CAPRAL LIMITED — Annual Report 2017

Feb 22, 2018

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2017 Full Year Results Presentation

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Australia's leading supplier of aluminium products and solutions

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• 5 plants; 8 extrusion presses

18 distribution centres Australia-wide

Annual extrusion capacity 70k tonnes

Annual turnover ~$450 million¹

Residential, commercial construction, industrial Over 1,050 FTEs

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¹ 12 months to 31 Dec 2017

2

National footprint of aluminium extrusion plants and distribution centres

Distribution centres

QLD - Bremer

WA - Canning Vale

NSW - Penrith

SA - Angaston

VIC - Campbellfield

Agenda

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1. FY17 Highlights

2. FY17 Financials

3. Strategy and Outlook

4. Questions

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FY17 Highlights Tony Dragicevich, CEO & MD

“A strong second half delivered earnings at the upper end of guidance”

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FY17 Performance Highlights

• Full year result at the upper end of guidance

• Trading EBITDA¹ of $18.4m (2016: $20.3 m) and EBITDA of $18.8m (2016: $21.1m)

• EPS 2.54c (2016: 3.02c), DPS maintained at 1.25c (fully franked)

• Second highest earnings in 7 years

• Volumes in line with LY but margins impacted by higher Aluminium costs (LME)

• Industrial sector relatively strong

• Housing market slowed

• Strong balance sheet and net cash of $34.4m

• Anti-dumping activities continued with new cases initiated

• Safety performance improved; TRIFR² at 13.1 (2016: 15.5)

• ¹ See Important Note (page 14)

² TRIFR is total reportable lost time and medically treated injuries per million work hours

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Volume Breakdown

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Diverse industry exposure
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Channels to market (volume)
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[CATEGORY
[CATEGOR
NAME]
Y NAME] [CATEGOR
[PERCENTA
42% Y NAME]
GE]
[CATEGORY [VALUE]
NAME]
[PERCENTA
Rolled GE]
via RDC
[CATEGOR
Y NAME]
[PERCENTA
15%
GE]
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• Source: Capral * Residential building includes additions and alterations RDC: Capral Regional Distribution Centre ** Industrial includes transport, marine and other manufacturing sectors

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Volume Seasonality (‘000)
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Tonnes
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40
35
30
25
20
15
10
5
0
1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17
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Source: Capral

• ~ 85% of total volume extruded in our Mills

• 2017 saw normal seasonality with H2 stronger than H1

• ~15% of total volume is rolled (sheet & plate) and predominantly used in industrial applications

• H2 performance driven by growth in commercial construction and key industrial markets (manufacturing, transport and marine)

• Import competition and surplus domestic capacity continue to impact volumes and selling prices

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Where Capral’s residential & commercial products end up

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Beach House – St Andrews VIC

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Walan Apartments - Brisbane

Adagio Apartments - Perth

Project Home

Conditions softening in Residential market

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Annual Dwelling Commencements¹ (‘000)
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• Residential commencements slower

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250
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 (E) 2018 (F)
Detached Housing Multi-Res Low Rise Multi-Res High Rise
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• Detached housing, Capral's primary market, fell 2%¹ during 2017

• Multi-Residential decreased by 9%¹

• Facade Solutions division established in 2017

• Strong pipeline in residential work, which accounts for around 43% of Capral’s volume

• Weakness in Western Australia and North Queensland housing markets during 2017

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¹ Source: BIS Oxford Economics Nov 2017 forecast (2 quarters delayed)

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Where Capral’s industrial products end up

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Fred Olsen Trimaran - Spain

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Maxi CUBE Tautliner

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Perth Stadium

Industrial sector robust

Total Capral Industrial Volumes (Index 2012)

New Truck and Van builds¹ (‘000)

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120
100
80
60
40
20
0
2012 2013 2014 2015 2016 2017
Source: Capral
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40
35
30
25
20
15
10
5
0
2012 2013 2014 2015 2016 2017
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• ¹ Source: TIC (Truck Industry Council of Australia) (Prime Mover Magazine) – Feb ‘18

• Transport segment growing

• Growth driven by infrastructure projects and fleet replacement

• Marine sector recovering

• 12% increase in new builds on 2016

• Truck builds strongest in 10 years

• Commercial ferries strong

• Expect to benefit from future Defence builds through Government ship building program

• Positive end to 2017 indicates solid 2018

• Manufacturing and general fabrication remained steady

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Extrusion market remains relatively strong

• Extrusion market grew in 2016 but was marginally lower in 2017 due to a slowdown in residential construction

• Non-residential building demand was better than expected, growing by more than 10%¹

• Key industrial sectors (manufacturing, marine and transport) were relatively strong

• Capral has an estimated 29% share of the Australian Aluminium extrusion market

• Import market share has fallen to ~34%, from a high of 40%

• Excess domestic extrusion capacity still exists but utilisation has improved

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'000 Aluminium Extrusion Market Sales Volume
Tonnes PA
200
186
184 183
179
173
175
161
156
150
125 Source: Capral
(Forecast based on BIS Oxford Economics forecasts and GDP projections)
60 Capral Extrusion Production Volume
53.8
52.6
45.7 45.9
42.2 42.8
40
20
0
2012 2013 2014 2015 2016 2017 2018 (f)
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Source: Capral
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¹ Source: BIS Oxford Economics November 2017 forecast (2 quarters delayed)

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FY17 Financials Tertius Campbell, CFO

• “Cash flow generation continues to improve, enabling the business to invest in operational improvement projects"

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Result at the upper end of guidance

• Stronger H2 in line with historical pattern

• H2 volume offset the H1 shortfall resulting in total volume in line with LY

• Selling prices continue to be under pressure due to imports from SE Asian countries

• Margin impacted by: ‒ Aluminium price (LME) increased from an average of $US 1,600 in FY16 to finish FY17 at $US 2,250

• ‒ Lower capacity utilisation in H1

• FY17 earnings also impacted by reduction in WA demand

• Fully franked dividend maintained at 1.25c

Important Note

	FY17 FY16
SalesVolume ('000 tonnes)	63.2 63.4 $m $m 448.7 424.8 18.4 20.3 0.6 1.0 (0.2) (0.2) 18.8 21.1 (5.8) (5.9) 13.0 15.3 (0.9) (0.9) 12.1 14.4 2.54 3.02 1.25 1.25
Sales Revenue
**Trading EBITDA¹ **
LMERevaluation²
Other one off costs²
EBITDA
Depreciation/Amortisation
EBIT
Finance Cost
Profit after tax
Basic earnings per share (cents)

¹Trading EBITDA is presented with reference to the ASIC Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. Trading EBITDA is Statutory 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 between financial periods. These items are LME and Premium revaluations, and costs relating to restructuring and are non-recurring in nature.

• ¹ See Important Note

² Included in other expenses

Source: Capral

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Margins impacted by significant rise in LME during 2017

Metal Cost

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A$/kg
3.00
2.80
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
2014 Q2 Q3 Q4 2015 Q2 Q3 Q4 2016 Q2 Q3 Q4 2017 Q2 Q3 Q4
Q1 Q1 Q1 Q1
LME MJP Premium (Major Japanese Ports)
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• LME (USD) continued its rise in H2, increased ~23% in FY17 vs prior year average

• Total Metal Cost (AUD) increased ~20% over the same period

• Capral was unable to fully recover the higher metal cost during the period

• Customer pricing arrangements

• LME based contracts (~50% of volume)

  • Monthly

  • Quarterly

• Fixed price and price list

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Source: London Metals Exchange; Reuters

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Increased aluminium cost significantly impacted profit

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¹ ¹
¹ ¹
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• Reduction in extrusion volume offset by increase in rolled product

• Under recovery of higher metal cost

• Inflationary pressure

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¹ See Important Note (page 14)

Financial position supports re-investment

	Dec 17 $m	Dec 16 $m
Current Assets Inventory Trade Receivables Net Cash and Equivalents Other Current Liabilities Trade Payables Provisions Other Net Current Assets Non Current Assets Non Current Liabilities Net Assets Net Tangible Asset Value (NTA) NTA per share Franking Credits Accumulated Unrecognised tax losses	77.0 68.0 34.4 0.7 180.1 (74.0) (12.6) (0.8) (87.4)
		75.2
		63.1
		31.4
		1.4
		171.1
		(73.1)
		(11.1)
		(0.1)
		(84.3)
	92.7 45.2 (5.0)	86.8
		44.1
		(5.6)
	132.9	125.3
	129.7 27.2c 24.6 281.2
		122.3
		25.8c
		27.1
		286.6

	FY17 $m	FY16 $m
EBITDA Working Capital Finance Cost Other Operating Cash Flow Capex Spend Dividend Paid Increase in Net Cash	18.8 (3.0) (1.0) 0.2 15.0 (6.2) (5.9) 2.9	21.1
		(5.0)
		(0.8)
		0.3
		15.6
		(4.3)
		-
		11.3

• ANZ facility of $50m secured until January 2019

• Capex spend higher due to initiation of productivity projects

• Material cost rose in line with LME increases

• Strong cash generation in H2

• Low risk capital structure with no debt

• Stock holding in tonnes in line with prior year

• Inventory and Receivables impacted by higher aluminium costs of ~ $6.0m

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Strategy and Outlook Tony Dragicevich, CEO & MD

“Invest in technology to ensure Capral’s long term competitive position"

BUILD OPTIMISE On our strengths What we do

GROW For the future

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Key Capital Investment Projects to improve competitiveness

• Plans and strategies implemented over recent years have reduced operating costs and lowered Capral’s breakeven point

• Invest in automation and new technology in extrusion plants to further reduce operating costs (2018 Capex ~$10m)  Automated product handling and packing installation at Bremer Park, QLD

• Robotic packing line at Penrith, NSW

• Investment in latest paint line technology at Canning Vale, WA

• Invest in baling equipment to improve scrap recycling rates and recover higher prices

• Warehouse consolidation in WA

• Relocate distribution centres into an extension at the Canning Vale extrusion site

• Invest in technology to deliver better efficiency and service

• Increase online sales through Capral's E-Store

• CRM system successfully implemented to improve salesforce efficiency and customer service

• Continue to develop website functionality for customers and specifiers

19

Dumped imports suppress prices and injure local industry

2010 – Modest impact from initial measures on Chinese imports

 Case won in 2010 2014 – Anti-Circumvention with low level duties imposed on Chinese  Anti-Circumvention imports case initiated and 2015 – Measures increased successfully prosecuted  Circumvention activities diminished the against largest Chinese  Reforms to federal 2017 – New cases initiated exporter/importer (Duties legislation & impact of initial imposed Feb 2015) methodology measures  Oct 2015: Anti Measures imposed against 2018 → all imported extrusions from Dumping Commission Vietnam and some Malaysian imposed increased measures on Chinese sourced imported extrusions  Continue to interact with Government imports to 2020  Nov 2017: a review around strengthening completed of variable the anti-dumping measures affecting imports regime from China; resulted in generally higher measures  Continue to monitor and pursue anti New cases against Thailand circumvention /non and two Chinese exporters compliance activities  Anti-Circumvention  Decisions expected transhipment case initiated on new cases initiated last year

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Outlook

• Capral is well-positioned to benefit from market conditions

• Commentators are forecasting a gradual fall in LME¹ during 2018

• AUD ~$US0.80 through 2018²

• Housing commencements are expected to soften³

• Slowdown mainly driven by high density dwellings

• Demand for detached dwellings forecast to remain at relatively high levels

• Extrusion market expected to remain relatively strong

• Capral will continue to play a leading role in the pursuit of fair trade by:

• Initiating new anti-dumping cases

• Pursuing circumvention activities

• FY18 Trading and Statutory EBITDA⁴ expected to be broadly in line with 2017, absent any unforeseen events, and on this basis, Capral would again be in a position to consider a franked dividend.

• ¹ Source: Harbor Aluminium Intelligence Unit / ANZ – September 2017

• ² Source: ANZ – September 2017

• ³ Source: Source: BIS Oxford Economics Nov 2017 (2 quarters delayed)

• ⁴ See Important Note (page 14)

This presentation includes forward-looking estimates that are subject to risks, uncertainties and assumptions outside of Capral's control and should be viewed accordingly

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Questions

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