Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Fleetwood Limited 2021 Half Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Wackett, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everybody, and thanks for joining us today. My name is Andrew Wackett, and I'm the Interim CEO and CFO of Fleetwood. We're mindful that we are at the point end of reporting season, so we'll try and keep this presentation fairly brief. Before we start, I'd like to make a couple of acknowledgments. Firstly, I'd like to recognize Phillip Campbell, who is stepping down as Chairman tomorrow and retiring from the Board after 4.5 years. I would also like to pay tribute to Brad Denison, who stepped down as Managing Director in November. I've only been in the interim seat for a short time, so obviously what we are reporting today is very much thanks to the hard work contributed by Brad over an extended period and his vision for the company. Slide 3. We have delivered what we're calling a solid performance today across our 3 operating divisions. Revenue was up 5% to almost $170 million. And underlying earnings before interest, tax and amortization or EBITA was up 26% to $16 million. As I've mentioned, each business division has delivered a solid performance, with Building Solutions EBITA up 46%, Accommodation Solutions up 13% and RV Solutions up 53%. We continued to generate strong cash flow and finished the half with $65 million in net cash and have declared an interim dividend of $0.06 per share under our newly announced 100% annual dividend payout ratio. We will skip over Slide 4 and cover each division in more detail shortly. Slide 5. We are very pleased with cash flow, which is significantly higher than the previous corresponding period. Some line items to highlight: You will see that the cash outflow from discontinued businesses has increased. This is in relation to meeting warranty claims from our former Caravan Manufacturing division and is anticipated to continue for some time despite the final caravan being sold in February 2021. Tax payments remain low and we anticipate that continuing through the full year, but it is important to note that CapEx is set to increase in the second half, as we look to expand our capability in Building Solutions. We've also broken out our financing cash flows in the table, highlighting a $0.12 dividend paid during the half; and a project finance advance, which we are hoping will mark our reentry into the affordable housing sector in a meaningful way. The graph on Slide 6 illustrates the strong cash flow which has largely matched EBITDA over time. And the balance sheet summary on Slide 7 highlights our strong cash position, no balance sheet debt and an annualized return on capital employed of 20%. Looking at our divisions in more detail. We will start with Building Solutions on Slide 8, which finished the half with EBITA of $4.1 million on revenue of $121.3 million. This was relatively flat compared to the previous 6 months, as the COVID-19 pandemic restricted building activity in some states and slowed decision making on the start-up of some contracts that had already been awarded. We also faced some operational integration issues in New South Wales, which were in the progress -- process, sorry, of being overcome. Importantly, we have a very strong order book at $140 million and are confident that the improving market Australia-wide will certainly continue. I have already alluded to investment in our facilities to take advantage of this growth and to ensure that we are in the best position to capitalize on anticipated government spend on infrastructure. From the excellent base we have developed with Building Solutions, our priority now is to ensure it is generating the margins and earnings that shareholders expect and hence the implementation of a specific 3-part strategy. Turning to Slide 9. The first priority is diversifying and growing the revenue base. We will do this by expanding existing industry market segments to increase revenue, generating more balanced and sustainable revenue sources to optimize state capacity and diversifying and growing into additional markets. Our target areas for growth include commercial, multilevel residential, residential, social and affordable housing, health care, aged care and custodial work, all sectors where modular construction is a highly cost-effective and suitable option. Secondly, we need to nationalize and integrate the business to ensure we have a single framework. This will help us optimize capacity, productivity and cost efficiencies in order to leverage the national business, economies of scale; and to access larger opportunities in the marketplace. And finally we want to implement a framework of operational excellence, investing in our technology, workflows, people and project management experience to build a high-performance team. Turning to Slide 10 and 11. In our Accommodation Solutions business, the Searipple Village in Karratha benefited from COVID-related rostering changes early in the half, which have subsequently returned to more normal occupancy patterns. Meanwhile, Osprey Village in Port Hedland is currently fully occupied and has a waiting list of potential tenants, reflecting the strength of that market. It's important to note that the second half results are not expected to match the strong H1 earnings, as rostering patterns have returned to more normal arrangements. However, this remains a highly profitable division, and the outlook is positive. While there is a short-term oversupply in the market, the medium-term opportunities are clear and we are positioning ourselves to leverage them. Rio Tinto has renewed its Searipple contract for a further 13 months, while overall outlook for capital investment and construction activity across the oil and gas and resources sector in the region is expected to drive strong demand for FIFO rooms over the medium term. We also continue to look for opportunities, largely across mining, residential and aged care, to increase our portfolio of villages, leveraging our natural vertical integration with the Building Solutions division. Turning to Slide 12 and 13. After a bumpy start to the year, thanks to COVID-19 lockdowns, RV Solutions finished the first half with 3 very strong monthly sales results, thanks to the pandemic triggering a boom in domestic travel. And positively, this surge in domestic travel looks set to continue, especially as there is no clear time line for when international travel will be reintroduced for Australians. We continue to move forward on commercializing the intellectual property developed by the former Caravan Manufacturing business, with new caravan walling products since -- set to launch in the near term. The promotion of the aftermarket service and renovation offering of Northern RV is also demonstrating early progress. Slide 14. So in conclusion, we have delivered a solid set of results, and the outlook for the second half is positive. We will continue to invest in Building Solutions to take advantage of opportunities and maintain our position as a leader in modular building construction and supply. Accommodation Solutions will not be as strong in the second half, but it is still a highly profitable division and there are excellent medium-term growth opportunities. Australia's newfound love of domestic travel has been positive for RV Solutions, and it appears that trend is likely to continue. Across the business, we have clear strategies in place to improve and grow each division while improving margins and reducing overheads. And finally, in a clear sign of our capital discipline, we have introduced a 100% annual dividend payout ratio. We'd be happy now to take any questions, and I'll hand back to the operator.

[Operator Instructions] There are no questions at this time. I will now hand back to Andrew.

Okay, thanks, everybody, for dialing in. I appreciate it's the busiest day of the reporting season. And we will be available for questions and road show over the next week or so. Thank you very much.

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