C A P R A L L I M I T E D A N N U A L R E P O R T 2 0 2 2 SHAPING THE FUTURE together CAPRAL LIMITED • 2022 ANNUAL REPORT ABN 78 004 213 692 2 | Annual Report 2022 Contents Contents KEY STATISTICS CHAIRMAN’S REPORT MANAGING DIRECTOR’S OPERATIONS AND FINANCIAL REVIEW BOARD OF DIRECTORS SUSTAINABILITY REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT MEMBER DETAILS 3 4 7 11 15 20 25 42 43 44 45 46 48 92 93 98 Annual Report 2022 Key Statistics | 3 KEY STATISTICS 2022 2021 Variance For The Year Ended 31 December Sales Volume - Tonnes 71,800 76,300 (4,500) $m $m $m Revenue 692.5 593.5 99.0 Underlying EBITDA1 Profit after Tax 62.2 40.8 56.4 42.7 5.8 (1.9) Operating Cash Flow 7.1 41.7 (34.6) Net Cash1 24.9 50.1 (25.2) 1 Please refer to notes on page 4. 4 | Annual Report 2022 Chairman’s Report Chairman’s Report ANNUAL REVIEW Revenues of $693 million in 2022 were 17% higher compared to $39.0 million EBIT in 2021 which included a $2.8 million positive LME revaluation. than the $593 million reported in 2021 on 6% lower Reported Net Profit After Tax (NPAT) includes $8.4 million volume than in the previous year. Sales revenue growth, arising from recognition of a deferred tax asset brought particularly in the first half of the year, was driven by to account (2021 included $9.4 million deferred tax record high global aluminium prices (LME) and improved benefit). NPAT was $40.8 million ($2.31 per share) sales mix. The strong demand experienced throughout 2021, continued into the first half of 2022 which was also compared to last year’s $45.8 million ($2.52 per share) which also included a gain on property revaluations of $3.1 million. supported by a very high order book at the start of the Higher LME prices and the resultant increase in revenues year. The second half of the year saw easing supply saw receivables and inventories increase substantially. bottlenecks which allowed market participants to work through the backlog of orders accumulated during the post-pandemic demand surge. Some market share gains This higher working capital reduced the Company’s Net Cash1 at 31 December 2022 by 50% on prior year to $25.0 million. Despite this additional investment in from imports came under pressure as international working capital, the company’s balance sheet remains supply chain problems eased, and declining dwelling strong allowing us to continue to balance our utilisation commencements in the second half of the year led to of free cash between funding internal growth, investing lower activity levels in the latter part of 2022. in additional capacity, and returning cash to our High productivity, operational leverage from capacity utilisation, and favourable sales mix all contributed to a record Underlying EBIT1 of $40.8 million for 2022, 13% higher than last year’s $36.2 million. A negative LME revaluation of $2.2 million reduced EBIT to $38.7 million, shareholders through fully franked dividends. Shareholders are directed to the Results Presentation released to the market today. 1 EBITDA is defined as Earnings before Interest, Tax, Depreciation and Amortisation and, in accordance with AASB16. Underlying EBITDA, EBIT and Earnings per Share (EPS) are adjusted for Significant Items. Significant Items are material items of revenue or expense that are unrelated to the underlying performance of the business. For the current period, these items are LME and FX Revaluation $-2.2 million. (FY21: $2.8 million) and Income Tax Benefit $8.4 million (FY21: $9.4 million). Capral believes that Underlying EBITDA, EBIT and Earnings per Share provides a better understanding of its financial performance and allows for a more relevant comparison of financial performance between financial periods. The Underlying EBITDA, EBIT and Earnings per Share are presented with reference to the ASIC Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. Net Cash is cash and cash equivalents ($49.0 million) less short-term borrowings (24.1 million) Annual Report 2022 Chairman’s Report | 5 Capral has been a long-term partner, supplying RDM since its start-up 30 years ago. “Capral is so much more than just a supplier. Their team in Tasmania are very hands-on, visiting us regularly, continually reviewing their current supply of materials, also considering how new extrusions could impact positively on our overall productivity and operating efficiencies, making it more cost-effective to build our boats.” Ron Devine, Co-Founder, Richardson Devine Marine 6 | Annual Report 2022 Chairman’s Report DIVIDENDS LOOKING AHEAD After the 2019 restructuring, Capral has demonstrated that Whilst we expect the housing sector to decline further, is now very well placed to succeed through the various the non-residential and industrial segments of our phases of the business cycle. Capral paid a fully franked business should remain firm. We are expecting a modest interim dividend of 20 cents per share during the 2022 decline in the overall extrusion market in the year ahead year and the financial result for the year supports which we anticipate will have an impact on earnings maintaining the final fully franked dividend for the 2022 in 2023. reporting period. Please refer to the Outlook section of the Managing Therefore, the Company has declared a fully franked final Director’s Report for details of our earnings guidance dividend of 50 cents per ordinary share (2021: 50 cents) for 2023. to be paid on 24 March 2023 in respect of the financial year ended 31 December 2022. The dividend will be paid to all shareholders on the register of members as at the Record Date of 3 March 2023. Our Dividend Reinvestment Plan will not be active for this dividend. SAFETY BOARD CHANGES Having served as an independent non-executive director since June 2010, Graeme Pettigrew has decided to retire from the Board at the conclusion of the AGM on 27 April 2023 and will therefore not be standing for re-election. We thank Graeme for his wise counsel and Once again, the Capral team has delivered excellent safety support during his tenure, which included his dedicated results, far exceeding the comparative results of our listed service as chair of the remuneration and nomination peers. The Company recorded a total reportable injury committee. His participation in the Board’s deliberations frequency rate (TRIFR) of 4.3 injuries per 1 million hours have been invaluable. worked in 2022, well below the 7.2 recorded in 2021. Capral’s management continues to strengthen the strong safety culture and roll out new initiatives and prioritise safety across every area of our business. SUSTAINABILITY The environment is a key priority for Capral. Our National Sustainability Committee continues to make significant and meaningful progress in driving Capral’s Sustainability journey. I urge stakeholders to read the Sustainability Report, which details the many initiatives in progress. In conclusion, on behalf of the board I wish to thank all of Capral’s stakeholders for their tremendous support during 2022. We look forward to meeting every challenge in 2023. Thank you to all my Capral colleagues for their tireless efforts throughout the past year. Rex Wood-Ward Chairman 24 February 2023 Annual Report 2022 Managing Director’s Operations and Financial Review | 7 Managing Director’s Operations and Financial Review HIGHLIGHTS FINANCIAL REVIEW • Record underlying earnings result for the second Market conditions were strong in the first half of 2022, consecutive year and volumes were assisted by a large order book to start • Sales revenue $693 million, up 17% on last year the year. Conditions softened in the second half as the • Volume at 71,800 tonnes was 6% below last year market slowed and import supply chains and shipping • Market conditions softened in the second half of costs returned to normal levels. Volume however the year remained solid which allowed Capral’s manufacturing • Underlying EBITDA1 $62.2 million, up $5.8 million on plants to run at good levels of efficiency. last year • Underlying EBIT1 $40.8 million, up $4.6 million on last year • Underlying Net Profit After Tax1 $34.6 million, up $4.1 million on last year • Reported Net Profit After Tax $40.8 million includes a $8.4 million deferred tax benefit • Underlying earnings per share1 at $1.96, up $0.16 on last year • Balance sheet strong with Net Cash1 of $24.9 million • Fully franked final dividend of 50 cps declared, total FY22 dividend of 70 cps • Exceptional safety performance with TRIFR 4.3, well below our listed peers As interest rates started to rise the residential housing market slowed from its highs driven by post-COVID government housing stimulus programmes. Housing starts are tracking to record 190,0002 starts in 2022, 18% down on last year. Commercial construction activity was buoyant, and our key industrial markets (manufacturing, transport and marine) also remained relatively strong, underpinned by good levels of economic activity. The international LME price of aluminium was impacted by global supply factors, including Russia’s invasion of Ukraine. LME started to rise in mid-2021 post-COVID, reaching peak levels in Q2 2022, before returning to more normal but still elevated levels in Q4 2022. Capral’s average LME cost for 2022 was 22% above last year, which in turn was 30% higher than the previous year. This flowed through to higher selling prices and working capital levels which will continue into first half 2023. 8 | Annual Report 2022 Managing Director’s Operations and Financial Review Vawdrey Australia chooses to work with Capral and has done for more than 20 years. “We buy the best. That’s why we use Capral aluminium. Capral’s quality is second to none, it’s cost-effective, and we have a good working relationship. We depend on Capral as much as our own blokes, If you have a good working relationship, it helps with everything.” Mick Vawdrey, Founder, Vawdrey Australia. Annual Report 2022 Managing Director’s Operations and Financial Review | 9 During 2019 Capral completed a significant restructure Late in 2022 a paint line was installed at our new of its largest manufacturing operation at Bremer Park in Huntingwood distribution centre with commissioning in Queensland. This successfully transformed Capral’s Q1 2023, thereby providing Capral with powder coating business delivering permanent cost savings and increased capability in NSW for the first time. These assets will operational efficiencies. The benefits are evident with provide Capral an expanded manufacturing presence Bremer Park now delivering a strong profit contribution in NSW delivering freight savings and improved service to the group. The acquisition of the GJames extrusion to customers. plant in Smithfield was completed in February 2021. The plant has been successfully integrated into Capral’s operations and has moved from a one shift operation to three shifts during 2022. We will also continue to focus on growing Capral’s aluminium distribution business with the objective of increasing the volume and profitability of Capral’s direct distribution channel. Over the past year we have added Capral delivered a record profit result in 2022 with two Aluminium Centres to the Capral distribution footprint. underlying EBITDA¹ of $62.2 million (2021: $56.4m) on 6% lower volume. Underlying EBIT1 of $40.8 million (2021: $36.2m) and an underlying net profit after tax of Targeted acquisitions of existing businesses in North Brisbane and Wollongong have expanded our geographical presence. There exists a small number of $34.6 million (2021: $30.5m). An excellent result, other good opportunities to expand our footprint in increasing earnings on lower volume demonstrates how the future. far Capral has progressed over the last four years. FAIR TRADE Capral ended 2022 with a Net Cash1 balance of $24.9 million. Debtors collection performance remained good but inventory levels were high at year end due to delayed shipments of rolled product arriving in the second half. Working capital levels also increased due to the impact of the higher LME on debtors and inventory levels, resulting in a lower net cash position. This will improve as working capital returns to more normal levels during 2023. Capral continues to lead the local industry in the pursuit of fair trade • Measures on Chinese imports are in place until 2025 and a review of duty levels is currently underway • Measures against some Malaysian and Vietnamese suppliers fell away during the year and we are pressing for re-instatement Capral will pay a fully franked final dividend of 50 cents per share and, together with the interim dividend of 20 cents per share, resulting in total FY22 dividends to 70 cents per share (FY21: 70 cps). Market share gains have been made against imports over the last two years, however they continue to represent a material proportion of the total Australian extrusion market. As supply chains normalise we must remain KEY INITIATIVES AND STRATEGIES Key high-level strategies remain consistent vigilant in this area. SAFETY Safety First is the first of Capral’s key values. We continue to focus on risk assessment, training, systems, and our safety culture. Capral’s safety performance has been exceptional this year, recording a total reportable injury frequency rate (TRIFR) of 4.3 (2021: 7.2). This is well below the peer average of 9.8 for listed building products manufacturers. • Build on our strengths – product offer, scale, capability and our people • Optimise what we do – improve productivity in all aspects of our business • Grow for the future – develop new and innovative products, expand our footprint A key focus in 2023 will be in Sydney with the Smithfield and Penrith extrusion plants and a new paint line installed at our Huntingwood distribution centre. Smithfield will continue to focus on lifting productivity through debottlenecking aspects of product flow and upgrades of some equipment. During January 2023, a project was successfully completed to upgrade the Penrith extrusion press and shop floor software. This was a major undertaking by the Capral engineering team and will ultimately result in a first-class extrusion facility at Penrith. 10 | Annual Report 2022 Managing Director’s Operations and Financial Review SUSTAINABILITY AND ESG Capral advanced its commitment to environmental obligations by forming a National Sustainability Committee in 2020 with employee representation across Capral’s operations. This resulted in the development of LME is volatile and subject to international influences. Based on external forecasts, we expect LME to remain at elevated levels throughout the first quarter of 2023 and then weaken on the back of lower global demand as economies slow under the weight of higher interest rates. Capral’s Sustainability four pillars and a roadmap to net The overall market for Capral’s aluminium extrusion and zero by 2050. During the year Capral introduced lower carbon aluminium options to the Australian market, LocAl® Green and LocAl® Super Green. Capral has considered the overall impact of current ESG issues and has not rolled product is forecast to fall modestly in 2023. We expect to retain a good proportion of market share gained from imports. Underlying EBITDA¹ is forecast, absent any unforeseen events, to be between $52 million discovered any resulting material impact on our financial and $56 million with underlying Net Profit After Tax statements at this point. Please refer to Capral’s between $26 million and $30 million. On that basis Sustainability Report (pages 15 to 19) for further details. Capral would be in a position to continue the payment KEY OPERATING RISKS Capral has a robust risk assessment process and active risk mitigation programme, key risks include; • Significant slow-down in economic activity, particularly the new housing market of dividends. The focus in the year ahead will be to deliver benefits from our recent capital investments in NSW, increase productivity in our extrusion operations, and grow our distribution business. We plan to enhance our range, service, and quality to help grow our customer base to • Increased level of imported aluminium extrusion and deliver strong ongoing profitability. increased local competitor activity • External IT threats such as cyber attacks • Changes in construction methodology OUTLOOK Forecasts for the residential market show the market slowing further. Starts in 2023 are forecast2 to be on par with 2022 but the pipeline of work will empty out over the next year. The non-residential market is forecast to be firm in 2023 as are our key industrial markets with customers continuing to support local supply. I wish to thank the Capral team for their tremendous contribution to the outstanding 2022 result. Capral is in a good position to capitalise on its strong foundation, maximise opportunities as they present, and develop the business for the future. Tony Dragicevich Managing Director 24 February 2023 1 Refer to Underlying EBITDA, EBIT, Earnings per Share (EPS) and Net Cash explanation in footnotes to Chairman’s Report on page 4 2 BIS Oxford Economics December 2022 forecast Annual Report 2022 Board of Directors | 11 Board of Directors Directors in office during the financial year and up to the date of this report: REX WOOD-WARD PHILIP JOBE B. Comm Chairman of Board (Independent) Non-executive director (Independent) Appointed 6 November 2008 • Chairman of the Board Appointed 24 April 2009 Retired 27 April 2022 • Member of the Audit & Risk Committee • Member of the Audit & Risk Committee • Member of the Remuneration & Nomination Committee • Member of the Remuneration & Nomination Committee Mr Wood-Ward has 45 years of experience in general Mr Jobe became a non-executive director following the management, mergers and acquisitions, corporate expiry of his term as Capral’s Chief Executive Officer and strategy and structuring, including in manufacturing and Managing Director in April 2013. Before joining Capral, distribution. Over his career he has been a director of over Mr Jobe was the Executive General Manager of 10 publicly listed companies in Australia, the United Boral Limited’s Cement Division, including Managing Director of Blue Circle Southern Cement Pty Limited. This also encompassed the role of Chairman of the Cement Industry Federation. He also had executive responsibility for Boral’s expanding Asian construction materials businesses. Mr Jobe was previously Managing Director of Stegbar Pty Limited from 1989 to 1994. Directorships of other listed companies held in last 3 years before end of the Financial Year: None Kingdom and South Africa. Directorships of other listed companies held in last 3 years before end of the Financial Year: None TONY DRAGICEVICH B. Comm A.C.A Managing Director (Non-independent) Appointed 15 April 2013 Mr Dragicevich joined Capral in January 2013 and became the Managing Director and Chief Executive Officer on 15 April 2013. Mr Dragicevich is an experienced CEO and business leader who has been involved in the improvement of a number of businesses, having previously served as Managing Director of the Wattyl Group, and as Chief Executive of GWA Bathroom and Fittings, Managing Director of the Red Paper Group and General Manager of Tasman Insulation. Directorships of other listed companies held in last 3 years before end of the Financial Year: None 12 | Annual Report 2022 Board of Directors GRAEME PETTIGREW FIPA, FAIM, FAICD MARK WHITE B. Comm, M. Comm, CA, GAICD Non-executive director (Independent) Non-executive director (Independent) Appointed 18 June 2010 Appointed 1 September 2021 • Chairman of the Remuneration & Nomination • Member of the Audit & Risk Committee from Committee Member of the Audit & Risk Committee 1 September 2021 Mr Pettigrew has held chief executive roles at CSR Building Products Pty Ltd and Chubb Australia Ltd and he • Member of the Remuneration & Nomination Committee from 1 September 2021. retired as a non-executive director of Adelaide Brighton Mr White has extensive experience in the aluminium and Ltd. He has relevant experience in the construction and building materials sectors. He is currently the General building materials industry, as well as manufacturing and Manager of Gove Aluminium Finance Limited. He also has distribution businesses. Directorships of other listed companies held in last 3 years before end of the Financial Year: None KATHERINE OSTIN B. Comm, GAICD, F FIN, CA Non-executive director (Independent) Appointed 17 June 2020 • Chairman of the Audit & Risk Committee. more than 10 years’ experience as an Executive Director on the Board of Tomago aluminium smelter and has held a number of senior positions in CSR Limited’s building products businesses and has over 20 years of experience across a number of manufacturing industries. Directorships of other listed companies held in last 3 years before end of the Financial Year: None BRYAN TISHER B. Eng, MBA • Member of the Remuneration & Nomination Committee Non-executive director (Independent) Ms Ostin is a Chartered Accountant and an experienced Company Director with significant experience in finance and accounting, audit, risk, governance, strategy and business development. She is currently a Non-Executive Appointed 24 February 2022 • Member of the Audit & Risk Committee • Member of the Remuneration & Nomination Committee. Director of a diverse portfolio of both listed and non-listed Mr Tisher has extensive experience in the resources, companies and is Chair of the respective Audit & Risk building materials and electrical products sectors. Committees. She has also previously served as a He is currently the Chief Executive Officer of Legend Non-Executive Director of several not-for-profit entities. Corporation, an Australian leader in industrial and Ms Ostin was a senior Partner in Audit Assurance & Risk electrical products and previously held senior positions Consulting with KPMG, holding various leadership roles at Orica, Boral and Rio Tinto. over her 12 years as a Partner from 2005 to 2017. In her 24 years with KPMG she has worked across a broad number of sectors in Australia, Asia, the US and the UK. Mr Tisher was the Managing Director of Orica Asia responsible for manufacturing and distribution operations covering 14 countries, and the Divisional Managing Directorships of other listed companies held in last Director of Boral Building Products responsible for the 3 years before end of the Financial Year: Plasterboard Australia, Timber, Bricks, Roofing, Masonry • Non-executive director of Swift Media Ltd: 1 October 2019 to 19 November 2021. • Non-executive director of Dusk Group Ltd: 16 September 2020 to date of this report. • Non-executive director of 3P Learning Ltd: 6 August 2021 to date of this report. and Windows business units. He has had extensive board experience as an Executive Chairman for six joint ventures in Asia and the Boral Carter Holt Harvey Softwood Manufacturing Joint Venture at Oberon, and, as a Non-Executive Director at Sustainable Timber Tasmania and Cape York Enterprises. Directorships of other listed companies held in last 3 years before end of the Financial Year: None Annual Report 2022 Board of Directors | 13 Capral products are the first choice for Unique Metal, who emphasise that Capral’s product range, technical knowledge and service stand out. “We have worked closely with Capral for many years – almost since we have been in business. We’ve got a great relationship. Capral offers solutions, good pricing, and reliability. We get our product when they say we will get it, and they keep us informed of any issues.” Paul Figliomeni, Managing Director, Unique Metal Laser 14 | Annual Report 2022 Board of Directors Since the business started, sourcing aluminium locally has been a priority for the WillPlay team, which works closely with Capral Aluminium. Aluminium is used extensively throughout the WillPlay range and custom-designed solutions for three fundamental reasons: “One, it’s lightweight, but two, it’s also strong. And thirdly, it is sustainable. Its weight saves on freight around Australia, and it survives our climate from the ocean to the deserts. And importantly, aluminium can be recycled at the end of a product’s life. Our playgrounds are 100 per cent recyclable, so everything that gets taken off one of our playgrounds can be taken to a recycling facility. It sets us apart.” Jared Silcox, Design Manager, WillPlay Annual Report 2022 Sustainability Report | 15 Sustainability Report A SUSTAINABLE FUTURE During 2022 Capral continued its Sustainability journey with a concerted focus on reducing Scope 2 emissions working towards a position of net zero emissions by 2050. Our Sustainability Committee creates a companywide emphasis on crucial sustainability strategies. The coordination of sustainability initiatives is now embedded within Capral’s Integrated Management System (IMS), ensuring the consistent management of environmental compliance and safety throughout all our operations. The global community has stated the need to reach net zero global CO2 emissions by mid-century, and Capral recognizes that environmental and social sustainability must be a priority for our organisation. Capral will continue to act wisely to care for the environment and broader society while working in the best During 2022 Capral undertook two significant supply chain initiatives in support of our sustainability goals. In March, Capral signed an agreement with Tomago Aluminium, Australia’s largest aluminium smelter, to supply 550 tonnes of production scrap annually for remelting. This industry-leading arrangement was the first of its kind in Australia, paving the way toward access to low-carbon aluminium for Australian manufacturers. In November Capral introduced LocAl®, a lower-carbon primary aluminium option available across Capral’s locally manufactured extruded aluminium products. This provides the Australian manufacturing sector access to cleaner, greener, more sustainable aluminium products. The LocAl® offer includes two lower carbon aluminium options: LocAl® Green with carbon emissions of 8kg CO2e/kg Al* and LocAl® Super Green at 4kg CO2e/kg Al* – amongst the lowest carbon aluminium available globally and up to 75% lower than global average CO2e interests of our stakeholders and customers. emissions for primary aluminium. We are committed to our Sustainability Roadmap and the adaption of transformational sustainability projects which will reduce our carbon footprint. As a significant aluminium supplier in Australia, our buying strategies and corporate activities reflect Capral’s goal to work towards sustainability best practice. Underpinning these responsible and transformational procurement initiatives is Capral’s decision to join the Aluminium Stewardship Initiative (ASI), a global standard setting and certification body. ASI brings together producers, users, and stakeholders in the aluminium value chain with a commitment to maximising the contribution of aluminium to a sustainable society. ASI members aim to work together to foster responsible production, sourcing, and stewardship of aluminium. 16 | Annual Report 2022 Sustainability Report Capral supports the adoption of the United Nations (UN) Sustainable Development Goals (SDGs) and emphasises integrating sustainable principles into our operations. We acknowledge that reducing our CO2 emissions in line with the targets of the Paris Agreement and supporting the UN SDGs will help to achieve our strategic goals and improve business performance. Across our business, we currently incorporate four SDGs into our company values and daily activities. OUR ROADMAP – ON A BETTER PATH TO TOMORROW SUSTANABILITY ROADMAP THE ENVIRONMENT In line with Capral’s commitment to the environment, we will effectively manage our waste materials with the circular vision of “reduce – reuse – repurpose” and compliance with environmental standards. Capral is committed to maintaining an Environment Management System that incorporates requirements for planning, implementation, and review based on a risk management approach. All Capral manufacturing sites are certified to ISO14001 Environmental Management. We are committed to minimising adverse consequences of new equipment and processes by assessing environmental implications in the design, purchase, and In 2022 Capral focussed its Sustainability Roadmap commissioning phases. Throughout 2022 Capral on the reduction of energy consumption, successfully continued to make energy efficiency a priority in its capital reducing demand on the Victorian power grid from our plant upgrade considerations. Key energy saving initiatives Campbellfield manufacturing plant with the undertaken were: commissioning of a 800 kilowatt solar panel installation. Within the first six months, CO2 emissions saved were 222,500 kg, the equivalent of 4,300 planted trees. • Renewable energy roof-top solar installed at Campbellfield site self-generating 15% of its energy needs Further energy savings were made by replacing 400 high • Introduction of latest generation IE5 SynRM motors bay lights with LEDs at the Bremer Park, Queensland linked to variable speed drives VSDs at Penrith manufacturing site, saving approximately 2000 kilowatts manufacturing plant reducing power consumption per day, the equivalent of one year’s average household by 20% electricity consumption. 2023 will see our Roadmap adopt an additional focus on waste reduction and increased recycling activity in continuing to achieve our goal of a Circular Economy. • 400 high bay LED lighting replacement at Bremer Park • Latest generation multi-zone electric billet heating containers introduced at 5 of Capral’s extrusion presses reducing power usage by 15%. Annual Report 2022 Sustainability Report | 17 Aluminium Extrusion Emissions Intensity Total Reportable Injury Frequency Rate l A t / e 2 O C t 1.0 0.8 0.6 0.4 0.2 0.0 R F I R T 20 15 10 5 0 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2016 2017 2018 2019 2020 2020 2022 YEAR ENDED JUNE HEALTH AND SAFETY Capral has continued to invest significantly towards enhancing its ability to manage its Health and Safety requirements and align itself with industry best practice. Capral’s Integrated Management System (IMS) underwent a revitalisation to enhance its ability to systemise ESG and develop accurate performance metrics. Capral focused on educating its employees through a new L&D programme which supports the practice of Capral’s IMS compels all sites to comply with safety, health, and environmental legislation under ISO 45001. IMS also incorporates monitoring and improvement, targeted at increasing employee lifespan and supporting SDG goal #3 “good health and well-being”. PEOPLE AND COMMUNITY Capral employs around 1,100 people over 20 sites around Australia with approximately half of our employees covered by Enterprise Agreements. understanding associated risks and the inherent controls We champion diversity by aiming to build a workforce as required. Site IMS assurance continued to be verified through monthly compliance reviews. This approach has demonstrated a profound impact on positively influencing behaviour and identifying workplace inconsistencies through the Capral network. Operational leaders are equipped with fitness for work management knowledge to ensure their team can perform tasks safely and without incident. Employees are encouraged to speak freely and voice their concerns. diverse as the community we serve. Because the more perspectives we have, the better decisions we make. Our ability to make these decisions is underpinned by our Code of Conduct and Vision and Values Programme: • Safety First – Everyone is responsible. Injuries can be prevented. All jobs can be done safely • Customer Success – Customers determine our success. Service and quality. Be responsive This approach has reduced Capral’s reportable incidents, • Play Fair – Be honest and respectful. Do the right thing minimised injury severity and improved recovery. by each other and the environment. Work as a team This has resulted in significantly lower restricted and lost hours. Capral’s IMS philosophy has reduced Capral’s total reportable injury frequency rate (TRIFR) to 4.3, which is well below the industry average of 8.3 for listed building product manufacturers. • Better Every Day – Continuous improvement. Be innovative. Embrace change • Own It – Be accountable. Feel empowered; Take pride in your work. Act boldly 18 | Annual Report 2022 Sustainability Report As a company our diverse perspective comes from many LEARNING AND DEVELOPMENT sources including; gender, race, age, nationality, sexual orientation, culture, education, professional and life experience. We constantly strive to foster an equitable work culture that celebrates diversity, embraces inclusion, amplifies belonging, and drives innovation. Capral recognises the significant benefit of investing in our people being crucial to future success. Capral’s L&D programme was enhanced by expanding employee access to professional development opportunities. Capral has partnered with multiple organisations to offer People are the epicentre of everything we do; from our multifaceted, continuous professional development (CPD) employees to those who touch our business as programmes aligned to essential organisational and customers, and to the communities we call home. personal goals. Through our L&D programme, employees We all share the vision of a better future. RECRUITMENT INITIATIVES can expand their knowledge and receive additional support to ensure their skills remain up-to-date and relevant to Capral’s business requirements. Capral’s recruitment initiatives developed throughout 2022 as staff turnover increased post-Covid. Skilled migration played a pivotal role in increasing our depth of knowledge COMMUNITY SUPPORT AND ASSOCIATION and skills talent. Capral established relationships with Capral continues to work with community organisations a number of international applicants from a range of making positive contributions across a broad spectrum countries and cultures, resulting in three overseas of areas. Company-wide initiatives included awareness applicants successfully migrating to Australia for campaigns for mental health through R U Ok? Day, specialist roles. domestic violence through White Ribbon Day, and men’s Helping the Homeless with housing, health and living health through Tievember, our version of Movember. Through continued work on our recruitment programme, it is our goal to improve on existing gender targets and L E A R N M O R E increase female representation within Capral’s leadership All initiatives were extremely well received with record employee uptake for our Tievember campaign. positions and in non-traditional blue collar and trade roles. Capral provides support to a number of charity organisations including: Goodna Street Life Goodna Street Life is an independent charity providing housing and support for the homeless and vulnerable people in our community. Established in 2015 by a group of dedicated locals hoping to make a difference in our community, the group sought to establish a local shelter for the homeless, and people forced onto the streets. Our charity has grown to include our Op Shop, accreditation as a Residential Service, GSL Housing services, free counselling and drug and alcohol rehabilitation support, Work programs for clients, Community Food Bank and more. We provide crisis and long term accommodation through our specialist homeless services at Helens Haven. Helens Haven Motel provides crisis accommodation in a supported community environment, providing specialist care and support to assist clients to overcome barriers, and transition into long term accommodation. As a non-government funded, independent charity we rely on fundraising and donations to provide our services. You can support the work we do in the community by making a donation, purchasing goods from our Op Shop or supporting our fundraisers. F U N D R A I S E R S O P S H O P F O O D B A N K D O N A T E Annual Report 2022 Sustainability Report | 19 Capral has been Louvreclad’s supply partner for more than 20 years; the two businesses are neighbours, providing extra convenience to deliveries and collaboration on extrusion developments. “Working on bespoke projects where we need to create something new, it’s easy to share drawings with Capral’s design team, and they quickly let us know if our designs will work and advise on lead times. It works very well for our business; We require very high-quality aluminium because our products are used on building facades. Capral packages our extrusions very carefully in stillages to avoid any damage. Uddhava Sharplin, Design Consultant, Louvreclad 20 | Annual Report 2022 Directors’ Report Directors’ Report Your directors present their report on the consolidated entity consisting of Capral Limited (Capral ) and the entities it controlled at the end of, or during, the financial year ended 31 December 2022 (Financial Year ). DIRECTORS The following persons were directors of Capral except as indicated below: Name Period Office Held R. L. Wood-Ward 6 November 2008 – Date of this report A. M. Dragicevich 15 April 2013 – Date of this report P. J. Jobe K. Ostin 24 April 2009 – 27 April 2022 17 June 2020 – Date of this report G. F. Pettigrew 18 June 2010 – Date of this report M. White B. Tisher 1 September 2021 – Date of this report 24 February 2022 – Date of this report Details of directors, their qualifications, experience, special DIVIDENDS responsibilities (including committee memberships) and directorships of other listed companies held in the last three years before end of the Financial Year are set out on pages 11 and 12. PRINCIPAL ACTIVITIES During the Financial Year, the principal continuing activities of the consolidated entity consisted of the manufacturing, marketing and distribution of fabricated and semi-fabricated aluminium related products. The Directors recommend that a final dividend of 50 cents per ordinary share (fully franked) be declared. The record date for the final ordinary dividend will be 3 March 2023, with payment being made on 24 March 2023. Capral’s Dividend Reinvestment Plan (DRP) will not be active for this dividend. A final dividend of 50 cents per ordinary share (fully franked) was paid in March 2022 in respect of the 2021 financial year and an interim dividend of 20 cents per ordinary share (fully franked) was paid on 15 September 2022 in respect of the 2022 financial year, no other dividends or distributions have been paid during the Financial Year. Annual Report 2022 Directors’ Report | 21 REVIEW OF OPERATIONS AND FINANCIAL POSITION COMPANY SECRETARY Ms K Bradley-Ware – Joint Company Secretary, A review of operations and financial position of the B Comm, CPA, LLB consolidated entity are referred to in the Managing Ms Bradley-Ware has over 20 years of experience as a Director’s Operations and Financial Review on Company Secretary and CFO. Ms Bradley-Ware is an pages 7 to 10. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the consolidated entity during the year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR No matter or circumstance other than those disclosed in Note 34 has arisen since the end of the Financial Year that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations or the consolidated entity’s state of affairs in future financial years. LIKELY DEVELOPMENTS, BUSINESS STRATEGIES, PROSPECTS AND RISKS employee of Company Matters Pty Ltd, a company secretarial service provider. Prior to joining Company Matters, Ms Bradley-Ware was a Company Secretary and Chief Financial Officer at ASX listed Pan Pacific Petroleum Limited (ASX: PPP) and prior to that, held various roles in accounting across a variety of different industries including credit reporting, telecommunications and media. Ms Bradley-Ware has provided support to a large number of ASX companies including Elixinol Global Limited (ASX: EXL), Energy Action Limited (ASX: EAX), People Infrastructure Ltd (ASX: PPE), as well as various Infrastructure Joint Ventures and Private Companies. Ms Bradley-Ware was appointed as a Company Secretary on 11 December 2020. Mr T Campbell – Chief Financial Officer and Joint Company Secretary, B.Com (Hons), CA Mr Campbell was appointed Chief Financial Officer on Information on likely developments, business strategies, 1 June 2011. prospects and risks are detailed in the Managing Director’s Operations and Financial Review on pages 7 to 10 and the Sustainability Report on pages 15 to 19. Whilst Capral continues to meet its continuous disclosure obligations, this report omits information where it would be likely to result in unreasonable prejudice to Capral. This includes information that is commercially sensitive, is confidential Mr Campbell is a member of the Australia and New Zealand Institute of Chartered Accountants. Prior to joining Capral, Mr Campbell held various executive positions at UXC, Macsteel and The South African Breweries. or could provide a third party with a commercial Mr Campbell was appointed as a Company Secretary advantage (such as internal budgets and forecasts). on 8 March 2019. OTHER INFORMATION FOR MEMBERS TO MAKE AN INFORMED ASSESSMENT Other than information set out in this report, there is no information that members would reasonably require to make an informed assessment of the operations, financial position, business strategies and prospects for future financial years of the consolidated entity. 22 | Annual Report 2022 Directors’ Report DIRECTORS’ MEETINGS The numbers of directors’ meetings (including meetings of committees) held, and the number of meetings attended, by each director during the Financial Year, are as follows: Board Risk Committee Nomination Committee Audit & Remuneration & Director Held Attended Held Attended Held Attended R.L. Wood-Ward A.M. Dragicevich P.J. Jobe K. Ostin G.F. Pettigrew M. White B. Tisher 8 8 2 8 8 8 8 7 8 2 8 8 8 8 3 3 1 3 3 3 3 3 31 1 3 3 3 3 2 2 1 2 2 2 1 2 21 1 2 2 2 1 1 Attended meeting(s) in an ex-officio capacity DIRECTORS’ INTERESTS AND BENEFITS Ordinary Shares Details of holdings of ordinary shares in Capral for the directors (including former directors who held office during the Financial Year) at the beginning and end of the Financial Year and at the date of this report are as follows: Name Position Ordinary shares fully paid in the Company Balance at 1.1.2022 Balance at Balance at date 31.12.2022 of this report R.L .Wood-Ward Director and Chairman of the Board – A.M. Dragicevich Managing Director P.J. Jobe K. Ostin G.F. Pettigrew M. White B. Tisher Director Director Director Director Director 444,029 270,016 – – – – – 546,0411 270,016 – – – – – 546,041 270,016 – – – – 1 Acquired 23,682 as part of 2021 STI programme on 2 March 2022. Allotted 78,330 as vesting of 2019 LTI rights on 7 March 2022. In addition to the interests shown above, indirect interests in Capral shares held by the Managing Director, Mr. Dragicevich Annual Report 2022 Directors’ Report | 23 are as follows: Mr A. M. Dragicevich Nature of other interests Balance at 1.1.20221 Balance at 31.12.2022 Balance at date of this report Performance rights 267,300 238,0002 238,000 1 Shown as post 3 November 2020 share consolidation quantity 2 Nil performance rights lapsed on 1 March 2022; 78,330 performance rights vested on 1 March 2022 and 49,000 performance rights were issued on 27 April 2022 Unissued shares or interests under option At the date of this report, there are 722,350 (2021: 754,310) unissued shares or interests under option. Refer to sections 1 to 3 of the Remuneration Report and Note 38. HSP’s supply partnership with Capral has helped them on their journey to global leadership. “In creating world-firsts, we can’t use anything off the shelf – our products must stand out for their functionality and looks. Everything we design is specific to a particular product and Capral accommodates our needs and offers quality, reliability, and quantity. “There are a lot of synergies between us – they are a high-quality manufacturer that believes in manufacturing in Australia.” Massih Aimaq, Sales director, HSP 4X4 Accessories 24 | Annual Report 2022 Directors’ Report The Moore Reef Pontoon was designed for specific needs, making it invaluable to have a supplier like Capral working closely with the engineers. “This 250-tonne structure is built to survive 30 years on the reef, it needs to endure cyclones and extreme weather; Marine Survey requirements called for the aluminium plate to have ‘DNV’ test certificates. Fortunately, Capral supplied English Engineering with the certification required for all aluminium used on the build. Access to DNV-certified material locally is essential for the Australian marine sector.” Susan Plath, Marketing and Development Manager, English Engineering Annual Report 2022 Remuneration Report (Audited) | 25 Remuneration Report (Audited) This report sets out Capral’s remuneration of its directors and executives. It also details the actual remuneration of its key management personnel (including the directors) during the Financial Year. SECTION 1: THE REMUNERATION FRAMEWORK ( b ) Role of Remuneration & Nomination Committee ( a ) Key Principles Capral’s remuneration framework and practices are based on the principles that remuneration is performance driven, aligns with shareholder interests, provides market competitive remuneration that attracts qualified and experienced candidates, and retains and motivates employees. The variable components of remuneration (short and long term) are driven by challenging targets focused on both external and internal measures of financial and non-financial performance. Details of performances measures are set out in sections 1(g) and 1(h) below. Executive remuneration is aligned with shareholder interests via an emphasis on variable (incentive) remuneration, the award of which is linked to performance benchmarks that support business strategies and future success. A significant proportion of executive remuneration is at-risk. Details of the link between performance and remuneration is set out in section 4. The Remuneration & Nomination Committee is responsible for reviewing and making recommendations to the Board of Directors (the Board) on remuneration policies for Capral including, in particular, those governing the directors (including the Managing Director) and executive managers. The Committee operates in accordance with its Charter. Remuneration of the Managing Director and certain executive managers is reviewed at least annually by the Remuneration & Nomination Committee and recommendations are put to the Board for its approval. Short- and long-term incentives are linked to performance criteria. The Board can exercise its discretion in relation to approving bonuses and incentives. Changes must be justified by reference to measurable performance criteria and having regard to Capral’s overall financial performance and other special circumstances. The Remuneration & Nomination Committee may seek independent advice as appropriate in setting the structure and levels of remuneration based on the principle that the elements of remuneration should be set at an appropriate level having regard to market practice for roles of similar scope and skill. Godfrey Remuneration Group Pty Ltd (GRG), independent remuneration consultants, was engaged during December 2021 to provide guidance regarding structure and level of remuneration of Non-Executive Directors and Key Executives. 26 | Annual Report 2022 Remuneration Report (Audited) ( c ) Performance Planning and Review Remuneration of non-executive directors is allocated out Capral has a Performance Planning and Review (PPR) process to evaluate and discuss performance and development plans at least annually with salaried employees. This PPR process covers: of the pool of funds, the limit of which is approved by shareholders in general meeting; the fee pool limit is currently $650,000 per annum. Each non-executive director is entitled to the payment of an annual fee in cash and superannuation contributions for their services. • An agreement of objectives for the year ahead and the Additional fees are not paid for sitting on Board setting of key performance measures against which committees; however, the extra responsibility of the the achievement of those objectives will be assessed. Chairman of the Board and committees is recognised by These are set by reference to financial targets and key the payment of a higher fee. The fees for the non-executive business strategies. directors were reviewed by GRG as detailed above and • A review of performance against the previously agreed adjusted during the Financial Year to be in line to those objectives for the period under review. • Employee comment and feedback. paid at comparable listed companies. Non-executive directors do not receive any shares, options or other • Short- and long-term training and development needs securities as part of their remuneration however they are and career aspirations. The PPR process ensures that there is better understanding of Capral’s objectives thereby increasing the likelihood of their achievement. It also enables eligible to participate in Capral’s equity incentive plans, although none currently participate. There are no schemes for retirement benefits (other than statutory superannuation payments). managers to evaluate and develop employee skills and ( e ) Senior Management Remuneration performance and identify future development needs. ( d ) Non-executive Directors The structure of Capral’s non-executive director remuneration is distinct from that applicable to the Managing Director and other senior executives. The remuneration policy for the Managing Director and executives seeks to attract and retain people with the required capabilities to lead Capral in the achievement of business objectives and focus on delivering financial and non-financial measures. Remuneration is reviewed annually, and approved changes Remuneration of non-executive directors is established at a level that enables Capral to attract and retain high applied from 1 March. quality directors at a reasonable cost. Remuneration of The Remuneration & Nomination Committee reviews the non-executive directors and their terms of office are remuneration arrangements of the Managing Director, his governed by Capral’s constitution and not by contract. direct reports and certain other executive managers. The Managing Director reviews the remuneration arrangements of the other members of senior management, based on the recommendations of his direct reports. Annual Report 2022 Remuneration Report (Audited) | 27 For the Managing Director and other senior management, ( g ) Short Term Incentives remuneration consists of a fixed annual salary and superannuation (refer to section 1(f) below) plus at-risk components comprised of a short-term incentive plan (STIP) (refer to section 1(g) below) and a long term incentive plan (LTIP) (refer to section 1(h) below). The proportions of fixed and at-risk remuneration are established for the Managing Director and other senior management relative to their position in Capral. Capral’s short-term incentive schemes are designed to encourage participants to assist Capral in achieving continuous improvement by aligning their interests with those of Capral and its stakeholders and rewarding them when key performance measures are achieved. For the Financial Year, there were 3 short term incentive programmes: As a general guide, at-risk remuneration is 50% for the ( 1 ) Short Term Incentive Plan (STIP): The Managing Managing Director, 25–30% for executive management Director and senior employees have the opportunity and 10%–20% for other senior managers, for the to earn a cash and deferred equity incentive, based achievement of ‘target’ goals. ( f ) Fixed remuneration on a specified percentage of TEC dependent on each individual’s level of responsibility. The actual incentive earned is based on the achievement of financial and The level of the total employment cost (being base salary non-financial objectives. ( 2 ) Bonus scheme: other salaried employees can earn fixed payments, as approved by the Managing Director, for achieving key performance measures set by their managers and outlined in the employee’s individual PPR. ( 3 ) Sales incentives: Sales employees participate in quarterly sales incentive programmes in relation to revenue, gross margin, and debtor days targets. STIP is weighted 70% to financial objectives and 30% non-financial objectives. A summary of STIP is set out in the table below: plus superannuation) (TEC) is determined having regard to job responsibilities, skills, experience, and performance. Salaries are reviewed annually, with any changes applied from 1 March. Fixed remuneration of executives is generally targeted at market median. The fixed remuneration of the Managing Director is determined by the Board having regard to other ASX listed companies in building product related industries, his particular skills and previous remuneration, experience and capability to lead Capral in delivering financial targets and executing key business strategies. It forms part of his executive employment contract and is subject to annual review. The Board has reviewed generally available market information regarding fixed remuneration of the key management personnel with comparable revenues and market capitalisation. The fixed remuneration of Capral’s key management personnel is generally in line with this group. 28 | Annual Report 2022 Remuneration Report (Audited) Frequency Awards determined annually with payment made in the March following the end of the performance year. Financial Measures • Trading EBITDA for Capral and (for relevant General/Divisional Managers) Business Units (30%). Key financial threshold measure as reflects underlying earnings after excluding the impact of external economic factors such as the volatility of global aluminium prices and the unrealised impact of foreign exchange rate fluctuations. • Net Profit After Tax for Capral (15%). Aligned to ability to pay dividends. • Free Cash Flow for Capral (15%). Selected to ensure effectiveness of cash management. • % Working Capital to Annualised Sales for Capral and (for relevant General/Divisional Managers) Business Units (10%). Selected to ensure effectiveness of capital management. Non-financial Specific individual objectives are set to reflect measurable and numeric (where possible) Measures strategic initiatives and profit and safety improvement objectives. The key individual objectives include performance to customers, sales targets/growth, productivity and operational improvements, key projects and cost improvements. The weightings are generally 5% however may be higher or lower depending on importance to company performance. Assessment of Performance against financial measures is assessed after the end of each financial year based performance against on Capral’s financial results. The performance against non-financial measures is assessed as measures part of the PPR process. The Managing Director, in consultation with senior managers, is responsible for recommending to the Board the amount of STIP, if any, to be paid. Payments are subject to the achievement of applicable Capral, Divisional or Regional minimum annual Trading EBITDA targets. Stretch payments are not made where target financial metrics are not met. Discretionary The Board retains absolute discretion regarding payments having regard to Capral’s overall override financial position and other special circumstances that have arisen during the year (i.e. normalisation or clawback). The intent however is to minimise the exercise of discretionary adjustments to the planned outcomes set at the start of the year. Material adjustments would be disclosed. Service condition The Managing Director is eligible to receive a pro-rata payment where his employment is terminated other than for cause. Other employees who leave Capral part way through a performance period are not eligible for a payment for that period. Clawback of awards In the event of fraud, misstatement or misrepresentation of the financials, the Board may exercise its discretion to withhold some or all of a payment before it is made or recover some or all of payments already made. Deferral Any ‘Stretch’ STIP payments (after tax) to the Managing Director and Executive Team is satisfied by Capral Shares and held in escrow for 3 years. These shares can be issued or acquired on market (priced at the 12-month Volume Weighted Average Price (VWAP) as at the end of the performance period) as determined by the Board. There is no deferred cash / equity component for other STIP participants. The Board introduced deferred equity in 2018 to further strengthen alignment of Capral’s executive managers with shareholders. Plan review The STIP design is reviewed at least annually by the Remuneration & Nomination Committee and approved by the Board. The Managing Director, in consultation with senior managers, is responsible for recommending to the Board the STIP financial targets. The non-financial objectives are approved by the Managing Director. The Managing Director’s non-financial targets are established and approved by the Board. Annual Report 2022 Remuneration Report (Audited) | 29 The Managing Director and key management personnel ( h ) Long Term Incentives are eligible for the following awards of STIP relative to TEC: % of TEC Position Minimum Target Stretch Managing Director 25% Chief Financial Officer 12.5% 50% 25% 100% 50% Capral’s long-term incentive plan (LTIP) was designed to strengthen the alignment of the interests of senior managers with shareholders and support a culture of share ownership and shareholder wealth. It also aims to provide competitive remuneration for the retention of specifically targeted members of senior management. The Managing Director, Mr Dragicevich, was granted 102,670 performance rights following shareholder Where objectives can be financially measured, ‘Minimum’ approval in April 2020 and 86,300 performance rights is generally set around 15% below Board approved Budget. following shareholder approval in April 2021. During the ‘Target’ is generally set around Board approved Budget and ‘Stretch’ is generally set 30% above Budget. Financial Year, an additional 49,000 performance rights were granted to Mr Dragicevich following shareholder The Board has reviewed the guidance provided through the approval in April 2022. GRG remuneration benchmarking report regarding short On the recommendation of the Managing Director to the term incentive schemes of the key management personnel Remuneration & Nomination Committee, selected senior (including the Managing Director) for listed companies executives participate in LTIP. with comparable revenues and market capitalisation. The Board considers that Capral’s short-term incentive scheme is generally in line with this group. A summary of LTIP for the Managing Director and other senior executives is set out below: Frequency Awards determined annually. Type of award Performance rights subject to service requirements and vesting criteria. If the conditions are met, shares will be issued around the vesting date. Amount of award The Managing Director is eligible to receive additional annual issues of up to 50% of the value of TEC, subject to shareholder approval. The value of individual awards for all other participating senior executives is generally less than 30% of TEC. As a matter of practice, the aggregate amount of each annual award to all Executives is about 1.5% of issued capital and the number of rights awarded is based on the 12-month Volume Weighted Average Price (VWAP) as at the start of the performance period. Performance period & 3 years with 31 December testing dates. vesting dates 2020 award: vesting date of 1 March 2023. 2021 award: vesting date of 1 March 2024. 2022 award: vesting date of 1 March 2025. 30 | Annual Report 2022 Remuneration Report (Audited) Performance conditions Performance rights granted under LTIP are subject to the participant remaining employed by Capral at the vesting date and the achievement of the following performance conditions: • 50% of rights are subject to an EPS performance condition. The actual EPS performance is measured over a 3-year period, must meet, in aggregate, the 3 annual targets combined. The EPS condition is calculated each year as follows: Net Profit After Tax Target as specified by the Board for that year (adjusted for any extraordinary items approved by the Board) divided by weighted average number of securities on issue during the year. The Net Profit After Tax Target used for this condition is set at least at minimum Budget level. The Board may adjust EPS to normalise results and exclude the effects of material business acquisitions/ divestments and certain one-off costs; any material adjustments would be disclosed. The number of rights that may vest is set out in Table B below. • 50% of rights are subject to a TSR performance condition as against the entities with ordinary shares and units (as the case may be) included in the S&P/ASX All Ordinaries Index as at 1 January in the year of grant but excluding those companies who are classified in the Global Industry Classification Standard sector number 40. The number of rights which may vest is set out in Table A below. Refer to the explanation above (LTIP) regarding the setting of the EPS condition and the use of EPS and TSR tests. Assessment of Performance against the EPS and TSR conditions are assessed at the end of the 3-year period performance against (31 December testing date). measures There is no re-testing of EPS or TSR conditions. Vested rights convert on the relevant vesting date a one-for-one basis to ordinary shares. Unvested rights lapse. Treatment of awards If employment ceases all unvested rights will immediately lapse. However, if the cessation on cessation of relates to the redundancy or permanent disability / death of the employee or other reason employment determined by the Board then the Board has absolute discretion to determine that some or all of the rights vest. Treatment of awards The Board has discretion to allow awards to vest on a change of control. In exercising this on change of control discretion, the Board is not bound to award all shares. Dividend/ participation There is no entitlement to dividends on performance rights during the vesting period or to rights participate in respect of issues of shares to shareholders. Clawback of awards In the event of fraud, misstatement or misrepresentation of the financials, the Board may exercise its discretion to forfeit some or all of the award prior to the issue of shares or recover some or all of the award already made. Plan review The LTIP design is reviewed at least annually by the Remuneration & Nomination Committee and approved by the Board. The Managing Director makes recommendations to the Remuneration & Nomination Committee regarding the proposed LTIP award participants and the amount of the entitlements. Vesting of rights subject to the TSR and EPS performance conditions at each testing date is determined in accordance with Tables A and B respectively below: Table A Percentile of TSR % Rights Vesting < 50th 50th None 50 > 50th and < 75th Between 50 and 100 (pro rata) > 75th 100 Table B EPS Target % Rights Vesting > 5% below target None 5% below target 50 < 5% below target to Between 50 and 100 (pro rata) 10% above target > 10% above target 100 The Board has reviewed the guidance provided through the GRG remuneration benchmarking report regarding long term incentive schemes of the key management personnel (including the Managing Director) for listed companies with comparable revenues and market capitalisation. The Board considers that Capral’s long-term Annual Report 2022 Remuneration Report (Audited) | 31 SECTION 2: ACTUAL REMUNERATION OF KEY MANAGEMENT PERSONNEL During the Financial Year there were a number of remuneration outcomes. The expensed remuneration is set out in detail in the remuneration table below however in summary the key outcomes were as follows: ( a ) Remuneration General pay increases were implemented for executives. Total expensed remuneration for the key management personnel (including the directors) increased on average by 2% as compared to the prior year. ( b ) STIP STIP payments in respect of the 2022 year are lower than the prior year. ( c ) LTIP 49,000 performance rights were granted to the Managing Director in April 2022 following shareholder approval (2021: 86,300) and 139,000 rights were granted under the 2022 LTIP award to executives in March 2022 (2021: 164,700). Performance rights granted to the Managing Director and executives under LTIP awards were tested after the year end with the outcomes detailed in section 3 below. For the financial year ending 31 December 2023, Capral intends to: incentive scheme is generally in line with this group. • increase the fixed remuneration of the Managing ( i ) Anti-Hedging Policy Director and executives by an average of 3%; and • grant further performance rights under the LTIP to the Capral’s personnel are not permitted to enter into Managing Director (subject to shareholder approval) transactions with securities (or any derivative thereof) and selected senior managers. which limit the economic risk of any unvested entitlements awarded under any Capral equity-based remuneration scheme currently in operation or which will ( d ) Remuneration Table – key management personnel be offered by Capral in the future. As part of Capral’s due The following table sets out the remuneration of the key diligence undertaken at the time of the financial results, management personnel (including the directors) during participants in any Capral equity plan are required to the Financial Year and the 2021 financial year. confirm that they have not entered into any such prohibited transactions. The key management personnel of the consolidated entity are the non-executive directors, Managing Director and Chief Financial Officer/Company Secretary. These people have the authority and responsibility for planning, directing and controlling the day-to-day activities of Capral. 32 | Annual Report 2022 Remuneration Report (Audited) Short-term employee benefits benefits benefits benefits2 Share-based payments Total related Post- employment long-term Termination Other Total performance Salary and fees Bonus1 benefits Superannuation5 Non-monetary Deferred Equity1 Rights3 Performance Name Directors Year Title $ $ $ $ A.M. Dragicevich 2022 Managing Director 700,428 364,650 2021 Managing Director R.L. Wood-Ward 2022 Chairman 2021 Chairman P.J. Jobe 2022 Non-executive director 2021 Non-executive director K. Ostin 2022 Non-executive director 2021 Non-executive director G.F. Pettigrew 2022 Non-executive director 2021 Non-executive director M. White 2022 Non-executive director 2021 2022 Non-executive director4 Non-executive director6 2021 Non-executive director B. Tisher Executives 690,000 123,821 120,000 23,664 60,000 81,463 70,000 81,463 70,000 71,464 20,000 62,712 – 357,500 – – – – – – – – – – – – T. Campbell * 2022 CFO/ Co. Sec. 405,218 108,375 2021 CFO/Co. Sec. 401,000 106,250 Total 2022 Total 2021 1,550,233 473,025 1,431,000 463,750 1 All salaries, fees and bonus amounts are on an accrual basis. 2 Termination benefits include leave accrued and payments made in lieu of notice at the end of employment with Capral. 3 All LTIP performance rights listed are securities that have not yet vested. In relation to the performance rights of the key management personnel refer to Note 38 of the financial statements. 4 Mr White was appointed as a director on 1 September 2021. 5 Superannuation guarantee percentage has been changed from 10.0% to 10.5% from 1 July 2022. 6 Mr Tisher was appointed as a director on 24 February 2022. * Capral’s key management personnel (other than directors). – – – – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – – – 53,050 323,079 1,468,309 332,400 192,535 1,599,085 $ – – – – – – – – – – – – $ – – – – – – – – – – – – $ 136,518 131,703 26,522 65,852 89,821 76,827 89,821 76,827 78,796 22,000 69,170 – 14,625 98,250 67,675 97,966 65,847 653,666 696,328 421,045 2,612,623 430,650 258,382 2,668,622 % 50 55 – – – – – – – – – – – – 34 39 27,102 26,650 12,697 11,703 2,858 5,852 8,358 6,827 8,358 6,827 7,332 2,000 6,458 – 27,482 24,981 100,645 84,840 Post- employment benefits Other long-term benefits Termination benefits2 Share-based payments Total related Total performance Annual Report 2022 Remuneration Report (Audited) | 33 Salary and fees Bonus1 benefits Superannuation5 $ – – – – – – – – – – – – 690,000 123,821 120,000 23,664 60,000 81,463 70,000 81,463 70,000 71,464 20,000 62,712 – $ – – – – – – – – – – – – – – – – – – $ 27,102 26,650 12,697 11,703 2,858 5,852 8,358 6,827 8,358 6,827 7,332 2,000 6,458 – 27,482 24,981 100,645 84,840 $ – – – – – – – – – – – – – – – – – – Deferred Equity1 Performance Rights3 $ $ $ 53,050 323,079 1,468,309 332,400 192,535 1,599,085 – – – – – – – – – – – – – – – – – – – – – – – – 136,518 131,703 26,522 65,852 89,821 76,827 89,821 76,827 78,796 22,000 69,170 – 14,625 98,250 67,675 97,966 65,847 653,666 696,328 421,045 2,612,623 430,650 258,382 2,668,622 $ – – – – – – – – – – – – – – – – – – % 50 55 – – – – – – – – – – – – 34 39 Short-term employee benefits Non-monetary Name Directors Year Title $ A.M. Dragicevich 2022 Managing Director 700,428 364,650 2021 Managing Director 357,500 R.L. Wood-Ward 2022 Chairman 2021 Chairman P.J. Jobe 2022 Non-executive director 2021 Non-executive director K. Ostin 2022 Non-executive director 2021 Non-executive director G.F. Pettigrew 2022 Non-executive director 2021 Non-executive director M. White 2022 Non-executive director 2021 2022 Non-executive director4 Non-executive director6 2021 Non-executive director B. Tisher Executives T. Campbell * 2022 CFO/ Co. Sec. 405,218 108,375 2021 CFO/Co. Sec. 401,000 106,250 Total 2022 Total 2021 1,550,233 473,025 1,431,000 463,750 1 All salaries, fees and bonus amounts are on an accrual basis. 2 Termination benefits include leave accrued and payments made in lieu of notice at the end of employment with Capral. 3 All LTIP performance rights listed are securities that have not yet vested. In relation to the performance rights of the key management personnel refer to Note 38 of the financial statements. 4 Mr White was appointed as a director on 1 September 2021. 6 Mr Tisher was appointed as a director on 24 February 2022. * Capral’s key management personnel (other than directors). 5 Superannuation guarantee percentage has been changed from 10.0% to 10.5% from 1 July 2022. 34 | Annual Report 2022 Remuneration Report (Audited) SECTION 3: PERFORMANCE RIGHTS, OPTIONS AND BONUSES PROVIDED AS COMPENSATION Performance rights – Managing Director 102,670 performance rights were granted to the Managing Director in April 2020 following shareholder approval. These rights have a vesting date of March 2023. The EPS condition (51,335 rights) was tested as at 31 December 2022. Capral achieved the EPS condition and consequently During the Financial Year and the financial year ended 51,335 rights will vest in March 2023. The TSR condition 31 December 2021, performance rights were granted as (51,335 rights) was also tested as at 31 December 2022. equity compensation benefits under the LTIP, to the Capral’s relative TSR performance over the period from Managing Director as disclosed as at balance date below. January 2020 to December 2022 was in the 93rd The performance rights were granted at no cost to him. percentile and thus 100% of the rights subject to the TSR 49,000 performance rights were granted to the Managing Director in April 2022 following shareholder approval. These rights have a vesting date of March 2025. 86,300 performance rights were granted to the Managing Director in April 2021 following shareholder approval. These rights have a vesting date of March 2024. condition will vest in March 2023. Consequently, a total of 102,670 rights will vest and convert into Capral shares on a 1 for 1 basis as at 1 March 2023. 78,330 performance rights were granted to the Managing Director in April 2019 following shareholder approval. None of 78,330 rights lapsed and a total of 78,330 rights vested and converted into Capral shares on a 1 for 1 basis, as at 1 March 2022. Grant Grant Fair value per right Test Lapsed Vested Tranche number date at grant date ($) date number number 2022 Offer A. Dragicevich 27/04/2022 EPS 50% 24,500 TSR 50% 24,500 $7.77 31/12/2024 $5.82 31/12/2024 Total 2022 Offer 49,000 2021 Offer A. Dragicevich 28/04/2021 EPS 50% 43,150 TSR 50% 43,150 $6.43 31/12/2023 $5.17 31/12/2023 Total 2021 Offer 86,300 2020 Offer A. Dragicevich 29/04/2020 EPS 50% 51,335 TSR 50% 51,335 $1.56 31/12/2022 $2.04 31/12/2022 – – – – – – – – – – – – – – – – – – Total 2020 Offer 102,670 2019 Offer A. Dragicevich 16/04/2019 EPS 50% 39,165 TSR 50% 39,165 Total 2019 Offer 78,330 $3.00 31/12/2021 $2.10 31/12/2021 Nil Nil Nil 39,165 39,165 78,330 Annual Report 2022 Remuneration Report (Audited) | 35 Performance rights – other key management personnel 180,650 performance rights were granted under the 2020 LTIP award to executives in March 2020. These rights have During the Financial Year and the financial year ended 31 December 2021, performance rights were granted as equity compensation benefits under the LTIP, to certain executives including key management personnel as disclosed as at balance date below. The performance rights were granted at no cost to the participants. a vesting date of March 2023. The EPS condition (90,325 rights) was tested as at 31 December 2022. Capral achieved the EPS condition and consequently 90,325 of these rights will vest in March 2023. The TSR condition (90,325 rights) was also tested as at 31 December 2022. Capral’s relative TSR performance over the period from January 2020 to December 2022 was in the 93rd 139,000 performance rights were granted under the 2022 percentile and thus 100% of the rights subject to the TSR LTIP award to executives in March 2022. These rights have condition will vest in March 2023. Consequently, a total a vesting date of March 2025. of 90,325 rights will vest and convert into Capral shares 164,700 performance rights were granted under the 2021 on a 1 for 1 basis as at 1 March 2023. LTIP award to executives in March 2021. These rights have 141,660 performance rights were granted under the 2019 a vesting date of March 2024. LTIP award to executives in March 2019. None of 141,660 rights lapsed and a total of 141,660 rights vested and converted into Capral shares on a 1 for 1 basis, as at 1 March 2022. Other KMP/Offer Tranche number date at grant date ($) date number number Grant Grant Fair value per right Test Lapsed Vested 2022 Offer T. Campbell Total 2022 2021 Offer T. Campbell Total 2021 2020 Offer T. Campbell Total 2020 2019 Offer T. Campbell EPS 50% TSR 50% 8,750 8,750 17,500 EPS 50% 12,850 TSR 50% 12,850 25,700 EPS 50% 15,335 TSR 50% 15,335 30,670 08/03/2022 03/03/2021 03/03/2020 22/03/2019 $6.78 31/12/2024 $4.91 31/12/2024 $5.49 31/12/2023 $4.18 31/12/2023 $2.82 31/12/2022 $2.10 31/12/2022 EPS 50% 10,835 TSR 50% 10,835 $3.15 31/12/2021 $2.25 31/12/2021 Total 2019 21,670 – – – – – – – – – – – – – Nil Nil Nil – – – – – – – – – – – – – 10,835 10,835 21,670 36 | Annual Report 2022 Remuneration Report (Audited) Options No options were issued under the LTIP during the Financial Year and the financial year ended 31 December 2021. Equity grants during the Financial Year Details of the performance rights granted, as well as the movement during the Financial Year in rights previously granted, to Key Management Personnel are as follows: 2022 – Performance Held at start Granted as Other Held at end share rights A Dragicevich T Campbell of year compensation Lapsed Vested Changes of year 267,300 78,040 345,340 49,000 17,500 66,500 – – – (78,300) (21,670) (99,970) – – – 238,000 73,870 311,870 The non-executive directors hold no performance rights. Bonuses During the Financial Year and the financial year ended 31 December 2021, STIP bonus payments were made to the Managing Director and key management personnel. The Managing Director’s STIP payments for 2022 and 2021 equated to 57% and 96% (respectively) of his TEC (above the Capral Trading EBITDA2 ‘target’ level detailed in section 1 above) and the Board considers it appropriate having regard to the achievement of certain key financial measures as well as critical non-financial measures regarding customers, capital projects, anti-dumping activities and other strategic plans. The other key management personnel’s STIP payments were 28% and 48% of TEC for 2022 and 2021 respectively (above the Capral Trading EBITDA2 ‘target’ level detailed in section 1 above). The percentages of bonus accrued and forfeited (as a result of not meeting the performance criteria at ‘target’ level) during the Financial Year and the financial year ended 31 December 2021 are disclosed below: % of compensation % of % of for the year bonus bonus consisting of 2022 accrued forfeited STIP bonus1 Executives A. Dragicevich T. Campbell 115 114 – – 36 22 % of compensation % of % of for the year bonus bonus 2021 accrued forfeited consisting of STIP bonus1 Executives A. Dragicevich T. Campbell Notes on Bonuses: 193 192 – – 49 32 1 Total compensation used for calculating % purposes excludes equity compensation benefits under the LTIP and termination benefits. 2 Trading EBITDA (non-IFRS measure) is EBITDA adjusted for items assessed as unrelated to the underlying performance of the business and allows for a more relevant comparison between financial periods. 3 Bonuses relating to a financial year are payable in the following financial year. Annual Report 2022 Remuneration Report (Audited) | 37 Shareholdings of Key Management Personnel – fully paid ordinary shares of the Company Details of the holdings of Capral’s ordinary shares of key management personnel during the Financial Year are as follows: 2022 Directors R.L. Wood-Ward A.M. Dragicevich P.J. Jobe K. Ostin G.F. Pettigrew M. White Executives T. Campbell Held at start Granted as of performance changes during Held at end of year compensation rights/ exercise of options the year of year Received on vesting Other – 444,029 270,016 – – – – 23,6821 – – – – – 78,3302 – – – – – – – – – – – 546,041 270,016 – – – 48,957 763,002 7,0001 30,682 21,6702 (17,657)3 59,970 100,000 (17,657) 876,027 1 Deferred equity acquisition as part of 2021 STIP plan. 2 Acquired on vesting of performance rights in March 2022. 3 Acquired through DRP and selling SECTION 4: RELATIONSHIP BETWEEN REMUNERATION AND COMPANY PERFORMANCE There is a link between company performance and executive reward. For the Financial Year and the previous 4 financial years, Capral has made STIP payments based upon the achievement of performance (financial and non-financial) measures. Whilst continuing to ensure that Capral attracts and retains qualified, experienced and motivated employees in accordance with the remuneration policy by remunerating employees at a competitive level, Capral has placed more emphasis on at-risk remuneration in order to align remuneration of the employees to the performance of Capral and encourage shareholder wealth. 38 | Annual Report 2022 Remuneration Report (Audited) During the Financial Year and the previous 4 financial years (2018–2021), Capral’s financial performance objectives were as follows, with the minimum targets (M) that were set for the 2022 STIP financial measures also shown: 1,573 6,415 13.9 45.0 Year Ended 31 Dec Trading EBITDA $’0001 Free Cash Flow $’0001 Net (Loss)/Profit $’000 2022 (A) 2022 (M) 2021 (A) 2020 (A) 2019 (A) 2018 (A) 43,305 31,400 38,157 19,668 11,021 14,268 (16,376) 11,100 17,229 20,7524 4755 32,3872 25,200 33,3133 11,4644 3,1055 % Working Capital to Annualised Sales Dividend – cents per share 13.1 70.0 13.1 – 10.7 70.0 13.2 45.0 14.7 15.0 Underlying earnings / (loss) – cents per share 195.902 151.28 179.703 69.514 19.265 40.11 Share price (closing) $ 7.40 n/a 9.47 5.95 3.45 3.60 Note: Any JobKeeper related benefit received in 2020 have been excluded in full 1 Trading EBITDA (non-IFRS measure as explained in footnote to Chairman’s Report on page 4) is Statutory EBITDA adjusted for items assessed as unrelated to the underlying performance of the business and allows for a more relevant comparison between financial periods. . Free Cash Flow is net cash provided by operating activities reduced by net cash flows used in investing activities and lease liability payments. 2 Net Profit and Underlying Earnings per share adjusted to exclude Deferred Tax Benefit of $8.365 million. 3 Net Profit and Underlying Earnings per share adjusted to exclude Deferred Tax Benefit of $9.430 million, property revaluation $3.074 million. 4 Free Cash Flow, Net Profit and Basic Earnings per share adjusted to exclude Deferred Tax Benefit of $3.048 million and other one-off items of $0.499 million. 5 Free Cash Flow, Net Profit and Basic Earnings per share adjusted to exclude Restructuring Cost and other one-off items of $7.345 million. In the Financial Year, Capral’s Trading EBITDA was above 2021 level, but Net Profit after tax was lower due to the negative LME revaluation. The minimum targets were surpassed in all instances except for Free Cash Flow, driven by unplanned high Working Capital requirement due to record high LME price. As a result, proportional STIP will be payable to Capral key management and other senior personnel. Discretionary Bonuses will also be payable to other qualifying employees. At a Divisional and Regional level minimum Trading EBITDA measures were achieved in all business units, and there were mixed results relating to Working Capital and sales volume measures. Annual Report 2022 Remuneration Report (Audited) | 39 SECTION 4: RELATIONSHIP BETWEEN REMUNERATION AND COMPANY PERFORMANCE (CONT’D) The following provides examples of other key measures (that are not commercially sensitive) used to assess executive performance: Performance Area Measure Outcome Safety Reduction in total reportable Rate improved significantly and Group Stretch targets were met injury frequency rate Hours lost & return to work Stretch performance targets met hours lost from injuries Customers Volume retention/ growth Sales areas met some of the specific growth and revenue targets as well as margin measures. Performance varied by region/ division Production Operational efficiency Manufacturing plants met some of their operational efficiency/ improvement targets. Performance varied by plant. Supply Chain Supply chain and inventory Initiatives were generally not achieved reduction programmes People AL & LSL excess balance Overall excess leave balance reduction initiatives were not achieved. reduction Performance varied by region/ division Anti-dumping Pursue anti-dumping Overall, the outcomes were successful. campaign Costs Cost reduction initiatives Many of the specific cost and expense reduction initiatives were achieved. Performance varied by region/ division The 2022 STIP payments are lower than those paid in was 449.5 cents per share against an aggregate 2021, aligned to financial performance. There is a clear target of 263.4 cents per share and therefore the link between financial performance and the level of EPS condition of the 2020 award was achieved. STIP awarded. LTIP is linked to Capral’s performance as the value of the performance rights awarded depends on Capral’s share Consequently, 100% or 141,660 of the rights subject to the EPS condition of the 2020 award will vest and convert into Capral shares. price and dividend payments, and whether the awards vest • In 2021: relate to earnings growth and Capral’s relative TSR - Capral’s relative TSR performance over the period performance. There is a link between Capral’s from January 2019 to December 2021 achieved performance and the vesting of rights under LTIP awards. the 89th percentile, above the maximum 75th In this regard: • In 2022: - Capral’s relative TSR performance over the period from January 2020 to December 2022 achieved the 93rd percentile, above the maximum 75th percentile. Consequently, 100% or 141,660 of the rights subject to the TSR condition that were awarded in 2020 to executives will vest and convert to Capral shares. - Given earnings in, 2020, 2021 and 2022, the aggregate EPS result for the 3 year period to 2022 percentile. Consequently, 100% or 109,995 of the rights subject to the TSR condition that were awarded in 2019 to executives vested and converted into Capral shares. - Given earnings in, 2019, 2020 and 2021, the aggregate EPS result for the 3 year period to 2021 was 285.16 cents per share against an aggregate target of 156.04 cents per share and therefore the EPS condition of the 2019 award was achieved. Consequently, 100% or 109,995 of the rights subject to the EPS condition of the 2019 award vested and converted into Capral shares. 40 | Annual Report 2022 Remuneration Report (Audited) SECTION 5: SUMMARY OF KEY EMPLOYMENT CONTRACTS Details of the key contract terms for the Managing Director and other key management personnel as at the end of the Financial Year are as follows: Contract Details A. Dragicevich T. Campbell Expiry date No fixed end date No fixed end date Notice of termination by Capral 6 months Notice of termination by employee 6 months 6 months 6 months Termination payments (in lieu 6 months salary plus accrued but 6 months salary. STIP entitlement for of notice) unpaid STIP (pro rata for incomplete incomplete financial years is subject financial year). to Board discretion In addition, unvested LTIP rights may vest if employment is terminated by Capral other than for cause.6 weeks annual leave per annum. ENVIRONMENTAL REGULATIONS INDEMNITIES TO AUDITORS Manufacturing licences and consents required by laws In respect of non-audit services provided in relation to and regulations are held by the consolidated entity at each reviews of consulting and compliance advice during the relevant site as advised by consulting with relevant Financial Year, Deloitte Touche Tohmatsu, Capral’s auditor, environmental authorities. All applications for and has the benefit of an indemnity (including in respect of renewals of licences have been granted and all consents legal costs) for any third party claim in connection with the have been given by all relevant authorities. use, distribution or reliance on their work (except to the DIRECTORS’ AND OFFICERS’ INDEMNITIES AND INSURANCE Under Capral’s constitution, Capral is required to indemnify, to the extent permitted by law, each director and secretary of Capral against any liability incurred by extent caused by the wilful misconduct or fraud of Deloitte Touche Tohmatsu, or where it has agreed that the third party may rely on the work or it may be used in a public document). PROCEEDINGS ON BEHALF OF CAPRAL that person as an officer of Capral. The directors listed on No person has applied to the Court under section 237 of pages 11 to 12 and the secretary listed on page 21 have the Corporations Act for leave to bring proceedings on the benefit of this indemnity. During the Financial Year, behalf of Capral, or to intervene in any proceedings to Capral paid a premium for directors’ and officers’ liability which Capral is party, for the purpose of taking insurance policies which cover current and former responsibility on behalf of Capral for all or part of those directors, company secretaries and officers of the proceedings. No proceedings have been brought or consolidated entity. Details of the nature of the liabilities intervened in on behalf of Capral with leave of the Court covered and the amount of the premium paid in respect of under section 237 of the Corporations Act. the directors’ and officers’ insurance policies are not disclosed, as such disclosure is prohibited under the terms of the contracts. Annual Report 2022 Directors’ Report | 41 NON-AUDIT SERVICES Capral may decide to employ the auditor on assignments AUDITOR’S INDEPENDENCE DECLARATION additional to their statutory audit services where the The auditors’ independence declaration as required auditor’s expertise and experience with the consolidated under section 307C of the Corporations Act is set out entity are important. on page 42. The Board has considered this position and in accordance with the advice received from the Audit & Risk Committee, it is satisfied that the provision of these services during the Financial Year by the auditor is compatible with, and did not compromise, the general standard of auditor independence imposed by the Corporations Act for the following reasons: ( 1 ) the non-audit services provided do not involve reviewing or auditing the auditor’s own work and have not involved partners or staff acting in a management or decision-making capacity for Capral or in the processing or originating of transactions; ( 2 ) all non-audit services and the related fees have been reviewed by the Audit & Risk Committee to ensure complete transparency and that they do not affect the integrity and objectivity of Deloitte Touche Tohmatsu; and ( 3 ) the declaration required by section 307C of the Corporations Act 2001 confirming independence has been received from Deloitte Touche Tohmatsu. Details of the amounts paid or payable to Capral’s auditor (Deloitte Touche Tohmatsu) for audit and non-audit services provided during the Financial Year are set out in Note 33 of the financial statements. ROUNDING OF AMOUNTS Capral is a company of the kind referred to in ASIC Corporations Instrument 2016/191, dated 24 March 2016, and in accordance with that ASIC Corporations Instrument amounts in the Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of directors made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the directors R. L. Wood-Ward Chairman Sydney 24 February 2023 A. M. Dragicevich Managing Director 42 | Annual Report 2022 Auditor’s Independence Declaration Auditor’s Independence Declaration Deloitte Touche Tohmatsu ABN 74 490 121 060 8 Parramatta Square 10 Darcy Street Parramatta, NSW, 2150 Australia Phone: +61 2 9840 7000 www.deloitte.com.au The Board of Directors Capral Limited 15 Huntingwood Drive Huntingwood NSW 2148 24 February 2023 Dear Board Members, AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo CCaapprraall LLiimmiitteedd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Capral Limited.. As lead audit partner for the audit of the financial report of Capral Limited for the year ended 31 December 2022, I declare that to the best of my knowledge and belief, the only contraventions of: · The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and · Any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU X Delaney Partner Chartered Accountant Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Annual Report 2022 Financial Statements | 43 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the financial year ended 31 December 2022 Continuing operations Sales revenue Scrap and other revenue Revenue Other income Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Finance costs Freight expense Occupancy costs Repairs and maintenance expense Other expenses Profit before tax Income tax benefit Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss Gain on revaluation of properties Other comprehensive income for the year Note 3 3 2 2 2 2 2 4 2022 $’000 643,284 49,222 692,506 2021 $’000 550,854 42,607 593,461 3,446 2,723 (468,730) (376,398) (103,922) (21,318) (6,319) (16,296) (4,969) (7,076) (96,895) (20,170) (5,760) (13,675) (4,087) (6,978) (34,934) (38,908) 32,388 33,313 8,365 9,430 40,753 42,743 – – 3,074 3,074 Total comprehensive income for the year 40,753 45,817 Earnings per share Basic earnings per share Diluted earnings per share ($ per share) ($ per share) 26 26 2.31 2.22 2.52 2.42 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 44 | Annual Report 2022 Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2022 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Prepayments Total current assets Non-current assets Deferred tax assets Property, plant and equipment Right-of-use assets Other intangible assets Goodwill Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Lease liabilities Provisions Borrowings Other financial liabilities Deferred income Total current liabilities Non-current liabilities Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Accumulated losses Total equity Note 7 8 9 31 (c) 10 11 14 17 15 16 19 20 21 27 (b) 31 (c) 22 20 21 23 24 24 (b) 2022 $’000 2021 $’000 48,988 91,326 154,877 11 848 50,132 96,290 130,507 – 723 296,050 277,652 23,700 56,644 66,651 649 3,070 150,714 446,764 112,735 16,158 17,901 24,083 828 153 15,335 53,195 75,313 700 3,070 147,613 425,265 139,037 15,810 18,798 – 67 213 171,858 173,925 77,874 7,306 85,180 257,038 189,726 433,433 91,279 (334,986) 87,730 6,485 94,215 268,140 157,125 430,588 69,888 (343,351) 189,726 157,125 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF CASH FLOWS for the financial year ended 31 December 2022 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest and other costs of finance paid Net cash provided by operating activities 35(ii) Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Payments for purchase of a business 39 Interest received Proceeds from sale of property, plant and equipment Annual Report 2022 Financial Statements | 45 Note 2022 $’000 2021 $’000 770,509 622,566 (757,098) (575,577) 13,411 (6,349) 7,062 (9,790) (170) – 125 – 46,989 (5,260) 41,729 (9,181) (368) (10,302) – 131 Net cash flows used in investing activities (9,835) (19,720) Cash flows from financing activities Payments of dividends 25 (12,166) (10,870) Proceeds from dividend reinvestment plan Payments for share purchase – employee share plan Proceeds in relation to employee share plan Proceeds from borrowings (Trade loans) Repayment of borrowings (Trade loans) Payment of lease liabilities excluding financing component 35(iv) Net cash flows provided by/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of foreign exchange rate changes 2,604 – 428 80,820 (56,737) (14,548) 401 (2,372) 50,132 1,228 3,494 (273) – – – (14,951) (22,600) (591) 49,396 1,327 Cash and cash equivalents at the end of the financial year 35(i) 48,988 50,132 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 46 | Annual Report 2022 Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2022 Balance as at 1 January 2021 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares issued – dividend reinvestment plan Shares issued – employee escrow shares Employees shares on-market purchase Dividends paid Balance as at 31 December 2021 Balance as at 1 January 2022 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares issued – dividend reinvestment plan Shares issued – employee escrow shares Employees shares on-market purchase Dividends paid Fully paid ordinary shares $’000 426,965 – – – 3,494 129 – – 430,588 430,588 – – – 2,604 241 – – Note 25 25 Equity-settled compensation reserve $’000 11,319 – – 590 – – – – 11,909 11,909 – – 982 – – – – Balance as at 31 December 2022 433,433 12,891 4,088 (334,986) * Dividend reserve represents undistributed profits since the financial year 2010. Current period profit has been transferred to a dividend reserve account. Interim and final dividends are declared and sourced from current year profits. ^ Income tax benefit (2022: $8.365 million; 2021: $9.430 million) in relation to deferred tax assets on tax losses are excluded from dividend reserve. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Employee Asset revaluation share reserve reserve $’000 1,014 – 3,074 4,088 4,088 – – – – – – – – – – – – Dividend Reserve* $’000 31,673 33,313 33,313 – – – – – – – – (10,870) 54,116 54,116 32,388 32,388 (12,166) 74,338 Accumulated losses $’000 (352,781) 9,430^ 9,430^ (343,351) (343,351) 8,365^ 8,365^ – – – – – – – – – – Total $’000 118,190 42,743 45,817 590 3,494 129 (225) (10,870) 157,125 157,125 40,753 40,753 982 2,604 241 187 (12,166) 189,726 $’000 – – – – – – – – – – – – – (225) (225) (225) 187 (38) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2022 Balance as at 1 January 2021 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares issued – dividend reinvestment plan Shares issued – employee escrow shares Employees shares on-market purchase Dividends paid Balance as at 31 December 2021 Balance as at 1 January 2022 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares issued – dividend reinvestment plan Shares issued – employee escrow shares Employees shares on-market purchase Dividends paid Note Fully paid ordinary shares $’000 426,965 Equity-settled compensation reserve $’000 11,319 – – – – – – – – – – 3,494 129 430,588 430,588 2,604 241 590 – – – – – – – – – – – – 11,909 11,909 982 25 25 Employee Asset revaluation share reserve reserve $’000 – – – – – – (225) – (225) (225) – – – – – 187 – (38) $’000 1,014 – 3,074 – – – – – 4,088 4,088 – – – – – – – 4,088 Balance as at 31 December 2022 433,433 12,891 * Dividend reserve represents undistributed profits since the financial year 2010. Current period profit has been transferred to a dividend reserve account. Interim and final dividends are declared and sourced from current year profits. ^ Income tax benefit (2022: $8.365 million; 2021: $9.430 million) in relation to deferred tax assets on tax losses are excluded from dividend reserve. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Annual Report 2022 Financial Statements | 47 Dividend Reserve* $’000 31,673 33,313 33,313 – – – – (10,870) 54,116 54,116 32,388 32,388 – – – – (12,166) 74,338 Accumulated losses $’000 (352,781) 9,430^ 9,430^ – – – – – (343,351) (343,351) 8,365^ 8,365^ – – – – – (334,986) Total $’000 118,190 42,743 45,817 590 3,494 129 (225) (10,870) 157,125 157,125 40,753 40,753 982 2,604 241 187 (12,166) 189,726 Notes to the Financial Statements 48 | Annual Report 2022 Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS Compliance with A-IFRS ensures that the financial for the financial year ended 31 December 2022 1a. GENERAL INFORMATION statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the Capral Limited (the Company) is a public listed company directors on 24 February 2023. incorporated and operating in Australia. The Company’s shares are quoted on the Australian Securities Exchange Basis of Preparation (ASX Code: CAA). The Company’s registered office and its principal place of business is as follows: Registered office & principal place of business 71 Ashburn Road Bundamba QLD 4304 Tel: (07) 3816 7000 The principal continuing activities of the consolidated entity consist of the manufacturing, marketing and distribution of fabricated and semi-fabricated aluminium related products. 1b. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS In the current year, the Group has applied the below amendments to AASB Standards and Interpretations issued by the Board that are effective for an annual period that begins on or after 1 January 2022. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. Amendments to AASB 3 Business Combinations Reference to the Conceptual Framework The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191, dated 24 March 2016, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that ASIC Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar as indicated. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: ( a ) Basis of Consolidation The financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (and its subsidiaries) (referred to as ‘the Group’ in these financial statements). Amendments to AASB 116 Property, Plant and Equipment – Proceeds before Intended Use 1c. SIGNIFICANT ACCOUNTING POLICIES Control is based on whether an investor has: • power over the investee • exposure, or rights, to variable returns from its involvement with the investee, and Statement of Compliance • the ability to use its power over the investee to affect The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report includes the financial statements of the Company and the financial statements of the Group. For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). the amount of the returns. The results of the subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Annual Report 2022 Notes to the Financial Statements | 49 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ( b ) Borrowing Costs • assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 Non-Current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are ( d ) Cash and Cash Equivalents assets that necessarily take a substantial period of time to Cash comprises cash on hand and demand deposits. get ready for their intended use or sale, are added to the Cash equivalents are short-term, highly liquid investments cost of those assets, until such time as the assets are that are readily convertible to known amounts of cash and substantially ready for their intended use or sale. which are subject to an insignificant risk of change in Investment income earned on the temporary investment value and have a maturity of three months or less at the of specific borrowings pending their expenditure on date of acquisition. Bank overdrafts are shown within qualifying assets is deducted from the borrowing costs borrowings in current liabilities in the statement of eligible for capitalisation. All other borrowing costs are financial position. recognised in profit or loss in the period in which they are incurred. ( c ) Business Combinations ( e ) Derivative Financial Instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and Acquisitions of subsidiaries and businesses are accounted foreign exchange rate risk, including foreign exchange for using the acquisition method. The consideration for forward contracts. each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised. Further details of derivative financial instruments are disclosed in Note 31 to the financial statements. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition of profit or loss depends on the nature of the hedge relationship. The fair value of hedging derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months, and as a current asset or current liability if the remaining maturity of the hedge relationship is less than 12 months. The Group’s derivatives do not qualify for hedge accounting and are not designated into an effective hedge relationship and are The acquiree’s identifiable assets, liabilities and contingent classified as a current asset and current liability. liabilities that meet the conditions for recognition under AASB 3 are recognised at their fair value at the acquisition Embedded Derivatives date, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively; • liabilities or equity instruments related to the replacement by the Group of an acquiree’s share based payment awards are measured in accordance with AASB 2 Share-based Payment; and Derivatives embedded in hybrid contracts with hosts that are not financial assets within the scope of AASB 9 (e.g. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. 50 | Annual Report 2022 Notes to the Financial Statements 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ( f ) Employee Benefits ( i ) Salaries, wages and leave benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, including non-monetary benefits, annual leave and long service leave, when it is probable that settlement will be required, and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long-term employee benefits are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. ( ii ) Share-based payments Equity-settled share-based payments with employees are measured at the fair value of the equity instrument at the grant date. ( g ) Financial Assets Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through the profit or loss which are initially measured at fair value. Subsequent to initial recognition, investments in subsidiaries are measured at cost in the Company’s financial statements. Other financial assets are classified into the following specified categories: financial assets at amortised cost; financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss account. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the The fair value of the performance rights is estimated financial asset, or, where appropriate, a shorter period. at grant date using a Monte-Carlo Simulation analysis taking into account the terms and conditions upon which the securities are granted. The fair value of the options is estimated at grant date using a binomial tree model taking into account the terms and conditions upon which the securities are granted. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed Income is recognised on an effective interest rate basis for debt instruments other than financial assets ‘at fair value through profit or loss’. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognised in profit or loss on the financial assets is included in the other income or other expenses. Fair value is determined in the manner described in Note 31. Trade and other receivables on a straight-line basis over the vesting period, based Trade and other receivables that were measured at on the Group’s estimate of shares that will amortised cost under AASB 139 continue to be measured eventually vest. Further details on how the fair value of equity-settled share-based transactions have been determined can be found in Note 37. ( iii ) Defined contribution plan at amortised cost under AASB 9 as they are held within a business model to collect contractual cash flows. Trade and other receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate. Contributions to defined contribution superannuation plans are expensed when incurred. Annual Report 2022 Notes to the Financial Statements | 51 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of financial assets Impairment of financial assets is based on an expected credit loss (“ECL”) model under AASB 9 rather than incurred loss model. ECLs are a probability-weighted estimate of credit losses. The group calculated ECLs based on consideration of customer-specific factors and actual credit loss experience over the past 3 years. As a percentage of revenue, the Group’s actual credit loss experience has not been material. In accordance with AASB 9 paragraph 7.2.20 the group will ( h ) Financial Instruments Issued by the Group Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Compound instruments The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible recognise a loss allowance at an amount equal to lifetime expected credit losses at each reporting date. The group instrument. calculated ECLs based on consideration of customer-specific factors and actual credit loss experience over the past 3 years. The credit loss includes consideration for the COVID 19 impact. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instruments reaching maturity. The equity component initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects and is not subsequently remeasured. interest rate. Financial guarantee contract liabilities The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of the amount recognised as a provision and the amount initially recognised less cumulative amortisation. Financial liabilities Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities at fair value through profit or loss Derecognition of financial assets Financial liabilities at fair value through profit or loss are The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in Note 31. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Refer note 1c (o). 52 | Annual Report 2022 Notes to the Financial Statements 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset ( i ) Foreign Currency (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (CGU) is reduced to its In preparing the financial statements, transactions in recoverable amount. An impairment loss is recognised in currencies other than the entity’s functional currency profit or loss immediately, unless the relevant asset is (foreign currencies) are recorded at the rates of exchange carried at fair value, in which case the impairment loss is prevailing on the dates of the transactions. At each treated as a revaluation decrease. balance date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Where an impairment loss subsequently reverses, the carrying amount of the asset (CGU) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (CGU) in prior years. A reversal of an impairment loss is recognised in the profit or loss immediately, unless Exchange differences are recognised in profit or loss in the the relevant asset is carried at fair value, in which case period in which they arise except for exchange differences the reversal of the impairment loss is treated as a which relate to assets under construction for future revaluation increase. productive use, which are included in the cost of those assets where they are regarded as an adjustment to ( l ) Income Tax interest costs on foreign currency borrowings. The income tax expense or revenue for the period is the ( j ) Government Grant tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction Grants are recognised where there is a reasonable adjusted by changes in deferred tax assets and liabilities assurance that the grant will be received and all attached attributable to temporary differences between the tax conditions will be complied with. ( k ) Impairment of Other Tangible and bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Intangible Assets excluding goodwill Deferred tax assets are recognised for deductible At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. suffered an impairment loss. If any such indication exists, The Company and its wholly owned Australian entities the recoverable amount of the asset is estimated in order have implemented the tax consolidation legislation. to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (CGU) to which that asset belongs. The current and deferred tax amounts for the tax-consolidated group are allocated to the members of the tax-consolidated group (including the Company as the head entity) using the ‘separate taxpayer within group’ approach, with deferred taxes being allocated by reference Intangible assets with indefinite useful lives and intangible to the carrying amounts in the financial statements of assets not yet available for use are tested for impairment each member entity and the tax values applying under tax at least annually and whenever there is an indication that consolidation. Current tax liabilities and assets and the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. deferred tax assets arising from unused tax losses and relevant tax credits arising from this allocation process are In assessing value in use, the estimated future cash flows then accounted for as immediately assumed by the head are discounted to their present value using a post-tax entity, as under Australian taxation law the head entity has discount rate that reflects current market assessments of the legal obligation (or right) to these amounts. the time value of money and the risks specific to the asset Annual Report 2022 Notes to the Financial Statements | 53 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ( m ) Intangible Assets Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. SaaS arrangements Configuration and customisation costs incurred in implementing SaaS arrangements are recognised in profit or loss as the customisation and configuration services are performed, or, in certain circumstances, over the SaaS ( o ) Leases The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as copiers). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. contract term when access to the cloud application The lease liability is initially measured at the present value software is provided. Patents, trademarks and licences of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily Patents, trademarks and licences are recorded at cost less determined, the Group uses its incremental borrowing rate. accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives, which vary from 5 to 16 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes being recognised as a change in accounting estimate. Software Software assets including system development costs have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost over the assets estimated useful lives, which vary from 3 to 5 years. ( n ) Inventories Inventories representing aluminium log, other supplies and finished goods are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. Aluminium log is valued at moving average of direct purchase cost. Cost of rolled product has been determined principally on moving average of direct purchase costs. Costs for finished and partly finished includes moving average metal cost, direct labour, and appropriate proportion of fixed and variable factory overhead. Lease payments included in the measurement of the lease liability comprise: • Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; • Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; and • Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: • The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. • The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). 54 | Annual Report 2022 Notes to the Financial Statements 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) • A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The depreciation starts at the commencement date of the lease. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Operating lease payments are recognised as an expense on a straight-line basis over the lease team, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. ( p ) Property, Plant and Equipment buildings are credited to the asset revaluation reserve except to the extent that the increase reverses a revaluation decrease for the same asset previously recognised as an expense in profit or loss, in which case the increase is credited to the profit and loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of land and buildings is charged as an expense in profit or loss to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of revalued property, the attributable revaluation surplus remaining in the revaluation reserve, net of any related taxes, is transferred directly to retained earnings. Plant and equipment, and leasehold improvements are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight-line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. Land and buildings are measured at fair value less any ( q ) Provisions subsequent accumulated depreciation and subsequent accumulated impairment losses. Fair value is determined on the basis of a periodic, independent valuation by external valuation experts, based on discounted cash flows or capitalisation of net income, as appropriate. Periodic reviews are conducted every three to five years. The fair values are recognised in the financial statements of the Group and are reviewed at the end of each reporting period to ensure that the carrying value of land and buildings is not materially different from their fair values. Any revaluation increase arising on revaluation of land and Provisions are recognised when the Group has a present, legal or constructive obligation as a result of past events, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to Annual Report 2022 Notes to the Financial Statements | 55 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) settle the present obligation, its carrying amount is the present value of those cashflows. When some or all of the economic benefits required to settle a provision are The Group recognises revenue from the sale of products and the sale of scrap and when it transfers control of a product to a customer, which is the point in time that the customer obtains control of the goods being on acceptance of the goods by the customer. expected to be recovered from a third party, the receivable Revenue is measured at the fair value of the consideration is recognised as an asset if it is virtually certain that the received or receivable. Sales revenue comprises sales of reimbursement will be received and the amount of the goods and services at net invoice values less returns, receivable can be measured reliably. trade allowances and applicable rebates. Onerous contracts Royalties Present obligations arising under onerous contracts are Royalty income is recognised on an accrual basis in recognised and measured as a provision. An onerous accordance with the substance of the relevant agreement. contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Restructuring A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. Royalties are recognised on the subsequent sale or usage, and the performance obligation to which the royalty has been allocated has been satisfied. Rental income The Group’s policy for recognition of income from operating leases is described in note 1c (o). Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts The measurement of a restructuring provision includes estimated future cash receipts through the expected life only the direct expenditures arising from the restructuring, of the financial asset to that asset’s net carrying amount. which are those amounts that are both necessarily entailed by the restructuring and not associated with the ( s ) Goods and Services Tax ongoing activities of the entity. Revenues, expenses and assets are recognised net of the Provision for restoration and rehabilitation amount of goods and services tax (GST) except: (provision for make good on leased assets) ( i ) where the amount of GST incurred is not recoverable A provision for restoration and rehabilitation (provision for make good on leased assets) is recognised when there is a present obligation as a result of production activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of removing the facilities and restoring the affecting areas. ( r ) Revenue Recognition Revenue is recognised when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customers. from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ( ii ) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority, is classified as operating cash flows. 56 | Annual Report 2022 Notes to the Financial Statements 1c. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ( t ) Earnings per share ( i ) Basic earnings per share Basic earnings per share is calculated by dividing the profit/(loss) attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year. ( ii ) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 1d. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 1, management is required to make Inventories Note 9 sets out the categories of inventory carried. The net realisable value of inventories is the estimated selling price in the ordinary course of business less estimated costs to sell which approximates fair value less cost to sell. The key assumptions require the use of management judgement and are reviewed annually. These key assumptions are the variables affecting the estimated costs to sell and the expected selling price. Any reassessment of cost to sell or selling price in a particular year will affect the cost of goods sold. The Group also records impairment allowance on slow, non-moving and obsolete inventories. The key assumptions include future sales forecast, forecast LME price and selection of specific inventory based on the past consumption patterns vis-à-vis the inventory on hand. Impairment of non-current assets inclusive of right of use assets and goodwill Goodwill and indefinite life intangible assets are tested for impairment at each reporting period or more frequently if events or changes in circumstances indicate that goodwill or other intangibles might be impaired. This is performed through a value-in-use discounted cash flow model. judgements, estimates and assumptions about carrying There is a degree of estimation uncertainty in the values of assets and liabilities that are not readily apparent estimates and judgements used in the preparation of from other sources. The estimates and associated assumptions are based on historical experience and value-in-use models. The key assumptions applied includes price, margin, volumes, working capital, capital various other factors that are believed to be reasonable expenditure, discount rate, economic factors and prior under the circumstances, the results of which form the period tax losses. basis of making the judgements. Actual results may differ from these estimates. Note 14 and Note 17 sets out the categories of property, plant and equipment held and right of use assets. In The estimates and underlying assumptions are reviewed assessing whether there is any indication that property, on an ongoing basis. Revisions to accounting estimates plant and equipment and right of use assets may be are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. impaired, or whether a reversal of previous impairment losses should be recognised, management has used, among others, the following key assumptions: ( i ) the cyclical nature of both residential and commercial Critical judgements in applying the Group’s accounting policies building activity, The following are the critical judgements (apart from those involving estimations which are dealt with above), that management has made in the process of applying the ( ii ) aluminium prices which impact margins to the extent that price variations are passed onto customers or not, and Group’s accounting policies and that have the most ( iii ) anti-dumping outcomes in relation to import duties significant effect on the amounts recognised in the imposed on overseas suppliers. financial statements. Annual Report 2022 Notes to the Financial Statements | 57 1d. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) The key assumptions required the use of management judgement and are reviewed biannually. If there are indicators of impairment or reversal of impairment, a value-in-use discounted cash flow model is prepared to assess the extent of impairment or reversal of impairment. Employee benefits Key assumptions used in the calculation of leave benefit provisions at balance date: ( i ) future on-cost rates, ( ii ) experience of employee departures and period of service, and Incremental borrowing rate (AASB 16) The rate is defined as the rate of interest that the lessee would have to pay to borrow over a similar term and with a similar security the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Deferred taxation The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future against which the reversal of temporary differences can be deducted and unrecognised tax losses utilised. To determine the future taxable profits, reference is made to the latest available profit forecasts. Relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits. Recognition of ( iii ) future increase in wages and salaries. deferred tax assets therefore involves judgement Provision for customer claims regarding the future financial performance of the particular legal entity or tax group in which the deferred Provision for customer claims are measured at the tax asset has been recognised together with availability present value of management’s best estimate of the of such losses. expenditure required to settle the present obligation at the statement of the financial position date based on claims assessors report. Useful lives of property, plant and equipment 1e. COMPARATIVE INFORMATION Where necessary, comparative amounts have been reclassified and repositioned for consistency with current period disclosures. However, there are none during The Group reviews the estimated useful lives of property, the year. plant and equipment at the end of each annual reporting period. During the financial year, the directors determined that there were no revisions to the useful lives of property, plant and equipment. Lease renewal The Group reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that: • is within the control of the Group; and • affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term. 58 | Annual Report 2022 Notes to the Financial Statements 2 PROFIT FOR THE YEAR (A) OTHER EXPENSES Profit before tax includes the following specific net expenses: Inventory: Write-down of inventory to net realisable value Reversal of write-down of inventory Note 9 Amortisation of intangibles assets Total amortisation Depreciation – owned assets Buildings Leasehold improvements Plant and equipment Total depreciation – owned assets Depreciation – right of use assets Buildings Plant and equipment Total depreciation – right of use assets Total depreciation and amortisation Occupancy costs Site costs Expense relating to leases of low value assets Other charges against assets (Decrease)/increase in impairment of trade receivables Employee benefit expense Post-employment benefits: – defined contribution plans Equity-settled share-based payments Termination benefits Other employee benefits Finance costs Interest and finance charges paid/payable – third party financier Net finance costs are comprised of: Interest and fees on bank overdrafts and loans Interest component of lease liabilities Impact of discounting on long-term provisions Total interest expense Other expenses Other labour cost Utilities Insurance Other Total other expenses (B) GAINS AND LOSSES Net gain/(loss) on foreign exchange Net gain on disposal of property, plant and equipment CONSOLIDATED 2022 $’000 2,929 (25) 2,904 212 212 311 537 6,473 7,321 12,067 1,718 13,785 21,318 4,969 4,969 80 (183) 7,687 982 59 95,194 103,922 6,350 2,000 4,350 (31) 6,319 11,087 9,441 3,104 11,302 34,934 1,349 – 2021 $’000 1,321 (117) 1,204 189 189 175 399 5,904 6,478 11,523 1,980 13,503 20,170 4,087 4,087 88 280 6,848 590 58 89,399 96,895 5,260 878 4,382 500 5,760 10,990 8,049 2,364 17,505 38,908 (159) 109 NOTES TO THE FINANCIAL STATEMENTS 3 REVENUE AND OTHER INCOME Revenue from continuing operations Sales revenue – sale of goods (i) Other revenue Scrap revenue (i) Total other revenue Other income Royalties Sub-lease rental income Other miscellaneous income Interest – other (i) Recognised at a point in time. 4 INCOME TAX Current tax: Current year Deferred tax: Annual Report 2022 Notes to the Financial Statements | 59 CONSOLIDATED 2022 $’000 2021 $’000 643,284 550,854 49,222 49,222 – 3,319 2 125 3,446 42,607 42,607 – 2,721 2 – 2,723 – – Origination and reversal of temporary differences 8,365 9,430 Carry forward tax losses Income tax benefit The benefit for the year can be reconciled to profit before tax as follows: Profit before income tax benefit Income tax calculated @ 30% (2021:30%) Tax effect of non-assessable / non-deductible items: Effect of expenses that are not deductible or taxable in determining 8,365 9,430 32,388 9,716 33,313 9,994 taxable profit 455 481 Tax effect of utilisation of tax losses and temporary differences not previously recognised (10,171) (10,475) Previously unrecognised and unused tax losses and temporary differences now recognised as deferred tax assets Income tax benefit recognised in profit or loss 8,365 8,365 9,430 9,430 60 | Annual Report 2022 Notes to the Financial Statements 5 CHANGES IN ACCOUNTING ESTIMATES There were no significant changes in accounting estimates. 6 SEGMENT INFORMATION The information reported to the Managing Director, as the Group’s chief operating decision maker, for the purposes of resource allocation and assessment of performance is focused on the type of goods supplied, being aluminium products. As such, in 2021 and 2022, the Group operated in one reportable segment under AASB 8 Operating Segment. Major Products and Services The Group produces a wide range of extruded aluminium products and systems. It distributes those manufactured products in addition to a small number of bought-in products through two distribution channels. The Group supplies to three market segments through each of its distribution channels: • Residential – supply of aluminium and other components for windows and doors, showers and wardrobes and security products, • Commercial – supply of aluminium and other components for windows and doors, internal fit outs and other commercial building related products, and • Industrial – supply of aluminium extrusions and rolled products for industrial uses. Management does not report on the revenues from external customers for each of the market segments. Geographic Information The Group operates in one geographical area, Australia. Information About Major Customers There are no individual major customers who contributed more than 10% of the Group’s revenue in either the Financial Year or in 2021. CONSOLIDATED 2022 $’000 2021 $’000 7 CURRENT ASSETS – CASH AND CASH EQUIVALENTS Cash at bank and cash in hand 48,988 50,132 Annual Report 2022 Notes to the Financial Statements | 61 CONSOLIDATED 8 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Trade receivables – at amortised cost Loss allowance (i) Other receivables Disclosed in the financial statements as: Current trade and other receivables Non-current other receivables 2022 $’000 90,443 (242) 90,201 1,125 91,326 2021 $’000 91,151 (425) 90,726 5,564 96,290 91,326 96,290 – – 91,326 96,290 The average credit period on sales of goods is approximately 43 days (2021: 50 days). No interest is charged on trade receivables. CONSOLIDATED (i) Movement in the loss allowance. Balance at beginning of the financial year Amounts written off during the financial year Increase in allowance recognised in profit or loss Balance at end of the financial year 2022 $’000 (425) 243 (60) (242) 2021 $’000 (145) 112 (392) (425) The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Allowances are made for known doubtful debts at the time of appointment of administrators, liquidators, or other formal insolvency events. Included in the Group’s trade receivables are debtors with balances in 61 days and over of $594,000 (2021: $530,000), refer to note 31(h). The Group has not provided all of these balances as the Group believes that these past due balances are still recoverable. In relation to some of the balances the Group holds personal property securities registrations and/or personal guarantees and/or trade indemnity insurance for 80% of the amount outstanding (after applying the deductible). The average age of these receivables is 79 days (2021: 92 days). 62 | Annual Report 2022 Notes to the Financial Statements 8 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES (CONTINUED) Trade receivables risk profile: Current 1–30 days past due 31–60 days past due 61+ days past due Total CONSOLIDATED 2022 $’000 70,226 17,744 1,879 396 90,245 2021 $’000 72,261 16,411 1,706 449 90,827 Included in the loss allowance is the expected credit loss for individually impaired trade receivables with a balance of $198,000 (2021: $324,000). The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected proceeds. Current 1–30 days past due 31–60 days past due 61+ days past due Total CONSOLIDATED 2022 $’000 – – – 198 198 2021 $’000 – 243 – 81 324 Major concentrations of credit risk are in the construction, transport, consumer durable and electrical industries in Australia. Furthermore, the Company has credit insurance cover which requires ongoing management of credit accounts with monthly reports provided to the Insurer. Accordingly, there is no further credit provision required in excess of the loss allowance. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. 9 CURRENT ASSETS – INVENTORIES Raw materials and stores Work in progress Finished goods CONSOLIDATED 2022 $’000 25,617 3,631 125,629 154,877 2021 $’000 21,659 3,875 104,973 130,507 All inventories are net of allowance for obsolescence and are expected to be recovered within 12 months. Included in the inventories balance is inventories in transit of $29.760 million (2021: $36.513 million). Annual Report 2022 Notes to the Financial Statements | 63 CONSOLIDATED 2022 $’000 2021 $’000 10 CURRENT ASSETS – PREPAYMENTS Prepayments 848 723 11 DEFERRED TAX ASSETS The following is a reconciliation of the deferred tax assets recognised by the Group and movements during the current and prior reporting period. Balance at 1 January 2021 Benefit recognised in the profit Balance at 1 January 2022 Benefit recognised in the profit Balance at end of the financial year TAX LOSSES AND TEMPORARY DIFFERENCES $’000 5,905 9,430 15,335 8,365 23,700 TOTAL $’000 5,905 9,430 15,335 8,365 23,700 At the reporting date, the Group has unused tax losses of $208,596,113 (2021: $245,374,998) available to offset against future taxable profits and $82,058,874 (2021: $79,486,000) deductible temporary differences which would reverse in the future. The Group has recognised a deferred tax asset of $23,700,000 (2021: $15,335,000) representing both carry forward tax losses and deductible temporary differences. These tax losses may be carried forward indefinitely, however subject to income tax recoupment rules in subsequent years. The recognition of the deferred tax assets is dependent on the three years forecasted taxable profits. The Group has taken a view that it is probable to achieve forecasted taxable profits in the next three years against which this deferred tax asset recognised would be utilised. The group has recognised deferred taxes amounting to $11,180,000 in respect of deductible temporary differences and no deferred tax asset is recognised on the balance temporary differences of $44,790,000 based on management assessment that they will not reverse in foreseeable future. In respect of carried forward tax losses, the group has recognised taxes amounting to $12,520,000 and no deferred tax asset recognised on balance of the available tax losses amounting to $166,864,000. The total unrecognised deferred taxes amount to $63,496,496 (2021: $82,124,027) as of reporting date. 64 | Annual Report 2022 Notes to the Financial Statements 12 NON-CURRENT ASSETS – INVESTMENTS Details of subsidiaries The financial statements incorporate the assets, liabilities and results of the following subsidiaries: EQUITY HOLDING 2022 % 100 2021 COUNTRY OF % INCORPORATION 100 Australia ENTITY NAME Austex Dies Pty Limited 13 RELATED PARTIES Parent entities The ultimate parent entity within the Group is Capral Limited. Equity interests in controlled entities Interests in controlled entities are set out in Note 12. Transactions with key management personnel Refer to Note 37 in relation to securities granted and forfeited during the Financial Year under the Long Term Incentive Plan that include rights granted and shares issued, to Capral’s Managing Director and Chief Financial Officer (who are key management personnel). Details of the compensation of, and transactions with, each Director of the Company and key management personnel of the Group are set out in the Directors’ Report and in particular, the Remuneration Report. Transactions with other related parties In 2022, the parent entity has settled a non-interest-bearing loan of $1,000,000 (2021: $700,000) advanced from a controlled entity, Austex Dies Pty Limited. The loan was payable on demand. The Company has entered into the following transactions with controlled entities: • Purchase of dies of $4,845,482 (2021: $4,891,151) – Austex Dies Pty Limited These transactions were conducted on arm’s length commercial terms and conditions at market rates. During the Financial Year, the Company received a dividend of $1,000,000 (2021: $700,000) from Austex Dies Pty Limited. Annual Report 2022 Notes to the Financial Statements | 65 CONSOLIDATED 2022 $’000 2021 $’000 14 PROPERTY, PLANT AND EQUIPMENT Freehold land At valuation (i) Accumulated depreciation Net book amount Buildings At valuation (i) Accumulated depreciation Net book amount Leasehold improvements At cost Accumulated depreciation Accumulated impairment Net book amount Total land and buildings Plant, machinery and equipment At cost Accumulated depreciation Accumulated impairment Net book amount Capital work in progress at cost Net plant, machinery and equipment Total property, plant and equipment – net book value The following useful lives are used in the calculation of depreciation: Buildings 20–33 Years Leasehold improvements 5–25 Years Plant and equipment 3–25 Years (i) Valuations of land and building: 1,700 – 1,700 5,628 (747) 4,881 14,257 (8,646) (1,970) 3,641 10,222 1,700 – 1,700 5,628 (436) 5,192 12,925 (8,159) (1,970) 2,796 9,688 229,805 223,387 (159,515) (153,397) (32,099) (32,099) 38,191 8,231 46,422 56,644 37,891 5,616 43,507 53,195 An independent valuation of the Group’s land and buildings was performed in December 2021 using Capitalisation and Direct Comparison approaches to determine the fair value of the land and buildings. The valuations, which conform to International Valuation Standards, were determined by reference to recent market transactions on arm’s length terms at the time. The fair value of the Land and Buildings is $1,700,000 and $5,000,000 respectively. 66 | Annual Report 2022 Notes to the Financial Statements 14 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current and prior financial year are set out below: FREEHOLD LAND BUILDINGS LEASEHOLD PLANT AND CAPITAL WORK AT FAIR AT FAIR IMPROVEMENTS EQUIPMENT IN PROGRESS VALUE VALUE AT COST AT COST AT COST TOTAL $’000 $’000 $’000 $’000 $’000 $’000 CONSOLIDATED 2022 Opening net book amount 1,700 5,192 2,796 37,891 Additions Business acquisition Disposals Transfers Revaluation Depreciation charge (Note 2(a)) Net book amount at 31 December 2022 2021 Additions Business acquisition Disposals Transfers Revaluation Depreciation charge (Note 2(a)) Net book amount at 31 December 2021 – – – – – – – – – – – 912 – (17) 487 – 4,113 – – – (311) (537) (6,473) 2,660 (3,202) 5,616 5,817 – – – – 53,195 10,842 – (17) (55) – (7,321) 1,700 4,881 3,641 38,191 8,231 56,644 – – – – 500 – – – – – 2,574 (175) 2,591 589 – – 15 – 30,401 7,921 4,508 (22) 987 – (399) (5,904) 1,829 5,016 – – (1,229) – – 38,814 13,526 4,508 (22) (227) 3,074 (6,478) 1,700 5,192 2,796 37,891 5,616 53,195 Opening net book amount 1,200 2,793 Impairment of non-current assets inclusive of right of use assets and goodwill At each reporting date, the Group reviews the carrying amounts of its tangible, intangible and right-of-use assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (CGU) to which that asset belongs. Management views the Group as representing one CGU. Annual Report 2022 Notes to the Financial Statements | 67 14 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) If there is an indication of impairment, the recoverable amount of property, plant & equipment, goodwill and intangible assets will be determined by reference to a value in use discounted cash flow valuation of the Group, utilising financial forecasts and projections. Goodwill has resulted from the business combinations in the previous year (Note 39). Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Cash flows that may result from prior period tax losses are not taken into account. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (CGU) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. The result of Impairment assessment as at 31 December 2022 As a result of the non-current assets recoverable amount assessment performed, Capral has determined that no impairment write-down of non-current assets as at 31 December 2022 was necessary. The recoverable amount of the CGU estimated by management exceeded the carrying amount of assets by $4,637,000. However, management view that no reversal of impairment is required due to the uncertainty of the performance of the construction industry and its impact on margins. The key assumptions used in preparing the value in use cash flow valuation as at 31 December 2022 are as follows: The table below shows key assumptions in the value in use calculation as at 31 December 2022 and value of the input to which the key assumption must change in isolation for the estimated recoverable amount to be equal to its carrying value. WACC (Post-tax) Average volumes increase 2023–27 p.a. Long-term growth rate INPUT TO THE MODEL BREAKEVEN INPUT 11.50% 0.38% 1.00% 11.73% 0.30% 0.35% The valuation is based on budget and projected cash flows for a 5-year period commencing January 2023 with a terminal value being applied at the end of this period. The cash flow assumptions are based on board approved budgets for the period from January 2023 to December 2023. Beyond this date cash flow projections until 31 December 2027 are based on projected volume growth and expected improvements in EBITDA per tonne (refer below). Sales volumes are projected to grow at 1% per annum from 2024. This growth rate corresponds with the average long-term growth rate based on external economic sources. The value in use cash flow valuation is very sensitive to price and the discount rate. Price and Margins In setting price and margin assumptions, historical performance trends and the impact of previous price increases were reviewed in assessing the timing and quantum of future price increases. Recent history in relation to direct costs and the impact of changing volumes on manufacturing variances were assessed in setting assumptions on absorbed conversion costs. In forecasting the margin, Management has considered the production capacity of Capral compared to current volumes and concluded that increase in production volumes to satisfy demand expected by independent market predictions can be attained by predominately increasing variable cost with very limited additional fixed cost expenditure. This is reflected in the resultant average EBITDA per tonne increase of 1.0% per annum from 2024 to 2027. A 0.15% underperformance in forecasted margin, in isolation, would reduce the headroom to nil but would not result in an impairment charge. 68 | Annual Report 2022 Notes to the Financial Statements 14 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Volumes In determining assumptions in relation to sales volumes into the commercial and residential/domestic market, Capral have based these on reputable third-party long term economic forecast reports with reference to historical performance and seasonal trends. The volume projections estimate the sales volumes at around 73,000 tonnes at the end of the 5-year period. Working Capital and Capital Expenditure These assumptions were set in light of strategic initiatives and approved maintenance and safety capital expenditure of an average around $5,500,000 per annum, with working capital flexed in relation to the assumed production capacity for volumes throughout the forecast period and historical performance and considering revisions to trading terms with key suppliers, customers and external market environment. Discount rate A discount rate of 11.5%, representing the Company’s post-tax weighted average cost of capital has been applied to the cash flow projections. Economic Factors Assumptions including Gross Domestic Production (GDP), the Consumer Price Index (CPI), expected wage and salary increases, foreign exchange and the future impact of aluminium prices have been made with reference to third party economic forecasts and the Company’s strategic plans and budgets. Prior Period Tax Losses Cash flows that may result from prior period tax losses are not taken into account in determining the recoverable amount of assets. OTHER INTELLECTUAL PROPERTY SOFTWARE $’000 $’000 15 OTHER INTANGIBLES ASSETS CONSOLIDATED 2022 Cost Accumulated amortisation Accumulated impairment Net book value 2021 Cost Accumulated amortisation Accumulated impairment Net book value 15,937 (8,368) (7,560) 9 15,927 (8,367) (7,560) – 25,083 (21,977) (2,466) 640 24,932 (21,766) (2,466) 700 Impairment assessment is performed based on assumptions and estimates as disclosed in Note 14. TOTAL $’000 41,020 (30,345) (10,026) 649 40,859 (30,133) (10,026) 700 Annual Report 2022 Notes to the Financial Statements | 69 15 OTHER INTANGIBLES ASSETS (CONTINUED) Reconciliations Reconciliations of the carrying amounts of each class of intangibles at the beginning and end of the current Financial Year are set out below: OTHER INTELLECTUAL PROPERTY SOFTWARE $’000 $’000 TOTAL $’000 CONSOLIDATED 2022 Opening net book amount Additions Disposals Transfers Amortisation Net book amount at 31 December 2022 2021 Opening net book amount Additions Disposals Transfers Amortisation Net book amount at 31 December 2021 16 GOODWILL COST At 31 December 2021 Business acquisition – Note 39 At 31 December 2022 ACCUMULATED DEPRECIATION At 31 December 2021 Amortisation At 31 December 2022 – 10 – – (1) 9 – – – – – – 700 96 – 55 (211) 640 321 341 – 227 (189) 700 Consolidated 2022 $’000 3,070 – 3,070 – – – 700 106 – 55 (212) 649 321 341 – 227 (189) 700 2021 $’000 – 3,070 3,070 – – – Impairment assessment is performed based on assumptions and estimates as disclosed in Note 14. 70 | Annual Report 2022 Notes to the Financial Statements 17 RIGHT-OF-USE ASSETS BUILDINGS EQUIPMENT PLANT & $’000 $’000 CONSOLIDATED COST At 31 December 2021 Additions Terminations At 31 December 2022 ACCUMULATED DEPRECIATION At 31 December 2021 Terminations Depreciation charge At 31 December 2022 NET BOOK VALUE At 31 December 2022 At 31 December 2021 103,805 4,434 (3,196) 105,043 (32,787) 2,515 (12,067) (42,339) 62,704 71,018 TOTAL $’000 113,358 5,804 (3,196) 9,553 1,370 – 10,923 115,966 (5,258) – (1,718) (6,976) 3,947 4,295 (38,045) 2,515 (13,785) (49,315) 66,651 75,313 Impairment assessment is performed based on assumptions and estimates as disclosed in Note 14. The Group leases several assets including buildings and plant and equipment, with average lease term of 4.5 years (2021: 4.4 years) and 3.9 years (2021: 4.0 years) respectively. The Group has options to purchase certain equipment for a nominal amount at the end of the lease term. The Group’s obligations are secured by the lessor’s title to the leased assets for such leases. The Group has renewed some of leases for buildings and equipment in the current financial year. The expired contracts were replaced by new leases for identical underlying assets. This resulted in additions to right-of-use assets of $5.804 million in the current financial year (2021: $2.061 million) 18 ASSETS PLEDGED AS SECURITY In accordance with the security arrangements of liabilities disclosed in Note 27, all assets of the Group have been pledged as security. The holder of the security does not have the right to sell or repledge the assets other than in the event of default under the principal finance agreement where the security is enforced. 19 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Annual Report 2022 Notes to the Financial Statements | 71 Trade payables (i) Goods and services tax payable Other payables CONSOLIDATED 2022 $’000 92,819 1,728 18,188 2021 $’000 119,489 1,996 17,552 112,735 139,037 (i) The average credit period on purchases is 85 days from the end of the month (2021: 89 days). No interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 20 LEASE LIABILITIES CONSOLIDATED Current Non-current MATURITY ANALYSIS Within one year Later than one year but not later than five years Later than five years 2022 $’000 16,158 77,874 94,032 16,158 53,837 24,037 94,032 2021 $’000 15,810 87,730 103,540 15,810 50,993 36,737 103,540 72 | Annual Report 2022 Notes to the Financial Statements 21 PROVISIONS CURRENT Employee benefits Make good on leased assets1 Other2 NON-CURRENT Employee benefits Make good on leased assets1 Other CONSOLIDATED 2022 $’000 13,776 169 3,956 17,901 2,332 4,974 – 7,306 2021 $’000 13,241 809 4,748 18,798 2,254 4,231 – 6,485 1 Provision for make good on leased assets comprises obligations relating to site closure and other costs associated with lease rental properties. 2 Other current provisions include provisions for insurance claims and provisions for customer claims including metal returns net of scrap and pricing adjustments. Consolidated EMPLOYEE MAKE GOOD ON BENEFITS LEASED ASSETS OTHER TOTAL MOVEMENTS IN CARRYING AMOUNTS Carrying value at the beginning of the financial year Provision utilised/released in the year Additional amounts provided Carrying value at the end of the financial year $’000 15,495 (7,306) 7,919 16,108 22 DEFERRED INCOME – CURRENT Deferred income – other $’000 $’000 $’000 5,040 (904) 1,007 5,143 4,748 25,283 (1,033) (9,243) 241 9,167 3,956 25,207 CONSOLIDATED 2022 $’000 153 153 2021 $’000 213 213 Annual Report 2022 Notes to the Financial Statements | 73 2022 No. 000 2021 No. 000 2022 $’000 2021 $’000 23 ISSUED CAPITAL (A) SHARE CAPITAL Ordinary shares: fully paid 17,767 17,193 433,433 430,588 Fully paid ordinary shares carry one vote per share and carry the right to dividends. (B) MOVEMENT IN ORDINARY SHARE CAPITAL DATE DETAILS NUMBER OF SHARES ISSUE PRICE $’000 January 2021 Balance at the beginning of the financial year 16,562,669 – 426,965 March 2021 Shares issued pursuant to a dividend reinvestment plan 330,733 $6.2854 2,079 March 2021 Shares issued against performance rights March 2021 Shares issued – deferred STIP 92,427 31,130 – $4.14 – 129 September 2021 Shares issued pursuant to a dividend reinvestment plan 176,300 $8.0251 1,415 December 2021 Balance at the end of the financial year January 2022 Balance at the beginning of the financial year March 2022 Shares issued – deferred STIP 17,193,259 17,193,259 32,369 March 2022 Shares issued pursuant to a dividend reinvestment plan 321,654 March 2022 Shares issued against performance rights December 2022 Balance at the end of the financial year 219,990 17,767,272 – – $7.44 $8.1 – – 430,588 430,588 241 2,604 – 433,433 74 | Annual Report 2022 Notes to the Financial Statements 24 RESERVES AND ACCUMULATED LOSSES Asset revaluation reserve Equity-settled compensation reserve Employee share reserve Dividend reserve Accumulated losses 24(A) MOVEMENTS IN RESERVES WERE: Equity-settled compensation reserve CONSOLIDATED 2022 $’000 4,088 12,891 (38) 74,338 91,279 2021 $’000 4,088 11,909 (225) 54,116 69,888 (334,986) (343,351) (243,707) (273,463) Balance at the beginning of the financial year 11,909 11,319 Expense recognised Shares acquired on conversion of vested rights 982 – 590 – Balance at the end of the financial year 12,891 11,909 Asset revaluation reserve Balance at the beginning of the financial year Revaluation increase Balance at the end of the financial year Employee share reserve Balance at the beginning of the financial year Funding provided Employees shares on-market purchase Balance at the end of the financial year Dividend reserve Balance at the beginning of the financial year Net profit attributable to members of Capral Dividends paid Balance at the end of the financial year 24(B) ACCUMULATED LOSSES Balance at the beginning of the financial year Net profit for the year (Income tax benefit) Balance at the end of the financial year 4,088 – 4,088 (225) – 187 (38) 54,116 32,388 (12,166) 74,338 1,014 3,074 4,088 – (225) – (225) 31,673 33,313 (10,870) 54,116 (343,351) (352,781) 8,365 9,430 (334,986) (343,351) Annual Report 2022 Notes to the Financial Statements | 75 CONSOLIDATED 2022 $’000 2021 $’000 12,166 10,870 25 DIVIDENDS Ordinary shares: FRANKING CREDITS Franking credits available for subsequent financial years based on a tax rate of 30% (2021:30%) 8,079 13,293 26 EARNINGS PER SHARE Basic earnings per share Diluted earnings per share CONSOLIDATED 2022 $ 2.31 2.22 Net profit after tax used in the calculation of basic and diluted profit per share for 2022 was $40,753,000 (2021: $42,743,000). The weighted average numbers of ordinary shares on issue used in the calculation of basic and diluted earnings per share were 17,649,632 and 18,366,893 (2021: 16,961,049 and 17,691,815) respectively. CONSOLIDATED 27 STAND BY ARRANGEMENT AND CREDIT FACILITIES 27(A) SECURED FACILITIES Total secured facilities Facilities used: Trade loan Cash loan Bank guarantees Trade finance – drawn letters of credits Trade finance – open letters of credits Total facilities utilised Total available facilities 27(B) BORROWINGS Current: Trade Loan 2021 $ 2.52 2.42 2021 $’000 60,000 60,000 – – 4,495 35,868 15,716 56,079 3,921 2022 $’000 90,000 90,000 24,083 – 4,371 18,743 6,814 54,011 35,989 24,083 – 76 | Annual Report 2022 Notes to the Financial Statements 27 STAND BY ARRANGEMENT AND CREDIT FACILITIES (CONTINUED) Each trade instrument is approved individually and may result in temporary facility over utilisation due to timing of release of instruments already expired. The Multi-option Facility was increased to $90 million on 24 November 2022. To align with Capral’s ongoing requirements, the Facility was reduced to $75 million from 1 January 2023 to closely align with Capral’s working capital requirement with an expiry date of 30 April 2024. The existing ANZ facilities consist of: Secured: • $90 million Multi-option Facility which includes a Trade Finance Loan Facility, Trade Instruments and Trade Finance at 31 December 2022, which was revised to $75 million from 1 January 2023; and • $5 million Standby Letter of Credit or Guarantee Facility. Unsecured: • $2.5 million Electronic Payaway Facility; and • $0.5 million Commercial Card Facility. • $1.3 million Asset Finance Facility The trade loan facility has a maximum drawdown term of 90 days and with an ANZ defined variable base rate plus a margin. 28 COMMITMENTS FOR EXPENDITURE – CAPITAL CONSOLIDATED 2022 $’000 2021 $’000 Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities payable: Within one year 1,880 3,895 29 COMMITMENTS FOR EXPENDITURE – LEASES The recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. Refer to note 20 for maturity analysis of lease liabilities at 31 December 2022. At 31 December 2022, the Group is committed to $287,088 (2021: $342,547) for low value leases and has no short-term lease commitments. LEASE RECEIVABLE Non-cancellable lease receivable Within one year Later than one year but not later than five years Later than five years CONSOLIDATED 2022 $’000 2,977 12,829 5,822 21,628 2021 $’000 2,862 12,331 9,080 24,273 Lease receivables relate to the sublease of office and plant premises with a lease term of 10 years, with an option to extend for a further term of 5 years. Annual Report 2022 Notes to the Financial Statements | 77 30 FAIR VALUE MEASUREMENT Some of the Group’s assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these assets and liabilities are determined (in particular, valuation technique(s) and input(s) used). FAIR VALUE AS AT ASSETS / 31/12/22 31/12/21 FAIR VALUE VALUATION TECHNIQUE(S) UNOBSERVABLE RELATIONSHIP OF LIABILITIES $ $ HIERARCHY AND KEY INPUT(S) INPUT(S) UNOBSERVABLE INPUT(S) SIGNIFICANT Foreign currency forward contracts (see note 31(f)) Assets – nil Assets – nil Level 2 Discounted cash flow. n/a n/a Liabilities – Liabilities – 828,359 66,807 Future cash flows are estimated based on forward exchange rate (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risks of various counterparties. Land and buildings Land – Land – Level 3 Capitalisation and Direct Comparable to The higher/(lower) the 1,700,000 1,700,000 Comparison approaches. recent market comparable market Buildings – Buildings – 4,881,000 5,192,000 (Last assessed 2021) transactions on net rental amount and arm’s length terms the higher/(lower) the at the time. comparable market sales transactions, the higher the fair value. 31 FINANCIAL INSTRUMENTS ( a ) Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2021. The capital structure of the Group consists of debt, as disclosed in Note 27, cash and cash equivalents, and equity holders of the parent, comprising issued capital, reserves and accumulated losses, as disclosed in Notes 7, 23 and 24 respectively. The Directors review the capital structure on a regular basis, and at least annually. As a part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Based on the determinations of the Directors, the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt. The Group prepares monthly management accounts, comprising Balance Sheet, Profit and Loss Statement and Cash Flow Statement updates for the current financial year and the current year forecast. The forecast is used to monitor the Group’s capital structure and future capital requirements, taking into account future capital requirements and market conditions. 78 | Annual Report 2022 Notes to the Financial Statements 31 FINANCIAL INSTRUMENTS (CONTINUED) ( a ) Capital risk management (continued) The Group complied with its borrowing financial covenants under its current facility detailed in Note 27 as at 31 December 2022 and 31 December 2021 as follows: FINANCIAL COVENANT DESCRIPTION REQUIRED VALUE ACTUAL VALUE ACTUAL VALUE 2022 2021 EBITDA Interest Cover Ratio (A ratio of EBITDA to Interest Expense) Minimum Tangible Net Worth > 3.00:1 23.75:1 45.61:1 (Tangible Net Worth – Total Tangible Assets Less Total > AUD 100.0m AUD 191.5m AUD 168.4m Liabilities) Borrowing Base Ratio (A ratio of Aggregate Facility Amount Owing to Eligible < 0.70:1 0.54:1 0.62:1 Debtors owing up to 90 days) Distributions (Any payment or distribution of money or other assets Variable* AUD 12.17m AUD 10.87m to shareholders) Inventory Cover Ratio * lower than the profit of prior year ( b ) Significant accounting policies >0.8:1 0.88:1 0.87:1 Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1(c). ( c ) Categories of financial instruments Financial Assets Trade and other receivables Cash and cash equivalents Other financial assets1 Financial Liabilities Trade and other payables Borrowings Lease liabilities Other financial liabilities2 CONSOLIDATED 2022 $’000 91,326 48,988 11 2021 $’000 96,290 50,132 – 112,735 139,037 24,083 94,032 828 – 103,540 67 1 security deposit for a site energy supply. 2 foreign exchange contract mark-to-market $828,000 (2021: foreign exchange contract mark-to-market $67,000). Annual Report 2022 Notes to the Financial Statements | 79 31 FINANCIAL INSTRUMENTS (CONTINUED) ( d ) Financial risk management objectives The Group’s treasury function monitors and manages the financial risks relating to the operations of the Group through internal risk reports. These risks include market risk (including currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. These risks are analysed below. ( e ) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (refer note 31(f)) and interest rates (refer note 31(g)). From time to time, the Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including foreign exchange forward contracts to hedge the exchange rate risk arising on the purchase of aluminium log and rolled product from overseas in US dollars. At a Group and Company level, market risk exposures are measured using a sensitivity analysis. There has been no material change to the Group’s exposure to market risks or the manner in which it manages and measures the risk during the Financial Year. ( f ) Foreign currency risk management The Group undertakes certain transactions in foreign currencies, resulting in exposures to exchange rate fluctuations. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. It is the policy of the Group to enter into forward foreign exchange contracts from time to time to manage any material risk associated with anticipated foreign currency sales and purchase transactions. The carrying amount of the Group’s and Company’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: USD (cash) EURO (cash) USD (trade payables) EURO (trade payables) JPY (trade payables) USD (trade receivables) CONSOLIDATED 2022 $’000 12,753 767 2021 $’000 20,423 98 (11,923) (18,205) 113 (22) 1,017 632 (23) 2,292 Foreign currency sensitivity The Group is exposed to EUR, JPY and USD (2021: EUR, JPY and USD). To mitigate foreign currency risk at reporting date, the Group entered into foreign exchange forward contracts. The Group’s exposure to foreign exchange rate fluctuations was primarily limited to cash, trade payables and trade receivables outstanding at reporting date denominated in currencies other than Australian dollar (AUD). The total value of trade payables denominated in currencies other than the AUD at reporting date was $11,831,000 (2021: $17,596,000). The total value of trade receivables denominated in currencies other than the AUD at reporting date was $1,017,000 (2021: $2,292,000). The following table details the Group’s sensitivity to a 10% increase and decrease in the AUD against the relevant unhedged foreign currency. 10% represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only foreign currency denominated monetary items outstanding at 31 December 2022 and 31 December 2021 and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit. 80 | Annual Report 2022 Notes to the Financial Statements 31 FINANCIAL INSTRUMENTS (CONTINUED) Profit or loss (after tax) – AUD strengthens by 10% against USD – AUD weakens by 10% against USD – AUD strengthens by 10% against EUR – AUD weakens by 10% against EUR – AUD strengthens by 10% against JPY – AUD weakens by 10% against JPY Forward foreign exchange contracts CONSOLIDATED 2022 $’000 991 (1,212) (10) 12 2 (2) 2021 $’000 1,447 (1,768) (57) 70 2 (3) It is the policy of the Group to enter into forward foreign exchange contracts to cover specific material foreign currency payments and receipts. The following table details the forward foreign currency (FC) contracts outstanding at the end of the reporting period: OUTSTANDING CONTRACTS FOREIGN CURRENCY FAIR VALUE Buy EUR Buy JPY Buy CNH Buy USD 31/12/22 FC$’000 31/12/21 FC$’000 31/12/22 $’000 31/12/21 $’000 GAIN/(LOSS) GAIN/(LOSS) 420 4,620 240 1,763 4,145 240 5 –1 –1 22,336 40,356 (833) (81) –1 1 14 1 Fair value of the gain/(loss) was less than $1,000, hence, rounded down to nil. ( g ) Interest rate risk management The Group interest rate risk arises from borrowings, cash and derivatives. The Group is exposed to interest rate risk as the Group borrows funds at floating interest rates. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied, by either positioning the balance sheet or protecting interest expense through different interest rate cycles. The Group’s exposure to interest rate risk at the reporting date was considered insignificant and as a result the Group did not enter into interest rate options. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed below. Interest rate sensitivity The sensitivity analysis below shows the effect on profit or loss after tax for the Financial Year if there is a change in interest rates with all other variables held constant. This is determined by applying the change in interest rates to both derivative and non-derivative instruments at the reporting date that have an exposure to interest rate changes. A 110-basis point (1.1%) increase and a 110 basis point (1.1%) decrease represents Management’s assessment of the possible change in interest rates (2021: 1bp or 0.01% increase and 1bp or 0.01% decrease). A positive number indicates an increase in profit. Annual Report 2022 Notes to the Financial Statements | 81 31 FINANCIAL INSTRUMENTS (CONTINUED) ( g ) Interest rate risk management (continued) Interest rate sensitivity (continued) Profit or loss (after tax) Impact of a 110bp (2021: 1bp) increase in AUD interest rates – Cash and cash equivalents Impact of a 110bp (2021: 1bp) decrease in AUD interest rates – Cash and cash equivalents ( h ) Credit risk management CONSOLIDATED 2022 $’000 377 (377) 2021 $’000 4 (4) Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has exposures to credit risk on cash and cash equivalents, receivables and derivative financial assets. The credit risk on financial assets of the Group which have been recognised on the statement of financial position, other than investments in shares, is generally the carrying amount, net of any allowances for doubtful debts. The Group does not have any significant exposure to any individual customer or counterparty. Major concentrations of credit risk are in the construction, transport, consumer durable and electrical industries in Australia. The Company has credit insurance cover which requires ongoing management of credit accounts with monthly reports provided to the Insurer. Experienced credit management and associated internal policies ensure constant monitoring of the credit risk for the Company. There is no concentration of credit risk with respect to receivables as the Group has a large number of customers. The aging of gross trade receivables is detailed below: Current 1–30 days 31–60 days 60+ days CONSOLIDATED 2022 $’000 70,226 17,744 1,879 594 90,443 2021 $’000 72,262 16,653 1,706 530 91,151 ( i ) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who ensure there is an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate banking facilities and reserve borrowing facilities, complying with covenants, monitoring forecast and actual cash flows, and matching the maturity profiles of financial assets and liabilities. Included in Note 27 is a list of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. 82 | Annual Report 2022 Notes to the Financial Statements 31 FINANCIAL INSTRUMENTS (CONTINUED) ( i ) Liquidity risk management (continued) Liquidity and interest risk tables Financial assets are made up of cash of $48,988,000 (2021: $50,132,000) and trade and other receivables of $91,326,000 (2021: $96,290,000). Cash is liquid and trade and other receivables are expected to be realised on average within 43 days (2021: 50 days). Cash balances earn 2.40% interest per annum (2021: 0.00%). Trade and other receivables are interest-free. The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been prepared based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is a fair representation of management’s expectations of actual repayments. WEIGHTED AVERAGE EFFECTIVE LESS THAN GREATER INTEREST RATE 1 YEAR 1–3 YEARS 3–5 YEARS THAN 5 YEARS CONSOLIDATED 2022 Trade and other payables Other financial liabilities % – – Borrowings 3.94 2021 Trade and other payables Other financial liabilities – – $’000 $’000 $’000 $’000 112,735 828 24,083 137,646 139,037 67 139,104 – – – – – – – – – – – – ( j ) Fair value of financial instruments The fair values of financial assets, financial liabilities and derivative instruments are determined as follows: ( i ) the fair value of financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on the discounted cash flow analysis using prices from observable market data; and ( ii ) the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available, the discounted cash flow analysis is employed using observable market data for non-option derivatives. For option derivatives, option pricing models are used with key inputs sourced from observable market data. The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. Annual Report 2022 Notes to the Financial Statements | 83 32 CONTINGENT LIABILITIES Capral has received customer claims relating to the supply of non-conforming marine grade plate. The plate was manufactured by a third party, independently certified, imported and distributed by Capral. As stated in the 2020 Annual Report and 2021 Managing Director’s AGM address, Capral supplied replacement plate to affected customers and this plate was fully provided for in Capral’s 2020 accounts. Some claims include a property damage and consequential loss component which have been submitted to Capral’s insurer. Capral maintains the belief that it is not liable for any of these claims and as such Management continues ongoing discussions with the insurer, supplier, and certifier (DNV-GL) in this regard. These claims, together with potential liability and recourse against third parties, have been assessed. Based on assessments done and legal advice obtained, the directors have made provision for what the Board believe Capral’s resulting liability could be. Any contingent liability in excess of the amounts already provided is not able to be reliably estimated. The information usually required by AASB 137 (Provisions, Contingent Liabilities and Contingent Assets) is not disclosed on the grounds that it can be expected to seriously prejudice the outcome of negotiations and legal proceedings. Separate from the item above, claims and possible claims, arise in the ordinary course of business against Capral entities. Capral has fully provided for all known and determinable material claims. Based on legal advice obtained, the Directors believe that any residual liability will not materially affect the financial position of the consolidated entity. During the year, there were no developments that would require management to reassess the sufficiency of the provision. The Company’s bankers have granted guarantees in respect of rental obligations on lease commitments, use of utilities infrastructure and international trade facilities. At 31 December 2022, these guarantees totalled $4,370,502 (2021: $4,494,942). Capral’s bankers have issued letters of credit in respect of Capral’s purchases internationally. At 31 December 2022, these open letters of credit totalled $6,814,372 (31 December 2021: $15,715,119). 33 REMUNERATION OF AUDITORS During the year the auditor of the Group and parent entity and its related practices earned the following remuneration: Auditor of the Group and parent entity Audit or review of financial reports of the entity or any entity in the consolidated entity Other services: – tax compliance – tax consulting Total remuneration CONSOLIDATED 2022 $ 2021 $ 340,400 327,100 37,250 45,750 31,500 32,550 423,400 391,150 It is the Group’s policy to employ the Company’s auditors, Deloitte Touche Tohmatsu, on assignments additional to their statutory duties where their expertise and experience is considered invaluable to the assignment. 84 | Annual Report 2022 Notes to the Financial Statements 34 EVENTS AFTER REPORTING DATE No matter or circumstance has arisen since the end of the Financial Year that has significantly affected, or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in future financial years. 35 NOTES TO THE CASH FLOW STATEMENT ( i ) Reconciliation of cash and cash equivalents Reconciliation of cash and cash equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and at bank and short term deposits at call net of bank overdrafts. Cash as at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows: Cash at bank and on hand CONSOLIDATED 2022 $’000 2021 $’000 48,988 48,988 50,132 50,132 ( ii ) Reconciliation of profit for the year to net cash flows from operating activities Profit for the year Non-cash items: Depreciation and amortisation – owned assets Depreciation and amortisation – right of use assets Gain on sale of property, plant and equipment Income tax benefit Share-based payments expense Interest income reclassified to investing activities Change in assets and liabilities: Decrease/(increase) in current receivables Increase in financial assets Increase in inventories (Increase)/decrease in prepayments (Decrease)/increase in trade and other payables Increase/(decrease) in employee benefit provisions (Decrease)/increase in other provisions (Decrease)/increase in deferred income Increase/(decrease) in other financial liabilities Net cash provided by operating activities 40,753 42,743 7,533 13,785 – (8,365) 982 (125) 4,964 (11) 6,667 13,503 (109) (9,430) 590 – (30,040) – (24,489) (48,406) (125) (27,594) 2,578 (3,525) (60) 761 7,062 1,794 61,049 (470) 5,300 86 (1,548) 41,729 Annual Report 2022 Notes to the Financial Statements | 85 35 NOTES TO THE CASH FLOW STATEMENT (CONTINUED) ( iii ) Details of finance facilities are included in note 27 to the financial statements. ( iv ) Movement in financial activities The following table details changes in the Group’s liabilities arising from financial activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s statement of cash flows as cash flows from financing activities. MOVEMENTS IN FINANCING ACTIVITIES Lease liabilities Opening balance Financing cash flows New leases Retired or changes to leases Closing balance CONSOLIDATED 2022 $ 2021 $ 103,540 (14,548) 5,804 (764) 94,032 96,476 (14,951) 26,039 (4,024) 103,540 ( v ) Non-cash financing activities There were no non-cash financing activities other than above during the Financial Year or the 2021 year. 86 | Annual Report 2022 Notes to the Financial Statements 36 PARENT ENTITY DISCLOSURES FINANCIAL POSITION Assets Current assets – third parties Total assets Liabilities Current liabilities – third parties Total liabilities Equity Issued capital Accumulated losses Equity-settled compensation reserve Asset revaluation reserve Employee share reserve Dividend reserve Total Equity FINANCIAL PERFORMANCE Profit for the year Other comprehensive income Total comprehensive profit for the year Contingent liabilities of the parent entity Refer note 32 COMPANY 2022 $’000 2021 $’000 296,060 445,137 171,615 256,658 277,343 423,578 174,204 267,765 433,433 430,588 (335,219) (343,649) 12,891 3,074 (38) 74,338 188,479 40,818 – 40,818 11,909 3,074 (225) 54,116 155,813 42,239 3,074 45,313 Commitments for the acquisition of property, plant and equipment by the parent entity Commitments for the acquisition of property, plant and equipment by the parent entity Within one year 1,880 3,895 Annual Report 2022 Notes to the Financial Statements | 87 37 SHARE-BASED PAYMENTS Performance Share Rights Executive and Senior Management Refer to section 2 of the Remuneration Report for details of rights issued under the Long Term Incentive Plan. The following share-based payment arrangements were in existence during the current reporting period: PERFORMANCE RIGHT NUMBER AS LAST TESTING PRICE GRANT DATE EXERCISE FAIR VALUE AT SERIES (LTIP) AT 31 DEC 22 GRANT DATE DATE Issued 3 March 20201 Issued 3 March 20201 Issued 3 March 20212 Issued 3 March 20212 Issued 8 March 20223 Issued 8 March 20223 90,325 90,325 82,350 82,350 69,500 69,500 3/03/2020 31/12/2022 3/03/2020 31/12/2022 3/03/2021 31/12/2023 3/03/2021 31/12/2023 8/03/2022 31/12/2024 8/03/2022 31/12/2024 $ – – – – – – $ 2.100 2.820 4.180 5.490 4.910 6.780 1 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2020 have an average vesting date of 1 March 2023. 2 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2021 have an average vesting date of 1 March 2024. 3 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2022 have an average vesting date of 1 March 2025. The following share-based payment arrangements were in existence during the comparative reporting period: EXERCISE FAIR VALUE AT NUMBER AS LAST TESTING PRICE AT 31 DEC 21 GRANT DATE DATE Issued 22 March 20191 70,830 22/03/2019 31/12/2021 Issued 22 March 20191 70,830 22/03/2019 31/12/2021 Issued 3 March 20202 Issued 3 March 20202 Issued 3 March 20213 Issued 3 March 20213 90,325 90,325 82,350 82,350 3/03/2020 31/12/2022 3/03/2020 31/12/2022 3/03/2021 31/12/2023 3/03/2021 31/12/2023 $ – – – – – – GRANT DATE $4 2.250 3.150 2.100 2.820 4.180 5.490 1 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2019 have an average vesting date of 1 March 2022. 2 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2020 have an average vesting date of 1 March 2023. 3 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2021 have an average vesting date of 1 March 2024. 4 Shown as post 3 November 2020 share consolidation equivalent fair value. 88 | Annual Report 2022 Notes to the Financial Statements 37 SHARE-BASED PAYMENTS (CONTINUED) INPUTS INTO THE MODEL 08 MARCH 2022 03 MARCH 2021 03 MARCH 2020 22 MARCH 2019 PERFORMANCE RIGHTS (LTIP) Grant date Dividend yield Risk free yield Expected volatility Last testing date Exercise price Share price at grant date^ Performance right life 8/03/2022 3/03/2021 3/03/2020 22/03/2019 7.9% 1.6% 45% 6.5% 0.3% 55% 9.5% 0.5% 47.5% 7.7% 1.4% 45% 31/12/2024 31/12/2023 31/12/2022 31/12/2021 n.a. $8.570 3 years n.a. $6.670 3 years n.a. $3.750 3 years n.a. $3.900 3 years ^ Shown as post 3 November 2020 share consolidation equivalent share price. Managing Director During the Financial Year, 49,000 rights were issued to Mr A. Dragicevich. During the comparative financial year, 86,300 rights were issued to Mr A. Dragicevich. The following rights were in existence during the current reporting period, subject to the achievement of performance conditions and have been independently valued as follows: EXERCISE FAIR VALUE AT NUMBER AS LAST TESTING PRICE SHARE RIGHTS AT 31 DEC 22 GRANT DATE DATE Issued 29 April 20201 Issued 29 April 20201 Issued 28 April 20212 Issued 28 April 20212 Issued 27 April 20223 Issued 27 April 20223 51,335 29/04/2020 31/12/2022 51,335 29/04/2020 31/12/2022 43,150 28/04/2021 31/12/2023 43,150 28/04/2021 31/12/2023 24,500 27/04/2022 31/12/2024 24,500 27/04/2022 31/12/2024 $ – – – – – – GRANT DATE $4 $1.560 $2.040 $5.170 $6.430 $5.820 $7.770 1 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2020 have an average vesting date of 1 March 2023. 2 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2021 have an average vesting date of 1 March 2024. 3 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2022 have an average vesting date of 1 March 2025. 4 Shown as post 3 November 2020 share consolidation equivalent fair value. Annual Report 2022 Notes to the Financial Statements | 89 37 SHARE-BASED PAYMENTS (CONTINUED) The following rights were in existence during the comparative reporting period, subject to the achievement of performance conditions and have been independently valued as follows: EXERCISE FAIR VALUE AT NUMBER AS LAST TESTING PRICE SHARE RIGHTS AT 31 DEC 21 GRANT DATE DATE Issued 16 April 20191 Issued 16 April 20191 Issued 29 April 20202 Issued 29 April 20202 Issued 28 April 20213 Issued 28 April 20213 39,165 16/04/2019 31/12/2021 39,165 16/04/2019 31/12/2021 51,335 29/04/2020 31/12/2022 51,335 29/04/2020 31/12/2022 43,150 28/04/2021 31/12/2023 43,150 28/04/2021 31/12/2023 $ – – – – – – GRANT DATE $4 $2.100 $3.000 $1.560 $2.040 $5.170 $6.430 1 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2019 have an average vesting date of 1 March 2022. 2 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2020 have an average vesting date of 1 March 2023. 3 In accordance with the terms of the LTIP arrangement, performance rights issued during the Financial Year ended 31 December 2021 have an average vesting date of 1 March 2024. 4 Shown as post 3 November 2020 share consolidation equivalent fair value. INPUTS INTO THE MODEL 27 APRIL 2022 28 APRIL 2021 29 APRIL 2020 16 APRIL 2019 Grant date Dividend yield Risk free yield Expected volatility Last testing date 27/4/2022 28/4/2021 29/4/2020 16/4/2019 7.1% 2.6% 45% 5.8% 0.3% 55% 12.2% 0.2% 47.5% 8.0% 1.5% 45% 31/12/2024 31/12/2023 31/12/2022 31/12/2021 Share price at grant date^ Performance right life $9.510 3 years $7.580 3 years $2.880 3 years $3.750 3 years ^ Shown as post 3 November 2020 share consolidation equivalent share price. 90 | Annual Report 2022 Notes to the Financial Statements 37 SHARE-BASED PAYMENTS (CONTINUED) The following table reconciles the outstanding securities granted to the Managing Director and senior management at the beginning and end of the Financial Year: PERFORMANCE RIGHTS 2022 2021 Number of share performance rights: Balance at the beginning of the financial year Granted during the financial year Forfeited during the financial year Vested during the financial year Lapsed during the financial year Balance at the end of the financial year 754,310 188,000 – 700,000 251,000 – (219,990) (92,427) – (104,263) 722,320 754,310 The performance rights outstanding at the end of the Financial Year were 722,320 (2021: 754,310), with a weighted average remaining contractual life of 0.9 years. 38 KEY MANAGEMENT PERSONNEL COMPENSATION The aggregate compensation made to directors and other members of key management personnel of the Company and the Group is set out below: Short-term benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments CONSOLIDATED/COMPANY 2022 $ 2021 $ 2,023,258 1,894,750 100,645 84,840 – – – – 488,720 689,032 2,612,623 2,668,622 39 BUSINESS COMBINATIONS Capral Limited acquired certain assets and employee entitlements of the G James Extrusion Smithfield Business from G James Extrusion Co. Pty. Ltd on 1 February 2021 for a total consideration of $10,302,000. Consideration Cash at Completion Cash post Completion Total Consideration 2021 $’000 7,100 3,202 10,302 Acquisition-related costs amounting to $48,000 were excluded from the consideration transferred. Further cost relating to the integration of the acquired business was $65,000. Both these were recognised as an expense in the prior period, within the ‘Other expenses’ line item in the Consolidated Statement of Comprehensive Income. Annual Report 2022 Notes to the Financial Statements | 91 39 BUSINESS COMBINATIONS (CONTINUED) Smithfield Extrusion Facility was primarily acquired to provide additional extrusion capacity in key New South Wales market and reduce freight costs due to interstate production. In addition, the acquisition also facilitates better utilisation of other production facilities and reducing occasional reliance on third party producers. Fair value of assets acquired and liabilities assumed at the date of acquisition: Current assets Inventory Non-current assets Fixed assets Current liabilities Employee benefits Total Goodwill: Consideration Less: fair value of identifiable net assets acquired Goodwill Net cash outflow on purchase of a business: Consideration paid in cash Net cash outflow on purchase of a business 2021 $’000 3,194 4,508 (470) 7,232 10,302 (7,232) 3,070 (10,302) (10,302) The goodwill of $3,070,000 arising from the acquisition consisted mostly of the synergies and economies of scale expected from combining the operations of Smithfield and Capral Group. Impact of acquisition on the results of the Group The acquired business contributed revenue of $22,275,000 and a profit for 2021 financial year of $626,000 to the group for the period from 1st February 2021 to 31 December 2021. Had the business combination been effected at 1st January 2021, the revenue of the Group would have been $595,303,000 and the profit for the year would have been $42,868,000. 92 | Annual Report 2022 Directors’ Declaration Directors’ Declaration The directors declare that: ( a ) in the directors’ opinion, there are reasonable grounds to believe that Capral will be able to pay its debts as and when they become due and payable; ( b ) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of Capral and the consolidated entity; ( c ) in the directors’ opinion, the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board; and ( d ) the directors have been given declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001. On behalf of the directors R. L. Wood-Ward Chairman Sydney 24 February 2023 A. M. Dragicevich Managing Director Annual Report 2022 Independent Auditor’s Report | 93 Independent Auditor’s Report TO THE MEMBERS OF CAPRAL LIMITED Deloitte Touche Tohmatsu ABN 74 490 121 060 8 Parramatta Square 10 Darcy Street Parramatta, NSW, 2150 Australia Phone: +61 2 9840 7000 www.deloitte.com.au Independent Auditor’s Report to the Members of Capral Limited RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt Opinion We have audited the financial report of Capral Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 31 December 2022, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: · Giving a true and fair view of the Group’s financial position as at 31 December 2022 and of its financial performance for the year then ended; and · Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 94 | Annual Report 2022 Independent Auditor’s Report KKeeyy AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt oorr rreevveerrssaall ooff ttaannggiibbllee aanndd iinnttaannggiibbllee aasssseettss As at 31 December 2022, the Group had goodwill of $3.070m, other intangible assets of $0.649m, property, plant and equipment of $56.644m (net of previously recognised of impairment $34.069m) and right-of-use assets of $66.651m. losses Goodwill and indefinite life intangible assets are required to be tested for impairment annually and whenever an impairment indicator exists. As a result, management impairment completed testing at 31 December 2022 to assess the recoverability of the carrying value of tangible and intangible assets, including goodwill and other intangible assets, property, plant and equipment and right- of-use assets. This is performed through a value-in-use discounted cash flow model (“impairment model”). Note 1d outlines the determination of the goodwill as well as the carrying value of the property, plant and equipment and right of use assets which requires significant judgement by management in assessing for any indicators of impairment and preparing a value-in-use discounted cash flow model, including; · · · estimating future growth rates, discount rates, and the expected cash flows and capital expenditure. RReeccooggnniittiioonn aanndd rreeccoovveerraabbiilliittyy ooff ddeeffeerrrreedd ttaaxx aasssseett As disclosed in Note 11, at 31 December 2022, the Group has recognised deferred tax assets of $23.700m and as disclosed in Note 4, the Group has unrecognised and temporary unused differences of $50.059m and $13.437m respectively. losses and tax Our procedures included, but were not limited to: § Assessing the process undertaken and conclusions reached by management in determining indicators of impairment or reversal of impairment; § Reviewing the FY23 budget, the basis on which it has been prepared, and assessing the historical accuracy of forecasting by management; § Assessing reasonableness of assumptions in the impairment model including: o discount rate; o forecasted cash flows and capital expenditure; o lease payments and sustaining capital expenditures on leases; o growth rates, in particular with reference to historic growth rates and forecast macro- economic conditions impacting demand in the industry; and o terminal growth rate. § Engaging our valuation specialists to assist with evaluating the appropriateness of the discount rate adopted; § Recalculating the mathematical accuracy and integrity of the impairment model; § Performing sensitivity analysis on relevant assumptions and inputs in the impairment model, to assess the extent of change in those assumptions that either individually or collectively would result in impairment or reversal of impairment; and the § Assessing the headroom in the impairment model and whether it is indicative of a requirement to reverse previously recorded impairment losses. We also assessed the appropriateness of the disclosures in Notes 1c(k), 1d, 14, 15, 16 and 17 to the financial statements. Our procedures included, but were not limited to: § Engaging our tax specialists to assist us in assessing the availability of tax losses and temporary differences to the Group; § Reviewing management’s forecasts in respect of the Group’s taxable income; § Assessing the key assumptions in management’s calculations including: o Comparing the consistency of the assumptions used to the inputs and assumptions in management’s impairment model; Annual Report 2022 Independent Auditor’s Report | 95 o Assessing whether the period used to forecast taxable profits is appropriate; o Assessing the likelihood of the Group achieving these forecasts. We also assessed the appropriateness of the Group’s disclosure in respect of the deferred tax assets including tax losses and temporary deductible differences in the notes to the financial statements. Deferred tax assets in respect of tax losses and temporary differences are recognised when it is probable that the Group will have future taxable profits against which such losses and temporary differences will be utilised. is judgement The Group’s ability to recognise deferred tax assets in relation to tax losses and temporary differences is assessed by management at each reporting period. Significant required by management in their assessment of the quantum of available tax losses and deductible temporary differences, and whether it is probable that some or all of these tax losses and temporary differences can be utilised in the foreseeable future. This assessment includes estimating the Group’s future shorter term taxable income and the probability of those forecasts being met. Management’s assessment resulted in the recognition of an additional $8.365m of deferred tax assets as at 31 December 2022 as disclosed in Note 11. Other Information The directors are responsible for the other information. The other information comprises the Chairman’s Report, Managing Director’s Operations and Financial Review, Sustainability Report and Directors’ Report, which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon): Members Details and Corporate Directory, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Members Details and Corporate Directory, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal 96 | Annual Report 2022 Independent Auditor’s Report control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: · Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. · Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. · Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. Annual Report 2022 Independent Auditor’s Report | 97 From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 25 of the Directors’ Report for the year ended 31 December 2022.. In our opinion, the Remuneration Report of Capral Limited, for the year ended 31 December 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU X Delaney Partner Chartered Accountants Parramatta, 24 February 2023 98 | Annual Report 2022 Member Details MEMBER DETAILS TOP HOLDERS (GROUPED) AS OF 28/02/2023 1 TWENTY LARGEST HOLDERS Details of Capral’s twenty largest shareholders were as follows: RANK NAME CITICORP NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED PRUDENTIAL NOMINEES PTY LTD NATIONAL EXCHANGE PTY LTD MR ANTHONY MATTHEW DRAGICEVICH BNP PARIBAS NOMS PTY LTDBNP PARIBAS NOMS (NZ) LTD MR ANDREW ROY NEWBERY SISSON AGO PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 MR JOHN GEORGE WHITING + MRS DIANA PATRICIA WHITING 133,334 BNP PARIBAS NOMINEES PTY LTD RAVENSCOURT PROPRIETARY LIMITED MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED SOUTHERN STEEL INVESTMENTS PTY LIMITED MRS ANTONIA CAROLINE COLLOPY NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> MRS GLENDA CLAIRE ORGILL 125,388 122,571 120,439 114,820 102,847 99,087 97,292 MR JORIS ARJEN LUGTENBURG + MRS ADRIANE LUGTENBURG 92,498 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total) Total Remaining Holders Balance 12,329,861 69.40 5,437,411 30.60 UNITS % UNITS 3,601,357 20.27 2,434,150 13.70 1,460,701 1,232,811 1,000,000 500,000 416,232 224,448 157,886 155,000 139,000 8.22 6.94 5.63 2.81 2.34 1.26 0.89 0.87 0.78 0.75 0.71 0.69 0.68 0.65 0.58 0.56 0.55 0.52 Annual Report 2022 Member Details | 99 2 SUBSTANTIAL SHAREHOLDERS Substantial shareholders as notified to Capral in accordance with the Corporations Act 2001: NUMBER OF % OF AS NOTIFIED SHARES SHARES HELD ON NAME Allan Gray Australia PTY LTD National Exchange Pty Ltd Perpetual Limited First Sentier Investors Holdings Pty Limited / Mitsubishi UFC Financial Group Inc 3,871,621 1,500,000 1,370,048 1,107,774 Superannuation and Investment HoldCo Pty Ltd / KKR Entities 1,028,431 Commonwealth Bank of Australia / Colonial First State Investments Limited Castle Point Funds Management Ltd 916,599 883,182 21.79 25/03/2022 8.44 7.71 6.23 5.79 5.16 4.97 8/02/2023 18/08/2022 27/05/2021 3/12/2021 28/05/2021 23/12/2020 Total 10,677,655 60.10 3 NUMBER OF HOLDERS ( a ) Quoted equity securities: There were 2,395 holders of ordinary shares. ( b ) Unquoted equity securities – options: There were Nil unquoted options. ( c ) Unquoted equity securities – performance rights: There were 722,320 unquoted performance rights issued to 18 holders under the Capral Long Term Incentive Plan. There is 1 holder who holds 20% or more performance rights under this plan. 4 VOTING RIGHTS ( a ) Voting rights attaching to the fully paid ordinary shares are, on a show of hands, one vote per person present as a member proxy, attorney, or representative thereof and on a poll, one vote per share for every member present in person or by proxy or by attorney or by representative. ( b ) Holders of options and performance rights do not have any voting rights on the equity securities held by them. Ordinary shares issued on exercise of options or vesting of performance rights will carry the same voting rights as all other fully paid ordinary shares of Capral. 100 | Annual Report 2022 Member Details MEMBER DETAILS TOP HOLDERS (GROUPED) AS OF 28 FEBRUARY 2023 5 DISTRIBUTION OF EQUITY SECURITIES ( a ) Quoted ordinary shares RANGE OF SHARES 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total NUMBER OF HOLDERS 1,529 626 118 105 17 2,395 ( b ) Unquoted performance rights Performance rights granted under the Capral Long Term Incentive Plan (including to the Managing Director) with various vesting and expiry dates and a nil exercise price: RANGE OF RIGHTS 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total NUMBER OF HOLDERS 0 3 0 17 1 21 6 MARKETABLE PARCELS The number of shareholders holding less than a marketable parcel* of shares is 424 holders. (* Minimum parcel size of shares: 64) 7 ON-MARKET BUY BACK There is no current on-market buy back. Corporate Directory Annual Report 2022 Corporate Directory | 101 CAPRAL’S REGISTERED OFFICE AUDITOR 71 Ashburn Road Bundamba QLD 4304 Telephone +61 (0)7 3816 7000 Fax +61 (0)7 3816 7111 CAPRAL’S PRINCIPAL ADMINISTRATION OFFICE / INVESTOR ENQUIRIES 15 Huntingwood Drive Huntingwood NSW 2148 Telephone +61 (0)2 9682 0710 Email InvestorRelations@capral.com.au SHARE REGISTRY Computershare Investor Services Pty Limited ABN 48 078 279 277 Level 3, 60 Carrington Street Sydney NSW 2000 Telephone 1800 855 080 Fax 1800 783 447 Deloitte Touche Tohmatsu ABN 74 490 121 060 8 Parramatta Square 10 Darcy Street Parramatta NSW 2150 SECURITIES EXCHANGE LISTING Capral’s shares are quoted on the Australian Securities Exchange (Code: CAA) COMPANY SECRETARY Ms Kim Bradley-Ware (Joint) Mr William Joseph Campbell (Joint) CORPORATE GOVERNANCE STATEMENT http://www.capral.com.au/ under Corporate / Investors / Corporate Governance Capral Limited ABN 78 004 213 692 71 Ashburn Rd, Bundamba QLD 4304 T 07 3816 7000 | F 07 3816 7111 capral.com.au C A P R A L L I M I T E D A N N U A L R E P O R T 2 0 2 2