Fleetwood Limited (FWD) Earnings Call Transcript & Summary

Good day, and welcome to the Fleetwood February 2024 Results Briefing Call. [Operator Instructions] And finally, I would like to provide all participants this call is being recorded. Thank you. I'd now like to welcome Bruce Nicholson, CEO, to begin the conference. Bruce, over to you.

Thank you. Good day, everybody, and thank you for joining us today. My name is Bruce Nicholson, as he just said I'm the Managing Director and CEO of Fleetwood. I'm joined today by Andrew Wackett, our outgoing CFO and Company Secretary; and our incoming CFO, Cate Chandler. Together, we'll take you through our results for the first half of FY '24. I'll start by providing some introductory comments. Andrew will go through in some detail our financial results, and then I'll talk about our various businesses and the outlook. If we move to Slide 2, at Fleetwood, we continue to focus on our 3 core businesses. Our Building Solutions business, where we're in the midst of a turnaround and the early stages of transformation as we see the opportunity for long-term growth. Community Solutions where we see significant opportunities to optimize Searipple in the near term and extend the business by pursuing development of new community facilities and key worker accommodation. And our RV Solutions Business, which continues to service the ongoing demand in recreational vehicles, caravans, camper trailers in the motor/home sector. If you move to Slide 3, you'll note that in the slide pack that the Fleetwood recently celebrated their 60th anniversary and we continue to bring to life our refreshed vision to be the leader in reimagining sustainable spaces, which is underpinned by 5 core values: 0 harm both to our people and the environment, collaboration, integrity, accountability and innovation. Our values guide the way we operate on a day-to-day basis and have been integral to create a positive environment at our business. And I'm confident this will have a positive impact on our transformation as we successfully move forward. Moving to Slide 4. Fleetwood has delivered an EBIT of $6.3 million compared to a breakeven result in the first half of FY '23 driven by improved results in the Building and Community Solutions business, the company has declared a fully franked interim dividend of $2.5 cents per share and maintained a strong net cash position of $34.1 million. Building Solutions returned to profitability during the half as we progressed our build transform and growth strategy. The business has continued to take projects aligned with its current capability, and this focus to gross margins continue to improve and in fact, near our target levels. The order book grew from $87 million in December 2022 to $100 million in December 2023. Community Solutions results improved, reflecting planned shutdowns and increased activity in the Karratha market. During the half, our efforts have been focused on contracting the next tranche of rooms and preparing Searipple for our upcoming higher demand, further demand over the medium period. Contracted demand includes the 2023 announcement of additional rooms booked by Rio Tinto under its accommodation agreement, which is expected to generate a further $100 million to $120 million in revenue until the end of the contract term in April 2027. RV Solutions was impacted by reduced consumer spending and increased pressure on margins during the half with higher input costs and inconsistent demand experienced month-to-month. Fleetwood finished the half year in a solid financial position with net cash of $34.1 million as advanced contract payments were utilized during the period. Reflecting the balance sheet position and earnings momentum, the company has declared a fully franked interim dividend of $2.5 cents per share. We continue to deliver our build transform and growth strategy in the business with the aim of focus on quality of revenue through diversification, generating sustainable margins, increasing utilization and managing our overheads to improve earnings. This is underpinned by a refreshed leadership team across the business to successfully deliver on our strategy for our shareholders. Moving to Slide 5. I'll now pass over to Andrew to focus on some more financial details.

Thanks, Bruce, and good morning, everyone. Improved results in Building and Community Solutions were partially offset by lower earnings from RV Solutions, overheads were lower than last year. While Building Solutions revenue was essentially flat year-on-year, lower major project revenues were replaced with our targeted project types. As expected, revenue grew strongly from the $128 million recorded in the second half of FY '23 as the business was reset. Also on a positive note, Building Solutions gross margins are nearing target levels, and the business is slightly ahead of its short-term EBIT margin goals. Community Solutions had a solid half year with EBITDA up 83% driven by major client shutdowns at Searipple Village, particularly in the first quarter of the year. This business is well placed with long-term baseload demand now contracted. RV Solutions saw reduced consumer discretionary demand and difficult trading additions, demand levels were inconsistent month-to-month. I am on Slide 6 now. The company maintained a solid net cash position of $34.1 million. A high level of school year-end classroom moves combined with the amortization of construction advance payments, which are traditionally received in the June quarter each year, resulted in building solutions using working capital in the first half of the year. This is in line with traditional seasonal patterns as expected to mostly reverse by year-end. Capital expenditure was largely due to preparation work for Searipple Village in Karratha in anticipation of an upswing in demand over the medium term. Project funding fell over the period from $22.5 million last year to $18.4 million this year, reflecting reduced exposure to major projects. The group retains total debt and bonding facilities of $81 million. Over to Slide 7 now. The balance sheet remains strong with net cash of $34.1 million. As I said previously, working capital expanded from June, principally due to the reduction in VAT payments on contracts and the company continues to carry no balance sheet debt and retains over $60 million in undrawn credit facilities. At the end of the period, $18.4 million for facilities were drawn for performance bonds and guarantees. Project funding outstanding fell from $22.5 million to $18.4 million in December, reflecting reduced exposure to major projects. And as Bruce said, the balance sheet position, improved earnings momentum means the company has resumed interim dividend payments with a fully franked interim dividend of $2.5 cents per share. Our policy remains to pay out 100% of net profit after tax, and we have $0.20 cents per share in franking credits currently available to support up to $0.47 cents per share in fully-franked dividends. So in summary, we continue to manage our finances prudently, and we are maintaining the strength and flexibility to invest in the development of the business. Back to you, Bruce.

Thanks, Andrew. I'm on Slide 8 now. I'll now walk through the different business units and the outlook for each. Building Solutions returned to profitability during the half as progress was made with our build transform and growth strategy. There were no major close year costs in the half compared to the major project cost flows up to $0.9 million in the first half of FY '23. Revenue for the half was broad as major project revenues were replaced by more traditional modular works. The Queensland business continued its excellent performance where population growth is seen -- is creating education and social housing demand. Activity levels in Victoria and New South Wales also improved in the half as renewed management teams drove our performance. Western Australia has also made significant gains in lifestyle housing and in the mining sector, and this continues to be a buoyant market for Fleetwood. Gross margins improved as the focus on repeatable modular projects across the business combined with procurement savings delivered a step change improvement in the half year. Overheads increased over the half with labor shortages continuing to impact as competition for staff in the broader construction industry remains intense. This was reflected in wage pressure, particularly for white collar staff and while our staff numbers look like, we did see an increase in costs. Material shortages continue to ease during the period and as I've mentioned, procurement savings began to deliver meaningful benefits in the first half. Overall, the business was slightly ahead of its short-term EBIT margin target, as Andrew said, and the new leadership team now in place, we are confident we have the right team to deliver our build, transform and grow strategy. Moving to Slide 9. The reset of Building Solutions commenced in December 2021. As I've previously broken it out, but as a reminder, this involves this topline work coming to our pipeline against key measures, including buildability for modular and our capability, the right margin, a deeper understanding of risks and opportunities and the right customer department. While the opportunity pipeline as qualified work has reached its highest level in several years, driven principally by the compulsory kindergarten programs across the eastern states as well as the recognition that modular can play a key part in solving both the shortage of key worker accommodation and social housing needs, particularly in the regional areas, we're seeing decision-making from state government continuing to be delayed as they work through their own internal processes. Manufacturing KPIs are now embedded across our 8 factories and manufacturing hubs, and we've seen improved utilization of productivity across our business, which is feeding the better sales and operational planning. Moving now to Slide 10. Our build transform and growth strategy is now in its second year and provides the roadmap for medium- to long-term improvement in the quality and consistency of our earnings. During the half, the Refreshed Building Solutions leadership team settled into their roles, while staff turnover reduced our safety performance improved, and we made good progress on several of our system and process upgrades. The transform phase of our strategy which the business is now focusing on includes revenue diversification and moving from a builder under a shed to a reputable manufacturer. During the half, we appointed a head of transformation to accelerate our shift to One Fleetwood, which leverages our national capability. We've embedded operational KPIs, including utilization and productivity across the business and then using this to drive factory optimization to improve EBIT margins by defraying fixed costs. Over the medium term, is expected to deliver stable and growing business, able to effectively leverage the advantages of a national manufacturing footprint and the growing adoption of modular is a solution to the nation's housing crisis. Fleetwood launched its proprietary housing designs for the social and key worker accommodation in late [indiscernible] year 2023, and we've seen significant interest in the product. We recently completed our first project with this product for the Queensland Health Department, while the process is slow going with the various state government departments, we anticipate that this segment will provide a long-term source of demand as the adoption of modular gains momentum. As we've said previously, Queensland, New South Wales, Victoria and now South Australia have announced the move to make kindergartens compulsory, extending our education sector offering. Now our gain progress has been slow, we've seen a significant uptick in the opportunity pipeline, and we expect this to be another source of ongoing demand. Fleetwood's defense strategy has been defined and is underway with early wins in New South Wales. And we've started to see a greater adoption of modular by the private school sector in most states as they recognize the ability to install high-quality permanent modular in existing school sites cost effectively, quickly and with a minimum disruption to these sites. As we've said previously, the refocus has set the order bank from $87 million in 2022 to $100 million in December 2023. As we've noted previously, in addition to the order back Building Solutions generates approximately 50% of its annual revenue from long-term contracts or panel agreements with either the education sector or the housing sector. This gives Fleetwood the ability to plan and manage utilization in many of its states and provides a solid foundation for our business. Customers include state education departments, lifestyle age developers and now state housing authorities. While material shortages have eased, costs have also reduced with the procurement savings program starting to take effect in the first half. Despite the decline in general construction activity, labor continues to be constrained. Building Solutions anticipates a solid earnings in the second half of FY '24, but constrained by the slow decision-making I've talked about with our key clients. In Slide 11, the Community Solutions result reflects the benefit of the planned FY '23 client maintenance shutdowns that extended into the early part of FY '24 as well as increased activity in the Karratha market. EBIT during the half was focused on securing the next tranche of contracted accommodation and preparing Searipple for the increased levels of demand, both contracted over the medium term and expected in the near term. The 5-year agreement with Rio Tinto executed in July 2022 and then expanded in June 2023, continued to underpin base utilization and profitability during the half. Demand on this agreement will ramp up from April 2024. It has also created a strong negotiation position for our ongoing discussions with additional clients to support plant shutdowns of major projects over the coming periods. While opportunities remain [indiscernible] during long-term demand in circle, we are observing delays in clients committing to rooms as the projects start dates pushed back and the projects are ramping up more slowly than we initially anticipated. Osprey Village remains fully occupied on a latest of potential tenants, reflecting the strength of the Port Hedland market. Moving over to Slide 12 now. The outlook for Community Solutions is buoyed with a strong prospect of Western Australia's northwest will see significant future development of new projects in the oil and gas sector, fertilizer and green energy sectors. Securing existing demand from current customers face a fleet in a strong position for the medium term. A growing number of energy transition projects are currently under consideration in the Northwest, the requirement for communities to house and facilitate these projects is a significant medium-term opportunity for our Community Solutions business. The most significant new project is the $6 billion Perdaman Urea plant, which achieved financial price in April 2023, and we'll see the creation of approximately 2,000 construction jobs at 200 permanent roles in the Karratha region in time. In the near term, Fleetwood is observing the need for investment in major repairs and upgrades in the region to existing aging infrastructure. The requirement to help them facilitate that for these projects is a significant medium-term opportunity for our Community Solutions business. Commercialization of the keyless lock and energy management system using the Fleetwood develop glide technology is underway. Fleetwood's development of the technology and its ability to deliver through our Building Solutions business positions the company as a digital market leader. In addition, Community Solutions is well placed to pursue build-own operate and transfer or build to rent opportunities in several sectors, leveraging the ability to source new villages at a competitive cost supported by our Building Solutions business and Fleetwood's balance sheet. Moving to Slide 13. RV Solutions observed a reduction in consumer discussion spend with inconsistent demand resulting in lower revenue and EBIT in the first half. The original equipment manufacturers or OEMs experienced a significant slowdown in the second quarter. This historic orders were filled, dealer inventory increased and demand slowed. The aftermarket segment softened continuing the trend which began in the fourth quarter of FY '23. Demand weakness, a change in revenue mix between our OEM and our aftermarket and higher input costs led to gross margin softening as increased raw materials, foreign exchange and other input costs were unable to be fully passed on to customers. Wage inflation and significant increase in property costs or operating costs increased by 9% compared to the first half of FY '23, which translates into lower EBIT margins. Moving now to Slide 14. The medium-term outlook for RV Solutions remains mixed. All order books from manufacturers are reduced and there remains little evidence of sustained restocking by aftermarket customers. The business remains in a strong position through our exposure locally built RV market by the parts and accessory business Camec, and to overseas inputs through our services business, Northern RV. We believe that the booming caravan sales during COVID will continue to deliver demand for our aftermarket service and renovation offering. Continued management of price and input costs is a great priority. New product development is beginning to gain traction. The new Invictus premium door has been launched in the market with aluminum wall frames and new sandwich panel walls, roof and floor products have received orders from multiple customers now. New imported products and range upgrades have started to come to market for the first half, including a new washer, microwave and window offering. The increase in secondhand van sales provides opportunities for combining our products and the promotion of our renovations offerings for our service business in RV. Cost and margin pressure is expected to continue in the second half of FY '24. And while we've reset out our overhead in the business plans are in place to repeat these impacts through further targeted price adjustments and accelerating our new products over the balance of the year. Moving now to Slide 15. Based on the solid Building Solutions order book and the forward bookings at Searipple, Fleetwood would anticipate stable earnings in the second half of financial 2024. Building solutions are stabilized and the outlook remains positive, while forward bookings Searipple will underpin its performance in the second half. I'm pleased with the progress we have made on our strategy and all 3 businesses have clear plans to improve revenue quality, capture future opportunities, increase utilization, manage costs and in doing so to improve margins. As we've said, our balance sheet remains solid, and we'll be prudent in the way we leverage strength to support growth. I would like to thank all of our shareholders for understanding as we continue to work through our turnaround and building solutions and implement our build, transform and growth strategy. And we'll now be happy to take any questions.

[Operator Instructions] And your first question comes from the line of Tony Mitchell of Shaw and Partners.

Congratulations. Very, very good results. Excellent. You deserve a big pat on the back. And I want to give a big pat on the back to Andrew who's done a wonderful job over many years, and we wish him only the best for the future. Bruce, I just like to ask you a few questions here. Given the difficulty in recreation vehicles, does it make sense to either sell the operational closet and use it for your either building solutions or Searipple, where the returns are obviously better?

I think look, we're consistently reviewing our portfolio, Tony. I think it's a little bit unreasonable to expect the decision of that nature with one bad half, okay. So it has been a very solid business in the last 3 years. We have put a lot of it in the last 6 months into renewing the ERP system, upgrading things, bringing new products and product development. I think that business deserves the right to be treated as a good part of the Fleetwood business. As I've said previously, it's not necessarily core business. I would also say now is probably not the right time to be selling that business in a market that's in decline, Tony, to if we want to actually get full value for our shareholders. So I think my view is, it's right for us to continue to own that asset right now as part of our portfolio. I think the outlook, whilst I might be a little bit bearish in terms of our concern, our concern really stems from the fact that it's just uncertain. We'll have one really good month and then we'll have 2 to 4 months in that business. And we have done a lot of work to try and reset the cost in that business and introduce new products. So I think that will be the wrong decision for the company in the near term. Of course, somebody is willing to look at that business and pay us full and fair value, then we'd obviously have a look at that, that's part of our job is every day but right now, I don't think it's the right decision.

Okay. Now I just want to be clear, when you said that the Rio contribution to Searipple is going to be ramped up from April, did you say that under the terms of the revamp contract that out to 2027, it's going to generate $120 million in revenue which would imply $40 million a year. Is that right?

It's a bit hard to give you a number, that's why we've given you sort of $100 million to $120 million in the [indiscernible] and that's because of the ramp up and ramp down of projects. The contract is out to 2027, I don't think it's reasonable to actually just divide that by 3 years and that's going to be $40 million a year. We've got contracted and confirmed bookings right now through the December, so we have a very clear line sight of how much segment consume. And then we probably reset in the second half of the year, Tony, and understand what the next 6 months is going to look like upfront, but that is the base numbers that they're going to lock in. What I was saying in the report is that we ramp up, so they will actually double their volumes in April, and then it slowly ramps up to the camp will be more than half full this side of Christmas just under the Rio Tinto contract alone.

Okay. But is it fair to say, that over the life of the contract, is it fair to say you're looking at, call it, $5 million EBIT for the first half out of Searipple. So I suppose the question is, what percentage does Rio represent of that now? And then over time, that number should be increased quite substantially irrespective of other contracts you win?

There's a number of questions there, Tony, I'm not sure how to answer them. Maybe you want to have this conversation when we're doing the road show next week, so to give a bit more detail.

I suppose, Bruce, what I'm saying is the contribution of Searipple to the overall result should increase significantly with this revamped Rio contract.

Yes. Over the 3 years, it will.

Yes. Right. Okay. So you've mentioned that there have been delays with other players in the marketplace. I suppose the question is, do you see any resolution of the Perdaman situation in the foreseeable future as to who they going to appoint and when? And secondly, can you give us an idea of -- are you allowed to give us any idea of any potential new customers for you? And if so, what would be the size of their contracts?

Tony, I would like to have some insight into what's happening -- sorry, further insight into it. I actually was with [indiscernible] this week, trying to get some insight. Their demand has not changed, their demand actually looks like it could be higher than their original thoughts. They have not contracted most of that demand, Tony, and you would have to ask them why that is. Because we have rooms available and we've been negotiating now for several months. That said, we have other clients up there. So there is the [indiscernible] upgrade, which the state government and federal government is funding up there. That project is about to reach [indiscernible] contract or with a client. That has about 18 months to 2 years' worth of demand in the market up there. Obviously, we're talking to that client quite closely. And then, of course, you've got the potential need for others such as Woodside and Yara for both their shutdown and major maintenance projects up there. So we're talking to all parties in the market up there, Tony, that potentially could play. What I can say is even with things that we're talking about in November, December last year, what we have seen is the project start dates have just been pushed out. And I'd like to say I know exactly why it appears there's shortage of the labor in the marketplace. It looks like decisions are just being slowed up in their own organizations and so we're very close to it. I can't give you much more detail than that, Tony, other than there are other things. Look, Searipple also benefits if something goes bang and breaks up there and they have to fill the camp up. So I'd like the big one, that might happen, too but we're not bargaining on that, certainly not putting in their forecast. So there are -- in addition to Perdaman, at least 3 other counterparties we are in discussions with, probably more than discussions, Tony. And as I said, we have expected decisions to be made before this, they just continue to be pushed out. And including the Perdaman demand curve has now been softened and pushed right out in terms of the for peak demand has been pushed out 12 months now. [indiscernible] because ultimately, that means the projects are going to be delayed further.

Your next question comes from the line of [ Pierre Printis ] from Synergy Asset Management.

Great to see the turnaround in the Building Solutions business in the test of shareholder patience, that's for sure. When you look at this business, you feel it should be earning something in the very high single digits EBIT margin but when I hear you say that you're already at expectations with gross profit and you've just clocked on with 2% EBIT margin, I'm beginning to wonder whether that's a realistic expectation. What do you think the optimized EBIT margin is for building solutions in the fullness of time?

Yes. So just to be really clear, these are our internal expectations in this Pierre, so it wasn't what we think that business is capable of in the future. So we actually expected that business to be between 0% and 1% EBIT margin in the first half or even in the first year to be quite frank, and it's actually done better than that. We think that, that business has the potential to get to between 7% and 8% EBIT margin. Pierre, that's what we're targeting. That's our -- transformation is geared around driving to that outcome.

Okay. That's what I would expect but I just wonder if you're already there in terms of GP margin, how do you leverage fixed cost per [indiscernible] spend to get from 2% to 8%?

Yes. Great question, and I could spend the next hour explaining it to your Pierre because it's not one thing or 2 things, it's a combination of things. The biggest component for us is actually utilizing our factory footprint, deferring fixed costs across the business, pulling fixed out costs out as we standardize our systems processes across the overall organization so we have less cost to serve. So there's a raft quite additionally, there is procurement savings, I think the procurement savings to date only attached to about $30 million of spend in the business, there's more to come from that. So it's a raft of different things, Pierre, so not one thing. As I said, as you shift people's mindset from being a residential builder or a shared or in an EDR to manufacturing that does create some confusion and concern for people because they're not used to that and then getting their mind around the fact that you can put things through a factory more quickly than they may have traditionally done and the importance of actually making sure you're utilizing the real estate in the factory is a new concept for this business. So when we start to measure utilization of our factory floor in the first half, Pierre, the numbers were as well as 30% utilization because the floor of our factories was not being well utilized. We did speak before Christmas at about 65% utilization at a national level. Now there's still more to be had in that and more work to be done that. Then you've got the productivity lead, which is how quickly we can produce things. And we now know, for example, that one of our businesses is very efficient and very high productivity in terms of how it produces score classrooms. Another of their businesses that does well in other areas actually takes twice as long to build on. So how do we actually get the 2 businesses optimizing? So that's the sort of things that will drive that efficiency and optimization, which should actually drive the EBIT margin, Pierre.

Okay. And if I can just echo Tony sentiments. Thank you, Andrew, for the last few years.

Thanks, Pierre.

Your next question comes from Matthew Chen from Moelis.

Just a follow-on from that prior question. Can you give us a sense of how we should think about that timing of the trajectory to getting to increased margins in that building solutions, recognizing that you've done some good work there?

So we have been very clear that build transform and growth strategy is 3 to 5 years. As I've just said, we're now in the second year of our build transform and growth strategy, so it's still under 3 years away in my mind. And as you can imagine, with any transformation, and those of you who've lived it like -- some of us at Fleet would have, it's sometimes 2 steps forward and one step back so it's not without its challenges. So yes, we're still talking our under 3-year time frame to get to those more ambitious senior margin targets.

Okay. And in the near term, is there anything that is worth calling out that potentially would be a detraction from that recent half's performance.

We did call out that we're finding decision making in particularly state government, so as we said, like government slowing down at the moment. We've had tens of millions of worth dollars worth of work in the Kindergarten section and in the social housing sector that will bid well before Christmas, the decisions are still not being made. So if we've got headwinds, it really is about the ability for the state governments to actually execute on their strategies and actually get the purchase orders to us. Matthew that's, I think, the headwinds we're seeing in the business right now. As I said, the pipeline hasn't been as big as it is -- the opportunity pipeline hasn't been as big as this for several years. So I'm actually quite confident. I'm just hopefully frustrated that it's just not turning into [indiscernible].

I assume that that's potentially a sense of the timing of that conversion of the pipeline because it sounds as though from your comments, you're satisfied with how that is in that quantum. It's just the pace of that conversion into the order book.

Yes. No, I am. I think it's a good reflection on the good work that each of the businesses has done to rebuild their pipelines. And we are in a cyclical period right now, where there's not a lot of always get placed between December and January anywhere because we're going through the school classrooms opening and things start to ramp up towards the end of February, March, again so that's fine. So no, I'm quite confident as I said, it's just a timing issue for us at the right time. We're probably more frustrated than I think we've had more than 35 groups go through our houses that we've got on site now. They love them. but getting decisions made by state government authorities-- and in defense of them, these are new sectors they've not worked in before so they have to establish a department, they have to get the process and system set up, and they go through a whole process, but it's frustrating from where we sit when we see the need for these kindergartens and we see the need for social housing, so it's important. And we've got product and factory available to service that need. So we're a little frustrated, and we are working hard to lobby governments to actually lay an egg on this, if I can use that word, and push forward.

[Operator Instructions] And your next question comes from the line of Caleb Weng from PAC Partners.

Bruce and Andrew, congrats on the half. Just I guess joining in the conversation on margins. So you mentioned that procurement, which is one of the drivers of the margin expansion this half is still a bit of a way to go. How about in terms of, I guess, just qualifying contracts in counterparties? Are you quite happy with that as at the moment or do you still see quite a bit of room for improvement?

Yes. So how happy I'm with the counterparties we're dealing with, is that what you're saying in terms of our margin?

Okay, yes. I guess, so you mentioned procurement savings as expected to continue into the second half. And I guess, qualifying contracts and the counterparties do you still see much, I guess, improvement there or are you quite happy where you guys sitting?

In terms of procurement, you mean?

No, contract qualification counterparties.

Okay. So look, we have a very detailed process. Now as I said, we reset the business in 2021 to put those 4 gates in place, Caleb. We reset and we do have really robust discussions internally with our projects as to whether that's the right counterparty to deal with. I can tell you now, we've just walked away from $40 million of potential business because we were not satisfied with the counterparty we're dealing with in that, Caleb. [indiscernible] will slow sometimes, but I'm actually quite pleased that we made that decision and quite frankly, not worried about the future because of it. So now, we have quite a robust discussion. Every once in a while the team tries to bring this project with a client that we don't really want to deal with but that's becoming less and less now, and we are certainly -- our design and estimating team has been separated out from the Building Solutions business so there's some governance and control, and they generally will flag if one of the sales teams or one of the general [indiscernible] is bringing a project in that it doesn't meet those 4 criteria for us.

Yes. Got you. All right. Next one, I guess. So you mentioned material costs are easing, but you're still getting a bit of labor cost pressures. A lot of the construction guys are saying that it's near the peak of the cycle. What's your view on that?

Look, I'm probably not as close to it as some of the Tier 1 contractors, are they live this every day. We're actually surprised the shortage of particularly white collar staff out there and I'll caution that by good quality white collar staff here. This is an area where it's probably been 2 years we've seen this incredible increase in the cost of these white collar staff. And it is double-digit wage growth in that sector, which is frustrating for us because we are also converting into Tier 1 and Tier 2 builders or construction industry for that talent. And as we've already said the business and want to have better quality outcomes, we've had to bring in better quality people so we are having to pay higher salaries. So I would like to think it's topping out but what's become very apparent is there does appear to be a lack of that availability in the market generally. I'd like to think that with the decline in major infrastructure spending driven by the federal government that, that might free that market up. But I'm yet to see that, Caleb, would be the best way to describe that.

There are no further questions at this time. I like to hand back to our presenters.

Well, thank you. Look, I don't have much more. I would, however, like to add my thanks and appreciation to Andrew for the last 6.5 years at Fleetwood. I think Fleetwood today is a very different business than it was when Andrew joined and I know a large part of that is the input, the effort and the drive that he has put into the business. So I'd like to pass on my thanks on behalf of myself and the Board of Directors for the work that Andrew has done over the last 6.5 years, and wishing all the very, very best in his future endeavors and hope to keep in touch with him, keep seeing how he is going and as I said, just wanted to pass on my sincere thanks as well. I have nothing else. I'm looking forward to spending the next 4 days with Cate. Cate and I will be doing the road show next week. So I'm looking forward to introducing people to Cate and just getting out and so giving a great granularity as we get around the sites next week. Thank you.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.