CAPRAL LIMITED — Interim / Quarterly Report 2019

Aug 20, 2019

==> picture [515 x 540] intentionally omitted <==

==> picture [351 x 100] intentionally omitted <==

2019 Half Year Results Presentation

Australia's leading supplier of aluminium products and solutions

==> picture [51 x 51] intentionally omitted <==

==> picture [50 x 50] intentionally omitted <==

==> picture [52 x 176] intentionally omitted <==

==> picture [49 x 50] intentionally omitted <==

5 plants; 8 extrusion presses

17 distribution centres Australia-wide

Annual extrusion capacity 70k tonnes

Annual turnover ~$450 million¹

Residential, commercial construction, industrial

Investment in Process Automation

¹ 12 months to 31 December 2018

2

Agenda

1. 1H19 Summary

2. 1H19 Financials

3. Strategy and Outlook

4. Questions

==> picture [377 x 315] intentionally omitted <==

==> picture [204 x 36] intentionally omitted <==

3

==> picture [217 x 54] intentionally omitted <==

1H19 Summary Tony Dragicevich, CEO & MD

“Right sizing of operations in response to downturn in market conditions, lowering manufacturing breakeven point and lifting profitability.”

4

1H19 Performance Summary

• Half year result down on last year, in line with guidance

  • Trading EBITDA¹ of $2.4m (1H18: $6.9m) and EBITDA² of $3.4m (1H18: $7.6m)

  • Volumes down 10% on prior period

• Strong balance sheet with net cash of $18.7m

• Volumes impacted by slowdown in residential construction

• Industrial sector slowed against prior period

• Imports remained high in 1H19; higher Anti-Dumping measures should have a positive impact from 2H19 onwards

• Investments in automation and equipment upgrades completed in 1H19

  • Technology investments starting to deliver savings

• Operational right sizing, restructuring and one-off costs of $6.4m

  • Delivering annualised savings estimated at $8m, eliminating losses at Bremer Park

• Improved safety performance; TRIFR³ at 11.5 (1H18: 14.6)

• ¹ See Important Note (Page 13)

• ² Including $8.4m AASB16 impact and $6.0m restructuring charge

• ³ TRIFR is total reportable lost time and medically treated injuries per million work hours

Volume Breakdown

Channels to market (volume)

Diverse industry exposure

==> picture [455 x 220] intentionally omitted <==

----- Start of picture text -----

Extrusion
Extrusion Industrial ** Residential
Direct Ex Mill
via RDC 46% Building
46%
37% 41%
Rolled Non
via RDC Residential
17% Building
13%
----- End of picture text -----*

Volume Seasonality

Tonnes (000’s)

==> picture [436 x 200] intentionally omitted <==

----- Start of picture text -----

40
35
30
25
20
15
10
5
0
1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19
----- End of picture text -----

Source: Capral RDC: Capral Regional Distribution Centre

• Residential building includes additions and alterations ** Industrial includes transport, marine and other manufacturing sectors

Source: Capral

• ~ 83% of total volume is Extrusion

• ~17% of total volume is Rolled (sheet & plate)

• 1H19 volume 10% lower than prior year

• Impacted by slow down in residential construction and slightly softer industrial markets

• Imports remained high in 1H19 and surplus domestic capacity continues to impact volumes and margin

==> picture [204 x 36] intentionally omitted <==

6

Conditions softened in Residential market

Annual Dwelling Commencements¹ (‘000)

==> picture [405 x 332] intentionally omitted <==

----- Start of picture text -----

250
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (F)
Detached Housing Multi-Res Low Rise Multi-Res High Rise
----- End of picture text -----

• Residential commencements forecast¹ to decline significantly through 2019

• Latest forecast (May 2019) 165,350 starts for 2019

• 25% decline on prior year

• Multi-Res High Rise showing the sharpest decline, forecast 42% down in 2019, however Capral’s participation in this segment is modest

• Multi-Res Low Rise forecast to decline by 26% in 2019

• Detached Dwellings forecast to decline by 16% in 2019

• Victoria, New South Wales, Queensland and South Australia in steep decline

• Decline slowing in Western Australia

• Tasmania’s growth continuing

• Capral’s volume in the residential market is mainly aligned with Detached Dwellings and Low Rise

¹ Source: BIS Oxford Economics May 2019 forecast

==> picture [204 x 36] intentionally omitted <==

7

Recent Capral Residential & Commercial Projects

==> picture [287 x 312] intentionally omitted <==

==> picture [289 x 312] intentionally omitted <==

==> picture [314 x 312] intentionally omitted <==

Reva Apartments, South Perth, WA

Marsden Brewhouse, Marsden Park, NSW

Surf Shack, Middleton, SA

8

Industrial sector slowed

Total Capral Industrial Volumes (Index 2012)

==> picture [418 x 263] intentionally omitted <==

New Truck and Van builds¹ (‘000)

==> picture [416 x 279] intentionally omitted <==

Source: Capral

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

• Marine sector strong – commercial ferries and defence

• Manufacturing and general fabrication slowed

• Truck building down from 2018 record year

• Sector softening as general economic activity slows

• Government defence programs slowly starting to deliver benefits to local industry

==> picture [204 x 36] intentionally omitted <==

9

Recent Capral Industrial Projects

==> picture [307 x 298] intentionally omitted <==

==> picture [300 x 297] intentionally omitted <==

==> picture [320 x 297] intentionally omitted <==

Wave Piercing Catamaran – Incat, TAS

Memorial Bridge, Hobart, TAS

Slider Trailer, Sloanebuilt, NSW

10

Extrusion market contracted

• Residential construction fell

• Non-residential building steady

• Industrial sector softer

• Capral has an estimated 26% share of the Australian Aluminium extrusion market

• Import volumes and share of market increased in FY18 and maintained high levels through 1H19

• Excess domestic extrusion capacity remains

==> picture [452 x 403] intentionally omitted <==

Source: Capral (Forecast based on BIS Oxford Economics forecasts and GDP projections)

==> picture [204 x 36] intentionally omitted <==

11

==> picture [217 x 54] intentionally omitted <==

1H19 Financials Tertius Campbell, CFO

“Restructuring and automation projects deliver cost reductions in 2H19 and beyond, improving future returns."

==> picture [204 x 36] intentionally omitted <==

12

Trading Results impacted by sharper first half slowdown

• 1H19 total volume 10% below prior period

• Sales revenue fell in line with volume decline  Margins remain under pressure due to imports and excess local capacity  Aluminium input price (LME) reduced from an average of A$2,820 in 1H18 to A$2,613 in 1H19

• Restructuring cost primarily to right size the Bremer operation:  Redundancies $3.3m

• Dismantling and relocation $2.3m

• Other $0.8m

• AASB16 EBITDA impact of $8.4m comprises of:  Depreciation $6.4m

• Interest $2.0m

Important Note

EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortisation and incorporates AASB16 impact from 2019. Trading EBITDA is presented with reference to the ASIC Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. 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, one-off and other restructuring related costs that are nonrecurring in nature and including the depreciation and interest on of Right of Use assets as proxy for rent.

		1H19	1H18
		Incl AASB16	Excl AASB16
	Sales Volume('000 tonnes)	26.8	29.9
		$m	$m
	Sales Revenue	201.2	222.6
	Trading EBITDA¹	2.4	6.9
	Restructuring and one-off costs	(6.4)	-
	LME Revaluation²	(1.0)	0.8
	AASB16 Impact	8.4	-
	EBITDA¹	3.4	7.6
	Depreciation/Amortisation
	- Owned Assets	(2.8)	(2.8)
	- Right of Use Assets EBIT	(6.4) (5.8)	- 4.8
	Finance Cost
	- WorkingCapital	(0.6)	(0.5)
	- Right of Use Leases	(2.0)	-
	Profit(Loss) after tax	(8.4)	4.3
	¹ See Important Note

² Included in other expenses

==> picture [204 x 36] intentionally omitted <==

Source: Capral

13

Earnings impacted by volume and restructuring

==> picture [630 x 409] intentionally omitted <==

• AASB16 EBITDA impact offset by Right of Use asset depreciation and interest

==> picture [88 x 540] intentionally omitted <==

----- Start of picture text -----

14
----- End of picture text -----

==> picture [88 x 540] intentionally omitted <==

----- Start of picture text -----

15
----- End of picture text -----

Financial position stable

CASHFLOW	1H19	1H18		BALANCE SHEET	Jun 19		Jun 18
	$m	$m			$m		$m
	Incl AASB16	Excl AASB16			Incl AASB16		Excl AASB16
EBITDA	3.4	7.6		Current Assets Inventory	82.3		87.6
Working Capital	1.2	(1.7)		Trade Receivables	65.4		73.5
				Net Cash and Equivalents	18.7		28.9
Finance Cost	(2.6)	(0.4)		Other	1.4		2.0
Other	-	-			167.8		192.0
				Current Liabilities
Operating Cash Flow	2.0	5.5		Trade Payables	(70.8)		(89.2)
				Lease Liabilities	(16.4)		-
Capex Spend	(3.4)	(5.0)		Provisions and Other	(18.9) (106.2)		(13.3) (102.5)
Asset Funding	5.0	-		Net Current Assets	61.6		89.5
Leases Principle repaid	(7.8)	-		Non Current Assets¹ Non Current Liabilities¹	104.2 (76.8)		47.4 (5.4)
Dividend Paid	(4.8)	(6.0)		Net Assets¹ &²	88.9		131.5
Increase/(Decrease) in Net Cash	(8.9)	(5.5)		Net Tangible Asset Value (Pre AASB16)²	115.1		128.2
				NTA cents per share (Pre AASB16)	23.8		26.7
FY18 Final dividend of 1.0	cents (fully franked) paid			Franking Credits	19.0		22.0
March 2019				Accumulated Unrecognised tax losses	289.1		279.1

• FY18 Final dividend of 1.0 cents (fully franked) paid March 2019

• ANZ facility of $50m renewed until January 2021

¹ Impacted by AASB16 ($29.3m)

• Low risk capital structure with no debt

² Impacted by Special Dividend ($2.4m), Final Dividend (4.8m), Restructuring ($6.4m)

==> picture [204 x 36] intentionally omitted <==

==> picture [217 x 54] intentionally omitted <==

Strategy and Outlook Tony Dragicevich, CEO & MD

“Deliver benefits of automation investment and right sizing of operations to improve our long term competitive position”.

==> picture [194 x 204] intentionally omitted <==

==> picture [190 x 204] intentionally omitted <==

==> picture [185 x 203] intentionally omitted <==

==> picture [204 x 36] intentionally omitted <==

==> picture [258 x 485] intentionally omitted <==

----- Start of picture text -----

16
----- End of picture text -----

Bremer Park Restructure

• Closure of Anodising operation – continued service delivery via 3[rd] party anodisers

• Removal of one paint line, excess to requirement

• Right sizing of Extrusion operation to align with current demand – one press mothballed

==> picture [321 x 330] intentionally omitted <==

----- Start of picture text -----

17
----- End of picture text -----

• Permanent headcount reduced by 62

• Casual labour reduced

• Bremer lease renegotiated and extended by 5 years

• Additional space made available for sub-lease to third party

• Capital spend on automation starting to deliver savings with further efficiency opportunities underway

• Combined annualised savings of initiatives estimated at $8m

• 2H19 impact ~$3m

Investments to improve productivity and competitiveness

• Automated product handling and packing at Bremer Park, QLD ($5.0m)

• Commissioning complete 1H 2019

• Elimination of bottlenecks

   - New paint line at Canning Vale, WA ($2.4m)
  
      - Commissioning complete Q4 2018
  
      - Improved paint quality
  
      - Head count reduction - 9
  

• Head count reduction - 32

• Robotic packing line at Penrith, NSW ($1.6m)

  • Royalty agreement to commercialise technology for Europe completed

• Warehouse extension and site consolidation, WA

• Project completed 1H 2019

• Annualised cost saving $1.1m

18

Increased dumping measures on imports from China (May 2019)

2010 – 2015 Modest impact from initial measures on Chinese imports

2017 – New cases initiated

• Case won in 2010 with low level

• duties imposed on Chinese imports

 Measures imposed against 2018 – Continue pursuit of Fair Trade all Vietnam and some Malaysian sourced extrusions

• Anti-Circumvention case initiated

• and successfully prosecuted against largest Chinese exporter/importer

• Anti-circumvention 2019 – Measures significantly

• trans shipment case

• Nov 2017: Review of

• finalised with new strengthened Reforms to federal legislation and variable measures affecting

• methodology exporters incurring duties imports from China resulted in  Variable Measures Review of China finalised with generally higher measures  increase in measures implemented in May 2019 Case against Thailand

• and two Chinese exporters unsuccessful

 Variable Measures Review of China finalised with increase in measures implemented in May 2019

 Compliance activity: Border Force announce unpaid duty notices of $15m on Aluminium Extrusions. Action includes; shutdown of companies and visa cancellations

 Continue to interact with Government around strengthening the anti-dumping regime and monitor circumvention

==> picture [204 x 36] intentionally omitted <==

19

Outlook

==> picture [228 x 407] intentionally omitted <==

• Commentators are forecasting a gradual fall in LME¹ from current levels during 2H 2019

• AUD² weakening to ~$US0.65 by year end will partially offset a fall in USD LME

• Residential commencements are forecast³ to remain soft during 2H 2019

• Industrial sector anticipated to remain at current levels but deliver import replacement opportunities to Capral

• 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

• Investments in restructuring and automation initiatives will begin delivering benefits in 2H19

• Absent any unforeseen events, 2019 Full Year Trading EBITDA⁴ is forecast to be between $10 - 12m with EBITDA⁴ $18 - 20m

• The Board will consider its position in relation to dividends after financial year end

• ¹ Source: Harbor Aluminium Intelligence Unit / July 2019

• ² Source: ANZ – July 2019

• ³ Source: BIS Oxford Economics May 2019 forecast

• 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

==> picture [204 x 36] intentionally omitted <==

20

National footprint of aluminium extrusion plants and distribution centres

Distribution centres

– QLD Bremer Park

WA Canning Vale

NSW Penrith

SA Angaston

• VIC Campbellfield

==> picture [217 x 54] intentionally omitted <==

==> picture [335 x 121] intentionally omitted <==

==> picture [204 x 36] intentionally omitted <==

==> picture [255 x 336] intentionally omitted <==

22