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
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
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.
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,"
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
"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
"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.