Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the 2025 Annual General Meeting of Fleetwood Limited. My name is John Klepec, and I am the Chair of the company. We have the right slide. Okay. As with previous years, we're holding today's AGM in a hybrid format. And I thank you to all your attendance here in the room and also online. The company would like to begin by acknowledging the Gadigal people, the traditional custodians of the land in which we meet today and pay their respects to the Elders past and present. So we have a quorum. I declare the meeting open. Joining me today, first of all, our Chief General Counsel or Gen Counsel. I've gotten out of order -- Chief -- not Chief, just General Counsel and Company Secretary. Bruce Nicholson, as you all know, our MD and then Jeff Dowling, who our Non-Executive Director. So Jeff is our Chair of the Audit Committee; Martin Monro, who chairs our Risk Committee; Mark Southey, who chairs our Rem and Nominations Committee; and Adrienne Parker, who is Chair of our Sustainability Committee. We [ tentatively ] welcome you here today. This year, Jeff will be the director that is standing for reelection, and he does so with the unanimous support of the Board. Moving now to my address. FY '25 was a year of solid performance that enabled a total dividend of $0.25 a share, which is clearly an excellent return on the investment for the company shareholders. All our 3 business units operate in cyclical markets and 2 of the 3 produced very strong results that reflected our management team operational execution and also the underlying favorable market conditions. The standout was our Community Solutions business, which delivered a material uplift in earnings in FY '25, which benefited from the increased activity in the Karratha region and strong demand for rooms at our Searipple Village. In fact, we raised the "full house" sign in the final months of the financial year. This momentum is expected to continue, supported by the activity across oil and gas, fertilizer and energy sectors, as well as sustained core demand from our #1 customer at Searipple, which is Rio Tinto from their vast iron ore operations in the region. Turning now to Building Solutions. This year, our business division also delivered an uplift in earnings in FY '25. Performance here was underpinned by diversified revenue streams and ongoing operational improvements. We've seen strong demand from the education sector, affordable and lifestyle housing sector and increased traction from our commercial and mining customers digitally over in the West. Modular construction continues to gain recognition by both government and industry as a scalable efficient solution to Australia's housing shortage. Fleetwood is well placed to be part of the solution. As I said last year, our ability to deliver over 1,000 modular homes right now annually into the New South Wales and Victorian market remains the same, and positions us as a key player in tackling this urgent national challenge. Manufacturing modular homes is not a constraint to Australia's housing shortage. The federal and state governments have allocated substantial amounts and budgets to solve the housing crisis. However, despite the right intentions, progress is well behind where it should be. This issue has been widely discussed and requires a change in focus from a government-driven process to an outcomes focus. And this which is a challenge that only those at the very top of the organization being the government with a strong top-down approach can ever hope to achieve. Simply doing the same will not deliver a different result wanted by all involved. Our Build, Transform and Grow strategy remains central to our approach. We focus on the industrialization of scalable low-risk solutions that drive efficiency without heavy capital requirements, exactly what's needed in today's Australian modular construction market. We are not there yet, and there is much to be done, but the opportunity ahead is significant. Now to the third business unit, RV Solutions, a business that continues to face the headwinds of subdued consumer sentiment and the cost of manufacturing relative to China in particular. I raise this as a point because this is not due to the economy held belief of discounting products in the Australian market or lower labor rates. Rather, it's a super competitive landscape where every participant in the government and private is focused on producing the highest quality product at the lowest cost. When that comes one-on-one against Australia, they're not in the fault. This is why the growth in importation of RV products is unlikely to slow now and into the future. Recent tariff changes exacerbate issue for Australian manufacturers. We remain -- we, as a company, remain focused on what we can control in margin management, reducing costs and improving the return on funds employed to an acceptable level for you, our shareholders. The medium-term outlook is more encouraging, supported by Australia's large and active caravan fleet, which does continue to grow, albeit with important products. Bruce will give you a more specific detailed update on the steps we've taken to restructure this business over the forthcoming financial year and return it to profitability and acceptable levels of return. Across the group, we have delivered improvements in our operational, safety and financial performance. These achievements are the direct results of the hard work and dedication of 650 employees across the 3 business units. And on behalf of the Board, I want to sincerely thank all of them for their ongoing commitment to the company. To our shareholders that are here and online, thank you for your continued support and confidence in the direction we've taken. The Board remains fully aware of the company's history, including the past volatility of earnings and acquisitions that did not create value for the company. We are determined not to repeat those mistakes are front of [ mind ]. We'll continue to uphold our dividend policy, distributing 100% of net profit after tax. We have entered FY '26 with a solid foundation, a clear strategy and a shared commitment to delivering sustainable earnings growth and long-term value for all our stakeholders. I now hand over to our Managing Director and CEO, Bruce Nicholson, who will take you through Fleetwood's FY '25 operational performance and give you more detail about the outlook for each of the individual business units in the current financial year FY '26. Over to you, Bruce.

Thanks, John. Like John, it's a pleasure for me to welcome you to the 2025 Fleetwood Annual General Meeting to share with you our performance over the past year and our outlook for the future. On Slide 6, I see [indiscernible] our purpose, vision and values. Our vision is clear to be the leader in reimagining sustainable spaces. We're making meaningful progress towards this goal, whether it be by pursuing opportunities in key worker and social housing markets through our Building Solutions business, enhancing the customer experience at our flagship Searipple accommodation village or continuing to introduce innovative products across our RV Solutions business. At every level of our organization, our people are guided by our vision and values as we work together to achieve our purpose. Our ambition is anchored by 5 core values: zero harm to our people and the environment. Collaboration, we are better when we work together. Integrity, we say what we do and we do what we say. Accountability, we hold ourselves and others accountable. And innovation, we grow through innovation. These values shape how we operate every day by guiding our decision-making. They've been central in creating a positive inclusive culture at Fleetwood and aligning directly with our overarching purpose to create innovative spaces where people can thrive. With this vision, these values and our purpose, Fleetwood is a strong foundation for enduring success over multiple horizons. We operate, as John said, through 3 distinct business segments: Community Solutions, where we manage accommodation villages, including Searipple Village in Karratha, the largest transient worker accommodation facility in the Pilbara; Osprey Village in Port Hedland, which provides key worker housing. Our Building Solutions business, Australia's largest modular manufacturer with 7 factories nationwide, delivering projects across education, mining, defense, custodial and more. And our RV Solutions business, one of Australia's leading suppliers of RV parts, accessories and aftermarket services. Each of these segments contributes to Fleetwood's ongoing growth story. We've invested in enhancing our capabilities and maintaining our strategic focus on building a quality pipeline of work that will drive our future success. Our performance this year reflects the hard work of our people and disciplined execution of our strategy. We are confident in our trajectory and excited by the opportunities ahead. FY '25 was a transformational year with momentum building across all divisions. Key results included underlying EBIT of $37.7 million, up $29.5 million on the prior year. Net profit after tax of $14.6 million, up $10.8 million on the prior year. Free cash -- sorry, free cash flow of $27 million, up $29.7 million on the prior year. We paid out a dividend of $0.25 per share fully franked and adjusted 100% payout of net profit after tax. These results highlight the progress we are making against our build transform and growth strategy and provide a strong foundation for the years ahead. Underscoring all of these achievements is the work of our people. I'd like to take a moment to recognize and thank our hard-working teams right across Australia in all of our business areas. Thank you for your ongoing hard work and commitment, and it is greatly appreciated. We have invested in frontline sales capability, strengthening our project pipeline and enhanced leadership training to develop the next generation of Fleetwood leaders. Safety remains a critical priority. Our total recordable injury frequency rate reduced from 14% during the year to 10.7 in FY '24 and 9.2 in FY '25, reflecting our ongoing commitment to zero harm culture. Looking at our performance in Community Solutions. We delivered an outstanding performance with an EBIT of $39.2 million, up $27.7 million in the prior year. The result was underpinned by 84% occupancy at our Searipple Village in Karratha compared to 34% in the prior year. We also invested in significant upgrades to facilities, infrastructure and services to enhance guest experience and to ensure the village remains the accommodation of choice for a dynamic workforce in the Pilbara. Our Osprey Village in Port Hedland demand remains strong with a full occupancy and a growing waitlist, reinforcing the critical need for affordable and social housing in the region. The outlook for Community Solutions is encouraging, particularly at Searipple Village in Karratha, which is set to benefit from a range of projects in oil and gas, fertilizer and green energy sectors. The contracted FY '26 occupancy for Searipple is currently at 86%. That's up from 84% at the full year results. Just repeat that. The contracted FY '26 occupancy for Searipple Village is currently at 86%, up from 84% announced back in August with a number of opportunities to optimize revenue benefiting from growing demand in Pilbara region, both this year and beyond. Our focus remains on unlocking the full potential of Searipple by securing a stable base of occupancy and strategically integrating new demand, ensuring the asset continues to deliver strong value through every phase of the economic cycle. At Osprey Village, demand for affordable housing remains robust and we are committed to supporting this critical need. Whilst we continue to explore build operate -- build-own-operate or transfer and build-to-rent models to provide stable long-term revenue streams, we will do so through a very disciplined approach to capital management. To that end, there is nothing in our immediate pipeline that we will bring forward to discuss. FY '25 was a transformative year for Building Solutions. Revenue grew by 15.1%, was achieved as a result of pronounced focus on segment diversification combined with a 9% increase in repeatable revenue, up from 74% in FY '24 to 83% in FY '25 from our existing customers, a clear reflection of the trust our clients place in Fleetwood. EBIT grew to $11 million, supported by record results in our Queensland and significant growth in our Victorian and Western Australian businesses. The division delivered strong year-on-year profitability, exceeding our short-term target of a 15% return on capital employed, a full year ahead of when it was scheduled. Operationally, commercially and strategically, we've substantially reset the business and are now focused on unlocking further potential in modular manufacturing. A disciplined focus on construction excellence, quality project delivery have been central to these results and again, well done to the talented team in Building Solutions. Our strategy for Building Solutions is to accelerate the transformation from builder to manufacture, as John mentioned. The acceptance of modular construction as a high-quality, cost-effective solution continues to grow. We're well positioned to continue capitalizing on this growth with panel agreements in education, housing and commercial segments across 3 states. In the last financial year FY '25, we renewed our 10-year standing offer with Queensland Department of Education and joined the Western Australian Department of Finance Education Panel, important long-term opportunities to provide visibility and repeatable revenue for [indiscernible] . The outlook for Building Solutions is positive with the current order book as of today at $155 million and approximately $200 million of tenders and submissions pending award. In addition to the order book, Building Solutions drives more than 65% of its revenue from its long-term panel agreements across Education, Housing and Commercial, positioning it to generate single-digit growth in FY '26. The continued focus on Build, Transform and Grow strategy will support growth in earnings momentum to be enhanced further by diversified revenue portfolio and a more simplified business model focused on improved utilization and productivity in our factories. We started the first half with a lower revenue base in New South Wales and the full year -- sorry, for the full half, we expect revenue to be lower than the first half last year. Despite the slow start, we are pleased with the wins we secured in the first quarter. Excluding New South Wales, with more than $100 million in orders confirmed in the first quarter, supported by a solid pipeline of tenders pending award. Due to the New South Wales revenue shortfall, we expect the second half to outperform the first half revenue in revenue and in EBIT. As part of our continued focus on disciplined capital management, we've set a new return on capital target of 20% to be achieved over the next 2 years. This reflects our commitment to deploying capital effectively and efficiently, prioritizing opportunities that deliver strong returns, ensuring that every investment contributes meaningfully to shareholder value. Reaching this target will require ongoing operational discipline, careful allocation of resources and continued focus on profitable growth. With the strength of our balance sheet, the quality of the business and the dedication of our people, we're confident in our ability to deliver on our ambition. Moving to RV Solutions. Fleetwood's business continues to operate in what remains a challenging environment with consumer discretionary spending impacted by the ongoing cost of living pressures. The OEM market declined by 18% during the year. We've managed to partially offset this through aftermarket growth, introducing new products and targeted price increases. During the year, we also undertook a strategic review, which resulted in a $9.1 million goodwill impairment and a further $1.9 million in restructuring costs. These actions were about repositioning the business with a lower cost base and improved resilience. Despite these challenges, demand for Australia's largest base -- sorry, despite the challenges, demand for Australia's large base of nearly 1 million registered RVs provides a strong aftermarket opportunity, and we are confident in the segment's longer-term prospects. Following the strategic review and amid ongoing challenges, RV Solutions is executing a plan to return to profitability in FY '26 through the closure of local manufacturing in Dandenong, site consolidation in Victoria and product rationalization. The domestic RV market was faced with a significant and sustained headwind with volumes falling 21% in 2023, 24% and further 18% -- sorry, 21% in '23, '24 and a further 18% expected this year. This prolonged contraction has placed unsustainable pressure on RV manufacturing operations. After reviewing all options, we have made a difficult but necessary decision to cease local manufacturing and transition towards greater offshore production. As a result, restructuring costs in the range of $4 million to $5 million will be incurred in the first half of FY '26. These costs will cover redundancies, make good provisions and lease and asset impairments. The changes are expected to deliver an annualized improvement in EBIT of around $3 million to $3.5 million, and we expect RV Solutions to return to profitability in the second half of FY '26. As a part of this change, we'll be closing the Dandenong factory, ceasing all production of sandwich panel, wall frames at our Somerton site. Final assembly of doors and cladding will continue. Importantly, we recognize the impact this will have on our people. And as such, we are supporting affected staff in a variety of ways, including exploring redeployment opportunities wherever possible and other forms of support for the transition such as retraining and upskilling. While these changes are difficult, and they mark an important step in reshaping RV Solutions for a more sustainable future. By repositioning the business, we are ensuring that remains resilient, competitive and well placed to take advantage of opportunities as the market conditions improve. Looking forward, we remain focused on driving innovation in the market and on target price actions to protect margins supported by a local installed base of vehicles. Together, these initiatives are intended to return RV Solutions to profitability in FY '26 and ensure the business is well positioned for a more sustainable future. In conclusion, FY '25 was a transformational year for Fleetwood. We achieved outstanding growth in revenue and earnings, profit and cash. We delivered record dividends for shareholders. We strengthened our balance sheet and continue to invest in our people, systems and assets. Looking ahead, we remain confident that the market's growing acceptance of modular construction, combined with strong contracted occupancy in Community Solutions and ongoing aftermarket demand in RV Solutions will underpin further growth in FY '26. Our focus remains on high-quality diversified revenue, sustainable margins and disciplined execution. Above all, we remain committed to delivering on our purpose to create innovative spaces where people can thrive. On behalf of the Board and the leadership team, I would like to thank you, our shareholders, for your continued support and confidence in Fleetwood's future. Together, we'll continue to build, transform and grow. I'll now hand back to our Chair. Thank you, John.

Thank you, Bruce. Today's AGM is an opportunity to hear from and ask questions of myself as Chairman, Bruce as the Chief Executive of the company and any of our Board members present. We also have in the audience here Fiona Drummond, Managing Partner of Ernst & Young, who will also take any questions you like on the financial reports and the reports as filed. I'll now hand over to Samantha Thomas, who is our General Counsel and Company Secretary -- be right to start -- who will take us through the procedural side of this part of the meeting. Over to you, Sam.

Thank you. We welcome shareholders and proxy holders attending in person or online to ask questions. As in the past years, only shareholders, proxy holders, attorneys and corporate representatives are permitted to vote and ask questions. Please ensure your questions are relevant to shareholders as a whole. There are 2 ways to ask questions. If you're attending in person, please raise your hand using the microphone [indiscernible] will be come around to you. If attending virtually, by either writing or verbally asking a question on the online platform. Please follow the instructions on the online platform and the online meeting available on your website for further instructions. Are there any shareholders' questions relating to the Chairman's address or the Managing Director and CEO's presentations?

We have some with [indiscernible] providers. We got a number of customer base [indiscernible] I don't have the number in front of me, but it would be as much as if the work is going [indiscernible].

We will now move to the more formal part of the proceedings to deal with the resolutions. Voting today will be conducted by way of poll on the items of business in order to provide you with enough time to vote and in case we are not able to stay for voting. On behalf of our Chair, I will now declare the voting open for all resolutions. If you are eligible to vote at this meeting, there are 2 ways. You may cast your vote in person or via the online platform. If you are at the AGM in person, you may vote using the green voting card, which were handed out when you came into the room. The green voting card is for all resolutions. To vote, please do so by marking your voting card either for, against or abstain. Your voting cards will be collected prior to the end of the meeting. If you do not have a PIN or believe you are entitled to vote but do not have a voting card, please raise your hand [indiscernible] If you're casting your vote using the online platform, select the vote icon; and the voting options will appear on your screen. To vote, select your voting direction. A tick will appear to confirm receipt of your vote. There is no need to hit a submit or enter button as the vote is automatic recorded. To change your vote, select "click here" to change your vote and select a different option to override your initial vote. You can change your vote up until the time Chair declares the voting closed. If you require any technical assistance during the meeting, please refer to the online meeting guide available on our website or contact Computershare. We have worked hard to ensure the webcast runs smoothly. However, should you experience any technical difficulties, a recording of the meeting will be made available on our website shortly after we conclude. Thank you very much. I'll now hand back to Chair.

Okay. I'm going to the resolutions. The first item of business is to receive and consider the annual financial statements of the company and the reports of the directors and auditor for the year ending 30th of June 2025. This item of business does not require a vote. However, the reports are open for questions. As I mentioned earlier, we have the managing partner from EY, and we have Drummond here to answer any questions about the conduct of the audit, preparation and context of the auditor's report, the accounting policies adopted in preparing the financial statements and the auditor's independence. Are there any questions relating to this item of business? No. Nothing online. Nothing in the room. Okay. We'll now move to the next item of business. The remaining items are resolutions for your consideration and voting. I intend to vote all open proxies that I hold in favor of all the resolutions. Resolution 1, adoption of the remuneration report that forms part of the company's annual report for the financial year 30th of June 2025. The remuneration report details the principles used to determine the nature and amount of remuneration sets out the remuneration details of each director and other senior executives of Fleetwood and provides a detailed summary of short and long-term incentives and how performance is measured against. Voting on the resolution does not bind the company directors and is advised. The proxy votes in relation to resolution 1 are on the screen. Are there any questions in relation to the resolution from the room or online? Nothing. There being no questions, I now put to the meeting that the remuneration report for the year ending 30th of June 2025 as set out in the company's 2025 annual report be adopted. Please select your vote by marking or casting one of the options available, if you've not already done so. [Voting]

Okay. We move on to resolution 2, the reelection of Jeff Dowling as a Director of the company and Chair of our Audit Committee. Mr. Jeff Dowling was appointed as a Non-Executive Director on 1 July 2017 and was reelected twice on the 28th of November 2019 and the 27th of October 2022 and thereafter as Chair of the Audit Committee as mentioned. A copy of Jeff's bio is set out in the notice of Annual General Meeting, which was previously provided and is also on the Fleetwood's website. The Board, with Jeff abstaining, unanimously recommends this recommendation that shareholders vote in favor of this resolution. The proxy results in relation to resolution 2 are on the screen. Are there any questions in relation to this resolution of reappointment of Jeff? Online? Nothing. Is anyone online? Looking forward to something there. I now put to the meeting that Mr. Jeff Dowling being a Director of the company, who retires in accordance with Fleetwood's constitution and being eligible is reelected as a Director of Fleetwood. Please select your vote by marking or casting one of the options available if you've not already done so. [Voting]

Okay. Resolution 3 is to seek approval of the issue of 128,614 performance rights to the Managing Director and CEO of the company, Bruce Nicholson, and the issue of shares following any investment of the performance rights in accordance with Fleetwood's long-term incentive plan for the FY '25 financial year. The information that must be provided to shareholders in order to obtain shareholder approval under Listing Rule 10.14 and the terms of long-term incentive plan set out in the notice of Annual General Meeting. The proxy results in relation to this resolution 3 are on the screen. Are there any questions in relation to this resolution? All quiet. I now formally put to the meeting that for the purposes of ASX Listing Rule 10.14 and for all other purposes, shareholders approved as further described in the explanatory notes issue 128,614 performance rights and the issue of shares following investment performance rights in accordance with the long-term incentive plan to the Managing Director and CEO of the company, Mr. Bruce Nicholson. Please select your vote by marking or casting one of the options available, if you've not already done so. [Voting]

Okay. We now move to the last resolution. Yes, it is last and we're almost there. Resolution 4 is to seek approval to increase the director fee pool. Shareholder approval is sought to allow the company to increase the maximum aggregate sum of fees that can be paid to non-executive directors from the current cap $600,000 to $1 million being an increase of $400,000. The information that must be provided to shareholders in order to obtain shareholder approval under Listing Rule 10.17 as set out in the notice of Annual General Meeting. The proxy results in relation to this resolution are now on the screen. Are there any questions in relation to this resolution? No questions. I now put to the meeting that for the purposes of Rule 15.15 of the company's constitution and ASX Listing Rule 10.17 and for all other purposes, shareholders approve increasing the aggregate amount of fees available payment to Directors accepting the remuneration of any Executive Director from $600,000 to $1 million being an increase of $400,000. Please select your vote by marking or casting one of the options available if you haven't already done so. [Voting]

All done. Ladies and gentlemen, that concludes the discussion on the items of business. I now close the voting system. The final votes and results will be released to the ASX later this afternoon. We now welcome any additional questions from the shareholders. If there's any that you've come up with.

Yes, there is 1.

About the transfer of a big [indiscernible] as just like more inflation about where [ overseas ] -- we've already got overseas, and this is a very in -- yes, I was just wondering how much -- how that will be tackled?

Yes. So we have an arrangement in [indiscernible] some time with the manufacturing so [ the doors ]. About 80 to 90 of the doors were being manufactured off offshore in the last 12 months. We decided to take that fully offshore now. So there'll be 100 of those doors. So it's actually not as disruptive but a long-term part of it [ sense ]. Then we'll go back to [indiscernible] while we're actually starting manufacture semi-cloud wall and the RV frameworks [indiscernible] do affect impact and very salted assets too. So it's actually not a truck is a marked policy quality issue might be either positions or an...

Now we're effectively just find the components on the [indiscernible]. So it's not like we're a manufacturing glass or [ miner ]. So it's not as constructive as you might think.

Okay. That concludes the AGM for 2025. Thank you for your attendance today and look forward to seeing you again next year.