Fleetwood Limited (FZS.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Fleetwood Limited FY '25 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Bruce Nicholson, CEO. Please go ahead, sir.

Thank you, and thank you for joining us at our investor briefing today as we present our FY '25 results and provide an update on our business outlook. We appreciate this is a busy time period for people, and so we are committed to delivering a clear and concise overview as well as allowing ample time for your questions at the end. We value your commitment, and thank you for your continued interest in Fleetwood. I'd like to acknowledge the traditional owners of the land on which we meet today, for Cate and myself, that's the Gadigal people of the Eora Nation here in Sydney, and we pay our respects to elders past and present. Let me make some brief introductions. My name is Bruce Nicholson, and I'm the Managing Director and CEO of Fleetwood. I'm pleased to be here today with Cate Chandler, Fleetwood's Chief Financial Officer. There will be an opportunity for questions at the end of the presentation for those of you who have registered for the conference call. We'll do our best to answer all questions today. However, if we do run out of time, please feel free to reach out afterwards, and we'll ensure we get back to you in due course. Moving over to our vision, purpose and values. Our vision is clear to be the leader in reimagining sustainable spaces. We are making meaningful progress towards this goal, whether by pursuing emerging opportunities in key worker and social housing markets through the Building Solutions business, enhancing the customer experience at our privileged Searipple asset in Karratha or continuing to introduce innovative products to 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 4 -- sorry, 5 core values: zero harm to our people and the environment, collaboration, we're better when we work together, integrity, we say what we do and we do what we say. Accountability, we hold ourselves and others to account. Innovation will grow through innovation. These values shape how we operate every day and have played a crucial role in building a positive and inclusive culture here at Fleetwood. All of this aligns with our overarching purpose to create innovative spaces where people can thrive. With a well-defined set of values, an ambitious vision and a compelling purpose, we are positioned for lasting success. And I'm confident that these foundations will continue to drive positive outcomes for Fleetwood in the many years ahead. For those of you joining us who may be less familiar with Fleetwood's journey, allow me to provide a brief overview of our business. Fleetwood operates through 3 distinct business segments: our Community Solutions business, our Building Solutions business and a Recreational Vehicle Solutions business. Community Solutions manages accommodation villages, including Searipple, the transient worker, the largest transient worker accommodation facility in the Pilbara region in Karratha as well as key worker housing at Osprey in Port Hedland. This outstanding business consistently delivers robust returns and positions us to capitalize on the significant growth projected in Western Australia's Northwest. We're strategically leveraging our expertise in modular construction to pursue broader opportunities in Community Solutions. 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, sporting facilities and lifestyle, key worker and social housing segments right across Australia. Many are aware that this business has undergone a comprehensive turnaround in recent years. I'm pleased to report that we've stabilized operations and are now focused on unlocking the full potential of our modular manufacturing business. An area where we anticipate substantial long-term growth and sustainable returns. RV Solutions represents our heritage. Fleetwood has been innovating in the caravan and camping sector for more than 60 years. Today, we stand as a leading supplier of parts and accessories for caravans, camper vans and motor homes as well as a trusted provider of aftermarket products to recreational vehicles across Australia and New Zealand. Moving to our highlights slide. These highlights underscore the value of our build, transform and grow strategy across all areas of the Fleetwood business. In 2025 financial year, we achieved substantial increases in revenue, earnings, profit and cash, enabling us to deliver a significantly higher dividend to our valued shareholders. Our underlying EBIT before interest and taxes for FY '25 rose to $37.7 million, an impressive $29.3 million increase from the previous year if we exclude the $11 million of restructuring and impairment costs related to the RV Solutions business. Net profit after tax reached $14.6 million, reflecting a remarkable 284% uplift compared to the prior year. In recognition of this strong performance, the Board has declared a final fully franked dividend of $0.135 per share, bringing the total full year fully franked dividend to $0.25 per share, a 400% increase on last financial year, demonstrating our steadfast commitment to maximizing shareholder returns. Robust underlying earnings, disciplined capital management delivered $27 million in free cash flow, a $29.7 million improvement on FY '24. And these outstanding results were driven by strong execution in our Building Solutions business as well as the increased occupancy at our Searipple Village in Karratha, where full year occupancy climbed to 84%, up from 72% in the first half of 2025 and 34% in FY '24. Collectively, these achievements not only highlighted our focus on sustainable financial growth, but also reflect the resilience and dedication of the entire Fleetwood team. Reflecting on our year-on-year progress truly highlights the remarkable advances we have made within the Building Solutions business and underscores the strategic significance of our price Searipple asset in the Pilbara. As evidenced by this year's performance, Community Solutions has emerged as a flagship segment for our business, and we're confident that this momentum continuing, complemented by sustained growth in our Building Solutions business. And with that, I'm delighted to invite our CFO, Cate Chandler, to share some further insights into our financial achievements for the year.

Thanks, Bruce, and good morning, everyone. In terms of revenue, in the year, Fleetwood delivered very strong revenue growth of 20%, supported by 84% occupancy in Community Solutions at the Searipple Village in Karratha. Contract wins, including growth in repeatable revenue in Building Solutions, which closed at 83% of revenue. EBIT was $26.7 million, up from $8.2 million last year, and the net profit was $14.6 million, up from $3.8 million the year before. The step-up in EBIT performance was off the back of Building Solutions revenue growth, improved project execution and Community Solutions occupancy. Together, they provided an EBIT uplift of $36.5 million. The economic and competitive environment for RV Solutions was challenging across FY '25. RV Solutions reported a decline in both revenue and EBIT. This decline was directly attributable to an 18% decline in locally manufactured recreational vehicles sold into the OEM segment as consumers shifted to lower-cost imported options. The impact of the market decline and the rising input costs has not always been offset by price increases, resulting in the recognition of $9.1 million goodwill impairment and $1.9 million of restructuring costs in the first half to reduce the manufacturing cost base in response to the shifting market conditions where RV Solutions has responded by streamlining operations and sourcing more products internationally to improve efficiency. The impairment of goodwill is not deductible for tax, and this resulted in a higher effective tax rate, which has a full 100% impact on the net profit after tax. Excluding the impact of the RV Solutions restructuring costs and goodwill impairment, the underlying EBIT was $37.7 million, a $29.5 million improvement or 360% improvement on the previous year. Turning now to cash flow. In the year, we generated $27 million in free cash flow, and we closed the year with $51 million in cash, up $11.7 million on the last year. Our net CapEx was $6.4 million, with most of that being directed towards Community Solutions and the Searipple Village, where we installed 6 new prototype rooms, upgraded WiFi, laundry, kitchen and dining facilities. In the first half, we received a tax refund for $6.5 million, which was offset largely by installments paid during the year. In the year, we bought back 929,000 shares on market for $2.2 million as part of the share buyback announced to the market on the 14th of May in 2024. Turning now to capital management. Our cash position as a business remains very good, supported by significant improvement in our underlying earnings and disciplined working capital management, closing the year with $51 million in cash. Reflective of this significant improvement in earnings, positive outlook and strong balance sheet, the Board was able to declare a fully franked dividend of $0.135 per share, bringing the full year to $0.25 per share, up $0.20 or 400% from the last year. The full year dividend payment is reflective of 100% payout of net profit after tax, excluding the impact of the $9.1 million noncash impairment. Since the commencement of the buyback, we have acquired just under 1.1 million shares to this reporting date. And pleasingly, our share price is considerably higher than when we first put the facility in place in 2025 -- 2024. The buyback is no longer on foot and it lapsed in 2025. Shares on issue at 30 June were 92.3 million, and this excludes this $1.8 million of shares canceled, providing an earnings per share accretion of just under 2%. Going forward, the Board have reconfirmed the dividend policy in FY '26 will be to pay 100% of net profit after tax. I will now hand you back to Bruce Nicholson, who will take you through the segment results. Back to you, Bruce.

Thanks, Cate. Let's have a look at Community Solutions. As I've said previously, Community Solutions had a stunning year in FY '25, delivering an EBIT of $39.2 million, up $27.7 on the previous year. This reflects the benefit of our long-term partnerships and the quality of Fleetwood's offering in the region, which delivered significantly higher occupancies at Searipple Village in Karratha, which, as I said, had an 84% full year occupancy. As Cate said, investment in Searipple continued through the year with 6 new prototype rooms, upgrades to Wi-Fi infrastructure, laundry, kitchen and dining facilities. Fleetwood has a deep understanding of the transient workforce accommodation, lifestyle expectations in the region, and that has guided these targeted enhancements, including improved food and service standards. The preventive maintenance program involved a village-wide refresh, including introducing new recreational spaces, guest experiences, enhancing landscaping, upgrading security measures to ensure the village continues to meet the evolving needs of our guests. Osprey Village in Port Hedland remains fully occupied with a waitlist of potential tenants, demonstrating the ongoing demand for social and affordable housing in that region. Turning to Building Solutions performance. Our Building Solutions business continues to improve with EBIT growing 400% in the year to $11 million. Across the year, we maintained focus on delivering quality revenue in modular construction, supported by education, housing and commercial panel-based businesses and diversifying our revenue streams into health, mining, lifestyle villages, housing and industrial sectors whilst targeting sustainable margins. This helped us to exceed our medium-term ROCE target of 15% a year earlier than originally planned. Our current order bank stands at $115 million with more than $200 million of formal tenders submitted and awaiting decisions. Before we leave the Building Solutions business, I'm very proud to showcase some of the fine examples of projects that helped us to underpin our strong results in FY '25. These images display the diverse range of projects that Fleetwood undertakes right across Australia, underpinned by our national manufacturing footprint and the ongoing growing acceptance of modular as a viable alternative to in situ construction. Switching to our RV Solutions business. As we've said, our RV Solutions has faced some significant challenges due to the cost of living pressures reducing consumer spending, particularly in the OEM or original equipment manufacturers, local manufacturing segment. Although the outlook is uncertain, we remain very optimistic about the long-term prospects, particularly in the aftermarket segment. Not shying away from the market dynamics, while the local OEM or caravan manufacturing market declined by 18% in the year, Fleet was able to partially offset this with progress in the aftermarket segment, delivering new products and targeted price increases. The large fleet of caravans, camper vans and campa trails in service across Australia and New Zealand supports ongoing aftermarket demand for our products and services, and we saw the elements hold up significantly -- sorry, we saw this element hold up well in the year. As mentioned earlier, a strategic RV Solutions business resulted in a $9.1 million impairment of goodwill and a one-off $1.9 million restructuring cost to rightsize this business and lower the cost base. While this segment remains challenging, the plans to reduce operating costs and generate improved earnings are starting to gain traction. If we now look at the segment-by-segment strategy update and outlook, the Community Solutions, our strategic direction for Community Solutions business in the latter half of FY '25 and beyond is firmly anchored in optimizing the Searipple Village and harnessing any emerging prospects across the Karratha region. We remain focused on maximizing the value of Searipple Village throughout the economic cycle by securing contracted base occupancy and strategically integrating additional demand as and when these opportunities arise. As of today, Searipple has contracted occupancy. I'll repeat that, contracted occupancy on take-or-pay contracts of 82% for FY '26, with further upside anticipated as the region -- regional project activity intensifies, and we see scheduled shutdowns proceed this financial year. These factors position Fleetwood favorably to capitalize on the expected continuation of planned developments across the oil, gas, fertilizer and energy sectors in the years ahead. The Karratha region continues to benefit from a diverse pipeline of projects and infrastructure investments, which will maintain strong utilization of Searipple into FY '26 and hopefully well beyond. Meanwhile, Osprey Village continues to demonstrate robust demand for remote key worker accommodation and social housing, evidenced by the substantial waiting list for tenancies. This underscores the urgent need for accessible housing solutions within the region, and we remain committed to meeting this demand while supporting overall community well-being. Additionally, we continue to prudently evaluate build, own, operate and transfer and build-to-rent opportunities across the mining, residential and key worker segments. Collectively, these strategic initiatives are aimed at mitigating the cyclical nature of the Searipple business, ensuring a stable revenue stream and advancing our commitment to sustainable community development. Moving across to the Building Solutions strategy and outlook. Looking ahead to FY '26, our strategic focus on Building Solutions remains unwavering. We are committed to sustaining momentum and accelerating our transformation from a traditional builder to an innovative manufacturer. Our Build, Transform and Growth strategy serves as a clear road map to enhance the quality and reliability of our earnings with a particular emphasis on elevating our performance within Building Solutions. Our ambition is to lead the industry in modular manufacturing by securing projects specifically designed for modular construction, demonstrating a dedication to both innovation and excellence. The increasing market acceptance of modular construction as a quality, cost-effective and timely solution continues to propel our growth. This trend has significantly enhanced our brand recognition and opened new opportunities across lifestyle villages, social housing, career accommodation and also private education sectors. As pioneers in modular construction, we actively engage with project funders, Commonwealth government, community housing organizations, industry partners to showcase the advantages of modular construction. Notably, in May, Fleetwood renewed its long-held standing offer agreement with the Queensland Education Department for the supply of prefabricated buildings, extending our partnership for another 10 years. Furthermore, in April, we were admitted to the Western Australian Department of Finance Education Panel for the supply of modular buildings with an initial 3-year term, further strengthening the panel agreements that support our business. Our Building Solutions order bank currently stands at $115 million, showing only a slight decrease from the previous half. Client engagement remains very robust. Our repeat business has risen from 74% in FY '24 to 83% in FY '25, a testament to our clients' confidence in Fleetwood's ability to deliver quality outcomes for them. In addition to this, as I've said, we have over $200 million in formal tenders submitted and pending decision. Beyond the order bank, more than 65% of the Building Solutions revenue is derived from repeatable long-term panel agreements in education, housing, commercial sectors across 3 states. This positions us favorably to achieve up to 10% revenue growth across FY '26. Collectively, these strategic initiatives not only position Fleetwood to immediate success, but also lay long-term foundations for sustainable growth and industry leadership in modular. Shifting to RV Solutions. Despite ongoing challenges in the RV sector, the strategic initiatives implemented to streamline our cost base such as optimizing manufacturing and warehousing, rationalizing product lines and reducing overheads during FY '25 are beginning to yield tangible results, allowing the business to stabilize. With the continued strength of the aftermarket segment, supported by a robust of over 1 million registered RVs across Australia and New Zealand, we remain focused on developing and launching new products while executing targeted price increases to further enhance margins. These measures are designed to return the RV Solutions business to profitability over FY '26. Moving to Slide 22 in our summary. In conclusion, we're delighted with the achievements we've had in FY '25. Looking forward, we are confident that the increased market acceptance of modular construction, combined with a strong pipeline of repeat business in Building Solutions, secured contract occupancy in Community Solutions at Searipple and sustained demand in the Pilbara will underpin our earnings growth in FY '26 and beyond. Our primary focus remains on generating high-quality, diversified revenue streams, maintaining sustainable margins and optimizing utilization and continually driving operational efficiencies to enhance earnings growth, particularly in our Building Solutions business. These objectives are supported by a highly capable leadership team that is fully committed to the successful execution of our strategic initiatives. We continue to uphold our policy to distribute 100% of net profit after tax, reflecting our commitment to delivering shareholder value. As Cate said, our balance sheet remains very strong, and we continue to exercise prudence in financial management as we pursue disciplined growth opportunities. In closing, and before we open the floor to questions, I wish to express my sincere gratitude to our shareholders for their ongoing support and confidence in our direction. Together, we will build and transform and grow, positioning Fleetwood as an industry leader in modular construction and community solutions while advancing our presence in RV solutions. And finally, consequently, we are confident that we have established a solid foundation with growing momentum to deliver sustainable earnings and create long-term value for our shareholders. Thank you for your attention. I'll now welcome any questions.

[Operator Instructions] And our first question will come from Matthew Chen with Moelis.

I just wanted to pick up on a comment from your annual report where you talk about expectation for stable demand through to at least 2031 for Searipple Village. Just wanted to get you to expand on that stable demand profile.

I mean, we're obviously looking at Searipple, given it's the price asset we have, we're looking at the market demand up there, and we're certainly in contact with key partners who we've talked about before, Rio, Woodside, Yara and others in the region. I think the notable difference, Matthew, that we'd like to talk about is that, which is different to the previous cycle up there is the in-built demand in the region is enormous now. There is now Pluto 2 operational, Scarborough is coming online. Rio Tinto has massive investment. I just announced $27 billion of further investment in the Pilbara. There's a copper wire upgrade project in the region, a desalination plant to be built in the region. So there's enormous in-built infrastructure there that we believe that if there is a slight decline in the market, that the market is not going to fall off like it did last time. So we're saying that it's less cyclical than it was in the past. And I guess that's where we're basing that comment in the annual report, Matthew, on.

Great. And in terms of -- can you give us a bit of a sense of those parameters, how you're thinking about utilization further out then? Is that possible?

We have visibility out to April 2027, as we've said, which is still a little way off yet. We are engaging with key partners up there because demand remains strong. We are in negotiations with others for shutdowns in the next 12 months. I guess it's hard to say beyond 2027, Matthew. We'd like to think it's going to hold up. But as I said, we're confident that the enormous in-build infrastructure. And just to remind people, the in-built infrastructure there is sitting above the 36 parallel on the coast in a highly aggressive environment. Some of it is well over 20 years old now, so it needs to be maintained as well. So we see a combination of projects and the maintenance of the existing $100 billion of inbuilt assets up there is underpinning this. I can't give more visibility beyond 2027 right now because we can't get a commitment from anyone beyond that right now, Matthew. Should we, we, of course, would make an announcement to the market. So that's the basis for that, if that helps.

That's helpful, yes. And just a follow-on on that. Just to clarify, you're in discussions for potential extension of that key client agreement that is to April 2027.

I think we're constantly in discussions with our key clients, be they Woodside, Rio, Yara and others up there. I'm not going to give any commercial sensitivities away. There was a reason that we put 6 prototype modules up there in the year so that people can get a sense of what a longer-term agreement might look like for accommodation needs in the region, Matthew. So our job, we believe, is to optimize it through the current cycle and look to the next range of cycle, and we are absolutely focused on that.

Great. And just on the potential upside that you kind of called out on the base contract for Community Solutions in this year. Can you talk to that?

Nothing more than I've said, Matthew. As I said, we've got 82% occupancy locked and loaded in this financial year on a take-or-pay agreement. There are other shutdowns we are negotiating with partners on up there. If they are meaningful, we would announce something to the market. I suspect they will be smaller lumps because at 82% occupancy, Matthew, there's not a huge amount of headroom this financial year for additional bookings, but we will give the market an update at the AGM in October, so you'll get more granularity then.

Your next question will come from Caleb Weng with PAC Partners.

Just on Community Solutions, some color on the uplift in contract occupancy. I think it was 72% in the first half that you guys announced for FY '26, and now that's jumped to 82%. Is that mostly from one customer? Or is it from a few customers?

It is from one particular customer was the bulk of that. So one of our clients up there, we knew that the demand was higher than they had booked. So they actually did book additional rigs in the second half. I think we said at the half, we anticipated a much stronger second half because we actually saw things -- so just to give you some color, at the half, I think July, August had sort of -- July, August, sorry, January, February were not contracted at the volumes they were and very quickly after we result -- announced results, they locked in additional rooms. So it was one particular customer who undercook what they needed up there, Caleb.