CAPRAL LIMITED — AGM Information 2018

Apr 18, 2018

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CAPRAL

ASX ANNOUNCEMENT

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19 April 2018

Annual General Meeting – Chairman and Managing Director Addresses

CHAIRMAN'S ADDRESS

The Group reported a Net Profit After Tax of $12.1 million for the year ended 31 December 2017 as compared to a $14.4 million profit for 2016. Trading EBITDA* of $18.4 million was $1.9 million lower than 2016. Earnings were primarily impacted by the rising LME cost of aluminium billet.

However, this was a commendable earnings result. Consequently, Capral maintained the fully franked dividend at 1.25 cents, which represented a 51% payout of Net Profit After Tax, paid in March 2018.

The balance sheet remains strong. Positive net operating cash flows resulted in year-end net cash on hand increasing to $34.4 million after a dividend payment of $5.9 million during 2017.

After a slow start in 2017, there were higher levels of activity, particularly in the commercial construction and industrial sectors, which resulted in sales volume of 63,200 tonnes, on par with 2016. Tony will take you through this in more detail shortly.

With our industry’s support, Capral will continue to monitor and pursue anti-dumping and circumvention cases to ensure that Australian manufacturers are competing in a fair market. We will also pursue improvements to the anti-dumping regime; we would welcome fairer measures and a tougher approach to importers who evade current measures through misclassification or transshipment of goods. We have seen recently the U.S. Government impose an additional 10% tariff on aluminium imports to the U.S. This is over and above the tougher dumping measures it already has in place. The Australian Government needs to be proactive and put safeguards in place should trade flow changes result from aluminium producers re-directing goods to Australia.

We have made good progress during the year on our key plans and strategies. The major portion of Capral’s capital expenditure in 2018 will be directed at productivity improvements while Management’s commitment to reduce costs will continue to deliver additional efficiencies.

Capral Limited ABN 78 004 213 692 ASX: CAA

Level 4, 60 Phillip St Parramatta NSW 2150

Capral is forecasting 2018 earnings at similar levels to 2017 and Tony will expand on this shortly.

We are pleased that Capral’s focus on safety saw a 15% decrease in its total reportable injury frequency rate to 13.1 in 2017, as compared to 15.5 in 2016. Capral continues to prioritise safety improvement through education and monitoring of the workplace.

PO Box 209, Parramatta CBD BC NSW 2124

T 02 8222 0112 F 02 8222 0130

www.capral.com.au

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On behalf of the Board, I would like to thank all of the employees for their commitment during 2017 and progress on key plans and strategies. I would also like to thank our customers, suppliers and other providers as well as our shareholders, for their continuing support.

Rex Wood-Ward Chairman

• Trading EBITDA is EBITDA adjusted for significant items that are material items of revenue or expense that are unrelated to the underlying performance of the business. Capral believes that Trading EBITDA provides a better understanding of its financial performance and allows for a more relevant comparison of financial performance between financial periods. These items are LME and Premium revaluation, and one-off costs relating to restructuring that are non-recurring in nature. Trading EBITDA is presented with reference to the ASIC Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011

MANAGING DIRECTOR'S ADDRESS

Financial Review

Despite a slower start to 2017, Capral closed the year strongly with volumes finishing on par with 2016. The residential market slowed on the back of lower commencements, down 4.8%[1] . However, this was offset by growth in commercial construction and key industrial markets. Imports still make up approximately one-third of the Australian extrusion market and they continue to suppress selling prices.

The largest input cost for Capral’s extrusion operation is aluminium billet which is based on the international LME price and premiums. The rising LME had a material negative impact on margins during 2017 as we were unable to fully recover the higher LME price from customers in a timely manner. This was the principal factor in the lower earnings against 2016.

As a result, Capral delivered a Trading EBITDA² of $18.4 million as compared to $20.3 million in 2016 on like volumes and sales revenue growth of 5.7%. Statutory EBITDA of $18.8 million as compared to $21.1 million in 2016, included a positive LME revaluation of $0.6 million. The 2017 result was however the second highest in the last 7 years.

The net cash position, after a $5.9 million dividend payment in 2017, improved by $3.0 million. Working Capital increased by $3.4 million due to the higher LME and an increase in trade receivables. The balance sheet remains strong with net cash at $34.4 million at 2017 year end.

Key Initiatives and Strategies

The plans and strategies implemented over recent years have lowered Capral’s breakeven point and positioned Capral to benefit from improved market conditions and volumes.

The focus this year is to execute our capital investment plans in new technology and automation to improve our long term competitive position, and implement further cost Page 2 of 3

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improvement initiatives to offset inflation and rising energy costs. We will also leverage our recent investment in system technology, such as CRM, E-Store, EDI, to improve our sales effectiveness.

Execution of these plans and strategies will continue our business improvement journey, enhance our service and quality, and improve our long term competitive position, which in turn will strengthen customer relationships, secure the future of our employees, and deliver returns to shareholders.

Fair Trade

With the support of the local extrusion industry, Capral continues to initiate cases against dumping and circumvention activities. Dumped imports continue to suppress selling prices and injure local industry. It is important that local manufacturing industries continue to pursue improvements to the anti-dumping regime to enable Fair Trade.

Dividend

Capral paid a final, fully franked dividend of 1.25 cents per share in March 2018.

Outlook

External forecasts for the residential market point to a marginal slowdown in activity this year, with total commencements falling to 217,500[1] . Demand for detached dwellings is forecast to remain relatively strong and this is the primary driver of Capral’s volume in this segment.

LME rose to 5 year highs at the end of 2017. LME is not easy to predict given the influence of a number of external factors. Following last week’s announcement of US sanctions against Russia, which included the largest Russian aluminium producer, the LME has risen by approximately 30%. At this stage, the impact on Capral’s earnings is uncertain; it may have a negative impact on margins if we are unable to fully recover the higher LME price from customers in a timely manner.

Overall market conditions for Capral’s aluminium extrusion and rolled products are forecast to slow marginally.

Following the first quarter, our guidance on Trading and Statutory EBITDA² remains unchanged from February 2018 and is forecast, absent any unforeseen events, to be broadly in line with 2017. On this basis, Capral would again be in a position to consider a franked dividend.

Tony Dragicevich Managing Director

1 Source: BIS Oxford Economics March 2018 forecast (two quarters delayed)

2 Refer to Trading EBITDA explanation in footnote to Chairman’s Address

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