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March 2018



Coromals awaiting new owners

Revamp plan fails to deliver

Fleetwood report reveals disappointing sales for Windsor, Coromal caravans

Photo-Story: Dennis Amor
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FLEETWOOD Corporation's RV division, which manufacturers Coromal and Windsor caravans, continues to underperform, it has been revealed.

In its half-year results, the Perth-based company reports that revenue from the division rose a disappointing one percent to $21.3 million during the six months ending December 31.

Earnings before interest and tax of $4.4m was $1.8m lower than the previous corresponding period driven by a $2.6m increase in losses from the division.

Fleetwood has written down the value of the fixed assets in its caravan business to nil after it recorded a bigger underlying loss of $5.6 million due to an oversupply of caravans nationally and heavy discounting in the industry.

Detailing the results, the report said that despite a "turnaround plan" three years ago  ̶  which included a revamp of the company's products and complete change in Fleetwood's management  ̶  the situation remained "critical".

"It is important to note that the normal product development life cycle for caravans is similar to the automotive industry where new models are introduced over a three to four-year period, whereas revamping the Coromal and Windsor ranges was completed within two years," it pointed out.

The revamp cost the company around $5m over two years.

"These costs have been expensed through the profit and loss account, which is a more conservative treatment than the usual practice of capitalising development costs and amortising them over the life of the product."

The report said the method of building its caravans has also been changed.

"Coromal and Windsor were traditionally manufactured with aluminium wall frames and timber flooring, whereas 80 percent of models are now manufactured with laminated wall panels and composite flooring.

Improved range and new construction methods generate significant interest

"The improved range and new construction methods are generating significant consumer interest and along with this there is renewed interest amongst caravan dealers."

It said dealer numbers had grown by 45 percent in two years to 22 across the country, with the proportion of sole franchise dealers increasing from 12 percent to 70 percent of the network.

"Notwithstanding this, there are a number of key strategic areas where Fleetwood has an opportunity to further improve its presence and in this regard new dealerships are presently being negotiated in South East Queensland and New South Wales," it added.

Fleetwood was fully committed to supporting its dealer network and the expectation was for an expanded marketing program and a focus on quality.

Fleetwood said the first six months of the current financial year had seen reduced retail demand in the industry.

"This, combined with production numbers that were maintained at a high level by most major manufacturers, led to excess dealer stock in the industry as a whole, and ultimately heavy discounting at caravan shows," it claimed.

Discounting by Fleetwood had been minimal during this period and production had been reduced on lower demand.

"Additionally given that employee labour had been set at a level required to produce significantly higher output than what was delivered in 1H18, the business generated a gross loss for the first time since the second half of the 2016 financial year," the report said.

A strategic review found that the factory would break even if it produced 1500 caravans annually, assuming a 20 percent gross profit.

"In order to achieve this, a significant improvement in labour and materials efficiency is required, along with reductions in re-work costs and improved dealer and employee engagement," it continued.

"Given the rate at which the turnaround has progressed to date, the original plan to deliver a break-even monthly result within three years would need to be extended to July, 2019."

In acknowledgement that shareholders had "already been patient" with a turnaround plan which has not delivered satisfactory results to date, Fleetwood's Board had decided to continue supporting the turnaround in six-month increments.

But it wanted to see a 20 percent improvement in major capital city caravan show sales, a 15 percent improvement in labour efficiency and a significant improvement in employee and dealer net promoter scores through a strong focus on quality.

The Board was also conscious that the Australian recreational vehicles industry was "highly fragmented" and that opportunities existed for rationalisation.

"Accordingly, and in parallel with continuing to support the turnaround plan, a plan is being developed for a more efficient and cost-competitive physical manufacturing structure for the business."

Chief executive Brad Denison told investors during a Teleconference that Perth's remoteness added to costs and was a disadvantage when its rivals were mainly located in Melbourne.

"But having said that, you wouldn't just drop everything and go east straight away before we are certain our products are right, the dealer network is right and the pricing is right," he said.


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