CAPRAL LIMITED — Interim / Quarterly Report 2018

Aug 16, 2018

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2018 Half 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

17 distribution centres Australia-wide

Annual extrusion capacity 70k tonnes

Annual turnover ~$450 million¹

Residential, commercial construction, industrial Over 1,000 FTEs

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¹ 12 months to 31 Dec 2017

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Agenda

1. 1H18 Highlights

2. 1H18 Financials

3. Strategy and Outlook

4. Questions

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1H18 Highlights Tony Dragicevich, CEO & MD

“First half delivered earnings in line with prior period”

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1H18 Performance Highlights

• Half year result in line with prior period

• Trading EBITDA¹ of $6.9m (1H17: $6.6m) and EBITDA of $7.6m (1H17: $7.7m)

• Volumes in line with 1H17

• Strong balance sheet and net cash of $28.9m

• Special dividend declared at 0.5 cents (fully franked)

• Margins impacted by higher Aluminium input costs (LME)

• Industrial sector remains strong

• Housing market softening

• Automation initiatives on track for completion at year end

• Lost time injuries declined but total reportable injuries increased; TRIFR² at 14.5 (1H17: 12.7)

• ¹ See Important Note (page 13)

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

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Volume Breakdown

Channels to market (volume)

Diverse industry exposure

Volume Seasonality

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Tonnes (000’s)
40
35
30
25
20
15
10
5
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18
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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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Source: Capral
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• 1H18 total volume in line with 1H17

• ~ 85% of total volume is Extrusion

• ~15% of total volume is Rolled (sheet & plate)

• 1H18 performance driven by growth in key industrial markets (manufacturing, transport and marine) offset by slow down in residential construction

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

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Conditions softening in Residential market

Annual Dwelling Commencements¹ (‘000)

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250
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200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 (F) 2019 (F)
Detached Housing Multi-Res Low Rise Multi-Res High Rise
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• Residential commencements 2018 forecast in line with 2017 but declining through 2019

• Pipeline in residential work is reducing

• Multi-Res High Rise is showing the sharpest decline

• Victoria, New South Wales and South Australia steady

• Weakness continues in Western Australia, Northern Territory and North Queensland housing markets

• South East Queensland starting to slow

• Tasmania stronger

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¹ Source: BIS Oxford Economics July 2018 forecast (2 quarters delayed)

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Where Capral’s Residential & Commercial products ended up

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RACV Cape Schanck Resort - VIC

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ABC Offices – Southbank VIC

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Glen Iris House – South East VIC

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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 2018
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40
35
30
25
20
15
10
5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018F²
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Source: Capral

• Transport segment growth driven by infrastructure projects and fleet replacement

• Marine sector stronger – commercial ferries and defence

• Manufacturing and general fabrication remained steady

• Well positioned to benefit from Government defence programs from 2019 onwards

• ¹ Source: TIC (Truck Industry Council of Australia) (Prime Mover Magazine) ² Source: Capral

• Truck building remains buoyant

• Following record 2017, a further 1.2% growth in 1H18

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Where Capral’s Industrial products ended up

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Truck Trailer by Sloanebuilt - NSW

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Sculpture by Unique Metalworks - WA

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Cape Class Patrol Vessel by Austal - WA

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Extrusion market beginning to slow

• Residential construction slowing particularly in High Rise

• Non-residential building remains strong

• Key industrial sectors relatively strong

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

• Import market share at ~34%, from ~40% in 2010 prior to Anti-Dumping measures

• Excess domestic extrusion capacity remains

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'000
Tonnes PA AluminiumExtrusion Market Sales Volume
200
186
184
179
180 173
161
156
160
140
120
100
Capral Extrusion Production Volume
80
60
40 26.9 28.0
23.8 25.8
22.0 21.0
20
20.3 19.4 22.0 22.1 26.7 24.7 24.0
0
2012 2013 2014 2015 2016 2017 2018
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Source: Capral (Forecast based on BIS Oxford Economics forecasts and GDP projections)

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1H18 Financials Tertius Campbell, CFO

“Cash flow generation continues to improve, enabling the business to invest in operational improvement projects and return cash to shareholders"

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Trading EBITDA up slightly on prior period

 1H18 total volume in line with 1H17  Sales revenue up driven by higher metal prices  Margins continue to be under pressure due to imports and excess local capacity  Margin impacted by: ‒ Aluminium input price (LME) increased from an average of $US1,854 in 1H17 to $US2,181 in 1H18 ‒ Slightly lower capacity utilisation in 1H18  Fully franked special dividend of 0.5c declared			1H18 1H17
	SalesVolume ('000 tonnes)		29.9 29.6 $m $m 222.6 207.6 6.9 6.6 0.8 1.1 7.6 7.7 (2.8) (2.9) 4.8 4.8 (0.5) (0.4) 4.3 4.4 0.91 0.93 0.50 -
	SalesRevenue
	Trading EBITDA¹
	LMERevaluation²
	EBITDA
	Depreciation/Amortisation
	EBIT
	Finance Cost
	Profit after tax
	Basic earnings per share (cents)
	Dividend per share (cents)

Important Note

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 rising LME

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Metal Cost
A$/kg
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2013 2014 2015 2016 2017 2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
LME MJP Premium (Major Japanese Ports)
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• LME (USD) continued its rise in 1H18, increasing ~18% in 1H18 vs 1H17

• Announcement by Trump administration of trade sanctions caused LME to rise 35% in April 2018 to a 7 year high of $US2,718t

• Easing concerns saw LME fall back to finish 1H18 at $US2,183t

• Unable to fully recover the higher metal cost during the period, impact ~$0.5m

• 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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Financial position supports dividends and re-investment

	1H18 $m	1H17 $m
EBITDA Working Capital Finance Cost Other Operating Cash Flow Capex Spend Dividend Paid Increase/(Decrease) in Net Cash	7.6 (1.7) (0.4) - 5.5 (5.0) (6.0) (5.5)	7.7
		(7.8)
		(0.4)
		0.5
		0.0
		(3.1)
		(5.9)
		(9.0)

		Jun 18 $m	Jun 17 $m
Current Assets Inventory		87.6
			76.0
	- On hand - In Transit	75.0 12.6	69.8
			6.2
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 (cents) Franking Credits Accumulated Unrecognised tax losses		73.5 28.9 2.0 192.0 (89.2) (12.8) (0.5) (102.5)	73.2
			22.4
			2.4
			174.0
			(73.3)
			(11.8)
			(0.6)
			(85.9)
		89.5 47.4 (5.4)	88.1
			41.6
			(5.6)
		131.5	117.4
		128.2 26.7 22.0¹ 279.1
			121.2
			25.4
			24.6
			287.7

• ANZ facility of $50m secured until January 2020

• Increased capex spending on productivity projects

• $6m dividend payment in March 2018; further special dividend to be paid in September 2018

• Inventory impacted by higher LME

• Low risk capital structure with no debt

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¹Before payment of special dividend.

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Strategy and Outlook Tony Dragicevich, CEO & MD

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

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Investments to improve productivity and competitiveness

• Automated product handling and packing at Bremer Park, QLD ($4.5m)

• Stage 1 installation and commission completed

• Stage 2 installation Q3 2018

• Stage 3 installation Q4 2018

• Commissioning on track to be completed by year end

• Robotic packing line at Penrith, NSW ($1.6m)  Line operational, partially handed over to production

• New paint line at Canning Vale, WA ($2.4m)  Building complete

  • Equipment on-site, installation Q3 2018

  • Commissioning on track for Q4 2018

• Warehouse extension and site consolidation, WA

  • Building consent and contract granted for extension for Canning Vale site

  • Completion planned Q4 2018

• Benefits starting to be delivered

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Dumped imports suppress prices and injure local industry

2010 – Modest impact from initial measures on Chinese imports

2014 – Anti-Circumvention

 Case won in 2010 with low level duties imposed on Chinese imports  Anti-Circumvention case 2015 – Measures increased  Circumvention initiated and successfully activities diminished the prosecuted against largest Chinese exporter/importer  Reforms to federal impact legislation and methodology

2017 – New cases initiated

2018 – Continue pursuit of Fair Trade

 Measures imposed against all Vietnam and some Malaysian sourced extrusions

 Oct 2015: Increased measures imposed on Chinese imports to 2020

• Continue to interact with Government

• around strengthening the anti-dumping regime

• Nov 2017: Review of variable

• measures affecting imports from China resulted in generally higher measures

• Continue to monitor and pursue anti-

• circumvention /non compliance activities

• New cases initiated against

• Thailand and two Chinese exporters

 Anti-Circumvention case decision should be finalized late 2018

• Anti-Circumvention

• transhipment case initiated

• Case against Thailand and two

• Chinese exporters terminated

• Review of variable measures affecting

• imports from China commenced in July

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Outlook

• Commentators are forecasting a gradual fall in LME¹ from current levels during 2H18

• AUD weakening to ~$US0.70 by year end and remaining at that level through 2019²

• Residential commencements are expected to soften³

• Industrial sector anticipated to remain strong

• Extrusion market expected to fall slightly

• 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

• Absent any unforeseen events, FY18 Trading and Statutory EBITDA⁴ is expected to be broadly in line with 2017

• ¹ Source: Harbor Aluminium Intelligence Unit / August 2018

• ² Source: ANZ – June 2018

• ³ Source: BIS Oxford Economics July 2018 forecast (2 quarters delayed)

• ⁴ See Important Note (page 13)

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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National footprint of aluminium extrusion plants and distribution centres

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Extrusion plants Extrusion plants
Distribution centres Distribution centres
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QLD - Bremer

WA - Canning Vale

NSW - Penrith

SA - Angaston

VIC - Campbellfield

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