Capral
Annual Report 2023

Plain-text annual report

Our Capability Our Success ANNUAL REPORT CAPRAL LIMITED ABN 78 004 213 692 2023 v Contents 3 5 Key Statistics Chairman’s Report 9 Managing Director’s Operations and Financial Review 12 Board of Directors 15 ESG and Sustainability Report 21 Director’s Report 24 Renumeration Report (Audited) 42 Auditor's Independence Declaration 43 Consolidated Statement of Profit or Loss and Other Comprehensive Income 44 Consolidated Statement of Financial Position 45 Consolidated Statement of Cash Flows 46 Consolidated Statement Of Changes in Equity 48 Notes to the Financial Statements 92 Directors' Declaration 93 Independent Auditor’s Report 98 Member Details 101 Corporate Directory 2 Annual Report 2023 — Capral Limited v Key Statistics For the year ended 31 December 2023 2022 Variance Sales Volume - Tonnes 71,060 71,800 (740) Revenue 656.9 692.5 (35.6) $m $m $m Underlying EBITDA1 Profit after Tax Operating Cash Flow Net Cash2 1 Please refer to notes on page 7 2 Please refer to notes on page 6 62.5 31.8 75.0 59.5 62.2 40.8 7.1 24.9 0.3 (9.0) 67.9 34.6 Capral Limited — Annual Report 2023 3 4 Annual Report 2023 — Capral Limited Chairman’s Report Annual Review Capital Allocation I am pleased to announce that Capral delivered earnings The Capral board is committed to ensuring that capital per share of $1.77 for the year ended 31 December 2023, allocation priorities are balanced between investment compared to prior year of $2.31 which included 47cents of opportunities for growth through acquisitions, capital income tax benefit per share. Underlying earnings per expenditure and working capital funding; efficiency share for 2023 of $1.83 compares to $1.96 in 2022. improvement and maintenance through sustaining capital Revenues of $657 million in 2023 dropped by 5% from the $693 million recorded in 2022 on 1% lower volume than expenditure; and distributions to investors through capital returns via share buy-backs and cash dividends. 2022. The lower sales revenue was primarily due to a 12% Having prioritised the return of franking credits to reduction in average metal costs as a result of lower shareholders, the payment of the fully franked final global aluminium prices (LME). dividend of 35 cents per share for the year ended 2023 will Capral delivered Underlying EBITDA1 of $62.5 million, up slightly on the $62.2 million in the prior year and ahead of guidance. Underlying EBIT1 fell 3% to $39.5 million as compared to $40.8 million in 2022. Reported Net Profit After Tax (NPAT) of $31.8 million compares to $40.8 million in 2022 which included $8.4 million arising from recognition of deferred tax assets brought to account. Underpinned by the benefits from the operational restructure completed in 2019, Capral continued to leverage the capacity utilisation of its extrusion plants. This high productivity and operational leverage combined with favourable sales mix contributed to near record profitability. Demand in our key industrial sectors, especially transport and industrial, remain robust whilst we continue to retain some of the share gains previously won against imports. As previously foreshadowed residential construction, particularly in the detached dwelling segment, weakened in the second half and is expected to decline further in 2024. Also pleasing was the reduction in working capital during the year which contributed to the increase of $35 million in Net Cash2 to $59 million at 31 December 2023. The company’s balance sheet is strong, allowing us to continue to balance our utilisation of free cash between funding both external and internal growth as well as returning cash to our shareholders through share buy- backs and dividends. exhaust all remaining franking credits. As Capral has substantial tax losses to carry forward, any dividends which may be paid in the foreseeable future will therefore be unfranked. Dividend and Buy-Back The Company has declared a fully franked final dividend of 35 cents per ordinary share (2022: 50 cents) to be paid on 22 March 2024 in respect of the financial year ended 31 December 2023. The dividend will be paid to all shareholders on the register of members as at the Record Date of 1 March 2024. The Dividend Reinvestment Plan will not be active for this dividend. Including the final dividend of 35 cents Capral will have returned 72.5 cents relating to the 2023 year, consisting of 55 cents in cash dividends and 17.5 cents by way of share buy-backs completed during the 2023 year. Capral will commence another on-market share buy-back of up to 10% of its issued shares on or about 11th March 2024. Capral’s board will continue to ensure that distributions to shareholders remains a key component of Capral’s capital allocation policy. It is anticipated that share buy-backs will form a major portion of value returned to our shareholders. Capral Limited — Annual Report 2023 5 Chairman’s Report Safety and Sustainability Board Changes Capral is committed to pursuing excellence in its delivery of Having served as an independent non-executive director effective safety for all employees and sustainability across since November 2008, I will be retiring from the board at all parts of its business. Following up on the excellent safety the conclusion the AGM on 8 May 2024 and will therefore results achieved in 2022, the Capral team has maintained not be standing for re-election. The board is in the process that performance in the year under review and continues to of considering a potential replacement as chair of Capral better the comparative results of our listed peers. and an announcement will be made regarding this once the The environment is a key priority for Capral. From an board has agreed and formalised the appointment. Environmental, Social and Governance perspective, we have Capral has appointed three independent non-executive committed to Net Zero by 2050 (Scope 1 and 2 emissions), directors since 2020, replacing three long-serving board by driving sustainability best practice throughout business. members and my retirement will complete Capral’s Capral achieved Aluminium Stewardship Initiative (ASI) commitment to board renewal. certification in performance standard and chain of custody. On behalf of the board I wish to thank all of the Capral team Emission reduction targets are on track and diversity and our other stakeholders for their strong support during targets have been established. New waste management 2023. Thank you to my co-directors for their contributions system trials are underway and environmental, social and throughout the past year. governance plans rolled out to all major Capral facilities. I urge stakeholders to read the Sustainability Report in the annual report, which details the many well advanced initiatives in progress. Looking Ahead Whilst we expect the detached housing sector to decline further, the non-residential and industrial segments of our business should remain relatively firm. Capral is facing some headwinds and challenges in the year ahead including ongoing cost inflation and margin maintenance in a softer market, which we anticipate will impact on earnings in 2024. Despite this softer market and lower earnings outlook, Capral is committed to investing in growth and returning capital to shareholders going forward. Please refer to the Outlook section of the Managing Director’s Report for details of our earnings guidance for 2024. Shareholders are directed to the Results Presentation released to the market today. 6 Annual Report 2023 — Capral Limited Rex Wood-Ward Chairman 1 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. 2 Net Cash is cash and cash equivalents ($59.5 million) less short-term borrowings (nil). Chairman’s Report Performance Measures Profit After Income Tax Income Tax Benefit Profit Before Income Tax Add: Finance Costs Add: Depreciation and Amortisation Earnings Before Income Tax, Depreciation and Amortisation (EBITDA) Add: LME Revaluation and Unrealised FX Underlying EBITDA Less: Depreciation and Amortisation Underlying EBIT Profit After Income Tax Add: Income Tax Benefit Add: LME Revaluation and Unrealised FX Net Profit After Income Tax for Underlying EPS Weighted Average Number of Ordinary Shares on Issue (Basic) Underlying EPS 2023 $ million 2022 $ million 31.8 - 31.8 6.7 23.0 61.5 1.1 62.5 (23.0) 39.5 31.8 - 1.1 32.9 17.9 $1.83 40.8 (8.4) 32.4 6.3 21.3 60.0 2.2 62.2 (21.3) 40.8 40.8 (8.4) 2.2 34.6 17.7 $1.96 Capral Limited — Annual Report 2023 7 8 Annual Report 2023 — Capral Limited Managing Director’s Operations and Financial Review Highlights Financial Review • Strong earnings result for the third consecutive Market conditions were strong in the first half of 2023, year, and above latest guidance with volumes assisted by a healthy pipeline of work in the • Sales revenue $657 million, down 5% on last year, due to lower international aluminium prices • Volume at 71,100 tonnes was 1% down on last year • Market conditions softened in the second half • Underlying EBITDA¹ $62.5 million, up $0.3m on last year • Underlying EBIT1 $39.5 million, down $1.3m on last year • Underlying Net Profit After Tax1 $32.9 million, down $1.7m on last year, and $2.9m above guidance • Underlying earnings per share1 at $1.83, down $0.13 on last year residential housing sector. Conditions softened in the second half as the market slowed and import supply chains normalised. Volume however remained solid which allowed Capral’s manufacturing plants to run at high levels of efficiency. As interest rates lifted the residential housing market slowed from its highs which were driven by post-COVID government housing stimulus programmes. Housing starts are tracking to 173,0002 starts in 2023, the lowest levels since 2013, 5% down on last year and down around 25% from the highs of 2021. Commercial construction activity also slowed during the year. However, our key industrial markets remained relatively strong, underpinned by robust • Balance sheet strong with net cash1 of $59.5 million levels of economic activity and infrastructure spend. • Fully franked final dividend of 35 cps declared, total FY22 dividend of 55 cps • Total distributions to shareholders 72.5 cps, included share buy-back equivalent to 17.5 cps The international LME price of aluminium eased during the year from the elevated highs of 2022 which were impacted by global supply factors. Capral’s average LME cost for 2023 was 12% below last year. This flowed through to • Exceptional safety performance maintained with lower selling prices and working capital levels in 2023. TRIFR at 4.4, well below our listed peers Capral delivered another strong profit result in 2023 with underlying EBITDA¹ of $62.5 million (2022: $62.2m) on slightly lower volume and 5% lower sales revenue. Underlying EBIT1 of $39.5 million (2022: $40.8m) and an underlying net profit after tax of $31.8 million (2022: $32.4m). An excellent result, demonstrating how far Capral has progressed over the last five years in being able to deliver strong sustainable earnings. Capral ended 2023 with a Net Cash1 balance of $59.5 million. Debtor collection performance remained good, inventory levels fell, and LME prices were lower resulting in lower working capital levels and a $35 million higher net cash position. Capral Limited — Annual Report 2023 9 Managing Director’s Operations and Financial Review Capral will pay a fully franked final dividend of 35 cents per Fair Trade share and, together with the interim dividend of 20 cents per share, resulted in total FY23 dividends of 55 cents per share (FY22: 70 cps). Capral undertook an on-market share buy-back during the second half of the year equivalent to 17.5 cps, taking total 2023 distributions to shareholders to 72.5 cps (FY22: 70 cps). In addition, Capral will undertake an on-market share buy-back program during 2024 under the 12-10 rule. Capral has now exhausted its franking credit balance and any shareholder distributions for the foreseeable future will be unfranked dividends and/or share buy-backs. Key Initiatives and Strategies Key high-level strategies remain consistent with prior years: • Build on our strengths - product offer, scale, capability, and our people Capral continues to lead the local industry in the pursuit of fair trade, recent activity includes: • Measures on Chinese imports are in place until 2025, and a review of duty levels in 2023 resulted in increased floor prices • We successfully appealed the withdrawal of measures against Malaysian and Vietnamese imports and measures were re-instated late in 2023 Both decisions are being challenged by overseas exporters, in conjunction with their import partners in Australia. Market share gains have been made against imports over the last few years, however imports continue to represent over 30% of the total Australian extrusion market. As supply chains normalise, we will continue the fight to retain a fair share for the local extrusion industry which contributes over • Optimise what we do – continuous improvement in 2000 direct jobs to the Australian economy. all aspects of our business • Grow for the future - develop innovative products, Safety enhance our capability, expand our footprint Safety First is the most important of Capral’s five key values. In 2024 we will continue to focus on our Smithfield and We continue our focus on risk assessment, training, Penrith extrusion plants and the new paint line at our systems, and our safety culture. Capral’s safety performance Huntingwood distribution centre in Sydney. Smithfield will was exceptional again this year, recording a total reportable continue to focus on lifting productivity through injury frequency rate (TRIFR) of 4.4 (2022: 4.3), well below debottlenecking product flow and upgrading equipment to the peer average for listed building products manufacturers. improve plant reliability and up-time. During 2023 we successfully completed the first stage of the Penrith extrusion plant upgrade, a major undertaking replacing the press line, hydraulics, and control systems. The second stage involves the replacement of the billet furnace and saw which will take place later in 2024. These assets provide Capral an enhanced manufacturing presence in NSW delivering freight savings and improved service to customers. We will continue to grow Capral’s aluminium distribution business with the objective of increasing the volume and profitability of Capral’s direct channel. Over the past 18 months we have added two Aluminium Centres to the Capral distribution footprint with acquisitions of existing businesses in North Brisbane and Wollongong, expanding our geographical presence. We continue to seek other opportunities to expand our footprint. 10 Annual Report 2023 — Capral Limited Managing Director’s Operations and Financial Review Sustainability and ESG Outlook Capral’s journey to net zero emissions by 2050, and a 20% Forecasts for the residential market show detached reduction target by 2030, is progressing well. During the housing slowing. Total residential starts in 2024 are 2022/23 year Capral’s scope 1 & 2 emissions per tonne forecast2 to be similar to 2023 but the pipeline of work of aluminium produced fell by 6.1% as a result of that sustained volumes in 2023 has fallen away. The operational energy efficiencies, and a transition to non-residential market is forecast to be firm in 2024 as are renewable energy sources. our key industrial markets. Capral achieved Aluminium Stewardship Initiative (ASI) LME is volatile and subject to international influences. certification during the year making us the only extruder in Based on external forecasts, we expect LME to moderate the region to secure this globally recognised certification. slightly throughout the coming year on the back of lower This has enabled Capral to offer certified lower carbon global demand as economies slow under the weight of aluminium options to the Australian market through our higher interest rates. trademark brands, LocAl® Green and Super Green. The overall market for Capral’s aluminium extrusion and Capral has considered the overall impact of current ESG rolled product is forecast to fall modestly in 2024. We issues and has not discovered any resulting material expect to retain a good proportion of the market share impact on our financial statements at this point. Full details gained from imports post COVID. Underlying EBITDA1 is are disclosed in the Company’s Sustainability Report. forecast, absent any unforeseen events, to be between Key Operating Risks Capral has a robust risk assessment process and active $50 million and $54 million with underlying Net Profit After Tax between $23 million and $27 million. On that basis, Capral would be in a position to continue to return capital to shareholders by way of unfranked dividends and/or risk mitigation programme, key risks include: share buy-backs. • Significant slow-down in economic activity, particularly the new housing market The focus in the year ahead will be to deliver benefits from our recent capital investments in NSW, increase • Increased level of imported aluminium extrusion and productivity in our extrusion operations, and grow our increased local competition distribution business through both acquisition and organic • External IT threats such as cyber attacks • Changes in construction methodology to meet more stringent sustainable building codes growth. We plan to enhance our range, service, and capability to help grow our customer base and deliver strong ongoing profitability. I wish to thank the Capral team for their tremendous contribution to the outstanding 2023 result. Capral remains in a strong position to capitalise on its extensive capabilities, take opportunities as they present, and develop the business for the future. Tony Dragicevich Managing Director 23 February 2024 1 Refer to Underlying EBITDA, EBIT, Earnings per Share (EPS) and Net Cash explanation in footnotes to Chairman’s Report on pages 6 and 7. 2 HIA November 2023 Capral Limited — Annual Report 2023 11 Board of Directors Directors in office during the financial year and up to the date of this report (unless otherwise stated): Rex Wood-Ward Chairman of Board (Independent) Appointed 6 November 2008 • Chairman of the Board • Member of the Audit & Risk Committee • Member of the Remuneration & Nomination Committee Graeme Pettigrew FIPA, FAIM, FAICD Non-executive director (Independent) Appointed 18 June 2010 Retired 27 April 2023 • Chairman of the Remuneration & Nomination Committee • Member of the Audit & Risk Committee Mr Wood-Ward has 50 years of experience in general management, mergers and acquisitions, corporate strategy, and structuring, including in manufacturing and distribution. Over his career he has been a director of over 10 publicly listed companies in Australia, the United Kingdom, and South Africa. Mr Pettigrew has held chief executive roles at CSR Building Products Pty Ltd and Chubb Australia Ltd and he retired as a non-executive director of Adelaide Brighton Ltd. He has relevant experience in the construction and building materials industry, as well as manufacturing and distribution businesses. Directorships of other listed companies held in last 3 years Directorships of other listed companies held in last 3 years before end of the Financial Year: None 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 several 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 2023 — Capral Limited Board of Directors Katherine Ostin B. Comm, GAICD, F FIN, CA Non-executive director (Independent) Mark White B. Comm, M. Comm, CA, GAICD Non-executive director (Independent) Appointed 17 June 2020 Appointed 1 September 2021 • Chairman of the Audit & Risk Committee. • Member of the Audit & Risk • Member of the Remuneration & • Member of the Remuneration & Nomination Committee Nomination Committee. Ms Ostin is a Chartered Accountant and an experienced Mr White has extensive experience in the aluminium and Company Director with significant experience in finance building materials sectors. He is currently the General and accounting, audit, risk, governance, strategy and Manager of Gove Aluminium Finance Limited. He also has business development. She is currently a non-executive more than 12 years’ experience as an Executive Director director of a diverse portfolio of both listed and non-listed on the Board of Tomago aluminium smelter and has held companies and is Chair of the respective Audit & Risk a number of senior positions in CSR Limited’s building Committees. She has also previously served as a products businesses and has over 20 years of experience non-executive director of several not-for-profit entities. Ms across a number of manufacturing industries. Ostin was a senior Partner in Audit Assurance & Risk Consulting with KPMG, holding various leadership roles 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. Directorships of other listed companies held in last 3 years before end of the Financial Year: • Non-executive director of Swift Media Ltd: 1 October 2019 to 19 November 2021. • Non-executive director of Dusk Group Ltd (ASX: DSK): 16 September 2020 to date of this report. • Non-executive director of 3P Learning Ltd (ASX: 3PL): 6 August 2021 to date of this report. Directorships of other listed companies held in last 3 years before end of the Financial Year: None Bryan Tisher B. Eng, MBA Non-executive director (Independent) Appointed 24 February 2022 • Chairman of the Remuneration & Nomination Committee from 27 April 2023 • Member of the Audit & Risk Committee. Mr Tisher has extensive experience in the resources, building materials and electrical products sectors. He is currently the Chief Executive Officer of Legend Corporation, • Non-executive director of Next Science Limited an Australian leader in industrial and electrical products (ASX: NXS): 24 October 2023 to date of this report. and previously held senior positions at Orica, Boral, • Non-executive director of Elanor Investor Group Limited (ASX: ENN): 1 January 2024 to date of this report • Non-executive director of Elanor Commercial Property Fund (ASX: ECF): 1 January 2024 to date of this report and Rio Tinto. Mr Tisher was the Managing Director of Orica Asia responsible for manufacturing and distribution operations covering 14 countries, and the Divisional Managing Director of Boral Building Products responsible for the Plasterboard Australia, Timber, Bricks, Roofing, Masonry 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 Capral Limited — Annual Report 2023 13 14 Annual Report 2023 — Capral Limited ESG and Sustainability Report Committed to ESG Excellence Safety With a commitment to ESG excellence, Capral enhanced its A significant aspect of our safety strategy involves approach over the past year to align with key industry equipping operational leaders with comprehensive standards; Safety Management ISO:45001, Environmental knowledge of fitness for work management, ensuring Management ISO:14001, Aluminium Stewardship Initiative team members execute their duties safely and without (ASI) Performance Standard, and Global Reporting Initiative incident. We promote an open communication culture and (GRI) standards. We continued to develop our Integrated encourage active engagement. This approach has been Management System (IMS) which has been designed to instrumental in reducing the frequency of reportable systematise ESG considerations and refine the accuracy of safety incidents, diminishing the severity of injuries, and our performance metrics. Central to this initiative is enhancing recovery outcomes. Consequently, we have implementing a learning and development program to observed a marked decrease in high-potential incidents. enhance our employee’s comprehension of risk factors and controls to mitigate risks. Through governance and certification reviews, the integrity of our site IMS assurance processes are continually validated, enabling a culture of proactive behaviour and the swift identification of any workplace anomalies across the business. The following graph shows a reduction in our Total Reportable Injury Frequency Rate (TRIFR) over the past eight years. Capral’s 2023 TRIFR 2023 at 4.4 is well below the average of listed building product manufacturers at 7.9. Our approach continues to develop improvements in safety, assists employee well-being, prolongs working Capral’s approach to sustainability is comprehensive lifespans, and supports our ESG initiatives. and dynamic. Integration of digital technology with our ESG initiatives is an important component. Our actions and strategies reflect our commitment to being at the forefront of sustainable industry practices and corporate responsibility. R F I R T 16 14 12 10 8 6 4 2 0 2016 2017 2018 2019 2020 2021 2022 2023 Capral Limited — Annual Report 2023 15 ESG and Sustainability Report Sustainability Capral's commitment to reducing our environmental Aluminium Stewardship Initiative (ASI) Accreditation impact is part our corporate responsibility. Our Capral’s achievement in securing ASI accreditation Sustainability Roadmap is founded on the United Nations demonstrates our commitment to sustainable aluminium Sustainable Development Goals. As we increase our production and stewardship. efforts, Capral will focus on all three pillars of ESG: Environmental, Social and Governance. This will emerge as we align with the development of International Financial Reporting Standards and GRI disclosure obligations. ASI is a globally recognised, non-profit organisation that sets comprehensive standards for responsible practices in the aluminium industry covering environmental, social, and governance aspects. This accreditation places Capral In 2021 we embarked on a journey to lower greenhouse among an elite group of companies that adhere to the gas emissions across Capral’s operations. This plan set highest international standards across the aluminium targets to decrease CO2e emissions through well- value chain. orchestrated initiatives. Our progress in emissions reduction is measured by detailed reporting on electricity, and gas usage. Our systems are designed for transparency and accountability, allowing us to accurately measure our performance against set goals. Our achievements stem from investments in energy-efficient technologies and a gradual transition towards a lower carbon economy with increasing renewable energy sources. In November 2022, we released the first lower-carbon aluminium offer to the Australian market under Capral’s trademark brand, LocAl®. This tapped into industry interests in reducing the embodied carbon content in the built environment. This initiative, together with our attainment of ASI accreditation, positioned Capral at the forefront of sustainable aluminium extrusion production in Australia. The progression of our emission reduction plan shows a year-on-year decrease, with 2023 results indicating we are on track to achieve our targets. Capral remains committed to our sustainability agenda, contributing to the global climate change goals. We are confident that our ongoing efforts will enable us to meet our emission reduction goals, thereby enhancing our corporate value. Capral underwent a rigorous third-party audit to achieve ASI accreditation. This process assessed our governance, environmental impact, and social practices against ASI’s stringent Performance Standard V3, addressing crucial issues such as biodiversity, human and indigenous rights, greenhouse gas emissions, material stewardship from cradle to end-of-life, and material recovery and re-use. ASI certification validates our efforts and guides our future initiatives, ensuring sustainability is ingrained in our decision-making, aligning with international best practices, and reinforcing our position as an industry leader. Capral’s ASI certification and making lower-carbon aluminium available, supports our sustainability strategy. This highlights our responsibility towards reducing the environmental impact of our products and processes and our commitment to influencing sustainable practices across the industry. As Capral continues its sustainability journey, introducing our LocAl® brand represents a key milestone to reduce the environmental impact of the aluminium industry and contribute positively to global sustainability efforts. 16 Annual Report 2023 — Capral Limited ESG and Sustainability Report Carbon Emissions (CO2e) Scope 1 & 2 The following graph shows the annual greenhouse gas emissions from Capral’s operations, segmented by Scope 1 (gas) and 2 (electricity). A decline in emissions related to electricity, our primary contributor, can be observed in the current year. This reflects the impact of our switch to renewable energy sources and process efficiencies. 30,000 25,000 20,000 15,000 10,000 5,000 0 e 2 0 C F O S E N N O T 2019-20 2020-21 2021-22 2022-23 SCOPE 1 SCOPE 2 Carbon Emissions (CO2e) per Aluminium Volume Produced The following graph illustrates Capral’s CO2e emissions per tonne of extruded aluminium. It shows a downward trend in emissions intensity, demonstrating progress in reducing our environmental footprint. This reflects improvements in Capral’s production efficiency and the adoption of cleaner energy technologies. 0.76 0.72 0.68 0.64 0.60 0.56 e 2 0 C F O S E N N O T 2019-20 2020-21 2021-22 2022-23 Carbon Emissions (CO2e) Reduction Plan This graph reflects Capral’s commitment to reducing our carbon footprint. Capral is committed to net zero by 2050. Our intermediate goal is to reduce emissions 20% by 2029-30. e 2 0 C F O S E N N O T 40,000 30,000 20,000 10.000 0 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 PROJECTED ACTUAL Capral Limited — Annual Report 2023 17 ESG and Sustainability Report Modern Slavery and Ethical Sourcing Freight Management and Packaging Initiatives Capral undertakes a due diligence process each year, These initiatives focus on enhancing logistics sustainability assessing suppliers for potential risks within our supply and transforming packaging processes, with a view to chain associated with modern slavery and ethical reducing our ecological impact. sourcing. This involves a consolidated risk assessment of suppliers. 25 international suppliers were deemed moderate risk mainly due to transparency issues, while Australian vendors were considered low risk. Importantly, no high-risk suppliers were identified. We are collaborating with freight partners in logistics to innovate and optimise operations. Key strategies include optimising route management for reduced travel distances, transitioning towards lower-emission transport vehicles, and consolidating freight to enhance load efficiency. These Capral’s proactive measures, including a Supplier Code of initiatives aim to lower fuel consumption and emissions, Conduct, lay-out our expectations for our suppliers ESG enhancing sustainable supply chain practices. We are reviewing our packaging systems with an objective to reduce plastic and timber usage. This involves investigating alternative sustainable packaging materials, reducing reliance on plastics, and ensuring timber is sourced from certified sustainable origins. These changes will lessen our environmental impact and align with the growing eco-consciousness of our customers. practices aligning with our legislative, ASI certification and ethical commitments. We have expanded our Whistle Blower program to cover procurement, allowing for confidential reporting of compliance-related concerns. Capral is increasing its lifecycle and data analytics use to enhance supply chain mapping opportunities. Our commitment and ASI certification reinforces responsible sourcing and continuous improvement within our supply chain. Through periodic reviews, on-site assessments, and alignment with our Supplier Code of Conduct we remain vigilant in combatting modern slavery and ensuring ethically sourcing. Circular Economy and Waste Management Capral’s commitment to circularity and waste management is important to our environmental sustainability efforts. We have enhanced our data capture capabilities and recognised the role of efficient waste management in our sustainability objectives. Integral to our strategy is providing deeper insights into our waste streams to facilitate more informed decision-making. Capral initiated a waste management trial in our Western Australia operating facility. This trial involved detailed waste data tracking and analysis, providing an understanding of our waste stream’s types, quantities, and post-production paths. Comprehensive data collection is pivotal in identifying inefficiencies and potential areas for improvement in our waste management processes. In 2024, we aim to establish a company-wide system that reduces waste and embraces a closed-loop, circular economy. In this system materials will be utilised to their fullest potential, reducing our environmental footprint. This system will integrate the best practices from our trial learnings to ensure they are adapted to suit the unique requirements of each local context within our national operations. 18 Annual Report 2023 — Capral Limited ESG and Sustainability Report Diversity, Employee Development and Social Responsibility Capral employs approximately 1,100 individuals across Capral’s commitment to supporting societal well-being Australia, with around half of our team engaged through through various community organisations reflects our Enterprise Agreements. Our commitment to diversity is corporate social responsibility culture. Capral continues evidence of our belief that varied perspectives enhance initiatives to raise awareness on key issues including; decision-making and reflect the multifaceted community mental health, domestic violence, and men’s health. we serve. Our employees are guided by Capral’s comprehensive Code These campaigns have garnered widespread support and employee engagement. of Conduct and Vision and Values programme. Capral’s Capral provides support to charity and social inclusive approach draws strength from diversity by organisations, including: encompassing gender, ethnicity, age, nationality, sexual orientation, cultural backgrounds, and a breadth of • Allison Baden-Clay – Strive to be Kind educational and professional experiences. Our goal is to • Beyond Blue cultivate a workplace where equity prevails, diversity is • Cancer Research celebrated, inclusivity is the norm, and a sense of belonging resonates. Together, we aspire to craft a brighter, more sustainable future. Capral recognises that our employees are key to our success. We have partnered with training organisations to provide upskilling opportunities, ensuring our team grows with the business. This initiative enables personal and • Children’s Hospital • Dandelions WA • Disability Sports Victoria • Festival of Magic • Fiona Wood Foundation • Leaps and Bounds Disability Services professional development and aligns our workforce with • Lions Australia the evolving demands of a sustainable business landscape. • Movember • Rotary Down Under • Westmead Hospital Foundation • Starlight Foundation • Foodbank • Goodna Street Life Capral Limited — Annual Report 2023 19 20 Annual Report 2023 — Capral Limited Director’s 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 2023 (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 K. Ostin 17 June 2020 - Date of this report G. F. Pettigrew 18 June 2010 – 27 April 2023 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 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 12 and 13. Principal activities Dividends and Buy-Backs During the Financial Year, the principal continuing The Directors recommend that a final dividend of 35 cents activities of the consolidated entity consisted of the per ordinary share (fully franked) be declared. The record manufacturing, marketing and distribution of fabricated date for the final ordinary dividend will be 1 March 2024, and semi-fabricated aluminium related products. with payment being made on 22 March 2024. 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 2023 in respect of the 2022 financial year and an interim dividend of 20 cents per ordinary share (fully franked) was paid on 15 September 2023 in respect of the 2023 financial year, no other dividends have been paid during the Financial Year. During 2023, 363,713 shares were bought back on-market at a cost of $3,145,187, and subsequently cancelled. Capral Limited — Annual Report 2023 21 Director’s Report Review of operations and financial position A review of operations and financial position of the consolidated entity are referred to in the Managing Company Secretary Ms K Bradley-Ware B Comm, CPA, LLB Joint Company Secretary Director's Operations and Financial Review on pages 9 to 11. Ms Bradley-Ware has over 20 years of experience as a 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 Company Secretary and CFO. Ms Bradley-Ware is an 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 No matter or circumstance other than those disclosed in ASX companies including Elixinol Global Limited (ASX: EXL), Note 34 has arisen since the end of the Financial Year that Energy Action Limited (ASX: EAX), People Infrastructure Ltd has significantly affected, or may significantly affect the (ASX: PPE), as well as various Infrastructure Joint Ventures consolidated entity's operations, the results of those and Private Companies. operations or the consolidated entity’s state of affairs in future financial years. Likely developments, business strategies, prospects and risks Information on likely developments, business strategies, Ms Bradley-Ware resigned as Company Secretary on 19 April 2023. Ms L Osbich BA (Hons), LLB, GradDip Legal Practice Joint Company Secretary prospects and risks are detailed in the Managing Director’s Ms Osbich is an employee of Company Matters Pty Ltd, a Operations and Financial Review on pages 9 to 11 and the company secretarial service provider. Prior to joining Sustainability Report on pages 15 and 19. Whilst Capral Company Matters, Ms Osbich was employed by ASX as a continues to meet its continuous disclosure obligations, Listings Compliance Advisor and prior to that, worked this report omits information where it would be likely to predominantly in the online legal publishing space with over result in unreasonable prejudice to Capral. This includes 15 years’ experience extending to senior roles with a information that is commercially sensitive, is confidential or technical legal research focus. could provide a third party with a commercial advantage (such as internal budgets and forecasts). 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. Ms Osbich has also worked as a Legal and Compliance Research Consultant focusing on putting together practical content in relation to governance, risk and compliance programs, particularly focused on the financial services and banking sectors. Ms Osbich was appointed as Company Secretary on 19 April 2023. Mr T Campbell B.Com (Hons), CA Chief Financial Officer and Company Secretary Mr Campbell was appointed Chief Financial Officer on 1 June 2011 and 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. Mr Campbell was appointed as Company Secretary on 8 March 2019. 22 Annual Report 2023 — Capral Limited Director’s Report Director’s 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 AUDIT & RISK COMMITTEE REMUNERATION & NOMINATION COMMITTEE Director Held Attended Held Attended Held Attended R.L. Wood-Ward A.M. Dragicevich1 K. Ostin G.F. Pettigrew2 M. White B. Tisher 7 7 7 2 7 7 7 7 7 2 7 7 4 4 4 1 4 4 4 4 4 1 4 4 3 3 3 1 3 3 3 3 3 1 3 3 1 Attended meeting(s) in an ex-officio capacity 2 Meetings up to retirement on 27 April 2023 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: Director Position ORDINARY SHARES FULLY PAID IN THE COMPANY BALANCE AT 1.1.2023 BALANCE AT 31.12.2023 BALANCE AT DATE OF THIS REPORT R.L .Wood-Ward Director and Chairman of the Board - - - A.M. Dragicevich Managing Director 546,041 566,7941 566,794 K. Ostin Director G.F. Pettigrew Director M. White B. Tisher Director Director - - - - - - - - - - - - 1 Acquired 3,338 as part of 2022 STI programme on 28 April 2023. Allotted 102,670 as vesting of 2020 LTI rights on 22 March 2023, sold 85,255 to cover taxation obligations. In addition to the interests shown above, indirect interests in Capral shares held by the Managing Director, Mr. Dragicevich are as follows: Mr A. M. Dragicevich Nature of other interests Performance rights BALANCE AT 1.1.20231 BALANCE AT 31.12.2023 BALANCE AT DATE OF THIS REPORT 237,970 179,7002 179,700 1 Shown as post 3 November 2020 share consolidation quantity. 2 Nil performance rights lapsed on 1 March 2023; 102,670 performance rights vested on 1 March 2023 and 44,400 performance rights were issued on 27 April 2023 Unissued shares or interests under option At the date of this report, there are 606,000 (2022: 722,320) unissued shares or interests under option. Refer to sections 1 to 3 of the Remuneration Report and Note 37. Capral Limited — Annual Report 2023 23 Renumeration 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 (a) Key Principles Capral’s remuneration framework and practices are based (b) Role of Remuneration & Nomination Committee on the principles that remuneration is performance driven, The Remuneration & Nomination Committee is aligns with shareholder interests, provides market responsible for reviewing and making recommendations competitive remuneration that attracts qualified and to the Board of Directors (the Board) on remuneration experienced candidates, and retains and motivates policies for Capral including, in particular, those governing employees. The variable components of remuneration (short and long term) are driven by challenging targets focused on both the directors (including the Managing Director) and executive managers. The Committee operates in accordance with its Charter. external and internal measures of financial and non- Remuneration of the Managing Director and certain financial performance. Details of performances measures executive managers is reviewed at least annually by the are set out in sections 1(g) and 1(h) below. Executive Remuneration & Nomination Committee and remuneration is aligned with shareholder interests via an recommendations are put to the Board for its approval. emphasis on variable (incentive) remuneration, the award Short- and long-term incentives are linked to performance of which is linked to performance benchmarks that criteria. The Board can exercise its discretion in relation to support business strategies and future success. A approving bonuses and incentives. Changes must be significant proportion of executive remuneration is at-risk. justified by reference to measurable performance criteria Details of the link between performance and remuneration and having regard to Capral’s overall financial performance is set out in section 4. 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. 24 Annual Report 2023 — Capral Limited Renumeration Report (Audited) (c) Performance Planning and Review Capral has a Performance Planning and Review (PPR) (e) Senior Management Remuneration process to evaluate and discuss performance and The remuneration policy for the Managing Director and development plans at least annually with salaried executives seeks to attract and retain people with the employees. This PPR process covers: required capabilities to lead Capral in the achievement of • An agreement of objectives for the year ahead and the setting of key performance measures against business objectives and focus on delivering financial and non-financial measures. which the achievement of those objectives will be Remuneration is reviewed annually, and approved changes assessed. These are set by reference to financial applied from 1 March. targets and key business strategies. • A review of performance against the previously agreed objectives for the period under review. • Employee comment and feedback. The Remuneration & Nomination Committee reviews the remuneration arrangements of the Managing Director, his direct reports and certain other executive managers. The Managing Director reviews the remuneration • Short- and long-term training and development arrangements of the other members of senior needs and career aspirations. management, based on the recommendations of his The PPR process ensures that there is better direct reports. understanding of Capral’s objectives thereby increasing For the Managing Director and other senior management, the likelihood of their achievement. It also enables remuneration consists of a fixed annual salary and managers to evaluate and develop employee skills and superannuation (refer to section 1(f) below) plus at-risk performance and identify future development needs. 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. As a general guide, at-risk remuneration is 50% for the Managing Director, 25 – 30% for executive management and 10%-20% for other senior managers, for the achievement of ‘target’ goals. (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. Remuneration of non-executive directors is established at a level that enables Capral to attract and retain high quality directors at a reasonable cost. Remuneration of non- executive directors and their terms of office are governed by Capral’s constitution and not by contract. Remuneration of non-executive directors is allocated out 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. Additional fees are not paid for sitting on Board committees; however, the extra responsibility of the Chairman of the Board and committees is recognised by the payment of a higher fee. The fees for the non-executive directors were reviewed by GRG as detailed above and adjusted during FY22 to be in line to those paid at comparable listed companies. Non-executive directors do not receive any shares, options or other securities as part of their remuneration however they are 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). Capral Limited — Annual Report 2023 25 Renumeration Report (Audited) (f) Fixed remuneration (g) Short Term Incentives The level of the total employment cost (being base salary Capral’s short-term incentive schemes are designed to plus superannuation) (TEC) is determined having regard encourage participants to assist Capral in achieving to job responsibilities, skills, experience, and continuous improvement by aligning their interests with performance. Salaries are reviewed annually, with any those of Capral and its stakeholders and rewarding them changes applied from 1 March. Fixed remuneration of when key performance measures are achieved. executives is generally targeted at market median. For the Financial Year, there were 3 short term The fixed remuneration of the Managing Director is incentive programmes: 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 1) Short Term Incentive Plan (STIP): The Managing Director and senior employees have the opportunity to earn a cash and deferred equity incentive, based 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 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 Capral’s key management personnel is generally in line individual PPR. with this group. 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% safety and other non-financial objectives. A summary of STIP is set out in the table below: 26 Annual Report 2023 — Capral Limited Renumeration Report (Audited) TERM DESCRIPTION Frequency Awards determined annually with payment made in the March following the end of the performance year. Finanial 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. Safety and other Specific individual objectives are set to reflect measurable and numeric (where possible) strategic Non-financial initiatives and profit and safety improvement objectives. The key individual objectives include Measures 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 on performance Capral’s financial results. The performance against non-financial measures is assessed as part of the against measures 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 financial override 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 In the event of fraud, misstatement or misrepresentation of the financials, the Board may exercise its awards 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. Capral Limited — Annual Report 2023 27 Renumeration Report (Audited) The Managing Director and key management personnel are (h) Long Term Incentives eligible for the following awards of STIP relative to TEC: % OF TEC Position Minimum Target Stretch Managing Director Chief Financial Officer 25% 15% 50% 30% 100% 60% 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 Where objectives can be financially measured, ‘Minimum’ is 86,300 performance rights following shareholder approval generally set around 15% below Board approved Budget. in April 2021 and 49,000 performance rights following ‘Target’ is generally set around Board approved Budget and shareholder approval in April 2022. During the Financial ‘Stretch’ is generally set 30% above Budget. Year, an additional 44,400 performance rights were The Board periodically review external independent remuneration benchmarking reports (latest Dec 2021) granted to Mr Dragicevich following shareholder approval in April 2023. regarding short term incentive schemes of the key On the recommendation of the Managing Director to the management personnel (including the Managing Director) Remuneration & Nomination Committee, selected senior for listed companies with comparable revenues and market executives participate in LTIP. 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: 28 Annual Report 2023 — Capral Limited Renumeration Report (Audited) TERM Frequency DESCRIPTION Awards determined annually. Type of award Performance rights subject to service requirements and vesting criteria. If the conditions are met, shares will be issued or allocated 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 2021 award: vesting date of 1 March 2024. 2022 award: vesting date of 1 March 2025. 2023 award: vesting date of 1 March 2026. 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 Performance against the EPS and TSR conditions are assessed at the end of the 3-year against measures period (31 December testing date). 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. Capral Limited — Annual Report 2023 29 Renumeration Report (Audited) TERM DESCRIPTION Treatment of awards on If employment ceases all unvested rights will immediately lapse. However, if the cessation of employment cessation relates to the redundancy or permanent disability / death of the employee or other reason determined by the Board then the Board has absolute discretion to determine that the rights remain in play on a pro rata basis. Treatment of awards on The Board has discretion to allow awards to vest on a change of control. In exercising this 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 (i) Anti-Hedging Policy conditions at each testing date is determined in accordance with Tables A and B respectively below: Table A PERCENTAGE OF TSR % RIGHTS VESTING < 50th 50th None 50 > 50th and < 75th Between 50 and 100 (pro rata) Capral’s personnel are not permitted to enter into transactions with securities (or any derivative thereof) which limit the economic risk of any unvested entitlements awarded under any Capral equity-based remuneration scheme currently in operation or which will be offered by Capral in the future. As part of Capral’s due diligence undertaken at the time of the financial results, participants in any Capral equity plan are required to confirm that they have not entered into any such > 75th Table B 100 prohibited transactions. EPS TARGET RANGE % RIGHTS VESTING > 5% below target 5% below target None 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 incentive scheme is generally in line with this group. 30 Annual Report 2023 — Capral Limited Renumeration Report (Audited) 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 (c) LTIP General pay increases were implemented for executives. 44,400 performance rights were granted to the Managing Total expensed remuneration for the management Director in April 2023 following shareholder approval personnel (including the directors) increased on average (2022: 49,000) and 141,100 rights were granted under by 3% as compared to the prior year. the 2023 LTIP award to executives in March 2023 (b) STIP (2022: 139,000). Performance rights granted to the Managing Director and STIP accruals in respect of the 2023 year are higher than executives under LTIP awards were tested after the year the prior year actual payout. end with the outcomes detailed in section 3 below. For the financial year ending 31 December 2024, Capral intends to: • increase the fixed remuneration of the Managing Director and executives by an average of 3%; and • grant further performance rights under the LTIP to the Managing Director (subject to shareholder approval) and selected senior managers. Capral Limited — Annual Report 2023 31 Renumeration Report (Audited) (d) Remuneration Table - key management personnel The following table sets out the remuneration of the key management personnel (including the directors) during the Financial Year and the 2022 financial year. 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. Name Year Title Salary & Fees Bonus1 Non-monetary Benefits Super-annuation4 Deferred Equity1 Performance Rights3 SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT BENEFITS OTHER LONG- TERMINATION TERM BENEFITS BENEFITS2 SHARE-BASED PAYMENTS TOTAL TOTAL PERFORMANCE RELATED DIRECTORS A.M. Dragicevich 2023 Managing Director 702,310 373,750 2022 Managing Director 700,428 364,650 $ $ R.L. Wood-Ward 2023 Chairman 2022 Chairman 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director5 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director6 P.J. Jobe K. Ostin G.F. Pettigrew M. White B. Tisher Executives 124,545 123,821 - 23,664 83,636 81,463 26,653 81,463 73,636 71,464 83,217 62,712 - - - - - - - - - - - - T. Campbell * 2023 CFO/ Co. Sec. 430,832 139,500 2022 CFO/Co. Sec. 405,218 108,375 Total 2023 Total 2022 1,524,829 513,250 1,550,233 473,025 $ - - - - - - - - - - - - - - - - - - $ 27,500 27,102 13,392 12,697 - 2,858 8,993 8,358 2,799 8,358 7,917 7,332 8,950 6,458 27,482 27,482 97,033 100,645 $ - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - $ 88,450 53,050 351,756 323,079 $ - - - - - - - - - - - - 1,543,766 1,468,309 137,937 136,518 $ - 26,522 92,629 89,821 29,452 89,821 81,553 78,796 92,167 69,170 - - - - - - - - - - - - 31,900 14,625 120,350 67,675 103,626 97,966 733,340 653,666 455,382 2,710,844 421,045 2,612,623 % 53 50 - - - - - - - - - - - - 38 34 32 Annual Report 2023 — Capral Limited Renumeration Report (Audited) Name Year Title Salary & Fees Bonus1 Non-monetary Benefits Super-annuation4 Deferred Equity1 Performance Rights3 SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT BENEFITS OTHER LONG- TERM BENEFITS TERMINATION BENEFITS2 SHARE-BASED PAYMENTS TOTAL TOTAL PERFORMANCE RELATED DIRECTORS A.M. Dragicevich 2023 Managing Director 702,310 373,750 2022 Managing Director 700,428 364,650 $ $ R.L. Wood-Ward 2023 Chairman 2022 Chairman 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director5 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director 2023 Non-executive director 2022 Non-executive director6 P.J. Jobe K. Ostin M. White B. Tisher G.F. Pettigrew Executives 124,545 123,821 - 23,664 83,636 81,463 26,653 81,463 73,636 71,464 83,217 62,712 - - - - - - - - - - - - T. Campbell * 2023 CFO/ Co. Sec. 430,832 139,500 2022 CFO/Co. Sec. 405,218 108,375 Total 2023 Total 2022 1,524,829 513,250 1,550,233 473,025 $ - - - - - - - - - - - - - - - - - - $ 27,500 27,102 13,392 12,697 - 2,858 8,993 8,358 2,799 8,358 7,917 7,332 8,950 6,458 27,482 27,482 97,033 100,645 $ - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - $ 88,450 53,050 $ 351,756 323,079 - - - - - - - - - - - - - - - - - - - - - - - - $ 1,543,766 1,468,309 137,937 136,518 - 26,522 92,629 89,821 29,452 89,821 81,553 78,796 92,167 69,170 31,900 14,625 120,350 67,675 103,626 97,966 733,340 653,666 455,382 2,710,844 421,045 2,612,623 % 53 50 - - - - - - - - - - - - 38 34 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 Superannuation guarantee percentage has been changed from 10.5% to 11% from 1 July 2023. 5 Mr Pettigrew retired as director on 27 April 2023. 6 Mr Tisher was appointed as a director on 24 February 2022. * Capral's key management personnel (other than directors). Capral Limited — Annual Report 2023 33 Renumeration Report (Audited) Section 3: Performance rights, Options and Bonuses provided as Compensation Performance rights - Managing Director During the Financial Year and the financial year ended 31 2023. Capral achieved the EPS condition and December 2022, performance rights were granted as consequently 43,150 rights will vest in March 2024. The equity compensation benefits under the LTIP, to the TSR condition (43,150 rights) was also tested as at 31 Managing Director as disclosed as at balance date below. December 2023. Capral’s relative TSR performance over The performance rights were granted at no cost to him. the period from January 2021 to December 2023 at 44,400 performance rights were granted to the Managing Director in April 2023 following shareholder approval. These rights have a vesting date of March 2026. 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 2023. The EPS condition (43,150 rights) was tested as at 31 December 121.4% (2022: 161.4%) was in the 91st percentile (2022: 92nd) and thus 100% of the rights subject to the TSR condition will vest in March 2024. Consequently, a total of 86,300 rights will vest and convert into Capral shares on a 1 for 1 basis as at 1 March 2024. 102,670 performance rights were granted to the Managing Director in April 2020 following shareholder approval. None of 102,670 rights lapsed and a total of 102,670 rights vested and converted into Capral shares on a 1 for 1 basis, as at 1 March 2023. TRANCHE GRANT NO. GRANT DATE FAIR VALUE PER RIGHT AT GRANT DATE ($) TEST DATE LAPSED NO. VESTED NO. 2023 Offer A. Dragicevich Total 2023 Offer 2022 Offer A. Dragicevich Total 2022 Offer 2021 Offer A. Dragicevich Total 2021 Offer 2020 Offer A. Dragicevich Total 2020 Offer EPS 50% TSR 50% EPS 50% TSR 50% EPS 50% TSR 50% 22,200 22,200 44,400 24,500 24,500 49,000 43,150 43,150 86,300 27/04/2023 27/04/2022 28/04/2021 29/04/2020 EPS 50% TSR 50% 51,335 51,335 102,670 $5.94 31/12/2025 $4.25 31/12/2025 $7.77 31/12/2024 $5.82 31/12/2024 $6.43 31/12/2023 $5.17 31/12/2023 $1.56 31/12/2022 $2.04 31/12/2022 - - - - - - - - - - - - - - 51,335 51,335 - 102,670 34 Annual Report 2023 — Capral Limited Renumeration Report (Audited) Performance rights - other key management personnel and executives During the Financial Year and the financial year ended 31 rights have been forfeited. The EPS condition (79,850 rights) December 2022, performance rights were granted as equity was tested as at 31 December 2023. Capral achieved the compensation benefits under the LTIP, to certain executives EPS condition and consequently 79,850 of these rights will including key management personnel as disclosed as at vest in March 2024. The TSR condition (79,850 rights) was balance date below. The performance rights were granted also tested as at 31 December 2023. Capral’s relative TSR at no cost to the participants. performance over the period from January 2021 to 141,100 performance rights were granted under the 2023 LTIP award to executives in March 2023. These rights have a vesting date of March 2026. 139,000 performance rights were granted under the 2022 LTIP award to executives in March 2022. 13,500 of these performance rights have been forfeited. These rights have a vesting date of March 2025. 164,700 performance rights were granted under the 2021 LTIP award to executives in March 2021. These rights have December 2023 at 121.4% (2022: 161.4%) was in the 91st percentile (2022: 92nd) and thus 100% of the rights subject to the TSR condition will vest in March 2024. Consequently, a total of 79,850 rights will vest and convert into Capral shares on a 1 for 1 basis as at 1 March 2024. 180,650 performance rights were granted under the 2020 LTIP award to executives in March 2020. 5,000 of these performance rights have been forfeited. None of 175,650 rights lapsed and a total of 175,650 rights vested and converted into Capral shares on a 1 for 1 basis, as at 1 a vesting date of March 2024. 5,000 of these performance March 2023. TRANCHE GRANT NO. GRANT DATE FAIR VALUE PER RIGHT AT GRANT DATE ($) TEST DATE LAPSED NO. VESTED NO. 2023 Offer T. Campbell Total 2023 Offer 2022 Offer T. Campbell Total 2022 Offer 2021 Offer T. Campbell Total 2021 Offer 2020 Offer T. Campbell Total 2020 Offer 16,600 06/03/2023 EPS 50% TSR 50% 8,300 8,300 16,600 17,500 08/03/2022 EPS 50% TSR 50% 8,750 8,750 17,500 25,700 03/03/2021 EPS 50% TSR 50% 12,850 12,850 25,700 30,670 03/03/2020 EPS 50% TSR 50% 15,335 15,335 30,670 $6.16 31/12/2025 $4.73 31/12/2025 $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 - - - - - - - - - - - - - - - 15,335 15,335 30,670 Capral Limited — Annual Report 2023 35 Renumeration Report (Audited) Options No options were issued under the LTIP during the Financial Year and the financial year ended 31 December 2022. 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: HELD AT START OF YEAR GRANTED AS COMPENSATION LAPSED VESTED OTHER CHANGES HELD AT END OF YEAR A. Dragicevich T Campbell 237,970 73,870 311,840 44,400 16,600 61,000 - - - (102,670) (30,670) (133,340) - - - 179,700 59,800 239,500 The non-executive directors hold no performance rights. Bonuses During the Financial Year and the financial year ended 31 December 2022, STIP bonus payments were made to the Managing Director and key management personnel. The Managing Director’s STIP payments for 2023 and 2022 equated to 53% and 50% (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 38% and 34% of TEC for 2023 and 2022 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 2022 are disclosed below: % OF BONUS ACCRUED % OF BONUS FORFEITED % OF COMPENSATION FOR THE YEAR CONSISTING OF STIP BONUS1 2023 Executives A. Dragicevich T. Campbell 2022 Executives A. Dragicevich T. Campbell Note: 124 123 115 114 - - - - 39 27 36 22 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. 36 Annual Report 2023 — Capral Limited 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: Renumeration Report (Audited) HELD AT START OF YEAR GRANTED AS COMPENSATION RECEIVED ON VESTING OF PERFORMANCE RIGHTS/ EXERCISE OF OPTIONS OTHER CHANGES DURING THE YEAR HELD AT END OF YEAR - 546,041 - - - 59,970 606,011 - 3,3381 - - - 9201 4,258 - - - 102,6702 (85,255)3 566,794 - - - - - - - - - 30,6702 (20,000)3 71,560 133,340 (105,255) 638,354 Directors R.L. Wood-Ward A.M. Dragicevich K. Ostin G.F. Pettigrew M. White Executives T. Campbell 1 Deferred equity acquisition as part of 2022 STIP plan. 2 Acquired on vesting of performance rights in March 2023. 3 Acquired through DRP and selling. Capral Limited — Annual Report 2023 37 Renumeration Report (Audited) 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. During the Financial Year and the previous 4 financial years (2019-2022), Capral's financial performance objectives were as follows, with the minimum targets (M) that were set for the 2023 STIP financial measures also shown: YEAR ENDED 31 DEC Trading EBITDA $’0001 Free Cash Flow $’0001 Net (Loss)/Profit $’000 2023 (A) 2023 (M) 2022 (A) 2021 (A) 2020 (A) 2019 (A) 42,299 32,700 43,305 38,157 19,668 11,021 52,431 38,200 (16,376) 17,229 20,7524 4755 31,839 25,400 32,3872 33,3133 11,4644 3,1055 % Working Capital to Annualised Sales 15.8 16.0 13.1 10.7 13.2 14.7 Underlying Earnings / (Loss) - cents per share 183.43 141.59 195.902 179.703 69.514 19.265 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 6) 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 and Net Profit after tax was lower than 2022. The minimum targets were surpassed in all instances. 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. 38 Annual Report 2023 — Capral Limited Renumeration Report (Audited) 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 injury Rate improved significantly and Group stretch targets frequency rate were almost met Hours lost & return to work hours Minimum target was not achieved. 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 reduction Initiatives were generally achieved programmes People AL & LSL excess balance reduction Overall excess leave balance reduction initiatives were achieved. Performance varied by region/ division Anti-dumping Pursue anti-dumping campaign Overall, the outcomes were successful. Costs Cost reduction initiatives Many of the specific cost and expense reduction initiatives were achieved. Performance varied by region/ division STIP accruals in respect of the 2023 year are higher than the prior year actual payout, aligned to financial performance. There is a clear link between financial performance and the level of STIP awarded. LTIP is linked to Capral’s performance as the value of the performance rights awarded depends on Capral’s share price and dividend payments, and whether the awards vest relate to earnings growth and Capral’s relative TSR performance. There is a link between Capral’s performance and the vesting of rights under LTIP awards. In this regard: In 2023: In 2022: • Capral’s relative TSR performance over the period from • Capral’s relative TSR performance over the period from January 2021 to December 2023 achieved the 91st January 2020 to December 2022 achieved the 93rd percentile, above the maximum 75th percentile. percentile, above the maximum 75th percentile. Consequently, 100% or 123,000 of the rights subject to Consequently, 100% or 141,660 of the rights subject to the TSR condition that were awarded in 2021 to the TSR condition that were awarded in 2020 to executives will vest and convert to Capral shares. executives will vest and convert to Capral shares. • Given earnings in, 2021, 2022 and 2023, the aggregate • Given earnings in, 2020, 2021 and 2022, the aggregate EPS result for the 3-year period to 2023 was 557.4 cents EPS result for the 3-year period to 2022 was 449.5 cents per share against an aggregate target of 362.4 cents per per share against an aggregate target of 263.4 cents per share and therefore the EPS condition of the 2021 award share and therefore the EPS condition of the 2020 award was achieved. Consequently, 100% oR 123,000 of the was achieved. Consequently, 100% or 141,660 of the rights subject to the EPS condition of the 2021 award rights subject to the EPS condition of the 2020 award will vest and convert into Capral shares. will vest and convert into Capral shares. Capral Limited — Annual Report 2023 39 Renumeration 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 of notice) 6 months salary plus accrued but 6 months salary. STIP entitlement unpaid STIP (pro rata for for incomplete financial years is incomplete financial year). subject to Board discretion. In addition, on retirement or if In addition, on retirement or if employment is terminated by employment is terminated by Capral Capral other than for cause, other than for cause, unvested LTIP unvested LTIP rights may remain rights may remain in play on a pro in play on a pro rata basis. rata basis. 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 tax and regulations are held by the consolidated entity at each consulting and tax compliance advice during the Financial relevant site as advised by consulting with relevant Year, Deloitte Touche Tohmatsu, Capral's auditor, has the environmental authorities. All applications for and benefit of an indemnity (including in respect of legal costs) renewals of licences have been granted and all consents for any third party claim in connection with the use, have been given by all relevant authorities. distribution or reliance on their work (except to the extent Directors' and officers' indemnities and insurance Under Capral's constitution, Capral is required to indemnify, to the extent permitted by law, each director 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 and secretary of Capral against any liability incurred by No person has applied to the Court under section 237 of that person as an officer of Capral. The directors listed on the Corporations Act for leave to bring proceedings on pages 12 to 13 and the secretary listed on page 22 have behalf of Capral, or to intervene in any proceedings to the benefit of this indemnity. During the Financial Year, which Capral is party, for the purpose of taking Capral paid a premium for directors’ and officers’ liability responsibility on behalf of Capral for all or part of those insurance policies which cover current and former proceedings. No proceedings have been brought or directors, company secretaries and officers of the intervened in on behalf of Capral with leave of the Court consolidated entity. Details of the nature of the liabilities under section 237 of the Corporations Act. covered and the amount of the premium paid in respect of the directors' and officers' insurance policies are not disclosed, as such disclosure is prohibited under the terms of the contracts. 40 Annual Report 2023 — Capral Limited Non-audit services Auditor's independence declaration Capral may decide to employ the auditor on assignments The auditors' independence declaration as required under additional to their statutory audit services where the section 307C of the Corporations Act is set out on page 42. Director’s Report auditor's expertise and experience with the consolidated entity are important. 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 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 A. M. Dragicevich Managing Director Corporations Act 2001 confirming independence has 23 February 2024 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. Capral Limited — Annual Report 2023 41 Auditor's Independence Declaration Deloi�e Touche Tohmatsu ABN 74 490 121 060 8 Parrama�a Square 10 Darcy Street Parrama�a, NSW, 2150 Australia Phone: +61 2 9840 7000 www.deloi�e.com.au The Board of Directors Capral Limited 15 Hun�ngwood Drive Hun�ngwood NSW 2148 23 February 2024 Dear Board Members, Auditor’s Independence Declaration to Capral Limited In accordance with sec�on 307C of the Corpora�ons Act 2001, I am pleased to provide the following declara�on 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 2023, I declare that to the best of my knowledge and belief, the only contraven�ons of: (cid:31) (cid:31) The auditor independence requirements of the Corpora�ons Act 2001 in rela�on to the audit; and Any applicable code of professional conduct in rela�on to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU X Delaney Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legisla�on. Member of Deloi�e Asia Pacific Limited and the Deloi�e organisa�on. 42 Annual Report 2023 — Capral Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 31 December 2023 CONTINUING OPERATIONS NOTE 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 3 3 2 2 2 2 2 4 2023 $’000 614,844 42,015 656,859 4,333 (423,216) (109,066) (23,009) (6,682) (17,065) (5,966) (7,894) (36,455) 31,839 - 31,839 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 - - 2022 $’000 643,284 49,222 692,506 3,446 (468,730) (103,922) (21,318) (6,319) (16,296) (4,969) (7,076) (34,934) 32,388 8,365 40,753 - - Total comprehensive income for the year 31,839 40,753 EARNINGS PER SHARE Basic earnings per share Diluted earnings per share NOTE 26 26 ($ PER SHARE) ($ PER SHARE) 1.77 1.71 2.31 2.22 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Capral Limited — Annual Report 2023 43 Consolidated Statement of Financial Position as at 31 December 2023 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) 2023 $’000 59,457 89,313 126,150 11 2,711 277,642 23,700 57,518 62,710 560 3,070 147,558 425,200 106,973 15,558 14,920 - 2,016 162 2022 $’000 48,988 91,326 154,877 11 848 296,050 23,700 56,644 66,651 649 3,070 150,714 446,764 112,735 16,158 17,901 24,083 828 153 139,629 171,858 73,255 7,584 80,839 220,468 204,732 424,771 114,947 (334,986) 77,874 7,306 85,180 257,038 189,726 433,433 91,279 (334,986) 204,732 189,726 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 44 Annual Report 2023 — Capral Limited Consolidated Statement of Cash Flows as at 31 December 2023 NOTE 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 Interest received Net cash flows used in investing activities Cash flows from financing activities Payments of dividends Proceeds from dividend reinvestment plan Payments for share purchase – employee share plan 25 24 Payments for on-market share buy-back 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 (used in)/provided by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the financial year 35(i) 2023 $’000 728,436 (646,970) 81,466 (6,425) 75,041 (8,684) (86) 805 (7,965) (12,494) - (2,332) (3,145) 92 36,563 (60,646) (15,817) (57,779) 9,297 48,988 1,172 59,457 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 2022 $’000 770,509 (757,098) 13,411 (6,349) 7,062 (9,790) (170) 125 (9,835) (12,166) 2,604 - - 428 80,820 (56,737) (14,548) 401 (2,372) 50,132 1,228 48,988 Capral Limited — Annual Report 2023 45 Consolidated Statement Of Changes in Equity as at 31 December 2023 CONTINUING OPERATIONS NOTE FULLY PAID ORDINARY SHARES EQUITY-SETTLED COMPENSATION RESERVE EMPLOYEE SHARE ASSET REVALUATION RESERVE RESERVE DIVIDEND RESERVE* SHARE BUY-BACK ACCUMULATED RESERVE# LOSSES TOTAL 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 escrow shares utilised Dividends paid 25 $’000 430,588 - - - 2,604 241 - - $’000 11,909 - - 982 - - - - Balance as at 31 December 2022 433,433 12,891 (334,986) 189,726 Balance as at 1 January 2023 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares cancelled – on-market buy-back 23, 24 Shares issued - employee escrow shares Employees shares on-market purchase Employees shares off-market purchase Dividends paid 24 24 25 433,433 - - - (8,705) 43 - - - 12,891 - - 1,045 - - - - - Balance as at 31 December 2023 424,771 13,936 (2,320) 4,088 5,560 (334,986) 204,732 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. $’000 (225) - 187 (38) (38) - - - - - - - - - - - (1,970) (312) $’000 4,088 - 4,088 4,088 - - - - - - - - - - - - - - $’000 54,116 32,388 32,388 (12,166) 74,338 74,338 31,839 31,839 - - - - - - - - - (12,494) 93,683 $’000 $’000 $’000 (343,351) 157,125 8,365^ 40,753 8,365^ 40,753 - - - - - - - - - - - - - - 5,560 - (334,986) 189,726 - - - - - - - - - - - -^ -^ 982 2,604 241 187 (12,166) 31,839 31,839 1,045 (3,145) 43 (1,970) (312) (12,494) * 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 (2023: $nil; 2022: $8.365 million) in relation to deferred tax assets on tax losses and temporary differences are excluded from dividend reserve. # Refer to Notes 23 and 24. 46 Annual Report 2023 — Capral Limited CONTINUING OPERATIONS FULLY PAID ORDINARY EQUITY-SETTLED NOTE SHARES COMPENSATION RESERVE EMPLOYEE SHARE RESERVE ASSET REVALUATION RESERVE DIVIDEND RESERVE* SHARE BUY-BACK RESERVE# ACCUMULATED LOSSES 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 escrow shares utilised $’000 430,588 2,604 241 - - - - - - - - - - - $’000 11,909 982 - - - - - - - - - - - - - Dividends paid 25 Balance as at 31 December 2022 433,433 12,891 Balance as at 1 January 2023 Profit for the year Total comprehensive profit for the year Share-based payments expense Shares cancelled – on-market buy-back 23, 24 Shares issued - employee escrow shares Employees shares on-market purchase Employees shares off-market purchase Dividends paid 24 24 25 433,433 12,891 1,045 (8,705) 43 Balance as at 31 December 2023 424,771 13,936 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. $’000 (225) $’000 4,088 - - - - - 187 - (38) (38) - - - - - (1,970) (312) - (2,320) - - - - - - - 4,088 4,088 - - - - - - - - 4,088 $’000 54,116 32,388 32,388 - - - - (12,166) 74,338 74,338 31,839 31,839 - - - - - (12,494) 93,683 $’000 $’000 TOTAL $’000 - - - - - - - - - - - 5,560 - - - - (343,351) 157,125 8,365^ 40,753 8,365^ 40,753 - - - - - 982 2,604 241 187 (12,166) (334,986) 189,726 (334,986) 189,726 -^ -^ - - - - - - 31,839 31,839 1,045 (3,145) 43 (1,970) (312) (12,494) 5,560 (334,986) 204,732 Capral Limited — Annual Report 2023 47 Notes to the Financial Statements for the financial year ended 31 December 2023 1a. General Information 1c. Significant accounting policies Capral Limited (the Company) is a public listed company Statement of Compliance incorporated and operating in Australia. The Company’s shares are quoted on the Australian Securities Exchange (ASX Code: CAA). The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and The Company’s registered office and its principal place of Interpretations, and complies with other requirements of business is as follows: the law. 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 The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2023. Accounting Standard in issue but not yet effective: Certain Australian Accounting Standards and amendments to standards have been published that are not mandatory for reporting period commencing 1 January 2023 and not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 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’). Compliance with A-IFRS ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 23 February 2024. Basis of Preparation 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: 48 Annual Report 2023 — Capral Limited Notes to the Financial Statements 1c. Significant accounting policies continued (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). Control is based on whether an investor has: • power over the investee 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 • exposure, or rights, to variable returns from its classified as equity are not recognised. involvement with the investee, and • the ability to use its power over the investee to affect the amount of the returns. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 are recognised at their fair value at the acquisition The results of the subsidiaries acquired or disposed of date, except that: 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. • 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 Where necessary, adjustments are made to the financial respectively; statements of subsidiaries to bring their accounting • liabilities or equity instruments related to the policies into line with those used by other members of the replacement by the Group of an acquiree’s share Group. All intra-group transactions, balances, income and based payment awards are measured in accordance expenses are eliminated in full on consolidation. with AASB 2 Share-based Payment; and • 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. (d) Cash and Cash Equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value and have a maturity of three months or less at the date of acquisition. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. (b) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (c) Business Combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for 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. Capral Limited — Annual Report 2023 49 Notes to the Financial Statements 1c. Significant accounting policies continued (e) Derivative Financial Instruments (f) Employee Benefits The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts. (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 Further details of derivative financial instruments are long service leave, when it is probable that disclosed in Note 31 to the financial statements. settlement will be required, and they are capable of Derivatives are initially recognised at fair value at the date being measured reliably. Liabilities recognised in a derivative contract is entered into and are subsequently respect of short-term employee benefits are remeasured to their fair value at each reporting date. measured at their nominal values using the 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 classified as a current asset and current liability. Embedded Derivatives 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. 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. The fair value of the performance rights is estimated 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 on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will 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 Contributions to defined contribution superannuation plans are expensed when incurred. 50 Annual Report 2023 — Capral Limited Notes to the Financial Statements 1c. Significant accounting policies continued (g) Financial Assets Impairment of 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 financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments other than financial assets ‘at fair value through profit or loss’. 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 recognise a loss allowance at an amount equal to lifetime expected credit losses at each reporting date. The group 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 interest rate. 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 Financial assets at FVTPL are measured at fair value at the account are recognised in profit or loss. end of each reporting period, with any fair value gains or losses recognised in profit or loss to the extent they are not Derecognition of financial assets 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 Trade and other receivables that were measured at amortised cost under AASB 139 continue to be measured 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. 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. Capral Limited — Annual Report 2023 51 Notes to the Financial Statements 1c. Significant accounting policies continued (h) Financial Instruments Issued by the Group Other financial liabilities 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 instrument. 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. Financial guarantee contract 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). (i) Foreign Currency In preparing the financial statements, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each 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. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences Financial guarantee contract liabilities are measured initially which relate to assets under construction for future at their fair values and subsequently at the higher of the productive use, which are included in the cost of those amount recognised as a provision and the amount initially assets where they are regarded as an adjustment to recognised less cumulative amortisation. interest costs on foreign currency borrowings. Financial liabilities (j) Government Grant Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Grants are recognised where there is a reasonable assurance that the grant will be received and all attached conditions will be complied with. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are 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. (k) Impairment of Other Tangible and Intangible Assets excluding goodwill 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 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. 52 Annual Report 2023 — Capral Limited Notes to the Financial Statements 1c. Significant accounting policies continued Intangible assets with indefinite useful lives and intangible carrying amounts in the financial statements of each assets not yet available for use are tested for impairment at member entity and the tax values applying under tax least annually and whenever there is an indication that the consolidation. Current tax liabilities and assets and asset may be impaired. Recoverable amount is the higher of deferred tax assets arising from unused tax losses and fair value less costs to sell and value in use. In assessing relevant tax credits arising from this allocation process are value in use, the estimated future cash flows are discounted then accounted for as immediately assumed by the head to their present value using a post-tax discount rate that entity, as under Australian taxation law the head entity has reflects current market assessments of the time value of the legal obligation (or right) to these amounts. money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the (m) Intangible Assets 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, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. 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. 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 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 contract term when access to the cloud application prior years. A reversal of an impairment loss is recognised in software is provided. the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the Patents, trademarks and licences impairment loss is treated as a revaluation increase. Patents, trademarks and licences are recorded at cost less (l) Income Tax The income tax expense or revenue for the period is the tax accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives, which vary from 5 to 16 years. payable on the current period’s taxable income based on the The estimated useful life and amortisation method is national income tax rate for each jurisdiction adjusted by reviewed at the end of each annual reporting period, with changes in deferred tax assets and liabilities attributable to any changes being recognised as a change in accounting temporary differences between the tax bases of assets and estimate. liabilities and their carrying amounts in the financial statements, and to unused tax losses. Software Deferred tax assets are recognised for deductible 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. 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 The Company and its wholly owned Australian entities have from 3 to 5 years. implemented the tax consolidation legislation. 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 to the Capral Limited — Annual Report 2023 53 Notes to the Financial Statements 1c. Significant accounting policies continued 1c. Significant accounting policies continued (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. 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 Aluminium log is valued at moving average of direct revised discount rate. purchase cost. Cost of rolled product has been determined • The lease payments change due to changes in an 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. (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. The lease liability is initially measured at the present value 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 determined, the Group uses its incremental borrowing rate. 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 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). • 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 incentivevess 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. rate, initially measured using the index or rate at the Operating lease payments are recognised as an expense commencement date; and on a straight-line basis over the lease team, except where • Payments of penalties for terminating the lease, if another systematic basis is more representative of the the lease term reflects the exercise of an option to time pattern in which economic benefits from the leased terminate the lease. asset are consumed. The lease liability is subsequently measured by increasing In the event that lease incentives are received to enter into the carrying amount to reflect interest on the lease liability operating leases, such incentives are recognised as a (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a 54 Annual Report 2023 — Capral Limited Notes to the Financial Statements 1c. Significant accounting policies continued straight-line basis, except where another systematic basis Leasehold improvements are depreciated over the period is more representative of the time pattern in which of the lease or estimated useful life, whichever is shorter, economic benefits from the leased asset are consumed. using the straight-line method. The estimated useful lives, (p) Property, Plant and Equipment Land and buildings are measured at fair value less any 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. subsequent accumulated depreciation and subsequent Right-of-use assets are depreciated over the shorter accumulated impairment losses. Fair value is determined period of lease term and useful life of the underlying asset. on the basis of a periodic, independent valuation by external valuation experts, based on discounted cash flows or capitalisation of net income, as appropriate. (q) Provisions Provisions are recognised when the Group has a present, Periodic reviews are conducted every three to five years. legal or constructive obligation as a result of past events, The fair values are recognised in the financial statements it is probable that the Group will be required to settle the of the Group and are reviewed at the end of each reporting obligation, and a reliable estimate can be made of the period to ensure that the carrying value of land and amount of the obligation. buildings is not materially different from their fair values. Any revaluation increase arising on revaluation of land and 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. 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 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 expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that the reimbursement will be received and the amount of the receivable can be measured reliably. Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of revalued Onerous contracts 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. Present obligations arising under onerous contracts are recognised and measured as a provision. An onerous 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. Capral Limited — Annual Report 2023 55 Notes to the Financial Statements 1c. Significant accounting policies continued The measurement of a restructuring provision includes Interest income only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Provision for restoration and rehabilitation (provision for make good on leased assets) 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. The Group recognises revenue from the sale of products 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 estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. (s) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: i) where the amount of GST incurred is not recoverable 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 and the sale of scrap and when it transfers control of a classified as operating cash flows. product to a customer, which is the point in time that the customer obtains control of the goods being on (t) Earnings per share acceptance of the goods by the customer. (i) Basic earnings per share Revenue is measured at the fair value of the consideration received or receivable. Sales revenue comprises sales of goods and services at net invoice values less returns, trade allowances and applicable rebates. Royalties Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement. 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). 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. 56 Annual Report 2023 — Capral Limited 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 judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates 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. Notes to the Financial Statements 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. There is a degree of estimation uncertainty in the estimates and judgements used in the preparation of value-in-use models including in assessing whether there is any indication that property, plant and equipment and right of use assets may be impaired, or whether a reversal of previous impairment losses should be recognised. The key assumptions applied includes aluminium prices which impact margins to the extent the price variations are passed onto customers or not (i.e. price & margin), volumes impacted by the cyclical nature of both residential and commercial building activity, working capital, capital expenditure, discount rate, economic factors and prior period tax losses. Critical judgements in applying the Group’s accounting policies Note 14 and Note 17 sets out the categories of property, plant and equipment held and right of use assets. 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 Group’s accounting policies and that have the most significant effect on the amounts recognised in the 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. financial statements. Inventories Employee benefits Key assumptions used in the calculation of leave benefit Note 9 sets out the categories of inventory carried. The net realisable value of inventories is the estimated selling provisions at balance date: price in the ordinary course of business less estimated i) future on-cost rates, costs to sell which approximates fair value less cost to ii) experience of employee departures and period of sell. The key assumptions require the use of management service, and judgement and are reviewed annually. iii) future increase in wages and salaries. These key assumptions are the variables affecting the estimated costs to sell and the expected selling price. Any Provision for customer claims reassessment of cost to sell or selling price in a particular Provision for customer claims are measured at the 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. present value of management’s best estimate of the expenditure required to settle the present obligation at the statement of the financial position date based on claims assessors report. Capral Limited — Annual Report 2023 57 Notes to the Financial Statements 1d. Critical accounting judgements and key sources of estimation uncertainty continued 1e. Comparative information Where necessary, comparative amounts have been reclassified and repositioned for consistency with Useful lives of property, plant and equipment current period disclosures. However, there are none The Group reviews the estimated useful lives of property, during 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. 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 deferred tax assets therefore involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised together with availability of such losses. 58 Annual Report 2023 — Capral Limited 2 Profit for the year NOTE CONSOLIDATED 2023 $’000 Notes to the Financial Statements (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 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 Increase/(decrease) 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 on foreign exchange 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 34,934 917 (427) 490 175 175 292 610 7,230 8,132 12,345 2,357 14,702 23,009 5,966 5,966 85 74 8,505 1,045 86 99,430 109,066 6,425 1,995 4,430 257 6,682 11,516 10,520 3,464 10,955 36,455 1,122 1,349 Capral Limited — Annual Report 2023 59 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 Sub-lease rental income Other miscellaneous income Interest income (i) Recognised at a point in time. 4 Income Tax Current tax Current year Deferred tax: Origination and reversal of temporary differences 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% (2022:30%) Tax effect of non-assessable / non-deductible items: Effect of expenses that are not deductible or taxable in determining taxable profit Tax effect of costs deductible upon purchase of shares on-market for future issuance to employees Tax effect of utilisation of tax losses and temporary differences CONSOLIDATED 2023 $’000 2022 $’000 614,844 643,284 42,015 42,015 3,526 2 805 4,333 - - - - 31,839 9,552 580 (685) 49,222 49,222 3,319 2 125 3,446 - 8,365 - 8,365 32,388 9,716 455 - not previously recognised (9,447) (10,171) 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 60 Annual Report 2023 — Capral Limited 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 2022 and 2023, 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 2022. 7 Current assets - cash and cash equivalents CONSOLIDATED Cash at bank and cash in hand 2023 $’000 59,457 2022 $’000 48,988 Capral Limited — Annual Report 2023 61 Notes to the Financial Statements 8 Current assets - trade and other receivables CONSOLIDATED 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 The average credit period on sales of goods is approximately 42 days (2022: 43 days). No interest is charged on trade receivables. (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 2023 $’000 83,153 (316) 82,837 6,476 89,313 89,313 - 89,313 CONSOLIDATED 2023 $’000 (242) 254 (328) (316) 2022 $’000 90,443 (242) 90,201 1,125 91,326 91,326 - 91,326 2022 $’000 (425) 243 (60) (242) 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 $667,000 (2022: $594,000), refer to note 31(h). The Group has not provided for 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 88 days (2022: 79 days). 62 Annual Report 2023 — Capral Limited 8 Current assets - trade and other receivables continued Trade receivables risk profile (excluding individually impaired): CONSOLIDATED Notes to the Financial Statements Current 1-30 days past due 31- 60 days past due 61+ days past due Total 2023 $’000 62,513 18,636 1,337 413 82,899 2022 $’000 70,226 17,744 1,879 396 90,245 Included in the loss allowance is the expected credit loss for individually impaired trade receivables with a balance of $254,000 (2022: $198,000). 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 2023 $’000 - - - 254 254 2022 $’000 - - - 198 198 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 CONSOLIDATED Raw materials and stores Work in progress Finished goods 2023 $’000 27,302 3,204 95,644 126,150 2022 $’000 25,617 3,631 125,629 154,877 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 $23.483 million (2022: $29.760 million). 10 Current assets - prepayments Prepayments CONSOLIDATED 2023 $’000 2,711 2022 $’000 848 Capral Limited — Annual Report 2023 63 Notes to the Financial Statements 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 2022 Benefit recognised in the profit Balance at 1 January 2023 Benefit recognised in the profit Balance at end of the financial year TAX LOSSES AND TEMPORARY DIFFERENCES $’000 15,335 8,365 23,700 - 23,700 TOTAL $’000 15,335 8,365 23,700 - 23,700 At the reporting date, the Group has unused tax losses of $188,483,071 (2022: $208,596,113) available to offset against future taxable profits and $72,159,745 (2022: $82,058,874) deductible temporary differences which would reverse in the future. The Group has recognised a deferred tax asset of $23,700,000 (2022: $23,700,000) 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 to four years forecasted taxable profits. The Group has taken a view that it is probable to achieve forecasted taxable profits in the next three to four years against which this deferred tax asset recognised would be utilised. The group has recognised deferred taxes amounting to $9,845,000 in respect of deductible temporary differences and no deferred tax asset is recognised on the balance temporary differences of $39,345,000 (tax impact of $11,803,391) 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 $13,855,000 and no deferred tax asset recognised on balance of the available tax losses amounting to $142,298,000 (tax impact of $42,689,454). The total unrecognised deferred taxes amount to $54,492,845 (2022: $63,496,496) as of reporting date. 64 Annual Report 2023 — Capral Limited 12 Non-current assets - investments Details of subsidiaries The financial statements incorporate the assets, liabilities and results of the following subsidiaries: Notes to the Financial Statements EQUITY HOLDING 2023 % 100 2022 % 100 Country of incorporation 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). During the Financial Year, the Company bought back 48,255 shares off market from Capral’s Managing Director at a cost of $361,912.50, $7.5 per share (at prior day VWAP) to facilitate his taxation payment. 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 2023, the parent entity has settled a non-interest-bearing loan of $500,000 (2022: $1,000,000) 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 $4,700,821 (2022: $4,845,482) – 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 $500,000 (2022: $1,000,000) from Austex Dies Pty Limited. Capral Limited — Annual Report 2023 65 Notes to the Financial Statements 14 Property, plant and equipment CONSOLIDATED 2023 $’000 1,700 - 1,700 5,654 (1,039) 4,615 14,395 (9,256) (1,970) 3,169 9,484 238,785 (166,678) (32,099) 40,008 8,026 48,034 57,518 2022 $’000 1,700 - 1,700 5,628 (747) 4,881 14,257 (8,646) (1,970) 3,641 10,222 229,805 (159,515) (32,099) 38,191 8,231 46,422 56,644 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 Leasehold improvements Plant and equipment 20-33 Years 5-25 Years 3-25 Years (i) Valuations of land and building: 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 2023 — Capral Limited 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: Notes to the Financial Statements FREEHOLD LAND AT FAIR VALUE BUILDINGS AT FAIR VALUE LEASE IMPROVEMENTS AT COST PLANT AND EQUIPMENT AT COST CAPITAL WORK IN PROGRESS AT COST TOTAL $’000 $’000 $’000 $’000 $’000 $’000 CONSOLIDATED 2023 Opening net book amount 1,700 4,881 Additions Business acquisition Disposals Transfers Revaluation Depreciation charge (Note 2(a)) Net book amount at 31 December 2023 2022 Additions Business acquisition Disposals Transfers Revaluation Depreciation charge (Note 2(a)) Net book amount at 31 December 2022 3,815 (3,856) (292) (610) (7,230) 1,700 4,615 3,169 40,008 8,026 57,518 3,641 117 - - 21 - 2,796 912 - (17) 487 - 38,191 5,233 - (1) - - 37,891 4,113 - - 8,231 3,651 56,644 9,007 - - - - - - - - - (1) - - (8,132) - (17) (55) - (7,321) 5,616 5,817 53,195 10,842 - - - - - - - - - - - - 6 - - 20 - - - - - - 2,660 (3,202) (311) (537) (6,473) 1,700 4,881 3,641 38,191 8,231 56,644 Opening net book amount 1,700 5,192 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 and intangible 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. If there is an indication of impairment, the recoverable amount of property, plant & equipment 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. 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. Capral Limited — Annual Report 2023 67 Notes to the Financial Statements 14 Property, plant and equipment continued The result of Impairment assessment as at 31 December 2023 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 2023 was necessary. The recoverable amount of the CGU estimated by management exceeded the carrying amount of assets by $9,927,000. 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 2023 are as follows: The table below shows key assumptions in the value in use calculation as at 31 December 2023 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 2024-25 p.a. Average volumes increase 2026-28 p.a. Long-term growth rate INPUT TO THE MODEL BREAKEVEN INPUT 10.70% -0.8% 1.00% 1.00% 11.22% -2.3% 0.74% -0.37% The valuation is based on forecast and projected cash flows for a 5-year period commencing January 2024 with a terminal value being applied at the end of this period. The cash flow assumptions are based on management approved budgets for the period from January 2024 to December 2024. Beyond this date cash flow projections until 31 December 2028 are based on projected volume growth and expected improvements in EBITDA per tonne (refer below). Sales volumes are projected to grow at 1.0% per annum, from 2026 onwards. This growth rate corresponds with the average long-term growth rate based on external economic sources. 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 2026 to 2028. A 0.05% underperformance in forecasted margin over the 5-year forecast period, in isolation, would reduce the headroom to nil but would not result in an impairment charge. 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 72,000 tonnes at the end of the 5-year period. 68 Annual Report 2023 — Capral Limited Notes to the Financial Statements 14 Property, plant and equipment continued 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 10.7%, 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. 15 Other intangibles assets OTHER INTELLECTUAL PROPERTY CONSOLIDATED 2023 Cost Accumulated amortisation Accumulated impairment Net book value 2022 Cost Accumulated amortisation Accumulated impairment Net book value $’000 15,937 (8,373) (7,560) 4 15,937 (8,368) (7,560) 9 Impairment assessment is performed based on assumptions and estimates as disclosed in Note 14. SOFTWARE $’000 25,169 (22,147) (2,466) 556 25,083 (21,977) (2,466) 640 TOTAL $’000 41,106 (30,520) (10,026) 560 41,020 (30,345) (10,026) 649 Capral Limited — Annual Report 2023 69 Notes to the Financial Statements 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: 2023 Opening net book amount Additions Disposals Transfers Amortisation OTHER INTELLECTUAL PROPERTY $’000 9 - - - (5) Net book amount at 31 December 2023 4 2022 Opening net book amount Additions Disposals Transfers Amortisation - 10 - - (1) Net book amount at 31 December 2022 9 SOFTWARE $’000 640 86 - - (170) 556 700 96 - 55 (211) 640 16 Goodwill CONSOLIDATED Cost At 31 December 2022 At 31 December 2023 Accumulated depreciation At 31 December 2022 Amortisation At 31 December 2023 Impairment assessment is performed based on assumptions and estimates as disclosed in Note 14. 2023 $’000 3,070 3,070 - - - TOTAL $’000 649 86 - - (175) 560 700 106 - 55 (212) 649 2022 $’000 3,070 3,070 - - - 70 Annual Report 2023 — Capral Limited 17 Right-of-use assets CONSOLIDATED Cost At 31 December 2022 Additions Modifications Terminations At 31 December 2023 Accumulated depreciation At 31 December 2022 Terminations Depreciation charge At 31 December 2023 Net Book Value At 31 December 2023 At 31 December 2022 Notes to the Financial Statements BUILDINGS PLANT & EQUIPMENT $’000 $’000 105,043 194 6,436 (440) 111,233 (42,339) 276 (12,345) (54,408) 56,825 62,704 10,923 1,727 2,568 - 15,218 (6,976) - (2,357) (9,333) 5,885 3,947 TOTAL $’000 115,966 1,921 9,004 (440) 126,451 (49,315) 276 (14,702) (63,741) 62,710 66,651 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 (2022: 4.5 years) and 4.3 years (2022: 3.9 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 $1.921 million and in modifications of $9.004 million in the current financial year (2022: $5.804 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 CONSOLIDATED Trade payables (i) Goods and services tax payable Other payables 2023 $’000 89,388 2,168 15,418 2022 $’000 92,819 1,728 18,188 106,974 112,735 (i) The average credit period on purchases is 82 days from the end of the month (2022: 85 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. Capral Limited — Annual Report 2023 71 Notes to the Financial Statements 20 Lease liabilities Current Non-current Maturity analysis Within one year Later than one year but not later than five years Later than five years CONSOLIDATED 2023 $’000 15,558 73,255 88,813 15,558 59,353 13,902 88,813 21 Provisions CONSOLIDATED Current Employee benefits Make good on leased assets1 Other2 Non-current Employee benefits Make good on leased assets1 Other 2023 $’000 13,841 254 825 14,920 2,365 5,219 - 7,584 2022 $’000 16,158 77,874 94,032 16,158 53,837 24,037 94,032 2022 $’000 13,776 169 3,956 17,901 2,332 4,974 - 7,306 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, provisions for customer claims including metal returns net of scrap and pricing adjustments, and $2,705,912 was released from the provisions to the profit or loss during the year. CONSOLIDATED Movements in carrying amounts EMPLOYEE BENEFITS $’000 Carrying value at the beginning of the financial year 16,108 Provision utilised/released in the year Additional amounts provided (6,405) 6,503 MAKE GOOD ON LEASED ASSETS $’000 5,143 - 330 OTHER $’000 3,956 (4,808) 1,677 TOTAL $’000 25,207 (11,213) 8,510 Carrying value at the end of the financial year 16,206 5,473 825 22,504 72 Annual Report 2023 — Capral Limited 22 Deferred income - current CONSOLIDATED Notes to the Financial Statements Deferred income – other 23 Issued Capital (a) Share capital Ordinary shares: fully paid 2023 $’000 162 162 2023 2022 No. 000 No. 000 2023 $’000 2022 $’000 153 153 2022 $’000 17,687 17,767 424,771 433,433 Fully paid ordinary shares carry one vote per share and carry the right to dividends. (b) Movement in ordinary share capital DATE DETAILS January 2022 Balance at the beginning of the financial year March 2022 Shares issued - deferred STIP March 2022 Shares issued pursuant to a dividend reinvestment plan March 2022 Shares issued against performance rights 32,369 321,654 219,990 December 2022 Balance at the end of the financial year 17,767,272 NUMBER OF SHARES 17,193,259 ISSUE PRICE $'000 - 430,588 $7.44 $8.1 - - 241 2,604 - 433,433 43 - March 2023 Shares issued - deferred STIP 5,131 $8.423 March 2023 Shares issued against performance rights 278,320 - September 2023 Shares cancelled – on-market buy-back1 (106,074) $23.932 (2,539) October 2023 Shares cancelled – on-market buy-back1 (60,020) $23.932 (1,436) November 2023 Shares cancelled – on-market buy-back1 (76,087) $23.932 (1,821) December 2023 Shares cancelled – on-market buy-back1 (121,532) $23.932 (2,909) December 2023 Balance at the end of the financial year 17,687,010 - 424,771 1 The Board approved the on-market buy-back and cancellation of up to 370,000 shares in line with ASIC/ASX regulations starting from 1 September 2023. 363,713 shares were bought back by an independent third-party broker at an average of $8.647 per share and cancelled at an average price of $23.932 per share ($431,995,567 / 18,050,723 shares, right before September 2023) during September to December 2023. A resultant gain of $5,559,306 has been presented under a separate reserve account, called Share Buy-Back Reserve. Capral Limited — Annual Report 2023 73 Notes to the Financial Statements 24 Reserves and accumulated losses CONSOLIDATED Asset revaluation reserve Equity-settled compensation reserve Employee share reserve Share buy-back reserve Dividend reserve Accumulated losses 24 (a) Movements in reserves were: Equity-settled compensation reserve Balance at the beginning of the financial year Expense recognised Shares acquired on conversion of vested rights Balance at the end of the financial year 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 Employees shares on-market purchasea Employees shares off-market purchaseb Employees escrow shares utilisedb Balance at the end of the financial year Share buy-back reserve Balance at the beginning of the financial year Net gain on cancelled shares – on-market purchasec 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 2023 $’000 4,088 13,936 (2,320) 5,560 93,683 114,947 (334,986) (220,039) 12,891 1,045 - 13,936 4,088 - 4,088 (38) (1,970) (361) 49 (2,320) - 5,560 5,560 74,338 31,839 (12,494) 93,683 (334,986) - (334,986) 2022 $’000 4,088 12,891 (38) - 74,338 91,279 (334,986) (243,707) 11,909 982 - 12,891 4,088 - 4,088 (225) - - 187 (38) - - - 54,116 32,388 (12,166) 74,338 (343,351) 8,365 (334,986) a 240,000 shares were purchased at an average price of $8.2064 per share by the Capral Employee Share Trustee on-market to allow for full allotment of 2021 LTIP shares as well as 2023 Escrow allotment in March 2024. b 48,255 shares were purchased at $7.5 per share by the Capral Employee Share Trustee off-market from Capral’s Managing Director to allow for full allotment of 2021 LTIP shares as well as 2023 Escrow allotment in March 2024. During the year 5,843 shares were utilised for 2022 Escrow allotment. c Refer to Note 23 74 Annual Report 2023 — Capral Limited 25 Dividends Ordinary shares: Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% (2022:30%) 26 Earnings per share Basic earnings per share Diluted earnings per share Notes to the Financial Statements CONSOLIDATED 2023 $’000 12,494 2022 $’000 12,166 2,724 8,079 CONSOLIDATED 2023 $ 1.77 1.71 2022 $ 2.31 2.22 Net profit after tax used in the calculation of basic and diluted profit per share for 2023 was $31,839,000 (2022: $40,753,000). The weighted average numbers of ordinary shares on issue used in the calculation of basic and diluted earnings per share were 17,939,575 and 18,574,885 (2022: 17,649,632 and 18,366,893) respectively. Capral Limited — Annual Report 2023 75 Notes to the Financial Statements 27 Stand by arrangement and credit facilities CONSOLIDATED 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 2023 $’000 80,000 80,000 - - 4,941 21,642 5,947 32,530 47,470 2022 $’000 90,000 90,000 24,083 - 4,371 18,743 6,814 54,011 35,989 - 24,083 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 reduced to $70 million on 1 January 2023. To align with Capral’s ongoing requirements, this Multi-option Facility was reduced to $60 million from 1 January 2024 to closely align with Capral’s working capital requirement with an expiry date of 30 April 2025. The existing ANZ facilities consist of: Secured: • $70 million Multi-option Facility which includes a Trade Finance Loan Facility, Trade Instruments and Trade Finance; • $5 million Cash Loan Facility – Floating Rate; and • $5 million Standby Letter of Credit or Guarantee Facility. Unsecured: • $2.5 million Electronic Payaway Facility; and • $0.5 million Commercial Card Facility. • $1.272 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 2023 $’000 2022 $’000 Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities payable: Within one year 3,000 1,880 76 Annual Report 2023 — Capral Limited 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 2023. At 31 December 2023, the Group is committed to $200,827 (2022: $287,088) for low value leases and has no short- term Notes to the Financial Statements lease commitments. Commitments for income - leases Lease Receivable Non-cancellable lease receivable Within one year Later than one year but not later than five years Later than five years CONSOLIDATED 2023 $’000 3,067 13,214 1,580 17,861 2022 $’000 2,977 12,829 5,822 21,628 Lease receivables relate to the sublease of office and plant premises with a lease term of 10 years, with an option to extend for a further term of 5 years. 30 Fair value measurement Some of the Group’s assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these assets and liabilities are determined (in particular, valuation technique(s) and input(s) used). ASSETS / LIABILITIES Foreign currency forward contracts (see note 31(f)) FAIR VALUE AS AT 31/12/23 ($) 31/12/22 ($) FAIR VALUE HIERARCHY VALUATION TECHNIQUE(S) AND KEY INPUT(S) SIGNIFICANT UNOBSERVABLE INPUT(S) RELATIONSHIP OF UNOBSERVABLE INPUT(S) Assets – nil Assets – nil Level 2 Discounted cash flow. n/a n/a Liabilities – Liabilities – 2,015,841 828,359 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) 1,700,000 1,700,000 Comparison approaches. recent market the comparable Buildings – Buildings – (Last assessed 2021) 4,615,000 4,881,000 transactions market net rental on arm’s amount and the length terms at higher/(lower) the time. the comparable market sales transactions, the higher the fair value. Capral Limited — Annual Report 2023 77 Notes to the Financial Statements 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 2022. 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. The Group complied with its borrowing financial covenants under its current facility detailed in Note 27 as at 31 December 2023 and 31 December 2022 as follows: FINANCIAL COVENANT DESCRIPTION REQUIRED VALUE 2023 ACTUAL VALUE 2022 ACTUAL VALUE EBITDA Interest Cover Ratio (A ratio of EBITDA to Interest Expense) > 3.00:1 22.08:1 23.75:1 Minimum Tangible Net Worth > AUD 100.0m AUD 205.9m AUD 191.5m (Tangible Net Worth – Total Tangible Assets Less Total Liabilities) Borrowing Base Ratio < 0.80:1 0.34:1 0.54:1 (A ratio of Aggregate Facility Amount Owing to Eligible Debtors owing up to 90) Distributions Variable* AUD 15.64m AUD 12.17m (Any payment or distribution of money or other assets to shareholders) Inventory Cover Ratio >0.8:1 0.87:1 0.88:1 * lower than the profit of prior year (b) Significant accounting policies 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). 78 Annual Report 2023 — Capral Limited 31 Financial instruments continued (c) Categories of financial instruments CONSOLIDATED Notes to the Financial Statements 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 2023 $’000 89,313 59,457 11 106,974 - 88,813 2,016 2022 $’000 91,326 48,988 11 112,735 24,083 94,032 828 1 Security deposit for a site energy supply. 2 Foreign exchange contract mark-to-market $2,016,000 (2022: foreign exchange contract mark-to-market $828,000). (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. Capral Limited — Annual Report 2023 79 Notes to the Financial Statements 31 Financial instruments continued (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 (other receivables) JPY trade receivables/(other payables) USD (other payables)/trade receivables Foreign currency sensitivity CONSOLIDATED 2023 $’000 5,094 797 (12,941) 1,087 24 (3) 2022 $’000 12,753 767 (11,923) 113 (22) 1,017 The Group is exposed to EUR, JPY and USD (2022: 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 $11,830,000 (2022: $11,831,000). The total value of trade receivables denominated in currencies other than the AUD at reporting date was -$3,000 (2022: $1,017,000). 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 2023 and 31 December 2022 and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit. CONSOLIDATED 2023 $’000 1,177 (1,438) (99) 121 (2) 3 2022 $’000 991 (1,212) (10) 12 2 (2) Profit or loss (after tax) - AUD strengthens by 10% against USD - AUD weakens by 10% against USD - AUD strengthens by 10% against EUR - AUD weakens by 10% against EUR - AUD strengthens by 10% against JPY - AUD weakens by 10% against JPY 80 Annual Report 2023 — Capral Limited Notes to the Financial Statements 31 Financial instruments continued Forward foreign exchange contracts It is the policy of the Group to enter into forward foreign exchange contracts to cover specific material foreign currency payments and receipts. The following table details the forward foreign currency (FC) contracts outstanding at the end of the reporting period: Foriegn currency Fair value 2023 31/12/23 FC$’000 2022 31/12/22 FC$’000 2023 2022 31/12/23 $’000 Gain/(Loss) 31/12/22 $’000 Gain/(Loss) 816 5 2,475 320 26,074 420 - 4,620 240 22,336 (25) -1 (1) (2) 5 - -1 -1 (1,988) (833) Buy EUR Buy GBP Buy JPY Buy CNH Buy USD 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 20-basis point (0.2%) increase and a 20-basis point (0.2%) decrease represents Management’s assessment of the possible change in interest rates (2022: 110bp or 1.1% increase and 110bp or 1.1% decrease). A positive number indicates an increase in profit. CONSOLIDATED 2023 $’000 2022 $’000 Profit or loss (after tax) Impact of a 20bp (2022: 110bp) increase in AUD interest rates Cash and cash equivalents 83 377 Impact of a 20bp (2022: 110bp) decrease in AUD interest rates Cash and cash equivalents (83) (377) Capral Limited — Annual Report 2023 81 Notes to the Financial Statements 31 Financial instruments continued (h) Credit risk management 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 2023 $’000 62,513 18,636 1,337 667 83,153 2022 $’000 70,226 17,744 1,879 594 90,443 82 Annual Report 2023 — Capral Limited Notes to the Financial Statements 31 Financial instruments continued (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. Liquidity and interest risk tables Financial assets are made up of cash of $59,457,000 (2022: $48,988,000) and trade and other receivables of $89,313,000 (2022: $91,326,000). Cash is liquid and trade and other receivables are expected to be realised on average within 42 days (2022: 43 days). Cash balances earn 2.76% interest per annum (2022: 2.4%). 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 INTEREST RATE LESS THAN 1 YEAR % $’000 1 - 5 YEARS $’000 GREATER THAN 5 YEARS $’000 CONSOLIDATED 2023 Trade and other payables Lease liabilities Other financial liabilities Borrowings 2022 Trade and other payables Lease liabilities Other financial liabilities Borrowings - - - - - - - 3.94 106,974 15,558 2,016 - 108,990 112,735 16,158 828 24,083 137,646 - - 59,353 13,902 - - - - - - 53,837 24,037 - - - - (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. Capral Limited — Annual Report 2023 83 Notes to the Financial Statements 32 Contingent liabilities Capral’s contingent liabilities in relation to customer claims relating to the supply of non-conforming marine grade plate as disclosed in the 31 December 2022 Annual Report, has been settled and no further contingent liabilities exist in this regard. 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. 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 2023, these guarantees totalled $4,941,002 (2022: $4,370,502). Capral’s bankers have issued letters of credit in respect of Capral’s purchases internationally. At 31 December 2023, these open letters of credit totalled $5,946,935 (31 December 2022: $6,814,372). 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 2023 $ 2022 $ 377,600 340,400 39,454 - 417,054 37,250 56,250 433,900 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. 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. 84 Annual Report 2023 — Capral Limited 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 Notes to the Financial Statements CONSOLIDATED 2023 $’000 2022 $’000 59,457 59,457 48,988 48,988 (ii) Reconciliation of profit for the year to net cash flows from operating activities CONSOLIDATED Profit for the year Non-cash items: Depreciation and amortisation - owned assets Depreciation and amortisation – right of use assets Loss 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 in current receivables Increase in financial assets (Decrease)/increase in inventories Increase in prepayments Decrease in trade and other payables Increase in employee benefit provisions Decrease in other provisions Increase/(decrease) in deferred income Increase in other financial liabilities Net cash provided by operating activities 2023 $’000 31,839 8,307 14,702 1 - 1,045 (805) 2,012 - 28,524 (1,863) (7,096) 98 (2,920) 9 1,188 75,041 2022 $’000 40,753 7,533 13,785 - (8,365) 982 (125) 4,964 (11) (24,489) (125) (27,594) 2,578 (3,525) (60) 761 7,062 (iii) Details of finance facilities are included in note 27 to the financial statements. Capral Limited — Annual Report 2023 85 Notes to the Financial Statements 35 Notes to the cash flow statement continued (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 2023 $’000 94,032 (15,817) 1,921 8,677 88,813 2022 $’000 103,540 (14,548) 5,804 (764) 94,032 (v) Non-cash financing activities There were no non-cash financing activities other than above during the Financial Year or the 2022 year. 86 Annual Report 2023 — Capral Limited 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 Share buy-back 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 Notes to the Financial Statements COMPANY 2023 $’000 277,783 423,677 139,521 220,223 424,771 (335,250) 13,936 3,074 (2,320) 5,560 93,683 203,454 31,808 - 31,808 2022 $’000 296,060 445,137 171,615 256,658 433,433 (335,219) 12,891 3,074 (38) - 74,338 188,479 40,818 - 40,818 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 3,000 1,880 Capral Limited — Annual Report 2023 87 Notes to the Financial Statements 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 SERIES (LTIP) NUMBER AS AT 31 DEC 23 GRANT DATE LAST TESTING DATE EXERCISE PRICE $ FAIR VALUE AT GRANT DATE $4 Issued 3 March 20211 Issued 3 March 20211 Issued 8 March 20222 Issued 8 March 20222 Issued 6 March 20233 Issued 6 March 20233 79,850 79,850 62,750 62,750 47,750 47,750 3/03/2021 31/12/2023 3/03/2021 31/12/2023 8/03/2022 31/12/2024 8/03/2022 31/12/2024 6/03/2023 31/12/2025 6/03/2023 31/12/2025 Issued 24 March 20233 18,300 24/03/2023 31/12/2025 Issued 24 March 20233 18,300 24/03/2023 31/12/2025 Issued 22 May 20233 Issued 22 May 20233 4,500 4,500 22/05/2023 31/12/2025 22/05/2023 31/12/2025 - - - - - - - - - - 4.180 5.490 4.910 6.780 5.090 6.500 4.730 6.160 4.010 5.850 1 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. 2 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. 3 In accordance with the terms of the LTIP arrangement, performance rights issued during the financial year ended 31 December 2023 have an average vesting date of 1 March 2026. The following share-based payment arrangements were in existence during the comparative reporting period: PERFORMANCE RIGHT SERIES (LTIP) NUMBER AS AT 31 DEC 23 GRANT DATE LAST TESTING DATE EXERCISE PRICE $ FAIR VALUE AT GRANT DATE $4 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.. 4 Shown as post 3 November 2020 share consolidation equivalent fair value. 88 Annual Report 2023 — Capral Limited Notes to the Financial Statements 37 Share-based payments continued PERFORMANCE RIGHTS (LTIP) Inputs into the model 22 MAY 2023 24 MARCH 2023 06 MARCH 2023 08 MARCH 2022 03 MARCH 2021 03 MARCH 2020 Grant date Dividend yield Risk free yield Expected volatility 22/05/2023 24/03/2023 6/03/2023 8/03/2022 3/03/2021 3/03/2020 6.9% 3.3% 34% 7.0% 2.9% 35% 7.0% 3.5% 36% 7.9% 1.6% 45% 6.5% 0.3% 55% 9.5% 0.5% 47.5% Last testing date 31/12/2025 31/12/2025 31/12/2025 31/12/2024 31/12/2023 31/12/2022 Exercise price n.a n.a n.a n.a n.a n.a Share price at grant date^ Performance right life $7.040 3 years $7.500 3 years $7.950 3 years $8.570 3 years $6.670 3 years $3.750 3 years ^ Shown as post 3 November 2020 share consolidation equivalent share price. Managing Director During the Financial Year, 44,400 rights were issued to Mr A. Dragicevich. During the comparative financial year, 49,000 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: PERFORMANCE RIGHT SERIES (LTIP) NUMBER AS AT 31 DEC 23 GRANT DATE LAST TESTING DATE EXERCISE PRICE $ FAIR VALUE AT GRANT DATE $4 Issued 28 April 20211 Issued 28 April 20211 Issued 27 April 20222 Issued 27 April 20222 Issued 27 April 20233 Issued 27 April 20233 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 22,200 27/04/2023 31/12/2025 22,200 27/04/2023 31/12/2025 - - - - - - $5.170 $6.430 $5.820 $7.770 $4.250 $5.940 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 2024. 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 2025. 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 2026. 4 Shown as post 3 November 2020 share consolidation equivalent fair value. Capral Limited — Annual Report 2023 89 Notes to the Financial Statements 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: PERFORMANCE RIGHT SERIES (LTIP) NUMBER AS AT 31 DEC 22 GRANT DATE LAST TESTING DATE EXERCISE PRICE $ FAIR VALUE AT GRANT DATE $4 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 - - - - - - $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 Inputs into the model Grant date Dividend yield Risk free yield Expected volatility Last testing date Share price at grant date^ Performance right life 27 APRIL 2023 27 APRIL 2022 28 APRIL 2021 29 APRIL 2020 27/4/2023 27/4/2022 28/4/2021 29/4/2020 6.9% 3.0% 34% 7.1% 2.6% 45% 5.8% 0.3% 55% 12.2% 0.2% 47.5% 31/12/2025 31/12/2024 31/12/2023 31/12/2022 $7.190 3 years $9.510 3 years $7.580 3 years $2.880 3 years ^ Shown as post 3 November 2020 share consolidation equivalent share price. 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 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 2023 2022 722,320 185,500 (23,500) 754,310 188,000 - (278,320) (219,990) - - 606,000 722,320 The performance rights outstanding at the end of the Financial Year were 606,000 (2022: 722,320), with a weighted average remaining contractual life of 0.9 years. 90 Annual Report 2023 — Capral Limited 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: Notes to the Financial Statements Short-term benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments CONSOLIDATED 2023 $ 2,038,079 97,033 - - 2022 $ 2,023,258 100,645 - - 575,732 488,720 2,710,844 2,612,623 Capral Limited — Annual Report 2023 91 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 A. M. Dragicevich Chairman Managing Director Sydney 23 February 2024 92 Annual Report 2023 — Capral Limited Independent Auditor’s Report to the Members of Capral Limited 69 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 2023, the consolidated statement of profit or loss, 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 material accounting policy information 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 2023 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. Capral Limited — Annual Report 2023 93 Independent Auditor’s Report Key Audit Matter IImmppaaiirrmmeenntt oorr rreevveerrssaall ooff ttaannggiibbllee aanndd iinnttaannggiibbllee aasssseettss As at 31 December 2023, the Group had goodwill of $3.070m, other intangible assets of $0.560m, property, plant and equipment of $57.518m (net of previously recognised impairment losses of $34.069m) and right-of- use assets of $62.710m. Goodwill and indefinite life intangible assets are required to be tested for impairment annually and whenever an impairment indicator exists. As a result, management completed impairment testing at 31 December 2023 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- flow model in-use (“impairment model”). discounted cash Note 1d outlines management’s critical judgements and estimates in relation to impairment of 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 2023, the Group has recognised deferred tax assets of $23.70m and unrecognised and unused tax losses and temporary differences of $42.69m and $11.80m respectively. Deferred tax assets in respect of tax losses and temporary differences are recognised when it is probable that the Group will have future 70 How the scope of our audit responded to the Key Audit Matter 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 FY24 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 expenditure; capital flows cash and o lease payments and sustaining capital expenditures on leases; o growth rates, in particular with reference to historic growth rates and forecast macro-economic impacting demand in the industry; and conditions 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 the 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 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 losses and temporary the availability of tax 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 the assumptions used to the inputs and assumptions in management’s impairment model; consistency of o Assessing whether the period used to forecast taxable profits is appropriate; 94 Annual Report 2023 — Capral Limited Independent Auditor’s Report 71 likelihood of the Group o Assessing the 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. taxable profits against which such losses and temporary differences will be utilised. 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 is required by management in their assessment of the quantum of available tax losses and deductible and whether it is probable that some or all of these tax losses and temporary differences can be future. This utilised assessment includes estimating the Group’s future shorter term taxable income and the probability of those forecasts being met. foreseeable differences, temporary the in 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, ESG and 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 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 Capral Limited — Annual Report 2023 95 Independent Auditor’s Report 72 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. 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 2023. In our opinion, the Remuneration Report of Capral Limited for the year ended 31 December 2023, complies with section 300A of the Corporations Act 2001. 96 Annual Report 2023 — Capral Limited Independent Auditor’s Report 73 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, 23 February 2024 Capral Limited — Annual Report 2023 97 Member Details Top holders (grouped) as of 29/02/24 1 Twenty Largest Holders Details of Capral’s twenty largest shareholders were as follows: RANK NAME 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 CITICORP NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED PRUDENTIAL NOMINEES PTY LTD NATIONAL EXCHANGE PTY LTD MR ANTHONY MATTHEW DRAGICEVICH NATIONAL NOMINEES LIMITED CAPRAL LIMITED BNP PARIBAS NOMINEES PTY LTD MR ANDREW ROY NEWBERY SISSON MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED AGO PTY LTD BNP PARIBAS NOMINEES PTY LTD MR JOHN GEORGE WHITING + MRS DIANA PATRICIA WHITING RAVENSCOURT PROPRIETARY LIMITED MR ANTHONY MATTHEW DRAGICEVICH SOUTHERN STEEL INVESTMENTS PTY LIMITED MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED MRS ANTONIA CAROLINE COLLOPY MRS GLENDA CLAIRE ORGILL UNITS UNIT% 3,546,238 20.05 1,983,379 11.21 1,547,199 1,420,000 700,000 379,232 316,166 287,526 196,424 155,000 153,865 145,950 136,550 133,334 122,571 120,895 114,820 110,706 102,847 97,292 8.75 8.03 3.96 2.14 1.79 1.63 1.11 0.88 0.87 0.83 0.77 0.75 0.69 0.68 0.65 0.63 0.58 0.55 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total) Total Remaining Holders Balance 11,769,994 66.55 5,917,016 33.45 98 Annual Report 2023 — Capral Limited Member Details 2 Substantial Shareholders Substantial shareholders as notified to Capral in accordance with the Corporations Act 2001: NAME NUMBER OF SHARES % OF SHARES HELD AS NOTIFIED ON Allan Gray Australia PTY LTD National Exchange Pty Ltd Perpetual Limited First Sentier Investors Holdings Pty Limited / Mitsubishi UFC Financial Group Inc Total 3,871,621 2,100,000 1,206,954 984,502 8,163,077 21.79 11.86 6.69 25/03/2022 20/12/2023 03/04/2023 5.50 24/10/2023 45.84 3 Number of holders a) Quoted equity securities: There were 2,426 holders of ordinary shares. b) Unquoted equity securities – options: There were Nil unquoted options. c) Unquoted equity securities – performance rights: There were 606,000 unquoted performance rights issued to 25 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. Capral Limited — Annual Report 2023 99 Member Details 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 (b) Unquoted performance rights 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 1,545 617 133 112 19 2,426 NUMBER OF HOLDERS 0 5 3 16 1 25 6 Marketable parcels The number of shareholders holding less than a marketable parcel* of shares is 359 holders. * Minimum parcel size of shares: 50 7 On-market buy back There is no current on-market buy back. On-market buy back announced for up to 10% of issued shares to commence on or after 11 March 2024. 100 Annual Report 2023 — Capral Limited Corporate Directory Capral's Registered Office Auditor 71 Ashburn Road Bundamba QLD 4304 Telephone +61 (07) 3816 7000 Fax +61 (07) 3816 7111 Capral's Principal Administration Office/Investor Enquiries 15 Huntingwood Drive Huntingwood NSW 2148 Telephone +61 (02) 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 1300 855 080 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 Mr T Campbell (Joint) Ms L Osbich (Joint) Corporate Governance Statement capral.com.au/investor-centre/ Capral Limited — Annual Report 2023 101 CAPRAL LIMITED CAPRAL LIMITED CAPRAL LIMITED ABN 78 004 213 692 ABN 78 004 213 692 ABN 78 004 213 692 71 ASHBURN RD, 71 ASHBURN RD, 71 ASHBURN RD, BUNDAMBA QLD 4304 BUNDAMBA QLD 4304 BUNDAMBA QLD 4304 TEL 07 3816 7000 TEL 07 3816 7000 TEL 07 3816 7000 FAX 07 3816 7111 FAX 07 3816 7111 FAX 07 3816 7111 CAPRAL.COM.AU CAPRAL.COM.AU CAPRAL.COM.AU 

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