Morning, ladies and gentlemen. Welcome to the 86th annual general meeting of Coventry Group Limited. My name is Neil Cathie, and I am the chairman of your board and this meeting. Today's meeting is a hybrid meeting held both in Melbourne and online via the Microsoft Teams platform. This allows shareholders, proxy holders and guests to attend the meeting virtually. Shareholders and proxy holders have the ability to ask questions and cast votes during the meeting. I'd like to introduce the members of the board in no particular order. Andrew Nisbet, James Todd, Alex White, Tony Howarth, who is dialed in to the meeting over in WA, and Robert Bulluss to my immediate left, our CEO and MD. We also have in attendance, right down the very end, our CFO, Rodney Jackson, and Cassie Olver and Mark Licciardo from Acclime, Mark being our company secretary.
Our external auditor, KPMG, is represented today, all by herself in the front row, by Julie Carey, who will be able to respond to any questions relating to the FY 2022 audit report last time. Also in attendance is our share registry Computershare, represented by Peter Render. Acting as scrutineer. Thanks, Peter. My chairman's report is contained in the 2022 annual report, and I don't intend to repeat that comment here. It's much more important that you all hear from Robert, who will provide an overview of the FY 2022 financial year and the current state of business. I'd 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. I'd refer you to the steps outlined on the screen. Type your question in the chat window, stating your name or the organization you represent, and send it to the meeting moderator titled 2022 AGM Questions. The meeting moderator will forward your questions to me. I will address questions as we move through the respective items of business. At the end of the meeting, there'll be another opportunity to just for general questions.
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 September 20th, some time ago now, and posted on the ASX Market Announcement page and our Coventry website. Eligible shareholders who have not already voted by proxy and looking to cast a vote, please follow the steps as outlined on the screen and submit your vote at any time during the meeting. Voting now open. As the meeting has been properly constituted and the company secretary has advised a quorum is present, I declare the meeting open. The notice convening the meeting, having been provided to shareholders, will be taken as read.
Resolutions three and four are subject to voting exclusions as outlined in the notice for annual general meeting. As Chairman of the meeting, I intend to vote in favor on all open proxies on all resolutions to this meeting. The minutes of the 85th annual general meeting, held on October 22nd, 2021, have been signed as a true and correct record by the Chairman. Ladies and gentlemen, the first item of ordinary business is the consideration of the financial report, directors' report, and auditors' reports for the year ended June 30th, 2022. These were circulated as part of the annual report, which members received in hard copy if they so elected or were able to access on our website. I'll now hand over to Robert, who will talk about the year just gone, financial year just completed, and the current state of the business. Over to you, Robert.
Thanks, Neil. I will stand up. That's okay. Welcome, everybody. I'm going to run through a little bit about last year, a little bit about the outlook and a bit about the business as well and how we operate. All right. Coventry Group, we've got two quite distinct businesses in Trade Distribution and Fluid Systems. I think what sets us apart though from our competitors out in the market in both sides of the business is we're specialist businesses. Our fastening business focuses very much on fastening systems. We've got a lot of expertise in that business that we can use to help our customers. We're better at it than what our competitors are. Fluid Systems is a much, much more technical business in a number of different product categories.
Again, we've got highly experienced people with a lot of expertise, and we can assist our customers a lot better than what the competitors out there can. The Nubco business is broader base in what they supply, but what they've done differently to other broad-based supply businesses that are out in the industrial market is hang on to the expertise. If you walk into one of our locations, we'll still have a specialist person looking after steel, a specialist person looking after fasteners, another person looking after tools. Our competitors don't operate that way. Really it's our specialization as we've got there, our value proposition, which I'll talk to, and our higher service levels than our competitors that sets us apart and has created the growth story that we've had over the last five years. All right.
Most importantly, the first thing we think about every day at the Coventry Group is the safety of our people and their wellbeing as well. We spend a lot of time, we've put a lot of investment in the last five years into this area. We've had consistently better results over that journey. Unfortunately, last year, we still managed to injure four people badly enough that they couldn't come to work. So far in FY 2023, we've had another incident that has prevented a lost time injury as well. Our system's a lot better. We've put a lot of investment into resources, again, expertise and experience, health and safety professionals to help us improve these areas. We're on a journey, and we expect these results to get better and better to our target of zero incidents in the business.
Just looking again at the business and the overall vision and strategy of what we're trying to do. We've got a two-pronged strategy. We're looking for very, very strong organic growth, so winning additional market share, winning extra wallet from our existing customers, increasing the number of products we sell, opening new stores, through store makeovers, all sorts of things that grow the business organically. On top of that, we also have our acquisition strategy, and you've seen to date we've done six successful acquisitions. There's a whole lot of different ways that we can grow the business. What we like about it is we've only got a very, very small market share in all of the markets that we operate in. Very fragmented, not a lot of big players, lots of small to medium-sized players.
It's ripe for consolidation through acquisition, but there's a great opportunity for us to expand our footprint and the number of customers that we service. Also hardly touching on e-commerce at all at the moment, which is another area of opportunity. In New South Wales alone, our fastening systems business has locations. One of the major wholesalers in Australia services 175 other customers in that region. Just to give you a bit of context of the opportunity that we've got. On top of that, back of house, we've got out-of-date systems, a lack of technology, and we're looking to improve things in that as well. A big opportunity to improve the operational side of the business to get excellence back of house as well as front.
From a people side of the business, we've created a business and a culture that is truly focused on our people, and we absolutely believe that they are the most important thing in the Coventry Group. What we focus on is attract the right people in, into the business, create the right environment for them to work in, training development, support and empower them. They'll do the job for us to go and get the sales and make the business profitable. A large part of our effort is focused here. In everything we do, we do the right thing. If we get it wrong, we fix it and then move on. You'll find in every single one of our operations these values on the wall, but you will also see them in the behaviors in our people.
If that doesn't happen, we sort of support ourself, cleanse ourselves, and bring others in who do fit that particular culture. I think quite a unique business and a unique culture that we have. Sorry, just same slide, but just a couple of examples. When the New Zealand business got locked down during COVID, we kept every single person, we kept them paid. When our Lismore branch got washed away, we kept all our people, we kept them paid. Helped out the people who lost all of their belongings. A lot of people in Shepparton and Devonport in the same position right at the moment. We're doing exactly the same thing. All right. The value proposition actually works across all the different business types that we've got, even though they're quite distinct in what they do.
First and foremost, we have quality products. We don't have a best, better and another one up top. We only have the high quality products. The reason for that is the applications our product go into can't go wrong. They're high-rise buildings that we're holding up. They're AUD 250 million drag lines. If something goes wrong, it will go badly wrong if it goes wrong. Where we've had instances of quality problems, we've removed partners and done other things to make sure there is not a problem. The quality products. Stock availability. Quite simply having the inventory where the customer wants it, when they want it. Expertise we've already spoken about. This is our specialization and our ability to assist a customer to know what product to buy and how to use it in the particular application they've got.
Agility. This is helping the customer when they need to be helped. A lot of our competitors will say, "If you order by one, you can have it by the next day or even worse." As an example, we've got a customer doing work on the Sydney Harbour Bridge. My apologies. They had to work overnight on the weekend. They had roads shut. They had a whole lot of people on site to do the work and realized they didn't have the gear they needed to do the work. We opened our store at 11:00 A.M. o'clock at night and got that stock to them to get them out of trouble. None of our competitors would do that.
We would lose money hand over fist doing that, but we'll get lots and lots of repeat business and make money in the future. I do record coverage. We've got over 80 locations across Australia and New Zealand, so the ability to service most customers across both of those geographies. Probably only other thing to say is the ERP upgrade. It's a big investment for the business. This is high risk, but we're going about it with a very, very professional team with a lot of expertise. Once we've got that in place, it will give a much better customer experience. We don't have a proper point of sale system. We don't have a demand planning system to manage inventory at the moment, so we're doing a pretty good job growing. Once we get this technology, it'll be a lot easier.
I think that's 10 minutes. You can start that up . All right. Just on the two different businesses, I've sort of already touched on it. We've got Trade Distribution and Fluid Systems. There are three businesses within Trade Distribution. Two of them are quite similar. Our Konnect Fastening Systems and Artia businesses in Australia and New Zealand, Fasten Specialists, and then Nubco, which we acquired three and half years ago, down in Tassie. It's been a wonderful business for us and probably the profitability of that's 50% higher than when we actually acquired. As I said earlier, lots and lots of opportunities for growth, I think particularly in Australia with greenfield stores, relocating stores that were put in the wrong spot by previous management, and making those stores a real destination for customers to come to, which they weren't five years ago.
Lots of opportunities around acquisition. Acquisitions going to occur across all of the business units going forward. Did we skip one then? N o, sorry. In essence, this is what we do. Trade Distribution, we buy boxes, we put them in a warehouse, and we sell them to the customers that distribute them. It's a relatively simple business. We do a little bit of manufacturing and other stuff as well, value-add type instances. Good thing is we're a specialist. Lots of our competitors dabbling lots of different little things and go, in our opinion, a bit too wide. I think everyone understands the products we sell, the market segments that we operate in, they're wide and varied. All of those, with maybe the exception of commercial construction or residential construction at the moment, are powering along.
Construction is still strong, albeit there's a little bit of nervousness around the financial capability of some of those customers. Across the board, we're in very, very good shape. Have been through COVID, and we don't expect that to change. Fluid Systems business, as I said, very, very different. They have a number of different things that they do in each of their operations. We do very, very high-quality work. So when you compare our work to somebody else on site, I don't understand hydraulics or lubrication systems, but I can see that our work's better than them. We think, again, in this market, probably even more fragmented than the Trade Distribution side, that we've only got 3%-5% of the available market share. Going ripe for consolidation through acquisitions.
Nobody really doing much in the way of e-commerce and lots of categories that we can get into that we're only dabbling in at the moment. Fluid Systems, they do a few different things. They do just, again, buy, warehouse, and sell parts. That's about anywhere between 40%-60% of the business, depending on which branch it's coming out of. Each of the branch then has a workshop. They do repairs, they do servicing. The large ones can also do big build work. As an example, we've just about to commission a hay press that we designed, engineered, built, we'll install it and service it. It's a AUD 3.5 million piece of equipment. We can do some quite special things.
Another job that they did at that particular branch was a press for components in the quite unique sort of stuff. We then go out on site, particularly on the mining and resources side, doing again servicing, repairs, and large mobile work. AUD 1 million roof at a mine, probably two for quite specific. The product segments we're in, the customer segments are a little bit the same as Trade Distribution, but we've got a big skew in mining and resources at the moment. Over time, we're moving into other markets just to de-risk having so much of our sales into that, into the one segment. At the moment, the mining resource sector very strong. Don't see any change to that in the foreseeable. Yeah, all markets we operate in Fluid Systems are.
Just because it makes us feel good, but the history over the last five years. Five years of consistent sales and profit growth. We started with a business that was technically AUD 150 million turnover, losing AUD 9 million. As you can see, we've turned that around to be twice the size, quite profitable. Still more to go to get to where we think this business can get to. Our view, a good story. We don't see, again, any reason why that. Just some of the things that we've had to to across five years, we were losing money at the start. We divested the gaskets business to raise funds. That business was going into a paradigm shift with the motor vehicle industry moving out of the country.
That helped us. The pleasing thing I think here, from our perspective, is the great growth that we've had in Trade Distribution, and it's across all of the divisions there. Fluid Systems did go backwards a bit in profitability last year. A couple of key reasons there. One was we had a huge order in the previous year at very, very big margin. Wasn't repeated. We managed to fill the sales up at lower margin, and we have had increased costs, particularly in our labor, just because we can't get enough skilled labor into that business at the moment. We're doing a lot of overtime using high labor just to keep our customers, our existing customers happy. Our balance sheet is in reasonable shape. We are conscious that we have a large holding of inventory at the moment.
We've got a project in place at the moment, specifically looking at that. Working to increase our cash conversion and also make sure that we cover the cost of the year at the rate as well. That project used up some of those franking credits. We've still got a huge amount of tax losses here in Australia, and won't pay tax for some time to come. Moving into Q1, that was quite a pleasing result again for us, from a revenue perspective and also from a profit perspective. Those unplanned holidays for the Queen's passing had a material impact, cost us around AUD 600,000 in profit. Effectively, we lost a day's sale in New Zealand and closer to a day and a half in Australia.
[Having a holiday on the Thursday meant a whole lot of people. It was always as we can imagine. Artia Cabinet Hardware Systems, I'll just touch on briefly because that's a project that we did get a lot of questions about. Obviously, a very costly venture. Two and half year, hard risk. You've all heard ]. Don't know how long it took in the end, but okay. Again, we're pretty optimistic. Few things that we're seeing at the moment, labor shortage is still there. That's going to be a tricky one for some time to come. Everybody's competing for the immigration that will be coming into the country. We're focused really there on making sure we're an attractive destination for people to come to. That seems to be working for us. The cost and price inflation that has happened over the last 12 months is now easing, the markets that we're in. We think that's going to stabilize out. Supply chain is a lot better. The time frames to get our inventory out of the U.S. and China are shortening back up again.
We're seeing the cost of overseas shipping coming down. That's all good. Really, the things that are, you know, troubling us, I guess, at the moment, absenteeism coming down as well as COVID's having less of an impact on employees, having less of an impact. All those things are sort of working in our favor. We've still got, as I said, labor shortage is a problem. Forex is our next thing that we've got to deal with the devaluation of our dollar, protected for a period by hedging. At some point we'll go back to the market with another price increase, which there's a risk of pushing inflation back up. Overall, our markets look really good. We're seeing no slowdown in demand in any of them, including the construction industry. That's all positive. We're still struggling to keep up with the work that's coming our way with the current labor that we've got.
Our strategy we still think is right. We're fine-tuning it. We haven't made any fundamental changes to it. People will not get better and better all the time into doing a great job executing on the strategy for us. Despite everything that's going on all the time, and it's difficult business has ever been to run a business, we're pretty comfortable where we're at, our markets and where we think we're going.
Thanks, Rob. Excellent. Ladies and gentlemen, we'll now deal with any questions in relation to the financial statements and the reports. For that matter, the management of the company. Any questions received online?
There's been no questions received.
Good. Thank you. That makes it particularly easy. Are there any questions from those in attendance? Silence would indicate no. Let's move on.
Pretty disappointed, Andrew Campbell.
Given there's no further questions or comments, I'll declare the financial statements and reports considered and received. Thank you all. We'll now move to the more formal part of the meeting, but to the resolutions on which shareholders, representatives, and attorneys of shareholders and stockholders are being asked to vote. Voting today will be conducted by way of a poll of items of business. Poll results will be announced at the ASX as soon as practicable. Discussion of each resolution will be dealt with individually. The first item of business is the re-election of a director, Mr. Andrew Nisbet. The explanatory notes in the notice of meeting contain particulars of Mr. Nisbet's skills, qualifications, and experience, which I will not repeat here.
The board, with Mr. Nisbet abstaining, unanimously recommends shareholders vote in favor of his election. The ordinary resolution before the meeting is that Mr. Andrew Nisbet, having retired by rotation in accordance with Clause 8.1(a) of the Constitution, being eligible and offering himself for re-election, be re-elected as a director of the company. I'll respond to any questions in relation to this resolution. Cassie, do we have any, or Rebecca, do we have any?
There's no questions.
Are there any questions from those in attendance?
I just wonder if Mr. Nisbet could explain what he thinks he brings to the board. Sure, Paul.
Yeah. As Rob talked about in his presentation, the business we're in is very much in distribution and specialization in the trade business or in trade businesses, particularly in construction and infrastructure. My expertise or my life has been in that sector of the market with Reece and now working, consulting with other companies in that space. Understanding distribution businesses and how we scale and all the dynamics that happen from sort of a branch network is part of what I bring to the business. You know, how do we build our strategy for the future to really capitalize on that. That's for me, I think, the strength I bring [to the].
There's no further questions it would appear. The slide above. Yes, it is. displays the proxies received in respect of this resolution. There seem to be a lot of dissenting votes. Well done. Okay. The next item of business is the election of a director, Mr. Alex White. There. The explanatory notes in the notice of meeting contain particulars of Mr. White's skills, qualifications, and experience, which I will not repeat here. The board, with Mr. White abstaining, unanimously recommends that shareholders vote in favor of his re-election. The ordinary resolution before the meeting is Mr. Alex White, a director appointed as an additional director and holding office until the next general meeting of the company after his appointment. In accordance with the company's constitution and ASX Listing Rule 14.4, be elected as a director of the company, effective immediately. I'll respond to any questions in relation to this resolution. May I have a show of hands?
No questions.
None online. Thanks. Thank you. Are there any questions from those in attendance?
I just have the same question, if you don't mind. Alex, over to you.
No problem. I mean, I think, you know, my skill set's quite different from Andrew's in that he's very much in the operational side of things, the day-to-day. I think I bring much to bear in that respect around helping the business sell more nuts and bolts. I think it's more on the capital allocation piece and how the strategy ultimately feeds into shareholder value creation. I'm a director of a major shareholder, Richmond Hill Capita l. We run one of the best performing investment funds in the country. A lot of experience investing in public companies, and we sort of, guess we have a skill set in understanding what ultimately leads to shareholder value creation.
Got it. Anything else? There being no further questions, I now direct you to the slide displayed on the screen outlining the proxies received. A similar overwhelming. Alex. The next item of ordinary business is to seek shareholder approval to adopt the remuneration report for the year ended 30th of June 2022. 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. Additionally, the act requires listed companies put the remuneration report for each financial year to a vote of members of, 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, as in the past, and will continue to take the outcome of the vote into consideration, and any other feedback we might receive when reviewing remuneration practices and policies. The board unanimously recommends that shareholders vote in favor of the adoption of the remuneration report. Just as a reminder, I refer you all to the explanatory notes of 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 will constitute a first strike as laid out in Section 200. The ordinary resolution before the meeting is that the remuneration report of the company for the financial year ending June 30, 2022 be adopted. I'll now respond to any questions received online.
There are no questions.
I'll take questions from those in attendance. I will note that I did get one question from our company secretary. From a shareholder, concerning a couple of elements of directors and key management remuneration. I surprised that shareholder by giving him a call directly, and we had a chat about it, and I explained to him what had gone on and why things were as they were. He expressed his satisfaction at the results. I'll just now display the number of the proxies received in respect of the resolution. Once again, draw your attention to the voting exclusion statement for this resolution detailed in the notice of meeting. All right. The next item of business is the grant of performance rights to Mr. Robert Bulluss.
The board is seeking shareholder approval for the issue of performance rights to Mr. Robert Bulluss, the company's CEO and Managing Director, in relation to the 2023 financial year. The ordinary resolution before the meeting is that for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.14, and for all other purposes, the directors are authorized to issue up to a maximum of 205,508 performance rights to Mr. Robert Bulluss, Director of the company, or his nominee as soon as practical following the conclusion of the company's 2022 annual general meeting.
In any case, by no later than 12 months after the conclusion of the company's 2022 annual general meeting, on the terms and conditions set out pursuant to the Coventry Group Executive Incentive Plan, and the terms and conditions set out in the explanatory statement accompanying the notice of meeting. I'll now respond to any questions in relation to this resolution. Any received online?
No questions.
Any questions from those in attendance? No. There being no questions, I'll direct you to the this slide displayed on the screen. Also, once again, draw your attention to the voting exclusion statement for this resolution detailed in the notice of meeting. The last item of business, the amendments to the Constitution. The board is seeking shareholder approval for the amendments to the Constitution. The ordinary resolution before the meeting is to consider, and if thought fit, pass the following as a special resolution. That for the purposes of Section 136(2) of the Corporations Act 2001, Constitution of the company be modified by making the amendments set out in the explanatory statement with effect from the close of this meeting. Any request or any questions received online in relation to this?
No questions online.
Any questions from those in attendance? I'll direct you to the slide now displayed, which outlines the proxies received in respect of this resolution. Which brings me to general business. I've already mentioned the one shareholder query that came through, so I won't refer to that again. Have any other questions been received?
There's been no questions.
Are there any other questions received from those in attendance? Right. Those shareholders who have not already voted are encouraged to now do so in accordance with the instructions provided at the beginning of the meeting, as detailed in the shareholder letter sent to you all online. Also displayed again on the screen. No? No. Especially on the September 30th. That's the most important bit. With the results of the poll available immediately, and with the voting closing at the conclusion of the meeting, shareholders are advised that the results will be announced to the ASX and displayed on the company's website as soon as they become available. With there being no other business, I declare the meeting closed.