Fletcher Building Limited (FBU) Earnings Call Transcript & Summary

[Foreign Language] Hello, everyone. I'm Ross Taylor, CEO of Fletcher Building, and I'd like to welcome you all to our Investor Day presentation. While you'll be hearing from most of the executive team through the day, we will all be focused on a couple of themes: what our areas of business are; how we feel we have them performing; what we see their outlook to be; and finally, what we're doing to drive their growth into the medium term. Hopefully, we can bring this to life for you and get you all as excited as we are on where we can take Fletcher Building from here. We have structured the agenda to allow participants to stay for the whole day or jump in and out for particular areas of interest. To ensure this works, we'll be sticking to the time shown on the slide. Through the day, we'll cover: an overview of the full group; a spotlight on our safety approach, our people, and how we're driving innovation and sustainability; and presentations on each of the 6 operating divisions. Following each presenter, there will be an opportunity to ask questions for around 10 minutes. The exception to this is where we'll wait until Bevan and I have both spoken before jointly taking questions on the overall group outlook. And at the end, I'll wrap up with a short summary and a few final questions. Also, following today, all these presentations will be available on our website for later viewing. This slide shows the full Fletcher Building executive team. And as you saw from the agenda, you'll hear from most of them through the day. This will be a great opportunity for all of them to interact directly with you and to answer any specific questions you might have on their businesses or functional area. I'd now like to run through a number of housekeeping matters and point you to some things that may enhance your viewing experience. If you're using desktop, you can adjust your viewing panes by grabbing the edge of any window you'd like to resize and make it bigger or smaller, just like you do to any browser window. You can also move any windows in the same way. A big part of today's event is the ability to ask questions directly to all our presenters following each of their presentations. Questions can be submitted at any time, and I'd encourage you to do so as early as you would like. [Operator Instructions] I'd also like to note a couple of things. That while you can submit questions from now on, they will be not addressed until the relevant time in that session. That your questions may be moderated. So if we receive multiple questions on 1 topic, then they're likely to be amalgamated together. And that we also have our sell-side analysts on the line who are able to ask questions live over the phone. And we would encourage you to do so at the appropriate time. If you're using a mobile device, tap the menu icon at the top left-hand corner to open the panel and then tap the Q&A icon. [Operator Instructions] Fletcher Building has a rich and impressive history in both New Zealand and Australia. We're in good shape. We have all the businesses well positioned to drive ongoing operational improvements and to land some exciting future growth opportunities. But before outlining these, I wanted to step back and provide an overview of the businesses that make up Fletcher Building. Fletcher Building is a leading player in building products and distribution with operations across New Zealand, Australia and the Pacific Islands. In New Zealand, we have around 9,000 people generating $5.2 billion in revenue. Our businesses here span the broader construction value chain from resource extraction, product manufacture, distribution, through the property development and construction. And in Australia, we have around 4,500 people generating $2.7 billion in revenue. Here, we're focused on the manufacturer of building products and their distribution. Just over half of our revenue is exposed to the residential sector with the balance being relatively evenly split between the infrastructure and commercial sectors. We have a diverse and strong shareholder base and are listed on both the NZX and ASX Exchanges. Our New Zealand businesses have many well-known and strongly positioned brands. And they generally hold either the #1 or #2 position in their respective markets. And while our main revenues come from the Auckland Golden Triangle area in the North Island, we have locations that cover the length and breadth of New Zealand. In Australia, we're focused only in our core areas of distribution and building products. And like our New Zealand businesses, they are #1 or #2 in their respective markets. And while we do have operations across all of Australia, our main revenues come from the Eastern Seaboard. Slide 11 shows a high-level view of the plan we've been working to in Fletcher Building for the last 3 years. We remain on track, and FY '21 is seeing solid performance outcomes being achieved across all our areas of business. And pleasingly, this performance is showing up in our bottom line results. We are now in great shape to build from this position and drive both further operational improvements and above-market sales growth. To reflect this shift in focus, we've amended the strategy framework we outlined to the market 3 years ago and I'll now take you through this. This slide shows a summary of our strategy framework on a single page, and I'll now talk to elements of it on the following slides. Our aim remains to be the leader across New Zealand and Australia in building products and solutions. Our purpose blends 3 critical themes: it recognizes our obligation to ensure what we do is not just sustainable, but where possible that we make things better; it calls out that we want to be smart about what we're doing, whether it's accessing the best ideas around the world or through innovation in our own right; and critically, we want to do this in ways that make our customers' lives easier, where we help them simplify a world that's getting more and more complicated day by day. We've combined these themes into a short and simple purpose statement: improving the world around us through smart thinking simply delivered. This purpose fits well with the 4 values we want to see consistently lived by our people across our organization: to visibly care about getting their workmates home safely each and every day; to be bold to speak up and have a go at doing things better; to be focused on the customer, ensuring what we do is better than what the competition can offer; and finally, to embrace diversity, respect each other and importantly, work well together as a team. These values define what it means to work at Fletcher Building wherever you are. I now want to move down the page to an area highlighted yellow on Slide 14. There are 5 key areas we're focused on to ensure we successfully drive towards the vision we have set ourselves. We have a belief all injuries are preventable. We want to get everyone home safely each and every day. We want to see each business absolutely focused on its customers, making sure the solutions and services they're offering to them are better than what anyone else in the market can achieve. We need to be ever vigilant that we have our costs under control against both local and global competition. To achieve this, we will relentlessly benchmark, evolve and invest to ensure we maintain this position. We want the economic performance of each of our businesses to be in the top quartile of similar businesses but globally, not just our local competition. And finally, we need to take advantage of both our relative scale in New Zealand and Australia and our distance from the larger Northern Hemisphere markets. This allows us to innovate and drive sustainability as a fast follower and to disrupt our home markets and ourselves before others do. This done well should allow us to readily achieve above-market growth in our revenues. Unsurprisingly, we want to see the traits in our people that mirror and reinforce what we're trying to achieve: a relentless focus on operational excellence; a true global perspective and expertise, but critically, an ability to deliver this locally; an obsession on driving better and better outcomes for our customers; a restlessness that sees them constantly innovating and looking for both small and big things that drive growth and will make us better at what we do; and of course, to be driven by our purpose and to live our values. This will be both their natural disposition, but also where we'll invest in our efforts in training and development. And finally, we've laid out what we want to achieve from all this through a clear set of measures we put in place back in 2018: ROFE and free cash conversion we've already achieved and we now need to maintain them at or above these levels; for EBIT margins and carbon reduction, we've laid out clear plans and timing on when we expect to achieve these goals; and the others, while they remain more aspirational, we'll continue to measure and work towards them across all our businesses. We remain confident this strategy positions us well to drive growth and shareholder value across both the short and longer term. We're focused and we're running similar businesses across only 2 geographies. We have a very strong and robust balance sheet, liquidity position and operating cash flows. We continue to have a significant near-term value creation opportunity and what I characterize as self-help and in our control. And this should see our operating margins improve by a further 150 to 200 basis points over the next 2 years. Then looking to the medium and longer term, we continue to believe that the global and regional trends remain supportive for growth in our markets, and for us to have a sustained competitive advantage from our scale in-country positions across New Zealand and Australia. And finally, we're confident that the many investments we have made in both growth OpEx and CapEx over the last 3 years will successfully mature over the medium term and underpin growth in our overall profits into the future. I now want to turn to our markets and then provide a short update on our present trading and future outlook. The market in New Zealand continues to look favorable. The economic backdrop remains robust, and we're continuing to see strength in both the residential and infrastructure markets. But while the many lead indicators such as residential consents and the planned government investment and infrastructure are at record levels, this is not translating in a similar spike in work being put in place. Market capacity issues, such as the international supply chain bottlenecks and emerging scarcity of select commodities, the ongoing border restrictions keeping an effective cap on the availability of key skills and the generally low inventory levels across the industry will all combine to have an effect of smoothing these spikes and in all likelihood elongate the period the market stays at these levels. In Australia, the economic backdrop is also broadly favorable, and we're seeing forecasters pointing to increasing market volumes across all our sectors into the medium term. That said, the immediate story is a bit more complex when you dig down into the subsectors. In residential, the strength is in the areas of detached housing and alterations and additions while high-density housing remains weaker. In infrastructure, the key sectors we're exposed to water, gas and civil subdivision have been slow to recover. But that said, the project pipeline is looking increasingly robust. And as you'd expect, the broader commercial market remains somewhat subdued. Against that market backdrop, trading conditions in the second half have been broadly consistent with the first half. And we expect the revenue for our full year to be around $8 billion. Input cost pressures have been a feature of the half and as the industry operates at or near capacity in certain areas and, in most cases, this has been flowing through the price. In New Zealand, I'm hopeful that the natural winter slowdown will allow the opportunity to rebuild inventory levels and alleviate some of the bottlenecks for the sector. We remain on track to deliver strong earnings growth for the year, and we expect to deliver a full year profit in the range of $650 million to $665 million. This sits at the top end of our previous guidance. Strong cash generation continues to be a feature and debt levels remain low. Against this backdrop, we've announced our intention to conduct an on-market buyback of up to 300 million of our shares commencing in June. And as we noted in the interim results, the Board expects to declare a final dividend in August. As we look ahead, we are confident we can continue to deliver against the plans we laid out 3 years ago. We remain on track to get our overall EBIT margins to around 10% by FY '23. This improvement will come from 3 key areas: lifting margins in Australia to between 5% and 7% and construction margins to above 3%; continue to drive margin expansion across the New Zealand core businesses; and the profitability benefits we get from further growth across our higher-margin residential and development business. At the same time, we've been actively investing both capital and overheads to set us up for growth beyond FY '23. Importantly, we are doing these investments within our ongoing overhead and capital envelopes. Our growth initiatives are focused across many areas and include: product adjacencies; disruption opportunities; improving customer ecosystems and our own backbone systems to support them; modernizing and improving our manufacturing processes; delivering on our carbon -- decarbonization ambitions; growing to over 1,000 houses per annum; and building a scale apartment business to name a few. I'd now like to hand over to Bevan, who will add further detail to this through his presentation, and then we'll come back together for a combined Q&A when he finishes.

Thanks very much, Ross, and good morning, everyone. In this section of today's presentation, I'll spend some time running through Fletcher Building's key financial settings, the progress we've made towards achieving our targets and where we're focusing our investment over the medium term to deliver sustainable growth in shareholder returns. I'll also provide some more color on the company's balance sheet position and our decision to undertake a share buyback, which Ross spoke to briefly earlier. In June 2018, Ross and I laid out our key financial targets and capital settings for the company. These have remained consistent over the past 3 years. And as summarized on Slide 23, we've made material progress towards achieving our targets. We'll look at each of these in more detail in the presentation. But to summarize here, our key priority has been sustainably growing margins across the business with a medium-term target of 10%. Our efficiency programs in the past 3 years have delivered material cost reductions. And as a result, a 100 basis points improvement in margin. We now have a good base on which to drive ongoing performance and growth and a clear pathway to achieving around 10% EBIT margins in FY '23. In terms of investment and returns. We've consistently targeted a return on funds employed or ROFE of above 15%. This year, FY '21, we'll deliver a ROFE of around 18%. We've made some key investments over the past 3 years, which means our base CapEx envelope has now reduced to a sustainable range of $200 million to $250 million per year, including ongoing investment in growth and efficiency initiatives. On cash flow, our key focus has been improving working capital management. We committed to improving our core division's working capital cycle by 5 days by F '23, and we've delivered on this goal 2 years ahead of plan. We've also seen very strong free cash generation in our residential and development business in the order of around 120% of earnings. This means that in FY '22, we'll be looking to rebuild land and housing stocks as we continue to scale this business. On balance sheet. We've had a consistent preference for more conservative metrics as we execute our strategy. We've reduced gross debt by around $1 billion and annual funding costs by around $100 million. Our target leverage range or the ratio of net debt-to-EBITDA continues to be a range of 1 to 2x. We expect to exit this financial year at around 0.3x levered, which has been a key factor in our decision to return up to $300 million of capital to shareholders through an on-market buyback. Finally, here, our dividend policy is unchanged and targeting a payout ratio of 50% to 75% of net earnings before significant items. We paid an interim dividend of $0.12 per share in March of this year. And the Board has stated its intention to declare a final dividend at the full year results in August. I'd like now to step through each of these areas in turn. On Slide 24, we lay out the key drivers that we believe will lift our EBIT margins from about 8% in FY '21 to a target of around 10% in FY '23. We have momentum here, having improved margins by 100 basis points in the past 2 years. Looking ahead to the next 2 years, the way we think about the pathway to the 10% target is in 4 areas. In Australia, as Dean will talk to later, we've materially reset our cost base. We've improved the operating disciplines in key areas like pricing and honed in on the profitability of a number of underperforming segments. This has expanded the division's margins from around 2% and to around 3.5% this year. We're now pursuing targeted growth to drive operating leverage on this space. Margins of at least 5% are achievable in FY '23, assuming a stable market environment, with an aspiration to lift of 7% plus. In construction, Peter will show later how we have totally reset our order book to a lower risk profile, which we are confident can deliver net margins in a range of 3% to 5%, and that's up from 2% currently. Our revenues are increasingly weighted to smaller projects, alliances and maintenance work particularly in our Brian Perry and Higgins businesses where we're already delivering EBIT margins in excess of 5%. In our New Zealand core divisions, that's Building Products, Concrete and Distribution, EBIT margins have lifted from around 10% in FY '19 to around 11% this year. That's been driven by our efficiency programs, especially our investments in modern manufacturing and supply chain. As Hamish, Nick and Bruce will show later today, we think there's still room to expand margins slightly in the New Zealand core, mainly through growth in market share and pushing into adjacencies. Finally, our Residential and Development business has been one of our key growth engines. We see an opportunity here to deliver further top line growth in this division, both by scaling our base housing business and by pursuing growth in apartments and off-site manufacturing. We'll continue to target margins here and returns as well above 15% on a funds base of around $750 million. We expect this to be accretive to the overall group margins. Turning now to Slide 25. This summarizes the impact of our efficiency programs over the past 3 years, which has been a key contributor to the margin improvement. In 2018, we commenced a significant piece of work to reset the cost base of the business. Initially focused on Australia and then on to our New Zealand businesses, this program has delivered more than $250 million of gross cost savings. These savings have principally been in the area of fixed costs and particularly in our core divisions. A portion of this cost out has served to offset inflation. But as can be seen here from the material improvement in overhead cost percentage, which has been achieved on a broadly stable revenue base, a significant portion of the efficiency benefits have dropped to the bottom line. We consider that our cost base is now broadly rightsized and our focus from here is on pursuing targeted top line growth so that we can drive operating leverage across the space. As we'll show in a subsequent slide, we do intend to make some focused investments in overhead spend to support the delivery of these growth initiatives. Before that, though, I'd like to summarize our approach to capital allocation across the group. On Slide 26, we show the focus areas for our base CapEx envelope, which is $200 million to $250 million per annum. Depreciation in our business, and that's excluding right-of-use depreciation, is around $180 million per year. And our maintenance CapEx will be at around this level over the next 3 years. We're able to sustainably operate at this level of CapEx given some of the more significant investments we've made in recent years, especially in our products businesses. Important to note, too, that this maintenance spend of $150 million to $200 million per year is inclusive of our investments to accelerate the transformation of our core system environment. We consider this as critical to future-proofing our businesses and providing the right backbone to support our customer-facing digital tools. Growth and efficiency CapEx will average $50 million to $100 million per year, and we continue to target a return of at least 15% on these investments. This will be focused on organic investments in modern manufacturing, on enabling entry into product adjacencies and disruptive categories and also investing in digital and customer ecosystems. The one major CapEx investment, which sits outside this base envelope is our new Winstone Wallboards plant in the North Island of New Zealand. Winstone Wallboards is a world-class business, and our current Auckland plant is nearing end of life. The new plant in Tauranga is a $400 million project, which will enable a degree of manufacturing and logistical efficiency, provide the capacity to support long-term demand for plasterboard in New Zealand and importantly, enable opportunities around innovation and sustainability. The project is running ahead of schedule and remains firmly on budget. With this good progress, we now expect FY '21 CapEx for the Winstone Wallboards plant to be around $80 million versus our previous guidance of around $50 million. This is a timing variance only with no change to the overall project cost. Turning to Slide 28. We show the profile of our investment in the Residential and Development division. Land and work in progress in this business is accounted for as working capital. And so investments here sit outside the CapEx line. In FY '21, the very strong demand for housing in New Zealand has meant that both our land and housing stocks have reduced below expected levels. Positively, this has meant that we've generated very strong cash flows with cash conversion averaging 120% over the past 3 years. In FY '22, we intend to rebuild our land and housing stocks. This will enable us to scale our base housing business to around 1,000 units, pursue growth opportunities in apartments and off-site manufacturing and also trial a complementary retirement offer in our existing communities. This will mean a lower cash conversion in the next 2 financial periods with a net investment of around $200 million expected in FY '22, bringing total funds to around $750 million at the end of FY '22. We do still expect to generate margins and returns above 15% on this capital base. As mentioned earlier and as shown on Slide 29, our focus on performance and growth will be supported by some targeted OpEx spend over coming years. In aggregate, we expect this to be in the order of $30 million to $40 million per annum. This spend is incremental to our FY '21 overhead cost base, but is factored into our pathway to around 10% EBIT margins in FY '23. Our approach will be to test and prove out the growth opportunities rapidly and then either scale them or move on. We expect a degree of additional OpEx investment will be required to support our investments in digital and backbone systems as well. And finally, the transition to our new Winstone Wallboards plant towards the end of FY '23 will result in some one-off nonrecurring costs that we expect will be classified as significant items. To conclude the section on investment and returns. We're pleased with the strong ROFE that will be delivered in FY '21. Over the next 2 years, our investment will lift the operating funds base from around $3.7 billion to a range of $4.2 billion to $4.4 billion. Our earnings and profitability targets mean that ROFE is expected to stay above our long-term target of at least 15%. Turning now to cash flow. And we highlight on Page 31, the improvements that we've made to working capital in the past 3 years. The target we set in FY '18 was to reduce our working capital in our 4 core divisions by 5 days by FY '23 and to do so through improved management of inventories and receivables. We saw the opportunity here for a cash release of around $75 million. To support this objective, we significantly increased our performance reporting and changed our incentives from one based on overall trading cash flow to one based on the efficiency of the management of inventory and receivables. Pleasingly, we have delivered on our target 2 years early, and the working capital disciplines in these businesses are now well embedded. Given the strong market activity levels and supply chain constraints we're experiencing currently in some areas, we do see the need for a small amount of investment around $25 million in inventories to rebuild them over the next year. And that's to ensure we have the right resilient stocks and are able to meet market demand. Otherwise, we consider that working capital in the core divisions is now at appropriate levels. As a result of the group's improved profitability and effective working capital management, cash generation has been strong. Underlying trading cash flow has totaled $2 billion over the past 3 years with a particularly strong result expected in FY '21. Looking ahead, we expect trading cash generation in the core divisions to remain strong, supported by further uplift in profitability and ongoing good working capital disciplines. At an overall group level, cash conversion will be lower in FY '22 and '23 as we return to cash tax payments in New Zealand and make the key capital investments we've outlined. These will be investments we make, however, from a position of material balance sheet capacity. Turning to balance sheet and first to funding. Our objective here is being to materially reduce gross debt and our funding costs while maintaining strong liquidity and maturity across a diversified set of funding sources. Since 2018, our gross debt has reduced by more than $1 billion, and that's particularly through the exit of higher cost debt from USPP, and funding costs are down from $155 million in FY '18 to around $50 million in FY '21. We expect our funding cost to remain at around this level in FY '22. Our liquidity remains strong at around $1.4 billion as does the maturity profile of our funding at an average of 4.7 years. As mentioned at the start of the presentation, the group has had a consistent preference for conservative balance sheet metrics over the past 3 years. This approach was to ensure the key phases of our strategy. First, to stabilize and focus and then to perform and grow could be executed from a position of stability. Good levels of cash generation have meant that our leverage ratio, it's our ratio of net debt to EBITDA, has steadily reduced. At the end of FY '21, we expect this leverage ratio to be around 0.3x with net debt at around $250 million to $300 million. The capital investments we have planned for FY '22 and FY '23 will lift this leverage ratio above the current level. However, we expect it to remain below the bottom end of the target range over the medium term due to the underlying cash flows being strong. Ross has mentioned our decision to commence an on-market share buyback. Our approach is to regularly assess our balance sheet position and our investment opportunities in order to drive shareholder returns. We continue to have a preference for prudent balance sheet management as we execute on our strategy. We're confident, however, that the profitability, investment profile and cash generation of the business means that we're likely to remain below the bottom end of the target range for the medium term. For this reason, we consider this an opportunity to deliver value to shareholders and drive accretion in earnings per share through an on-market buyback. Therefore, we intend to commence the buyback of up to $300 million of Fletcher Building shares, both on the ANZ and NZX Exchanges in June of this year. On Slide 36, we reconfirm our dividend policy, which is to target a payout ratio of 50% to 75% of net profit. We're pleased to have paid an interim FY '21 dividend of $0.12 per share earlier this year, and our expectation is that the Board will declare a final dividend at the annual results in August. As the company returns to cash tax payments in New Zealand in mid-2022, our expectation is that we'll be able to impute the FY '22 final dividend. As Ross has noted, FY '21 EBIT before significant items is expected to be $650 million to $665 million, which is at the top end of our prior guidance range. Trading conditions in the second half have remained broadly consistent with the first half, and we've seen continued strong benefit on the cost line from our efficiency programs. There's been some adverse impact in the second half from supply chain constraints as well as from some input cost pressure, particularly in energy and in steel. We estimate that the combined impact of these on second half EBIT has been around $10 million to $15 million. In the land development business, the sale of the Gailes site in Australia has exceeded prior expectations and means FY '21 EBIT for this business is likely to be in the order of $50 million. That's about $10 million higher than previously expected. On Rocla, the divestment process continues with completion targeted for the first quarter of FY '22. If completed, the sales price is expected to be $60 million, which would mean an impairment of around $20 million plus we have a reclassification of the foreign currency translation reserve on this asset of around $30 million. I'd highlight that both of these expenses would be noncash and that they would be significant items. Finally, here, group CapEx is expected to be around $230 million for the full year FY '21. This comprises base CapEx of about $150 million, which is in line with prior guidance. And as I mentioned earlier, CapEx of around $80 million on the new Winstone Wallboards plant. In summary and to conclude, the group has made material progress against the key financial objectives we laid out in 2018. Our efficiency programs have delivered good benefits into the cost base, especially in reducing fixed overheads. We're now well positioned to drive operating leverage on this space through targeted top line growth. Our investments will continue to be focused organically with attractive opportunities we think across our products distribution and residential businesses. We will make some OpEx investments to support this growth, targeting EBIT margin expansion to 10% and continuing to deliver returns above 15%. Cash management disciplines are in good shape, and we've positioned our balance sheet to support the key growth investments as well as the one-off CapEx required to secure the future of the world-class Winstone Wallboards business. The group's funding costs are low, whilst also maintaining strong liquidity and tenor in our funding lines. We are pleased to have returned to dividend payments in FY '21 and also to be delivering additional returns to our shareholders through an on-market share buyback of up to $300 million over the next 12 months. We are confident that as the group continues to execute on its strategy, we're in a good position to deliver sustainable growth of these shareholder returns over the coming years.

Okay. So let's take the first question from the phone.

[Operator Instructions] Your first question comes from Lisa Huynh from Citi.

I guess, I just -- I was interested in the comments you made about the industry reaching capacity. I guess, can you talk about what you're seeing in terms of capacity utilization across your own networks at the moment and whether there's potential to unlock a bit more down the track should the cycle run for longer than we expect?

Yes. So we've got opportunities. We obviously plan to be able to meet the market as best we can, and we do have runway to actually do that. The comments I was making were less aimed at ourselves and more aimed at the broader market and what we're seeing in our supply chain into the country as well as just what commodities are doing, and a general comment on inventory. And the thing I'd say about inventory is this time last year, we all thought we were heading into quite a different market, which surprised us on the upside. So people generally ran ourselves, included inventory down a little bit, and I expect that to sort itself out to some degree through winter, so -- but I guess the overarching thing is that there are capacity constraints out there, and it will smooth to some extent the jump in New Zealand to over 40,000 consents. It still means work put in place. In my mind, will be very solid to up, but it will just smooth this. You're not going to see the same spike in work put in place as what we're seeing in residential consents.

Okay. Sure. So just to confirm, I guess, capacity constraints aren't impacting Fletchers at the moment?

Not holistically. There are areas where I'd say that's true. But across the board, broadly, we've got capacity to increase volumes and meet the market should we need to. I do think, though, that it's a broader market issue. So how many tradesmen have you got, how many tradeswomen have you got, how many -- how much can you -- how much structural timber is there in the market. Those sorts of questions will -- which aren't -- our commodities or our supply chain are actually going to put a bit of limit there as well. So I think it's more of what's going on broadly in the market than particularly Fletcher Building.

Okay. Sure. And I guess just second question for me. If I just look at the divisional EBIT guidance. Concrete. The Concrete guidance is the only division that refers to a slowdown relative to the first half. Can you just talk about what's driving that just given the stronger demand environment?

It's principally energy, Lisa, is the long and the short of it. You've seen, obviously, in New Zealand, very high electricity prices. We've had some hedges in place. We're broadly about 50% hedged. On long term, we're about $100 a megawatt hour normally, and you've seen electricity price in New Zealand, up around $250. So that's been the main clip on Concrete in the second half.

Your next question comes from Andrew Scott from Morgan Stanley.

Ross, a question for you. I appreciate all the color in the presentation, but we're looking now, obviously, record levels of activity in New Zealand, Australia improving. You're talking about some cost pressures. When I look at your 4 sort of pathways to 10% margin in FY '23, I'm quite surprised we're not seeing a price optimization category there. I thought this would be the opportunity to really put price on the agenda from a head office perspective and try and drive those margins higher. Wondering why that's not the case.

Okay. Look, the way I'd characterize it, we've been on this journey now for over 3 years. We've had a very strong focus across the last 3 years on our pricing, price disciplines. And a lot of the benefits you're seeing flow through the bottom line as we speak, a result of whether it be our cost base optimization or how we've got better at our own pricing disciplines and regimes. So the pushback I'd give you on that is that I think a lot of that works in place. And what you're seeing is as we've -- there are inflationary pressures out there in the supply chain, particularly in commodities, and we've done well at moving price as a result of those into the market. And we've got a slight delta there, which Bevan sort of alluded to in his presentation. But I actually argue our pricing disciplines are pretty good, and we're actually seeing the benefit of that in the sort of the numbers that we're producing through FY '21. And I don't believe that will go backwards at all as we go forward. I think that will continue to improve, but it won't be the feature going forward as it has been in the last couple of years.

Okay. Okay. Bevan, maybe just a question for you. The OpEx items you called out, there's a couple in particular around systems and decarbonization. I just wanted to understand, do you think those are return-generating projects? Or do we think of those sort of cost of doing business, license-to-operate type projects?

On decarbonization, we're very bullish as we've spoken before, Andrew, about the potential for that long term. That's obviously a bunch of work to get to that point. But long term, we think that's a real opportunity. So that's a return investment. The systems, the digital, it depends how you want to look at it. We think that's critical to what this business needs to do in the long term. As we've spoken about before, if we don't do that, we need to position the company for future growth around how it interacts with its customers. So I'd argue it's growth, but you could equally say it's just what Fletchers needs to do in order to be in the shape it should be in the next few years.

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

Mine is on the Australian EBIT margin. You flagged that through the focus areas, we'll be operating discipline and targeted growth initiatives to drive that margin higher. Do you mind of providing a key example for each of those 2 focus areas, please, so we can understand what might drive the improvement from here?

Yes. Look, sure, I'll do what I call quite a high-level sound bite on that. Because Dean, when he presents later in the Australian presentation, actually puts some real meat on the bones as to where he's going with that. And a number of the businesses are actually active programs on, and I'll use, so let's say, Laminex as an example. We're driving really good progress through our range refreshes for the Laminex core business where -- and introducing different products around that, that actually have high margins and actually a growth categories that don't cannibalize the base business. He'll talk about a whole disruption -- kitchen disruption play as well, but I'll leave him to talk about that through that. And then when you look at cost optimization, we've done a lot of the heavy lifting to now, but some of the things we're doing have a longer burn. You can't just overnight rationalize every DC around the country or every manufacturing plant. So there's a bit more of that to go as well. Plus, you've got to keep -- have an ongoing focus on it. But again, I just -- Dean will cover that in some detail to give you some real confidence around how he's working on both the cost base and also what he's doing to drive growth in that business. And I think it's all very exciting and really does point to an ability to get into the 5% to 7% range over the next couple of years. So quite excited about what we've got going there.

And just a second question again on Australia. I'm surprised to see there's not an expected bigger pickup in the second half EBIT versus the first half, just given how the broader market demand has accelerated and taken into consideration the lag. And do you mind just sort of providing any comments there, why perhaps we're not seeing that uplift? And if it's sort of top line, like a leverage or maybe some cost pressures?

Did you I understand that?

Yes. Sorry, it was just very blurry. I'm looking perplexed because I didn't quite hear it. Probably, Bevan's ears are younger than mine, so I'll hand over to him to answer that.

So the uptick in -- and I'd say, look, broadly, that business operating as it should is broadly equally weighted first half, second half. You've seen a small benefit in the second half. But as others in the market have pointed to, we do have an elongated pipeline of work there. The other thing I'd highlight is that we have had some of that steel cost pressure in Australia. So that clipped Stramit a little bit in the second half as you've had the IPP pricing coming in through steel into Stramit. So it's taken a little bit of the heat out of the second half result.

Your next question comes from Simon Thackray from Jefferies.

Huge amount of information here, and thanks for that update. Your order pipeline looks solid, but there's some obviously pretty apparent handbrakes in New Zealand to the macro prudential government policy. You've said you're prepared to invest some OpEx to pursue top line growth above market. So taking your comment of a clear pathway to 10% EBIT margins -- or around 10% EBIT margins, I should correct myself, in FY '23, including this incremental OpEx that Andrew referred to earlier, what are your top line expectations for the group through '22 and '23 to underpin your confidence in that margin target?

Yes. Look, I'd like to say we're -- we've been pragmatic about that. It goes back to my comment on -- yes, so you're seeing the spikes in residential. What we can point to is residential looks strong. I think it will get smooth though. I don't think you're going to see the work put in place follow the sort of consent spike we're seeing even if it will just take longer to flow through. We think infrastructure looks solid simply because if you look at the government expenditure program, it's real and it might take a little bit of time to rev up but it will occur. And look, commercial, the broader commercial is a bit more subdued, but not to any -- it's down a little bit, but not dramatically. So as we look at it, yes, we're quite confident. I hate the term stronger for longer, but it should be sustainable at these levels for the foreseeable future is my view. We're not baking in a lot of growth in our assumptions. We almost think it might all even out to be broadly flattish, give or take. So -- and hopefully, we're surprised a bit on the upside with that. But our outlook comments are based on a broadly flat work put in place outlook.

That's helpful, Ross. I'm just wondering then about your ambitions to pursue above-market growth. Is that in addition to this outlook you're providing in your margin assumption?

Yes. So when I look at that, I mean -- and you'll see it come to life very much as each of the divisional CEs present because we've actually focused on in those presentations, why our -- why do we believe our cost base, where it is and profitability is sustainable, but then what are we doing to drive it beyond that. So that -- you'll get a good sense of that. And then as you mentioned, there's a lot of detail on there. But as you work through that, it will hopefully bring that to life for you. But to give you the quick answer, I mean the reason, we still think there's a little bit of optimization and performance improvement around margins to do across a number of the businesses in our core in New Zealand. So there's a little bit more there. But then what we've seen is we've -- as we've pointed to holistically, we've been pretty active in investing either overhead or a bit of CapEx in the business to drive growth. And what you can see there is, and we sort of pulled it out a little bit is, yes, as we -- yes, you can see we've talked about where residential goes, and that's a higher-margin business that drives that, we've talked about. And you'll hear what we can think we can do in Distribution, what we can do in Concrete and what we can do across Building Products. So when you add all that up, that's where it's going to come from. So it's a bunch of bits that will drive it and help us get there beyond the construction uplift and then the Australian uplift.

Your next question comes from Keith Chau from MST Marquee.

Ross, just to follow on from Simon's question. At this time more so on cost. It seems as though the gross cost-out program is largely completed. Just keen to get a sense of whether there are some run rate benefits to flow through in FY '22 and '23 that should help you towards that margin target. And you've talked about cost optimization a couple of times. Is it at all possible to put some sort of framework or a number around that cost optimization at the group level?

Yes. Look, I'll let Bevan have a go. This like clearly didn't land in my response. So why don't you have a crack?

Very consistent with half year discussion, Keith. There's a little bit of run rate benefit from what we've done in '21 into '22. And what I'd highlight is we do still have a range of initiatives going in the business, particularly in the COGS and warehousing lines of the P&L. So there is a chunk of benefit over and above what we've already delivered from new initiatives that will come through. But we're also very conscious. We're hitting into what we think is a slightly more inflationary environment. So we've got to eat that inflation. So when we talk about the cost base being rightsized, we're hoping aside from the additional investments in growth to broadly hold it and eat those inflationary impacts through the cost. So that's the way I'd be leaning into it.

Okay. And I think you mentioned there were some slight impacts from cost inflation through the period through the most recent period. Is it safe to assume that you won't be as upside-down in FY '22 on cost versus price, given some of these initiatives should continue to generate some cost benefits going forward? Or should it kind of end up square for FY '22? Any thoughts on that would be appreciated.

You'll see -- it's a good question, Keith. You'll see a more normal profile in '22. That's in 2 parts, the cost pieces you talked to. And then also in Steve's business, just around the timing of residential housing sales. The core divisions, overall, they are about [ 49, 51 ] weighted ordinary course, that's what we'd expect to be returning to and also with a normal profile of when we're taking our houses to market as well. So yes, '22 should be returning to that more normal profile.

Your next question comes from Stephen Hudson from Macquarie Securities.

Ross and Bevan, just a couple of questions for me. I just wondered if you could remind us what the Australian high-margin assumptions are for your FY '23 target. I think you've got sort of 5% for steady volume and then 7% sort of a high-volume assumption. Just what are those? Secondly, construction, is it core, particularly as you complete a lot of the investments in your core New Zealand business? And then I guess, this one's for Bevan, can you give us a feel for what depreciation and corporate costs are going to be in FY '22?

Yes. Okay, Stephen, I'll start. So we didn't put out a high volume for the -- what gets us to the 7%, and I don't intend to. I mean -- so basically, we've committed to get above 5% and if the volumes are better -- and we've actually laid out in our presentation, you'll see the market assumptions. So that's base. So if they're better than that, then we start to get opportunity up. So haven't really got into the, okay, if it's this, this and this, this is what the gradation looks like. So apologies, I'm not going to satisfy you on that. The -- on construction, our focus on construction has been very much about getting it through its recent journey and we are very close to that. And we're seeing some great results in terms of where Peter and the team have got the business in terms of the order book and well through the legacy work. And that's what we're just focused on is how we get that business positioned so it's sustainable and profitable and a business we can have a lot of pride around and confidence around its performance.

And on the 2 others, Stephen, depreciation will tick up slightly from the roughly $360 million this year. That's including right of use, but not significantly. And then on corporate costs will be $55 million this year. They'll tick up slightly in '22 to around $60 million. And that's principally we got to lean into what's probably going to be a market study, and there'll be a bit of cost associated with that. Otherwise, our underlying corporate costs are very much consistent with this year.

Your next question comes from Sophie Spartalis from Bank of America.

Ross and Bevan, I just wanted to look forward as we come out of COVID and the borders start opening up. What type of, I guess, readiness does -- is FBU in, in terms of a slowdown? And also, what sort of lag are you -- do you think that you'll see in the market?

Yes. So look, I mean, you've always got to be ever ready. I mean -- and I don't mean that to be a glib statement. And I think a good evidence of our tempo on that is as we sort of lent into what we thought would be a tougher market last year, we moved quite quickly to get ourselves fighting fit. So through all the cost focus and the sort of the volatility we've sort of been dealing with over the last couple of years, I think we're very much fighting fit and got a very good fix -- very much across what our variable versus fixed cost is across the businesses, and also have a good tempo should that occur to move quite quickly. I mean it's hard to get into any more specificity than that. So I'm quite comfortable. That said, I'm just not sure when the borders open, that's necessarily that's big and negative. I think there's a -- it's always hard to look too far forward. We have to use forecasters as much as anyone. And the things I sort of get a bit of comfort out of it is if I look at the -- both sides of the Tasman and the infrastructure investment plan by governments are big projects, and that ends up getting momentum and going for a while. So I think that's quite solid. I think the residential side of things, equally, because of the smoothing effect you're getting of the consents, it just feels like that will go for a while as well. I don't know how long that is, but that's what all the forecasters are saying. So even as borders ease over the next year or 1.5 years, I am not expecting a precipitous outcome. As a result of that, I feel stronger for longer. But if it does move, we're ready to move with it.

Okay. And then just a bit more of a strategy question. You made remarks in your outlook commentary that you're rightsized -- you've now rightsized the business. Do you feel that your portfolio is now rightsized? Are there any particular gaps in your business offering that you think needs addressing?

Look, so I think we've got ourselves to a nice place. We've got a business that's sort of got a good cost base. It's actually a good tempo. And -- but clearly, where there's opportunities, I mean, I think we're in a relatively opportunity-rich environment around us. And I don't mean that, therefore, M&A. I mean that in you look at the CapEx and the OpEx we talk about investing, it's on adjacencies or product disruption. And you'll get a flavor of that as we -- as the divisional heads present. So I think there is quite a number of opportunities around us to grow the business in our control through organic or capital investment, and that will come to life. And so I think it's quite exciting. And I think it points to we've got what I call that margin trajectory we've pointed to over the next couple of years. But as you listen to the presentation today, I'm hoping you'll go away with the, "Gee, okay, there's a bunch of stuff the business is doing, which is going to fuel growth beyond that." So I think that will come out of today's interactions for you.

Thank you for your questions. We will now move on to the next presentation to ensure we stay within the schedule.

Okay. Thanks very much. I hope you enjoy the day. I mean, we've put a lot of work into this, and I'm hoping it gets across those messages I talked about in my intro. And we'll now pause and come back in about a -- do we go straight into it in a minute or so? Anyway, whatever happens will happen on the screen. I know I should have had a better transition than that, but I was always going to get a bit off the piece one point. But thank you.

As you've seen, a key element of our overall strategy is to get everyone home safe every day. As an executive and leadership team, we are absolutely committed to making this a reality. We set ourselves a goal of 0 serious injuries. This is an important interim goal on our path to preventing all injuries. We know that good safety is critical for our people, and it is simply good business. Our current injury performance is improving with serious injuries dropping from an average of 25 per year down to around 8. That means, on average, 17 more people went home safe to their families in the past year, free from serious or life-altering injuries. That's a good start. Our total recordable injury frequency rate, our TRIFR, is down slightly from last year. With the TRIFR of around 5, we are better than most of our peers in Australia and New Zealand. However, we know that the best companies in the world get below 3. So we'll be driving to get TRIFR down under 3 as we continue on our path to preventing all injuries. To understand where we are and how we can realistically get to 0, we turn to global experiences and best practice. We wanted to understand how the best in the world have achieved 0 and a good safety culture. From this, we've established a strategic vision for our future and a realistic plan to get us there. There are 5 fundamental pillars to this strategy. As an executive, we are fully committed to delivering each of these pillars to achieve our goal of 0. First, we knew we had to shift mindsets. It started with making Protect a core value part of our DNA. To achieve 0, we knew that we needed our people to personally connect with Protect and to believe 0 is possible. Two years ago, when we embarked on this journey, only 42% of our people believed all injuries were preventable. That meant that most of our people continued to experience harm at the same rate. They expected that, that the injuries were just inevitable. We are pleased to report that our latest engagement survey told us that 79% of our people now believe all injuries are preventable. It's a good sign that our strategic focus is making a difference. Secondly, we know that culture starts at the top, and we know that safety needs to be line led, not led by the safety team. In the past year, our leaders have completed over 4,000 leader walks, engaging with our teams to understand the work that they do and supporting safety improvements. Our new safety leadership program was launched in February, and it's dedicated to developing our leaders further, connecting with their hearts and their minds, providing them with the skills to grow and lead safety more effectively. A key aspect of the leadership program is that it is facilitated and coached by the line managers, leading their own people on the safety journey. It is truly line led. The third pillar of our strategy is enable the frontline. As our leaders grow through the safety leadership program and they start to embed our values, the frontline is being enabled to think about safety differently. We've been working with the frontline to shift their mindset, engage with Protect and agree a few simple life-saving rules, simple actions that we know can save a life. In the coming year, our frontline development program will be line led as well, and it will connect with the hearts and minds of our frontline teams. It will be focused on enabling our people to speak up, challenge their risk perception and shift the way that they think about safety at work. Manage critical risks is a key pillar of our strategy. This past year, our leaders learned how to complete risk containment sweeps on their sites. Now they're out there every day with fresh eyes hunting out and containing exposed risks that could have caused serious or fatal injuries if they were left untreated. In the coming year and beyond, we'll be implementing a full critical risk framework based on global best practice. This approach will enable us to focus in on a few critical controls, verify that they're in place and assess their effectiveness. This will give us confidence and visibility over the things that really matter to save a life. And the last part of our strategy is focused on driving accountability. We wanted to get confidence that we had the right organizational structure, systems, processes and plans to support our vision and goal. As part of this, we've ensured that we have EHS councils in place, so our leadership teams govern the safety performance and plans for their businesses. We've committed to simplifying and decluttering our safety systems, a clear and focused on the right things. We've reviewed our safety functional support, both capability and reporting lines to enable the safety team as trusted partners of line. And we also reviewed our targets, plans and reporting to ensure that they were aligned to our strategic focus. As part of this, our leadership team now actively embraces the red to help our people respond in a measured way to bad news, and we regularly celebrate the green, sharing the great work being done across our businesses. As you can see, we've done a lot of work to shift safety across the organization. However, we know we're not done yet. We know it takes years to change a culture. We're now into our second year of this journey. And we want to share with you some of what we've been doing to protect our people and build a safety culture we are all proud of, a culture where 0 injuries every day is possible. It's really important that you hear about this work from the Chief Executives who are really leading and owning this journey. [Presentation]

Okay. Great. Let's take a question from the phone. Do we have any questions?

[Operator Instructions] Your first question comes from Peter Wilson from Credit Suisse.

I'll withdraw this question.

At this time, we are showing no further questions. I will now hand back to the presenter.

Do we have any questions on the webcast?

We have the first question from the web, how realistic is it to aspire to 0 injuries?

That's a good question. Look, the executive, we spent a lot of time carefully thinking about this one. We set 0 serious injuries as sort of the interim goal for us on our path to all injuries. And it was an important time of reflection, and we thought about it very carefully. But really, there's no other acceptable goal to set for us, and we truly believe all injuries are preventable, and we really believe in the strategy that we have to get us there.

The next question from the web. What's been the response from business leaders with expectations that safety is line led?

Yes. You heard me speak to the fact that line really has to lead this and it has to be by them and for them, and it's quite powerful, to be honest. I think the fact that we led this from the top, I mean, Ross really led out and the full executive all led out on this. So that really set the expectation, but it also set the example for what we needed to do to embody this and bring it to life. And I have to say the GMs, the managers, the senior managers have already stepped up to the plate. They're leading the safety leadership program. They're doing the risk containment walks. They're really owning it, and I think they're really starting to feel those results when they're connecting with their people. Thank you.

Thank you. There are no more questions from the web.

Okay. Thank you. I'll now hand you over to our next presenter, Hamish.

Hello, all. I am Hamish Mcbeath, the Chief Executive of the Building Products division. For those who don't know me, I'm approaching 20 years with Fletcher Building, working across a variety of operations management, sales and senior leadership roles during that time. I started in my current role as Chief Executive Building Products in May 2019. The Building Products division is the leading building products provider in New Zealand. We view this division in 3 parts: products, pipes and steel. Products consist of Winstone Wallboards, Laminex and Tasman Insulation. Winstone Wallboards is New Zealand's only manufacturer and distributor of plasterboard under the iconic GIB brand. Laminex New Zealand provides an extensive range of decorative surface and panel products. It manufactures particle board and low-pressure laminated products and distributes a range of products, including Strandboard, Formica HPL and Caesarstone. Tasman Insulation is New Zealand's only manufacturer of glass wool insulation and distributes under the Pink Batts brand. They also sell a supporting range of insulation product offerings like building wraps and things like that. Pipes grouping consists of Humes and Iplex New Zealand. Humes is a manufacturer of concrete pipes and precast concrete products. Humes also has an extensive branch network, allowing it to offer a complete range of civil drainage solutions. Iplex is a manufacturer of extruded plastic pipes and provides a wide product offering across a broad range of sectors. The business has also large-scale mobile extrusion capability in the past 12 months. Steel is a portfolio of businesses that come under the Fletcher Steel umbrella. We view this business in 3 sectors. The distribution sector contains Fletcher Wire Products, Dimond structural and our largest steel business, Easysteel. The roofing sector includes Dimond Roofing and Pacific Coilcoaters. The final sector is infrastructure, which includes Fletcher Reinforcing and CSP. Here, you can see an illustrative representation of our network. We have a solid presence across New Zealand. And over the past 3 years, have consolidated a number of sites, which has allowed cost resets and relocations to purpose-built facilities. As an example, we have just brought a new combined Tasman Insulation and Laminex facility in Christchurch, allowing us to exit to 30- to 40-year-old sites. We are regularly doing network optimization, and we have an ongoing pipeline of activity, but it's fair to say the majority of the heavy lifting has now been completed for our division. The Winstone Wallboards Tauriko plant is the natural exception. All of these businesses have a strong market share, but nevertheless need to compete against both strong local competition and imported products. The market size as demonstrated here are currently defined by our existing product offerings and traditional product uses. A key part of our strategy over the next 2 years is introduce new products and innovation of existing products to expand the overall addressable market of this division. The circle on the right of Slide 4 shows the Building Products division revenue is split across 3 main sectors, but weighted towards a higher residential exposure. Based on the work put in place projections, our current pipeline of new products, we believe this revenue split should remain broadly consistent over the next few years. We have derived a strong benefit from the cost base reset post last year's lockdown. And coupled with the strong demand environment has seen our EBIT margin improved to 14%. The medium-term demand forecast give us strong confidence this level is sustainable. Return on funds employed has remained stable at around 25%. But as the new Winstone Wallboards Tauriko plant investment crystallizes into the funds space over the next 24 months, we will see this return on funds trend down to circa 19%. All business units are driving improvements in customer service and engagement. Targeted digital investments are delivered on improved customer intimacy and we will continue to invest in this space. Our average NPS across the division has improved steadily over the past 2 years. Staff engagement has held steady through a challenging period for all our teams. And we are very aware of the stresses the past 12 months have put on our people. We have just completed our engagement survey and working closely with all our teams to cover off any areas of concern. Carbon emission is broadly flat for us when FY '21 is annualized. We have a very defined pipeline of emission improvements, which largely materializes as we modernize our plants and supply chain. Our key areas of focus are Winstone Wallboards, Tasman Insulation, Pacific Coilcoaters and Laminex Taupo, whom all have industrial ovens as part of their processes. Wallboards, Tasman and Pacific Coilcoaters all have new oven upgrades and play over the next 4 years, which will materially improve their positions with further upgrades planned prior to 2030. Laminex Taupo is still exploring the best solutions for its upgrades but will likely be solutioned in FY '26. We also have strong engagement with our freight providers around hydrogen and electric-powered solutions that are becoming more feasible for adoption over time. Tasman Insulation has just converted its manufacturing plant to electric forklifts, and we're using this as a trial site to test more broader rollouts. The core of the division is strong, and we see good opportunity to achieve small share gains in our main markets in the near term. We have evolved in regular global innovation scans in the past 18 months, which has introduced us to a wider range of cost-effective automation solutions and accelerated our new product and innovation pipeline. In the past 18 months, Winstone Wallboards have seen strong growth in its Weatherline Rigid Air Barrier product. Its purply pink color is very distinctive and quite visible as to its growing adoption as you pass through developments. Barrierline intertenancy solution is also growing well, and this introduction is timed well with the changing style of housing solutions offered in New Zealand. Iplex has entered the rain water market in recent months. And although early in its rollout, we see good interest in our alternate solutions. Dimond Roofing is experiencing good growth in its solar roofing profile, Solar-Rib. The solution allows for an aesthetically appealing solar roof. And with PV technology improving has now made this premium offer more achievable for homeowners. CSP has seen good growth in demand for higher products that are solar-powered like lighting, security cameras, et cetera. This year, we have also introduced solar pods to our higher range, which essentially acts like a mobile power station and is ideal for the early stages of large infrastructure projects where site power is not readily available. A key deliverable of our new product program over the next 2 years is to widen the addressable market our products cover. In addition, we have established a new ventures team to identify and execute on medium-term growth adjacencies. Our automation investments are ensuring cost pressures are controlled, capacity has expanded and services improved. Tasman Insulation is a good example of where some targeted introductions of modern automation have seen productivity improvements of 7% over the past 24 months. In all these cases, the solutions have used less floor space than previous equipment. And this has allowed us to explore expanding product offerings from the same existing footprint. Laminex is about to commence a similar program that will free up capacity upon completion. This will allow us to speed up the introduction of new products into our existing distribution network. Humes is 2/3 through an extensive network optimization and plant automation program. This has seen us consolidate from 27 distribution sites down to 14 sites and move all our North Island pipe manufacturing into a single site in Papakura. This network consolidation has significantly reduced the business cost base but has an impact on the volumes processed, and we are seeing improved customer engagement metrics. We have identified 4 new locations to round out our network coverage and plan to open these 4 new branches over the next 9 months. Once completed and when combined with our partner distributors, Humes retains a very good coverage of New Zealand for short lead time products and systems. In the next 12 months, we aim to complete an automation upgrade of our Auckland pipe manufacturing. This will improve capacity, modernize handling equipment and increase the undercover processing area by 1/3. Once fully operational, we expect to be able to free up around 20% of the sites land to the Fletcher Building industrial development team to repurpose. Humes is delivering very solid year-on-year improvement on all areas of the business. And on completion of the FY '22 program, we'll be very well positioned to deliver solid growth into the subsequent years. Steel sector was very challenging in FY '19 and FY '20 with sharp margin compression evident in FY '19 and the first half of FY '20, coupled with declining steel prices. There was initial improvement in the second half of FY '20, but then the lockdown generated construction delay exposures and bad debt to round out this period. Throughout these challenges, the steel businesses have remained robust and have quickly bounced back in the improved volume environment of FY '21. We continue our strong focus on cost minimization and have continued investment in plant modernization and automation and reinforcing Dimond and Easysteel. Our next major investment will be the upgrade of the ovens for our Pacific Coilcoaters business, which will occur over the next 2 years. Once completed, we will see improved operational efficiencies and we'll have better capability to offer improved product offerings. The existing ovens are over 35 years old. And with the new oven technologies of today, we are aiming for a 50% reduction in carbon emissions once commissioned. Over the past 4 years, we have been undertaking a significant network optimization program, which is largely completed now after we moved our Wellington branch into a new purpose-built facility in the latter part of 2020. Our footprint is designed to be able to provide high availability locally on short lead time categories supported by large DCs in Christchurch and Auckland for the larger quantity products. In commodity-based businesses, your key differentiators are people, service, technical knowledge and availability. Steel has a strong engaged team, and we have continued to invest in specialist product knowledge. Our steel lab has again expanded this year, giving us further in-house ability to support our customers. Steel availability is the key challenge for the industry at the moment with both local mills and global mills struggling to supply on time. We are seeing lead times expanding, and shipping is proving to be unreliable, which has been well documented. We are managing, but we'll look to try and expand stock levels a little in the short term to help mitigate impacts on our customers. Overall, the business is well positioned for further growth and in particular, have opportunity to expand our product offerings in the infrastructure part of the business. Next, I'd just like to play you a video highlighting the key elements of Winstone Wallboards and where we are at with our new plant build and some of the improved capabilities this will deliver. [Presentation]

With the new capability in mind, we've expanded our new product development team in Winstone Wallboards to focusing on expanding our product range opportunities ahead of the commissioning. As of today, the construction phase is progressing well and is tracking slightly ahead of our original plans. All equipment supply is tracking to plan, and we have arranged for early delivery of some equipment to mitigate possible shipping delays. In closing, the Building Products division is well positioned. Post our cost-based resets and refreshed business strategies, we are getting significant improvements in performance. Our current EBIT margins of circa 14% and are sustainable at current activity levels. We maintain a strong focus on modern, automated manufacturing plants to continue to drive operational efficiency and our investment program supports this. We refreshed our new product development focus around 18 months ago, and we're starting to see the benefits of this coming through. A key focus has been to take our capability and broaden the addressable market. In addition to this, we have established a team to explore opportunities to push into adjacent sectors to deliver medium-term growth. That completes my presentation today. We're now open for questions.

Okay. We'll start with questions from the phone.

[Operator Instructions] Your first question comes from Keith Chau from MST Marquee.

My first question is just on the Laminex business. I think you mentioned the Christchurch facility has been upgraded and Taupo is on the cards. Just wondering when these investments are completed, how cost competitive do you think you will be relative to your competitors? And from a product perspective, how does that place you -- or what position does that place you to compete more effectively against your key competitor in the U.S. -- sorry, in New Zealand?

Yes. So look, where we currently sit now, we think we're effectively -- as we're operating now, we're cost competitive. And the recent changes we've made in Christchurch has just really improved our distribution cost in that space, so not a marked step improvement, but enough to make sure we're competitive in South Island. What we're looking at and just really exploring at the moment is around Laminex Taupo, what we need to do to upgrade that. Part of that is to deal with carbon emissions. Part of it is to look at new products and capacity and those sort of things. Early stages, I think if we go ahead with what that looks like, that will put us in a very good position from a cost perspective, particularly locally and internationally, to be honest.

Okay. And then my second question, just on the potential investigation of the New Zealand Commerce Commission on Building Products. Granted, there's been a report that Fletcher Building has done back in 2018, which sets out some views. But is there anything we should be aware of or cognizant of with respect to your portfolio of products that we may need to pay a bit more attention to in respect to that investigation?

No. And actually, we're well aware of the government's intention to proceed on that path. And we're very comfortable with where we sit in terms of our competitive offerings to the market as we go forward. So we welcome it, and we'll participate and cooperate fully, but we don't have any concerns at this point.

Your next question comes from Simon Thackray from Jefferies.

I've got 2 questions. First of all, can you just talk a little to the import competition across the portfolio? I mean obviously, subject to some of the supply chain constraints and where you think you need to be the most vigilant would be the first question. And the second one is you talked a little bit about expanding your total addressable market, your TAM. Can you give us a sense of where you really see the opportunities to increase TAM and the materiality of that expansion versus the base business?

Yes. Okay. So the import side of things, that was from the competition side. So every part of our business ultimately faces import competition at the moment. We've benefited this year clearly from having a local manufacturing footprint because the supply lines into New Zealand on all products, and that includes raw materials versus finished product, was relatively competing against. It's been quite challenged. So we've had a number of opportunities to increase a little bit of share. And naturally, we hope to hold that going forward as we move forward. And what was the second question, sorry?

Second question is around total addressable market.

Oh, yes, total addressable market.

Market opportunities specifically.

Yes. So look, how big -- we've got 2 areas there. We're looking at some immediate stuff really, which I talked about. Just the rain water, for example, for Iplex is a new adjacency for us, which we haven't been at before. The incumbent there has got 100% market share. So that's a reasonable opportunity for us just as a single example of what's real and what's now. We've also got quite a new product program, which you'll see we referred to that's going through, which a key part of that is just really working out what can we take in terms of our existing product groups, and move them into other areas. So gypsum's a key one for that. It was the capability of a new plant coming online and also sort of improvements we've seen internationally in some ingredient mixes you can make. And we really think we can take our existing gypsum offerings combined with our new technology and to sort of move them into different envelopes in the building envelope, say you take exterior cuttings and those sort of things. So they're all considerable markets, 50 million, 100 million opportunities in terms of market sizes that we can potentially move our products into. So we think there's some really clear opportunities in terms of those new products. And then naturally, we're exploring total new markets, which I haven't pinned down yet. We've still got a fair bit of work. I've got a team looking at that. And that's probably more FY '24 type opportunities.

Your next question comes from Peter Wilson from Crédit Suisse.

I was just hoping, can you provide a little bit more detail on the Humes', I guess, new distribution strategy? And also, I guess, just some color on -- in terms of the consolidation of distribution sites and the manufacturing sites, how far you are through that journey and how much that benefit will come through FY '21 as opposed to FY '22?

Yes. So that one, we've already -- so in terms of distribution changes, we had quite a, as we said, 27 sites, but it was quite an old network. And equally, geographics have moved and demographics are moved. So a lot of those sites have sort of been -- so we've taken opportunity over the last 3 years to really consolidate them into better locations. Noting that I said we've still got 4 to add to sort of round out that total presence. And at the same time, we've modernized and/or are still in the process, probably a year to go in terms of modernizing the plants there. And we're seeing good improvements in terms of customer engagement from those new sites as we deliver through. In terms of the manufacturing side of things, we've had good consolidation by closing the plants in the North Island down to that single site. And at the moment, we're upgrading that single site even further. So we're probably -- benefit for this year in the Humes business is probably in the region of $2 million to $3 million, really just in terms of the cost base or the consolidation. This year, we don't get too much benefit from the upgrades in the Papakura plant. That more flows through into the subsequent year, FY '23, where we probably get a 20% lift in that particular business as we go forward.

Okay. Am I right in saying that, I guess you're leaning on the micro network to be your, I guess, retail stores?

Yes, we do have -- yes, we do a little bit. So Mico definitely represents us a little bit in the outer regions as well. I just -- we also have other partners that we sort of have distribution ships with, and that's -- but Mico is a key part of that as well. It just gives us more points of presence.

How does that tie to, I guess, your commercial strategy, your kind of personnel, your marketing, your pricing strategy?

Well, they're very -- they're separate business. I mean the Humes business is particularly focused on the several pipelines; where the Mico sort of crosses over is more in the drain layer. So you have some drain layers who prefer to use the Mico merchants and so really, it's just aligned on making sure we're getting a good offer of our overall products. Because don't forget, the Humes network also represents the Iplex product line. So it's just really getting as much points of presence we can get for our Humes products and our Iplex products into the market.

Your next question comes from Stephen Hudson from Macquarie Securities.

Just a few quick ones from me. I just wondered if you could give us a feel for how operationally you separate the New Zealand Building Products businesses out from their Australian sisters. Secondly, with the extra 10 million square meters of capacity you're going to be getting down in Tauranga, is that just future-proofing New Zealand for New Zealand's demands or could you push into Australia? And then thirdly, can you give us a feel for what the steel business did in the second half? Was it as strong as the first half?

Yes. Okay. I'll go backwards so it's easy for me to remember. So the steel business here was broadly in line in second half, first half is how we've gone through. Different mix of how we got there, but basically, in terms of where it's landed, it's broadly the same as the first half. The -- how operationally close are we to our sister companies in Australia, look, we do talk. Naturally, we're a little bit different in terms of size and scale. But where we've got automations or innovations, we naturally do share them. And then we also do benchmark against each other in terms of operational sort of elements. And what was the second one? I forgot the second one.

Just the 10 million square of capacity out of Tauranga. And could you push into Australia?

Yes. So the extra -- so at the moment, one of the key reasons for building the plant is we are starting to come up on our maximum capacity on our existing plants. We've got a little bit left, but the new plant definitely addresses that. So yes, it is designed for future-proof in terms of just the growing demand because this is a 50-year investment. And then also, we are looking at making some other products for some international partners on their behalf. So we will look to export some products to other people, not specifically necessarily Australia, but we've got some partnerships that we want to use that capacity for as well. We're very good at making high-end sort of niche grades abroad, and that doesn't necessarily suit some of the bigger operators overseas. So we'll take advantage of that.

Your next question comes from Marcus Curley from UBS.

Hamish, I just wondered if you could talk to what sort of margin benefit [indiscernible] you get from the new [Audio Gap] plant when it's operational? And secondly, could you just talk a little bit to the pricing environment for building materials at the moment? Obviously, you spoke about holding on to margins, sustaining margins, but what level of pricing are you through to match the cost pressure?

Yes. Okay. So with the new wallboard plant, interestingly enough, our existing plant is very efficient. And I think we're recognized globally for how we produce wallboard. So the new plant, it's not a big tick up in terms of efficiencies on the plasterboard manufacturing element, but we do get significant freight benefits. The fact that we're combining all our distribution into one site and then in its location, which was a key bit of work for us, does give us a cost/benefit in terms of distributing from freight. It's not massive, but it's in the percentage sort of ranges. The -- what was the other question, sorry?

What's happening on the material front.

Yes. Yes. So look, it's a very fluid market at the moment. We're seeing significant raw material movements across the train and then shipping also is a significant one. So it's a very volatile is probably the way to put the -- so we're doing regular monthly reviews on our position in terms of the cost of raw materials and then coupled with freight. And we're probably finding freight as the biggest unknown variable, which is sort of changing on a monthly basis depending on what you need and some of the decisions we're having to make around, "Do we spend more on freight to guarantee something here?" is the big one. So all our building products are regularly reviewing and most at the moment having to do sort of 2 monthly or 3 monthly price movements in the market, which range -- is a big range, but probably sort of 2% to 5%. And as we sit here today, it's still continuing on as we go forward.

There are no further phone questions. I will now hand back to the presenter.

Okay. Do we have any questions on the webcast?

We have one question from the webcast regarding Laminex products/customers. Is there competition from thermal wrapped cabinet fronts, et cetera? What's the response?

There's -- is a little bit, but it's not significant at this point, but it is an area that we're looking at the moment, and that's one of our areas that we're thinking about possibly investing in the next 12 months.

There are no further questions from the web.

Okay. Thank you. I'll now hand over to next presenter, Nick.

Good afternoon. I'm Nick Traber, the Chief Executive of Fletcher Concrete. I'm very pleased to be with you today to provide an overview and insights about Fletcher Buildings Concrete division. I joined Fletcher's earlier this year after more than 18 years with Holcim. I led several of their key operations across the globe, and most recently, their home and testing ground in Switzerland and Italy. At the core of my work was to drive the company's transformation in innovation, digital and sustainability. Fletcher Concrete is New Zealand's leading concrete company based on strong brands, capabilities and footprint. We cover the full concrete value chain and are the only in-country manufacturer of cement. Fletcher Concrete consists of 3 businesses, each of them leader in their area with long heritage and iconic brands. Firth Concrete is the leader in 3 areas. Certified concrete ready-mix, masonry, covering a wide range of concrete blocks, veneers and pavers, and Dricon, bagged dry concrete. Firth operates more than 80 plants across New Zealand. Golden Bay Cement operates New Zealand's only integrated cement plant at Portland in Northland. Golden Bay has a comprehensive distribution network by truck, rail and ship with 6 service centers nationwide. Winstone Aggregates operates 17 aggregates and clean fill operations across New Zealand as well as comprehensive logistics services with a fleet of more than 70 trucks. We have a unique nationwide footprint and strong production, logistics, and service capabilities to serve the needs of our over 4,000 customers across New Zealand. We do this from our more than 100 points of sales from Kaitaia in the north to Invercargill in the south. Our products and services are customer and application specific, with Firth alone offering over 1,000 concrete mix designs. Our team consists of about 1,200 concrete people. To serve our customers, we annually complete more than 38,000 nautical miles of cement shipping, 225,000 truckloads of aggregates and 340,000 ready-mix concrete deliveries. As can be seen on this map, our footprint allows us to serve both the major centers as well as local markets across the country. Looking at the whole concrete value chain, we have a well-balanced position, and we are the leader in each one of the main markets, be it certified ready mixed concrete, aggregates, cement, masonry or Dricon. This allows us to be the technology leader and capture respective synergies. It also provides us with attractive growth opportunities, especially in the fragmented concrete and aggregates markets. Our exposure to main construction sectors is also well balanced and particularly strong in the growing residential and infrastructure segment. We expect concrete to benefit from that growth based on its benefits related to local availability, versatility of application, sustainability as well as fire resistance. Over the last years, we achieved solid absolute EBIT improvements. We lifted our EBIT margin from 11% to well over 13%, and our return of funds employed from 14% to over 18%. We achieved this on the back of focused volume growth, strong cost improvements as well as pricing and investment discipline in all 3 businesses. Our performance improvement is also reflected by our nonfinancial measures such as the well below industry average health and safety injury rates, the improved customer Net Promoter Score, the high people engagement or our 20% lower CO2 footprint versus imported cements. Looking forward, we are confident that we can sustain the current momentum, driving further margin expansion of 1% to 2% and above-market growth, thanks to initiatives we have put in place in line with the Fletcher group strategy. In the short term, we focus on, first, driving top line through market-leading solutions and services. On the one hand, we see growth to come from differentiation such as our enhanced Firth product portfolio or the enlarged service offering at Golden Bay Cement. On the other hand, we expect to get the full volume benefit from our asset renewal and debottlenecking program. This covers, for instance, our new block or ready-mix concrete plants and the several extensions of our aggregate quarries. Second, we aim to be the cost leader in all 3 businesses, based on the benefits from our footprint and supply chain optimization, operational excellence and keeping a lean support organization. In the medium term, we see attractive growth opportunities coming from: first, innovation, scaling our innovative products and services and offering integrated solutions for key applications. Second, digital. Optimizing our operations and supply chain and providing an enhanced digital customer experience. Third, sustainability. Building on our low leading position in our CO2, we want to accelerate the replacement of traditional fuels, such as coal, with alternative fuels and raw materials, increase the usage of supplementary cementitious materials and scale concrete recycling and reuse. So let me provide you with some concrete examples of what we have achieved so far and what is in our pipeline with regards to innovation, digital and sustainability. Let's start with innovation. Over the last years, we have successfully developed and brought to market innovative products and services, which have provided us solid growth. For example, our enhanced masonry products, particularly pavers and veneers, have resulted in more than 25% sales growth year-on-year. Another example are the differentiated certified products like special colored aesthetic concretes or solutions like perma paving, rain water absorbing and foundation products. Looking into the future, we see further growth to come from integrated solutions, which serve specific customer needs. Good examples here are our retaining wall system for residential or infrastructure, which has seen 30% growth this year, and the X-Pod flooring system. X-Pod provides a sustainable alternative replacing polyester concrete flooring with recycled material. It also provides a solution for difficult ground conditions. Next is digital. We have made good progress reaping the benefits from digitalizing the way we operate and deliver our products. In Firth, more than 40% of our certified deliveries are now digital and paperless. By the end of this calendar year, we aim to achieve more than 80%. Same for our quarries advanced in aggregates. We now survey our quarries with drones and design them digitally, saving us more than NZD 1 million per year. Next, we see opportunities to grow and improve efficiencies by providing a digital and enhanced customer experience. First, we look forward to the upcoming launch of our digital customer sales platform for Firth, which will be a New Zealand's first. Second, we want to scale the digital supply chain management at Golden Bay Cement, which already covers 50% of our dispatched volume today. Coming to sustainability. We see sustainability as a major opportunity for growth and differentiation. Thanks to our state-of-the-art operations and supply chain, we already today have a 20% lower CO2 footprint than imported materials. This provides us with a strong base to build on. In line with our 30% CO2 reduction target by 2030, we are working to continuously improve our footprint. We have particularly made good progress with the substitution of fuels, mainly coal, with alternative fuels from wood and tire waste. Our substitution levels are now reaching more than 35%. On the customer side, 95% of our ready-mix concrete products now have an environmental product declaration. We see increased usage of EPDs by architects, specifiers and structural engineers, which proves that customer value and seek products with enhanced sustainability credentials. Looking forward, we see growth providing circular solutions. First, we want to further increase the use of alternative fuels and raw materials from wastes. This not only provide society with sustainable disposal of critical wastes and replaces coal on our side, but we also see this as growing business whose contribution we expect to double from the NZD 3 million this year. Second, we want to increase the usage of so-called supplementary cementitious materials. This replaces the clinker in cement with other materials with binding properties, for example, porcelains. This year, we expect to use more than 25,000 tons of mostly fly ash while we are testing the usage of porcelains. We just recently completed a test pool shown on the middle picture of more than 400 cubic meters with encouraging results. Third, we plan to fast-track the usage of recycled concrete and other materials from deconstruction. This allows us to close material cycles, replace virgin aggregates, saving backfill space and precious mineral reserves. We are convinced that concrete provides great opportunities for growth, thanks to its many benefits. So let me bring our vision of concrete as foundation for New Zealand's future more to life with a short video. [Presentation]

Summing it up. The New Zealand Concrete business provides a strong platform for sustainable growth, thanks to its leading position along the value chain and strong brands, capabilities and footprint. We are confident that we can sustain the current growth momentum, thanks to initiatives in place to drive top and bottom line performance improvement and capture growth opportunities related to innovation, digital and sustainability. Those initiatives will allow us to drive further margin expansion of 1% to 2% and above-market growth in the short and medium term. Thank you very much for your attention. We now open the lines for your questions.

Are there any questions from the phone?

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

Pricing and competition dynamics in New Zealand has been a study we've spent more years trying to understand than I think I want to actually admit to. Can you talk to the competitive behavior, the cost behavior against demand and how that's translating into industry pricing outcomes? First of all, the extent to which the size of the government wallet may act as a restrain on price and thirdly, how the -- having 20% lower emission product than imported cement has helped your market position?

Thanks for all your question. I'll take the first one first. So related to the pricing dynamics, I think, as you can see from the geography of New Zealand, we are obviously exposed to various degrees of import pressures, and that's what has partially driven pricing over the last couple of years. Maybe sharing some insights there. I think we are at the inflection point at international cement markets. I think you know very well that CO2 plays a more and more important role. We have seen major exporter of cement like Europe totally stopping that on the back of CO2 pricing. We have seen China shutting down major capacities which have had, obviously, an important impact there. So on the supply side of cement on the international markets, I think we see a decrease of availability. The other part, you have already heard that before from Hamish, is shipping. I mean shipping rates have been very, very low for many years. That's changing very rapidly as there is not many new ships coming on to the market. But we also see raising costs because of the changing fuel legislation. So I think the pricing from an import pressure side, we see rather favorably moving forward coming out of historical low ones. At the same time, coming to your second point, I think we see more and more customers really sensitive about sustainability of the products. It's not just CO2, really. Also, a lot of people look for circular, recyclable products. And I think that's where we have an edge. And I think it's starting to kick in. I think we're starting to see readiness from customer to price it into their decisions. Can't give you exact figures, how that's going to pan out, but I think we are pretty positive about the future in terms of pricing of cement.

Your next question comes from Keith Chau from MST Marquee.

Seems like you've got quite a strong framework in place to continue to deliver volume growth into the market, particularly incremental volumes from that B2C initiative as well as your other innovations. Just wondering if you can help us understand how much capacity you've got left to supply growth into the market? Are we talking something like delivering another 10%, 20% of volumes into the market from a capacity standpoint?

Yes. Look, I mean historically speaking, concrete in this part of the world and in many mature markets is pretty stable in terms of volume. So having said that, we have flexibility in our system both on the production and the distribution side to stretch or leverage across. And currently, we are actually quite seeing a dynamic -- dynamics going on there. We can pull in all 3 businesses additional capacity, be it in Firth with mobile plants, mobile equipment also on the aggregate quarries, and also we can complement in Golden Bay. So we have some capacity of 5% to 10% of volume right there if we need to. I think in New Zealand, don't forget the logistics is very important. So there we are in a good position because we have a network of shipping with our dedicated shipping fleet, but also on the road and actually also rail logistics to a certain extent, which allows us at the moment, actually, also we are quite stretched, to deliver all our customers on a very stable level. So there is this kind of flexibility built in even if we would see further upside on the growth. But I think you heard before from Ross and Bevan that we see at the moment volumes rather stable, but we are prepared in case it would go up.

And then my second question is just around competition again. I think at this time last year, we were talking about 1 of the independents in the business going into administration. I think that business has continued to operate and is currently under an acquisition offer from another party in New Zealand. Just wondering to what extent the troubles of that competitor help the competitive dynamics in the market. And do you expect it to change at all if that business is ultimately bought out by another independent competitor?

I assume you're relating to the dry concrete business, which has been in receivership. It hasn't stopped operating. It has actually continued to operate also at the reduced level. We have seen some volume uptick from that. Yes, we have taken a bit of share there. But the competition stays there, whoever picks that up. And we welcome that. We're probably more focused on actually driving the growth of our Dricon business ourselves rather than watching too much the competition there. And we are pushing very hard to have further innovative additional products to underpin our growth ambition there.

Your next question comes from Peter Wilson from Crédit Suisse.

Just one for me on energy costs. I think we heard a comment earlier that electricity costs had increased in the second half. But holistically, when you include coal cost alternative materials, can you give us some direction on energy costs, particularly in Golden Bay?

Yes. I think, look, I mean the Cement business, thermal and electrical energy are probably each 20% of the cost bill normal in this industry. So as Bevan has explained, electrical prices currently have peaked in New Zealand. We expect it to be temporary, driven by 2 things. First is that the hydro power plants have really low water levels, unusual low water levels. And the other way, other piece is that the gas supply into Huntly's is constrained. So those things combined have led to a peak of electricity prices. We believe this is temporary, but it's hard to predict because there is a lot of additional electricity capacity and also network upgrades coming on stream. We have it hedged at the moment also, which helps us to keep that under control. We haven't seen much movement on the coal side; that has been rather stable. And actually, thanks to the tire feeding you have seen in the video together with the other streams we already had before, that helps us to further decrease our fuel bill. So overall, if the electricity costs normalize, we would see there a couple of million improvement overall on our energy bill.

Your next question comes from Stephen Hudson from Macquarie Securities.

Nick, 2 questions from me and both on the supplementary cementitious material strategy that you've outlined. I just wondered how important that strategy is to your 1% to 2% margin expansion target. And secondly, relatedly, can LafargeHolcim participate in an SCM strategy through their terminals and their silos in New Zealand? Or is that quite difficult for them?

Yes. Look, I mean SCMs have been around quite from some time if you look around the globe. I mean our project is focused basically on 3 elements. Well, first, it is very, very important for our road map of CO2 reduction by 2030. So that's one benefit we'll get there. The second one, it gives us additional volume in case the market would further grow. And New Zealand immigration has not stopped; quite the opposite. So if the market keeps expanding, we get this flexibility. And the third point is we also expect better resilience of our supply chain in New Zealand. So w would have a second production site, which we can leverage in many different ways. Obviously, we're also targeting a margin improvement on the back of an improved sustainable offering, which we believe will be valued by the customer. We are currently testing those products. We're also looking at the right route to market to bring it in. It's still a couple of years ahead of us because we are finalizing the feasibility study. But we believe we have a strong case there. How much our competition is looking into that and what they're planning to do is really -- would be speculating from my side. But we -- if you look at our footprint across the value chain, we certainly are well positioned not just to come with a different binder, but also actually offer a real differentiated concrete product, which I think is where the differentiation really happens.

I will now hand back to the presenter.

Are there any questions on the webcast?

We have one question from the web. Will your existing CO2 reduction measures deliver 30% cut in CO2 by 2030 or are there other initiatives required?

Thanks for that question. If we assume a kind of a status quo scenario, we will get very close to the 30% scenario with those 2 initiatives. But obviously, we are also preparing for a potential further growth scenario of the market, and we see along the 3 lines you have heard, be it further efficiency gains of the operation, be it more alternative fuels, or be it reduced clinker factor in cement, I think we see enough leverage with those 3 areas to achieve the 2030 objective.

There are no further questions.

Thank you. So I will now hand you over to our next presenter, which is Bruce.

Good afternoon. My name is Bruce McEwen, and I'm the Chief Executive of the Distribution division. I've been with Fletcher Building for 7 years, the last 3 as the CE of Distribution. Prior to that, I worked in FMCG distribution and private equity focused on business turnarounds and business change. In this session, I'm going to take you through an overview of the Distribution division and the progress we've made in resetting the business and positioning for growth. The distribution division is comprised of the PlaceMakers and Mico branch networks, PlaceMakers frame and trust manufacturing and the Forman business units, strong respected brands delivering customer-leading solutions. We are the leading plumbing and building supplies trade distributor in the New Zealand market. Our geographic network reach has us well positioned for the increasing levels of densification growth in the larger metro markets, coupled with strong regional representation across New Zealand that diversifies sales and earnings risk. Over the last 18 months, we've worked hard to reset the cost base of the business, whilst continuing to focus on delivering the service fundamentals our customers require every day. In addition, we've pivoted the business focus to harnessing the opportunities that technology and digital capabilities present to create an integrated, digitized supply chain to enhance service and efficiency, and therefore, firmly setting the business up for the future. Across the division, we have 140 points of physical presence in New Zealand, from Kaitaia in the north to Invercargill in the south and most places in between. As a result, we are deeply embedded in the local communities in which we operate and are proud of the active role that we continue to play in these communities. Through our branch network, we service over 70,000 trade customers with over 4 million customer visits to our sites each year. Our physical branch presence is really important for trade customers who value the locality and personal interaction. And whilst we have high-frequency site visitation, a growing trend for customers is to have their products shipped direct to the sites they're working on. This has resulted in us growing to roughly 1,000 customer deliveries each day, enabling the customer to save time and money by not having to leave the site to fetch supplies. Our total addressable market is circa NZD 8 billion with nearly 40% of that market being retail B2C spend. Whilst we have a small halo into the retail or B2C market, this is predominantly the domain of the big box stores. Our business is firmly focused on the trade segment of the market. Within that trade segment, we classify our customers based on key attributes, such as the type of work they typically undertake, annual spend volumes and their service needs. As you can see from the chart on the left, the small- to medium-sized building and plumbing customers are a core component of the New Zealand market in a key segment we increasingly look to target with our service offers, all aimed at making it easier for our customers to do business with us. It's the largest segment in the market and our current position offers opportunity for market share growth. And within the overall market context, you can see our revenue mix is weighted heavily to be over 80% in the residential sector with a strong forward growth outlook and a smaller exposure into the commercial sector of the market. With the initiatives undertaken in the last 12 months to reposition and improve operational performance, the business is performing strongly. We will deliver an EBIT result of $125 million to $130 million this financial year compared to $115 million in the 2019 financial year. A strong EBIT result with an improving quality of EBIT margin expansion from 7.2% in 2019 to a forecast 7.5% this financial year. Whilst we operate in a highly competitive market, our focus has been on generating sustainable and profitable volume growth through solid top line operational disciplines. In addition, our return on funds employed is strong at over 50% and growing as we deploy capital wisely and actively manage the key elements of our working capital usage. From a nonfinancial perspective and a period of significant change, it's been very pleasing that we've continued to make steady progress on safety, having been serious injury-free for 35 consecutive months, and with TRIFR reducing every year for the last 4 years. And we're clear on the opportunities in front of us to lift our customer service NPS scores and rebuild our employee engagement scores after what has been a challenging 12 months through COVID. Our customer focus centers, firstly, on delivering the service fundamentals every day, whilst continuing to grow our service offers around convenience and creating efficiency for our customers. And whilst we're a low-carbon emitter, we continue to focus on initiatives such as sustainable packaging and trying EV and hybrid fleet options. With strong market-leading brands, deep customer connections and great people, we have strong foundations on which to drive further organic performance improvements in the near term. Through the use of deeper data analytics, we can gain insight into our customers' spend behavior, targeted offers based on their needs. And the better we service our customer needs, the deeper the loyalty, the greater share of wallet opportunities, and with an ongoing focus to deliver improved daily service fundamentals, enabling us to capture a greater mix of margin accretive customers to drive market share and earnings growth. I'm now going to play you a short video to give you a bit more context as to who we are, what we do and where we're going. [Presentation]

As we look forward to driving market share gain and earnings growth, we have a number of key strategic priorities that are outlined on this slide and aligned to the strategic pillars for the wider Fletcher Building. These initiatives are focused around our customers, with services and solutions that enable them to succeed in the market by harnessing technology to create digital services and enabling seamless integration into our customers' ecosystems. They're focused around driving cost efficiency through new ways of working to improve customer centricity and drive improved performance metrics. It's about improving our sales capability and pricing disciplines to capture more profitable market share and more of our customers' share of wallet and delivering sustainable returns through innovation and disruption, disrupting ourselves before someone else does. I'm going to take you into more detail on 3 of these initiatives to outline just how these initiatives drive convenience and value for our customers, making it easier for them to do business with us and, therefore, deepening customer loyalty and engagement. Whilst our physical network and geographic reach remain key competitive enablers, it's clear that technology offers opportunities to enhance the customer experience through greater service capability. Our aim is to create an unmatched digital experience in the New Zealand market. Whilst the trade industry in New Zealand has been slower to embrace digital tools, we can see from offshore experience that this will change, and it will accelerate. Accordingly, we're actively taking innovation that we see offshore to disrupt ourselves to enable our customers to do business with us when and how they want, taking us from a physical analog business limited by physical location and operating hours to an always-on omni-channel experience. This year, we've launched an e-commerce capability with a mobile-first focus. This enables customers to view their specific pricing for any product items in any location, to check stock availability in any location across the country and to place an order for click and collect or for delivery to site, all from their mobile device without leaving the work site at a time that suits them. We've had a good early uptake from our customers with 27% of our trade customers now registered on our digital platform and digital sales growing to over 2% of total sales from 0 just 9 months ago. To continue to drive awareness and adoption over the next 12 to 18 months, we'll be undertaking a number of regional test and learn experiences to help customers to migrate and understand what's possible with these new tools. With the digital platform fundamentals in place, we're now working to constantly improve the customer experience to make it easier to use our digital tools with features like Skip the Counter, where the customer can place an order, then pick it up. No check-outs, no paperwork. In and out of the branch much quicker. A little bit like what you'd see at Amazon Go. We also have a road map of ongoing developments to continue to enhance the digital experience, which enables a faster, always-on customer experience, enabling not only the basic customer self-service queries such as what's my price or do we have them stock, but to more elaborate and connect to the features to make us an integral part of the customers' world, when and where they want, ultimately, driving improved convenience for our customers. As we reviewed how we best leverage our physical network, we've realigned geographically close PlaceMakers branches, reconfiguring our network to not only drive efficiency but to improve the customer experience. In our largest market in Auckland, we've created 3 hubs. In doing so, we've simplified and aligned regional leadership in Auckland, going from 10 branches, 10 leadership teams, 10 sales teams to 3 hubs, working together as 1 Auckland team. This change enables efficiencies for our customer and that they can get what they want, when they need it from the site closest to where they're working rather than traveling across the city to the traditional home branch. It enables efficiencies for our business as we deliver to the customer site from the most logical stocking point, reducing delivered kilometers; enables a tighter, more focused sales team within defined territories; and it enables us to better leverage our scale purchasing powers, also aligning and consolidating inventory holdings as opposed to locations always holding a full stock range. We've established branch hubs in Auckland and Christchurch, which represents approximately half of our sales volume. And the early feedback received from our customers has been positive. Our customers' demand for products to be delivered direct to site they're working on continues to grow. We expect that up to half of all sales will be delivered direct to the customer sites within the next 18 to 24 months. With this growing trend, we've recognized the need to make this service not only more efficient but frictionless to the customer. We are replacing the traditional analog, paper-based approach and have created an end-to-end digitized distribution service, using technology we found operating in a large U.S. distributor. This starts with capturing the customer order information digitally, increasing -- resulting in increased accuracy of picking. They're making that information available in the customers' hands, ultimately, delivering it to the customer's site on our own delivery fleet. By creating our own fleet, this has enabled us to not only create a safer and more efficient delivery service but enables the customer to transparently track the order from creation all the way to delivery to site. From their mobile device, they can check what product items are included within their order, adding to or amending the order as required. Once it's been picked and dispatched, they can track their delivery truck, much the same way that you or I would track our order, giving surety of the timing of the delivery and also pinpoint delivery location with GPS tracking. The product is photographed delivered on site with images captured and available immediately and for future reference on the customer's invoice. End-to-end surety of delivery. Critical, given most tradings work across multiple sites in any given day. And with advanced analytics within the transportation software, we can not only track our performance better but better understand our customers' needs. In summary, the distribution division will deliver a strong financial result in the current year, with an improving EBIT margin and return on funds employed performance. The key strategic initiatives to grow margins and market share are well underway to strongly position the business for the future. This gives us confidence in our ability to drive sustainable earnings growth through focused, profitable top line sales growth, improving our pricing disciplines and continuing cost efficiency initiatives. With an ongoing focus on innovation for the benefit of our customers, we're confident in our ability to capture an increasing market share of 0.5% to 1% over market share growth each year. And as we look forward a couple of years to FY '23, we're confident with the plans and initiatives we have in place that we'll continue to drive EBIT margin expansion of 50 to 100 basis points whilst continuing to deliver a strong return on funds employed. Thanks for your interest in distribution. I'm now able to take any questions you may have.

Afternoon. Are there any questions from the phone?

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

I've got 2 questions. You've got a much bigger mix of imported product in your portfolio than some of the other divisions and product that embeds quite a lot of commodity and supply chain inflation. Can you talk to the frequency of price increases over the last 12 months and how you've communicated those to recover inflation of commodity and freight? And the second question is just on the consolidation strategy for PlaceMakers, which looks very sensible and a reflection of what Tradelink has been doing in Australia, what is the quantum of the margin improvement you believe is being delivered by that specific approach? And how much more may be available?

Sure. So I guess 2 questions here, Simon. So the first one around price increases. I think what we've seen in the last 6 to 12 months is a real change in the pricing environment. If we go back a year or 2, price was a lot more benign. You saw increases much more in line with inflation, the 2% to 3% range. And you'll see those increases coming through generally on an annual basis. With the disruption in the supply chain, be it from offshore or input cost pressures locally, you've seen a greater volatility in price increases. So we're now seeing price increases coming through every quarter. Sometimes we'll see them 3 times a year. And you'll see them in varying sizes and shape. So all the way from 2% to 3% all the way up to high single digits. So for us as a business, we've had to get very good at how we firstly capture those upcoming price increases and notify our customers. Of course, our customers work on long build cycle, so they need to make sure we're communicating those to our customers about what price increases are coming, and then passing them through in a way in which it enables our customers to still complete their builds. But from a price volatility perspective, this is probably the greatest volatility we've seen in quite some time. The second question you asked was around consolidating our physical footprint. Just to be clear, when we look at that hub strategy and where we've done it in Christchurch and in Auckland, we haven't necessarily shrunk our physical footprint. Our physical footprints and our points of presence to the customer are critical, be it how they interact with us on a daily basis. What we're looking to do from that hub strategy is very much about how we work in the market. So how we operate. Instead of operating with branches across geographic business like Auckland, very much operating as one. And so from an ongoing efficiency perspective, it's just one of the many initiatives we're looking to do to make sure that we can keep that cost to serve going down and make it efficient in the business.

Your next question comes from Andrew Scott from Morgan Stanley.

I just wanted to delve into PlaceMakers a bit and the store ownership structure there. Could you talk about what your mix of franchise versus owned stores is at the moment, how that's trended over the last few years and what you see as optimal, please?

Sure. Andrew, the -- so where are we at the moment? We're about a 75%, 25% mix, so 75% Fletcher distribution owned and 25% is in some form of joint ownership structure. Our ownership structures in the past have very much been much more of a joint venture of 50-50. That equity stake has changed over time to be much more Fletcher distribution owned. We talk about an optimum structure. We don't have a designed optimum structure. What you'll see from our -- to map that joint ownership structure around the country, you'll find that joint ownership is primarily in the non-metro areas, in the regionals, where local ownership and involvement of the local communities is quite critical. And we see it as a much stronger link than we do in the metros. So we're running at about 75%-25% and don't have a plan to shrink or grow that in the near future.

Okay. Great. And then just one more. I think globally, we've seen a trend where the big boxes or the larger chains who came through COVID are able to do click and collect a lot better, took some share, but that seems to maybe be persisting. Is that something that you would be saying would be evident within your business and you're seeing in the New Zealand market?

Not so much. We certainly saw the New Zealand market through COVID. We saw all our competitors operate differently through COVID. We were very agile in the way we were able to operate through the Level 4 and then the Level 3 lockdowns. And we were able to operate a click and collect operation, albeit manually to start with. We adapted very quickly to a manual click and collect and then have digitized subsequently. So now we haven't seen any real share shift change from COVID effect around click and collect in the New Zealand trade market.

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

I also had a quick question around digital. Just curious to see if you have to provide an idea to tell about some of the investments you're making in that capability? And how you're expecting that to grow over the next couple of years?

So if you can just repeat the last part of your question around capability.

Just in digital, how much do you invest in that now? And what do you expect that to grow to over the next couple of years?

Sure. What we've established in the last 12-plus months as a team. So digital is kind of 2 parts to it: first, creating the technical capability and establishing a team to actually be able to do all the behind the technical things to create digital products and digital solutions for the market and then how we adopt and take those tools to market for the customers to actually see the benefits from them. So we've invested around $5 million to $10 million to date on that digitization. And going forward, it very much becomes a much more from being a project to actually as a business, BAU function. So it really just becomes part of our ongoing OpEx stream into the future. And so where to from here is very much around how do we continue to develop the technical capabilities and the tool sets that the customers can use, but much more about how the customers adopt digital tools. Building them is one thing, getting customers to use them and to get the benefits from them is really the next stage in our journey.

Your next question comes from Peter Wilson from Crédit Suisse.

So the -- I guess the expectation going forward is that the segment will grow above markets. But on a backward-looking basis, since these numbers we had last presented, it looks like the segment has lost market share, particularly in the SME segment, which you've highlighted as your core customer segment. And so I'm wondering, I guess, if you could articulate why it is you've lost share over a 3-year period. And of those things that you identify, are there any kind of, I guess, trends that you think of have now abated and won't affect you going forward?

Sure. When we look over the 5-year period, what we've seen is we're operating in an intensely competitive market. And what we've seen is all those competitors have pushed very hard into that small, medium space, particularly the big boxes. What we've been focused on is how we repositioned the business in the last 12 to 18 months to get firmly focused back in that space. A number of the initiatives that I have outlined in the slides, particularly around digital and how we service that market have not really been limited to our opening hours or our physical presence and how we can use digital tools to service that market. It's a market that we see developing quicker into digital from our overseas experiences and seeing what others are doing in that space, that small to medium enterprise is adopting onto digital a lot quicker than perhaps some of the more traditional or larger builders. So for us, it's very much about positioning and where we've positioned the business to focus into the future in that space and how we take a little bit more share back in that sector.

Okay. 27% of trade customers on the platform versus 2.1% of monthly sales. I guess, based on what you have observed overseas and what you expect, is that a good number -- are they good numbers?

We're really pleased with the 27% on the platform. And you've got to remember, we haven't been going too long. This is in this financial year that we kicked it off. So we've only really been 9 months live, and to have nearly a quarter of those trade customers registered is really pleasing. So it shows the high level of interest. What we've seen from overseas examples is, it takes time to get to a tipping point. So once you get to about 5% to 6% of sales is a bit of a journey, and then it starts to ramp a little bit from there up into double digits. So for us, really pleased with what we -- very pleased with what we've achieved around registrations. Now it's about adoption. Now it's about changing traditional habits that people have had to really show and highlight the benefits they can get from those tools.

Your next question comes from Lisa Huynh from Citi.

I just had a question just following on online. Can you just talk about how you're thinking about the cost to serve the online channel relative to the bricks-and-mortar store network? And ultimately, what does that mean for profitability and margins going forward as online penetration rises for PlaceMakers?

Sure. Really, I mean, we don't look at the 2 channels separately. We look at them as an integrated. So we don't see bricks-and-mortar versus digital. It's very much an end strategy for us. What we're seeing from customers and what we're seeing from overseas examples is, our customers still want physical presence but to be able to use digital tools as well. So we don't look at the 2 channels as necessarily competing or one cannibalizing the other. So very much, it's about an overall integrated strategy. From a cost-to-serve perspective, the more we can have our customers staying on-site and being more efficient for them, the more we can use our delivery fleet, et cetera, the less visitations we get into site, the lower the cost-to-serve comes down. At this stage, we're pretty early in that journey and so we've factored in various scenarios that may occur. But until we get a little bit further along, we're not baking in big gains out of that.

You next question comes from Stephen Hudson from Macquarie Securities.

Bruce, just a couple of quick ones from me. I just wondered if you could give us your take on what's happening in the timber markets here in New Zealand and whether or not you're benefiting or being held back by the lack of availability there? And secondly, I just wondered if you could talk about any new product opportunities, chunky ones, such as fiber cement, with James Hardie shutting down here in New Zealand. So if there are any opportunities to distribute different products here.

Sure. Two questions in here, Stephen. First one around timber, it's well-publicized that New Zealand is running at record high consents and high [indiscernible] renovation work as well. And I think as Ross said earlier, coming out of COVID, a number of the mills used that rebuild time to use up some of the stock they already had to do maintenance, et cetera and were caught a little bit behind on supply. The situation we have at the moment is still very tight. We have long term and deep relationships with the key mills in New Zealand as well as a number of regional mills. If we had more stock, we could sell more stock. There's no doubt about that. Are we being held back? And is it really suppressing our results or earnings? Not particularly, but certainly very tight in the market. So we are working with our customers, particularly around planning and trying to get our customers to plan a lot further forward such that they don't get caught short, and it doesn't create a constraint in our business as well. Your second question, Stephen, sorry, was -- new products?

It was just around new products, Bruce, and specifically, the fiber cement.

Yes. So again, well publicized, James Hardie have moved their manufacturing offshore to Australia. James Hardie is still a very important partner for us, and they supply into a key category for us, [ which is plenty ] and one we've had a lot of focus on in the past. We continue to talk to a number of different suppliers, manufacturers, both locally and offshore around new products that are coming to market. And when they come along, we look to take them into the market. We tend to pick on categories rather than particular products. So for example, in the last 18 months, very much on landscaping, cladding and other categories like that, where we can bring different products into an overall mix as opposed to a specific new killer product, if you like. So we tend to focus very much more from category and how we bring that whole category together to win the market and to take share as opposed to an individual one. So that's the things we'll keep working on in the future. I think that's us for time now. So thank you for your interest. I'll now hand over to our next presenter, Steve, from Residential and Development. Thank you.

Good afternoon, everyone. My name is Steve Evans, and I'm the Chief Executive of the Residential and Development division. I've been leading the division since 2014. This division includes the core Residential Housebuilding business, the residential and industrial development businesses and our off-site manufacturing business, Clever Core, which is a year into its delivery of panelized homes. The division is also currently establishing and growing an apartments and retirement business. And I'll explain these separately later in the presentation. The Residential business is focused on Auckland, where we deliver about 80% of our houses as well as Christchurch where we deliver the remainder. The Residential business has about a 7% market share in Auckland on the basis of 15,000 new homes constructed in Auckland last year, and we are the biggest of the homebuilders here. In Canterbury, where we sold over 150 units last year, our market share is slightly larger but still less than 10%. I will explain each of the businesses in more detail later, but as I do so, it is worth remembering that the key metrics we are concerned with across the division are shown here. Our overall EBIT figures for both FY '19 and '21 are as shown here, showing a significant uplift over the period. Our divisional EBIT for FY '21 is at record levels, particularly in the residential part of the business. Whilst EBIT margin is shown as falling, I will show later in my presentation that the weighting of EBIT is pivoting more to the Residential business. ROFE continues to be strong, and in FY '21, it is forecast to be 26%. This has been boosted in the last 12 months due to the reduction in stock in what is a strong residential market. I've also listed here some nonfinancial metrics, which show the success of our division. We are the leading residential industry in safety, and this shows in our TRIFR. Through the recent rollout of our protect safety ethos and our leadership role through the COVID alert level protocols, we are recognized as being a key part of transforming the housebuilding business. Our Net Promoter Score is at world-class levels and is a key focus of our division, keeping customers happy with their new homes. We're also consistently running engagement scores of 80 and above, signifying a world-class engaged workforce. That's important to me as the delivery of this division's work is very much a team effort, and a team of close to 300 that's been built over the last 5 years consists of high-caliber people across all disciplines of development and delivery. And on top of delivering a record number of sales this year, we are continuing to hold good levels of sections for future delivery. I will delve more into this later in the presentation. The Residential business does what we've been doing in New Zealand since 1909: we build homes. And by focusing on developments, which usually generate at least 100 homes, we're creating communities where people want to live. Take Waiata Shores, for example, where our original plan was to develop 480 homes. Through the passage of time, we're now building over 700 homes, but also including cafés, retail and childcare, and not just stand-alone homes but terrace homes, multi-dwelling units and the like. It epitomizes our continual focus on evolving our product, focusing on where value is best added to maximize EBIT and return on funds employed. Our competitive advantage is that we control the master planning, ensuring that we can create parks, play areas and other amenity. This not only brings the community to life but allows us to reduce the size of land that beach house is built on and thereby intensify the number of houses while delivering homes at lower price points. And this focus on price points is important. We focus on where the demand is the strongest, and that is, in homes generally below $900,000 and in desirable locations. Over the last year, we've continued to evolve our home offerings, including responding to desires of our customers post COVID. This has involved introducing homes that include studies or study nooks, focused on getting the most out of spaces without fundamentally changing the size or price ranges of our homes. We've also commenced some work on understanding the future of sustainable housing, including a focus on the 1.5-degree house and incorporating trends in technology, including EVs and home automation. In the video, you'll see at the end of this presentation, we show our pipeline of projects across Auckland. This currently has close to 5,000 sections on our balance sheet for future delivery, and we have another circa 2,000 homes in final stages of negotiation or where we are under conditional agreements. Numerically, it only counts our recent purchase of land at Taupaki in Northwest Auckland as 2 sections, being the 2 titles we've acquired. However, as we progressed rezoning this land, we'll change this to add an additional 1,500 sections on these 2 sites alone. Over the last 5 years, we've continued to buy land either as undeveloped land, as service sections or through partnerships with iwi and government. This same strategy is the one I articulated to you over the last 5 years. Some of these pieces of land, such as Taupaki, are 10 years away. But for those who go back this far, projects like Waiata are now 7 years into the delivery. Some is land in areas not currently zoned for residential. However, our history of managing consenting to get the value through zone uplift is an important part of our land acquisition strategy. Given the above metrics and our proud and capable team, we're continuing to look at growing this part of the business for the foreseeable future. We're continually looking to acquire the right land in the right locations and to use our community creation differentiator to continue to add value to the division and, importantly, to our customers. Our plan is to have the residential business increasing its delivery by circa 100 homes per annum. That means that we'll be delivering 900 residential homes next year, then 1,000 and so on. Three years ago, we started the journey to create an off-site manufacturing business. This business, known as Clever Core, is now capable of producing a variety of home types. We have delivered over 100 homes in the last year and are planning to double that in FY '22. We've used Clever Core to build stand-alone, duplexes and terrace houses. And in the next 12 months, just less than 20% of the homes built through the Fletcher Living residential business will be delivered through Clever Core. The advantage of this method has been widely publicized. From the waste minimization through to the healthy homes benefits, it's a better product in environmental terms. In terms of recycling of working capital and time savings, it's also good for business. And the delivery of the offsite business has continued to show benefits for our customers. The journey this year has reflected the lessons we're learning through this pioneering system. Whether it be in the use of design for manufacturing and assembly, the partnerships with building consent authorities, the direct sourcing of materials or the way in which we transport and assemble our homes, there have been step-change improvements across each part of the manufacturing and assembly process. The result is that we're confident now of its long-term success. This is highlighted by the recent order we've received from Kainga Ora for the first of our Clever Core homes to be delivered in the next financial year. The process we've gone through in Clever Core has also identified some innovative adjacencies, which we'll endeavor to realize over the coming period. This includes the use of Clever Core to produce apartment external wall panels and even bathroom pods. These are a natural extension of the design-led approach taken to date. It will also involve a step-up in the manufacturing capability, and we'll be investigating the scaling up of the plant over time. The trend to densification of our cities is still continuing. And against this backdrop, we've decided to formalize our approach to apartments and to scale it. The development model is very similar to our proven low-rise model, mid-market, good-value-for-money homes. And it continues our relentless focus on sweating the details to get this right. So we've now also built a strong internal design function to supplement the development team. How and where we access apartment sites is important. Quite often, these will be in our low-rise communities, and we're seeing this at Tamaki, at Three Kings, the latter stages of Waiata and Stonefields. But we also have confidence in sourcing apartment sites in the right locations to support our growth ambitions, including suburbs such as North Coast and Panmure. Some of these apartments will include commitments to deliver KiwiBuild or other government programs such as shared equity housing. Our plan is to scale up to 300 homes per year by FY '24. We're well on the way to achieving this. In terms of returns, we are running models where we expect this to return circa 15% per annum. It is also a key future market for the offsite manufacturing part of our division, as I've discussed already. In recent years, as we have master-planned to build out our new communities, we've seen the breadth of our customer base grow. Up until now, we've not catered for a large part of the market looking for new houses, being retirees and older downsizes. We think that in the Auckland and the Christchurch markets, there is now an opportunity to deliver a product that appeals to people who are looking to do downsize from what was originally a large family home and are struggling to find new 1-, 2- or 3-bedroom homes outside of the traditional retirement village model. These customers are also looking for a home that sits within an established community, possibly where some of their own family may already live and is close to services amenity but has the security of an enclosed village. We're, therefore, now launching our retirement developments with 2 trials that are currently underway in our Red Beach and Waiata Shores communities. These will be small villages of single-level duplexes and terrace homes with a communal residence lounge and clubhouse. We think a number of key features of our retirement communities will differentiate them from other options out in the markets. This includes the level of management fee we'll charge but also sharing the capital gains. And whilst we'll have on-site communal facilities and a concierge, we've entered into an agreement with an external partner to contract directly with our residents for the provision of a full range of care, if needed, in any of our retirement units. We've already started to plan additional sites within our existing and proposed developments, where more of these facilities could be built. Although we expect only a modest delivery in sale of houses in FY '22, we expect the pace of development -- developing retirement units to accelerate. Our target is to achieve over 100 sales per annum in future years at attractive margins. Developing retirement units provides -- also provides an additional channel for Fletcher Living homes, with the added benefit of an enduring earnings stream. It's a natural progression in the communities we build and fills a gap in demographics that we've previously not targeted. Over the last 6 years, we've continued to evolve our development business. Initially, the focus of this team was on adding value to existing surplus Fletcher Building assets, maximizing the value of sales of these assets. The performance of this part of the business has been stellar, adding significant EBIT over the last 6 years. This has included developments such as the old Fletcher Steel in Penrose, the Wiri quarry, and this year, in the disposal of properties in Gailes and Penrith in Australia. The skills that the team has built in this part of the business have now enabled us to look at development of further industrial property. As a result, we're now acquiring long-term strategic land for future development of industrial in Auckland. The advantage we have is our track record in the rezoning and delivery of land. In New Zealand, there are a few businesses that can do this work as reflected by the significant shortfall of industrial land in our biggest city. In 2021, the development business is expected to generate circa $50 million worth of EBIT. And as Ross and Bevan have stated, we're continuing to aim for $25 million of EBIT per annum for the foreseeable future through this part of the division. As you can see from a relatively short presentation, we believe there's a number of reasons to be excited about the future of this division. We've invested in a large and long-dated pipeline of land held both on and off-balance sheet that will ensure we have the ability to deliver a certain number of homes in our core residential business over a number of years into the future. We expect this to drive residential sales volumes increase above 1,000 units within 2 years and a commensurate increase in EBIT. We have an industrial development business that will transition from selling legacy flagship building sites in both New Zealand and Australia to one that's focused on developing New Zealand sites from raw land and consistently deliver $25 million of EBIT per annum. And we have 3 businesses that we think can innovate their way to providing significant earnings growth: apartments, retirement and Clever Core. And not only are we continuing to build earnings divisionally, we're moving from a history which included lumpy development earnings to one where the residential business continues to deliver increasing profits supported by a more regular industrial development pipeline. And I'm confident that with the growth engines defined above in apartments and retirement life supported by continually evolving offsite manufacturing business, we can continue to increase our contribution to the Fletcher Building results. On that note, I'm pleased to show you a short video that shows some of the amazing things we're doing across the business. [Presentation]

Are there any questions from the phone?

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

Many years ago, you provided a healthy timeline, graphical time line of how the business would evolve across land and residential. Now we've got apartments, retirement, industrial. Can you maybe help us frame this opportunity and the plan in terms of timelines and targets beyond FY '23 over the next 5 to 6 years? And how much additional funds investment may be required? That's the first question. And then the second one, if I can lead you into some policy [ rumination ], what do you think about government and Central Bank policy and how that's interacted to impact the business in either direction over the course of '22 and then looking into probably the years beyond that.

Thanks for the questions. Look, the first one comes back to the articulation of the strategy that goes back that 5 years. And it hasn't really changed. It's about community. So we've always been about creating communities and the community that was probably typified 5 years ago was more of the stand-alone homes and terrace homes and duplexes. And what we've seen is the industry has progressed and so have we through that process. So we're seeing more of the terrace homes. We're seeing the introduction of greater densification in our city and, therefore, we're seeing the opportunities that exist in apartments, for instance. As you move that into the broader community, what we're also getting is questions from our residents of other places that we can look at as I retire, as I want to downsize, my parents are interested in something. And that's driven us around a model of looking at retirement as a further opportunity within the community. So as I go forward, I see very much the strategy continuing to morph. I see that the focus will continue to be on creating those communities that we are now very well aware of. The second one, I guess, is Central Bank policy. Look, the bank has done a number of moves to try and grow the investments, particularly in the investment side of housing. We've seen some movement in that, but what we've also seen is a flight to the quality that we do provide to the communities that we're delivering, to the price points that we're delivering. So I can see that continuing to be the case. Our moves into the apartment businesses is not about providing homes within the communities, it's the right points and right price within those communities. So really, we work with government. We anticipate what they're trying to do. And -- but at the end of the day, it's the customer that speaks, and they're speaking volumes at the moment.

Your next question comes from Keith Chau from MST Marquee.

Just a follow-up on Simon's question earlier on the funds employed profile of the business, Steve. So the target is to get up to $750 million by the end of FY '22. Can you give us a sense of where that number heads to as you execute on your residential strategy?

Look, I think that the $750 million has been widely publicized by Bevan, so I won't comment necessarily on that. Inevitably, as you get into the apartment business and you get into retirement, there's 2 separate things that play here. From an apartment business point of view, what we're trying to do is reduce the timing that capital is out, but there is a capital requirement in the apartment business. It's a little bit different in the retirement space because in the retirement space, given that we're going through an ORA process, the balance sheet will reflect a higher funds model, even though the cash has been received once we go through and actually get retirement customers into the home. So yes, we do see an increase in funds employed over the period, but we see that to be relatively modest.

Your next question comes from Peter Wilson from Crédit Suisse.

Just a question on what you're seeing in terms of the price of developed and undeveloped lots. And if you could explain the mechanics of how that flows through your current and future expected earnings?

Correct. Yes. I don't think I've got that much time. The strategy that we've always had is about 1/3 of our land coming from raw land or 1/3 of our sections coming from raw land, 1/3 through finished sections and then 1/3 through partnerships with iwi and government. So what we have seen particularly over the last 2 years is an increase in sectional prices. We operate a very disciplined regime in terms of working out how much we think prices are worth. And what we're finding is that a lot of the developers that have longer-term aspirations like ourselves will continue to have dealings with us and do that at a, if you like, a wholesale price rather than a retail price. From an overall land point of view, you'll see from the acquisitions at places like Tupaki, we need to look further into the future and say, where do we think that land exists. And three, the partnerships that we have with iwi and with government, get us access to land, not necessarily at a retail price. So whilst we are seeing definite movements, we think that we've got a very disciplined process to actually get to the right land for the right price. Hope that answers your question.

Your next question comes from Andrew Scott from Morgan Stanley.

Steve, a couple from me. Just firstly, just if you could talk regionally. I think in the presentation, you specifically mentioned Auckland and Canterbury is driving the residential pathway. Should we think of that being the only places you're interested in? And are there any other markets where you're seeing the right attributes that would entice you there?

Okay. Look, from a -- we've always tended to focus on Auckland and Christchurch because that's where the demand is. We are continuing to look at other areas whether that be Wellington or around Hamilton. What we've got to get to at the end of the day is we've got to get to scale to deliver. For those that were around 6, 7 years ago, Canterbury was based on a premise of 5 to 6 years' worth of work. And that's what we need to create the communities that we are now well-known for. So yes, we'll continue to look at those areas. I won't say never, but at the moment, Christchurch and Auckland are the focus.

Your next question comes from Rohan Koreman-Smit from Forsyth Barr.

Steve, just a couple of quick ones. On apartments, the recent messaging has been, it's been a bit expensive, I guess, to build versus stand-alone homes and vertical construction hasn't had a happy history within the firm. Maybe give us some color on why you're now comfortable doing those? And on retirement, I understand low DMFs and sharing a capital gains is the traction for the residents there, but I guess what makes you think you can compete against the established operators?

I might take that second question first because we're not trying to compete against the established operators. When you look at the vast majority of retirees, they're actually living in large houses and looking to downsize. So we think the existing retirement operators actually do a really good job for the residents that they have. So we're not trying to compete in that space. What we see ourselves is doing is providing yet another offering in the communities that we deliver. And we're hearing from a lot of people saying they want to be part of that. They want to be having the access to the facilities we provide. They want the security we can design. So that's why retirement makes a great deal of sense in its initial form, let alone, as you mentioned, the DMF and the capital gain. Coming back to the first question, apartments. Look, we are -- the cost to build apartments is higher than this conventional home. But we're living in a city where we need to densify. And so the solution for us is focusing on the details, wetting the detail as we do in our traditional residential business to make sure that design is right and the costs are then attributed to the right parts of the business. As I touched on in the presentation, we're focusing on the mid-market. We're not looking to try and invest in apartments in the middle of Auckland or Downtown. So we think that there are -- there is room to move. On the previous history, apartments are a complicated process, and you need to get the right builder, the right design team, the right sales process, and that's what we're focusing on, and we see a great opportunity in the future.

Your next question comes from Stephen Hudson from Macquarie Securities.

Steve, just 2 quick ones from me. Just on your residential section pipeline. I just wondered if that fully captures any uplift from the Auckland unitary plan. It sounds like from what you said on the way AutoSure's front, there's been a very significant uplift, I'm assuming part of that was the AUP. So just how conservative is that pipeline of 4,900 sections? And secondly, can you give us an idea what the land development pipeline is? I know years ago, there was talk of thousands of industrial sites across the group that you might eventually get your teeth into. Can you give us an update there?

Look, I think that rather than talk about necessarily the Auckland military plan, I'll talk about the customer. And the customer is now accepting a greater sense of density. So there is obviously an uplift in what sections we will develop in the future versus what I've reported today. For instance, what I've reported as only having 2 pieces of land at Topkapi or Tupaki. And really, when we get the zoning through there, it will be 1,500 or could probably by the time we get to develop, it will be a lot more. So there is uplift in terms of how we go and continually morph the master plan as we go through each of the developments into the future. In terms of the second discussion land development pipeline, we still have a reasonable amount of pipeline in the Fletcher building assets. Obviously, Rocla pipelines is the dominant one out of the Australian environment. But you've heard earlier today from Hamish about some of the excess land that might come as a result of Humes. And equally, as we move from Felix Street, the wallboards plant over to Tauriko. Obviously, that becomes a big asset to try and deal with. So it's a couple -- it's 2 things. It's focusing on those, but really, they're lumpy. And what we're trying to do is build a business which is more regular in terms of that development earnings. That's the focus. That's what the team needs to do. And again, some good work going on with it, too.

Your next question comes from Chris Byrne from Craigs IP.

Steve, it's a really interesting presentation. Just on the retirement side of it. Just wondering what you're thinking about in terms of tenure of the resident -- so the lifestyle village will attract a younger tenant? And I guess, in that term, if they're going to be there quite a bit longer, do you think that DMF sort of covers as a reasonable return with resistant sort of feasibly 15, 20 years?

Yes. Look, good, great question. We do see our people that move into the retirement as being somewhere midway between a lifestyle village and a retirement village per se. So yes, you will have an extended length of tenure. We're very comfortable with the DMF that we've set as being the right level of DMF to take into account what we know is our obligation to those customers. When you look at a traditional operator, traditional operator has to spend a lot more on maintaining assets that won't be provided by us, the swimming pools and Tennis Courts and Bowling Greens and the like. So we're pretty comfortable that we've got that right. The key to retirement from our own point of view is it also recognizes the development earnings that we would get from developing those houses. And we think that we do that better than most in the industry.

Thank you. I will now hand you over to our next presenter, Peter.

[Foreign Language] Good morning. I'm Peter Reidy, Chief Executive of Fletcher Construction. Fletcher Construction is a leading New Zealand Tier 1 contractor. We are a project delivery and infrastructure asset services business. We maintain and construct critical infrastructure for sectors that primarily underpin the New Zealand economy, including transport, Three Waters, buildings, renewable energy, marine and ports. We operate across New Zealand and the South Pacific region. Our portfolio incorporates 3 brands across 5 business units, namely Higgins, Brian Perry Civil and Fletcher, which covers our commercial buildings, infrastructure in the South Pacific region. Brian Perry Civil, Higgins and our Fletcher businesses in the South Pacific have specialized assets and self-performed delivery capability. Brian Perry Civil specializes in ground engineering, marine and water services. Fletcher South Pacific delivers commercial buildings across 7 Islands, and Higgins delivers for roading construction and maintenance services in New Zealand and Fiji. Higgins are the #2 asphalt producer in New Zealand for the current year and will achieve #1 position by volume during FY '22. We have operated in the South Pacific for over 70 years, delivering self-performed capability, primarily in commercial buildings. Our infrastructure and buildings businesses under the Fletcher brand are project management entities, which largely deliver large-scale infrastructure and commercial building projects for both public and private sector customers. The construction sector matters to New Zealand. And this slide talks about the size and the breadth of our footprint. The New Zealand construction market is linked to the New Zealand government growth story to improve living standards. Our sector matters to New Zealand as it employs 9% of the New Zealand as it makes up 6% of New Zealand's GDP. The New Zealand construction market size, excluding residential and professional services, is circa $18 billion to $20 billion per annum of work put in place. We're predominantly delivering critical infrastructure projects with a share of 13% in that market. And after depressed 12 months post-COVID, the private sector commercial buildings market is starting to come back to life, but we'll take a selected view on future commercial building projects. We have a workforce of 3,600 employees across New Zealand and 7 South Pacific countries with over 4,000 subcontractors working with us on any one day. Brian Perry Civil, including pipe works and politics has 4 branches across New Zealand and is complemented by a range of specialist plant equipment and GEO technical expertise. Higgins have 12 branches across New Zealand, with a strong presence in the central and low North Ireland. They predominantly deliver long-term maintenance contracts for Waka Kotahi, New Zealand transport agency. Higgins also delivers services in Fiji for Fiji Roads Authority. And on South Pacific presence positions us as a local player with a strong New Zealand heritage. This is a positive position for Ministry of Foreign Affairs, and Asian Development Bank and World Bank Fande projects. We are currently positioned primarily in the transport building and Three Water sectors. In New Zealand, we've seen government investment in highway and rail upgrades, $12 billion over the next 6 years. The health sector has a strong commercial building construction portfolio up to $15 billion spend. And the upcoming water reform may require investment in excess of $100 billion over the next 25 years to meet new regulator water standards for drinking water, wastewater and stormwater. We are well placed for growth in these sectors due to our regional footprint, our large project and program management capability and our specialized self-perform capability and assets. We will close out our large legacy roading projects within the next 12 to 18 months. We've been successful in the last 12 months in securing large alliance type transport projects, namely Auckland Transports AMETI Eastern Busway Pure Alliance. And we won of 2 preferred bidders for Penlac, a highway and bridge construction in Auckland for Waka Kotahi. This year, we have successfully completed a large rehabilitation project on the Auckland international airport runway and are working closely with them on future commercial building and infrastructure projects as they start to resume investment in capital projects. The upcoming reform in the Three Waters market in New Zealand represents a strong opportunity for our portfolio and aligns with our regional footprint and capability. We currently deliver 50% of Watercare's Capital works program in Auckland and 20% of capital projects for Wellington Water. Pipeworks part of Brian Civil is a specialist in trenchless pipeline construction, rehabilitation, and Higgins delivers stormwater installation and management as part of its road maintenance contract portfolio. In addition, the transport, buildings and water, we're also focusing on renewable energy. Higgins are the largest constructor of wind farms across New Zealand, having delivered projects for Meridian, in the last 6 months to renewables. This slide covers the current earnings, which are reflective of our nil margin legacy work. In the current year, 15% of our revenue had 0 margin. This mainly relates to the ICC pre-build and 2 infrastructure major erosion projects. Without these no-margin-legacy projects, our operating margin would be 3% in the current year. Our legacy project runoff will largely be completed in FY '23, with FY '24 only representing 1.2% or $18 million of legacy revenue. With regards to our nonfinancial measures, over the last 2 years, we've had a big focus on safety and have made a substantial investment in sector leadership training for project and frontline leaders. As a result of this investment, we're starting to see positive safety mindset shifts or rolling 12 months total recordable injury frequency rate, is at the end of April is reduced by 19% to [indiscernible]. We see an increase reporting and transparency of high potential critical risks. This is a positive cultural shift. Our carbon emissions are primarily driven by a vehicle fleet. We are redesigning a new fleet plan to reduce our carbon footprint. We will shift 36% of our leases, which are up for renewal in 2022, introducing 85 hybrid vehicles. This slide highlights how we have reshaped our forward order book risk profile, providing for a sustainable future and a strong start to FY '22. Our order book increased to $3.3 billion that represents a full revenue ratio of 2.4x current revenue. The $3.3 billion includes $500 million of preferred status for specific projects, including AMETI Eastern Busway. Of significant note is our historic legacy high-risk and lump sum design construct contracts now only represent 9% or $300 million of our forward order book. This compares with 76% or $2.2 billion at the half year period in FY '18. We will complete $200 million of legacy work by June 2022. We expect to enter FY '22 with a secured order book of 75% revenue. And as with normal contracting businesses, our focus will be to secure the remainder order book within the year of operation, and we have a number of opportunities out of advanced negotiation stage. In FY '21, 2/3 of our revenue is being generated by our infrastructure services, specialist businesses, such as Brian Perry Civil, Higgins and South Pacific. Each of these businesses have a self-performing workforce and specialized assets such as asphalt plants, part and equipment and bitumen distribution storage. These businesses are predominantly delivering smaller, lower-risk construction and maintenance-type contracts, programs of work that pull-through high-margin roading projects such as asphalt, bitumen and emulsions. The remainder of our revenue is generated by major projects in the buildings, transport and water sectors. Our revenue is largely from local and central government customers. We're seeing strong contract win momentum, particularly in Brian Perry Civil and Higgins. The water market makes up 40% of Brian Perry's full revenue, an increasing level of early contractor involvement from our customers during the bid phase, enables us to negotiate better terms and risk positions. Our current contract rate with Higgins for larger projects is 40%, and we're seeing steady growth with local councils, particularly in the lower North Island. In the South Pacific region, an increasing level of early contractor involvement opportunities are in play off the back of Ministry of Foreign Affairs, Asian Development Bank and World Bank funded projects. Our forward revenue momentum will predominantly be focused on 3 major Pacific Islands: Fiji, Papua New Guinea and Tonga. This slide shows our 3-stage road map to create value. Over the last 2 years, we've had a clear plan to reshape our portfolio over these 3 stages. Stage 1 has seen us strengthen and stabilized portfolio by investing in project delivery capability and capacity. We've also developed digital project risk management reporting platforms. We're building technical delivery and engineering skills across our portfolio and invested in specialized assets and field tools to lift productivity. Stage 2 has seen us focus on ramping our portfolio of brands and systems technology together for the benefit of growth customers. This integrated delivery model of specialized workforce, technical assets, a major program management experience, provides certainty to customers with shovel-ready projects and long-term programs of work. Stage 3 will see us focus our investment into operations and maintenance. And this will enable us to provide a broader range of integrated services, products and technology to support customers through their asset life cycle from planning to construction, maintenance and operations. Long-term asset owners and operators such as Watercare, Wellington Water, Auckland International Airport and Waka Kotahi all have a commercial interest in the economic life cycle of their assets. So they're very encouraged by our integrated service delivery proposition. In Phase 1, we're focusing on investing in specialized plant. We've recently invested in a 250 tonne an hour asphalt plant in Silverdale to service the [indiscernible] project and the emerging growth there in north of Auckland. We've also invested a mobile asphalt plant throughout New Zealand and Fiji, as well as a modern -- from a plan laboratory capability and storage facilities in NAPA. The water and marine market is growing and will be investing additional piling equipment for marine structures. To reduce the carbon impact of rehabilitating water networks and to increase productivity, we're working with partners to assess technology options for our water customers. With regards to upskilling our people, we're building critical skills with respect to both preconstruction and project delivery. We've introduced stronger project commercial governance discipline, experienced industry leadership and a national project management commercial training program for project-based leaders. Currently, women only make up 14% of our total workforce, and this is lower compared with the industry at 17%. So improving the gender diversity across Fletcher Construction is a core initiative. This year, we've established a woman in construction network. We're rolling out leadership training, and we've recently achieved a 50-50 gender split in our gradual program. In Higgins, we have a strong apprenticeship program of 40 currently in training, and we're now taking this initiative across Brian Perry Civil. We're investing and building a digitally enabled business with a common data environment to support our project delivery teams and engagement with our customers and supply chain. Our one common platform that we're now calling Fletcher One has a structured framework for our project delivery and includes transparent dashboard reporting to track program, cost, progress claims and quality. We've also adopted the use of next-generation field tools, such as survey LIDAR drones and vehicle sensors to drive productivity and safety in the field. The second stage of our road map is to build capability around growth customers, and we've secured or achieved preferred contractor status for longer-term programs of work with growth customers such as Watercare in Auckland, Wellington Water, Auckland Transport, Auckland International Airport and Fiji Roads. The Watercare Enterprise model is a 10-year program of work, which we secured in 2019 to deliver Watercare's infrastructure project. And as part of this project, Watercare have engaged Fletcher exclusively in the last 9 months as their construction delivery partner for several Auckland dropped projects, including -- the Fast Track pipeline south of Auckland. By bringing several of our brands together and partnering with global and local competitors, we can leverage specific technical skill sets and knowledge for the benefit of our customers. An example of this is Auckland Transport's AMETI Eastern Busway Pure alliance project, where we have preferred status with global and local selected partners. This is a large $500 million urban multimodal alliance project, which includes bus, cycle pedestrian and road networks. This project will link the districts of Botany and Pakuranga, currently third largest road corridor in New Zealand in terms of traffic usage. In Fiji, we recognized the Tier 1 contractor delivering road construction, rehabilitation and maintenance services for Fiji Roads Authority. And over the last 6 months, we've secured preferred contractor status for $80 million of work, including larger parcels of road rehabilitation work and $5 million of emerging services support during the recent COVID-19 lockdown periods. The third stage of our road map is to grow asset life cycle products and services. This is a key part of our plan to diversify our revenue streams and offer a broad range of integrated services and technology for our customers. Currently, 16% of our total revenue comes from operations and maintenance services, primarily through Higgins road contracts in our Auckland Waterview tunnel operations and maintenance contract. We see opportunities to grow our operations and maintenance capability to complement our construction capability. To support this, we're invested in an integrated field-based technology that captures customers' asset data to build predictive maintenance programs and seamlessly integrated into our customer systems. As this slide shows in Higgins, we're currently using artificial intelligence to receive geolocation data from 12 GPS satellites, which enables us to update customers' assets positions and condition in real time. We're identifying other potential international partners to accelerate this asset management capability and service proposition. Bitumens products are a key earnings contributor for our business. Our contracting services model in Higgins pulls through our high-margin Bitumens products, including asphalt, emulsions and Bitumens binders, a critical ingredient for the rehabilitation, construction and maintenance of roads. Our recently commissioned flagship asphalt plant in Auckland, and our motions facility in Napier will be at the forefront of developing new products to reduce embedded carbon and to support our customers drive to lower their carbon emissions through the asset life cycle. In summary, over the last 2 years, we have successfully reshaped our forward order book with growth rebalance to lower risk. Our legacy runoff will largely be completed by the back end of FY '23, and our forecast secured forward order book for FY '22 is strong at 75%, with 50% secured for FY '23. We are seeing solid contract win rate momentum, particularly across Brian Perry Civil and Higgins. And we're investing in specialized assets, digital risk management tools, safety leadership and people development programs. We expect our EBIT to be at the bottom of the margin range of 3% to 5% by FY '22 as our forward order book replaces these no-margin-legacy contracts. Our strengthened, build and grow strategy will create a sustainable Fletcher Construction in the future. [Presentation]

Now let's take questions from the phone.

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

Great. Just a very quick one. We've heard plenty about capacity constraints and trades and labor. I'm just wondering if that's impacting any of the delivery time frames and sort of looking forward at the order profile, which is building. Do you have any concerns about the timing of delivery given those constraints, particularly with the border still closed?

Thank you for the question. Well, if you think about the large projects, we're primarily out of those next year, late next year. We've got -- we're in the last stages of the program. We've got the resourcing. We've got the teams and the programs are pretty committed. So I don't have any concerns there. On our smaller projects, it's very regionally driven. We are seeing labor constraints, particularly in the lower North Island, Wellington and Palmerston are becoming very, very busy areas. The South Island is not so capacity strained. And as some projects come and go, then you'll see different changes. So primarily, not really probably around the asphalt surfacing. Labor there is a little bit tight, and we're also seeing some labor demands in Auckland that are a bit tight. And look, as the borders open up, particularly Australia, we'd be positive that we'd see some relaxation there. Now let's take questions from the phone.

We have another question on the phone. Your next question comes from Stephen Hudson from Macquarie Securities.

Just one very quick one from me. I just wondered if you could expand on the Watercare Alliance. And in particular, whether or not the involvement of Fulton Hogan is -- I know it's a couple of years old now that the contract, but whether or not that is indicative of a more rational competitive environment and is in contracting and contract pricing?

Well, look, it's a very innovative project approach in New Zealand, and Watercare really took the lead on that. We -- as you can see, we secured that with Fulton Hogan. So it's got a 10-year program of work. And what we've been doing in the last 18 months is going through each project, looking at the cost in of each project, doing program management around that. And Fulton's have had theirs and we've had ours. We just got the Whiteco to 50 last year, which is a significant drought-driven project. I think what you're seeing in the market is we're starting to see more ECI, or early contractor involvement work. We're definitely seeing the risk allocation shift from 3 years ago. We've certainly seen the contract in market stand-up and manage that risk of better and Fletcher's been leading that. In the Watercare market, a lot of people are looking at their market and ECI, early contract involvement, has the ability to negotiate better risk terms. We're also seeing companies like Kainga Ora or Santasport adopt a similar approach. So I think the market is shifting slightly compared to what it might have been 3 years ago from a risk management perspective.

Your next question comes from Keith Chau from MST Marquee.

Just one question on your contract mix going forward. I think you've provided some details on the contracts make up within the portfolio between major projects and infrastructure and also sector between private and local government. Just wondering whether those splits are representative of what's the desired splits are going forward? Or are there particular segments or sectors that you've been looking to shift the portfolio profile to please?

Yes. Good question. Look, we've got a very clear view on our balanced portfolio approach. And that's across high-risk contracts, medium and low risk. We're very comfortable where our order book is now. It's balanced from a weight perspective, more to medium and lower risk. From a government perspective, we're seeing that those contracts, particularly local counsels a 55% of our work from Brian Perry and Higgins is local counsel. We like that sort of work. It supports our self-perform workforce. It supports our regional strong footprint and from managing the risk allocation is probably a bit better. So I'm comfortable with 70-30 split. I think you'll see the commercial buildings market come back post COVID, but we'll take a selected view on that. So very comfortable where our order book is from a balance perspective now.

There are no further phone questions at this time. I will now hand back to the presenter.

Thanks very much. I'll now hand you over to our next presenter, Dean Fradgley. Thank you.

Good afternoon. I'm Dean Fradgley, Chief Executive of Australia. In this session, I'll provide you with an overview of the Australian division and the pleasing progress we've made. The Australian division is a portfolio of manufacturing and distribution assets that operate right across the country. Our 7 businesses supply plumbing, joinery, roofing, insulation and pipeline solutions. They are well-recognized brands and established a first or second in their markets, providing the leading solutions to the residential, commercial and infrastructure sectors. We have made material improvements in the business in the last 3 years and are well positioned for growth. We will evidence this as we travel through the presentation today. In Australia, the outlook for the sectors in which we play as per biz oxid economic data is expected to be broadly flat over the next 1 to 2 years with a market uplift in FY '24 and beyond. And whilst that profit uplift is not reliant on the expected market growth from FY '24, this will provide additional leverage and profit. Pleasingly, that growth, in particular, the residential sector provides confidence given our exposure to that sector is now over 60%. And I'm pleased to say government stimulus has mitigated the risks of falling housing demand through the homebuyer grant, and we expect sustained residential demand to continue. The commercial market remains soft in the nearer-term with the broader civil and infrastructure demand remaining higher in areas such as transportation and mining, where we have reduced exposure. Despite the overall market remaining broadly flat, we have grown share and profit in a number of businesses. And critically, we have materially improved our performance in key assets such as Laminex, Stramit and Tradelink. And whilst the overall market activity versus 2019 is lower, our year profit forecast this year is well above that time period, driven by category growth and share gains. Later in this presentation, we will see specific examples how we've sustainably improved the quality of our underlying earnings and are confident about future growth. This provides a clear pathway to achieving profits of 5% to 7% in FY '23, with potential for further growth in the medium term. Our foundational work to that pathway of growth has been built out well in 2 critical areas. Firstly, our cost-out programs right across the division have provided a sustainably leaner model, underpinned by strong operational discipline. And secondly, we have embedded the growth levers of innovation, new product development and made logical strategic choices about where we play for value. And in terms of organizational health, these actions have delivered strong efficiencies in sales and gross margin per employee. In fact, our gross margin has grown faster than revenue with expansion in margin accretive products and segments. This all washes through to the bottom line with improved gross margin realization and will deliver a circa 30% EBIT growth on FY '19 and more than double prior year earnings despite that softer market. This will see us deliver profit in the range of $100 million to $105 million this year. At the same time, the division has shown robust working capital discipline with pleasing improvements in debtor management and inventory management. We do recognize that our addressable market through to FY '23 is expected to remain flat, but we are confident that our strong business unit strategies are winning, and we'll continue to deliver healthy profit growth. And in this environment of high change in cadence, I'm pleased to say that our health, safety and environmental work have produced good results, the highlight being no serious injuries for over 30 months. Our customer service score, NPS, has fluctuated over the past 12 months. This has been driven by expanding our survey to potential customers and global supply chain pressures. So let's now dig a little deeper into the strategies and actions that are producing better returns for growth. Let's break this down into two areas: One, strategies that get us to that 5% to 7% EBIT margins by FY '23; and secondly, levers of growth that can take us beyond that forecast. And of course, if the market warms more quickly, well, that will be a bonus. In the near term, we are well on track to achieve 5% returns by delivering on key initiatives, which is our embedded price effectiveness program across all our businesses. In fact, divisional gross margin is up 130 basis points on last year. We're making good progress here, and we're actually targeting further gains. And our investments into the digitization of our business units provide both efficiency and organic growth as evidenced by share improvements in Laminex and Tradelink. Furthermore, we will see profitable maturation of our vitality and bold plays in innovation, such as the exciting new joinery distribution model that launches in June this year. We continue to make good headway on the new product development, which sees our vitality across the division at circa 10% of revenue. These products are margin accretive, has sited Tradelink's own brands and Oliver's expansion into Bathroom Solutions. Plus Fletcher insulation is a rapidly growing supply and install offer and Stramit outdoor buildings category expansion, and we'll cover these in the business unit slides. We now step through each business unit, starting with Laminex, our market-leading joinery and surfaces business. Laminex is performing very well in market with gross margin back to its historic top quartile levels and sustainably low overhead costs. This business is performing strongly in the areas that matter, with accelerated growth in decorative sales over the past 2 years. This is critical to the decorative category as it's the of our business and a key profit generator. We also have a market-leading digital offer, which is now the largest retailer across the group with online revenues annualizing at about $170 million. Laminex has delivered a bolder material change in their range and offer, exiting some 9,000 individual products, and we now have a stronger dual-brand strategy with Laminex supported by Formica, offering an increased choice to our customers. This iconic business was once famous for vitality, and I'm proud to say that the business is now back leading the industry with new product development, well over 10% of its annual sales. This does support gross margin expansion and attracts new customers. So if we go a little deeper on specifics, whilst we are happy with our customer-leading digital offer, we have 2 more exciting phases of online expansion that will further improve our offer. This is important. As you can see, the growth of new customers on the left, which supports the business showing strong market share performance. We said previously, the decorative range is the heart of the Laminex business. And we can see from the chart that through range authority, we are getting strong growth. Importantly, we will continue to see the expansion of decorative sales as we execute the next phases of our product innovation. These include a broader charge of exploration, including bamboo as an alternative to regular wood fiber. This has been tested as an MDF substitute and is also being trialed as a substrate option for particle board. Another exciting development in our innovation strategy is Haven Kitchens. Following extensive market research and a global scan of joinery trends, Laminex will launch Haven by Formica in June this year. This is essentially a market-beating joinery distribution model that solves customers' problems for value. The office centers around a network of well-stopped rigid carcasses and joinery componentry, supported by digital planning and estimation, which allows design to install in a matter of days. We have first-mover advantage here in our geography, and the model is not too dissimilar to the European-based company, Howdens, which now accounts for 1 in 3 kitchens in the United Kingdom. This is a multimillion-dollar investment and a significant profit growth that Laminex has achieved will fund this and still deliver earnings growth while we incubate Haven into profit. Tradelink and Oliveri. Our plumbing distribution business has made good progress winning in their target markets despite softer macro conditions. Tradelink continues to rebalance revenue mix towards the more profitable residential market and is growing share of the SME plumber, one of our core strategic pillars. This will see our plumbing distribution business achieve a 3% margin in FY '22 with a clear path to earnings growth beyond this. This is being achieved by market-leading, quoting and estimating services. Completion of a 2-year showroom refurbishment program, this gives our B2B customers and their customers a much improved experience. Growing own brand participation to record levels, this creates value for the customer and for us. This is winning share. And critically, our own brand front of wall sales are now at 35%, which is well ahead of previously declared targets. And trailing specification and primary demand team are providing upstream solutions, and this, in turn, grows own brand and private label sales. And this year, the business launched its B2C website, and I'm pleased to say that it's running a [ boot ] forecast and is attracting new business at margins well above its main average. This grows gross margin year-on-year, and evidence is a firm base for better returns through the economic cycle. At Oliveri, its successful strategy, as CIMIC move from a [ sync ] manufacturer to a blended master distributor and manufacturing model. The CIMIC materially grow gross margin and profit year-on-year. And its continued expansion into white space and adjacencies, such as vitreous china and bathroom products, is running well of a business case and offers upside for future growth. And we do recognize the role that Tradelink plays in the profit upside in the division for long-term and sustainable growth. And as we build out that profit, I'm pleased to say that Tradelink has materially improved its sales and gross margin per FTE, and its operating model is well governed. Pricing disciplines are also at pleasing levels, too. Tradelink has been building out its own brand strategy for several years and is now harvesting better returns with own brand front of wall sales at 35% and growing. This is driven by Raymor and Oliveri new product development and its range expansion is taking share from other brands with higher margins. It is a clear path to build out a market-leading digital offer, and that will be live in FY '22 for our B2B customers with the ultimate goal of having a digital marketplace and other best-in-class digital solutions. In summary, we're making good progress here, and I'm confident that this business is on a path to 5% margins in the medium term. Fletcher Insulation has completed its transformational change and has quickly moved from turnaround into growth. This business is now at its lowest cost to manufacture and distribute, achieved by an extensive network optimization of bricks and mortar, plus sensible capital investment into automation. This gives us a manufacturing cost per tonne that is best-in-class domestically and competes against foreign imports. Fletcher Insulation now has the lowest SG&A in its history, and we have grown well in key targeted categories, taking share in core Pink Batts and enjoying expansion into adjacencies like market-leading supply and install business called [ Pinkfit ], and this provides upstream pull-through, too. The focus on growth has been supported by best-in-class product availability with our delivered in-full and on-time performance at 95%. And additionally, we're rolling new products to market [ like firm a softer range ], which has been well received by customers and helped us penetrate new revenue streams. Iplex is the leading player in the pipeline solutions market. Our targeted segmental growth has seen us simplify the business model, exiting ranges and focusing on key strengths where we can create value. We've now consolidated our manufacturing base. And at the same time, we've invested in advanced technologies that provide a competitive advantage at lowest cost to manufacture. For example, we've consolidated our P manufacturing from 2 to 1 site, providing scale, and we've exited a large portion of our locally-manufactured fittings, where we recognize we cannot compete globally. This has freed up capital to invest in more margin accretive areas in Iplex, such as high-speed lines and new product development. And we've made good progress on new product development and innovation, specifically in 2 areas. Firstly, our direct to site branch network is now complete nationally. This provides a seamless, best-in-class customer service to civil customers with delivery on time and full at over 95% with a Net Promoter Score of 53. And secondly, Iplex Connect provides an industry-leading digital portal that has been well received in market with over 25% of the customer base now using it. Stramit is the country's second largest rollformer and #1 shed supplier. The business has grown profit and revenue quickly year-on-year, and we expect to see earnings back to its historical top quartile level in FY '21. And this has been driven by 3 key things: one, profitable market share growth; two, a strong performance in margin accretive categories like sheds and garage doors; and three, operational discipline on pricing and robust segmental economics that is focusing on the products, customers and geographical segments where we can win and get maximum value. At the same time, Stramit has begun building out its focus and innovation. This [ has seen ] digitization program and new product development. So in closing out, the overview of our Australian division. We are evidencing profitable growth and are well on track for 5% to 7% EBIT margins by FY '23. We see further margin upside, should the market become more vibrant. Our operational disciplines are well embedded and will deliver increased leverage as we move through the economic cycle. We're actually ahead of where we forecast we would be in terms of vitality and new product development. Our digital programs are being built out with learnings and synergies being shared across the division as we then digitize at pace. And then finally, we are reducing our carbon footprint with an absolute commitment to 0 harm with a mindset that all injuries are preventable. We'll now move to questions. Thank you.

Due to the risk of COVID, we prerecorded our Australian presentation, but I'm pleased to say I'm now live and in Auckland. So let's take questions from the phone, please.

[Operator Instructions] Your first question comes from Brook Campbell-Crawford from JPMorgan.

And this is on Tradelink. Ross earlier on noted the targeted top quartile performance for all business units. Just wondering, is there a deadline in mind to achieve this for Tradelink? And a follow-on from that, maybe for Ross, but if you can't achieve that top quartile performance for trading or for other business units actually, and would you sort of pursue divestments with that one and return capital to shareholders or reinvest back where you do have an edge?

Yes. Thanks, Brook. Let's take the trailing question first. Look, we're making good, pleasing progress in Tradelink driven by, I think, 3 things. SME growth, which is what we always said we would do. Second one, we've got really good SG&A controls in that business as evidenced in its sales per FTE and its gross margin per FTE. And the second one is the gross margin expansion has been really pleasing. So I think we're heading towards medium quartile, and I'm quite comfortable that in the sort of near to medium term, we'll hit those top quartile returns in Tradelink plumbing globally. Second one, we're quite happy with the assets that we've got. We have one business that's held for sale. That's Rocla. And apart from that, none of our businesses are for sale at this time.

Your next question comes from Simon Thackray from Jefferies.

Many thanks, Dean, for the welcome update. You seem to be tracking ahead of many of the self-set targets, brand, product expansion, digital, et cetera, and yet the 5% to 7% margin target for '23 remains the same. Now not to be a wet blanket, but the [ initiatives give you a plan ]. Is there any regulator targets that actually shifted upwards, even without the market help?

Yes. Thanks, Simon. Look, in the near term, we're happy with our own discipline, our own cadence and our own programs and strategies that are winning, Simon. So I see us getting to 5% to 7% around that near-term number, that FY '23. Look, you'll know from the biz economic data that we're currently 25% of peak commencements. We don't need the market to get to 5% to 7%. If it comes any warmer the market, if it comes there sooner, then that will be a bonus, Simon. So I'm just pleased at this point in our journey, and all were traveling well.

Your next question comes from Grant Swanepoel from Jarden.

My question really just follows on from that. Actually, so your net cost benefited in the first half was $42 million of the $51 million. EBIT to the organic pricing volume is down $22 million. So I think a little bit more -- it's better than at in the second half. But your top in guidance is now $54 million at the EBIT level, assuming a $35 million [ soft cost-out ] program. That means the organic was down another $15 million on the second half '19. Why is organic still so weak? Or is cost started to creep back?

Yes. Thank you. You sound a bit broken there. So I think you're saying why is not H2 stronger than maybe it could be. We've seen [ us ] in the presentation there that the civil infrastructure market still remains a little bit soft for us in areas where we play. So we won't see any lumpy project volume coming through there. We are quite comfortable that we've got very good cost control, granted, we're not getting cost creep. In fact, our SG&A is the lowest that it's been in our historical history in those assets that we have in Australia. So it's more the lumpiness, I think, of the exposure to the civil infrastructure market as opposed to anything else.

Your next question comes from Stephen Hudson from Macquarie Securities.

Dean, thanks for all of your thoughts. Just 2 from me. The 5% to 7% range, what are the biggest swing factors in that range? Can you call out the key ones? And just on Iplex and Fletcher Insulation, you obviously rationalized some of your capacity there. Do you have special headroom for any sort of market upswing above your expectations?

Yes. Thank you. Again, a little bit crackling. In terms of the -- your question -- in terms of 5% to 7%, I think that's the question. I think there's 2 or 3 drivers for us. We do have really good cost controls. We've had those in the 2 previous divisions we've run that will continue. Hopefully, that's what we do. I think second one is we're really working hard on price effectiveness. So I think you mentioned it earlier on today a couple of times. There is cost price inflation in the industry. We've got good discipline, good governance around price effectiveness. So we see price as an opportunity. In my earlier presentation, I said our basis points growth was about 130 bps in gross margin. We will see that to continue into next year. And the other one is we know our innovation is strong. That's a multiyear pipeline. That's margin accretive. And again, that supports gross margin. So I think that positioned just well between that 5% to 7% corridor quite well. In terms of going on to the site rationalization, we have rationalized 50 sites around Australia ever since we put the division together over a 3- year period. That's been good work. It's given us good cost control, particularly in property leases. We have nucleated operations in Fletcher Insulation out of Rooty Hill down to a master factory in Dandenong, which is performing very well. We've got good capacity, and we've actually blended that with landing some overseas product into what I would call the ears of Australia, WA and Queensland. So again, we've got capacity there. In terms of Iplex, we have optimized where we play in terms of PE and fittings. We do have capacity. I think the bigger question is what is the lumpiness of the civil infrastructure market? We work with business accounts for Australia and governments on that. We'd like to see those be phased and smooth a little bit more, but we'll take them when they come, but we have capacity.

Your next question comes from Peter Wilson from Crédit Suisse.

Just to follow-up. The point on pricing in the 130 basis points gross margin you got last year. I guess thinking about that and your comments that you expect further gross margin growth going forward, how much of that is like-for-like price growth versus the mix effect of the new products, the range rationalization, [ decrease home run ], et cetera?

Yes. Thanks, Peter. Look, a great question. The 130 basis points just for clarity is this year. That's a very nice run rate that gives us into next year. If you work backwards our percentage vitality, it's about $280 million of sales is new product. Yes, it's accretive. It's not enough to give us that big kick of 130 basis points. So for total transparency, it's been really hard yards, good work, good training, skills. Development of our people on pricing disciplines, changed our skill mix. And of course, we've now got digital in there. So we've got about $200 million of revenue, which is now online. That does give us a margin effect. So it's a combination of good disciplines, Peter, combined with the sprinkling of MPD and we've got manufacturing efficiencies that wash through. So it's really that trinity, and we're willing control of it, and we're quite confident of that trinity moving forward into next year.

Your next question comes from Keith Chau from MST Marquee.

Just one on the Tradelink business. Just noting the shift in sales to the small- to medium-sized enterprise, up to 46% of sales. Just wondering has that been an intentional shift? Is that a function of the markets moving? Or have you lost share in retail? I'm just wondering if you could give us a similar split, not on sales, but in earnings. And the part of my question is just around whether Tradelink is continuing to gravitate towards the trade end market segment and deliberately moving away from retail.

Yes. Thank you, Keith, and good to hear from you. Let me just take the SME question first. If you remember, for several years now, we've been saying Tradelink. We do want to grow SME. We recognized it's the most consistent category of that $4 billion market. That's where we see margin accretion. That's where we see value. So that's a continuation of the strategy. That strategy is performing well in SME. To support that, quite obviously, we've built out that 2-year, a pipeline of showroom refurbishment programs, over 90 showrooms across Australia. They're built to a very good standard. So we do want to continue to keep growing that SME business. It's very stable. Where we migrated it from, as we -- as I said earlier, you recognize the commercial market is a bit flat. For those who know Tradelink, we were probably over-indexed in our revenues and earnings out of that commercial market. So we've actually migrated the weighting from commercial over to SME, and we've taken some share in SME, which is nice. We do have a low revenue exposure to retail. We would like more. You might have seen the new Tradelink, essentially a B2C website that's been launched in the previous months. That's well out of the blocks now and is growing incredibly well. So in fact, our revenue mix has probably grown a little bit in retail, if I'm honest, and we see that as a further growth opportunity. So SME priority one. We've got good work with builders. B2C is growing well. And the commercial, again, if it comes back next year or the year after, as expected by biz economic data, that will be a bonus.

There are no further phone questions at this time. I will now hand back to the presenter.

All right. Listen, thank you so much for your questions. I'll now hand you over to our next presenter, Claire Carroll.

Good afternoon. My name is Claire Carroll. I've been with the company since 2013, and I've been in my current role as a member of the executive team since 2018. In this 15-minute session, I'll provide you with an overview of 3 key areas of the business: sustainability, innovation and people. Firstly, sustainability. Sustainability is front and center in our purpose. We genuinely care about it and feel a strong sense of responsibility to do our part in achieving meaningful change. We also appreciate it's critical for our own competitiveness and success, enabling us to deliver for our customers, attract the people we want and support the communities in which we operate. We believe that a strategic focus on sustainability will drive innovation right through our products and processes. We are actively getting ahead of many of the key trends impacting our markets and taking advantage of our opportunity to build leadership in this area, ensuring we are well positioned for the transition to a low-carbon economy. Our sustainability strategy has 6 aims, which are delivered through the business units: be the leader in making sustainable business products; careful management of our resources and emissions; partner with our supply chain to deliver sustainable outcomes; build healthy homes and deliver sustainable infrastructure; support our people and our communities; and provide transparent environmental, social and governance reporting. I'm going to spend time today going deeper on carbon because reducing it is a key part of our sustainability strategy. We set a science-based target in 2019 to reduce direct and indirect carbon emissions by 30% by 2030. We're the first to do this in our sector in Australia and New Zealand. Looking into our total carbon emissions, there are 4 main sources: clinker and coal at Golden Bay Cement, electricity in Australia, diesel used for New Zealand transport and process heat. In looking at this by business unit, this chart has our emissions up the Y-axis against time and shows the highest carbon emitters, therefore, where we need to focus our efforts to reduce our carbon footprint. They are Golden Bay Cement and Winstone Wallboards in New Zealand and Laminex, Fletcher Insulation and Iplex in Australia. Together, they make up 87% of our total emissions. Across the business, each has a road map like this, which shows in more detail carbon reduction is possible and how to achieve it. Through these, we currently have line of sight to our targeted reduction in direct and indirect emissions by 2030 from our FY '18 baseline. This is largely achieved from 12 big initiatives. Those developed by Golden Bay Cement contribute 15% of the overall 30% reduction. You heard plenty from Nick on this earlier and the progress that they're making in concrete. Addressing electricity in Australia amounts to 9%, and we have actions to reduce our usage as well as reducing emissions through securing forward purchase agreements for green electricity. Meaningful reductions are being made through our multiyear energy efficiency program in Tradelink and with manufacturing sites and the other business units. We're also actively looking at renewable energy generation and have completed the first stage of feasibility for rooftop solar. Carbon reduction initiatives addressing the diesel and proceeds heat emissions amount to another 4% reduction. Across the business, we have staged plans that move us to hybrid and in electric vehicles. We are starting by transitioning 30% of our largest fleet, our construction fleet, from diesel to hybrids in FY '22. We've also added solar generation to our Hamilton Laminex plant, and we've designed our new wallboard plant to be highly energy efficient. We'll do this within our planned CapEx envelope that Bevan talked you through earlier and in a way that ensures we remain economically rational. To finish on sustainability and carbon, we've already achieved a great deal, and we have big ambitions to do more. Our aim is to continue to strengthen our processes and capabilities and be a real leader in our industry. We actively [ Horizon games ] for consumer and regulatory trends so that we are well positioned for the future changes. And as part of leading in our industries, we are proactive in providing a positive industry voice where we support the direction of regulation. Stepping back to the 6 aims in our sustainability strategy. One aspect I want to highlight is that our commitment to transparency and disclosure is very real and shows through across the areas of our sustainability strategy. For example, as part of our commitment to diversity and inclusion, we are disclosing gender representation through Champions for Change in New Zealand. We are transparent about what is in our products. We are well advanced with our environmental product declarations, with over half complete and will have the balance down by the end of FY '23. And we disclosed our performance to leading ESG investor indices, and we are pleased to see our actions being reflected in improvements in our ratings. With the Carbon Disclosure Project, over the last 2 years, we've moved from a D grade to a B grade. And in 2021, we were awarded the most improved company in New Zealand. In 2019, we met the standard for membership of the DJSI Australia Index. And in 2020, we met the standard for the membership of the DJSI Asia Pacific Index. We are 1 of 16 companies in our sector and 1 of only 4 New Zealand companies in any sector included in the DJSI Asia Pacific. Turning now to innovation. There's no doubt that sustainability and innovation are fundamentally linked. A focus on sustainability is energizing our innovation culture. Our people really care about it, and it ensures we are taking advantage of our sustainability and business growth opportunities. Delivering this growth means we'll nurture homegrown innovation, and at the same time, explore new ideas and trends around the world and bring them to our customers first. This involves disrupting markets, our competition and sometimes ourselves. Innovation has really got to happen in the business where we can get close to our customers. So what we're doing from the center is creating the spark for growth and innovation across 3 key areas. Supporting our people out in the business with the right tools, process and disciplines. This supports a rapid learning approach, evaluating opportunities based on customer desirability, technology feasibility and business viability with a rapid test and learn mentality. Then the explorer's mindset. There's a range of things we're doing out in the business with our people, helping shift mindsets around new opportunities, running interesting and practical collectivities with them, particularly on customer opportunities to drive growth. To share an example, the Fletcher Steel innovation challenge engaged with 180 of our people and generated 400 ideas. Those ideas were narrowed down to 11 and are now included in Steel's innovation road map for commercialization. Another really interesting example we're pursuing is [ bio reasons ] so we can offer environmentally-friendly options to create healthier homes and space. As part of this, our New Zealand team is working with Scion to assist the commercialization pathway for the ligate, a 100% bio-based adhesive technology. And the third pillar of our innovation strategy is around bringing the outside in and partnering with disruptors. We're actively going out globally, finding out what's we're pursuing and bringing it into the businesses. So I'll spend a bit more time here. We ran systematic ecosystem scans, which identify technologies, partners, opportunities and threats. And over the last 18 months, we've completed scans in clean concrete, environmental sustainability, modular/offsite construction, distribution and we currently have underway transport and logistics. You can see a real theme of sustainability driving innovation. This comes together in tech demo days where senior leaders are introduced here from and interact with a set of prioritized companies. We're getting involved with VCs focused on the built world, looking to invest, so we have another path for strengthening connections externally. We now have a deep understanding of trends, disruptors and are using this to our advantage. It's giving us insight, crystallizing way to focus in getting traction. So where are we at so far? We're working with 150 senior leaders, looking at major trends. We've mapped what's happening externally with over 700 startups and innovators. We've picked the partners we've liked, brought them in. And with the top teams in the business, started actively piloting 20, signing a number of software agreements and piloting technologies. So watch this space as you see these new products and ways of engaging with customers in the market. And finally to a very critical part of our business, our people. We're very focused on driving growth, so we're performing to our potential. And to do this, we need a range of talented people from diverse backgrounds with different perspectives and experiences. So with this in mind, we're very focused on building a culture and working environment where we attract, retain and grow the talented people we need to achieve our vision. They, too, then are growing personally and professionally with us. To do this, there are some really key traits that we want to lens. There are more, but these are the ones that we think really matter, and we're already seeing the benefits flowing in the results. We've been very focused over the last couple of years on operational excellence, getting ourselves fit in driving the basic operational disciplines, and I'd like to touch on a couple of key examples here. Firstly, safety. Wendi spoke earlier about shifting the hearts and minds of our people, and it's a critical part of this operational discipline. Our safety leadership program is facilitated by line managers, bringing instant credibility to the delivery, cascaded so no one's asked to lead differently until they felt a difference in their own leader with coaching also delivered by the line to ensure the learning is translated to site. This is seeing real benefits. Ross has lead the program with the executive team and, in turn, be leading it with their general managers and so on. This is the focus of our leadership development for the next 18 months, and it's receiving the most positive feedback from our people that we've had on the leadership program to date. We've seen serious injuries coming down from 21 to 8. We're seeing a shift in the hearts and minds of our people. Our latest [ survey ] showed that 80% of our people believe all injuries are preventable. Another key part of our operational excellence is around pricing. What we know is that a good proportion of our margin expansion has come from better pricing discipline and capability. We're continuing to focus on building our capability in the businesses with learning delivered in a very applied manner. Some of this learning is in the classroom, but the trick has been getting our people to apply it in the context of their own business and the dynamics that they need to deal with in their market, getting them to think about pricing from the customer perspective, what creates value, and we're seeing this in margin expansion. We need to keep going with operational excellence. But as we're now very focused on growth, we've boiled down what we think will make the biggest difference in how we think and behave. Obsession for customers, global expertise locally delivered and striving for innovation and growth. And these 3 things all work together. We're focused on building a true obsession with customers, orientating our business towards them, getting closer to them, listening to them, including those customers we haven't won yet and using data and analytics to build this understanding. We've listed NPS 10 points over the last 3 years. We'll see another list this year, and we'll keep going. Delivering to our customers means we need to find new ways to embrace the disruptive global trends and support our people to do so, bringing the outside in. The conversation around eco scans and tech demos that I spoke to earlier are central to this. They're focused on delivering what our customers need now and anticipating what they will want in the future and supporting our leaders to build these connections. A big part of this is commercializing quicker than our competition, seeing ahead of the curve and using our scale positions to stay ahead of the market and bring what's most relevant to our customers in Australia and New Zealand. Our values underpin our strategy. For us, they're genuinely more than words on a page. They lie at the heart of the way we do business and guide the decisions we make and the actions we take. It's very linked to the areas that I've just been talking you through. Protect, we have an authentic focus on health and safety and it's paying dividends. Be bold, being prepared to have a goal, really push our thinking, partner with disruptors. Customer leading, doing what I've been talking about, so we bring it all together and deliver for our customers. And finally, better together in a way where we take full advantage of our scale and the diversity of our people. So on that note, thanks, everyone, and turning to questions.

So let's now take questions from the webcast.

The first question from the web is what's the proportion of females you have in your workforce?

So women represent about 22% of our overall workforce; and in our functional role, so that's safety, finance, HR, legal, those types of roles, we have about 54%. So clearly, the focus needs to be on the operating side, where we have about 19%. So the things that we're doing, it is getting a lot of focus. And internally, really targeted development for our women. And then externally, really trying to attract women into our industry. So we're quite involved with things like women in construction over in Australia, women in plumbing with Tradelink. And as that old adage that you manage what you measure. So it's part of our monthly operating reviews. It's getting a lot of focus. It's now senior leader STIs and that sort of thing. So we're working hard at it.

The next question from the web is, where do you predominantly invest in your people?

So the investment in our people is really quite tightly tied to those traits that I've just been talking about. So the leadership, the safety leadership programs, getting a lot of investment and then operating capabilities. So pricing, sales, service we delivered in the business and alongside the innovation type things that I talked about and then diversity and our core leadership program. So we're keeping them running, just so we keep a really strong foundation in those areas.

There are no further questions from the web.

Okay. So do we have any questions on the phone?

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

Thanks for the presentation, very helpful. It looks like quite a step change in the approach such that is taking, and appreciate the positive feedback you're getting internally on that change. I just want to understand sort of the drivers. So if we exclude the layoffs, unfortunately, the layoffs around COVID, what's the like-for-like employee turnover across such you're building? And how much is new thinking from new people versus existing folks connected with the change?

So turnover sits at around 13%. And so as we've looked to bring new people into the business, that's been very much targeted on those traits that I've been talking to. So looking for those people that bring those different sorts of capabilities, and we're finding that they're really sparking the people that we have with us, and that's really helping get a step change for us.

There are no further phone questions at this time. I will now hand back to the presenter.

Thanks very much. I'll now hand you back to Ross. [Break]

As I outlined at the beginning, we have refocused our strategy to ensure we continue to drive both further operational performance improvements and set ourselves up for growth. We remain confident this strategy positions us well to drive growth in shareholder value across both the short and longer term. Hopefully, the various presentations you've seen today have brought this to life, providing you with tangible examples around what we are doing to ensure this is achieved. As we look ahead, I would summarize what you've heard today as follows. In FY '21, we remain on track to deliver strong earnings growth for the year, and we expect to deliver a full year profit in the range of $650 million to $665 million. Importantly, strong cash generation continues to be a feature and will commence a share buyback of up to $300 million in June. We remain on track to get our overall EBIT margins to around 10% by FY '23. This improvement will come from 3 key areas: lifting margins in Australia to between 5% and 7% and construction margins above 3%, continuing to drive margin expansion across our New Zealand core businesses and the profitability benefits we get from further growth across our higher-margin residential and development business. At the same time, we have been actively investing both capital and overheads to set us up for growth beyond FY '23. Fletcher Building is a great business, staffed by exceptional people. And while we have achieved some good things over the last few years, I truly believe the best is yet to come.

Well, now, it's look like to start. Before I throw to any questions that might be over the phone, there's a number that have come through from the webcast, and we've aggregated those to 5 quick questions. One of the ones came out was, is the government mandating green concrete specifications? We're not seeing absolute mandate. What we are seeing emerge in the market is what I call more broadly scorecards. And therefore, as you're assessed on your attributes when you're bidding. It's not just concrete, it's building materials, or if you're in construction bids, just your whole approach to sustainability and environmental and carbon. And you would have heard a few of the presenters also talked about EPDs becoming more prevalent because that's a much more broader sustainability lens. I think this is the thin end of the wedge. I think we're going to see more of it, and I think it will start to get mandated, and it'll become quite a big deal in bids as you go forward into the immediate future. Another question came out was, do we see as the pricing improvements we've made as temporary? And I think that's what the question meant. Or do we think it might then go backwards into the future. Look, the way I talk to it is, I don't think our pricing success is actually market-based. What we've had to do is implement a whole lot of self-help as the way I'd call it over the last couple of years. So therefore, I see our disciplines in pricing and the way we're achieving price is actually something that's a permanent feature of what we're doing because we've got those disciplines much improved. There's still work to do, which we can build on, which should make it improve further. But -- so therefore, I see is what we're achieving in price now as a permanent feature of the way Fletcher Building will run itself into the future. A question came up around brand consistency across the Tasman between things like PlaceMakers and Tradelink. We won't go -- we will run the separate brands. It's quite important. They're very well-known, they're actually worth something, they're familiar. And there's no real benefit in trying to homogenize those brands. It's better to get behind the brands. We've got to build them and make them meaningful in their markets. So we'll continue to run the separate brands in both countries. Another question came up around on a retirement village approach around the DMF or the capital guarantee. We have a -- we guarantee no capital degradation, but does it work both ways if there's capital gains -- sorry, we get the capital gains, but not the capital degradation. We've put a floor on it. So if people come into the village into the house, they don't take the downside risk. We take that. That said, I think it's very limited because these will be over a longer period. So I'm very comfortable with that position and taking it on in our retirement offering. And the last one from the online stuff is clinical margins. When do we think they'll shift to positive? And just what are we looking for there? So the answer is we're in this to make money. We actually separate the money we're making. We build a house from what we want to achieve in Clever Core. As we have flagged, it's been running at a slight losses. We've got -- it tuned in to scale. So we'd expect that to make profits in the short to medium term. To give you a sense of it, like everything where we invest, we want to get a 15% return on capital. So it's really quite important that we build profitability in that business to achieve those returns, and that will be a key metric we'll be looking for over the next couple of years with that business. So with that, I'm sorry, if there's any other ones that people didn't get answered, by all means, please put them through and later, we'll actually pick them up or we'll answer them after this afternoon. So I'd now like to open up the call to any final questions that people may have on the phones.

[Operator Instructions] Your next question comes from Keith Chau from MST Marquee.

Ross, thanks for today's presentation. Certainly, a lot of details with respect to how each of the business units are looking to improve the margins going forward. I've got a question just from, I guess, a divisional makeup perspective. Just trying to understand to get to your 10% target, is it possible for you to, I guess, proportion how much of the step-up from FY '21's 8.2% outcome will be driven by underlying improvement within each of the businesses? And how much you think will be driven by a change in the mix of earnings contribution across each of the divisions?

Yes. Look, the way I think you could get to it without getting it too sophisticated because I'm not going to the ability to get too sophisticated quickly, but if you look at the Australian revenue as it sits there, we -- and that goes from its present margins up to 5% and above that. You can get a proportion quite quickly of what's coming from the Australian business without getting into the complexity of where the revenue goes. Again, you've got a good fix on our construction revenue as it sits there now. So as it goes from its present percentages up into the 3% pluses, you get a good fix on that. You've seen Steve had a graph at the back of his presentation on just what we think the residential housing volumes will look like. It's not hard to translate the margin that comes from that growth as you think about that because remember, that's we're -- looking for 15%-plus margins there. So you can get a reasonable fix on that. And then the balance is going to come from loosely what we call our core businesses. And a couple of those when we went through the presentations actually had margin targets and what they thought they could improve over the next couple of years. And again, just use the revenue basis, give or take, they've got now. And you'll get a pretty good proxy of the proportions when you work through it. I'm not trying to give you homework, but that's the best way through it if you're off the cuff.

There are no further phone questions at this time. I will now hand back to the presenter.

Look, thank you, everyone, for participating, and that concludes our virtual investor day. We've covered off a lot of content across the many parts of our business, and I just want to thank you for joining us, and we look forward to updating you at our year-end results in August. And as I mentioned earlier, any other questions, please feed them through to later, and we'll get back to you with an answer. But again, thank you very much. Long day, appreciate your attendance, and I'll finish up there. Thank you.