Fletcher Building Limited (FBU) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Fletcher Building Full Year Results Briefing Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Ross Taylor, Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone, and welcome to the presentation of our results for the 12 months ended 30 June 2020. Presenting with me today is our group CFO, Bevan McKenzie. Last week, we presented some of the key points of our expected results. And today, we'll provide more detail on the final results and how we're planning for the year ahead. On Slide 3, I'll outline the key talking points today. And I'll begin by providing an overview, and then I'll run through how we position the business for FY '21. Bevan will then talk through the overall financial performance for the year. And then finally, I'll sum up with some outlook comments on the year ahead. On Slide 4, as I mentioned last week, we highlighted 3 areas we've been focused on to deal with the impacts of the COVID-19 pandemic. Firstly, we needed to respond to a full lockdown in New Zealand and partial business restrictions in Australia. We then needed to get the business positioned for likely lower market activity in FY '21. And finally, we wanted to move quickly and keep a fast tempo up on these activities to ensure we can get back to driving our operational, strategic and growth aspirations across all areas of our business. I'll look at each of these areas in more detail on the following slides. Slide 5 focuses on our immediate response to the COVID-19 pandemic. Through March and April, we needed to respond to a full lockdown in New Zealand and a partial business restriction in Australia. Our focus for this was on 3 key areas: ensuring the health and safety of everyone; ensuring strong customer performance and support; and staying laser-focused on costs, cash and our balance sheet. While these actions were unable to prevent a material earnings impact, we were able to achieve strong operating cash flows for the year of $410 million and preserve our strong balance sheet position with liquidity maintained at $1.6 billion and net debt of only $0.5 billion. In uncertain times, cash is critical, and I believe the team did a great job staying focused on this. Moving to Slide 6. The timing of the COVID shutdown could not have been worse from the perspective of our Construction business. It occurred right in the middle of the earthwork season on the major roading projects and just days before the planned opening of Commercial Bay. The impact to this has been the main driver of the $150 million increase in the provisions across our legacy infrastructure and B&I projects. This additional provision has resulted from 3 main issues: Around half the provision is the result of the impacts from the COVID-19 shutdowns and productivity impacts both in FY '20 and beyond. Around 20% is from issues that have arisen from a handful of historically completed projects, and the final 30% is associated with the prudent risk allowance across the legacy work left to complete. Importantly, we're now well through this work. The historical project work remaining to complete is down from $2.2 billion in 2018 to $600 million today. And while I appreciate the need for additional provisioning is disappointing, I believe Fletcher Construction is now increasingly well positioned to focus on its future and a sustainable and profitable earnings outlook. Slide 7 outlines what we've done to ensure we're effectively set up for a likely lower market activity in FY '21. Our focus here was to get our cost base permanently down to ensure decent levels of profitability could be maintained, to continue to focus on cash preservation and balance strength and to accelerate our moves into e-commerce activities. Overall, our actions will permanently reduce our cost base by around $300 million per annum. The cost of implementing this, combined with the impairment to the Rocla business that we're divesting and the repayment of some of our USPP debt, has resulted in a $276 million of significant items to be booked in FY '20. Of this, just over half will be cash, with the remainder noncash. Slide 8 summarizes our financial results, which have been materially impacted by COVID-19. Revenue across the group was $7.3 billion, and EBIT was $160 million. And after significant items, we made a net loss of $196 million. Cash flows from operations were well up on last year and were a solid $410 million, and this kept our balance sheet strong and our leverage ratio at 0.9x, which remains well positioned and below our target range. And off the back of the issues that have results from COVID-19 and the ongoing uncertain outlook, the Board has declared there'll be no final dividend for the FY '20 year. Given that COVID-19 has introduced considerable complexity into the results for FY '20, I'll only cover a quick summary of each division's year-on-year performance on Slide 9. I note that the usual, more detailed slides are still provided, but they are in the appendices to this presentation. I would make the following quick comments on each division. In Building Products, products going into the finishing trades have been particularly strong, and this has continued to be the case through July. In Distribution, we continue to hold our strong position in the market but importantly made good progress on our investment and pivot towards e-commerce. In Concrete, we achieved a good combination of market share gains and price increases. In Residential, the housing market remains strong, and both volumes and margins returned quickly to pre-COVID levels. In Construction, the result was dominated by the COVID shutdown, start-up and then additional provisions. That said, the team responded well and is now back on track with these projects and doing well on securing a quality go-forward order book. And in Australia, we saw good momentum continue in Laminex and insulation. However, lower levels of large project works and generally weaker second half volumes resulted in Tradelink and Stramit having a poor second half. And the pipes business is recording a loss of around $15 million for the full year. On Slide 10, I move to look at our progress across some of our key enablers that will underpin the future of our business. We put a large amount of effort into safety through the year with a focus on culture, leadership and identifying and mitigating critical risks. And while there is still much to do in this journey, we are seeing progress. Of note, serious injuries reduced from 20 last year to 8 through FY '20. Of course, any injury is one too many, but we're now heading in the right direction. Sustainability is now front and center across all of our businesses and embedded into how we think about our future. As part of this focus, we've committed in Fletcher Building to reduce carbon emissions by 30% below our FY '18 levels by 2030. This aligns us with aims to limit global warming to below 2% (sic) [ 2 degrees ]. And in terms of our scope 1 and 2 carbon emissions in FY '20, these were just over 1.1 million tonnes, which is around 8% below our FY '18 levels. Slide 11 looks at how our employees and customers are feeling. While employee engagement is good at 71%, we still have work to do to be in the top quartile of companies. To this end, we continue to work on improving our employee engagement, and our target is to be at least 80% across all our businesses. Similarly with customers, while our present Net Promoter Scores are okay at 39, we absolutely need to get these to best-in-class across all our operations. This is being worked on across numerous areas through the introduction of service promises, through dramatically improving our e-commerce channels and ease to do business with, a focus on delivering what we commit to and when we commit to do it by and generally better understanding our customers' needs and requirements. I hope to see both of these measures continue to improve into the future. Moving over to Slide 13. I'd like to spend a bit of time on how we're getting positioned for FY '21, starting first with an overall summary, and then I'll dig into a bit of detail. In overview, we've planned for market activity to be down about 20% to 25% through the year. We've reduced our cost base by circa $300 million per annum to ensure we preserve profitability, and we'll continue to push this lower through the year through further work on both our property footprint and supply chains. We'll continue to maintain tight cash controls across all elements of working capital and further enhance our free cash flows through tighter CapEx envelope and the reductions in funding costs we've already achieved. And we will maintain a stronger customer focus and look for opportunities to increase market share, as through downturns, both organic and inorganic market opportunities generally arise, and we're well positioned to take advantage of these. On Slide 14, I look more closely at the New Zealand market forecast we've adopted in our forward planning. The first point I'd make is the outlook remains uncertain, and recent events in Auckland have certainly demonstrated this. In residential, we have assumed consents will drop to around 25,000 per annum for the coming year. I note, however, that there are positives as well, such as high numbers of returning Kiwi residents, which really replace immigration; low interest rates; and ongoing government stimulus. At this stage, our trading in the residential sector remains relatively robust, but it remains early days and far too early to call one way or the other. We expect commercial work to ease by around 15% through the year, and I feel this sector is likely to remain weak for some time. But on the other hand, infrastructure spend should continue to be underpinned by a strong level of government investment. And while it's likely to dip slightly this year as new projects get going, it should credibly grow into the medium term. I'll now talk to what we're planning for in the coming year in each of our New Zealand businesses, starting with building -- the Building Products division on Slide 15. Our focus here in the coming year will be on profit margins, product innovations, enhancing e-commerce interfaces with our customers and sustainable manufacturing. We will continue with the $400 million investment in the new wallboards plant, although we have delayed it by 6 months as a result of the present New Zealand border restrictions. We have numerous product innovations and ranges we're bringing to market across all our businesses, and we expect these to help support margin growth and market share increases. And we're confident the work we've done in our steel business and Humes will start to show performance dividends through the year. Slide 16 shows the focus in our Concrete business will be around similar themes. And through the coming year, we'll continue to build on the good progress we have made on our pricing disciplines and skills and, again, look to improve margin outcomes through the year; the optimization of the quarry and ready-mix networks and the masonry manufacturing footprint and the ongoing digitization of the Firth interfaces with its customers and then further decarbonizing our concrete value chain; by continuing to replace carbon-based fuel sources in our cement manufacturing processes; by progressing our work on the use of pozzolans in our concrete mixes; and producing larger-sized paving formats for waste-less material and provide better environmental outcome for the completed projects. On Slide 17, we outlined a very important year we have in front of us across our New Zealand Distribution businesses. Our repositioning work continues, and we should start to see a number of our initiatives getting some good traction through the year: The completion of the work to drive consistent pricing strategies and disciplines across all stores, ongoing improvements in our network efficiency and our cost to serve. This will be achieved through the introduction of regional hub structures and the ongoing workforce optimization across our store networks; by moving more customers, and hence, sale volumes, onto our e-commerce platforms and support apps; and lifting custom fulfillment through the ongoing improvements of our in-store experience and improved site delivery services. All these will be an important part of what it will take to win and what is likely to be a very competitive distribution market through FY '21. Moving to Slide 18 and the Residential and Development business. This business remains strongly positioned in the right segment of the market. And through the year, we'll focus on a few key areas: continuing with the present model in our core housing development business. It's well-regarded by customers, and sales remain strong. That said, we'll stay vigilant on the market. And if we need to adjust volumes and slow things down, we can and will. We want to achieve base volumes of around 150 houses per annum in our off-site manufacturing business, Clever Core, and we also plan to make our first sales to third parties through the year and be positioned for profits from FY '22 onwards. We look to launch the next set of apartment projects and have plans in place to scale up this business in line with the market outlook. And finally, we'll continue to work on maintaining our pipeline of industrial land development projects to ensure we can predictably generate at least $25 million per annum of profits for the foreseeable future. Moving to Construction. The first point I would make is we're now well through the legacy work left to complete. The graphic on Slide 19 highlights this progress. Legacy work is now down from $2.2 billion in 2018 to $600 million today. And importantly, at the same time, we've successfully bid and won new work, such that our go-forward order book now stands at around $2.4 billion and extends over multiple years into the future. This forward order book is of much higher quality than the legacy work we just completed -- just about completed, I should say. It predominantly consists of larger framework deals such as the Watercare alliance, the Higgins regional maintenance contracts. And where there are risk projects, they are small to the relative overall portfolio. Also, the margins and contract terms have been strictly controlled through the bid processes to ensure they are more balanced and appropriate. But beyond this, the team continue to enhance the expertise, talent and disciplines across the business. As the annual volume of the new margin legacy work continues to fall, we expect to see a progressive lift in the profitability of the overall Construction business towards our target of between 3% to 5% EBIT margins. On Slide 20 is a summary of the market forecast we've adopted for our forward planning in Australia. Like New Zealand, the market outlook remains uncertain. And again, I can point to recent events in Victoria to underscore this. In residential, we have assumed consents will further drop to around 129,000 per annum through the coming year. And again, there are potential positives to offset this such as returning Australian residents, low interest rates, government stimulus and ongoing renovation activity. Also like New Zealand, our trading at this stage in the residential sector is relatively robust. But again, it's early days and far too early to call one way or the other. We expect commercial work to ease by around 15% through the year and infrastructure spend to dip slightly and then to grow in the medium term. On Slide 21, we outline the key themes we are focused on in our Australian businesses in the coming year. We want to build on the momentum we're seeing in Laminex and Fletcher Insulation. Across these businesses, we'll continue to place emphasis on our range upgrades, our e-commerce channels and achieving further footprint and automation efficiencies. In Tradelink, our focus is going to remain on further growth in our SME volumes, refining and optimizing our footprint and showrooms, expanding our own range products, getting moving on the e-commerce channels and digitizing our customer-facing systems. It's an important year for the team to move the dial on all this. Stramit is about pricing discipline, range expansion and maintaining the good momentum in sheds. And in pipes, we'll look to complete the Rocla divestment, allowing the team to focus exclusively on the Iplex business going forward. I'll now hand over to Bevan, who will take you through the details of our financial results for the year.

Thanks, Ross, and good morning, everyone. Turning firstly to Slide 23, we show the consolidated group P&L. As Ross has highlighted, the key element of the group's result was the significant impact of COVID-19 on our operations. This impacted the P&L in 3 ways. Firstly, COVID-19 trading restrictions resulted in significantly lower revenues and operating productivities from March through to June, especially in New Zealand through the lockdown and ramp-up period. Across the group, this impacted FY '20 EBIT by just over $200 million. Secondly, as Ross has laid out, our operating earnings were reduced by $150 million as we increased the provisions to complete the legacy construction projects. And thirdly, we recognized $276 million of significant items in FY '20, which I will run through in more detail on the next slide. Finally, on Slide 23, funding costs of $80 million in the year were around 30% lower than the prior year, reflecting a significant reduction in gross debt and in [Audio Gap] On Slide 24, we provide more detail on the significant items and their phasing over FY '20 and FY '21. The top table shows the timing of taking these costs to the P&L, and the lower table shows how we expect these to be realized in the cash outflows across the 2 years. FY '20 significant items of $276 million were mainly related to actions to rightsize the cost base, along with some restructuring charges associated with the Rocla divestment and cost to exit our USPP debt. In FY '21, we expect an additional $90 million of significant items as the final cost-out actions are completed. As shown in the lower table, we expect just over half of the one-off costs will be incurred in cash, with $63 million of this in FY '20 and an additional $143 million expected to flow through in FY '21. In sizing the cost-out work, our approach has been to set up the business for the expected levels of market activity that Ross has run through. We expect our actions will deliver a gross cost-out benefit in FY '21 at around $300 million. This compares to a cash impact to deliver these benefits of around $160 million, and therefore, a rapid payback period. Overall, the cost-out benefits are split relatively evenly between COGS and SG&A and are also split relatively evenly between fixed and variable costs. Around 1/3 of the cost-out is being delivered in Australia and the remainder in the New Zealand operations. Given the uncertainty of market conditions in both geographies, it's too early to guide to a net impact of the cost-out work on our profitability in FY '21, and we will provide a full update on trading at the Annual Shareholders' Meeting in November. Finally, here in Rocla, the significant items relate to the closure of 2 pipe manufacturing sites, 1 in New South Wales and 1 in Queensland. These sites will be transferred to our Land Development business, remediated and sold through the course of FY '21 and FY '22. The divestment process for the remainder of the Rocla assets remains on track at this stage, with information memorandums being provided to buyers this month. Slide 25 provides some color on one of the highlights within the FY '20 results, the cash flow performance. In the middle of the table in the highlighted line, you can see that underlying trading cash flows were broadly in line with the prior year despite the material reduction in earnings as a result of COVID-19. The key driver of this performance has been favorable working capital movements of $93 million, which is shown in the row above and which I'll speak to in more detail on the next slide. Further down the table, we note that the ongoing cost of completing the legacy construction projects in the buildings and infrastructure businesses resulted in trading cash outflows of $186 million in FY '20 compared to outflows of $270 million in the prior year. We now have approximately $175 million of legacy project losses remaining to incur as cash outflows spread predominantly across FY '21 and FY '22. FY '20 cash flows have also been supported by reduced funding costs, which was $51 million lower than the prior year, resulting in overall cash flows from operating activities for the group in FY '20 of $410 million. Turning to Slide 26, and we lay out the key drivers of working capital. The top table shows the working capital movements in dollar terms, while the lower table shows the efficiency metrics, expressed in days, for our core manufacturing and distribution businesses. In FY '20, cash flow working capital movements were an inflow of $93 million, an improvement of $189 million over the prior year. In residential and development, cash flows were supported for the receipt of the proceeds for the Wiri land development transaction, which was taken into account in the prior year, while underlying construction cash flows were driven by good performance in Higgins. Customer collections in our manufacturing and distribution businesses have been very well controlled. This has resulted in a $95 million working capital inflow from debtors and an improvement in debtor days by 1.7 days compared to the prior period. At this stage, we have not seen any material liquidity pressure in our customer base as a result of COVID-19, but we'll continue to monitor this closely through FY '21. Creditors resulted in a $67 million outflow in FY '20, and we have ensured that we are vigilant in paying our suppliers to terms, with payables days broadly stable compared to the prior year. Finally, here, it is worth noting that while a portion of the year-on-year improvement in working capital was from inventories, there was no unwind of stock in dollars terms in FY '20, as it was not possible for businesses to materially adjust stock holdings in the final quarter of the year. We do expect this inventory unwind and resulting cash inflow will come in FY '21. Slide 27 shows that at the beginning of FY '20, we were targeting a CapEx envelope of $275 million to $325 million. Prior to March, we completed a number of key investments in the business. With the onset of COVID, however, we pared back our spend to preserve cash flow, resulting in total CapEx of $232 million for the year, a reduction of around $70 million. The reduction in FY '20 CapEx was mainly in our manufacturing businesses and has been possible due to the investments that we have made in these core businesses in our -- the past few years. In FY '21, we will continue this approach until we get more comfort around where the market activity settles, with CapEx in FY '21 expected to be in the range of $175 million to $200 million, which includes $50 million for the next phase of the new Winstone Wallboards plant. We also remain committed to our other key strategic investments. In FY '21, we will complete our Tyre Derived Fuel facility in the cement business, and we are accelerating our investments in customer-facing digital and e-commerce initiatives, as Ross has highlighted, especially in our Distribution division. Turning to Slide 28, we show the net debt bridge for the year. Strong trading cash flows ensured our closing net debt position remained robust at $497 million. Other key cash flows in the year included our dividend payments in respect of FY '19 and the purchase of 147 million of shares through our on-market share buyback program, which we ceased in March. Slide 29 shows that as a result of the good cash flow performance, our group leverage ratio remains below the lower end of the target range. The ratio of 0.9x includes the impact on EBITDA of the additional construction provisions, which have increased leverage at June '20 by 0.2 of a turn. On Slide 30, we talk to the other key dimensions of our balance sheet management. Over the past 12 months, we have continued to reduce gross debt levels and cost of funding and to secure a strong liquidity and debt maturity profile for the medium term. This has been part of the focus on securing a strong base to execute against the group's strategy. At 30 June, we had total secured facilities of $2.1 billion, of which $525 million were undrawn. Since then and as we announced in June, total facilities have been reduced by $350 million as a result of the repayment of our USPP 2012 notes. This was completed in July on terms in line with our prior guidance to the market. The USPP 2012 debt was our highest cost source of debt, and the repayment will reduce our funding costs in FY '21 by $17 million. As shown in the chart on the left, around 90% of our funding facilities mature in FY '23 and beyond, with our syndicate banking facilities having been extended through the current year. Ahead of the year-end, we also announced that we've made amendments to our banking agreements, which will enable the company to rely on more favorable terms for covenant testing through the end of calendar 2021, if required. These amendments provide for lower interest cover ratios and the normalization of fourth quarter FY '20 EBIT. It was important to us that we were able to agree this with our lenders for an extended period, and it puts us in a strong position to navigate the year ahead and focus on the business operations with our funding lines secure. Finally, on Slide 31, we provide a summary of the financial strength and focus for the group. Our approach over the past 2 years has been to maintain conservative balance sheet metrics to enable the group to withstand market shocks and to execute on strategy. With liquidity of $1.3 billion, good tenor on our funding lines, low interest costs and good underlying cash generation, we are well positioned to navigate market uncertainty and to continue our investment in key areas of the strategy. Part of that strategy will include an ongoing focus on cost control and margin improvement. We've moved decisively in FY '20 to reset our cost base and have also established a strong cadence for ongoing cost improvement initiatives in the business. As we reported at our half year results, we have seen improved margins in several of our core businesses, though not in all areas. We have a particular focus on improving performance in this respect in our pipes, steel and Australian operations. We're confident that we have the right trajectory in these businesses. And in FY '21, we'll continue several programs of work aimed at delivering more consistent margin improvement across the group, ensuring that we are leveraged to the upside when market activity recovers. With that, I'll hand back to Ross for concluding remarks.

Thanks, Bevan. And moving to Slide 33, I'd like to finish up with our presentation with a quick update on our strategy and some summary comments on the outlook for FY '21. As mentioned earlier, we remain focused on the key strategies and goals that we've been working to for the last couple of years. In our New Zealand core, we'll continue to drive profitability, look for market share growth, continue to pivot to more e-commerce and complete the fixes on the remaining couple of underperforming businesses. In residential and development, it's about maintaining the strength and momentum we have in our housing development business, ensuring a sustainable industrial land development pipeline and scaling up our apartment business in Clever Core. In construction, while we still have some legacy work to complete, this business will be increasingly defined by how it delivers its new and considerably better balanced go-forward order book. This should see it start to move towards normalized profits of between 3% to 5% EBIT margins. And in Australia, it's about continuing to drive the performance improvements across all the businesses, look for market share growth and complete the rationalization of the overall portfolio. And finally, moving to Slide 34. While the exact impacts that COVID-19 will have on our markets through FY '21 remain uncertain, I believe we have Fletcher Building well positioned. The reset of our cost base will help support the profitability of our businesses against what's likely to be a market contraction. And our strong balance sheet and cash flows mean we're well positioned to continue on with our key strategies and to take advantage of market opportunities as they appear. That concludes our run-through, and I'd now like to hand back to the moderator to allow us to take questions. I note that any media representatives on the line will not be able to ask questions at this time. Thank you.

[Operator Instructions] Your first question comes from Simon Thackray with Jefferies.

A couple of questions, if I may. Appreciating the impacts of COVID in the Australian portfolio were obviously significant and the slowdown that's occurring. Back when you wrote the strategy for Australia, the idea was to get organic growth 2% above market and double the EBIT margin to more than 7% by FY '23. I just want to understand, notwithstanding what's happening in the market, the progress against this target, and therefore, how much progress is actually embedded in the FY '20 results versus what the market did to the results in the EBIT numbers.

Yes. Sure. So I'll just segment it this way to talk towards -- to talk about the businesses. So if I look at Laminex and Fletcher Insulation, they performed well and broadly to the plans we had in spite of the market through FY '20. And they've got good momentum, and I'd expect that to continue on this, to build on that. If I then look at Tradelink, effectively, what occurred is the larger project, commercial apartment stuff, just got really hit. And while we're making good progress on the SME, SME solid equation, and we've taken about 3% of share on that side over the years, it's still not enough to offset that. So what just occurred through the back end of that year was the impacts of the large project work just got amplified through what we're doing. So as we look forward, we've tweaked the [ storefronts ] a bit more and focused it a bit more. But broadly, it's the same strategy. And we're very leveraged to when that sector, the bigger project sector, starts to move in a more positive direction. So we're making good progress on what I say as our core in our future. But the minute we get a sniff of any change to that larger project work, we're going to be very much leveraged to the upside. So I think we're sort of charged on the direction we are and, I think as I said, enjoy the upside when it comes, I guess. Then on the Stramit, again, that was impacted through the second half by the larger commercial project work, et cetera. And also, it just had a bit of a hiatus through the bushfire period. But what we've seen since then is certainly, the shed market has become very strong, and that's more higher margin for us. And we're seeing that continue at this stage. So I think Stramit feels like it's more solidly positioned as we go into FY '21. And then obviously, we've made our call on Rocla and the pipes business, and that allows us, the team, once we're through that, to focus exclusively on Iplex. And that's been a bit more challenged. We just haven't seen the large -- it has its basic background throughput work, but we haven't seen the large project work come through. And I'm hopeful that sentiment starts to change and we start to see that free up a bit through the year.

So against that backdrop, Ross, the -- obviously, Bevan has been clear, the information memoranda are going out for Rocla. And you talk to the -- contemplating the Australian portfolio rationalization in FY '21 and beyond. Is that the end of your -- the sort of ambition for rationalization?

Yes. When I've been talking about that, I just meant to complete the Rocla stuff here. I wasn't intimating anything further than that. I think we're just about there then.

And so you'd be comfortable where the Australian portfolio would be after the divestment of Rocla?

Yes. So the only -- yes, the only one we've got on the table to do it right now is the Rocla one, and that's all I meant was completed because we sort of paused it through COVID and have sort of now restarted it. But we just want to get that finished through FY '21.

Sure. If I can just jump in quickly to CapEx and return hurdles. The $400 million plasterboard plant expansion, I can't seem to even fathom the maths on a plant of that scale and that size, given it's about $5 a meter for the best steel in the world and the best building in the world. Can you talk through the capacity and give us some more detail on this plant because it seems like an enormously large amount of CapEx? And what the return hurdle is for a $400 million plant?

So we talk about returns, order of above 12% in terms of what we're targeting in the business. So we're actually very explicit on where we're aiming to get our overall business portfolio. So generally, for specific projects, we looked a bit broader than that, but -- and that's the case there. When I look at the plant, however, the decision is a bit of a different one, Simon. I mean when we've talked about it is, firstly, the plant we're operating in at Penrose isn't -- not quite at end to life but very close to it. So it's a very old plant, and it's been maintained well. But the other issue for us is that capacity, and it's also the suburbia sort of run-up around it. So it's heavy industry now in the wrong sort of location, and our consents will run out in the medium term, the next few years. So effectively, you've got that -- those issues, which mean we just cannot keep operating there. And also, it's not the most ideal location for material movements. Plasterboard is quite heavy. And whether it's the gypsum coming in through the Auckland port, which is pretty congested and hard to get in and out of, or whether it's them distributing the product around the North Island, it's not necessarily ideal -- ideally located, and we end up with multiple distribution centers. So we just -- even if we wanted to, we couldn't continue there. We looked at options around that plant, but they weren't viable. So that's when we stepped back and just made the call to take it down to Tauriko, down in Tauranga, near the ports, good transport hubs. And the other thing, I guess, as we're investing in them, we'll actually have the ability for extra capacity off the bat, but equally, can expand it into the future. And the other part of the puzzle is it'll be more efficient and also reduction in carbon. So...

I understand the rationale, but I'm trying to understand the economics. How big is this plant? And how big is the land parcel that you've acquired? I just can't work out how $400 million gets spent on a plasterboard plant, unless it is -- involved a much bigger parcel of land and some further development prospect.

No. No. So it's actually -- you can go back and benchmark here in terms of what plants of this nature cost elsewhere, and we've done all that. It actually lines up with that. It actually will have a capacity of -- what is the capacity, 20,000 or 30,000? I'm just trying to remember off the top of my head, the first phase. Do you remember?

So the current facility we have in Penrose, Simon, 20 million squares of plasterboard. We've also got the Christchurch facility at 10 million. The new plant that we are building will have an initial capacity up to 30 million squares. And one of the benefits obviously is that we're rightsizing manufacturing of plasterboard for future volume growth, which seems to be pretty correlated with population. The other thing that we've talked to in the past is obviously, around half of that total CapEx spend is for the land and buildings and half for the plant and equipment. But it does give us the ability to have material increase in capacity and to flow new products through that plant, which, as we've been running the current operation at full speed, we've really had limited ability to innovate around the new products.

Okay. I might take that off-line. And then just finally, just want to recalibrate the math. There's a $60 million underlying loss of EBIT in the second half. We add back $150 million of construction provisions and the $200 million of COVID impact that you called out. And we're starting, therefore, with the second half '20 at $290 million. Is that the right starting point as we look into FY '21, the EBIT?

So if we look into FY '21, what we've tried to do there is actually guide you to what we're assuming the market looks like. And then you're going to -- we're not talking about revenues at the point, and we'll do that when we actually see what the market trades like. So I actually would point you not to that piece of math as to what theoretically FY '20 may have looked like, because I think it's actually -- we're expecting the market to contract on both sides of the Tasman. And therefore, the better way to start looking at it is actually work out what the implied volumes through the business might be when you look at the market levels of activity that we're talking about and then work back from there. So I mean, I -- and as I said, I mean, the only thing I would say to you, Simon, is it's -- the trading is actually okay in July, but we've got a way to run yet. And we need to see what that looks like as we get through the year and just how the various lockdowns, shutdowns occur, as clusters jump up and then get suppressed. So -- and we'll have a better fix for that by the time we get to November.

Your next question comes from Andrew Scott with Morgan Stanley.

I just want to maybe start by following on from Simon's comments on Australia. I mean profit was down more than half. Generally, construction was exempt in these markets. Most people were telling us that activity was reasonably robust through this period. I think that's what we've seen through the start of reporting. So I'm just trying to get an understanding of the leverage there, particularly now you're forecasting a big drop in activity. And we've got the Victoria in lockdown at the moment. So can you just talk about whether you think you can offset that decline in activity that you're forecasting with the cost-outs? And Bevan, have you given us an Australian portion of the cost-out? If you have, I apologize if I missed it.

So I'll start with the first one, Andrew, and then just let Bevan up on the second part of the question. But again, the idea of what we've said around the cost-out program is the focus -- we just don't know where the market's going, but we're actually trying to maintain profitability as we -- as close to as we can. And obviously, we -- some of the businesses have a bigger fixed cost and you won't perfectly do that. But certainly, the cost-out focus has been driven by, okay, we have to maintain and look to focus on our profitability here. And we won't, as I said, achieve complete maintenance of it. But certainly, that's the lens, that's the mention, the $300 million and what we went after both in what I call fixed and variable costs as we did that. So -- and that is no different to Australia. And I think when you look at it roughly at 1/3 of the cost that was there, and if you look at it, it's about 1/3 of our revenue. So it sort of ended up being a bit proportional as you look at the cost-out activities only. But Bevan, I'll flip to you to make any further comments on that.

I'll probably just emphasize that point, Ross. Andrew, yes, we had guided to roughly 1/3 of the $300 million gross cost-out being in Australia and have also guided to across the business, it's around half-half between fixed and variable. And that proportion holds for the Australian piece as well.

Okay. Great. Maybe if I get to the point, would you expect -- you've guided for, I think, 129,000 approvals here. Would you expect, if we do see that eventuate, the cost-out offsets any market decline?

So we're not just a resi-focused business. So certainly, it's pointed at, dealing with that, should we see it? I'd say yes, but don't forget that, that's 60% of our business. There's still what happens in the large project stuff and the infrastructure project side. And as I said, I mean, I think that particularly Tradelink, I mean, we're actually doing okay on the SME side, which is more pointed to the residential side. But if the chunk of business that we normally do in the projects stayed down, and now that's going to be -- it's going to be difficult to say that will offset it. On the other hand, if it gets a bit of life in it, there's a fairly strong leverage up as well. So it's just -- yes, and the reason we're being a bit coy about it, Andrew, is simply it's got a way to run. We'll have a much better feel for what's going on by November. And I will say, though, that as we look -- sit here today, July has been pretty good. And volumes are sort of holding up in Victoria even through -- they're down a bit, but they're not completely down and out as a result of the lockdown.

Okay. Ross, just -- it looks as if construction ex Higgins was loss-making for the period even ex the provisions. Is that just the lockdown and impacts on the overhead? I would have thought you might have done a little bit better than that.

Yes. Look, so as we mentioned, the provisions are pointed to the impacts of COVID across the infrastructure and B&I works. The balance of what flowed through is the losses that -- we did incur losses then in -- across the Higgins and Brian Perrys. And I mean, at the end of the day, they're very people-intense businesses. We have to shut them down and restart them, and those productivity losses tipped the balance of the half into a loss. I mean that's just a feature of high people costs. And they're not large margins, so you quickly -- when you get into those sort of situations, you'd go the other way. So yes, so you're right in your assessment. It was losses, but we're obviously back up and running in through that now.

Okay. And just housekeeping, Bevan, just the $175 million cash flow still to come on those B&I legacies. Is that largely consumed within FY '21?

No. We said it's spread mainly across F '21 and F '22. It'll be slightly higher weighted towards FY '21, obviously, as we've got all the kind of major remaining projects still operating within that year.

Your next question comes from Brook Campbell-Crawford with JPMorgan.

Just a couple on Tradelink for me. You talked about, Bevan, with the SME customer kind of holding up okay. Can you talk about how that has progressed through the half for that customer segment, in particular? And also, you talk about gaining share there over the last few years, I think you talked about 3 percentage points. And what's the source of those share gains and who you're winning from?

Yes. So through the half, the SME sort of held up. As to what happened, the issue in the performance of Tradelink was in the larger project, the commercial and apartment side, which is still a big feature of that business. And it's less than it was a few years ago, but it's still an important part of the puzzle. So when it dries up, it hurts. In terms of -- as I mentioned, we've taken about 300 basis points of share over the last couple of years in the SME sector. And effectively, it's just been -- it's hard -- it's probably come off a bit of everywhere. And I don't mean there's not one particular place. Sometimes you're up against independent. Sometimes it's -- it might be a Reece or so. But then it's also -- what it was all about is getting our store formats right, getting our showrooms working properly and also re-pivoting our store footprints to where the growth -- where the activity was occurring. So part of it is just by being in the right place rather than the wrong place. So it came from those style of activities, and we've pretty well got that set now. So now it's more about some of the other stuff that I mentioned, it's now profiling our own product range, it's about our e-commerce channels, et cetera, those style of things to try and then just consolidate and build profitability of where we are in that sector now.

Okay. And just on the store rationalization, are you suggesting that you're going to be doing net store closing for Tradelink in FY '21? Or...

No. I think we have -- give or take, there's no big, big moves either way. We might be tweaking a bit here and there, add a small one. But we're broadly pretty well where we want to be for the moment. We really want to -- before we start doing anything much more, particularly adding stores, we just want to see where the market settles over the next 6 months. So we're focused on some of the other things we want to get right in Tradelink as opposed to further store rollouts. We'll see where we are by the time we get through this next half, and we'll maybe look at it in the second half. But no plans to do too much in that respect this financial year.

All right. And the last one for me, just there's a comment in the presentation about you intending to scale up the apartment business. And I guess the clients stepped through your plans there. Are you focusing more on sort of bespoke, low-rise-type product? Or are you looking at high-rise towers, et cetera, in kind of a couple of cities?

Well, yes. So really, it's -- the only place we'll do work in New Zealand is Auckland or down in Christchurch. That's really -- and we have a much smaller presence in Christchurch, really around the one central project, which is an urban regeneration project that will go on for a few years. In our present portfolio, we have a handful of apartment buildings, and they're more mid- to low rise, 3 to 6 stories that we're doing. What -- so that will roll out anyway. But what we want to have a good hard look at is the cost to deliver an apartment block is prohibitive in New Zealand, as you watch across earthquake requirements and some of this, the inefficiencies of how custom and practice works. So we're putting a fair bit of thought into, can we work through all that detailing and solve that problem? And if we can, then I think we've got a really interesting place to play pointing in the densification that will happen in Auckland and Christchurch to start with anyway. But we've got to crack that model. So while we're doing the normal apartments, we'll do -- put in a fair bit of work in over the next 12 months in trying to crack the what I call the model that would probably take you up to a bit higher rise, probably 10, 12 stories, those sorts of things. But it's not really predicated -- the projects will be what they need to be market, but we've got to crack the cost point on before we do that.

Your next question comes from Lisa Huynh with Citi.

So I just had a question on the potential cost-out that you've outlined in the pack. So you said you're doing further work on property and supply chain this year. Can you just talk to a high level of what are some of the opportunities that you are seeing this early on? And just trying to get a sense of how large this could potentially be.

Yes. Lisa, so look, so obviously, we had a good whack at it pre-June, and you can only get so much done in what was effectively 3 months, probably not even that long. But so what we've identified is that there is still some further opportunity around further property rationalization. That just might -- where -- it's just how many manufacturing facilities we might have, how we're thinking about distribution, those style of things where we want to sort of start combining logistics, and some of that stuff just takes a little bit longer. We've also got a latent opportunity potentially around our office space. What we're embracing as we go forward is the work from home, and we'll probably use about 75% less office space than we would have otherwise. So we're actually -- we'll have a look at how we rethink and consolidate those, and it just takes the next year to work. What we sort of said, by the time we get through this financial year, we want to grab those opportunities. And then the other one is just around supply chain and just in terms of renegotiating certain deals, rebasing them. And particularly, when we know where the market's going, it's just difficult to prosecute all those until you sort of get a sense of volumes and what you're trying to do. So that again will take time, and we'll be just looking at how we can optimize and reposition some of that. And again, that will take through this year. And we're not putting a particular target out there at this point, but it won't be as big as the $300 million. Certainly -- it's certainly worth going after that we haven't dimensioned it. And the way we're thinking about it is, again, if you look, we're thinking that the market will continue to be soft through the FY '22. So we're actually continuing to try and drive those sorts of outcomes to -- with that focus on profitability. So it's about maintenance, and profitability is how we're thinking about it. So we actually stay -- our margins stay where they need to be.

Sure. And just a further follow-up question on Tradelink. I guess you've talked to the weakness that you've seen in commercial. Can you just talk to us about what kind of sectors that you find that your work is skewed towards? We're seeing a slowdown in retail and airports, slow in terms of the commercial pipeline. But do you think you'd be able to -- could potentially offset that in other areas that are in growth, such as aged care and hospitals?

Possibly. We got to see that come through our workbook. I mean the Tradelink has traditionally sold into a lot of the offices and apartments on the bigger project side. And -- but certainly, as we're looking at -- if you look at Laminex are, it's quite strong in those places. So part of the work Dean is doing is how we reorientate and start to think of share of wallet and bring those 2 strategies together. So there's certainly potential there. But as I said, the easiest win we get -- and look, and we'll achieve some of that. But the easiest win we'll get is when there's a -- we just see some of those things start to move, and they will at some point. I just -- it's just hard to predict when. And in the meantime, we work on all the other areas. And we'll start to see that become more profitable, and we start to define Tradelink's future more and more. And as I said, we'll still get on with where we're going with it. But at some point, you'll see some light in those areas that give us a bit of a free kick at some point, hopefully.

Your next question comes from Lee Power with CLSA.

Just looking at the construction backlog, is there some sort of level that you're kind of targeting and are happy with? Are you just going to bid on everything that meets your margin criteria?

That's -- the answer is we're not going to bid on everything that meets our margin criteria. So firstly, we've had no real focus on what that backlog needed to be at this point. Predominantly, as you know, we basically stopped bidding in verticals, et cetera, et cetera, because really, it was about getting control of the business and getting control of our bidding. So it's ended up where it's ended up not by going for a target. It's just there to sort of roughly put the strictures on it, and we got very focused on what we would and wouldn't bid for or negotiate. That's where it's ended up. So -- and we've then also laid out within -- over the next few years, we've talked about our businesses doing circa $2 billion of revenue in a few -- 4, 5 years' time would be fine. So we don't really see us getting much bigger than that when you look at the context of the New Zealand market and what you think you can sensibly grow to. So that's the other criteria. And then the other thing I'd sort of -- the loose rule of thumb I use is if you can get to 2x your annual revenue in a construction business, so we're running at about $1,300 million, $1,400 million -- $1.3 billion, $1.4 billion of revenue every year, you'd look to have an order book into the future of at least 2x. So you'd want it to be -- therefore, $3 billion would probably what you'd want committed in your go-forward order book. And the only caveat is if you have something like the Watercare alliance, which is over 10 years, I mean, that's sort of very long-dated, and you like that sort of stuff. So if you start doing more maintenance-y framework deals, then that future order book can and you would want it to get bigger. But it just depends on the deal. But we don't want to get too big, a, because of our capacity to deliver effectively; and b, obviously, the market becomes a natural limit anyway. So...

Okay. That makes sense. And then sorry to kind of keep dragging you back to Tradelink. I get the point about all the larger...

I'll let Bevan answer this one. Bevan, get ready because I'm obviously [indiscernible].

I get the point about all the larger projects. What about the stuff that's in your control? So you talked a fair bit at the Investor Day about own product on -- as share of wall. Can you maybe talk about Oliveri or how that's tracking against your -- I think you had a 10% kind of target for wall share for that. Could you maybe talk about how that's progressed over the last year?

Sure, Lee. We're continuing to make progress on that, the 2 key drivers of own brand. There's Oliveri, as you mentioned. And then there's Raymor, which is kind of largely sourced from offshore. They're both going well. And I guess what's difficult when you've got a significant impact from the market is that clearly, that impact, that is driving on a like-for-like basis margin improvement in the business. So we're pretty positive about the work that the team is doing there. And yes, we're very confident of hitting those targets that we laid out. And we think it's going to push those margins in Tradelink over the next 12 to 24 months. So when you look at what Tradelink needs to deliver, it needs to deliver core SME performance, and we've pointed to the share that they're taking there. It needs to deliver margin improvement. And again, on an underlying basis, we think that it's doing that. And thirdly, it needs to get its basic service through its store footprint up, and that's why we're comfortable with the footprint now. We've still got some improvements in some of the existing stores and showrooms to do. And the combination of those 3 things, and obviously, the market when it starts to be a tailwind rather than a headwind, we think over the next 2 or 3 years, Tradelink is doing what it needs to do. As Ross has highlighted, it's an important year for the team, and they're executing on those things.

Your next question comes from Keith Chau with MST Marquee.

A few questions on my end. First one, Bevan, just a quick tidy-up on the construction provisions. You spoke to the timing of the cash impact for the $175 million of legacy provisions. Can you just give us a sense of what the timing of the new $150 million of provisions will be and when the cash impact will be felt from that, please? Apologies if I've missed that.

No, Keith. Well, I think the simple way to look at it is that the lion's share of the cash left to flow is the new provisions that we had posted. So the split that I've guided to across FY '21, '22, with a weighting towards '21, you should be thinking about the $150 million of new provisions in the same way.

Right. Okay. So it is a total of $325 million legacy and new. Is that correct?

No. There's a total of $175 million of cash left to flow, which includes the impact of the additional $150 million. So the other way of putting that is that there was relatively little of the historic provisions still left to flow in cash.

Understood. And I just want to go back to Australia. The P100 cost-out program that was announced a year, maybe 2 years ago now, just wondering whether that's been completed. And I think at the trading update, there was some indication that it had been completed. But whether we're -- or we should still expect some incremental benefits to come through from that in FY '21. I think initial expectations were the benefits of that to be fully derived by FY '21. But just wanted to try and understand whether that is in addition to the $300 million cost-out program.

You go ahead, Bevan.

I'll take that one. Yes, sorry, Keith. The answer is yes and yes. So we completed Australia and the P100 program, as we called it, through FY '20. There was the tail end of significant items, charges associated with that in FY '20. We're very confident that the cost-out that we committed to has been delivered into the P&L. In fact, we think we've done a bit better than what we thought. But obviously, with the market, that's come off very sharply. And yes, the additional cost-out that we've guided to, that is on top of what was delivered in P100. And it's obviously been necessary as the market's taken another lead down.

Sure. So what would it be, the incremental P100 benefits in FY '21?

I think the way to look at it is that we -- in FY '20, you've seen the full benefit of the Australian P100 program. There's a small tail benefit to the margins, which will be improved in FY '21. So I guess, yes, the exit run rate out of '20 is slightly better than that. But that's largely baked into the performance in FY '20. And then what we've said is roughly 1/3 of the $300 million of additional cost-out relates to Australia, and that's additional to what we had delivered in FY '20.

Okay. And then for working capital, clearly, a strong performance in FY '20 by anyone's measure, I suspect. What's the expectation going forward into FY '21 for working capital? Can you still liberate cash from your working capital balance? And for CapEx, what's the total CapEx expected in FY '21, please?

Sure. So in working capital, the area that you will see a net cash inflow, we think, in FY '21 is in inventories. As I mentioned in the -- as we ran through the presentation, that was an area in which we could release cash in the final quarter as COVID impacted us. We did in our debtors' line, as you've seen. The inventory should deliver a net cash inflow in FY '21. The thing that we'll need to watch and where we do expect a bit of pressure is just on those receivables days, as activity falls and you get more pressure with a new customer base. That's going to be one that we suspect will come under a bit of pressure. We haven't seen it yet but are preparing for it. So overall, working capital cycle, I think you can expect to be reasonably stable in FY '21, but generating a cash inflow on inventory. And then on CapEx, we've guided to $175 million to $200 million in FY '21. $50 million of that is the new wallboards plant. And it's probably worth adding that, that's not the level of CapEx that we would expect on a go-forward basis. We've said that we'll see where the market activity settles, but that we've got some important investments that we continue to want to make in the business. And I'll probably guide you in the medium term, more towards the $250 million of annual CapEx that we've talked about on a number of occasions. Again, the cuts we've made in the past 3 months and into FY '21, it's a prudent measure to preserve cash. But probably on an ongoing basis, we're tracking back more to the $250 million.

And just the last one for Ross. I appreciate the outlook is uncertain, so perhaps we can have a look at what's been achieved in the last few years. Your employee engagement rating has gone up. Customer Net Promoter Score has gone up, albeit stalling in FY '20. So there has been some, I guess, theoretical improvements within the business. But if you look across the New Zealand business, so leaving Australia aside, if you reflect back on the last few years, you would have thought that Fletcher Building would have had a bit of time going through the strengthening period of the macro cycle. So Ross, I just wanted to try to understand, as you look at your time that you've had at Fletcher Building, is there anything that stands out to you that has impacted the business particularly? I know market competition has been brought up a few times, which is impacted by volume and price. There have been some operational issues in the business as well over the last couple of years. But is there anything that stands out to you that you think should have been improved or can be improved going forward? And then is there any reason to suggest that as your employee engagement rating continues to improve and your Net Promoter Score improves, that you should actually see that or those benefits flow through to revenue and margins going forward?

Yes. So let's start with the end, and I'll come back to try and give you a quick sense of the broader question. So I think profits and growth are in -- are quite linked. If you see engagement going up, you usually put -- they sort of feed on each other and the employees. And I think you've got to get your Net Promoter Score, your customers' views of you, strong as well. And you'll notice that this year, we've actually got a much broader -- have started to include all the businesses in it. I mean it was narrow before. So -- and the other thing we're doing, which is also just looking outside our customer base as well, they're not in those numbers, but just to get a sense of, "Okay, if we're going to take market share, how do we move?" So I think they're very important metrics, and they need to go up if you're going to improve profitability and improve your market share. If I look at the overall [ pallet ] that we're looking at, I think we're well on a [ journey ], I think there's lots of opportunity remaining in the business. And if I'd characterize the last -- in the core parts of the business, forget construction and other bits right now, we've been on a journey of stopping the margin degradation year-on-year. So we were seeding margin year-on-year. And the half year was -- we sort of started to put a floor under that, which was good. I mean COVID obviously ambushed us. But -- and we're in a bit of a reset, and I'm quite comfortable we can continue to focus on profitability. So we've got the businesses much more fighting fit on how they're running with price, how they're running their operational efficiencies and how they're focused on margin. And I think there's -- with the reset, we've got -- there's an opportunity there. And particularly as -- I don't know exactly what the trajectory out of COVID will be, but we'll -- having got the cost base right, we will be reset and leveraged to growth then because we should get more profitable as that market grows, assuming we can get -- keep our profitability. So I think, if anything, the tempo, the operational focus, we've got the disciplined focus, we've got -- and combined with the cost-out, once we get a floor on this market when we start to grow out of it, I think we've got good opportunity to expand profitability. And I think we're much better organized across base disciplines and where we're heading with our e-commerce overlays as well. So I'm quite optimistic on the upside. And hopefully, we can turn what was profitability degradation over a number of years into profitability expansion as we look forward over the next few years.

[Operator Instructions] Your next question comes from Stephen Hudson with Macquarie Securities.

Ross and Bevan, just 3 quick ones for me. Firstly, I just wondered if you could comment on any import share -- or sorry, market share from importers that you might have captured across your Australian and New Zealand manufacturing businesses as a result of COVID supply chain disruptions. Secondly, could you give us an idea of depreciation and STI normalization for FY '21? And then thirdly, could you just give us a bit of an update on Ihumatao and the likely settlement timing? And also, Three Kings and whether or not you expect to fully develop that property?

Okay. I might start, Bevan, with Ihumatao because I'm the resident expert on that in the business and then flip back to you for D&A and just market share. So Stephen, just on Ihumatao, I think we've got -- I must say that I think we are in a process that will get a resolution for us. So I'm content right now to continue to work with labor and the government on that. And I don't think that's naive optimism. I think that we will find an outcome in that in the next few months. So I think that's the right track for us to be on. So I can't say much more than that. And it will probably get talked about through this election cycle, will be my guess. But I'll leave it at that. And I'm hopeful that's not naive optimism. I don't think it is, but time will tell. And then Three Kings, we will continue to develop that. And in fact, one of the apartments that we've got planned is in that, and we're getting close to just about having filled the quarry now. So we're sort of getting very close to the -- to being able to get on with what I call a development in the quarry in the next year or 2. So that's sort of tracking quite well. So Bevan, I might flip to you to talk to the other 2.

Sure, Stephen. On market share from importers, the way I'd characterize it, it's been fairly stable. And the reason for that is we actually haven't seen much in the way of supply chain disruption in either in our businesses or for others. And therefore, there's been no real change in that dynamic. But I would highlight that in the cement chain, we have seen one of our competitors that has had some difficulty over the past 3 or 4 months, and that's helped us, and how that's similar to sort of the bagged cement space. So reasonably small, but good business that we have been able to pick up. In terms of depreciation, I'll just clarify on the numbers, and I'll talk base depreciation, so I'll talk excluding right-of-use or IFRS 16 depreciation. So in FY '20, our base depreciation was $185 million. We expect that to be slightly lower in FY '21, with the main reason being that with Rocla being held for sale, we cease the depreciation on that asset. And that was just under $10 million of depreciation, which we won't have in FY '21. And the other dynamics that are going on there, some of the write-offs and closed sites, have reduced depreciation in some areas, obviously, by an increased CapEx envelope over the past few years.

Your next question comes from Grant Swanepoel with Jarden.

Just a clarification from Bevan to start up with, indicating about the P100 Aussie cost-out. At the interim results, you guys were talking about $15 million back-ended for 2H and a $50 million run rate coming -- rolling through into FY '21. Has this now changed? And should I be thinking about an extra $50 million of cost-out and above that, if I take $50 million fixed costs from the $100 million that you allocated to Australia? So in effect, should I be thinking about the start of the year having drive up all of that heavy $100 million of cost-out throughout the year?

The way I'd answer that, Grant, is that we're confident we captured the P100 benefits, as I mentioned before, within the FY '20 year. Again, the market has got worse. So there's been additional offset there, and Ross has talked to how, in particular, that's impacted Tradelink, Stramit and the pipes businesses in FY '20. In terms of the additional cost-out, we've been clear, we think there's a gross around $100 million of additional cost-out in Australia. But we have not guided to a net amount on that, consistent with how we're talking about the rest of the business for FY '21. So that would be the key ingredients I'd put in the mix.

Okay. And 2 quick ones on your debt covenant relief. Can you pay a 1H '21 dividend without messing with that? Or will that also trigger old covenants coming back?

So I think that's very much, given the market uncertainty, something we'll have to see after the first half. What's important is that we've got that lender relief in place with a very positive kind of response from our lenders on that front. So it gives us the cover if we need it. It'll obviously just depend on not just how we think how H1 tracks, but also how we're thinking the market is looking for H2, so really, something we'll just have to evaluate when we get to February.

Central costs fell from $50 million forecast to $37 million. I believe a lot of that was due to bonuses. Should we anticipate a $50 million in FY '21 or something lower than that?

Just firstly, on FY '20 corporate costs, you're right, I've seen our bonuses there had a favorable impact on net corporate costs in FY '20. There was also some cost reductions over and above that, that we achieved through the final quarter and consistent with the measures we took in the rest of the business. And for FY '21, net corporate costs will be pretty stable on what we had expected for FY '20, so around $55 million of net cost is what I'd guide you to. I'd note that we -- the cost-out that we have done across the business has included a pretty significant corporate cost-out, but we've flowed that benefit into the businesses in the form of lower recharges, leaving the net corporate number at around that $55 million level.

And then final question, just in terms of the COVID relief payments, I think was $66 million. Have you used all of that up in FY '20? Or is there some left for FY '21? And were there any other prepayments that you received in FY '20 for work that's going to be completed in '21 from a cash flow perspective?

So on the wage subsidy, yes, it was all taken into account in FY '20. And it was taken into account through the cost lines, to which it was applied for the people who were even not working or working reduced hours. So yes, that's all FY '20, and there's nothing unusual on the prepayment front with respect to cash flows. I would note that within the Construction business, you obviously have at times positive working capital balances, but it's just ordinary course within the Construction business.

There are no further questions at this time. I'll now hand back to Mr. Taylor for closing remarks.

Thanks all for joining us. And no doubt, we'll be talking to you over the next week or so as we virtually get on our hustings and talk to you all through the results season. So thanks for joining. Bye-bye.

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