FIRST HALF 2017 RESULTS PRESENTATION 18 AUGUST 2017 CAPRAL LIMITED - - PowerPoint PPT Presentation

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FIRST HALF 2017 RESULTS PRESENTATION 18 AUGUST 2017 CAPRAL LIMITED - - PowerPoint PPT Presentation

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FIRST HALF 2017 RESULTS PRESENTATION 18 AUGUST 2017 CAPRAL LIMITED 1 18 AUGUST 2017 CAPRAL HALF YEAR RESULTS About Capral Darwin Capral is Australia's leading supplier of Aluminium products and solutions. Cairns Our core business is the

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FIRST HALF 2017 RESULTS PRESENTATION

18 AUGUST 2017

CAPRAL LIMITED

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About Capral

Capral is Australia's leading supplier of Aluminium products and solutions. Our core business is the manufacture and distribution of Aluminium

  • extrusion. In addition, we distribute other associated products including rolled

aluminium products (sheet and plate). We manufacture in fjve plants with eight extrusion presses, four paint lines and an anodising line. We supply to customers from our plants and through a network of 19 distribution centres. Our key markets are; residential and commercial construction, and industrial. Our products are used in the fabrication of a wide range of products including; windows and doors, security and shower screens, fencing, balustrades, louvres, transport, marine, signage and general manufacturing applications.

Darwin Cairns Townsville Mackay Brisbane Bremer Park Gold Coast Newcastle Sydney Erskine Park Melbourne Angaston Perth Canning Vale Wangara Bibra Lake Adelaide Dandenong Hobart Campbellfield Penrith Parramatta Extrusion site Warehouse/ Aluminium Centre Corporate office Minto Austex Dies Sunshine Coast

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Agenda

  • 1H17 Highlights
  • Financials
  • Update on Initiatives and Outlook
  • Q&A
  • Appendices
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1H17 Highlights Tony Dragicevich, CEO

"Investing in technology to optimise cost structure and improve

  • ur long-term competitiveness"
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1H17 Performance Highlights

2 TRIFR is total reportable lost time and medically treated injuries per million work hours 1 See Important Note (page 10)

  • On track to meet full-year guidance
  • Trading EBITDA1 of $6.6m (2016: $10.0m), EBITDA of $7.7m (2016: $10.2m) down

compared to an unseasonally high 1H16

  • Margins impacted by rising Aluminium costs (LME)
  • Housing market to remain strong, despite slowing from record levels
  • Industrial sector relatively strong and outlook is robust
  • Initiatives to drive effjciencies are well advanced
  • Automated packing/product handling to commence in 2018
  • E-Store and CRM system operational
  • Dumping measures imposed against Vietnam and Malaysia
  • Safety performance improved and remains a key focus. TRIFR2 at 12.7 (2016: 16.7)
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Volume Breakdown

5 10 15 20 25 30 35 1HY13 2HY13 1HY14 2HY14 1HY15 2HY15 1HY16 2HY16 1HY17 '000t

Volume Seasonality

Unseasonably strong demand

Source: Capral

  • ~85% of total volume is extruded in our Mills
  • ~15% of total volume is rolled (sheet and plate) and

predominantly used in Industrial applications

  • Normal seasonality in 1H17 compared to 1H16
  • Import competition and surplus domestic capacity

continuing to impact volumes

Diverse industry exposure

Source: Capral * Residential building additions and alterations ** Industrial includes transport, marine and other manufacturing Non Residential Building 14% Industrial 41%** Residential Building 45%* Channels to Market (Volume)

Source: Capral

Extrusion Direct ex Mill 44% Extrusion via Distribution Centres 41% Rolled via Distribution Centres 15%

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Residential market is moderating

  • Residential sector commencements slowing
  • Detached housing, Capral's primary market, fell 3% in

12 months to June 20171

  • Multi-Residential decreased by 13%1

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000

June 2010 Dec 2010 June 2011 Dec 2011 June 2012 Dec 2012 June 2013 Dec 2013 June 2014 Dec 2014 June 2015 Dec 2015 June 2016 Dec 2016 MONTHLY UNITS Source: ABS and BIS Oxford Economics June 2017 Dec 2017

Approvals Commencements Forecast

Source: BIS Oxford Economics July 2017 (2 Quarters Delayed), ABS 2010 2011 2012 75 100 125 150 200 ANNUAL DWELLING COMMENCEMENTS 175 163 145 ‘000 181 2013 2014 175 25 50 216 2015 163 225 2016E¹ 227 2017F¹ 250 215

Detatched Housing Multi-Res Low Rise Multi-Res High Rise

  • Despite the slow down, there is a strong pipeline in

residential work, which accounts for around 45% of volume

  • Weakness in Western Australia and North Queensland

housing markets has contributed to a slower 1H17

1 Source: BIS Oxford Economics July 2017 forecast

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Extrusion demand remains relatively strong

  • The extrusion market grew in 2016 and

is expected to be marginally lower through 2017 due to a slowdown in residential construction

  • Non-residential building demand will

improve by an estimated 5%1

  • Key industrial sectors (manufacturing,

marine and transport) have improved Note:

  • Capral has an estimated 29% share of the

Australian Aluminium extrusion market

  • Import market share has fallen to around

34%, from a high of 40%

  • Excess domestic extrusion capacity still

exists but utilisation has improved

2007 2008 2009 2010 2011 20 40 60 80 29.3 32.7 62.0 30.3 28.8 22.5 28.1 50.6 26.725.7 23.0 52.4 59.1 150 175 200 ‘000 Tonnes PA 200 183 165 171 160 ALUMINIUM EXTRUSION MARKET SALES VOLUME CAPRAL EXTRUSION PRODUCTION VOLUME H2 FY 156. 22.4 45.4 H1 2012 20.5 125 21.7 42.2 2013 2014 161 20.6 Forecast 173 22.2 42.8 22.7

Source: Capral (Forecast based on BIS Oxford Economics forecasts and GDP projections) 23.0 45.7

179 2015 22.7 23.2 45.9 186 2016 26.9 184 26.9 53.8 2017e

24.7

Source: Capral

1 Source: BIS Oxford Economics July 2017 forecast

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1H17 Financials Tertius Campbell, CFO

"Financial fundamentals and cash position remains strong"

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First half result down on prior period

2017 Sales Volume - External (‘000 tonnes) 29.6 Sales Revenue 207.6 Depreciation/Amortisation (2.9) EBIT 4.8 Finance Cost (0.4) 4.4 $m EBITDA 7.7 2016 31.5 210.2 (2.9) (0.5) $m 10.2 7.3 6.8 Profit/(Loss) after Tax

H1 H1 Trading EBITDA¹ 6.6 10.0 LME Revaluation² 1.1 0.4 Other one off costs²

  • (0.2)

2 Included in other expenses 1 See Important Note

  • 1H17 half Trading EBITDA1 continues historical pattern of

lower fjrst half return

  • Volume down 6% against prior period which had benefjted from

anti-dumping measures and a very strong residential market

  • Imports from SE Asian countries continue to put downward

pressure on domestic pricing

  • Margin compression in 1H17 due to:
  • Aluminium price (LME) increasing by ~22% from an average of

$US 1,525 in 1H16 to $US 1,855 in 1H17

  • Lower capacity utilisation due to lower volumes
  • 1H17 earnings also materially impacted by reduction in WA

demand

  • 2

2 4 6 8 10 1HY13 2HY13 1HY14 2HY14 1HY15 2HY15 1HY16 2HY16 1HY17 $ '000

Unseasonably strong 1H16 performance

Trading EBITDA 1

Source: Capral

1Trading EBITDA is presented with reference to the ASIC Regulatory Guide 230 “Disclosing non-IFRS

fjnancial information” issued in December 2011. Trading EBITDA is Statutory EBITDA adjusted for signifjcant 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 fjnancial performance and allows for a more relevant comparison between fjnancial periods. These items are LME and Premium revaluations, and costs relating to restructuring and are non-recurring in nature. Important Note

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Increased Aluminium cost signifjcantly impacted profjt

  • Reduction in extrusion volume - $0.9m
  • Diffjculty in fully recovering higher metal

cost - $2.6m

  • Cost savings were able to ofgset the

infmationary impact

12 2 4 6 8 10 10.0 (2.6) (1.7) 1.8 (0.9) 6.6 Sales Overheads 1H16 Trading EBITDA Volume Metal Cost increase under recovery Inflation Cost Savings 1H17 Trading EBITDA $’000

1 1 1 See Important Note (page 10)

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Balance Sheet remains strong

$m $m Jun 17 Jun 16 Current Assets Inventory 76.0 73.0 Trade Receivables 73.2 70.3 Net Cash & Equivalents 22.4 21.9 Current Liabilities (73.5) (74.8) Trade Payables (11.8) (12.0) Provisions (0.6) (0.2) Other Net Current Assets 88.1 80.8 Other 2.4 2.6 174.0 167.8 (85.9) (87.0) Non Current Assets 41.6 41.6 Non Current Liabilities (5.6) (4.9) Net Assets 124.1 117.4 Franking Credits 25.9 27.1 Accumulated Unrecognised tax losses 287.7 292.6 Underlying NTA per share 25.4 24.1 c c Net Tangible Asset Value (NTA) 121.2 114.4

  • Low risk capital structure with no net debt
  • Current ratio better than 1H16
  • Stock holding in tonnes reduced by 10%
  • Inventory and Receivables impacted by

higher aluminium costs of ~ $7.5m

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Cash position healthy

$m June 16 EBITDA Working Capital Finance Cost Other Operating Cash Flow Capex Spend 10.2 (0.5) $m June 17 7.7 (7.8) (0.4) 0.5 0.0 (3.1) (5.9) (0.3) (1.7) Increase/(Decrease) in Net Cash (9.0) 1.8 Dividend Paid (5.9)

  • 3.5

6 months to

  • ANZ facility of $50.5m secured in January 2017,

maturing January 2019

  • Intra month maximum Trade Loan usage $16m
  • 10
  • 5

5 10 15 1HY13 2HY13 1HY14 2HY14 1HY15 2HY15 1HY16 2HY16 1HY17 $ '000

Strong cash flow in 1H on the back of unseasonably high first half trading results Operating Cash Flow Trading EBITDA1

See Important Note (page 10)

1

Source: Capral

  • Material cost increased in line with LME increases
  • Higher working capital requirement as a result
  • Traditionally cash generation is weighted to second

half of year

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Strategy and Outlook Tony Dragicevich, CEO

"Improve operational effjciency, invest in technology and grow through the development of new products and services”

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Improving competitiveness through a number of key initiatives

  • Invest in automation to reduce cost
  • Automated product handling projects (~$6m) to streamline processes and deliver cost savings

from mid 2018 onwards

  • Continue investment in value-add and fjnishing capability
  • Invest in technology to deliver better effjciency and service
  • Online sales through Capral's E-Store now fully operational
  • CRM system to improve effjciency in customer outcomes and interaction
  • Capral HUB app introduced to enable architects, designers, builders and fabricators to access

technical product information on mobile and tablet devices

  • Capral has a relatively modest carbon footprint. Aluminium has one of the highest recycling rates
  • f any metal. We are investing in scrap recycling and the development of new energy effjcient

products to enhance our environmental credentials and meet future market demands

  • Continue to play a leading role in the pursuit of fair trade in the Australian Aluminium market
  • Initiate new anti-dumping cases
  • Pursue unfair circumvention activities
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Outlook

  • Full year 2017 Trading and Statutory EBITDA1 is forecast, absent any unforeseen events, to be

between $15m and $19m

  • On this basis, Capral would expect to declare a fully franked dividend
  • Housing commencements are forecast2 to be around 215,300 for the 2017 year, down 8%
  • n the strong 2016 market. Detached housing down 3% and multi-residential down 13%
  • Extrusion market expected to remain reasonably strong through 2017 due to pipeline of

residential work and increase in non-residential and industrial markets

  • Further material strengthening of the AUD a negative for local manufacturing and Capral’s

competitive position against imports

  • Anti-dumping measures assist volume but prices remain suppressed
  • Capral expects to generate positive operating cash fmow in 2017, and remain net cash positive at

year end

2 BIS Oxford Economics July 2017 forecast (two quarters delayed) 1 See Important Note (page 10)

This presentation includes forward-looking estimates that are subject to risks, uncertainties and assumptions

  • utside of Capral's control and should be viewed accordingly.
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Q&A

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Appendices

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~17% Metal cost rise

0.00 0.50 1.00 1.50 2.00 2.50 3.00 2013 Q4 2014 Q1 Q2 Q3 Q4 2015 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Q1 Q2 A$/kg LME MJP Premium (Major Japanese Ports) Q1

Source: London Metals Exchange; RTA

  • LME (USD) continued its rise in 1H17,

increasing 22% 1H17 on 1H16

  • Total Metal Cost (AUD) increased ~17%
  • ver the same period
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Continue to pursue fair trade

  • Case won in 2010 but the levels of duties imposed on Chinese imports were low
  • Circumvention activities diminished the impact

The impact of the initial anti-dumping measures was modest Key issues being pursued

  • Dumping measures imposed by the Anti-Dumping Commission against all imported aluminium

extrusions from Vietnam and 38%1 of Malaysian sourced imported aluminium extrusions

  • Review of variable measures afgecting imports from China commenced in March 2017 with SEF

due in August, fjnal outcome expected in October

  • Continue to interact with Government around strengthening the anti-dumping regime
  • Continue to monitor and pursue anti-circumvention/non compliance activities

Response and Action

  • A sustained campaign has resulted in reforms to federal legislation and methodology
  • Continuation of measures review fjnalised in October 2015. Anti-Dumping Commission found
  • ngoing dumping by Chinese importers and increased measures were imposed to 2020
  • Imports from China have reduced but imports from Vietnam and Malaysia have risen leading to

new case initiated by the Anti-Dumping Commission in 2H2016

  • Price suppression continues to have an adverse impact on local extruders

1 Source: Anti-Dumping Commission Report No 362 - May 217, page 82