Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Hi, everyone. Thanks for taking the time to join us today for this investor update. I've now been with Fleetwood for 4.5 months. And over that time, I've been impressed by many aspects of the business, particularly the deep and trusted customer relationships we've built, the quality of the products and services we provide and the expertise of our people in managing and delivering complex projects. I'm more convinced than ever of the enormous opportunities ahead of us. You will have seen the announcement that we made this morning about two important decisions to streamline the business by divesting Camec and to reset our Building Solutions cost base by closing our facility in New South Wales and moving manufacturing for the New South Wales market to our sites in Queensland and Victoria. These decisions are never easy, particularly for the people directly impacted, but I believe they are critical to improving our competitiveness and focusing resources on growing our core Building Solutions and Community Solutions businesses. We set up this call today to provide further background on these two decisions, outline the business and strategic focus and give you an opportunity to ask questions. The market response this morning was clearly not what we wanted, and we'll take the opportunity to also clarify a few points in this presentation. Firstly, we've made the decision to exit the recreational vehicle segment by divesting Camec. Fleetwood has a long history in the RV segment, which has contributed significant value over time, but it is increasingly less aligned with our future direction. Our view is that Camec, a leading distributor of RV parts and accessories, is more naturally aligned with other businesses operating in the sector. We will engage with potential acquirers and expect to exit the segment by the end of this calendar year. We expect restructuring costs of between $8 million to $10 million, and we'll be treating RV Solutions as discontinued operations from FY '27. These restructuring costs include cash and noncash elements. And while we won't be certain until we finalize our divestment, we expect to liberate $7 million to $9 million in cash. We also announced that we are consolidating our manufacturing footprint by closing our facility in Smithfield, New South Wales. Importantly, New South Wales remains a critical market for Building Solutions, and we'll retain local sales and project delivery team to support our customers and grow revenue. Fleetwood's modular building capability is well suited to addressing high cost and lengthy building times in this large market. Improving manufacturing efficiency is a key strategic focus for Fleetwood. To support this, we centralized our manufacturing nationally a couple of months ago and brought in additional manufacturing leadership capability. This really enables us to leverage available capacity across our Queensland and Victorian sites to support New South Wales and to structurally lower our cost base. We expect to incur restructuring costs of between $12 million and $14 million to cover lease exit, asset impairments and redundancies and to achieve annualized cost savings of $8 million to $9 million from Q2 in FY '27. Together, these changes simplify Fleetwood's operating model into two core divisions: Building Solutions, a more efficient and profitable division and the leading manufacturer of modular buildings in Australia; and Community Solutions, which use our modular buildings to provide accommodation for transient workers in Karratha and key workers in Port Hedland. We gave a trading update in the announcement today. And to be clear, the underlying EBIT range we gave of between $35 million and $39 million does include results from RV Solutions and New South Wales, and Building Solutions would have been profitable without the losses from the Smithfield operations. Now looking at Building Solutions. I'm very confident in the growth potential of our Building Solutions division. We all recognize that housing and infrastructure supply is constrained in Australia, and this creates a significant opportunity for Fleetwood given our scalable modular building capacity and national reach. As the largest modular builder in the country with 6 manufacturing facilities and nearly 0.25 million square meters of production capacity, we have the scale and capability to deliver large contracts at speed. Our broad customer base spans education, housing, mining, infrastructure, government and defense, and we have long-tenured deep relationships with core customers. This gives us solid base volume and helps insulate us from sector-specific volatility. We are not just a modular builder, we also provide customers with turnkey solutions from design to installation and site works. This is vital in many of the markets in which we operate. And we have high-quality trades with deep knowledge of local building standards and market expectations. All of this gives Fleetwood a clear advantage and positions us well for growth. So where will we grow? This table indicates how much we currently do in each market segment and geography. The white space represents the growth opportunity for us. Our goal is to lead the market nationally in education, housing and defense while continuing to support other sectors relevant to each region. We are very strong in public education in Queensland and Victoria, and we make outstanding permanent and relocatable buildings for this sector. That gives us an opportunity to grow in regions where we are not yet as established. In Queensland and WA, we built a significant number of homes for social housing and for private developers of lifestyle and build-to-rent communities. We also built homes for regional and remote areas where access to trades can be challenging. These are high-spec homes built in short time frames and at a competitive price point, which gives us confidence that we can do more in housing nationally. In defense, we see significant opportunity to support the growing and changing needs of this critical sector, and we have recently started work with defense in WA and New South Wales. We believe we can grow in areas where we have proven capability and are underpenetrated. Now to our Community Solutions division. Fleetwood Community Solutions has two key accommodation assets in the Pilbara, delivering recurring revenue and returns with high occupancy underpinned by critical accommodation shortages. In Karratha, we have Searipple, a 1,250-bed transient worker accommodation camp, providing fully catered and serviced accommodation for workers on construction projects, major maintenance shuts and FIFO work. Searipple has high utilization due to the scale and diversity of operations in the Karratha region, including 3 Rio Tinto ports, Woodside gas and LNG operations, urea and fertilizer plants currently under development, the [ Zanthia ]salt mine and Sino's iron operations. These operations also require supporting infrastructure, including water, power and roads that must be built and maintained. All of this activity gives Searipple significant recurring earnings. In Port Hedland, we built and now manage Osprey, a 293-home community owned by the city of Port Hedland to house key workers such as teachers, police, retail and hospitality staff. We effectively operate as the agent with all homes and commute facilities managed and maintained by Fleetwood on a management fee and cost recovery basis. Osprey pictured here is a highly attractive community with a large waiting list of tenants. There is very strong demand for transit worker accommodation in Karratha from a large number of major projects currently underway with more in the pipeline. Searipple is close to fully booked for the rest of this calendar year, and we expect high demand to continue for at least the next five years based on projects underway and planned. When it comes to our strategic priorities, I have three immediate areas of focus. Firstly, to drive growth in our target markets. The Australian building market is large, and we have proven capability in our key sectors of education and housing where modular building methods solve real problems of speed, quality and efficiency. We have strong relationships with our current customers, and we also need to build relationships with the right new partners to support our growth aspirations. Second is to accelerate excellence in modular manufacturing. The goal of modern methods of construction is to bring manufacturing efficiencies to the building process. To do this, we've changed our manufacturing structure, brought in additional expertise, and we're developing plans to standardize processes, components and subassemblies, better leverage scarce trades and reduce labor and material waste. This will make us more competitive against standard building processes and support our growth. My third focus area is to lift capability and culture. We have many highly skilled and capable people at Fleetwood, and we are continuing to strengthen capability in areas that will be important for our next phase of growth. Capability is not just about people, it also encompasses the systems that support our work and equip our people with the information and insights they need to do their jobs well. We can do more in this space, integrating disparate systems across our end-to-end process and using AI to better support our teams, especially in our front-end scoping design and estimating. I want to build a really collaborative and achievement-oriented culture where everyone can do their best work, supported by the right capabilities, systems and ways of working. In summary, Fleetwood is Australia's largest and most capable modular manufacturer, well positioned to help address the national housing shortfall and support rising government infrastructure spend. Our Pilbara position gives us sustainable earnings with high occupancy expected to persist over the next 5 years. We operate in markets with a long funded pipeline of activity, including more than $30 billion of resources and infrastructure projects in the Karratha region alone as well as large national markets in housing, education, defense and infrastructure. We are now a more focused business with a lower cost base, and we have a strong balance sheet with significant net cash and ownership of TWA assets. Thank you. We are now happy to take questions.

[Operator Instructions] Your first question today comes from Caleb Weng with PAC Partners.

And just on the restructuring costs, you mentioned there is some noncash components. So of the $20 million to $24 million, how much of it should we think is cash versus noncash?

I'll let Cate answer that.

So Caleb, might be if I step you through them separately, would that be easier. So as it relates to citing impairment of $5 million to $10 million of restructuring costs, none of that will be cash on this side of 30 June. $2.3 million will relate to fixed assets, leasehold improvements and assets that we don't expect to sell to somebody else. As it relates to RV Solutions, we've not -- there is a bit of uncertainty, hence the wide range in the numbers because we've not decided exactly the pathway to exit. So these numbers can change based on that. But rest assured, Andrea and I are trying to extract as much value as we can for shareholders and also for our employees on the way through. It's possible that we will extract somewhere between $7 million to $9.5 million and hopefully $10 million in the first half of FY '27, so in terms of cash on that. Moving now to FBS facility system, there's a little bit more certainty there than there is in the closure of the two facilities. The range is wide because we're still negotiating now and exactly [indiscernible]. Except we understand our employee redundancy costs, but they also won't happen until first half '27. In fact, none of these costs will happen before 30 June. There is a noncash impairment of fixed assets of between $3 million and $3.5 million relating to the Smithfield site. However, there is a range on that because we don't know how much we can actually recover from selling some of those assets. But again, we expect the cash outflow for that to be in the range of about $10 million, but not until first half '27. And to some extent, the two of those -- the cash inflow and outflow should -- we expect to almost offset in the first half '27.

Okay. That's helpful. So just given, I guess, it sounds like the balance sheet is going to be quite healthy by 30th of June and also going into the first half. So maybe color around thinking of suspending the dividend for the second half.

So look, suspending it just -- okay, again, indicating that we won't have current year profit. That doesn't mean the Board won't resolve to do something else, it's entirely up to them at this point. But we wanted to signal that our underlying EBIT is exactly as consensus, and we're taking some material and very hard decisions related to restructuring on this side of 30 June to impair the Smithfield site and also to take some provisions for RV Solutions. But then that could knock out the profit for the first half -- the second half, sorry.

Okay. And just on Building Solutions, maybe some color on the order book, if you can.

The order book? At the moment, the order book is really strong as we go into the end of the year. Yes, we're sitting at about $170 million of work in hand at the moment, $170 million. Yes.

And, just to round out your question on cash. On the year-end cash position, we sort of expected to sit in the range of roughly around $45 million, somewhere in that range at 30 June.

Okay. Got you. And so you mentioned that excluding New South Wales, Building Solutions will be profitable -- would have been profitable for the full year. That's for both halves?

Definitely for both halves.

Definitely for both halves. And if you think about it for the next year, we've given you a range of -- we had a significant fixed cost there, $8 million to $9 million, which we won't have to carry into the future. And when you think about the FY '27 earnings, think about 75% of those. So from Q2 '27, that will unlock about $6 million to $7 million of improved EBIT for '27. And the decision on New South Wales whilst difficult is roughly a 1.5 to 1.7-year payback.

Your next question comes from Tony Mitchell with Shaw and Partners.

You mentioned that the share market reaction hasn't been good. Well, it hasn't been. Really, the company has been [indiscernible] in the last year or so. I think I've taken a bath, my clients have taken a bath. Now there's no dividends. What I'd strongly suggest to you is this, you need -- you did a $5 million buyback, you need to do one of $13 million to $15 million. If you've got cash, you've got to show the market you mean business. I applaud you on these decisions. But the market is not buying it for some reason. And I think the least you can do for the company and shareholders is to do a buyback of about $13 million because your market cap now is down to $133 million.

Thanks, Tony. So just one point. We did indicate that it's expected that a final dividend will not be declared. Obviously, that's not a decision for us to make. That's a Board decision that they'll make once the year is finalized. We're just flagging that at the moment given that normally the dividend policy speaks to the NPAT results. But we absolutely are very cognizant of the need to make sure that we are maintaining the share price and having value back to our investors.

And would you commit to doing another buyback a decent amount?

Sorry, we're not able to do that. Make that commitment, Tony. It's obviously something that will be discussed with the Board once we understand where we land for the year.

Well, the stock is in the toilet basically. That's where it is. And I think that the other thing that needs to be done is, can you give an EBITDA forecast for 2027 underlying at this stage?

At this point, Tony, no, the Board would have to approve guidance being published to the market.

And sorry, Tony, are you talking about FY '27 or FY '26?

No, '26 is irrelevant. It's gone, it's finished. We want to know '27. That's what we want to know.

Yes. Look, Tony, yes, so unfortunately, Andrea and I can't do that. We can recommend -- certainly can recommend to the Board and we'll have those discussions with the Board. But what we can say is that Searipple still remain very, very strong next year and 98% in first half, and it continues to be even strong. So starting the year with 71% occupancy, which is only as behind where it started this year, and we're going to close with incredibly high occupancy of like 96%, 97% for the full year. So we expect some really good earnings from Searipple. So it might come off ever so slightly, but it will be strong earnings from Community Solutions again next year. Building Solutions will have the benefit of lower earnings -- sorry, higher earnings from a lower fixed cost base. So they'll have -- they'll be liberated from some of their fixed costs. So we know that it will be $6 million to $7 million higher by making this decision today.

Okay. But see, again, these are all generalities. We can't operate off generalities. We need some specific numbers, and I employ you to get -- make an announcement what the underlying EBITDA is going to be for '27. And I think you owe it to shareholders to do this because we're not playing -- this is not academics. I've lost money and the shareholders have taken a bath and I don't like it. Mining in Australia is booming. And I don't understand this that given the occupancy you've got, why haven't you applied to the Karratha Council to increase the number of rooms at Searipple. You've mentioned all the developments that are occurring and will occur. You said it's going to be strong for the next 5 years. Why wouldn't you increase the number of rooms? It's so obvious. I just don't understand why you don't do it.

Yes. Thanks, Tony. Look, obviously, we have been putting -- working with -- for some time on how we can expand our presence in Karratha, and we expect to have some updates in the future around that. That's not the purpose of this call today.

No, I understand that. But do you see where we are? As an investor, I've got clients ringing up and abusing me because the stock price has collapsed. And what do I tell them? What can I tell them? Because it's all generalities. There's not -- you need specific numbers. And I understand you're saying it's not the point of the call today, but it is because Searipple is the best asset you've got -- and you should be able to tell people what it's going to earn in '26, what it's going to earn in '27. You should be able to give some color on the rooms. You should be able to talk about what the room rates are going to be. Why can't you do simple things like that? That is your best asset. All this stuff here, I think these decisions are good that you've made today. But the problem with it is there's no specific number. I mean many, many companies now in the mining space have made forecast for '27 and you know where you're at. But with you, you have no idea. There's nothing you can hang your hand on.

Thanks, Tony. We'll take all of that on Board. We'll take that on Board. Searipple will be strong...

I hope you take it on Board early because my clients are [ soothing ] and so am I because I've lost a pile of dough, and you guys should have been able to do a much better job with the assets you've got. I mean you're talking about the fact you're the biggest modular player in Australia. But look at it. I mean you have to close Smithfield. You're not making any money. You tell us the order book is $170 million. Well, why can't you tell us what sort of numbers you're going to make for next year and the year after? You see it's just -- there's not enough meat on the bone. That's the problem.

Thanks you for that, Tony. We'll take it on board.

We'll now pause a short moment to allow any final questions to register.

I have one by e-mail. Just one moment, because they couldn't register. What metrics have Fleetwood used to classify Fleetwood as the largest modular builder in Australia?

So I've got to say one of the things that I've been looking at is comparing against some of our competitors and looking at what information I can glean out of ASIC reports and the information public on their websites about where they operate. So certainly, if I look at the revenue that we get from modular construction specifically, I can say that, that is more than I have seen from any of the modular builders where I've been able to get their financial reports out of ASIC. And that is, of course, everyone that's got any chance of being at the same scale because you have to -- the reporting threshold is $50 million. So we definitely have the highest revenue from our Building Solutions. Our Building Solutions revenue is not just from our modular building. It also does come from site works and other sort of things -- services that we do in and around that modular building. But even taking that in consideration, that is where we stand. Also, we just -- the number of facilities in the area of those facilities combined does make it that way. If you look at where we have the foundation panel agreements, we have very large positions with very large government authorities and private customers in the space. And so that gives us confidence as well in making that claim.

I have one final question from e-mail. I will -- sorry, I've got more coming in by e-mail now. What impact do you anticipate the government's recent changes to CGT may have on Fleetwood modular sales? I'll help you answer that, Andrea. I don't think that they will have a large impact on Fleetwood modular sales. The composition of our revenue comes from commercial on-site codes, those types of customers also from mining and those customers won't be necessarily impacted from this, neither education. And where it relates to housing, a vast majority of our housing is done with government agencies and then a smaller extent is done with housing providers. We have little impact or exposure to be direct to investors. So I don't think that we're going to have a material impact from CGT, the changes in the recent CGT legislation. The final question is, are the industries in the media with Caravan business failing over regularly late. How confident are you on the sale?

So we've made the decision to definitely divest the industry. We're hopeful that we will do that through a sale to other trade operators. And I think the scale of the restructuring costs that we've announced really indicates that we're taking a very realistic view of what that could look like. But we do have other avenues that we are looking at taking in the event that we're not able to get a trade sale away. It is a difficult decision to sell what is, I think, a really good business in a tough market. But the decision was taken because really, there is just no -- it doesn't really belong in our portfolio. It doesn't make sense for us. And so we thought we can liberate the cash and spend it on other things more profitably than retaining that business.

Yes. Look, I might just build on Andrea's answer there. How confident are we can get sale and liberate cash. Really confident. I think Camec is a very good brand. We've had a number of interested parties over time talk to us about wanting to acquire Camec. So that's certainly really encouraging. But I guess today's decision was a little bit nuanced in that we've decided not to operate in the RV Solutions segment. So what does that mean for Camec? That means that we will find somebody to buy parts of it or all of it or cease operating it at some stage across FY '27. And we have looked and examined all of those options meticulously over the last number of months, but it's time to stop looking at them and to start doing them and to start unlocking that cash and moving on to the other growth parts of the business because it's very hard to grow a business and save the business all at the same time. And I think Andrea and I just really want to get on to the business of growing communities and building solutions together.

Pardon me, we've had another phone question registered. This one is from Tim McArthur with Asymmetric Asset Management.

Just one question from me. Just on RV. When you sell that, what corporate costs are allocated to RV that you have to reallocate across Building Solutions and Community Solutions, please?

I'll take that first to say that we have been cognizant as we've looked to shrink the business to make sure that all of the shared services are also proportionately managed. And so those restructuring costs do incorporate the appropriate reductions. For Camec specifically, they have operated as a fairly distinct business unit for some time. So there's not a huge amount of overlapping support. There is obviously some, and we are taking a look at that. I think the Smithfield site closure involves a bit more rationalization of our central overheads as well. Is there anything you want to add, Cate?

I think that's fair. I've been looking at it as well. So I think these two decisions came a little bit late in the year. But I have been looking at ways to rationalize IT and tech costs, licensing and all of those other things that need to shrink on the way through as well as the expensive cost of headcount to support. So I'm expecting that we will have a little bit of shrinkage. Camec business is 60 FTEs in total. So I am expecting to see some shrinking of those costs corporately that will support that business. I had another question in from, do we have an update on renegotiation Searipple?

So Rio have only just put out their tender for their next contract period. So we're obviously engaging very closely with them on that process. The fact that it is now when there is very limited accommodation gives us great confidence that we will be able to negotiate a good outcome with Rio. Obviously, how much that is will depend on what their forward projections of demand really are. And so we're sort of working through that with them at the moment.

Yes. Look, I guess the really interesting thing about Karratha is forward bookings were happening to us 2, 3 months in advance. But now we're seeing that can be filled up 7, 8 months in advance. So for Andrea, it was pretty pleasing for us going into the start of the year knowing that we've got no more rooms to sell, and we also got a tender to respond to. So yes, I wouldn't like to be buying rooms in a market where there are no rooms left. So I think we're really keen to work with Rio Tinto because they're an excellent counterparty that we'd like to have a long-term relationship with. And I hope that answers your question. Hopefully, we've got an update for you in a couple of months.

Thank you. As there are no further questions, I'll now hand back to Ms. Pidcock for closing remarks.

All right. Well, just to finish up. Today, we announced two difficult decisions. I think that generally speaking, people understand that these were necessary decisions, difficult decisions. I hope we've been able to give a bit more clarity on what the financial impact of those decisions will be in the short and medium term. Thank you very much for your attendance today.