Capral Limited (CAA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Capral Limited FY '24 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Tony Dragicevich, Chief Executive Officer and Managing Director. Please go ahead.

Thank you, Harmony. Good morning. I'm Tony Dragicevich, the CEO and Managing Director of Capral. It's my pleasure to welcome you to Capral's 2024 Full Year Results Presentation. I'm joined this morning by our CFO, Tertius Campbell, who will run through the financials as we go through this agenda today. We hope to present what we believe is a healthy set of results in what has been relatively soft market conditions. So just in terms of what we're going to cover today, I'm going to do the overview. So just on the agenda on Page 2. I'll do the overview, the highlights. Tertius will come back -- come in and do the financials in more detail and then I'll finish off with the strategy and outlook. So turning to Page 3 of our presentation. Before I talk about Capral, I just want to talk about aluminum. Obviously, it's been front of mind in the media in recent times. So just a bit of a background on aluminum and on Australia. So aluminum is a very important metal. It's used in a wide variety of applications. It's both strong and lightweight, making it the preferred construction material in buildings, transport, marine and many other fabrication applications. Because it is lightweight, aluminum also plays a critical role in global decarbonization. Aluminum is very important to the Australian economy. We are unique in that Australia has a fully integrated aluminum supply chain from bauxite mining to alumina smelting -- sorry, alumina refining, aluminum smelting and downstream manufacturing and aluminum extrusion, that's where Capral fits in and then a wide range of metal fabrication businesses. Primary aluminum is Australia's largest manufacturing export earner and the industry is responsible for over 20,000 Australian jobs. So a very important industry. And as we run through the presentation, we'll talk a little bit about what we believe are some of the concerns with the recently announced tariffs coming out of the U.S. All right. So just a bit about Capral on Page 4, our business at a glance. So we're Australia's leading supplier of aluminum extrusion and rolled products. We're the #1 manufacturer and distributor of aluminum extrusion. We're the #1 distributor of aluminum sheet and plate and we're also the #1 supplier of aluminum value-add services. Turning to Page 4, just a little bit more detail. So Capral operates 6 manufacturing plants with 8 extrusion presses, 65,000 tonnes of annual capacity. We've also got 22 distribution and trade centers spread right around Australia. Our key markets are commercial and residential building and also a wide variety of industrial applications, the main ones being transport, marine, infrastructure, solar and general metal fabrication. Our market share in Australia is around 28%. Annual revenues around $650 million, over $440 million in gross assets and in excess of 1,000 employees. So now turning to the results for 2024. So on Page 5, just a very high level. Our earnings, we're pleased to announce are above the top end of our latest guidance range, around 8%. The industrial demand remained solid throughout the year. Residential demand was weak, weaker than prior and continued through low commencements and a reduced pipeline of work coming through that residential sector. Our margins were maintained through very effective cost management and recovery. So now turning to Page 6, just the performance highlights. What we believe is a strong earnings result in a soft market, 8% above our top end of guidance, as I previously said, a very pleasing and satisfying result, demonstrating how far Capral has progressed in being able to deliver solid earnings during the slowdown in the housing market. The volume of just under 68,000 tonnes was 5% down on last year. However, the sales revenue held up at $650 million due to higher metal costs and higher selling prices. Our EBITDA at $58.3 million was down $3.2 million on last year. However, last year did include $2 million benefit from a one-off claim write-back. So a pretty solid result. Net profit after tax was above last year at $32.5 million, but it did include a $3.6 million tax benefit from the recognition of future tax losses. Earnings per share, $1.88 a share. Balance sheet remains very strong with net cash of just under $670 million and $669 million for the year. Net tangible assets were up 12% to $11.25 a share and we declared an unfranked final dividend of $0.40 per share. That brings our total distribution to shareholders for 2024 to $0.76 per share, including the share buyback equivalent of $0.36 a share. So unfranked dividend tops up the $0.36 share buyback, bringing our total distribution to shareholders for 2024 to $0.76, which is up on the prior year. We also delivered a strong safety performance for 2024. So turning to Page 7, when we -- a little bit more detail on our volume. You can see from the graphs on that slide. Our overall volume was down 5%, as I mentioned. Market conditions were softer, mainly due to a slowdown in activity in the residential housing market and the backlog of work in that channel dissipating. Capral also reduced -- experienced reduced demand from aluminum resellers as import supply chains returned to normal. The demand remained solid in our industrial markets, which allowed our manufacturing plants to run at good levels of efficiency throughout the year. This industry diversification has supported our volume during the housing downturn. And our exposure to the housing market has reduced by 5 percentage points to 39% over the last 5 years with a corresponding increase in exposure to the industrial sectors. And as I said, that certainly helped this business -- helped our business get through this current downturn in the housing market. As you can see from the pie charts there just on the middle donut, you can see that the industrial market now represents close to 50% of our total volume. We see a wide range of applications in there. The biggest single market still in single markets are still residential building at 39%, but less exposed than what we previously were. In terms of how we take our product to market, so the donut graph on the left-hand side of that page, almost half our volume goes directly from our manufacturing plants to our large customers, both window fabricators and industrial customers. And the other half of our volume goes through our regional distribution centers and trade centers, of which extrusion makes up 35% and rolled product, which is sheet and plate making up 16%. On the right-hand side of this page, this is a 6 monthly or half yearly volume. And you can see that historically, we've -- the second half of the years have been traditionally higher than the first half in terms of volume as we work towards, particularly in the residential market, strong supply, particularly the window fabricators who are looking to lock up buildings or work for builders prior to Christmas. But in the last 3 years, we've seen a much more balanced flow as that residential market has come off. We do expect -- and I'll talk a bit about the residential market in more detail on the next slide. So moving to Page 8. Housing commencements, so here we are, remains soft. We are expecting a recovery in the second half of 2025. The residential market has slowed, impacted by high interest rates and affordability. Housing starts are estimated to finish 2024 at just under 168,000, which is slightly above the prior year and down around 25% from the highs of 2021 and 2022, obviously, post-COVID years, which were highly stimulated by a low interest rate environment and government support. So starts are forecast to lift later in 2025 on the back of reducing interest rates and immigration-driven demand. And the outlook for 2026 and '27 is looking positive for that residential market, albeit we don't expect to see a lot of that kicking in until next year or 2026 year. Okay. Now we turn to Page 9 and just to give you some examples of where our product ends up. So some recent residential projects, so stand-alone housing, one here in WA, a quality residence built by Phil Kelleher Homes and with windows supplied by Busselton Windows using our framing systems. We've got an apartment block there in Queensland, also using Capral's AGS framing systems and then another home using our residential products in New South Wales. On the next page, turning to Page 10, just some examples of some recent commercial projects we've undertaken. The Donnybrook Railway Precinct is a converted railway yard converted into a commercial building there in Western Australia. So it was a notable building. In the center there, the refurbishment of the Southern Ocean Lodge and we're pleased to have our Capral framing systems installed by KR Installations into that iconic lodge. And then a brand new Neil Perry restaurant, the latest one in Sydney, the Song Bird restaurant also got Capral's commercial framing systems used by Arch System in that particular building. Hopefully, some of you will get to experience lunch there and had the pleasure just yet. Turning to our industrial markets, which, as I say, have helped us particularly maintain our volumes during this housing downturn. So it's been very important to us. So that sector has remained solid with broad industry diversification. Transport market in particular has been very strong. And you can see the chart on the bottom left-hand side of that page on Page 11, showing new truck and van builds over the last 12 years and the growth in transportation and building of trucks since 2020 has been at record levels and continues to be so. We expect that to flatten off a bit in 2025 and '26 has been a big build program over the last few years, as you can see. And Capral is a major supplier into that sector, truck building sector. Marine, still good demand for commercial ferries, particularly out of Incat in Tasmania. And the look we're forecasting a lift in defense shipbuilding in the year ahead from Austal shipyards in WA. The solar market has remained steady. This is a tough market for Capral. 90% or well over 90% of solar rail is imported at very low pricing, anodized rail. We're competing with a non-anodized product in the sector. And while we do have a share, we do not have a significant share of this quite large market. However, we are aligning ourselves with future Australian solar panel manufacturers that are being supported by the government Sunshot initiative and that does provide a good future opportunity for those companies, in particular, Tindo Solar and a couple of others that we have aligned with and -- but that's for the future. In terms of industrial construction, the infrastructure investment has been significant and we'll talk about probably in our next 6 months half year results about the Western Sydney Airport. We've been supplying quite a significant amount of product into that new facility. But the standout for us in the past year has been in the cladding sector. Demand continues to grow for facades and sunshades and that's been an aluminum is gaining share in that market. And we'll talk a bit about that later in the presentation. The manufacturing and general fabrication markets remain solid. However, our volume to other aluminum resellers has softened due to the return to imports and supply chains have normalized. However, offsetting that to a degree, we've also expanded Capral's footprint through acquisition in 2024 with the acquisition of 2 trade center businesses, one in Victoria and one in Queensland. And you can see there our industrial volumes continue to be strong relative to where they have been in previous years through the focus we've had on this market growing share. Okay. So turning to Page 12, just some recent examples of projects and builds in particular. So in industrial, there's, as I said, a wide variety of applications and from aluminum seating in grandstands produced by BAB Aluminum in New South Wales, Muscat Trailers, one of the largest truck builders in Australia and based in New South Wales, with primary supplier of the truck bodies and Incat, the major ferry builder in -- down in Hobart, a very good customer for Capral. So I'll now turn to Tertius to take us through the financials for the year. Over to you, Tertius.

Thank you, Tony, and good morning to everyone. So despite the challenges posed by inflationary pressures and reduced volume, Capral has delivered another good performance. Our fully integrated value chain continues to benefit from reasonable volume levels, effective asset utilization and our stringent cost control and prudent capital expenditure practices. So in summary, the key financial highlights for this year encompasses healthy earnings that exceeds our expectations, strong balance sheet and a excellent cash position. So if we look at Page 14 on the metal cost, as you will remember, in 2022, the metal prices, that is the LME plus the premiums reached record levels, placing significant pressure on our working capital requirements. Since then, the LME price has moderated somewhat, but remained volatile due to the global supply factors and geopolitical trade issues that Tony has mentioned earlier as well. In 2024, the average LME price increased by 5% to around AUD 3,600 per tonne and ended the year around $4,000 per tonne. It is currently trading just below $4,400 per tonne and expect it to remain high or a bit higher for the remainder of 2025. Moving to Page 15. Capral's earnings for the year surpassed our expectations, as we've mentioned, with EBITDA at $58.3 million, which is only marginally lower than the prior year after taking into account the $2 million claims provision that we released in 2023. That was a nonrecurring benefit in that year. The higher metal cost and improved selling prices supported the revenue to remain on par with 2023 despite lower volumes. Our lower sales volume had a $1.4 million adverse impact on our earnings and inflation on nonmetal costs impacted earnings by $5.5 million. However, this was offset by the sales price and mix gains as well as cost savings and efficiency initiatives. So you'll be able to see on the graph at the bottom there the price and mix, we had a $3 million benefit as well as the cost savings and initiatives, $2.5 million. So that basically offset inflation exactly. EBIT at $34.4 million was down on last year, predominantly driven by the volume and reduction impact of $1.4 million and the prior year one-off benefit, as mentioned earlier. $3.6 million income tax benefit flowing from additional deferred tax asset recognition for future years. Our net profit after tax of $32.5 million surpassed previous year, primarily attributed to the items above, but also supported by the $3.6 million income tax benefit. Earnings per share at $1.88 is 6% higher than 2023. Also positively impacted by the lower weighted number of shares on issue due to the share buyback program we had in 2024 and 2023. Forward to Page 16 on the balance sheet. Capral's financial position remains strong with a net cash position just short of $70 million at balance date, noting that no working capital loans were utilized during 2024. The cash position allows Capral to continue the share buyback as announced today and also progress our CapEx program and any potential acquisitions that may come our way in 2025. Debtor days outstanding at 43 days is a really good result. Inventory increased due to higher stock levels to support our expanded service offer, combined with the higher metal prices. The average monthly working capital requirement fell by approximately $10 million compared to 2023 to around $93 million. Based upon the higher sales levels and aluminum input costs during 2025, the average working capital requirement is anticipated to increase. Although Capral has no franking credits available for distribution, there are still $72 million in net accumulated tax losses eligible for recognition as deferred tax assets in the future. Turning to Page 17. You'll see that cash generation remained really strong, assisted by a further release, although much smaller than in 2023 of some working capital, especially driven by the strong debtors collection and some timing of payments end of December. This contributed a free operating cash flow of $22 million after outflows for capital expenditure and the 2 aluminum center acquisitions during the year. A total of $12 million was returned to shareholders through dividends and the buybacks during the year. Page 18 shows the capital management for us. This graph shows the progress Capral has made in regard to cash return to shareholders. An unfranked dividend -- final dividend of $0.40 per share will be paid in March and total cash returns relating to the on-market buybacks in 2024 were an equal of $0.36 per share, bringing total distribution to almost 46% of earnings before income tax. Since the start of the buybacks in the second half of 2023, Capral has bought back just over 1 million shares or around 6% of the shares at that point in time and canceled as such. The continued buyback of up to 10% of our shares has been announced and this will recommence on the 3rd of March. And Tony, I think that completes my financial section. So I hand back to you.

Thank you, Tertius. Okay. I will now run through the high-level strategy and finish up the presentation by talking about the outlook for the year ahead. Okay. So let's move to Page 20. Our high-level strategies remain consistent with prior years. We look to build on what we're good at, building on our strengths, which is our product range, our footprint, our scale, our capability and most importantly, our people. We optimize what we do. So we're a business with being better every day is one of our core values and continuous improvement in all aspects of our business is a key focus with a number of projects every year to make us better. And with an eye on the future, we have leveraging these capabilities to develop new -- and develop new products, expand our footprint and into adjacent markets, either organically or through acquisition. So we've -- this is a mantra that we've been following in the last 5 or 6 years. It stood us in good stead and we'll continue to do this as we go forward. So talking just into a little bit more detail on our key segments. So on Page 21, firstly, just talking about our manufacturing operations. In 2025, we will continue to focus on our Smithfield and Penrith extrusion plants. Smithfield is the youngest plant to come into the group a few years ago. We'll continue to focus on upgrading our equipment to improve plant reliability and productivity. We completed the first stage of the Penrith plant upgrade, which was replacing the entire extrusion press in 2023. The second stage, which is to replace the billet furnace and billet saw will be completed in 2025 with the final stages to be completed in '26 and '27. We are also in the process of upgrading our shop floor control systems throughout our manufacturing operations with 4 plants already completed and 2 plants remaining to complete over the next year or 2. In terms of Capral's distribution operations, that's our regional distribution centers and aluminum trade centers, one of our key objectives is to grow our distribution business with the objective being to increase the volume and profitability of Capral's direct-to-market channel so that we are less reliant on other distributors. A new residential framing system was recently launched with a more thermally efficient variant to follow in 2025. During 2024, as I said earlier, we added 2 aluminum trade centers, 2 new ones to the Capral distribution footprint and the acquisition of existing businesses in Melbourne and Brisbane. This makes a total of 4 new sites over the last few years. We continue to seek other opportunities to expand our distribution footprint and into other adjacent market segments. In terms of sales and marketing, we continue to invest in technology to improve our sales effectiveness and service. We've completed upgrades to our website and e-store recently completed. And we've also implemented a sophisticated transport management system to give ourselves and our customers visibility over where their deliveries are. We're also continuing to promote our customer partnerships through our Crafted with Capral series of videos. Turning to Page 22, talking about market development. First of all, lower carbon aluminum. Capral is the only ASI-certified provider of lower carbon aluminum in Australia. ASI is a globally recognized certification body. And this enables Capral to offer certified lower carbon alternatives through our trademark brand, Local and we continue to gain traction in the market with this offer with volumes lifting in 2024 by close to fourfold over the prior year. Turning to solar. I did mention this earlier, but solar is huge in Australia. While we made some inroads in the solar market, it does remain dominated by low-cost imports. But we are working closely with 2 local fledgling solar panel manufacturers who are looking to capitalize on the government-funded Sunshot program. So that is for the future and we hope to form a strong alliance so that we can assist the local manufacturer of solar panels in Australia. The cladding market, the cladding facade sector continues to grow on the back of the new fire standards and also the durability and aesthetics of aluminum products for these applications. In terms of fair trade, imports and antidumping, Capral continues to lead the local industry in the pursuit of fair trade. Key points to note are: we have submitted an application for continuation of measures, antidumping measures on Chinese imports for a further 5 years. As we've advised previously, those measures are due to be renewed at the end of 2025 and we've recently submitted an application for their continuation which is very important. We do have measures also in place against Malaysia and Vietnam and they remain in place until 2028. On a positive note, China recently announced the removal of export VAT rebates, which should lead to a lift in import pricing in 2025. And the big word there is should see a lift in pricing. So while some share gains have been made over the last few years, imports still represent over 1/3 of the total aluminum extrusion market. Now that supply chains have normalized and the international trade flows are in the state of flux, it is even more important that we continue to fight to retain a fair share for the local extrusion industry, which contributes over 2,000 direct jobs to the Australian economy. Okay. So now turning to Page 23, our sustainability and ESG slide. I'll just pick out a couple of highlights here. Capral's journey to net zero emissions by 2050 and a 20% reduction by 2030 is well on track and progressing well. During 2024, our Scope 1 and Scope 2 emissions fell by 9% as a result of operational energy efficiencies and an increase in the use of renewable energy sources. During 2024, Capral increased its focus on waste management and recycling by introduction of various programs at our key sites. These initiatives led to an increase in recycling and a 12% reduction in waste and we'll continue this program in the years ahead. Capral has enhanced its data capture capability and accuracy and is well placed to meet the requirements of the new climate reporting standards that come into effect for the FY '25 financial year. And for us, that means the year -- calendar year that we're currently in. Okay. So turning to most importantly, our outlook and guidance for the year ahead. So firstly, talking about the residential market. Forecast for the residential market show detached housing approvals lifting later in 2025 as interest rates start to fall. And obviously, there's strong pent-up demand for housing. We just need the right mechanics in the market to enable it to happen. So total residential starts in 2025 are forecast to be slightly higher than 2024. However, the pipeline of work to sustain volumes over the past couple of years has now been completed. So we're not really expecting to see any significant benefit from the sector until late 2025 at the earliest. The nonresidential market is forecast to be steady in 2025 as are our key industrial sectors. So overall, we're expecting our earnings in 2025 to be broadly in line with the prior year. LME is volatile and subject to international influences, as you'd be well aware. The threat of tariffs by the newly elected U.S. government led to LME soaring in early 2025 to its highest level since the Russian invasion of Ukraine in 2022. Based on external forecast, Capral expects LME to remain at elevated levels throughout the coming year on the back of higher global demand and increased uncertainty. This will lead -- inevitably lead to an increase in our working capital levels in 2025. The recently announced 25% tariff by the U.S. government on steel and aluminum will not have a direct impact on Capral. However, it could influence international trade flows and Australia must be vigilant in maintaining a robust antidumping regime to ensure a level playing field for local manufacturers. So just to expand on that for a minute, the tariff on steel and aluminum into the U.S. not only affects primary aluminum coming out of the Australian smelters and those smelter -- and the U.S. represents about 10% of the volume from those smelters. But that tariff also applies to aluminum extrusion and sheet and plate, but really importantly for us, aluminum extrusion going into the U.S., which will ultimately see a redirection of trade flows around the world where aluminum out of Asia and in particular, China will be looking to new homes -- for new homes for those exports if they're blocked out of the U.S. market. And unless we've got a vigilant antidumping regime in place here in Australia, we potentially -- it could be heading our way, albeit, as I said earlier, imports do make over 1/3 of the market already. We're already competing against it, but we just don't want to have dump product coming into the market that will make it really difficult. Inflationary cost pressures will continue to impact in the year ahead. Obviously, in the last few years, we've got higher wage inflation, certainly higher energy prices, higher freight costs. To-date, we've done a pretty good job of being able to recover at least those partially through price increases and cost reduction. It's going to get harder in the years ahead. So the overall market for Capral's aluminum products is forecast to remain steady during 2025. We expect to retain a good proportion of the post-COVID market share gains from imports and we do expect to see towards the end of the year, a lift in activity in that housing market. So on this basis and at this time and absent any unforeseen events, we expect earnings for 2025 to be broadly in line with prior year. And on this basis, Capral should be in a position to continue to return capital to shareholders we've already announced by way of share buyback and topped up with unfranked dividends as required. So thank you for listening to our presentation this morning and we're now happy to answer any questions and do our best to answer those that may be coming through.

[Operator Instructions] Your first question comes from Andrew Johnston from MST Acces.

Congratulations on a cracking result. So I just want to just sort of bury into some of the details around that. Can you just talk through the surprise between -- or the increase in the result from the guidance in mid-December to what you delivered?

We advised in December that we would be at the top end of the guidance. And December is always a tricky month being a short month, we -- so our result came in a little bit better than that. We -- the market certainly in November, December have held up a little bit better than expected and we were able to push that number up slightly above that top end of guidance. So nothing particularly stand out there, Andrew, just a continuation of the solid results throughout the year.

And I'll just ask -- if I can just ask 2 more short questions and then I might come back with some more. But the 2 Trade Center acquisitions, did they make a significant impact on your revenue or your EBITDA?

Look, they added positively in the year. I think the first one we took place around was in the second quarter and then the one in Queensland was in the third quarter of the year. So they did have -- they did lift, yes. So there was a contribution probably just in excess of $1 million from those 2 acquisitions contributing to the earnings in the 2024 year.

That's to EBITDA or to revenue?

EBITDA.

EBITDA. Okay. And Slide 11, Tony, I don't think -- I'm not sure -- you may have done -- may have put that chart in before, but just shows industrial volumes. And I thought it was interesting, there was that peak back in 2021.

Yes.

What was the driver for that peak? Because it wasn't -- it doesn't look like it was new truck and van builds because that had...

No, no, no. I don't think, Andrew, that...

They're pretty very steady.

Very simple answer to that question. That peak came from other aluminum resellers who weren't able to access imports at that time.

Of course. Okay. During supply chain disruptions during the course.

That's correct. You see. So that was where that peak came from. You can see that it came back to probably normal in the year after. But as I said in our presentation, this year and the year before, quite a bit of that volume is migrated back to imports from those aluminum -- other aluminum resellers.

[Operator Instructions] You do have a follow-up question from Andrew Johnston from MST Acces.

Yes. I might as well ask a couple more questions. I've got to say, guys, this is an extremely busy week. It seems way busier than previous reporting seasons. So I think everyone looked at your results, saw cracking result. Let's look at some of the others are perhaps a little more tricky. If I can just go to your -- one of the measures I look at to try and understand your top line is gross profit per tonne. That's -- the last couple of years, that's just continued to surprise me on the upside. Is there anything particular in that? Or is it really just a reflection of all the things that you've been doing to drive the margin that you can extract from your sales?

Yes. Look, that's a good observation, Andrew. And the answer to that is -- I won't say simple, but it's twofold. One is that as our business has become more consistent and a more reliable supplier and a better supplier to the market, we're able to -- our service levels do allow us to attract customers that are more sticky to us and value what we're able to provide. We've invested in value-adding capability over the last 5 or 6 years. Also we do routing, we do cutbacks. We do some processing that does enhance our margins. But probably the biggest factor apart from our increased reliability and offer to market has been the mix of product -- the mix of our sales. So our lowest margin sectors are the major window and door fabricators who service the residential market and other aluminum resellers naturally. So that's where they are typically large customers buying directly out of our factories at very competitive type pricing. And as you -- as we've just spoken about, the residential market coming off and with those resellers going to -- back to imports, the mix of our business has moved more to, I guess, the small to medium-sized customers where we do make a better margin generation. So that's reflected in our average -- improvement in our average margin per tonne.

Okay. And your -- and to what extent has been -- forgive me for the -- I've forgotten the name of your proprietary framing product.

Capral Building Systems, yes.

Yes, Building System.

We've got a number of proprietary systems within that range, either AGS or Urban and Amplimesh as well. So they're all proprietary window and door and security framing systems that we take to market. And yes, we have grown our share of that market, which is probably the highest margin returning part of the aluminum industry in Australia.

But most of that -- a lot -- the higher proportion of that product goes into residential, would that be right?

No. It's a proportion of it goes into the -- not the -- it doesn't go into the project housing market. It goes into the more, I guess, bespoke building market, but also primarily into the commercial building market.

Right. Okay. So that's also benefit from...

When we're talking in commercial building, we're talking apartments, low-rise apartments and also some of those commercial buildings you would have seen on that page.

Okay. So I mean, part of that is the swing away from the commercial -- away from the project housing with a weaker housing market.

Yes.

But also if we see a swing -- if we see an improvement in low-rise apartments, then you should get -- you should be able to pick up some additional building system sales through that over the next 18 months as housing improves as well.

Correct.

Okay. Excellent. Your CapEx, $11 million, that's a bit higher than normal. Is that really just to tidy up -- finish off some of these projects that you mentioned, Penrith, et cetera? Or should we expect $11 million sort of for the next few years?

Look, $11 million is at the high end. We'd expect that to come back down probably to the $6 million to $7 million in the year or 2 ahead.

Okay. And just finally, if I can get in one more, please. I'm fascinated with the imports on the solar rail business and you sort of would hope that we could actually start manufacturing this product here. But are they somehow avoiding the antidumping regimes? Or are they coming from a different region? Or why is it so hard for us to compete in that space?

Yes. There's 2 reasons why it's hard for us to compete in that space, or probably more than 2. But first of all, the distributors in that sector are -- a number of them are Chinese-owned who have relationships with extruders in Southeast Asia, in particular, China. And the product that is traditionally used for solar rail applications is anodized product. That anodizing process, we closed our anodizing process down in 2019 because it is highly energy-intensive. The discharges to waste are high and also most importantly, from a cost perspective, highly labor-intensive. So when you've got high energy costs, high waste disposal costs and high labor costs, it makes it very, very difficult to manufacture product in Australia. So we closed down our anodizing operations in 2019 at Bremer Park. So that -- the solar rail typically comes in anodized. So we are competing with a non-anodized mill-finished product against an anodized product, which has been the market acceptance. And given the fact that those solar rail distributors are largely -- most of the largest ones are Chinese-owned, it's difficult for us to break into that distribution channel with a non-anodized product. So we have made some ground into some of the Australian-owned suppliers, but we've really struggled in the bulk of that market. So the initiatives I'm talking about here going forward are not to do with solar rail. They're more to do with solar panel manufacturer, where there is obviously aluminum framing around the solar panels. And that's what we're looking at in the future. But that's some years away until those programs come in. So no, it's not particularly around avoiding antidumping. It's more around the nature of the product and who owns that distribution channel.

Hope to compete with a non-anodized product? I mean is there -- are there performance issues?

No, no, it's really aesthetic issues to bear. There's no performance issues.

Right. Okay.

And on the top of a roof under a solar panel, you wouldn't have thought that aesthetics would have really come into play, but they do. This is the way it has always been.

It's sort of just -- is it more of a historical sort of fashion…

Yes.

Rather than any -- okay. Okay. And the building industry, those things often take a long time to change, right?

They do, yes.

Your next question comes from Rohan Koreman-Smit from Forsyth Barr.

Just a question, if I may. I was just wondering if you could provide some color on the competitive landscape in the kind of industrial portion of your business. Do you think you're taking share? How are the competitors or who do you think you're taking the share from, if you are? And I guess, how do you think the competitors are, I guess, generally reacting in that space? I'd just be interested to hear your thoughts on that.

Yes. Look, thanks, Rohan. Good question. Look, I think we made a really concerted effort during that COVID period to create relationships with large industrial end users, some of which were importing at that time. And obviously, with the impact of the supply chain disruption through that period, we were able to develop those relationships and cut dies and grow our share of that sector and become a reliable supplier to some large industrial users that were importing. So that's the first part of that. We've also -- given the fact that we've grown our industrial distribution footprint, we've grown our share as a result of that growing through acquisition those -- that footprint. And some of the other key competitors in this area such as Ullrich and Vulcan or Vulcan acquired Ullrich. Vulcan, as you know, are largely historically a steel distribution business. Their acquisition of Vulcan and they're going through a rationalization of their network and they are selling steel and aluminum alongside each other in those facilities. And that's created as they're going through their rationalization of their business, that's also created a few opportunities in the -- over the last couple of years to expand our share. So those are probably the 2 big areas that we're focused on. Did I answer the question?

And do you think in the distribution game -- yes, no, good answer. I was just wondering in distribution and aluminum, is service level what you guys are largely competing on? Or do you think there's a decent amount of price competition as well?

Yes, certainly, there's a decent amount of price competition for sure. It's not -- it is competitive. But we're at an advantage against most of the others in the market in that we can supply a direct mill offer at a competitive price and we can offer a distribution offer at a higher price through our distribution centers. So we can -- if customers have large quantities of a certain shape that they want to produce, then we can offer that mill direct at a competitive price and compete against imports or we can offer -- if they require a next-day service delivery, we can hold stock and service it that way. So there are not too many others, in fact, we're in a pretty unique situation to be able to offer that in the Australian market. And that's one of the key benefits of dealing with Capral is that, yes, you can have your cake and you can eat it too. So we've got an offer that's difficult to replicate.

There are no further questions at this time. I'll now hand back to Mr. Dragicevich for closing remarks.

Well, thank you, everyone, for your attendance this morning. I hope you found the presentation informative and on behalf of Capral, thank you. And look, we're very pleased with the results and being able to produce a really good -- some really good financial numbers in what is at the bottom of the housing downturn is something that Capral hasn't been able to do in the past. I don't think we're completely out of the woods. I think 2025 is going to be another challenging year, but the prospects in 2026 and '27 as the residential market kicks back into life, we're in really good shape. So thank you for attendance today and look forward to catching up in 6 months' time as we present our half year results. Thank you.

And that does conclude our conference for today. Thank you for participating. You may now disconnect.