CAPRAL LIMITED — Annual Report 2021

Feb 24, 2021

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25 February 2021 Capral Limited (ASX:CAA) Level 4, 60 Phillip Street Parramatta NSW 2150

Approved and authorised by Capral’s Board of Directors

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18 distribution centres
Australia-wide
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Annual turnover
~$432 million¹
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Over 800 employees
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¹ 12 months to 31 Dec 2020

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1. FY20 Highlights

2. FY20 Financials

3. Strategy and Outlook

4. Questions

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“Full year earnings ahead of guidance, very strong second half profit and cash flow, and continuation of dividend”

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• Full year result ahead of latest guidance

• Trading EBITDA¹ of $19.7m (FY19: $11.0m) and EBITDA of $47.2m (including JobKeeper: $11.9m)(FY19: $19.9m)

• 2H20 Trading EBITDA[1] of $13.9m due to strong sales performance, improved operating leverage and savings realised from business initiatives

• Volumes up 7.6% on prior period to 61,000 tonnes with buoyant conditions in second half of 2020

• Strong balance sheet and net cash of $49.4m

• Normalised¹ earnings per share at 66 cents

• Final dividend declared at 45.0 cps (fully franked), up on 2019 which was impacted by restructuring costs, and in line with 2018

• Market share gains against imports

• Major restructure of Bremer Park facility completed, realising a further $5.0m of savings in FY20

• Market conditions in residential building sector improving on back of government stimulus

• Key investment in Smithfield (NSW) extrusion capacity to contribute positively from Q2 FY21

• Safety - TRIFR² at 5.8 (FY19:11.4), the best performance on record

Important Note

• ¹Trading 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 JobKeeper benefit ($11.907 million), LME revaluation and unrealised foreign exchange differences ($0.839 million), other one-off costs that are non-recurring in nature and including the depreciation and interest on Right of Use assets as proxy for rent ($16.570 million). Trading EBITDA is presented with reference to the Australian Securities and Investment Commission Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. Normalised earnings excludes JobKeeper and deferred tax benefit.

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

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Capral continued to operate throughout the period of COVID restrictions. A number of initiatives were implemented to safeguard employees and the business:

• Strict range of protocols for hygiene, cleaning, social distancing and COVID risk plans at all sites

• Business travel curtailed and restrictions imposed on visitor access to sites

• Work from home arrangements introduced for non-operational staff

• Qualified for JobKeeper in May allowing all Capral employees’ jobs to be retained

• JobKeeper funds set aside to invest in job creating capital projects

• Smithfield extrusion plant acquisition 2021 ($9m)

• NSW paint line 2022 ($3m)

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Channels to market (volume)

Diverse industry exposure

Volume Seasonality

Tonnes (000’s)

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16%
56%
28%
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13%
45%
42%
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Source: Capral DC: Capral Distribution Centre

• Residential building includes additions and alterations

• ** Industrial includes transport, marine and other manufacturing sectors

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40
35
30
25
20
15
10
5
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19 1H20 2H20
Source: Capral
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• 1H20 volume on par with 1H19

• ~84% of total volume is Extrusion

• 2H20 volume 14% above 2H19

• ~16% of total volume is Rolled (sheet & plate)

• Full year volume 7.6% up on FY19

• Volume supported by market share gain from imports:

• supply chain disruption

• positive anti-dumping outcomes

• growing “Australian Made” sentiment

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2020

Annual Dwelling Commencements (‘000)

• Capral’s volume in the residential market is mainly aligned with Detached and Low-Rise Dwellings (shaded green in graph)

250

• Residential commencements declined significantly through 1H20 but bounced back in 2H20 on the back of low interest rates, HomeBuilder stimulus and State government first homeowner incentives

• Latest estimate 175,000 starts in 2020

• On par with prior year

• Multi-Res High Rise estimated to decline by 12% in 2020

• Multi-Res Low Rise to decline marginally in 2020

• The upturn in 2H20 will see detached dwellings increase by 6%

Future

• Overall market is forecast to grow by around 6% during 2021 with growth expected in detached, and continued weakness in multi-res

• Multi-res recovery is expected to commence in 2022

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200
150
100
50
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 (e) 2021 (F))
Detached Housing Multi-Res Low Rise Multi-Res High Rise
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Source: BIS Oxford Economics (Dec 2020)

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MLC Nicholas Learning Centre, Kew VIC Capral Architectural Glazing System

San Clemente High School, Mayfield NSW Won the Master Builders Association Newcastle Excellence in Building Award

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ECU Science Building, Joondalup WA Capral sheet used on periodic table facade

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Private Residence, South-West WA Capral Narrowline Glazing System

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Total Capral Industrial Volumes (Index 2012)

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120
100
80
60
40
20
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Capral
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New Truck and Van builds¹ (‘000)

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45
40
35
30
25
20
15
10
5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
¹ Source: TIC (Truck Industry Council of Australia) (Prime Mover Magazine)
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• Marine sector slowed due to timing of boat builds and loss of export share

• Manufacturing and general fabrication good growth partly due to import replacement

• New truck and van builds down 9.2% from 2019

• Transport down from FY19 but has started to lift

• Solar – strong growth (import replacement) and trajectory will continue in FY21

• Resellers – volume to industrial distributors lifted significantly due to import replacement

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Fred Olsen Express – Austal, WA Capral Plate & Extrusions

Woonbalu – Cordina Marine, WA Capral Plate & Extrusions

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Connect South Canopies, South Perth, WA Capral Sheet & Plate Winner of the 2020 Iwan Iwanoff Award For Small Project Architecture

Arends Trailers, Murray Bridge, SA Capral Plate & Extrusions

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“Earnings strong in second half, with excellent cash flow due to improved debtor collections and lower inventory levels”

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• FY20 volume 8% higher than prior year. 2H20 volume 14% stronger than 2H19

• Sales revenue increase driven by higher volume, partially offset by impact on sales price due to lower LME

• Trading EBITDA increased significantly on the back of buoyant second half

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• FY19 Bremer Park restructuring delivered a further $5m cost savings in FY20

• AASB16 EBITDA impact includes rent payments for properties, forklifts and vehicles

• Finance cost higher due to increased use of Letter of Credit facilities for imported rolled products. Finance cost includes facility fees

• Deferred Income Tax Benefit recognised

	FY20 FY19
Sales Volume('000 tonnes) 	61.0 56.7 $m $m 432.0 419.0 19.7 11.0 (0.2) (6.7) 11.9 - (0.8) (1.1) 16.6 16.7
Sales Revenue 
Trading EBITDA¹ 
Restructuring and one-off costs 
JobKeeper
LME Revaluation/Fx Unrealised
AASB16 Lease cost reversal 
EBITDA¹	47.2 19.9 (5.6) (5.5) (12.8) (12.9)
Depreciation/Amortisation
- Owned Assets
- Right of Use Assets
EBIT	28.9 1.5 (1.4) (1.3) (4.6) (4.5)
Finance Cost
- Operational Funding 
- Right of Use Leases
Profit(Loss) before tax	22.9 (4.2)
Taxation 	3.0 -
Profit (Loss) after tax	25.9 (4.2)

¹See Important Note (page 5)

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	Inventory consists mainly of raw material (billet) and finished goods (rolled
	product and extrusion). Reduction in inventory on hand offset by increase in
	goods in transit ($4.1m) due to shipping delays
	Increased receivables due to high sales levels in Q4. Excellent Year End
	collections with DSO at 44.7 days (2019: 50.5). Receivables are insured.
	Capral has a $41m facility with ANZ, expiring April 2022, extended annually
	in July.
	Liabilities (both current and non-current) include lease liabilities of $96.5m,
	consisting primarily of property leases as defined by AASB16. Net impact is a
	reduction in Net Assets of $25.7m due to timing of leases
	Non-Current Assets includes $70.8m right of use leased assets (as defined by
	AASB16)
	A further $3.0m Deferred Tax Asset was recognized at Year End to reflect
	increased utilisation of tax losses in future periods

BALANCE SHEET	DEC ’20	DEC ’19
Current Assets	$m	$m
Inventory 	79.1	78.9
Trade Receivables 	66.3	62.6
Net Cash and Equivalents 	49.4	17.9
Other	2.5	1.6
	197.3	161.0
Current Liabilities
Trade Payables	(77.2)	(65.4)
Lease Liabilities 	(13.5)	(13.9)
Provisions and Other	(16.6)	(14.6)
	(107.3)	(93.9)
Net Current Assets	90.0	67.2
Non Current Assets 	115.8	120.6
Non Current Liabilities 	(87.6)	(94.8)
Net Assets	118.2	93.0
Net Tangible Asset Value	112.0	89.7
NTA per share	$6.76	$5.56
Franking Credits	18.0	19.0
Accumulated Unrecognised Tax Losses 	258.1	295.2

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	Working Capital reduction primarily driven by excellent debtor collections
	at Year End
	Operational interest charge in line with FY19, balance of finance cost is
	interest on right-of-use leased assets (as defined by AASB16)
	Maintenance, Environmental and Safety capex is around $3m per annum
	Dividend paid is net of Dividend Reinvestment Plan (DRP). DRP will be
	available for the FY20 final dividend of 45 cents per share.
	Bank Guarantees primarily used in respect of property leases
	Trade Instruments mainly letters of credit (drawn and open) in relation to
	import of rolled product
	Trade/Other loans represent debt facility usage to fund working capital
	needs. Maximum usage $7.1m during FY20 (FY19 $10.2m)

CASH FLOW	FY20	FY19
	$m	$m
EBITDA	47.2	19.9
Working Capital 	10.5	(3.6)
Finance Cost 	(5.5)	(5.6)
Operating Cash Flow	52.2	10.7
Capex Spend 	(4.0)	(5.3)
Proceeds from sale/lease back	-	4.7
Lease Principal payment	(15.1)	(15.1)
Free Cash Flow	33.1	(5.0)
	(1.2)
Dividend Paid 		(4.8)
Increase/(Decrease) in Net Cash	31.9	(9.8)
BANK FACILITY USAGE DEC ‘20 DEC ‘19
$m $m
Bank Guarantees  3.8 3.9
Trade Instruments  23.3 23.9
Trade / Other loans  - -
Asset Finance Facility  1.1 3.6

BANK FACILITY USAGE		DEC ‘20	DEC ‘19
		$m	$m
Bank Guarantees		3.8	3.9
Trade Instruments		23.3	23.9
Trade / Other loans		-	-
Asset Finance Facility		1.1	3.6

NET CASH POSITION	DEC ‘20	DEC ‘19
Cash Balance in funds	49.4	17.9

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“Deliver benefits from capital and resourcing investments to further improve Capral’s long term competitive position"

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OPTIMISE What we do

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Manufacturing Focus on delivering benefits of Smithfield extrusion capacity acquisition

Continuation of process improvement programmes at Bremer Park and other sites

Selective maintenance capital spend to ensure on-going plant reliability and efficiency

Improvements in market offer and service in our aluminium distribution business

Long term goal to increase volume and profitability of Capral’s direct distribution channel

Solar

The solar market in Australia continues to grow and anti-dumping outcomes provided the opportunity to compete in $60m solar rail market Supply agreement in place with a large solar rail distributor

Defence

Capral is an approved supplier into all major defence contracts and is currently supplying a number of projects

Cladding

Over 1,000 buildings need cladding replaced and new buildings must meet new fire standards. Capral has signed an exclusive agreement with Smartfix, a certified solid aluminium cladding system patented in Australia

Import Replacement

Capral regained market share from imports in 2020 and a focus in the year ahead is the retention of volume through service differentiation and competitive pricing

On-going investments in systems technology (CRM) to improve sales effectiveness, including flexible interfaces (EDI) with customer systems Expanding E-store to provide customers with more flexibility. On-line sales up over 150% on 2019, off a relatively low base New sales reporting tools have been implemented to manage and improve margins

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Challenges
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Australian
Made
Campaign
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Anti-Dumping Activities

• Original case won in 2010 with low level duties imposed on Chinese imports

• Reforms to federal legislation and methodology

• Measures imposed against all Vietnam and some Malaysian sourced extrusions

• Anti-circumvention / trans-shipment investigations finalised and measures implemented

• Variable Measures Review of China finalised with increased duties implemented

• Measures extended on Chinese imports for a further 5 years

• Preliminary Affirmative Determination on exempt Malaysian exporters and interim duties imposed in December

• Finalise outcomes on Malaysia and Vietnam cases

• Continue to interact with Government

• Monitor other jurisdictions and take action as required

• Increased focus by Australian Border Force on trans-shipment and misclassification

• Limited information available on imports from ABS

• Applications from exporters for accelerated reviews

Other

• A founding member of Manufacturing Australia, Capral continues to interact with government around strengthening the anti-dumping regime and monitoring circumvention

• Intensification of campaign in the wake of the COVID pandemic, adding momentum to import replacement activities

Aluminium Price

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A$/kg Metal Cost
3.30
3.10
2.90
2.70

2.50
2.30 
2.10
1.90
1.70
1.50
2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Q1 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
LME MJP Premium (Major Japanese Ports)
Source: London Metals Exchange: Reuters
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• MJP premiums have been relatively stable since major fluctuations in 2014 – 2015

• LME declined 14% during 1H20 (from $A2,595/t to $A2,243/t). 2H20 saw a reversal of the decline ending the year up 4% at $A2,686/t

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• LME¹ is forecast to be at higher levels throughout 2021

• AUD weakened to ~$US0.67 early in 2020 but recovered to $US0.77 at year end. It is forecast to remain at that level through 2021²

• Residential commencements are expected to recover to around 185,000 units in 2021[3. ] The recovery is led by detached housing growing by 17%, partially offset by decline in multi-res, especially high rise.

• Non-Residential construction is forecast to rebound

• Industrial sector anticipated to remain reasonably strong

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

• Working with Government to strengthen anti-dumping measures

• Monitoring and pursuing circumvention activities

• Prosecuting new cases as required

• Acquisition of Smithfield extrusion plant will contribute from Q2 FY21 onwards

• Absent any unforeseen events, FY21 Trading EBITDA⁴ is expected to be between $21m to $23m and EBITDA between $38m and $40m. On that basis Capral would be in a position to continue the payment of a fully franked dividend

• ¹ Source: Harbor Aluminium Intelligence Unit

• ² Source: ANZ December 2020

• ³ Source: BIS Oxford Economics December 2020 forecast

• ⁴ See Important Note (page 5)

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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Capral has a national footprint with a presence in every state and extrusion plants near five mainland capital cities

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Distribution Centres
Queensland 20 4 Bremer Park manufacturing plant
► 1 Cairns AC ► Capacity 30k tonnes
Darwin
► 2 Townsville RDC / AC ► 4 presses (1 moth balled)
► 3 Sunshine Coast (Kunda Park) AC 1 ► 1 paint line
► 4 Bremer Park RDC ► Co-located with distribution centre
► 5 Brisbane (Springwood) AC Townsville 2 ► Recent investments: automated
product handling and packing
► 6 Gold Coast (Burleigh Heads) AC
3 ► Site restructure 2019
New South Wales
► 7 Newcastle AC Brisbane 4
5
► 9 Erskine Park RDC 6 8 Penrith manufacturing plant
10 ► Rockdale AC 19 ► Capacity 8k tonnes
Victoria 18
12 ► Lynbrook AC 17 Perth Adelaide 7 ► 1 press
8
13 ► Campbellfield RDC / AC 16 14 Sydney 11 9
14 ► Laverton AC 16 Canning Vale manufacturing plant Melbourne 10 11 Smithfield manufacturing plant
16South Australia ► Kilburn RDC ►► Capacity 7k tonnes1 press 14 13 12 ►► Capacity 9k tonnes1 press
Western Australia Hobart
17 ► Canning Vale RDC ► 1 paint line 21
18 ► Welshpool AC ► Recent investments: new paint line, warehouse 12 Campbellfield manufacturing plant
extension and site consolidation ► Capacity 9k tonnes
19 ► Wangara AC
► Co-located with distribution centre ► 1 industrial press
Northern Territory
► 1 paint line (RDC)
20 ► Darwin RDC
15 Angaston manufacturing plant ► Co-located with distribution centre
Tasmania
► Capacity 9k tonnes
21 ► Hobart RDC
► 1 press Manufacturing plant Distribution centre
► 1 paint line
RDC - Regional Distribution Centre Manufacturing plant with Corporate head office
AC - Aluminium Centre distribution centre (Parramatta, NSW)
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• • Includes mothballed press

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