Coventry Group FY26 Sales Rise 2.8% While Underlying EBITDA Falls 23.6%

Revenue Growth Masks Profitability Challenges

Coventry Group Ltd (ASX:CYG) reported a modest 2.8% increase in constant currency revenue for the 2026 financial year, reaching $375.3 million. Yet this top-line growth belies a 23.6% plunge in underlying EBITDA to $9.4 million, reflecting a business still grappling with legacy issues from prior periods. The statutory net loss narrowed to $15.2 million from $29.6 million the previous year, boosted by a significant reduction in non-cash charges.

The Group operates two main segments: Trade Distribution, which accounts for 59% of revenue, and Fluid Systems, contributing 41%. Trade Distribution sales rose 2.4% to $223.2 million but saw an 18.8% EBITDA decline to $11.7 million, pressured by product mix shifts and steel price deflation. Fluid Systems posted a 3.2% sales increase to $152.1 million, with EBITDA down slightly by 1.5% to $13.2 million, maintaining its position as the Group's most profitable division.

Strong Second-Half Turnaround and Cost Discipline

The year was marked by a tale of two halves. The first half yielded sales of $188.5 million and EBITDA of just $3.2 million, weighed down by ongoing ERP implementation disruptions and an inflated cost base. However, the second half nearly doubled EBITDA to $6.2 million on stable sales of $186.8 million, driven by disciplined sales execution, margin recovery initiatives, and a $10 million annualised cost reduction program that exceeded half-year targets.

Quarterly EBITDA peaked in Q4 at $4.1 million, the strongest in 18 months, alongside a record $5.9 million in operating cash flow. This improvement was margin and cost led rather than volume dependent, positioning the Group with a healthier exit run rate heading into FY27. Inventory was optimised, falling $10.6 million to $78.4 million through ERP-enabled procurement controls and a comprehensive stocktake, while net working capital improved to 19.9% of revenue.

Branch network rationalisation also contributed, with three branches closed and customers redirected, eliminating an annualised EBITDA drag of approximately $1 million. Integration of the Steelmasters acquisition is progressing as planned, expected to deliver further operating leverage in the coming year.

Balance Sheet Stability and Banking Support

Coventry Group’s net debt remained stable at $55.2 million, with total liquidity of $14.8 million comprising cash and undrawn facilities. The Group secured an extension of its revolving cash advance facilities from July 2027 to August 2028, reflecting ongoing support from National Australia Bank. Gross leverage, which peaked at 10.0x in March 2026, improved to 6.3x by June, aided by the improved earnings trajectory and cost discipline.

Despite the loss, the Group recognised deferred tax assets of $24.4 million, including $13.2 million relating to unused Australian tax losses, supported by forecasts projecting sufficient future taxable profits. The Board has suspended dividends to prioritise debt reduction and capital management during the turnaround phase.

Strategic Review Remains Open with No Decisions

Since January 2026, Coventry Group has been conducting a strategic review following unsolicited approaches for parts of the business. The Board has received non-binding indicative offers for individual divisions exceeding the Group’s market capitalisation but has judged these offers insufficient given improving profitability trends. No decisions have been made, and the review will proceed only if it is in shareholders’ best interests.

The Group enters FY27 with cautious optimism. Sales growth and margin improvement initiatives continue, with capital expenditure planned below $3 million. The Board highlights the importance of sustaining EBITDA growth, improving cash conversion, and reducing leverage, while the integration of Steelmasters is expected to contribute to earnings uplift.

July FY27 trading started on a positive note, with sales up 1.3% year-on-year and underlying EBITDA increasing nearly 80%. Coventry Group’s turnaround story hinges on sustaining this momentum and the outcome of the strategic review, which remains the key variable for investors to watch.