Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Fleetwood Limited Half Year FY '26 Financial Results. [Operator Instructions] I would now like to hand the conference over to Mr. John Klepec, Chairman. Please go ahead.

Thank you. Welcome, everyone, to the first half results for FY '26 for Fleetwood. Joining me today, I'll be here for the questions at the end. But joining me today, Andrea Pidcock, who's our new CEO, who you -- a lot of you on the call will get to me over the coming weeks and months. and also take Chandler, who most of you have already met CFO of the company. So I hand over to Andrea, who will take us through the beginning of the presentation and then Kate will go into the financials, and then we'll come back talk about strategy and outlook, and then we'll come back at the end for anyone who wants to have a discussion in Q&A. Over to you, Andrea.

Thank you, John, and thank you to everyone for joining us today as we present Pletwood's FY '20 half year results and provide an update on the business outlook. My name is Andrea Pidcock, and this is my first results briefing as Fleetwood CEO. It's my great pleasure to be with you today. I'd like to start by acknowledging the Gadigal pillar of the Eurasian who are the traditional owners of the Sydney CBD area where we are calling it on. We pay our respects to their elders and to the traditional owners of all the lands where we operate across Australia. This is week 4 for me, and over the past few weeks, I've been focused on getting to know the business, meeting our teams, visiting our operations and customers and gaining an understanding of our opportunities and challenges. What I've seen so far reinforces my confidence in Fleet with people and capability, the quality of our products, the strength of our brands and the great potential we have ahead of us. I'm joined today by our Chief Financial Officer, Cate Chandler; and together, will take you through the results and the key focus areas across the business. Turning now to our vision, purpose and values. Although I've not yet had much time Fleetwood, it's already clear to me that these provide a strong foundation for the business and our future direction. Our vision to be the leader in reimagining sustainable spaces is anchored by 5 core values: 0 harm to our people in the environment, collaboration, recognizing that we're better when we work together, integrity, making sure that we say what we do and we do what we say, accountability only ourselves and others to account and innovation, will grow through innovation. These values play a crucial role in building a positive and performance-oriented culture at Fleetwood. All of this aligns with our overarching purpose to create innovative spaces where people can thrive. With our well-defined set of values, a clear vision and a compelling purpose, I believe we're well positioned to deliver lasting value. For those of you who are less familiar with Fleetwood, let me provide a brief overview of the business. Fleetwood operates through 3 divisions: Community Solutions, building solutions, and RV or recreational vehicle solutions. Community solutions develops and manages accommodation diligence. We own and operate seral a major transient worth accommodation facility in Carat and manage Osprey, an affordable housing village to key workers in Port Hedland, both in the Pilbra region in Western Australia. This outstanding business consistently delivers robust returns and positions us to capitalize on the significant growth projected in WA's Northwest. Building Solutions is recognized as Australia's largest modular manufacturer with 7 factories nationwide, providing us with substantial manufacturing capacity. In this division, we design, manufacture, supply and install modular buildings for a diverse range of sectors, including educational custodial, mining, defense, commercial, recreational and housing segments across Australia. RV Solutions represents our heritage. Setas has been innovating in the caravan and camping sector for more than 60 years. On February 18 this year, we completed the sale of the Northern RV business. which provides plumbing services to the RV market. We retained Camec as a leading supplier of parts and accessories for caravans, campervans and motor homes as well as a trusted provider of aftermarket products to recreational vehicles across Australia and New Zealand. Moving to our overview slide, we show some of the highlights for the first half of this financial year. In the first half, we achieved an increase in both NPAT and underlying EBIT compared to the same period in the prior year. Our net profit after tax was $8.6 million, an increase of $3.9 million from the prior corresponding period. Underlying EBIT, excluding RBS restructuring costs of $4.8 million, increased slightly by $0.2 million to $18.5 million. Searipple had very high occupancy of 95% in the first half compared with 71% over the same period in the prior year. And contracted occupancy for the rest of the year continues to be strong, giving us a full year occupancy of 96%. In Building Solutions, our order book is strong, up $20 million on the prior year at $157 million. The current dividend policy to pay 100% of NPAT in dividends remains unchanged. And we'll be paying a fully franked interim dividend of $0.095 per share. Reflecting Fleetwood's focus on active capital management and supported by its strong balance sheet, we also announced today that we'll undertake a nonmarket share buyback up to $5 million over the next 12 months. Looking at our underlying EBIT by business over time highlights the exceptional performance of our Community Solutions business, particularly over the last 3 halves. RBS also had a stronger half returning to underlying profitability. Building Solutions was challenged by continuing weakness in New South Wales and the timing of major projects in Queensland, where there was a gap between the completion of past projects and the commencement of new projects currently underway. Now I'm going to hand over to Cate to take you through the financial and segment results in more detail.

Thank you, Andrea, and a very warm welcome to Fleetwood. Good afternoon, everyone. But of course, good morning to Perth. Moving on to our financial results. The group revenue for the half was $229 million. This was impacted by lower revenue in Building Solutions and RV solutions that this was offset by stronger occupancy in Community Solutions. Our net profit after tax was $8.6 million, a $3.9 million improvement or 84% improvement on the first half last year. As a reminder, underlying EBIT excluded from both years, the restructuring and impairments incurred as part of the closure of RV Solutions and manufacturing and site consolidation in Victoria. These are outlaid in more detail in the appendix to this presentation. For the half, underlying EBIT was $18.5 million, $200,000 above last year. The improvements we saw in Community Solutions, RV Solutions and corporate costs were offset by a decline in Building Solutions. At a headline level, Community Solutions EBIT increased $6.6 million reflecting the impact of the occupancy uplift to 95%. Building Solutions, however, declined $8.7 million, principally due to materially softer revenue in New South Wales and delays in project commencements in Queensland. RV Solutions returned to profitability and EBIT improved by $1.4 million, reflecting the benefit of closing the manufacturing operations and improved aftermarket performance. While corporate costs were lower by $900,000 due to higher income related to the closure of a historical share scheme and lower share-based payment expenses. Turning now to cash flow and capital management. Free cash flow for the half was negative $7.8 million, primarily due to working capital outflows. This will unwind in the second half as project cycles and progress payments normalized in Building Solutions. Net capital expenditure in the half of $3.1 million was directed towards upgrades at Sable Village and Carapa to improve guest amenities, including WiFi, laundries and common facilities. We closed the half with $30.7 million in cash and continue to maintain a very solid balance sheet and prudent capital management approach. Consistent with the dividend policy to pay 100% of net profit after tax, an interim fully franked dividend of $0.095 per share was declared. This dividend is $0.02 per share lower than the first half last year as last year's interim dividend ignored the noncash impact of the $6 million goodwill impairment on net profit after tax. Going forward, the Board have reconfirmed the dividend policy in FY '26 will be to pay 100% net profit after tax. As part of our active capital management, the Fleetwood Board has approved the recommencement of the on-market buyback of up to $5 million of ordinary shares over the next 12 months. This reflects the Board's confidence in the company's financial strength, balance sheet and outlook. Turning now to our segments. Community Solutions continues to be an absolute standout performer. Veritable occupancy of 95% in the first half was driven by contracted room nights from our 3 major customers, Rio Tinto Woodside and SC JV. The EBIT operating leverage, however, was slightly impacted by higher physical occupancy of the village unless vacant rooms as accommodation options in Karratha region tighten the transient worker accommodation. Our upgrades to common areas and rollout of the high-speed Internet have further strengthened Sareb's facilities and competitiveness in a tight acclumination market. The Osprey Village in Port Hedland remains fully occupied with a waiting list of 40 to 50 tenants highlighting strong demand for quality affordable housing in the Pilbara. Turning now to Building Solutions that had a challenging first half due to the decline in revenue. This was significantly due to New South Wales and project delays in Queensland, which impacted the recognition of revenue. All other states, however, delivered double-digit revenue growth, demonstrating the benefit of fleets diversified geographic and sector footprint. Gross margins improved slightly half-on-half, although the reduction in revenue at fixed costs could not be offset, highlighting the impact of lower revenues on profitability. The order book, however, at the end of December, remain very healthy at $157 million, up from $137 million in December last year and $100 million in June 25, positioning second half FY '26 for improved performance. RV Solutions pleasingly returned to profitability and on an underlying basis following the site consolidation of Victoria and the closure of local manufacturing. The restructuring costs incurred in the first half of $4.8 million. This completes the closure of the local manufacturing and the site consolidation and no further restructuring costs are expected. While the decision to close manufacturing was a difficult one, the turnaround in results highlights the impact that manufacturing capital and earnings. For further context, the loss of manufacturing operations across the first 4 months of FY '26 alone was $900,000. The revenue decline of 8% reflects reduced revenue from discontinued product lines. specifically sandwich panels and aluminum frame, which are no longer being manufactured at slightly lower OEM demand. Pleasingly, the aftermarket business traded profitably across all branches, supported by product innovation and an aftermarket of over 1 million RVs across Australia and New Zealand. I'll now turn back to Andrea to take you through our strategy and outlook.

Thanks, Cate. Firstly, in Community Solutions. Our strategy is to optimize the value of serial this fantastic asset that we have across the cycle and secure base occupancy with key clients, supplementing with additional accommodation for major shuts in capital works. This really requires continued investment in upgrades to make sure that we capitalize on our Central Karratha location and remain the best accommodation options for the large transient workforce. We're also looking to develop further opportunities to leverage synergies between community solutions and billing solutions. The outlook for Community Solutions continues to be strong, with FY '26 contracted occupancy of 96% for some further room availability in June. FY '27 already has 55% of room nights contracted with opportunity for additional occupancy due to ongoing activity and limited supply in the area. Osprey continues to have a waiting list for tenants. In Building Solutions, our strategy is to build a larger and more diverse customer base in our key segments, including housing, education, defense and Resources and Energy. We're focused on accelerating the transformation from builder to manufacturer, which will bring significant benefits in building better, faster and more efficiently. And we're looking to simplify and standardize systems and processes to support sustained growth. We believe we can achieve a target 20% return on our current capital employed within the next 2 years. Our order book of $157 million is up $20 million from the same period last year and will underpin a stronger second half. We also have a solid pipeline of opportunities with $200 million in tender submitted. 65% of our Building Solutions revenue comes from panel work across education, housing and commercial sectors. And that's not only repeat work, it's also quicker to activate and turn it into revenue. As I said, we are expecting second half to be stronger than the first half, with full year revenue down around 5% to 10% on FY '25. In RV Solutions, we sold the NRV plumbing services business as a going concern in February '18 for $4.85 million. Cam will continue to operate as a leading distributor of caravan and camping parts and accessories to OEMs, wholesale to retailers and trade customers and direct to consumers through our own stores and online channels. The business has been restructured after the closure of local manufacturing and in response to the market headwinds the sector is facing. Further decline in the local OEM market is expected, largely due to increasing pressure from imports. However, the aftermarket is strong with over 1 million RVs in Australia and New Zealand. The sale of NRV will unlock capital of around $3.5 million and the second half will record the residual as profit on sale. In summary, Fleetwood achieved a first half EBIT of $18.5 million and will pay a $0.095 dividend. We've also announced an on-market buyback of up to $5 million over the next 12 months. In Community Solutions, we expect the full year occupancy of Searipple to be 96%, underpinning strong earnings. FY '27 already has 55% of room nights contracted with strong activity in the region underpinning further opportunity. In Building Solutions, our order book of $157 million will support a stronger second half, while we accelerate our work to streamline and stand is operations, systems and processes. Our full year revenue is expected to be between 5% and 10% below last year. In RV Solutions, the sale of the northern RV plumbing business will liberate around $3.5 million in capital and deliver a residual profit in the second half. Camec has returned to profitability and is focused on growing sales in the aftermarket to offset continuing declines in the local OEM market. Finally, I would like to thank all of the employees at Fleetwood and our customers now supply for their continued commitment to our business. We now have time for questions. Given that I'm phoning you to the business, I may rely on Cate to help with some of the answers.

[Operator Instructions] Your first question comes from Gavin Allen with Euros Hartleys.

Andrea and Cate, John, I'm not sure he's on the core not. But thanks for all of that. Just a quick 1 for me. So couple of things. So see, Ripple, you talked about reinvesting into that business and also, call it, 55% utilization heading into 2017, which is a good start. But perhaps the idea that you're looking to reinvest in that facility would suggest that you see opportunity to sort of further contract rooms over the course of 2 over 226 would that be fair? And perhaps where do you see those opportunities?

Yes. Good morning. I am -- thank you for getting up early. Yes. A good question. Yes. So FY 27 currently has contracted rooms of 55%, and that comprises the tail of the Rio Tinto contract after the April 2027. Plus, it involves a minor work shutdown in 1 of the months we think would side. We do -- we are expecting to have greater line of sight over what additional rooms will be taken. But what we are seeing at the current time is reach into taking somewhere between 100 to 200 additional rooms on top of this down to $800 on a monthly basis, and we expect that, that will continue for some time. The other observation we've made recently is we have got great physical occupancy up there, and that indicates that there's actually more people out there they're not just blocking out rooms for the optionality, but they've actually got real live projects and work going on there. So we're expecting to start some conversations with all 3 our major customers around expanding their contract every bank for FY '27.

Yes. Got you. So stay tuned, but you would expect occupancy to sort of or in sight and occupancy to start to sort of reap up over the course of the second half, take it from more of that?

Yes, absolutely. I mean, clearly, by August, we'll have a much better line of sight there as you move into it. We don't have -- acknowledging that the rare contract ends 10 months into the financial year for '27. We expect we'll be talking to others around having a longer tenor of in in that period.

That number assumes that Geetha number assumes that Rio leaves in May and June. So hence, if you average the number just to April, it's a lot higher than 55%. And we -- look, with the discussions I've had with all the investors, everyone thinks or has got a mentality of everything falls off a cliff. Those rooms have to go somewhere into Karratha. So come the end of the contract, they are to stay with us or they go somewhere else. So it's our diluted effectively. So I wouldn't be too pessimistic in your models or whatever forecast dropping off the edge of the cliff.

We regularly yes, we regularly test that. So we get Orbis research done on construction work and what's happening in Karratha, and we're doing it with another place. We don't want to believe our own homework. We want to be sure that we're making the right investment decisions if we do keep investing in that area.

Absolutely cool. And then just quickly, obviously, in at New South Wales, it's been challenging for a period of time now. Is that -- how do we think about that in terms of it being activity or execution or bid margin or all of the above? Like what are the key challenges in that specific spot for you?

Obviously, New South Wales is a huge construction and building market and should have a lot of opportunity. And I'm going to say, I've worked in building products across a number of different businesses. New South Wales has always been a really big profitable market for us. So to me, I just want to understand a lot more about how much of the challenge that we have is because we don't have the right solution. We're not targeting the right segments to really understand where the market is. I know that there is less penetration of modular in New South Wales than in some of the other states. And that surprises me a bit because the 1 thing I know is that New South Wales does get choked up with delays and time. So I would have thought that the speed to market and the offer of modular would work, but I don't see -- there is that low of penetration. I think we've really got to understand what the story is in more detail. I think that making sure that we're targeting the right segments with the right offer is going to be critical for the success.

Got you. Makes sense. And then just finally for me, just the timing issue you took about in Queensland that has now subsequently resolved itself, I take it into the second half?

It has, yes.

Your next question comes from Caleb Weng with PAC Partners.

Guys, so to about Building Solutions. Just the $215 million, do you kind of expect that order to convert to revenue in the second half or?

So Cal, it's Cate. I'll take that question. The $215 million. So we had an order intake to clarify the question of $215 million in first half. We closed the half with $157 million work in hand. We actually consumed some of that 16 in that half. So it's not a perfect plug-and-play match. But what you can see is that if you compare it back to June, closing order bank of $100 million, that was a $50 million out. So we're expecting our second half 2016 revenue to be not as high as to be higher than the first half by quite a bit. And as we've guided that the revenue for the full year will be about 5% to 10% lower than [indiscernible].

Yes. And just maybe some color on on that...

Sorry, sorry, sorry, I've just had a note past to me. We also got awarded SP3 for BHP just the other day, which is a further $15 million for the Olympic game project in South Australia that's also added to that order bank.

Yes. And maybe the margin profile of that, some color on that.

The profile of?

The margins.

The margin EBIT margin or gross profit?

EBIT.

Okay. Look, I think EBIT is a function of the revenue. So if we do have higher revenues then we will -- sorry, to stumble in my words, the GP will -- is stable and because we're not doing loss-making products. It's really a function of defraying fixed costs. So if we do have a revenue slumping, it's really hard to lose sites and close and impair them. It's not even a possibility for us. So we really do need to grow the revenue on the top line. And if we have between -- and we're guiding between $170 million to $190 million in revenue in second half. If we do have that, we should do a healthy EBIT in the second half.

Yes. And your first half revenue was actually quite similar to second half last year, but the margins was quite a bit weaker. Is that just due to the geography mix where New South Wales is really I guess, add up a lot of fixed cost base and just didn't deliver at and therefore, was a bit weaker in terms of margins or?

Correct. You're right. It was about 150 for each each half, second half last year, so half this year, correct. And again, it was a little bit of a function of the gross profit was just kind of a bit lower, but it was again a function of fixed costs. We had entered into some -- we committed some fixed costs that we couldn't defray in the first half of this year, correct?

Okay. Got you. And then on RV Solutions, is now that that's really left is a per player retailer, Camec. Is that still for sale? Or would you still fact?

Look, I think -- we've done a lot of work rightsizing RB solutions. We completely closed the manufacturing like you say, we've sold the plumbing business, and we're now a pure-play distributor of retail accessories to the RV market. We -- and on that basis, I think that there's probably a more natural owner than us out there. And of course, I think I'm speaking to out-of-scope in official materials, I think it's still a reasonable offer of serious contender we want it to be and with the more natural 1 we would definitely consider from that business.

And maybe some color on the annualized sort of revenue of what Camec.

Yes. Yes, good question. Obviously, the NRV plumbing business had a turnover of about $14 million to $15 million. So the remaining came business will be smaller. But we do expect it to remain profitable.

[Operator Instructions] Your next question comes from Justin First with Business News.

Just a quick one. Just in relation to sea Rifle, just with 2 modern camps being under construction in Karratha -- are you concerned that Searipple might struggle to attract clients who are demanding more high-spec facilities? And if and when we pull the trigger on the planned redevelopment, please? Just were aware of the referring to the ranges village?

Yes, Roland just in relation to the 55% occupancy in 27 that you talked about earlier? SP1 I just want to get some context around the 2 competing counsel being built.

I understand ranges has been built for the SJB joint fetal?

Yes. I've just been advised that there's a couple of construction camp being built -- the other 1 is more into a caravan on Park then a FIFO type accommodation. SP1 Yes. I think that's with the Discovery Park side. SP-4 I'm just going off what I've been provided for my politics SP1 Yes. Look, we always stay abreast of that. And we're -- like I responded to Gavin earlier, we do look at demand. So what are the projects that are on there. There's a lot going on out there at the moment is upgrades. -- desal plants, there's maintenance work. There's all sorts of different things and that we've got long-term train drivers that soda. And we work closely for Mtobaancing there's a combination of these as well. We do look at those as well. And we -- look, JVs going to run out for a lot longer and it's going to run out for longer than our current reason trucks. So we're cognizant of that, and we've taken eye on that, and we're working really closely with both Woodside and with Rio, we've developed prototype rooms for them and their needs should they wish to underpin the longer-term contract with us in the future.

Your next question comes from James Wilson with PAC Partners.

I'm just wondering with Community Solutions. You talked about the Crapo expansion. You have in the past mentioned expansion opportunities elsewhere. I think also on the call, you said that I can't remember the exact terminology, but Osprey was people lining up to get in or you had a wait list for Osprey. Is there an opportunity to expand spray and any other, I suppose, Community Solutions opportunities?

Yes. So we haven't expressed that we are expanding Seaport we have is that we actually are looking at -- what is the demand profile up there? Because if we are to make it soon, we wanted to based on some kind of facts as opposed to the current economic cycles are going up and down. Osprey is interesting. We're the manager of that. We don't own that side. So there is an opportunity yes, there is opportunities in that space. They probably more are aligned to building solutions, servicing because initially built Osprey many years ago. So those opportunities do exist because there are a couple of sites that have been earmarked by the Council for development to meet those needs.

So you can do a build on operate type team up for the council, you don't think or?

Those opportunities are out there. I don't want to get you too excited to -- and we certainly do have those conversations with those councils imported.

Yes. Okay. Okay. And any other sort of, say, expansion opportunities in community solutions that you can talk about or just give us a rough feel for?

I think you can say we're always looking out for the opportunities where it makes sense and where we can partner with people around development. There's a lot of need is just getting the solution right and the package right for that, and we absolutely remain alert to those opportunities. And just to reinforce, we are validating the demand and everything that is going on there with the deep dive at the moment to understand what does that opportunity look like and what those -- what would those investments we like to say real?

Your next question comes from Tim McArthur with Asymmetric Asset Management.

Just 1 question on Ripple and then a couple of questions on Building Solutions, please. Can you just clarify there was a comment made that because Rio Tinto runs through to or '27, there's much higher occupancy, but through the year, it's at 55%. So if you were to give occupancy for the first half of FY '27, what would that look like, please?

That's a contracted number. Contracted number. So we have the room that actually will -- that's the base -- that $64 million just assumes Rio only. And obviously, there are others that go on that between now and then you'd expect to contract additional rooms on top of that. So we're only what we got contract in the hand Yes.

I mean I think we're in a really unique period of running at 95% of unit is incredibly unique. We don't think that will go on for the next 5 years. is clearly a clearly a lot of demand just at this very moment in time.

Yes. Okay. And are there any other major projects sort of on the horizon that sort of I guess, equal what Rio Tinto has provided over the last 1.5 year or so?

Yes. There is -- I mean, there's always the SUEZ desal plant up there that is slated to start in FY '28. And then that's a $5 billion desal plant for the Karratha Region. That's probably the largest construction we're aware of that at the moment. We're just validating all of those DAs and construction tax with the council. And a lot of the Rio requirement is their base need, isn't it around the just the translator component of their workforce up there. So that doesn't kind of go away then gets supplemented by those additional big projects and capital works and major shuts. And there's a lot of operations up there, and they have these regular major shuts. And so we just have to ease that we're going to do a bit of a deep dive into what's scheduled and what's planned so that we really understand the demand profile. is very busy up there at the moment.

That's good to hear. On to Building Solutions. And so you singled out the Olapic Dam win, which is great that you've had. Can you talk just, I guess, in general terms about the tailwinds that are out there for the next few years for Building Solutions. You're obviously still winning work in terms of that sort of camp style building that you would for. But in terms of pivoting into affordable housing, so more highly speed sort of manufactured home, are you winning much work in that space? And how are you positioned for that?

I'll take that on because I was just up in Queensland last week, where I met with the minister after seeing a presentation at the National Press Club in the premier. There's a lot of work going on. They have a huge requirement to unlock a lot of housing including affordable housing, social housing, we've actually won a lot of that work, and we were actually up there to see of house is going to do be under their build program. We've also won quite a lot of additional work up there. And they do see modular is a really critical part of the solution to be able to get those -- that pipeline pushed out faster. So I would say we're successful in that affordable housing, the social housing with 1 work there. We've done the same thing, I think, in WA. We've got quite a good underlying presence in lifestyle village housing. So it's a capability that we definitely have, and we can win the work. There is a huge demand. But the real kind of -- a lot of other governments have been a bit slower to respond to it than the Queensland government. So we expect that to start coming through, but we haven't seen a lot of land on our opportunity list as yet.

Yes, it's a pop context our WA business, I know it might be -- everyone might think it's a mining can business, but 50% of that would be housing across lifestyle, but also Department of Housing. We're really a big player in WIB.

So WIB be your biggest market percentage terms being 50% that you're providing?

It is. Look, every 1 of the states has their own little segments and sectors Victoria might be a very big education state, but they all have their different things they do, which are we call their bolters and pebbles, but housing is definitely a bolder in.

Just to clear, that's not 50. Cate, it's not saying that's 50% of the market that we're not 50% of the WA market. What you're saying is 50% is nonresources can't related that the automatic thinking is, as per your question, was that Fleetwood is a majority accommodation camps for the resource companies across Australia. Yes, that is a major part of the business, but it's not the majority. And WA, everyone defaults that all we're doing is doing camps in the north, that's not correct. We just contracts with the Department of Housing for houses in WA. We've been doing schools again, education. The flavor to add on to what's been said is it's -- the in-situ is the competitor here. It's not so much the other modular builders the in-situ is the main competitor of the modular in Australia and all the states are different. And 1 of the reasons why New South Wales has been particularly difficult is because that's the state Middle East take-up of modular, the in-situ market here in New South Wales and say here because I'm sitting in the room here. is particularly high. So the aim for Fleetwood is to penetrate more against in-situ builder and provide the faster time to to completion than against in situ. So that's where the pie can be, and that's where the upside is for the company is the revenue base is not against us pinching it off the competitors. It's about us taking it off the in situ builders because construction market in Australia is strong. It's just about us with our competitors in the modular space, growing that growing the pie. So the modular compared -- the modular take of the total construction spend in Australia increases and gets more aligned to what it is in other countries in the world, Australia is a laggard.

Yes. In terms of like you've called out work as you normally do, is the turnaround time generally within 12 months. And so you're only getting contracted less than 12 months out on these modular builds. Is that fair?

I'm going to say, for the most part, yes. If it's high -- it's got a high level of design in uniqueness, it might be longer. But if you take something out to our repeatable work in Vitoria, that probably has a really low level of design if you got an order today, they'd be probably having it on the factory floor on Friday. So it depends on the mix of work, but for the most types, our order bank gets consumed quickly within 6 to 9 months.

Yes. And do you get sort of -- obviously, the contracts is what you're sort of calling out when you give work on. But does the conversation start -- so with the Department of Education many months prior to that? Because obviously, the planning which goes in is a lot longer than the turnaround time, which is very quick for Fleetwood. Or do you not have that line of sight do you just get the order when we need it as opposed to being part of the discussion as they're planning their builds?

Well, there is a bit of a pattern to the -- so we're speaking now specifically about education and where they come from Victoria and in Queensland, but there is a bit of a pattern to when they come in because they typically get towards getting them ready for day 1 term one. Or they'll have a specific relocating program in Victoria. So we do -- we've worked with them for over 20 years, and it's repeatable revenue that keeps coming at us. So there is a lot of sight and there is some key account management at the frontline with the staff around how that comes through. It's just -- it's quite a unique situation where you might not have a contract ability. You might land this afternoon and it starts next week. And we have a portion of our work that is is like that. And then we have a portion of it, which we tender. And we over a longer period, which is far more traditional in this area.

Okay. The previous call, I just made a comment about second half of FY '25 to the first half of FY '26 being similar revenue but a lower margin. Could you just -- you made a comment, Cate, I think the -- you said fixed costs that you couldn't defray. Can you just explain a bit more what those fixed costs were in this half, which led to that margin erosion? And I guess as a follow-on question to that, going forward, do you -- are you looking to sort of flex business in terms of cutting some costs out based on sort of where revenue is at? Or do you just have to wear that low margin which you in the first half because you sort of need to keep the cost base for the future?

Good question and good pickup. Look, I think a couple of things happened. We geared up with some strategic things that we're working on as we added some additional headcount and that hasn't extracted any value for us yet, and we'll be focused on on doing that, and that's in the leaning streamlining some of our business out. So -- we expect to extract value from that. One of the other things we've got some higher cost was in leases, 1 of our leases renewed and also a higher cost base in the second half of last year. Just 1 of those things we can't do too much about that. The gross profit was slightly lower half-on-half. But can jump around, but because it's such a big revenue number, it can have an impact of a couple of million dollars. But what we're -- Andrea and I are really focused on now is making sure that we can actually centralize a few more of the costs so that we can take the lumps out of the business. So the businesses has had a, I guess, a preference to running like a federated model, and that's not very efficient, particularly when our business can be lumpy. And so we need to put centralized support services and costs in low-cost locations. These can be in Australia. And also look for other more simplified ways of running the business to take the lumps out. So when these things do happen, we are able to defray fixed costs. And this could be variablizing or even some of our or design or are estimating or even using AI in the estimating space. So we're looking at exploring all of those things to make some of the cost base a little bit more variable. We can't do too much about our rent. That is what it is. It's just stuck -- it's our job to make sure that we're actually winning enough on the top line and pushing it through the sausage factory so that we can defer the fixed costs.

Okay. That's a great explanation. And so just, I guess, a follow-on and final question for me. that great that you've called out that your aim is to hit return on capital employed to 20% over the next 2 years. It sounds from what you're saying that -- the driving force for that will be to grow the top line? Is that fair? Or is there sort of more that you're looking to in?

To me -- and look, to make part of that the -- what I see in the future is that to win more in the residential, in particular, you're going to have to be able to be more competitive against the ancitory build model. So the stuff that Pat was talking about around really streamlining those things that are part of our builder model that we really want to challenge for a manufacturing model. I think that, that will really help us. And so the 2 things will work together. And we're focused on -- we're very focused on both the top line and the bottom line to make sure that we can get that faster.

There are no further questions at this time. I'll now hand back to Mr. Pidcock for closing remarks.

Okay. Well, thank you very much for your questions. And I just want to finish by saying a big thank you to all of our shareholders for your ongoing support. -- and particularly to everyone who joined us on the call today. I really look forward to meeting many of you in person over the coming weeks and months.

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