Big River Industries Limited (BRI) Earnings Call Transcript & Summary

Yes. Thank you, sir. So welcome, everyone. Thanks for joining today for our half year results. Clearly, it's a pretty busy reporting day today. And there's actually a couple of things going on around the world. So we certainly appreciate your time. I'm sure you want to keep an eye on the market, so we'll try and get through this presentation quite quickly. Guys, I might just start on Page 3, which is the investor presentation that was lodged this morning. Look, just some slight tweaking of the way we're grouping the business, which I've got a couple of slides on during this presentation around a new 3-year strategy we put together. Obviously, very subtle changes. But just on Page 3 there, the 3 core divisions of our group, Formwork and Commercial, around 26% of our revenue there; Building Trade Centers, 44%; and the Panels division around 30%. I'll come back to that when I get to the strategy page, just highlighting some of the key changes we've put together as part of that 3-year vision. Just on the segments, the construction market guys, not a lot of change there from prior reporting periods. Obviously, detached housing remains strong. So it's a good -- is a significant percentage of our business. While the medium and high-density residential markets certainly remain quite low, so single-digit percentages there for our business. They have been stronger contributors in the past when that sector is stronger, obviously. Just worth noting, particularly when there's a little bit of press around the construction cycle and some collapses or indeed a collapse of a particular large builder, worth noting there on the bottom section there, we have around 9,500 active trading accounts. Our largest accounting that is only around 3% of our sales revenue. So we do have a very well-diversified ledger, which certainly helps in that area of risk management. Just moving to Page 4, guys. Just really wanted to highlight our network around Australia but particularly with the new 3 divisions that we've identified clearly as part of our strategy. What it really does highlight is whilst we've got some good geographic coverage and diversity there that there's some clear market gaps. And obviously, that's one of the key things we're looking to try and improve upon in this next round of our strategy. And clearly, there, you can see there's some major markets where we're really missing some of those particular divisions of our business. So yes, nice coverage, but you can see, for example, there's no Formwork or Panels position in Adelaide. As an example, we have 2 strong building trade centres there, but there's clearly some gaps like that, that exist in our network. And hence, we really want to focus on plugging those gaps, which will give us even further growth opportunities in the market in our view. But that also just gives you a quick feel for the mix of the business there on Page 4 guys. Just moving to Page 5, obviously, the results. So first thing to say is obviously a really good result. We're particularly pleased with it on a range of levels which we'll come to. But on our sales perspective, obviously, a strong period, $194 million or thereabouts in sales in the first half, was up 45%. Certainly importantly, organic growth or like-for-like growth up 14%. So that's now 6 consecutive quarters of not just growth, but accelerating growth. Look, we've seen this in the 2 previous cycle upturns, that certainly Steve and I have seen in the 20 years that we've been here at the company. So the growth period following GST through 2003 to 2005. And then again, after the GST through '13, '14, '15 or thereabouts that we saw this accelerating growth coming out of the bottom of the construction cycle as we went up the curve. Our view is we're experiencing that exact same situation now as we move towards the peak of the next construction cycle around '24 or 2025 or thereabout. So that's certainly pleasing to see that accelerated growth. That translated through to underlying EBITDA of $21.5 million, which was up 115% on last year. So strong results. Steve will run through those when we get to the financial slides. But obviously, that translated to a tripling of the net PAT, the underlying net PAT for those of you on the call last year, realized we did the write-down of Wagga assets in this corresponding period last year. So the statutory net PAT last year it was impacted by that -- by that asset write-down as we announced the closure of that site. So obviously, for statutory point of view, it looks even better. But even at an underlying point of view, really strong improvement in the bottom line, which was pleasing. Working capital continued to be quite solid. You'll see a bit of a theme here around the growth in inventory. It was quite modest in our view. But certainly, we did take the means to increase inventory levels given the significant shortages and restrictions that exist in the market. So that's creamed a couple of our major cash conversion here at 73%, a little below our average, but again, really just reflects that increased investment in inventory. And then the other final point on the financial summary, I should say, is that we declared a $0.055 dividend, which was more than double last year. So pleasing as well fully franked. Just on a couple of the operating highlights. Obviously, as I said, revenue growth is strong across all geographies and across all 3 divisions, Queensland, South Australia from a state point of view, the strongest growth markets at this stage. Our gross margin continued to expand. That's something that's been strong over the recent years. Good product mix, disciplined pricing and the ability to pass through cost increases, which have been much spoken about. And everyone's aware we're in that type of inflationary environment, the fact that we've been able to grow our gross margin by 200 basis points again pleasing. Just worth noting there just on the footnote there that in the financial accounts for 4D from last year, we just changed the way we recognized fee wages. So wages were -- sorry direct wages were in the below the line in expenses, whereas now for the period of FY '22, we put them up into COGS to our 3 manufacturing businesses. Steve, can I just get you to just take over for a sec, I might have just lost my computer at if you'd have more and just take it over and I'll just get a backup mate.

Yes, sure. So just following on there a little bit from Jim around that change that we've done there in the gross margin, just to explain that a little bit more. So we've reported a 200 basis points increase there, 26.5, up from 24.5 last year in the same comparative period. And that's basically because we had about $5 million worth of direct labor in FY '21, which was shown down as an employee expense benefit. And now we put that up into basically a raw material cost. So that -- on a directly comparative basis, that gives us where that increase comes from. So hopefully, that makes sense in terms of doing that, and we'll do that continuing going forward because obviously, some of those manufacturing operations are significant portion of that is direct labor, and it's really more a cost of goods sold or material cost rather than an operating expense from employment. Yes. So just following on to the next little section here from Jim. With the changes in the supply chain, a little bit from the challenges we've had there with inventory. We've certainly taken that opportunity, as Jim mentioned, to increase our stock levels just to make sure that we're not caught short on any of that situation. Obviously, there can be some lumpy deliveries and things that come through from time to time with some of those overseas shipping constraints that happen from time to time. And then just moving on to the strategic initiatives that we've got there on that third point. So there's been a strategic growth plan that we've been going through. And I guess the outcome of that is basically just a refocus on the business into a couple of categories...

Steve, I'm back on the air now. I've had the tech let me down. I apologize for that, ladies and gentlemen.

Sure. Yes, just down in that bottom section for the strategic initiatives.

Yes. Right. Great. Sorry, on which slide are we on Steve?

On Slide 5, Jim.

Okay. Right, got you, back on board. Yes. So then just touching on the final point that I raised around the Wagga consolidation project. That's just the last point there guys. Things tracking well there. Obviously, the plants are closed at Wagga. All the staff have been terminated. We're just finally [indiscernible] extracting the equipment land and buildings, sale process is underway. That's the last stage of the exit of Wagga and the project at Grafton putting the extra equipment in there and consolidating our plywood manufacturing onto that site is progressing well. So just putting us a little bit more color on Page 6, guys, just on the operational results. So yes, as I said, sales strong, the Victoria and New South Wales still lagging. So the first point there just that it's not growing as fast as the other states. We clearly, they were the most affected in the first half some of the COVID restrictions and so forth. So I think there's still upside of it as those 2 and the largest markets obviously come back on board. Queensland showing the strongest growth for us in that 14% organic growth results. So yes, certainly pleasing there and has a strong pipeline of projects out of Queensland as well. Just on the division, the Building Trade Centers are the ones the most leveraged to detached housing, which is obviously a very strong market at the moment. So our like-for-like sales up 23% there in that sector, which is particularly good. Obviously, tracking a little bit ahead of our other divisions there. And that certainly comes despite some of the world publicized shortages in a couple of key structural building products. So I think we've done well to etch out that type of growth in a constrained market. And the Formwork and Commercial sites and the Panels growth of about 6% and 15% organically there, still pleasing growth. Just on the upside and supply chain, around the 1/4 of our business now is direct importation that we do from overseas. So clearly, that's been challenging there. Freight rates have gone up 5 and 6 and even 10-fold in some cases from a couple of years ago. And certainly, the availability of freight has been challenging, too. So notwithstanding that, we're still seeing that gross margin improvement. So over imported products do come with good gross margins, slightly higher cost impact -- cash impact, I should say, playing on an FOB basis. So both pleasing still sort of edged out that improved margin on the back of some of those imports despite those challenges. And we touched on inventory a little bit more invested in stock there, particularly with some of those disjointed supply chains. Just on costs. Look, I think costs have been, again, also spoken about quite a bit at the moment and we see inflationary environment. Their cash costs -- or sorry, our total expenses were up 9% on the first half on a like-for-like basis. Again, a lot of those are variable in nature and linked to the sort of strong trading period. So obviously, and a provision for short-term bonuses and casual labor, obviously, as we flex up. So a lot of those costs can be switched off if indeed the market was delays little bit. So I think we've had good strong cost control as well. And stock as Steve touched on earlier, our inventory is up about $7 million on a like-for-like basis, which is 12%. So I think a well-made investment, obviously, has helped underpin the strength of the result and around half of that is price inflation, the other half extra volume. And then just on the final box here on the acquired businesses. Certainly, strong contribution. We've got a little waterfall chart later that breaks out the improvement in the EBITDA result. But the long the short of it there is extremely good contribution from the 3 acquisitions that weren't there in the prior period, and certainly tracking well above the earnout targets and indeed the financial metrics that we base those acquisitions on. So that's been pleasing. And we're seeing some good synergy opportunities there, particularly with the grouping of the business under the new strategy. We think we'll be in an even better position to start to extract those synergies from those new businesses. Now just quickly on Page 7, folks at just a little bit of the summary on the strategy. Really, it's a really minor tweaking, really the same 3 core markets are our focus, but we've really done a management realignment to group our common businesses, and we believe will extract a much better focus in the market accordingly. So the 3 plan, which will involve significant revenue and profitability growth. And looking for those sustainable EBITDA margins of around 10% in the long term. Obviously, we've done well in the short term to grow our EBITDA margin substantially. We still think that's a good medium-term target to have. And what I identified is the strong growth opportunities across all 3 divisions in various geographies. I touched on that earlier when we look at the math. So I think there's a lot of markets we need to round out our positioning to really capitalize on the core competencies that the company has. So that really comes about from a little more specialization rather than trying to be all things to all people from each of our sites. We want to specialize a little bit more on those core markets and we believe that will give us greater market penetration. And certainly, we can identify those clear gaps we've got there accordingly. And obviously, through our acquisition plan, look to plug those gaps and improve our market position. Clearly, the customer types are quite slightly different across those 3 divisions and hence need to be treated accordingly. I've talked about the synergies and look we'll do some further details when we have the Investor Strategy Day coming up, which will obviously inform the market once that all that's finalized and in place. But in simple terms, there are 2 business units and 3 divisions construction products, which will be made up of the Building Trade Centers. And the Formwork and Commercial sites and then the Panels division, which incorporates a lot of the new acquisitions, including New Zealand, Timberwood and Revolution as well as the Grafton manufacturing side. So John and Craig already key executives in the business have been appointed as the Executive General Managers of those 2 business units. Steve, who's on the call, will stay in the business on a key executive role, but we will be recruiting a new CFO as well to improve the strength of the executive team and improve the succession options within the business, but obviously really pleased that Steve keeps an executive role, and we can all feel very positive about the financial shape of the business with Steve's long experience in the company and continuing to add value in that area. Just on Page 8. Guys, it really just summarizes what I've said there, but it just highlights the construction products division. I won't go through it all, but it's sort of talked about the focus of the market segments and the types of customers in each of those core 3 divisions. And you can see some of the asset mix we've got there across each of the sites. So yes, as I've already touched on, really does identify that we've got -- still got some significant gaps and hence that consolidation opportunity in the fragmented industry is even sort of more market when we look at it through these 3 divisions as such. So Steve, I might just pass over to you to run through the financial slides, if you don't mind, mate?

Yes, sure. Thanks, Jim. So obviously, very pleasing that we've got some strong numbers to present for the half year. So just on Page 9 there, the earnings summary. Headline revenue, $193.8 million, up 45% on the previous financial year. That does include contributions from our recent acquisitions, United and Revolution towards the end of the half and the full 6 months from the Timberwood acquisition, which we completed in April last year, but obviously, it wasn't in the previous year's financial numbers. So those like-for-like sales up 14%. As a result, still a very good number in relation to that. Strong cost control, improved gross margin percentages that 200 basis points increase on last year that we talked about, along with that revenue growth, so our operating EBITDA up 115% from that $10 million last year to $21.5 million to the half this year. Breaking that down a little bit. We've got the Panels category. EBITDA up 147% to $10.9 million on the back of some very strong results from our existing branches, especially in New Zealand, and then we've got the full 6 months of Timberwood in that contribution as well. And the construction category, Building Trade Centers and format branches that Jim mentioned here. operating EBITDA up 73% to $13.1 million, mostly from the revenue growth and margin improvements from our existing branches there. And then we've got United Building Products there The Illawarra, that acquisition that we had towards the end of the half, contributing there for 2 months. Most of those corporate cost increases is higher bonus provisions on the back of the very strong first half results, but no sort of underlying further increases coming through the outside of that. The amortization increased and that's due to the amortization of the intangibles coming from the acquisitions. So we've acquired some customer relationships as part of those acquisitions as an intangible that need to be amortized. If you wanted to sort of pro forma that out, just the customer relation component, that's roughly about $1 million per annum over a full 12-month period with all 3 of those -- all of those acquisitions going through there. There's been no further costs associated with the Grafton, while the site consolidation incurred in the half, and the significant items that we reported down there for this half at just the share-based remuneration and acquisition costs. And we've just pointed out and that the acquisition costs look a little bit high for a couple of businesses, about $400,000 of that was in relation to Queensland stamp duty. One of the few states where we're still going to have to pay that, unfortunately. You can say our net profit before significant items ended up at $9.9 million, so over a 200% increase on that corresponding period of 3.3%. So a very, very pleasing result for the company. So on to the next page. We've just included a bit of a waterfall chart there to give a bit more of a breakdown on where that increase in the EBITDA has come from. So you can see there the right-hand side green acquisitions contributed $5.7 million for the first half, and that was from the Timberwood, Revolution and United acquisitions that weren't there in the previous corresponding period. And then we've got some revenue growth from the existing branches and margin expansion that we talked about through product mix and pricing improvements. And both of those components contributed close to about $4 million to the result. Some higher operating expenses, as you would expect on such an increase in the volume. Most of that -- those increases are volume related, and that come total $2.2 million. So that gave us our overall operating results there of $21.5 million, up about 115%. Moving now on to Page 11, the balance sheet. Trade working capital is always a strong focus for Big River. We mentioned that every time, and it's pleasing to see that we still managed to get 17.6% despite those increases in inventory and a little bit of working capital requirements for the acquisitions that we have in the half as well. That like-for-like as Jim mentioned, were $7 million or 12%, so pretty much in line with the revenue increases and the like-for-like revenue increases. Debtor days continued to improve, which is very pleasing. 45 days over the half compared to 49 days for all of FY '21. We did have some increase in provisioning, but our expected credit losses that we've put through the P&L represent about 0.4% of sales, which is basically no change from last year. Some of the other larger movements in the balance sheet just related to the acquisition of Revolution and United. So there's an additional $4 million of stock coming from that acquisition, $1 million of fixed assets and quite a large amount in terms of that intangible component, up $16 million split between customer relationships that we acquired there about $6.5 million and goodwill of about $9.5 million. Our net bank debt, we finished up the half at $34.7 million. It's a gearing ratio of about 24.9%. So still well within -- we were very comfortable to be. Most of that increase is, of course, a result of the acquisitions that we paid the cash component during the half. Just moving over to the -- after the financial slides there, just on the cash flow. Operating conversion. Normally, we'd expect that to be a little bit higher, but particularly given -- particularly good, I think, given the growth in stock and some of those first year working capital requirements for acquisitions and probably helped a little bit by those improvements in debtor days as well. So overall, let's call that acceptable results for the half. But better for us to have that stock to be able to sell it than the other way around. In relation to the Grafton/Wagga site consolidations there. I'd just point out there that we had received $3 million, a further $3 million from the $10 million government grant in the half. That still leaves about $3 million to be paid out by the government as we go through the various milestones that a part of that project. And that was offset by a similar amount in cash payments for redundancies and closure costs that were expensed during the half or paid during the half, I should say. And there weren't any actual any additional charges to the P&L, would provide for all that the 30 June '21 numbers. As per the plan, just on the CapEx side of things, there's about a further $3 million worth of CapEx that forecast to be undertaken in the second half of this year just to complete that Grafton site expansion. A couple of other lumpy numbers there just in terms of the business acquisitions, the payment of 13.5. That's representing the cash component, of course, for Revolution and United. Both of those deals have got earn-outs and included in the related profit targets in both vendors books and Big River equity as part of that payment. So that's good to see, always try to look for that sort of thing to try and understand their commitment to the future success of the businesses that we're acquiring. There was a payment there you can see for contingent consideration, which is a good thing for us to have to pay because it basically meant the acquisitions that we've acquired meeting their earnout targets. And I guess also just worth noting that the acquisitions that we've taken onboard recently as are currently on a run rate to meet their current year earn-out targets as well. And then just finally, just reiterating the dividend that we've got there for -- that's been determined for the year the half $0.055 fully franked and payable on the 6th of April, and we will have the DRP in play with that 2.5% discount as well. So very pleasing to be able to pay out a dividend that's 112% up on last year's interim of $0.026 per share. Over to you, Jim.

Yes. Very thanks. Okay, just on the final slide, Slide 13, here guys, the outlook. Look, we see the market still being strong, obviously, and fundamentally in line with the first half. So we don't see any major changes there. As I mentioned, we're still going up the growth curve of the construction cycle in our view. So obviously, that growth is expected to continue. The construction starts certainly still lag the approval. That's been well documented as well. So we think that just further underpins particularly the detached housing market right through '23 as that catch-up occurs. At the same time, some good improved approvals happening in both multi-res and the commercial markets. Multi-res in particular, that's still 50% below the 2017 peak. Obviously, there's some good large Tier 1 projects on the drawing board or just starting now, which will flow through into next financial year as well. So we think those particular segments that have been weak. The outlook is much stronger on the civil construction, obviously, particularly strong major pipeline of large infrastructure projects. There are certainly some large new announcements in Queensland, in particular to add to the already strong pipeline is what we're seeing on the civil market. So certainly, all things in the market in our view are very positive. Just on the strategy side. As we've touched on, we think the restructure will give us greater operational focus, will drive some improvement in the business. The acquisition pipeline is still solid. So both small bolt-on and some larger opportunities that are being considered. And we're working through quite a long pipeline there. So that's positive for the continued expansion of the group. On the financial side, we have sort of fast tracked our financial improvements, particularly around EBITDA margins. For those who recall, we had 8% EBITDA margin last financial year. Obviously, the first half is closer to 11%, but that long-term sustainable improvement towards 10%. We believe we're well on track with some good operating leverage, solid cost control, which Big River always had and that continued gross margin improvement, all builds for a longer sustainable improvement in our overall financial metrics. And then obviously, the finalization of the new equipment at Grafton so we haven't really seen any of those operational benefits yet. So they should start to flow from Q4. So that will be a positive component of for that project too. On the financial side, look, as I've said there, we expect the market to be very similar to the first half. It is worth noting that there are 7 less working days in the second half. So that needs to obviously be taken into account. The gross margin growth in the first half, we don't think that will be quite repeated in the second half because of that -- the fact the higher cost inventory now cycle through the business. So when you put those things into the pot with a few less working days, our view is the second half EBITDA won't be quite as strong as the first half, but certainly well ahead of last year. Obviously, we also have the fact that Revolution, which we had for 3 months in the first half and United Building Products just for 2 months in the first half will have them clearly for the full 6-month period. So that will plug a little bit of that gap in terms of the second half, just being a touch below the first half in our view. So a strong outlook still is a summary of that ladies and gentlemen. So we won't go through the appendix side just there for your reference really. So sir, I might hand back over to you just to start the questionnaire part of the call.

[Operator Instructions] The first question comes from Sean Kiriwan from MA Moelis.

Jim, congrats on a very strong result. You flagged clearly some of the supply constraints and labor constraints means that strong demand stand well into FY '23. Conversely, you see the indirect impact from your customers because they can't staff up or let's start projects, that demand, there's a risk to that demand maybe being weaker than expected?

Sure. Yes, we don't -- we don't think that's going to drop demand at all. We just think that they are falling behind, which has been, again, well publicized, I think, as that labor availability frees up and indeed the material supply improves. Although I don't believe the lack of materials fundamentally holding back the market. I think it's perhaps been access to labor and restrictions. So no, we don't see a fundamental drop in demand at all. We're doing a smooth in the curve in our view, and there's still that catch-up where quite a few of those homebuilder -- sorry, the homebuilder stimulus as part of the federal government that ended in March last year started in July of the previous year. Many of those jobs have not started. So I guess it's that reason why we're very confident about that demand profile. And the approvals numbers that have come through post into the homebuilder scheme continue to be very solid Sean. So we just don't see any major drop or major lifting that pipeline for detached housing, albeit that we expect it will ease over time beyond 2023.

Understood. And obviously, the sort of margin guidance going forward, 10% is very -- a lot stronger than historically sort of been around the 8%. Clearly, that expectation that volumes will be -- continue to be strong and the operating leverage is coming through sort of underpinning those assumptions.

Yes, that's part of the chart, I mean, obviously, in the early years, they've been a small listed company. There was a range of things we had to take on some additional costs as we listed, and we didn't really get the payback there. We'd certainly modified our manufacturing strategy, and we've started increased much larger quantities of imported product, and we scaled back our own manufacturing plant. So that was some key issues in the early years have been listed. And my view was we hadn't had our payback for some of those things that we've done. And clearly, now that we've got good organic revenue growth, we're seeing that payback come and some economies of scale are working as you'd hope.

Got it. And just final one for me. M&A strategy, that's still -- I know you've just done 2 in the last half, but is that still on the cards for future assuming the right one comes across to this.

Yes, absolutely, Sean. So you can see from that map of Australia, you see there's plenty of markets where we don't have all 3 colors. We don't have all 3 dots. So that's obviously fundamentally our target is to find, find those dots in all of those large markets where there's a significant gap still. So look, all the same drivers exist. It's a fragmented market. There's aging owners without succession plans, that same thesis holds true. In fact, it's truer than ever. At the moment, post-COVID where people are reassessing their futures and their lives as well. So we think there's lots of opportunities. And yes, a critical part of our growth over the next 3 years, Sean, obviously, along with the organic growth, but certainly, expanding our network is a critical part of that 3-year plan.

The next question comes from Owen Bruce Gregor, Private Investor.

It's my first year looking at your results. Just a question around the Panels business. Firstly, what proportion of that business materials is dependent on panels fully constructed overseas that have to be imported? And secondly, with the panels you construct here, how is the big wet in Queensland, Northern New South Wales affecting conditions for the raw materials and bonding of panels and so on?

Yes. Thanks, Allen. Yes, I might just take that second part first. So the Grafton manufacturing plant, which is the plywood factory, yes, certainly is affected by extreme wet weather. We have contracts with the government for our log supply. Obviously, the government does all the harvesting and the forest management. They just land the logs at our front gate as per our long-term wood supply agreements. Of course, when it's very wet, we sometimes struggle to get logs. We've certainly never ran out, and we've got good stocks in the yard. So we don't see that impacting our business in the long term. Obviously, it's been quite wet for the last couple of years, and yet we've had no outages or anything there. So fundamental, we can always manage our way through that. So yes, good long-term supply both for hardwood and the softwood logs that we process there at Grafton. The first part of your question, yes, reasonably the things I haven't got quite off the top of my head, but in the order of 25% to 30% of our Panels business would be fully imported panels out of Europe and some out of Asia. So yes, we are reliant on those European markets for some of our finished and final end products. Combine that with the 3 panels manufacturing sites we have in Campbell's Field Grafton and in Auckland. So we're certainly at least in part, self-sufficient there, where we ultimately manufacture the product. But yes, around 25% would come out of Europe.

And the bonding of the plywood in the factories, is that affected by the humidity conditions?

No, no, it's no problem at all.

The next question comes from Alastair Campbell from CCZ.

Great results. Just a couple of questions. Thanks for flushing out the EBITDA margin there, it was going to be my first one. Out of interest, do you have any planned price increases in the second half across any of your product lines?

Short answer is, yes, because we've been very disciplined, and you can see in those gross margin results our ability to pass through cost changes. So there's certainly further price increases from some of our key suppliers that it's already been communicated to us throughout the second half. So we'll, yes, we'll be passing those price increases on to the market as our suppliers, at least those prices on our manufactured products. At this stage, only subtle price increases to account for some of the increase in raw materials, things like resin and so forth which are based on global commodity prices. There's been some pressure there. But certainly much less in terms of our manufactured products, but certainly, that cost pass-through will occur on any of our traded products with our local supply partners.

Okay. Fantastic. And just last one for me. Do you guys have any exposure to ProBuild? Obviously, tough to see that news the other day?

Yes. So the short answer is directly no. So we don't trade with ProBuild at all. Indirectly, some of our subcontractors will naturally be working on some of those projects because they're Tier 1 project. But our quick assessment after only a day or so is there's very low risk for our company associated with the range of subcontractors who would have done work for ProBuild and who may still be owed money by ProBuild.

The next question comes from Eric Roles from Moelis.

Congratulations on a great result. You mentioned a little bit about the cycle and your view of the cycle but we're only still not even halfway or still progressed to go in terms of detached housing market, given your experience in previous years. Can you just extrapolate on what gives you the confidence? And again, I think you mentioned in passing about the extension old home building approvals and deferrals and what have you. Can you just add a little bit more color there on where do you see this cycle going? And when do you see the cycle peaking potentially?

Yes. Yes. Thanks, Eric. So a few things. I mean one is us just basically reviewing the cumulative average forecast from the main forecasting bodies. And there's a range of those who forecast all segments of the construction market. So civil, commercial, res and the alterations market. So if you look at those 5 main forecasting bodies, all of them have got the peak in terms of cumulative total construction in around FY '24 or maybe FY '25. So the first part of the answer is that, that's what the experts are saying. So and then secondly, on our view, obviously, with a closer contact with our customers in each of the subsegments, that also lends itself to a very similar kind of conclusion. So we know the detached housing. My view is that lag won't be caught up until 2024. So last year, FY '21 starts or construction significantly lagged approvals. This year, FY '22 my view is they'll still lag approvals, a cumulative of about 15,000 starts across those 2 years lag in terms of start first approvals, which will then be caught up in '23 and '24 in my view, Eric. So that's the detached housing side. And then, yes, we've seen good strong trends, good strong data in commercial and in the multi-res. So that's where we get the confidence around. And if you remember, it's peaking up out of a low point in the cycle. It's not coming up, it's not. And then infrastructure, I think, is very clear and public. The massive infrastructure spend from all governments and that pipeline is very long and strong as well. The alterations market is expected to dip a little after a really strong year last year. But look, fundamentally, when there's good equity in people's homes, our experience is they want to continue to invest in improving their homes. So we just don't see any weakness in the alterations market whatsoever. Last year was a solid spike and some of that was linked to the stimulus package. But even if you take that out, there's going to be good, strong demand in the renovations market going forward as well. So yes, we haven't seen for a long time when all segments are looking very positive. And certainly, in the case of New Zealand, all 3 segments are very strong as well. It's not like one's coming out of deeper ones on the way down. All 3 segments appear to be quite strong. So yes, that's probably the main reason why we're confident about not just this year but looking forward for the next few years.

Got it. And again, you mentioned in the answer to the previous question that some of your key suppliers, and we've seen it in their results, whether we are [indiscernible] the CSRs and so on continuing to pass through price increases. Can you just expand a little bit on the leverage that you get in the economies of scale that you get from being able to pass that through and the impact it has on your business?

Yes. I mean gross margin percentage as long as we're disciplined in maintaining gross margin percentages, clearly, the higher the price, the higher the gross profit dollars. So obviously, like most businesses, you do better in a period of higher pricing than you do in a period of lower pricing. So yes, some cost base. Even if we maintain the same percentage margin, obviously, there that translates to more GP dollars. So that's where obviously you're going as long as you got that -- the discipline and the ability to passthrough cost increases and the pass on to last, which we do because we don't have fixed price contracts with our clients.

Right. And then just final question. You obviously correctly probably built up your inventories, and that's totally understandable. Is that a trend that you expect to continue in the second half in terms of inventory build? Or what we should be looking for that number in the second half of the year?

Yes. No, we don't think we'll repeat that. Obviously, that was period that was quite disrupted in our view. And whilst it's not fixed, but I wouldn't say it's fixed, but we don't think of the supply pressure is getting any worse. So we think we can trim it back a little bit, perhaps towards the end of the half. But certainly, we wouldn't be expecting on continued ongoing growth in our inventory levels Eric.

[Operator Instructions] There are no further questions at this time. I will now hand back to Mr. Bindon for closing remarks.

Thanks, everyone. We'll let you go. I appreciate your time. My apologies earlier when the screen went black and I sounded a bit vague, but Steve thanks for stepping in mate. So hopefully, we can leave that with you there and the continued strength in the market, we'll enjoy that in the second half. Look forward to talking again in [Audio Gap].