Thank you. Good morning, Tony Dragicevich here, CEO of Capral. Welcome to Capral's first half 2022 results presentation. I'm here this morning with our CFO, Tertius Campbell, who will also present part of the presentation. It's pleasing to be able to put forward a very strong set of financial results for the half. Before we dive into the results, for those new to Capral, we'll do a quick overview of the business. Capral is Australia's leading supplier of aluminum extrusion and rolled products. We have six manufacturing plants throughout Australia. Eight extrusion presses with an annual capacity of 65,000 tons. In addition to our manufacturing operations, we are the largest aluminum distribution business in Australia, with eight regional distribution centers and 12 aluminum trade centers.
Our key markets are residential and commercial construction, and also a wide range of industrial sectors. Overall, we supply around 26% of the aluminum extrusion market here in Australia. Turnover in the last 12 months, around AUD 680 million, and over 1,000 employees currently, including contractors. What are we gonna talk about this morning? I'm gonna run through the highlights of the first half and talk a bit about the market and how we see things. Tertius will then run through the financials for the first half of the year, and then back to me for some high-level strategy comments and outlook and guidance. Turning to the first half highlights.
In a nutshell, our volume remained strong in all our key market segments in the first half of the year. However, demand has started to soften. After a record 2021 year, those market conditions remained strong for most of the first half. As I said, the demand has started to soften in the second quarter of the year. Turning to the highlights for the first half. We're pleased to present a record first half result for Capral. Our manufacturing plants continue to operate at close to capacity, and our volume for the first half of the year was on par with the same period last year.
However, due to record high LME prices, the global aluminum prices, our sales revenue increased 34%, and our underlying EBITDA was up to AUD 31.6 million, up 28% on the corresponding period last year, driven by improved sales mix and margin in particular. With an underlying EBIT of AUD 21 million, up 41% on last year. Our earnings per share at AUD 1.05 was up AUD 0.25 on the first half of last year, and our net profit after tax at AUD 22.2 million included a 3.5 income tax benefit recognition. Tertius will run through a bit more of the detail of that. The board of the company has declared interim dividend of AUD 0.20 per share, fully franked.
Our balance sheet at the end of the half of the year finished with a net cash position of AUD 34.9 million. Just to summarize the performance for the first half, we saw strong volume, which created high operating leverage in our manufacturing facilities. Improved sales mix and margin that all combined to lift profitability to record first half levels. Our safety performance continued to improve, 5.5 injuries per million hours worked. It was an excellent result, compared to our peer industry average of 9.8. Very pleased with that. We just turn to the next slide and we talk about Capral's volume, volumes to market. As I said earlier, our sales volume for the first half was on par with last year.
We go to the bottom left-hand corner of this slide where just to remind everyone that Capral's volume is 85% extrusion, which is primarily made in all of our manufacturing plants throughout Australia. We also are the largest importer and distributor of rolled product, rolled aluminum product, which is sheet and plate, contributing around 15% of our total volume. As you can see, our channels to market in the top left-hand corner, 58% of our volume goes directly from our manufacturing plants to our large mill direct customers. With the balance of our volume, which is a bit over 40%, both extrusion and plate, going to our own distribution channels to the small to medium customers in the market.
In terms of industry exposure, as you can see here that residential and commercial buildings, which are the green parts of that pie chart in the middle of the slide, represent 56% of our total volume and the primary end products in those sectors are Windows and Doors, but there are a number of other products, end products such as slat fencing, sun shading that also fall into that residential and commercial segment. We've got our industrial segments which represent around 44% of our end volume. Obviously, all of the sheet and plate that we supply into the market ends up in that industrial segment, as does a large part of our extrusions.
The major segments for us in terms of industrial, just to remind everyone, are the transport industries, the marine industries, and general fabrication and manufacturing. A wide range of diverse industries that make up our industrial segment. In the first half, our volume was supported by buoyant conditions in the housing market. Infrastructure investment in commercial projects were driving our industrial sales. Some resellers and other aluminum resellers and solar rail distributors resumed importing particularly in the second quarter of the year as the supply chain problems eased. Right-hand corner of the slide represents our half-year volumes compared, you know, to each half year. As we can see there, our volumes were same as the same period last year.
Typically, in Capral, well, in our industry, the second half volumes are higher than the first half. That will be a little challenging in the second half of this year as a bit of the heat has come out of the market and some of the other aluminum distributors have, or resellers have started to resume their import programs to a degree. Turning to the residential market, the single largest market that underpins our volume. While that market is starting to slow, the pipeline is strong. Our customers are telling us that builders have a strong pipeline of work which will take them through to at least the middle of next year. We're expecting that the demand from the residential segment will continue to underpin our volumes for the next 12 months.
However, the housing starts are down. Clearly interest rates rising, removal of government incentives, we're starting to see approvals start to fall. For this year, the forecasters are saying that the detached housing in particular will be down by 14%, on what it was in 2021. Now, much of this anticipated drop in starts is forecast to occur in the second half of the year. As I said earlier, the pipeline is strong as builders are spreading this workload out over the next 12 months. The next slide shows a good representation of where Capral's products end up. These are in commercial and residential projects that we've completed in the last six to 12 months. It just gives everyone a really good understanding of where our products finish.
In the top left-hand corner, we've got a student accommodation down in Tasmania. Windows were fabricated by a large customer of ours in Tassie, Hobart Glass. This represents our Commercial Window Systems into this student accommodation. Top right-hand corner is a residential home in South Australia with our Schüco, which is our European Window Systems that we have licence for. Bottom left is a commercial building here in Sydney. It's an office building, and it has our Capral Commercial Curtain Wall projects in those windows. Bottom right-hand corner is an Aged Care facility in WA, which contains a commercial Capral's Commercial Window and Door Systems in that Aged Care facility. A really good example of a range of residential commercial projects where Capral's products are used.
Now turning to the industrial markets in which we operate. This market has remained strong. The graph at the top left-hand corner is an index of Capral sales since 2012. As you can see, we had strong growth from 2019 - 2020 as COVID restrictions were lifted. A nice lift in volumes in last year, and that's been maintained into 2022. Just running around the key segments in this. The marine market's pretty steady. However, commercial ferry builds have slowed, particularly in Western Australia. Our main customer in Western Australia, which is Austal shipyard. However, they are very busy producing defense boats for the defense industry.
The solar market where we supply solar rail to fit under solar panels and on the roofs of houses in particular, residential homes. Wet weather conditions and increased imports reduced demand for local supply in the sector, and that's an area that we will continue to focus on going forward. Industrial construction remains solid, underpinned by infrastructure investment and also the growth in the cladding sector as rectification activity starts on a number of non-compliant building cladding sector. In terms of general manufacturing, the markets remain pretty steady and solid. Resellers in the industrial sector, as I said earlier, the volumes to these industrial distributors softened as their import programs resumed as a result of the supply chains returning somewhat to normal. The transport market conditions remained very strong.
As you can see on the right-hand side of the slide, the transport sector, new truck builds posted a record first half and, the government stimulus programs, certainly the Instant Asset Write-Off program and infrastructure investment has led to continued growth in our, in the new truck market. In addition to that, a strong grain season is forecast with all of the weather that's been about and the optimism supports ongoing high activity levels that we expect throughout the rest of 2022 and into 2023. Let's just turn to the next slide. Some really good examples here of projects we've recently completed where our products, Capral's products were used. Transport, top left-hand corner, Holmwood Highgate, a tanker produced in Queensland.
Capral's extrusion products and our plate products are used to form this tanker. That's a typical application in the transport market. Top left-hand corner is Capral Seating Systems used in an Equestrian Center on the South Coast of New South Wales. Bottom left, on the Great Barrier Reef, a Pontoon for obviously tourism out on the reef manufactured by English Engineering, a large customer of ours in North Queensland, and that contains all marine-grade plates supplied by Capral as well as marine-grade extrusion supplied out of Capral's operations as well. Bottom left-hand corner, for those of you that have been to Tasmania, the largest tourism spot or attraction in Tasmania in recent years has been the Museum of Old and New Art based in Hobart.
To get there, those that have been, there are two of these Catamarans produced by Richardson Devine Marine in Tassie, locally in Tassie. These ferries take those attendees to the museum for around about a half an hour ride down the Derwent River to the MONA. For those who haven't been, I highly recommend it. This year, our industrial marketing team has developed a number of case studies, and part of those case studies, we term Crafted with Capral. They showcase where Capral's products end up. We use these case studies in conjunction with our customers to highlight the Capral brand via various social media and EDI marketing into relevant segments.
What we have for you this morning is an excerpt from one of those videos, one of those Crafted with Capral videos, which we'd just like to now show. It headlines the CEO of Richardson Devine Marine, Ron Devine. If we can show that video.
Our guys are very skilled. They're very proud of what they achieve, and especially when they see it operating here in Tasmania and Japan, Africa, New Zealand, Caribbean, everywhere in the world. We've been involved with Capral from the very beginning, really, 30 years ago. They supply us with all our extrusions, specialist T-bars, flat bars, specialist extrusions that we build the boats out of. Over those 30 years, those products have grown to a very comprehensive lot of materials that make it easier for us to build the boats.
It just gives you a bit of an insight into some of our marketing material and the way we're going to market in the industrial sector and these, Crafted with Capral, videos and PR releases and trade that we present in trade magazines and other form of online media have been very popular with our customers, and it's a good way for us to get our name out there in these various market segments. That's the first part of the presentation, just running through, you know, how, you know, at a high level, how we've performed and what our key market segments are. I'd now like to hand over to Tertius Campbell, our CFO, to run through the financials.
Thanks, Tony, and good morning, everybody. I agree with Tony. It was a very pleasant result indeed for the first half. Capral delivered another very strong performance. Our integrated value chain benefited from the high volume, good asset utilization, strict cost control, and disciplined capital expenditure. Overall, the key financial outcomes for the half year were very strong earnings, solid balance sheet, and a comfortable cash position. Turning to the profit and loss, Capral's result was significantly better than the corresponding prior year. Even though our sales volumes were only marginally up on last year, in combination with a higher LME price of aluminum and an improvement in the margins led to a revenue growth of 34% on last year, delivering an almost AUD 6 million positive impact on our underlying EBITDA.
The high demand ensured good utilization of our production and warehouse facility, providing a high operating leverage. These gains were partly offset by inflationary impact and cost increases in line with the activity levels. Underlying EBITDA at AUD 31.6 million is 28% better than last year. Our Bremer Park facility, after the 2019 restructuring, is producing positive earnings in line with our expectations and will continue to deliver improved outcomes. Our underlying EBIT of AUD 21.3 million is a AUD 5 million improvement on last year. In line with expectations of sustained future earnings, Capral started recognizing additional deferred tax assets in 2020 and also in 2021. We've now recognized a further AUD 3.5 million in this first half. Net profit after tax, AUD 22.5 million represents a growth of 41% on the first half last year.
Our underlying earnings per share of AUD 1.05 grew by 31%, supporting the payment of an interim dividend of AUD 0.20 per share. Overall, Capral's financial position remains strong and we ended the half year with a net cash position of AUD 34.9 million on the balance date. High sales volumes and record high global aluminum input costs led to higher selling prices and thus also higher receivables. In addition, the very high activity level, combined with a rebuild of our low, in some cases depleted, stock levels at the end of last year, due to the high sales in the second half of 2021, required us to increase our stock levels and at a higher aluminum cost per ton.
Our overall working capital requirement increased around AUD 28 million year-over-year and is expected to start moderating during the second half and also into 2023. Obviously dependent on the sales levels and the aluminum input cost in the second half. Important to note is that our working capital ratios remain well below the historical averages. Capral has around AUD 10 million franking credits available for distribution, of which AUD 1.5 million will be distributed with this, the dividend next month. A further AUD 160 million accumulated tax losses are still available for deferred tax asset recognition in future periods. Our cash flow shows strong earnings offset by these working capital increases I've just explained. This led to a low but a positive operating cash flow.
In addition to the AUD 4.7 million spent thus far on the CapEx program, as we outlined earlier on in the year. A net AUD 6 million was paid as dividends during this first half. Short-term, trade loans were entered into to fund the increased working capital, but these will be repaid as cash gets released from inventory and receivables over the next six - 12 months. In closing, following the strong outcomes, the interim dividend of AUD 0.20 per share will be paid in September. However, even though cash preservation is important to the board, the board has decided that the DRP will not be active for this interim distribution. With that, I'll hand back to you, Tony.
Okay. Thank you, Tertius. It's always good to talk to a good set of numbers. I'm just gonna spend a few minutes talking about a high-level strategy, just the key points of where we're going as a business. We've invested significantly in the last couple of years in plant and our manufacturing operations and also in our distribution operations. I'll just touch on a couple of those key strategies in the next slide. Overall, our strategy is to improve our productivity and competitiveness and to do our best to retain the market share gains we've made over the last couple of years, particularly against imports. In terms of our manufacturing facilities, continue our process improvement programs at all of our extrusion plants.
Maintenance capital spend to ensure that the plants are ongoing, reliable on ongoing basis and maintain high levels of efficiency. Progressively upgrade our shop floor control systems to a common platform around all of our plants, and that should be complete in, by the first quarter or first half of next year. We have a major upgrade underway, starting in the fourth quarter, of our press extrusion plant at Penrith. The first part of that CapEx being AUD 4.5 million spent on rebuilding the press at that plant. That'll take place over the December-January period this year. In terms of our distribution business in particular, we started the release of our new Window and Door product range to market late last year, and that rollout will complete in 2022.
Not only just the range but also the system software that supports that, and we're moving to a new, brand-new release of software for our fabricators. Our range, Capral's range has been enhanced by the acquisition of the assets and rights to the EDGE high thermal performance window system range, which we acquired from a local competitor based in Victoria. That acquisition was around the AUD 700,000 mark and will complete in the next few weeks and probably over the next month, as we bring that equipment and that inventory into our business in Victoria. That'll position us very well for the future, as the requirements for more efficient residential dwellings and commercial buildings increase over the next few years as a result of climate change initiatives.
The installation of a new paint line in New South Wales and our New South Wales distribution center here in Sydney is on track for the fourth quarter. In fact, all of the equipment has arrived on site and commissioning and installation will start in the next few weeks. That investment is around AUD 3.5 million-AUD 4 million. Our long-term goal is to grow Capral's direct distribution channel and have less reliance on the reseller channel here in Australia. That's our long-term goal. We're on that journey and our distribution business and sales are growing quite nicely over the last few years. We continue to invest in technology to ensure that we're as effective as we can be on the sales front with both EDI, CRM and digital marketing being widely used throughout the business.
We're continually upgrading our website and our e-store, and that's progressing as we speak. We continue to seek opportunities to expand our regional trade center footprint. When you read through our results presentation or in Appendix 4D in detail, you'll see that subsequent to balance date, we've entered into agreement to acquire an aluminum trade center in Southeast Queensland. That cost is around AUD 1.6 million, so it's a relatively small center, but it's geographically located in an area where we see opportunity and we aren't well represented. We'll continue to seek those opportunities over the next 12 months to two years as they come up.
In terms of the solar market, we spoke about solar rail distributors returning to imports through the period as those supply chains stabilized. We do have a relationship with the largest solar rail distributor in Australia and we, you know, very keen to continue to foster that and grow that as local rail into that, you know, fast-growing sector. Capral is this approved supplier to all the major defense contracts and while there's not a you know, huge volumes of aluminum used in the defense projects, which typically are steel, particularly in shipbuilding, but there is a fair quantity, a reasonable quantity of aluminum and we're approved for those projects.
We spoke about the cladding sector briefly in the industrial segment. We continue to work with cladding system suppliers to address the new fire standards around both commercial and residential facades and those recladding opportunities as some of those non-compliant facades are replaced over the next five-10 years. A quick comment on imports and anti-dumping. You know, clearly one of our major strategies is to retain the market share gains we've made over the past 18 months post-COVID. We have...
We believe we're in a very good position to retain the end user volume, the fabricator volume that we've acquired during the last 18 months, and we've developed very strong relationships with manufacturers and fabricators that were previously importing and we're in a very strong position to retain that business going forward. However, when we're supplying to the aluminum reseller market, to the other distributors, then those volumes become less tied to us. We'll continue to supply that market and hopefully retain a good share of it based on our level of service. Also the price differential between local product and imported product is relatively marginal due to the higher freight rates that are pervading for imports and have done for some time now.
On the anti-dumping front, it was disappointing that the Anti-Dumping Commission did not continue the measures in place. They were in place on Malaysia and Vietnam. We have appealed that decision. We believe it was very short-sighted. The Commission, Anti-Dumping Commission, found that there was continuing dumping of imports from Malaysia and Vietnam. However, given the buoyancy in the Australian market, that they did not find any injury in the period that they reviewed this to local industry. We've appealed that.
We think it's very short-sighted and while Malaysia and Vietnam are not significant suppliers or haven't been, you know, overly significant suppliers to the market for the last two or three years, you know, we're not happy with the decision at all, but we believe we've got very good grounds to appeal. We've initiated just in the last month a review of the duty rates, the variable measures on Chinese imports. Bearing in mind that we have measures in place until towards the end of 2025, so for another three years on to run on Chinese imports. The duty rates were set at a time when the LME was relatively low.
We're able to apply for a review of those measures, which is not subject to any injury to local industry issues, and those measures will be reviewed as a matter of course by the Anti-Dumping Commission over the next three to four months as they complete that review. Okay, now we move on to sustainability. Capral sustainability journey started a bit over three years ago with the development of a sustainability committee within the business from all areas of our regional and different operations within our company. At the beginning of this year, the board and the company set a target of net zero by 2050 for our Scope 1 and Scope 2 emissions, and we've been very active in driving best practice throughout the business.
The key focuses for us are clearly on energy. You know, we are a reasonable energy user, both gas and electricity within our manufacturing operations and also in some of our distribution operations. Energy waste, paper, and purchasing are the four key pieces that we're focusing on. The highlights for us in the first half was the entering of the first of its type, a scrap recycling agreement with the Tomago Aluminium smelter here in New South Wales, where we're taking production scrap out of our extrusion plants in Sydney and sending them up to the Tomago smelter just on the other side of Newcastle for re-melting into the process.
First time that's been done in Australia, and we believe that this is a real opportunity for not just Capral but for other aluminum extrusion businesses in Australia to really get that circularity of scrap recycling into our businesses, into the economy here in Australia. Up until now, every scrap of aluminum that's produced, either in the manufacturing process or post-consumer aluminum, is exported to other countries, predominantly Asia and Europe, and also New Zealand for re-melt. We invested AUD 1.2 million in a solar renewable energy solution for our Campbellfield site, which will generate around 20% of the site's energy consumption going forward. That installation is taking place as we speak.
We've replaced 400 high bay warehouse lights at Bremer Park, saving our lighting consumption by 45%. We've joined a global organization called the Aluminium Stewardship Initiative, ASI. We joined that association in the first half, and we will be progressing a certification process over the next 6-12 months, which will enable us to provide chain of custody to provide more low embodied or green aluminum to the market as required going forward. We've also joined MECLA, which is a local Australian organization, and that organization is focusing on reducing more sustainable aluminum or more sustainable products in the built environment here in Australia. Obviously, we're focusing on aluminum. That's sustainability.
Moving to probably the topic that's consumed us the most over the past six months or so is the ride we've been on with aluminium pricing. Aluminium prices are at a record high, not just the LME, but also the premiums that we pay here in Australia and internationally as well. The LME, which is the dark green part of this graph, represents the majority of the cost of our metal cost or import cost in our manufacturing environment. In addition to the LME, we also pay both a regional premium and a billet premium. The regional premiums change every quarter, and they're up 78% for the first half of this year.
The Billet premiums, which are negotiated with the smelters, on an annual basis, which is for the first time in a decade, we saw a significant increase in Billet premiums to apply for 2022, given the demand that was in the market in 2021. However, the major part of the metal cost is LME. It increased 30% during 2021 to just under AUD 3,200 a ton. Due to very high global demand, as all of the major economies throughout the world were driven by stimulus by their governments, we saw a lift in demand globally for aluminum, which has now subsequently eased back as those programs have been pulled back, as inflation has started to run rampant in parts of the world.
However, during the last six months, we saw LME increase sharply during the first half to a record high of $3,660-odd a ton in the month of March. That was driven by speculation of an embargo on Russian aluminum as a result of the Russian invasion of Ukraine. Russia makes up around 10% of the world's aluminum supply, and if an embargo was to have been put in place on that, on Russia, then that would have driven a shortage of demand worldwide. As a result, the speculation of that happening drove LME to that very high peak. However, that did not eventuate, and there are, believe it or not, no embargoes on Russian aluminum throughout Europe or the U.S.
LME has since declined sharply since that peak in March and subsequent to this is to the end of the second quarter of the year, and also in July and into August, it has fallen further so that the LME is now back to where it started the beginning of the year. However, still relatively high in historical terms. We expect that decline to moderate in the second half of the year. Turning to the outlook and guidance. Capral's just worth pointing out that our operations continue to be impacted by COVID and flu-related absenteeism. In fact, the absenteeism rates over the last quarter have been the highest they've been over the past couple of years. That is slowly starting to settle down.
Now, obviously, with the borders opening up and Western Australia now becoming part of the nation again, we're starting to see you know increased absenteeism through those operations in WA as well. Our residential building is forecast to soften during the second half of the year, but as I said earlier, there is a you know strong pipeline of work to complete through to middle of 2023 as our best estimate. Our other key markets, the commercial and industrial markets, are expected to remain at relatively high levels certainly for the second half of the year and into next year. Reseller volumes are falling as import supply chains normalize. We've spoken about that.
The LME peaked at record levels in the second quarter, has returned back to where it started the year at, and is forecast to fall moderately during the second half of the year, as we've just spoken about. Inflationary cost pressures for the first time in a long time are starting to impact. We are in a very good position in terms of our manufacturing operations with our labor agreements, which are multi-year agreements, which we have in place for a number of years, and they are at, you know, relatively modest levels compared to the current inflation rates. Where we are starting to see some real concerns is around energy prices escalating dramatically. Packaging costs, particularly timber related, has gone up, you know, has more than doubled in cost over the past 12 months.
Obviously freight costs with the higher fuel costs are driving our freight costs as well. Those inflationary pressures are starting to impact and I guess we factored all of that in, we factored the volumes in, but we're in a position to confirm that we're maintaining our guidance for the year with our underlying EBITDA expected to be in the range of AUD 53 million-AUD 57 million, with underlying EBIT in the range of AUD 32 million-AUD 36 million. On this basis, Capral would be in a position to continue the payment of a fully franked final dividend. That's it from me and Tertius. That's our presentation for the half year. I think we can now open up to any questions. Tertius, what have we got?
Yeah. We've received a number. The first is the supply of aluminum billet stabilizing?
It's a very good question. In the latter parts of each calendar year, we renegotiate our supply arrangements for the following 12 months, and we have to lock in with the smelters our billet supply. At the time we negotiate, we were negotiating in November last year a supply for 2022. Billet was in short supply. We were able to get our agreements confirmed for what we needed. Given what's gone on in the world in the last three months with global demand softening as a result of governments increasing interest rates due to inflationary pressures, the availability of billet has become freer and there's no issues around supply.
We were already in a position where our supply was well and truly placed for 2022 anyway.
Next question is, thoughts on consolidation in the industry, opportunities, and was Ullrich of any interest?
Well, Ullrich would have been of interest, however, they were sold. The deal was done in New Zealand, and the company didn't come on the market. They're an Australasian company, you know, founded in New Zealand and bought by a New Zealand-based organization. So unfortunately, the Australian operations didn't come on the market. If they had have, certainly would have been interested in the Australian distribution business of Ullrich. But look, there are acquisition opportunities will present themselves over the years ahead and Capral will be a player. There's nothing to stop us. There's no ACCC reasons why we shouldn't be in a position to consolidate the manufacturing base in Australia for aluminium extrusion. There are also opportunities in downstream distribution as well that may eventuate.
Okay. Reseller volumes falling as import supply chains normalize. What is the current or forecast retention rate?
Look, reseller volumes represent something around the 15% of our total volume go to other aluminum distribution businesses. We have always historically supplied other distributors because we are the largest local manufacturer in Australia, and our service levels are high. When supply chains became highly disrupted post-COVID, and probably up until you know three or four months ago continued to be so, those distributors place more reliance on local supply. Our ability to retain that is largely out of our control. All we can do is maintain a competitive price and a high level of service, but bearing in mind that these aluminum distribution businesses were largely founded on import supply, that retaining it completely was you know was probably never gonna happen given that they needed to maintain those supply lines going forward.
Okay, next question is: can you talk about the quantum and number of price increases you are putting through in the second half of 2022?
Well, that will probably be zero. Our prices have gone up multiple times in the past 12 months, and the latest price increase we put through was effective 1st of May. Since we put those price increases through, the aluminum price has obviously come off. We won't be in a position, you know, there is no requirement to put prices up in the second half of the year in terms of absolute prices. Our roughly 60% of our pricing is back-to-back LME contracts, and we set those spreads, as we call them, on a fixed price per kilogram basis above the LME, once a year, and we do that in February.
Obviously those prices move with the LME on a monthly or quarterly basis, but we will certainly be looking to increase those spreads at the beginning of next year, as inflation starts to bite. There'll be nothing in the second half of the year, but certainly beginning of 2023, we will be looking to increase our spreads to recover inflation impacts.
Okay, the last question here is: I note that the first half dividend represents only 20% payout ratio, and the same as prior corresponding period. What went into the decision not to increase the dividend when earnings increased so strongly?
Look, that's a very good question. Well, I think the easiest answer to that is that our working capital levels have risen steeply as a result of the record high metal prices, the LME driving the record high metal prices, which has seen a significant lift in our working capital levels. Our cash position was relatively unchanged from where it was at the end of the last calendar year. We felt it was prudent to maintain the dividend at where it is for the first half.
You know, clearly if our working capital levels release in the second half of the year or into next year, our cash position will be much stronger, and we would be in a position to review it at that point in time. Really, you know, prudent to maintain those levels where they are.
We've received another question. In relation to energy costs, what are the contract terms for gas and electricity? An example, how exposed are you to the short-term movements, and how much is locked into historical pricing?
Another very timely and relevant question. Given that the major sources of our energy usage are our manufacturing plants, and they're all in different states of Australia, and we tend to have well, we do have individual agreements with, you know, in each operation. Our sites, so the two sites that are currently out of contract are our Penrith plant and our Bremer plant for gas. Electricity, we're locked in for most of our plants for another up to 12 months. The big issue for us has been in the last couple of months is that our Penrith plant and our Bremer plant, our gas supplier, where we were contracted to, was Weston Energy, went into administration.
Which meant that our locked-in contracts no longer applied and we're now on the supplier of last resort pricing and have been for the last two months for the gas supply into both those two facilities. Quite painful. Forget about 10% or 20% increases in gas prices. Under that arrangement, we're looking at a three- to four-fold increase in the short term for those two plants. The gas, which has had an impact so far of probably about half a million dollars of cost over the last few months.
The gas price has moderated, and we are just about to enter into contracts for the rest of the year, which are lower than what we have been paying the last couple of months, but still vastly higher than what they were previously. We believe the impact on our business in the second half of the year will somewhere be in the vicinity of about AUD 1.5 million for the second half, AUD 1.5 million-AUD 2 million for the second half as a result of that gas supplier or energy supplier going into administration. Next year, who knows? It, the energy topic or energy in Australia is a mess is probably too kind a word to use.
You know, getting contracts for electricity and gas going forward at reasonable prices or historically reasonable prices may, you know, be challenging in the new year. Things are changing on a month-by-month basis. Clearly, you know, Russia invading Ukraine has shortened gas internationally, and given the fact that the global gas suppliers that control 90% of the gas supply on the east coast of Australia are exporting Australian gas at much higher prices internationally is not good for the local manufacturing economy. These are issues that are outside of our control and are at the forefront of government focus at the moment.
Hopefully we will see common sense prevail and that local manufacturers and local users of gas, including residential homes, are not too hit by the current challenges that everyone's facing.
Tony, I think it's just important to note as well that unlike aluminum smelters, the energy requirement for our extrusion business is not as onerous as for them. It's around about 10% of our total conversion cost.
It's a bit less than 10%.
Yeah.
Of our conversion cost to manufacture. Yeah.
That was the last.
Okay. Thank you.
Thank you.