get to the end of the ERP project next year, economies come back to us, business should really start to accelerate. So, thank you. Thanks for the support from shareholders. Pretty confident we're gonna give you a really good return on your investment. Thank you.
Ladies and gentlemen, we'll now deal with any questions in relation to the financial statements, year ended 30 June 2024, and management. Received any questions online? Yes.
Yes, Mr. Chairman. Here's one. Excuse the feedback. Relating to general performance from Peter Truman, what are the key factors contributing to the share price weakness over the period since the Steelmasters acquisition and capital raise?
It's really nothing to do with Steelmasters, I don't think. It's been a very good acquisition. It's performed to expectations to date. So we're very pleased we've got that into the group. We've got additional benefits over the buying benefits than what we expected with some market information, which has helped us increase pricing a bit in the Konnect side. So, you know, I don't control the share price, I control the business. I just think the investment community's worried, as we are, about the economies to some extent, and that's probably a key factor there.
The only thing I'd add to that, and in fact, I'll draw on the experience of some of the, my fellow directors here, you know, who go close to these markets. Alex White, up the end of the table there, have you got any comments specifically for that? No, I just think, particularly in this, the small capitalization segment of the ASX at the moment, there's a sort of dearth of liquidity. So share prices can move around on very limited volume. And so I think that combined with Robert's point around the sort of softer economic conditions, particularly in New Zealand, where we've got a significant business, in the east of Australia.
Right, thanks. Are there any questions from the room? If not, we'll move on to, yes, well, there are no questions. Clear financial plan, fully considered, so thank you. We'll now move to the resolutions on which shareholders, representatives, and attorneys of shareholders are being asked to vote. Voting today will be conducted by way of a poll on all items of business. Poll results will be announced to the ASX as soon as discussion of each resolution dealt with individually. Now, it won't have gone unnoticed that my re-election is the first item of business, so I'm going to hand over to James Todd to handle that part of it, who probably got my iPad, which is locked with a picture of my family on the front of it, so I'll pass you down these pictures.
You're right.
I'm okay.
Yeah.
See you in the picture. Thank you for that. Explanatory notes in the notice of the meeting contain particulars of Mr. Cathie's skills, qualifications, and experience, which I will not repeat here. The board, with Mr. Cathie abstaining, unanimously recommends that shareholders vote in favor of his re-election. The ordinary resolution before the meeting is that Mr. Neil Cathie, having retired by rotation in accordance with Clause 8.1(d)(2)(a) of the Company's Constitution, being eligible and offering himself for re-election, be re-elected as a director of the Company. I will now respond to any questions in relation to this resolution. Moderator, have any questions been received online?
No questions received.
Thank you. I'll now take questions from those in attendance in person. No questions? There being no further questions, I will now direct you to the slide display, which outlines the proxies received in respect of this resolution. Now, back to the Chair.
Thanks, James. The next item of ordinary business is to seek shareholder approval to adopt the remuneration report for the year ended thirty June. The Corporations Act requires listed companies to make expanded disclosure relating to directors and executive remuneration information. As a result, the directors' report must now include a section called the Remuneration Report. This report is set out in the annual report, and additionally, the Act requires listed companies, the remuneration report for each financial year to vote of members at the company's annual general meeting. Under Section 250R(3) of the Corporations Act, the vote is advisory only and does not bind the directors of the company. Having said that, the board has and will continue to take the outcome of the vote into consideration when reviewing remuneration practices and policies.
The board unanimously recommends that shareholders vote in favor of the adoption of the remuneration report. I refer you all to the explanatory notes in the notice of meeting, in which the two strikes rule in the Corporations Act is outlined. If at least 25% of the votes cast on the adoption of the remuneration report at this meeting are against it, this will constitute a first strike, as laid out in Section 250Q of the Act. The ordinary resolution is up on the screen and in the notice of meetings. I'm not going to repeat it here. What I will do is respond to any question in relation to this resolution. Are there any questions received, moderator?
No questions online.
Are there any questions from those in attendance? Okay. In the absence of questions, I'll direct you to the slide displayed on the screen, outlining the proxies received in respect of this resolution. I'd also draw your attention to the voting exclusion statement, this resolution, detailed in the notice of... Okay, the next item of business is the grant of performance rights for Mr. Robert Bulluss, is seeking shareholder approval for the issue of performance rights to Mr. Robert Bulluss, company CEO, and directly in relation to FY 2025. The ordinary resolution is on your screens and in the notice of meeting, so I'm not going to repeat that. What I will do, again, is respond to any questions in relation to this resolution. Have any been received online?
No questions online.
Are there any questions from those in attendance? Very good. No questions, I now direct you to the slide on the screen, which outlines the policies received with respect to this resolution. Once again, I draw your attention to the voting exclusion statement for this resolution, detailed in the notice. Now, the last matter is an item of special business to seek shareholders approval to financially assist a person to acquire shares, units of shares in the company or a holding company of the company. Under Section 260 B( 2) of the Corporations Act, shareholders' approval for financial assistance by each target must be approved by special resolution passed at a general meeting of the company.
In accordance with the Corporations Act and the company's constitution, a special resolution must be passed by at least 75% of total votes cast by shareholders entitled to vote on the resolution, whether in person, by proxy, attorney, or representative. The explanatory notes in the notice of meeting contain particulars, reasons, and effects of the financial assistance. The special resolution for the meeting is on the screen, on your screens, and certainly in the notice of the meeting. I'm not going to repeat that here. Directors recommend that shareholders vote in favor of this resolution. I will now respond to any questions that have been lodged with the moderator. Are there any?
No questions online.
Are there any questions from those in attendance? Very good. There being no further questions or no questions, I now direct you to the slide displayed, which outlines the proxies received respecting this resolution. Very good. There are no general items, so no items of general business of which notice has been received. Just confirming that's the case?
Yes, that's correct.
Thank you. I will now take any questions from those in attendance. Are there any questions?
Let's go.
Yep.
With the acquisition this year, it brings manufacturing under the umbrella, and one of the things you talk about in manufacturing is using brand to pick quality up and stuff like that. How do you go in a business like this, which is distribution-based, by having a manufacturing element in it? How do you manage it? What are the issues that come up in front of you?
Yeah, so the bit we acquired is a very small component of that business. That's the first thing to say. It's a bit of an add-on and helps drive some business into the business. So the manufacturing piece on the fastener side is simply special runs. We're not doing anything, but we're selling out of a box, it's if a customer comes to us with a problem. The other piece is the galvanizing side of it. So that business has specialists in it that run that part of the business for us. We will, over time, have to maintain that expertise, that would be important. But I think it's worth saying as well, we do do some other manufacturing through the group as well.
We do have stud bolt operations where we cut and chamfer, and we do probably more assemble rather than manufacture products in Fluids as well. We've got a lot of expertise in the engineering team that make sure that we've got the quality right there, but, you know, all of our customized solutions are effectively manufactured products in that side of the business as well.
Now, let's just talk about the quality. When you're purchasing from third parties, how does that process compare with when you're using your own material, I suppose?
Yeah. So we're auditing all of our major suppliers, have been for quite some time, wherever they are in the world. We visit, particularly Asia, a lot to make sure that the quality of the product is right. But fasteners, all of those products are specified. They go through a very rigorous quality inspection system in Asia and then again here at the branch as well. So it's a pretty broad area that we're operating.
Does that mean that it's a commodity product, or is there a real need to focus on that to make sure, like, there are issues with failure or lack of quality in the industry?
It's pretty limited. There is some issues do arise. We have had quality issues from time to time, which we really have rectified, but in the main, it's pretty good. The quality out of China is completely different to what it was, say, twenty years ago. We've had to get it right.
Just on another topic, you talked about the problems in getting labor for the Fluid Systems. What's the actual problem there? You did a good job with how you're going to deal with it, but what's going on?
There, there's a couple of things. One, there's just not enough people. Over a long period of time, governments just didn't invest in trades. So trade schools were basically shut over time, and we haven't invested enough money, so that's meant there's a shortage. We've got a huge mining resources industry here that just gobbles up those resources, and we just simply haven't got enough qualified people.
Principal fitters and turn.
Principal fitters and turners. So we're, we're spending a lot of effort, right? We have, what, twenty-five apprentices on our books right now?
Yep. Gotcha.
So we're doing a lot of work there. We've got a number of graduate engineers that we've got on our books as well. So we're trying internally to build people, but then it's also about making sure that we've got the best environment for people to work in, so we're attracting those resources. But a fitter and turner, if they want to do fly-in fly-out, they can get twice what we pay or more. So it's hard to compete against that.
So, how do you do that? How do you actually compete then? Any good or let's put it another way, how many of your apprentices and people that you've recruited into the business can you hold on to for five years or something like that?
Well, we generally hold on to most of those apprentices 'cause we train them the right way, look after them, and they, you know, they're gonna come out of it as a high-quality operator. And they can see the quality of work we're doing because we're doing the customized solutions work and a whole variety of things. It's an interesting place to be working. You're gonna get a variety of work. Now, some of them will jump out and go and do fly-in fly-out. A lot of them don't do that for a long time. That's a tough life.
There are lifestyle trade-offs as well.
Yeah.
Do they come back if they go to fly-in fly-out?
Yeah.
Just help me understand specialization a bit better. You talked about your secret sauce being specialization and, you know, really focusing on the market sphere. Is there more in that, or is it, are there niches that you explore and special things you do that others in the business don't?
Look, it's a little bit different by each of the different areas that we operate. So if we look at the fastener side, we are a fastener specialist, so we want somebody to come to us first and foremost 'cause they need fasteners. We'll then sell on the branded and ancillary products while they're there. But primarily, we wanna solve their fastener problem. What we've seen over time is the businesses who were fastener businesses have strayed and tried to expand into safety and all sorts of other products. They've lost the expertise in their business, and they can't solve the problems for the customer. And some will still want that broader base thing. We want the people who are really interested in the fastener side.
If you then look at our Fluids business, you know, our focus is on hydraulics, lubrication, to a lesser extent, fire suppression and refueling. But we're very specific again, that we're only doing the highest quality work in those particular sectors. So we're only going into blue-chip miners, into their blue-chip miners, as an example. So just trying to really focus on... It is a niche when you've only got 2.5%-3% market share. So stick at doing what we're good at doing, don't try and expand too wide. There's a big enough market just doing what we're doing. We don't have to go and find all of us.
Thank you.
All good. All right. Excellent questions. Appreciate it, and just a reminder, those shareholders who haven't voted already are encouraged to do so now, in accordance with the instructions provided at the beginning of the meeting and as detailed in the shareholder letter sent twenty-sixth of September twenty twenty-four, and again, displayed, hopefully displayed on the screen. Note that the voting closes at the conclusion of the meeting. With the results of the poll not available immediately, shareholders are advised the results will be announced to the ASX and displayed on the company's website as soon as they become available. Okay, if there are no other business, I declare the meeting closed, and thank everyone for their attendance.