Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen or for some of you will be afternoon. My name is Phillip Campbell and I am the Chair of Fleetwood Corporation Limited and will chair today's meeting. Welcome to the 2020 Annual General Meeting. As we have a quorum, I'll declare the meeting open. It is indeed a strange world we are living in at the moment, where we have been forced into a virtual meeting. Let's hope this is not the new normal and trust everything will go okay today. We've done a lot of rehearsing of this over the last couple of days. So our trusted technology works well. I'm very pleased to introduce you to your directors and to some of the senior executives of the company. Joining me from Melbourne on my right is Non-Executive Director and Chair of the Risk Committee, Martin Monro. I'd like to welcome Martin to this -- his first Fleetwood AGM. Mark Southey, Non-Executive Director and Chair of the Remuneration Committee, is joining us from New South Wales. And joining us for the Perth office is Jeff Dowling, Non-Executive Director and Chair of the Audit and Risk Committee; Adrienne Parker, Non-Executive Director and Chair of the Nominations Committee and the Diversity Committee; Chief Executive, Brad Denison; Chief Financial Officer and Company Secretary, Andrew Wackett; and General Counsel and Joint Company Secretary, Elizabeth Maynard. I'd like to start by outlining some of the procedural matters associated with the meeting given we are in a virtual platform. As outlined in the Notice of Annual General Meeting, questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. If you require any technical assistance during the meeting, please refer to the online meeting guide, which is available on the Fleetwood website. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote and in case you are not able to stay for the full meeting, I will now open the voting for all resolutions. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit the submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until I declare the voting closed. I now declare voting open for all items of business. The polling icon will soon appear. Please submit your votes at any time. I'll give you a warning before I move to close the voting. As noted earlier, questions can be submitted at any time. If you have a question already prepared, please submit it now so that I can answer as many questions as possible when I come to the relevant agenda item. I ask that you submit one question at a time and keep them as short and succinct as possible that -- so that many people as possible have an opportunity to ask questions during the meeting. If your question relates to a specific item of business, please refer to that item of business when you submit your question. Please ensure your questions are relevant to shareholders as a whole. A moderator is monitoring the virtual platform we're working on today to ensure there is no repetition. And if questions are particularly lengthy, the moderator may need to summarize them in the interest of time. If you have any questions about the Lumi platform, which we're using today, please see our online meeting guide and call the information line. This is a new experience to all of us, no doubt for many of us as well, and we've worked hard to ensure the website runs smoothly. However, should you experience any technical difficulties, a recording of the meeting will be made available on our website after the meeting. This year, we've decided to just have one address. Given that we're working on a virtual platform, we've decided to restrict just to one address, and I will now give that address. The financial '20 year -- or '20 financial year was one of two halves, a relatively normal half up until Christmas 2019 and then widely unpredictable from then until the 30th of June 2020. In the most part, our people rapidly adapted to remote working. The Accommodation Solutions business actually benefited from the uncertainty abroad, whereas the Building Solutions business experienced some delays in completing projects and in the start-up of new ones. In RV Solutions, we had 2 cases in Victoria where COVID-19 caused the shutdown of some of our manufacturing and distribution capability. In between the 2 lockdowns in Victoria, RV Solutions bounced back very remarkably and since the recent easing of restrictions in Victoria has done so again. I don't wish to dwell too long on the FY '20, this last year, given we're already almost halfway through FY '21. However, I think it's fair to say we delivered a satisfactory performance given the circumstances, with EBITA -- so that's earnings before interest, tax and amortization. So I'll refer to EBITA a few times during this discussion -- with EBITA only slightly down on the previous period and with substantially stronger operating cash flow. This resulted in us finishing the financial year with just over $65 million in cash and being able to reward shareholders with a $0.05 final dividend and a 7% -- $0.07 special dividend. Despite some negative reaction to this return of capital being paid in the form of a special dividend, the overwhelming feedback from shareholders on this decision has been positive. As we near the halfway mark of this financial year and despite continued COVID-19 uncertainty, the Board's confidence is increasing that we will deliver, at a minimum, an FY '20 (sic) [ FY '21 ] first half EBITA the same as the corresponding result last year, and that was $12.8 million. This would also be well ahead of the $9.5 million EBITA recorded in the second half of FY '20, thus comprehensively reversing the trend we saw impact the business during the peak of the COVID-19 uncertainty and disruption. The diverse nature of the revenue streams from our 3 business units, that is Building Solutions, Accommodation Solutions and RV Solutions, has allowed us to weather the impact of COVID-19 and has been -- weathered this much better than most other companies. The importance of an annuity revenue stream from the Accommodation Solutions business is not to be underestimated in protecting the company from often uneven earnings inherent in the construction sector. This is a key reason the Board continues to see Accommodation Solutions as a core asset of the company. In Accommodation Solutions, the Searipple Village in Karratha benefited from COVID-19-related rostering changes in the first quarter of FY '21. That returned to more -- then returned to more normal operations in the second quarter with rostering stability and additional village capacity coming on stream. As Rio Tinto and Woodside commission new fly-in fly-out villages, we expect results in the second half of FY '21 to settle a little. With the level of new mining and new petrochemical construction activity being touted for the Northwest Australia, we are anticipating a significant increase in demand for FIFO -- well, that's fly-in fly-out, rooms at Searipple over the medium term. Our biggest division, Building Solutions, was relatively quiet in the first quarter of FY '21. The Victorian government's mandated COVID-19 restrictions on building activity and the slowing of government decision-making in New South Wales have delayed the start of a number of projects for which we already have orders as well as delaying the finalization of contract terms for some others. Consequently, we are expecting the first half to be relatively flat, disappointing but ultimately satisfactory given the business environment in which we are working. Such disappointment is tempered by our strong forward order book at $117 million, excluding ongoing education panel works. Significantly, compared to its position last year, Building Solutions has revenue locked in by secured contracts well into the future. Our Building Solutions division is a leader in modular construction for the education, corrections, mining and affordable housing market segments across Australia, and the widespread government stimulus spending we are starting to see bodes well for that business. RV Solutions, with its manufacturing and distribution base in Victoria, was impacted in the first quarter of FY '21 by that state's lockdown. But we have seen it rebound strongly in October as restrictions have eased. The business is also expected to benefit over the medium term until -- sorry, over the medium to long term from an increase in domestic travel. Across all business divisions, our leadership team continues to be focused on sustainably improving margins, increasing utilization and reducing overheads. And to my mind, sustainably improving margins is the key point. As you all know, we announced in October that our Managing Director and Chief Executive Officer, Brad Denison, would be leaving us. Brad has made a significant contribution over 23 years with Fleetwood, the past 6 as our executive leader. In my working with Brad since joining the Board in 2016, I've come to admire his tenacity to pursue his steady course of transforming of Fleetwood from a largely West Coast-based caravan manufacturer to a fully national leader in modular building systems. The proposed change of the company name we have before for us today is not the end of that journey but a continuation of that steady transformation. Brad's move has opened the door for the Board to search for an East Coast-based CEO who will be better located, closer to our flagship Building Solutions division manufacturing centers and its core markets. Just a note for shareholders, we have manufacturing centers for the Building Solutions division in Brisbane, in Sydney, in Victoria and now in South Australia and previously in West Australia. With Brad's departure from the Board as Executive Director, I'd like to welcome to the Board new Non-Executive Director, John Klepec, who will be appointed effective from tomorrow, the 19th of November 2020. John is currently Executive Chairman of livestock shipping company, Wellard, based out of Perth. He's a well-regarded senior executive with almost 30 years' experience in the logistics, transport, construction materials, building products, construction, resources, media, health care, and agricultural sectors. As well as considerable public company experience, John brings significant experience in business development, commercial management, leadership and operational improvement. He comes highly credentialed, well regarded, and we think he can make a significant contribution to Fleetwood. Before closing, I'd like to make one last announcement. In the normal course of events, I would be standing for reelection at the AGM at about this time in 2021. Over the last year, I have been in discussion with my colleagues about this matter as part of a normal and considered succession planning process. And I had informed them that I would not be standing for reelection at this time next year. Upon further consideration, I've decided to bring forward my retirement to early 2021 and will be stepping down as Chair shortly after the release of our half year results. A new Chairman, a new CEO will no doubt bring fresh ideas to the business on how to extract the best value from what is a very solid business platform. In conclusion, I'd like to acknowledge and thank our staff for their ongoing commitment and hard work and our shareholders for their ongoing support. Ladies and gentlemen, we will now move to the more formal part of the proceedings and deal with the resolutions. This is a shareholder meeting. As in past years, only shareholders, proxy holders, attendees and corporate representatives are committed to vote and ask questions. I'll now address some questions that we've received before the meeting and any general questions that follow from my address and for -- about Fleetwood more generally. Those questions may have popped up in the last little while.

Thank you, Chairman. Chairman, we have received the following question from ISS, Institutional Shareholder Services, who asked will resolution 3, issue of performance rights to the Managing Director and CEO, be withdrawn?

Thank you for that question. The resolution has been withdrawn. And the reason for that is with Brad stepping down, it becomes a nonquestion. So thank you for that question, but I think it's been resolved already. Thank you.

Chairman, we have received the following question from [ John Gatwood ], who asked what happened with the director nominations and AGM? If the directors are reelected at the AGM, isn't the Board full?

Good afternoon, [ John ]. I imagine you this year. We normally see you in Perth. I'm in -- stuck on the West -- East Coast. I can imagine you're stuck on the East Coast this year as well. So good morning, [ John ]. Glad to have your questions again this year. So it's a notable point -- answer to your question. The constitution of the company mandates that we have a minimum of 3 directors and a maximum 10. So in one -- into sort of one point, no, the Board is not full. However, there is also another consideration, and that consideration is the fees which are available for paying directors. There is a limit on that. And unless we change that limit via a vote of shareholders, it doesn't limit the number of people we can have on the Board. So with the current cap on director fees, yes, the Board will be roughly full. I hope that answers the question. Too complex to answer, but I hope it answers the question.

Chairman, we have received a further question from [ John Gatwood ], who asked what happened with the accommodation at Snowy Hydro 2. Did Fleetwood look at this opportunity?

And thanks, again, [ John ]. I remember you and I are talking about this last year at the AGM. The Snowy Hydro project is really only getting started from the point of view of accommodation. As you probably are aware, there is Italian consortium who's engaged in the project. And their preference was to use, at this point in time, an Italian contractor to provide accommodation. Snowy 2 also was looking for a very sort of cost-effective solution. And the solution that has come from Italy is a very cost-effective solution. However, having said that, that was only the start of the project, and we are expecting to receive inquiry either in December or January for the next stage of the accommodation, and we will be chasing that with great [ fervor ].

Thank you, Chairman. There's been a further question from Mr. [ John Gatwood ] in relation to a laminating machine for Mr. Brad Denison. He's asked, the laminating machine that was brought over from the caravan manufacturer, how much has it been utilized? And how profitable has it been?

I'm wondering if we might pass the microphone, please, across to Mr. Brad Denison in Perth, and I'll get Brad to answer that question.

Sure. Thank you. Thanks for the question, [ John ]. And I do remember discussing this with you at last year's AGM. So the laminating machine that you're taking -- that we were talking about has been moved to -- retained by Fleetwood and moved to Melbourne. It's currently in the Camec facility in Somerton in Melbourne and is being used to run samples and prototypes for Melbourne-based caravan manufacturers. And we're seeking to engage in contracts with those manufacturers to provide them caravan walls with that machine, so actively being used.

Thank you. And Chairman, we have no further questions.

Okay. So there being no further questions, we'll move on to the various items of business. The first item of business is to receive and consider the financial statements of the company and the reports of the directors and auditor for the year ended the 30th of June 2020. Ladies and gentlemen, this item of business does not require a vote. However, the reports are open for question, and we have arranged with the company's auditors from Grant Thornton to be present to answer any questions about the conduct of the audit and the preparation and content of the auditor report. All questions to the auditors should, in the first instance, be directed to me as Chairman. And if appropriate, I will ask the auditor to address the meeting. I now invite questions from -- on the financial reports. Do we have any?

Chairman, we have no questions on the financial statements or reports.

Thank you. If there are no questions, we will move to the next item of business. The remaining items are resolutions for your consideration. I propose to keep the process as short as possible by noting in advance the following items. Resolution 1 is an advisory resolution only. It does not bind the Board or the company. Resolution 2(a) and 2(b) are ordinary items and will be passed if more than 50% of the votes of those present and eligible to vote are cast in favor of the resolutions. Resolution 3 -- as previously mentioned, resolution 3, which was to deal with the issue of performance rights, has been withdrawn. Resolution 4 is a special resolution and will be passed if more than 75% of votes of those present and eligible to vote are cast in favor of the resolution. The resolutions are set out in the Notice of Meeting. And as each is considered, it will be shown on the screen together with a summary of the proxy instructions received by the company secretary in respect of the relevant resolution. I intend to vote all open proxies that I hold in favor of resolution 1, 2(a), 2(b) and 4. Resolution 1. This resolution is to adopt the remuneration report that forms part of the directors' report for the financial year ended the 30th of June 2020. The report summarizes the remuneration practices of Fleetwood, discusses the relationship between remuneration policies and Fleetwood's performance and details of remuneration arrangements for directors, senior executives and key management personnel. The Corporations Act requires the preparation of a remuneration report and that a resolution be put to members that the remuneration report will be adopted. Voting on the resolution is not binding on the company or directors. However, the Board takes seriously the views of members on this matter, and they will be given proper consideration when we review our remuneration practices and policies. Are there any questions in relation to this resolution?

Chairman, we have no questions in relation to resolution 1.

Okay. So we move to the voting -- excuse me, I'll just put this up. So in resolution 1, we have voted for 60,127,098 shares; open, 318,564; against, 9,836,847; and abstentions, 189,319. There being a vote of 85.56% for, the resolution -- oh no. Sorry, I've lost my place here folks on the screen. 85% of votes in favor of the resolution. There's 14% against, as I mentioned. And the resolution -- there are a few usable proxies. Where I have been appointed as proxy with discretion, I intend to vote and I'll put to the meeting -- sorry, I've lost my place here on these reports. So in relation to the remuneration report, I think that has been passed and is 85%. I'll move to resolution #2. I'm sorry. I've lost my position on the screen. Resolution 2(a) relates to Martin Monro. Martin Monro was appointed as a Non-Executive Director on the 1st of June 2020, who was thereafter appointed as Chair of the Risk Committee and is standing for reelection today. I'm pleased to propose the election of Martin as a Director of Fleetwood. Martin was formerly the Chief Executive Officer and Managing Director of Watpac Limited from August 2012 until his retirement in an executive capacity in June 2019. Martin has more than 30 years' experience in the Australian and international construction sectors with a proven track record in prudential -- or in prudent financial management, safety leadership and successful expansion into new markets. Martin remains a Non-Executive Director of Watpac Limited. This experience will stand -- his experience will stand Fleetwood in good stead for the future, particularly with the growth of the Building Solutions business. A copy of Martin's bio is set out in the Notice of Meeting. Are there any questions in relation to this resolution?