Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Fleetwood Limited 2021 Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bruce Nicholson, CEO. Please go ahead, sir.

Thank you. Good morning, everybody, and thanks for taking the time to join us today. As you just heard, my name is Bruce Nicholson. I'm the recently appointed CEO of Fleetwood. I'm also joined today by Andrew Wackett, our CFO, and together, will take you through our results for this last financial year. I'll provide some introductory comments, I'll let Andrew speak in some more detail around our results and our cash position, and then I'll talk to the various businesses and outlook for you. I will push through the details fairly quickly today because I want to take some time at the end for Q&A, and I'm also mindful it's a busy market with a lot of announcements being made this week. For those of you who are actually flipping through the presentation at the same time, I guess, out of interest, the front page of our presentation today is the [ Parramatta ] Public School here in New South Wales in Southwest Sydney. And with that, I'll kick off now to my board presentation. Look, we continue to focus on 3 core businesses: our flagship Building Solutions business, where we see the best opportunity for step change in growth in the Fleetwood business; Accommodation Solutions, where we have 2 operating villages up in the Pilbara. We also have significant opportunities to perform developing new community facilities, and I'll talk more to that as I go; and RV Solutions, where we have Camec and Northern RV are both on as leaders in the recreational vehicle, caravan and motorhome sectors as well. Fleetwood's 3 operating businesses combined to deliver sound performance, resulting in underlying earnings before interest, tax and amortization of $26.3 million for full year 2021 financial year, up 18% compared to the previous corresponding period. Revenue was up 9% to $360 million. Cash levels at the end of the period were lower than the first half of 2021 due to the working capital requirements of 2 major building projects, which carried across the end of the financial year. The company has largely utilized our tax losses from previous years and has recommenced paying taxes this year as well. You'll note that cash levels on the balance sheet remains strong and are well matched to the company's ongoing requirements. And you'll recall the Board introduced a revised dividend payout policy of 100% of net profit after tax in February 2021, and we intend to continue with that. As such, our final dividend for this year -- for this half will be $0.105 per share has been declared following the $0.06 per share interim dividend paid in April '21. This compares to an FY '20 dividend of $0.12 per share. The strategic focus of Fleetwood management remains on revenue growth, sustainable improvement to our margins and increasing our utilization whilst reducing our overheads to improve our earnings. Building Solutions and RV Solutions delivered improved profits partially offset this second half by Accommodation Solutions, which was impacted by the additional regional room supply coming online and normalization of that business post the COVID impacts in the first half. In Building Solutions, our Victoria and WA businesses had very strong results, especially across education, mining and housing. But we also saw some ongoing operational integration issues in our New South Wales business. Searipple Village in Karratha's occupancy levels returned to normal levels. And then we've also seen an increase in regional room supply up in the Pilbara. With closed international borders, we've seen a boom in domestic travel, which has benefited our RV Solutions business as well. I'll now pass over to Andrew to focus on some more financial details.

Thanks, Bruce. I'm on Slide 5. Good morning, everyone. Once again, we have generated solid cash flow as a business. This is pleasing given the ongoing uncertainties that all companies find themselves in during these times. Our operating and free cash flows were lower than the last year, but there are some specific reasons for this, mainly the recommencement of tax payments and more importantly, working capital associated with the 2 major projects that remained under construction at the end of the financial year. We have paid out $17 million in dividends and have $0.20 per share in franking credits, that's available to support up to $0.46 per share of full year franked dividends. Slide 6. Looking at the balance sheet, we're in a strong position. Our closing net cash of $58 million is solid, and that's before the return of the $8.7 million of project finance advances we received in July. We have no balance sheet debt, and our credit facilities of $85 million are drawn to $18 million for performance bonds. Our working capital is at a more sustainable level to support the Building Solutions business and to provide appropriate levels of inventory support for the strength in RV sales. For the year, we delivered an overall return on capital employed of 15.9%. Back to you, Bruce.

Perhaps you are muted.

Apologies. Sorry about that. So I've just moved over to Slide 7. Thank you, Andrew. I'll take a more specific look at the different businesses and particularly the outlook. The outlook for Building Solutions remains very strong, especially driven by Federal and State Government's stimulus spending programs. Our order book is sitting at $103 million compared to $74 million last year, and we've seen significant increase in our bid pipeline with a 56% increase in tenders submitted to $438 million compared to last year. This pipeline excludes several government projects that have been announced post the end of the financial year, such as the specialist quarantine facilities that have been announced across several states. We continue to see modular construction gaining traction, particularly in this environment of [indiscernible] solutions for things like quarantine facilities, housing and education, and we're starting to see our results of our strategy work, but still have yet to complete achieving a fully nationalized and integrated business. That's a work in progress. We also have to be mindful that there are challenges, not least of which are the cost of raw materials and general labor storages across the industry. The ongoing lockdowns on our East Coast during the September quarter are also impacting our activity in some of our client decision-making. These have had the biggest impact on our New South Wales business with restrictions being placed in our staff and contractors as well as construction sites for the first time in July and August. There's been a negative impact on our business in July and August. And at this stage, it's very hard to predict the nature of any form of recovery in the first half, but it's unlikely we'll recover those numbers in the first half of 2022, this financial year, I'm sorry. We'll continue to monitor the situations and do what we can to manage the impacts of that and provide a further update in our AGM. What we see in the Accomodation Solutions, performance has returned to more normal levels [ after ] the abnormal activity driven by COVID-19 response to the sector last year. Importantly, some of the activity and opportunities in Building Solutions are also opportunities for us to leverage our Accommodation Solutions skill set. We can leverage the Building Solutions to be able to offer new abilities at competitive costs. whether they be in the mining, residential or affordable housing sector, or as I've said before, in the quarantine space. In the near term, the FIFO room market in Karratha was oversupplied, and we're competing in that market. But ultimately, with the investment [indiscernible] in the mining and oil and gas sector, we see significant medium-term opportunities that is what we're positioning ourselves to take advantage for at the moment. RV Solutions experienced the breakout year, which has been driven the combination of border shutdowns with all of these rediscovering their love of caravaning and camping as well as the restructuring that was undertaken by management back in 2020. I'm just traveling into Slide 12, if those of you are trying to keep pace with me. The medium-term outlook remains strong with what is happening in Australia at the moment with international travels seeming like it's still a long way off. Our challenges are skilled labor shortages, sourcing product and freight issues. But in order can capitalize on the opportunities that have been presented, we're continuing to look at expanding our retail and renovation offerings, whilst also commercializing new products such as sandwich panels and aluminum frames. So in summary, our business is strong and well positioned. We have 3 businesses all with significant opportunities in front of them. As discussed, Building and Accommodation Solutions provide complementary opportunities, while our RV Solutions business is well positioned to introduce new products and pivot to the aftermarket segment as international borders reopen. We need to note, of course, that there are challenges with significant lockdown in New South Wales impacting both manufacturing and construction, while border closures involving shutdowns across the East Coast is creating uncertainty and impacting our ability to execute some of our improvement plans. As I said, it's too early to quantify the impact of this on our business, we'll continue to monitor and act where we can. I would like to add that I've been incredibly impressed by our people's agility and their ability to push through and be resilient in this difficult time. Our balance sheet is solid, and we'll be prudent with the way we utilize this balance sheet to pursue growth. I'm very mindful that we still have a way to go in terms of delivering the types of margins that our shareholders expect, but I'm confident the strategy is in place and the team is focused on achieving that. We also remain committed to retaining our annual dividend paid of 100% of profits or not profit after tax basis. And with that, I'll thank you and I'll be happy to take any questions.

[Operator Instructions] And the first question will come from Gavin Allen with Euroz Hartleys.

Just a couple of quick ones for me, if you wouldn't mind. Just firstly, on the RV business, and you sort of mentioned Building Solutions and the impact that COVID was having on that business in July and August. How has RV coped with the various lockdowns be my first one, guys?

Yes. Thanks for the question, Gavin. We're sort of monitoring that quite closely. RV Solutions is holding up probably better than I would have expected. We're certainly seeing a significant drop in foot traffic through the retail stores. But we are seeing -- but we are seeing plenty of activity online. We are seeing a slowing down of [indiscernible], but actually it's quite small, smaller than I would have expected it to be. I think there's some uncertainty and people are sort of trying to hold back and see what's going to happen in terms of state borders reopening, so they can get back to their travel plans. Does that make sense to you, Gavin?

Yes. No, that makes sense. And just a real quick one on the working capital. We saw you talked about the 2 major projects in fact, that's happening. Who do we expect that to sort of reverse in 1H '22? Do you think [indiscernible]?

Look, from where I see it, Gavin, I think the question is what does the end of the year look like. It's likely we could have projects that carry over the end of this financial year that sort of have the same sort of impact. It's a business that can have some very large and solar projects that are likely to cross over between financial years. One of the things we've done as you've picked up is we are hedging by preordering in both the RV business and in the Building Solutions business to ensure we can protect ourselves from some of the price increases. We'll just act prudently on that. I'd hate to try and give you a figure as to whether it's going to normalize whether or it's going to go up or down at this stage.

Yes. No, that makes sense. And then just the last one for me, just the Building Solutions tension between the short term and the longer term. And by that, I just mean you pointed out the challenges you're having in relation to COVID. But just in terms of that tendering number of $438 million. That seems to me that, that might be close to a -- certainly a heightened level might even be close to a record. So I'm just wondering if you can give us any sense of how that compares to previous periods. And I know the timing of the award of this stuff is difficult, but just in terms of broader demand, I guess.

I might ask Andrew to try and answer that one given he's been around a little bit longer than I have and might have a bit more history.

Yes. Sure. Thanks for the question, Gavin. We said in the presentation that it's a 56% increase on the value of tenders submitted at the same time last year at 30th of June 2020. And certainly, in the 4 years I've been here, it's certainly the largest tender pipeline we have. So it's -- the outlook is very strong in that space.

[Operator Instructions] Our next question will come from Tony Mitchell with Ord Minnett.