Fletcher Building Limited (FBU) Earnings Call Transcript & Summary

Good morning, everybody. I'm Ross Taylor, CEO of Fletcher Building. I'd like to welcome you all to our Investor Day, whether you're here in the room or joining us online. With us in the room today is the full executive team. And if you don't know who have not met some of them, I provided pictures here on this slide so you can track them down during the breaks. All this team has significant industry experience in the region. That either worked around the world or have a strong understanding of global trends and best practice and have proven themselves in their role, having all played an integral part in delivering the repositioning of Fletcher Building over the last few years. Slide 3 lays out what we plan to cover through the presentation part of our agenda today. Bevan and I are going to start with an overview, and each of the operating CEs will present after this. And at the end, I'll close up with a few sum-up remarks. Following each presenter, there'll be an opportunity to ask questions for around 10 minutes. For those in the room, hold up your hand, and I'm going to get a microphone, so those online can hear the question. One of the team will then bring you a microphone. And for those of you watching online, can you make use of the functionality on our microsite and ask questions via the Q&A tab. These will then be read out in the room. I'd also like to note a couple of things that while you can submit your questions from now on, they're not going to be addressed until the relevant time in the session. And if we don't get to some questions, we'll follow up with answers tomorrow. Also following today, all these presentations will be available on our website for later viewing. To get things going this morning, I'd like to start with a brief update on our immediate outlook, starting with the 2023 financial year on Slide 5. Since we last updated the market in February, the second half wet weather misery in New Zealand has continued, although not quite as severe as the first 2 months. Also, we're now seeing the residential market weakness finally start to flow through into volumes across our products and distribution businesses. We estimate that volumes are now down around 5% to 7% in overall terms. And in the Residential Development business, we will settle and -- sell and settle around 650 houses through the year. And while this is down on our forecast, it remains a strong result in what has been a tough market. Baking all this up, we expect EBIT for the full year to be approximately $800 million, margins to be above 9% and to achieve strong second half cash flows. The result, while at the bottom of our guidance range, still represents an underlying profit increase on the 2020 financial year. And importantly, continues to build on the progress we have made in both profit levels and profitability over the last few years. Looking forward to the 2024 financial year, we expect the market to tighten further. And as I've mentioned many times, we are leaning into this. Firstly, ensuring we don't give up too many of the performance gains we have made over the last few years; and secondly, continuing with our growth investments to ensure we're well positioned to grow irrespective of the cycle. While we expect to see further declines in volumes across our materials and distribution businesses, we are seeing some signs that the New Zealand housing market itself is starting to stabilize. That said, ongoing cost inflation and the tightening we've been seeing in house sale prices is likely to result in further margin compression in our Residential Development Business through FY '24. That said, we'd expect that to start recovering through 2025. And in construction, we continue to make very good progress on building out large -- a large multiyear order book with strong margin and low risks. Our balance sheet and underlying operational cash flows remain well positioned to support both our growth investments and the construction legacy project cash outflows. And through the year, we expect to remain within our 1x to 2x leverage target range and to maintain our strong liquidity position. I often get asked, when we do the rounds, what's the remaining construction project -- legacy project risk? Well, with the opening of the Puhoi to Warkworth Expressway, we're now in the home stretch in terms of physical work to do. And as such, the majority of our remaining exposure now sits with wrapping up claims and securing insurance revenue on the Convention Center. To put a bit of color on this, I'll talk to the 3 points on Slide 7. Puhoi to Warkworth is a 50-50 joint venture with ACCIONA. This project now only has a small amount of work to do post the opening last week. With the costs broadly spent, the final outcome is dependent now on the success of the projects COVID delay claims, which at the project level are well in excess of $200 million. We believe our case to be strong, but we do not expect resolution and cash inflows until the 2025 financial year. The International Convention Center is progressing well on site, and it's nearly fully procured, and we expect it to be weather tight late this year. There are some potential cost risk to manage that this is reducing as we get closer to completion. We also need to secure the remaining insurance proceeds and the last of our business as usual revenues, which together total around $200 million. While we feel this is likely, there are some risks as we prosecute the claims that are involved. The other 80 or so legacy projects are all complete. And in general, the quality performance of the assets is good, but we are managing defects and disputes across a small number of projects. Most of these are minor in nature, apart from a dispute on the Wellington International Airport. Here, Fletcher Construction has received a claim against it from the airport for $40 million. And while Fletcher Construction disputes this, it's likely to take at least the next 12 months to work through to a satisfactory resolution. I now want to step back from the immediate future and talk more holistically about how we're thinking about the company and how we're positioning it for the medium to longer term. We remain comfortable with the overall positioning of Fletcher Building, where we are focused on the broader New Zealand and Australian building sector. We like the isolation and smaller relative scale of the New Zealand and Australian markets as this allows for local players to be highly competitive against importers and to be leaders on a disruptive innovation. The sector's long-term growth outlook is very robust, and this comes from a combination of strong ongoing population growth, but it's compounded by an infrastructure deficit across both countries that requires major capital catch-up expenditure. There are many disruption opportunities across the sector. Around the world, the building sector generally has been a slow adopter of innovation and it has been even slower to get to the New Zealand and Australian markets. And finally, relative to many international markets, this region is a good place to do business. And this is not just rhetoric as we're seeing the evidence of this in the many growth opportunities we have in front of us. Our positioning across New Zealand and Australia is very strong. We have business across the market segments and across the broader building sector value chain. Our sector exposure is nicely diversified, with about 50% residential and about 50% commercial and infrastructure. Our footprint provides us with a deep understanding of our markets, and this helps us spot opportunities within and around our present positions ahead of the competition. And we're locally listed on both the New Zealand and Australian stock exchanges, and this allows us to position ourselves as a large important local player in both countries rather than a local arm of an international organization. Not all parts of the market and value chain are attractive to us, and there are 4 themes that we use to decide where and what to focus on. Firstly, any business or opportunity must align with our purpose and our ability to stay true to it. If it can't be sustainable, if it can't apply the smartest thinking from around the world, and it can't achieve a better outcome for our customers and stakeholders' lives, then we will not invest in it. We then look for parts of the sector or market where we think we can win. And within that, we look for businesses that are or can be #1 or #2 in their markets and with that can get to sufficient scale to allow investment levels that keep them globally and locally competitive. And we want businesses or market sectors, where competitors locally are behind global best practice, and there's an opportunity to leapfrog them and develop in a sustainable and enduring competitive advantage. Once we have a business in our portfolio, we apply what is now a proven set of operating disciplines outlined here on Slide 12. These allow us to drive and improve each business' performance and to ensure it delivers against our goals. In the coming slides, and now bring to life the progress we're making across all these areas. Starting with the graphic here on Slide 13. This is a high-level view of the effectiveness of these operating disciplines and our ability to apply them. Firstly, to understand the graph, on the vertical access, we look at the margins achieved by best practice businesses in similar sectors around the world. And on the horizontal axis, we look at our businesses through our divisional lens. We then position the divisional performance against this comparing, where it was in the 2019 financial year and then where it is now. I'd make a couple of observations. All of our businesses have improved over the last few years. Our New Zealand businesses across building products, concrete and development are generally performing in their industry top quartiles. Our New Zealand distribution businesses are well on their way to this level, and our Australian and construction businesses have made good improvements across the board. This is a good guide to the opportunity that remains in front of us and why we are pointing to further overall margin improvements once we have finished navigating the immediate market cycle. We've [ also ] made very good progress on both safety and sustainability. With safety, it's all about building on the good progress we're making. Injury rates continue to reduce, and this in turns means more of our sites have remained injury-free throughout the year. And we're completely convinced we can get to a point, where a 100% of our sites have no injuries each and every day. It's a tough goal, but one that's really worth going after. In sustainability, we focus on many metrics. The 2 metrics I have on this slide show our good progress on decarbonizing our operations and products, and we're well on track to achieve a 30% reduction in carbon emissions by 2030. And we have good line of sight to net zero carbon emissions by 2050 or earlier. And we're also very well placed to reduce our waste that doesn't go to landfill to 70% in FY '26. While we still need to stay focused on our safety, our operational performance and sustainability, we now need to get more consistent and move closer to best-in-class across our customer performance, the capability and engagement of our people and ensuring we're doing enough work on our future growth opportunities. As a fun fact, we know that our businesses with the best engagement and the highest customer performance also are safest and most profitable businesses by a large margin. So surprise definitely worth going after. I talk about each of these in turn on the coming slide, starting with customers on Slide 16. Our Net Promoter Score, or NPS, dipped slightly through the COVID supply chain disruptions to an average of 36. And while this is an okay level, and it's now trending back up in the right direction, we remain well off with top quartiles, which is above 55. This is a huge opportunity for us, as our industry is generally poor at customer service with very few performing well. And when all competitors are compared with each other across both customers and noncustomers, the performance levels being achieved are even lower, thus making the opportunity even greater. To drive the improvement of our service to our customers, we're working across many areas. And on this slide, we've highlighted one of these, which is online sales. As you can see, we now have an increasingly meaningful proportion of our revenue being transacted online with much more to come. This is underpinning an increasingly true omnichannel experience that our customers can benefit from when dealing with our businesses. Achieving industry-leading employee engagement is an equally important part of this puzzle. Here, we're starting from a reasonable position, though, with our General Manager Employee Net Promoter Score, eNPS, a very strong 62. This means we have a highly engaged leadership team, and this is a critical starting proposition from which to bring the entire organization along with us. But like customer, there's no one single silver bullet to achieve this. And as such, we're working across a number of fronts, better communications, getting better at recognizing our people across the organization at all levels, improve parental leave policies, closing pay parity gaps, fostering a more inclusive workplace and building on our present momentum towards our diversity targets. It's both a comprehensive and authentic, and this gives me confidence that we'll materially move the dial on this over the coming years. The other exciting part of our story is the extent of growth opportunities we can see. As we've flagged previously, we have now committed around $800 million of capital to these. This investment has been made on through-the-cycle levels of market activity and to ensure we can achieve a minimum return on funds of 15%. We show here 3 examples of the investments we're making, and the team will talk to these and others in their presentations. We expect the present batch of growth projects to hit their full earnings run rate in the 2027 financial year. When I put all this together, I'd make the following points: we're well positioned to perform through the cycle; we're getting close to having the legacy construction projects in our rearview mirror; we're actively focused on further improvements to our overall operational performance and have a good set of metrics beyond just margins to demonstrate progress; we are well into the $800 million of committed growth projects, which we're confident will be delivered well and set us up for significant extra earnings in the next 2 to 3 years; and there remain plenty of other growth opportunities, which we can take advantage of once we have a firmer sense of when the cycle is returning to growth. I'll now hand over to Bevan, who will build on some of these themes in a bit more detail.

Good morning, everyone. The theme you'll have heard through Ross' presentation is that Fletcher Buildings established a really solid operating base on which we can now build for growth. The gains we've made over the past 5 years have been in a few key areas, have been in cost efficiency, getting much sharper in where we play in our markets and getting more disciplined in our pricing and how value connects to that pricing for our customers. The resulting margin improvements, which is shown here, have actually come mainly in our materials and distribution divisions, which is the top chart shown here. These businesses account for around 80% of our earnings, and the margin improvement there has outperformed the group uplift. In FY '23, we expect that for both the overall group and for our 4 materials and distribution divisions, we will have margins north of 9%. And that margin performance in F '23, as Ross has said, has been delivered in a market, which is already softening of the peak activity, which we saw in the second half of fiscal '22. Compared to those levels, FY '23 will be down around 5% to 7%, with most of this fall concentrated in the second half of FY '23. While this has been softer demand than we originally expected for the year, delivering those margin levels has been pleasing. Looking ahead to FY '24, the ongoing uncertainty in where macro factors will land, particularly interest rates, inflation and immigration does make market forecasting more challenging. At present, our internal indicators are pointing to market volumes down a further 8% in FY '24, which would leave us down around 15% in total from the peak in the second half of '22 and that remains in line with our prior outlook commentary. I would note that these forecasts are across all of our sectors and that what we are seeing is that residential is down a bit further than these averages, with infrastructure and commercial showing relative strength. Looking further ahead, as Ross has said, we do remain bullish about our markets in both New Zealand and Australia, a return to net immigration and net housings and stock under supply and an aging population, will we believe, drive long-term housing demand. And commercial and infrastructure pipelines both for the private and the public sector looks strong. In this environment, we believe the group can deliver a 100 to 200 basis points of margin uplift in the medium term. The drivers of this improvement remain consistent with what we laid out at last year's Investor Day, and they are ensured. Investing in growth that is closely connected to our current business and mainly via our organic projects, winning with our customers through differentiation in our services and solutions, scaling our house sales on a well-positioned land bank, but only when market conditions allow for it and creating a more focused, profitable construction business, one that is now out of the vertical building sector and has built a lower risk, high-quality order book in roading and infrastructure services. I note again that these targets are based on mid-cycle levels of activities. And if we get those macro tailwinds flowing through our markets, we do see opportunity for further upside. Ross has already spoken to some of the examples of our growth investment program. So just two points to add here. Firstly, we continue to identify attractive opportunities close to where we currently play. And this has lifted our investment from $700 million to a committed $800 million today, with most of this uplift coming in the circular economy and high-end binders part of Nick's business. Secondly, this now means we see an EBIT uplift opportunity in the medium term of at least $120 million. On Page 26, we lay out the expected timing of that investment, which is reasonably well balanced over F '23 to F '26 and note again that we do see additional opportunities that we'll review in the medium term. Turning to our focus on customer services and solutions. Ross has mentioned the fun fact about how strongly correlated customer outcomes are with our other key performance metrics, and we highlight that point here. The dark green column on the chart represents the top third of Fletcher Building businesses, as measured by their relationship NPS, or Net Promoter Score, and the light green being the bottom third of our businesses. What we see quite starkly is those businesses that perform at the upper levels with NPS's of around 60 really world-class are also far safer, have far more engaged people, and they deliver far stronger profitability. Well, in some ways, that's not surprising. It does really underscore the point that Ross makes that if we're to get our full portfolio of businesses to top quartile, we need to get more consistent and move closer to best-in-class on the people, the innovation and the customer dimensions of our strategy. To support this focus, we've now expanded our customer feedback program to cover both our current customers and those who do not currently do business with us. The chart here on the left-hand side shows the Net Promoter Score for our current customers. Each of the dots represents one of our business units. And you can see here that while the overall group is on a positive trajectory with our NPS, we remain too inconsistent. The opportunity to get all of our businesses to the right level is clearly significant. And in FY '24, we've set a minimum expectation of 30 NPS for all of our businesses and a group average going from 40 to 45. On the right-hand chart, we show how we perform when we compare ourselves to all customers in the market and against our competitors. What is striking here, as Ross has said, is that generally the industry performs very poorly, you can see that the average for all of our competitors is materially negative and Fletcher businesses while ahead of this are still barely positive. Again, we see inconsistency in performance, but the key point is the uplift opportunity from getting really good at our services and solutions is, again, a compelling one. So how are we doing this? We hear all the time from our customers that two areas of fundamentals are critical: the delivery performance and product quality and availability and the level of service we offer to them and that, that's often a key differentiator. Here, the investments we are making in our people and in our systems environment will be key enablers. For example, we're moving to a single modern ERP across all of our manufacturing and distribution businesses, which will, for the first time, give us single view of customer and single view of product across all 20 of those businesses. The opportunity that, that gives us to drive improved delivery performance and availability across our network and also to get highly efficient and joined up in our service levels through both digital and physical channels is again significant. And beyond these fundamentals, we see opportunities to further differentiate Fletcher Building as a leader in sustainability and in driving innovative new products and solutions in our markets, and you'll hear more of that from the team throughout today. Turning briefly to our Residential and Development business. As Ross has said, we remain pleased with the performance in F '23 and what has been a very tough New Zealand housing market. For FY '24, we expect sales volumes to be at roughly similar levels to F '23 and with a real focus on the funds invested in this business ahead of a market recovery. When that recovery comes, we remain well placed to drive growth with a land bank of around 5,000 units, a proven business model and a strong customer promise. Moreover, as shown on the left-hand chart here, our land book remains well and truly in the money. Land held on balance sheet has an embedded gain of around $350 million, and this is from the latest independent valuation we completed in the past month. To close a couple of comments on cash and balance sheet. On the legacy construction projects, our expectation for overall cash flows remains in line with prior guidance. What we show here is the expected timing of these cash flows, with F '23 actually slightly favorable to our prior forecast, as we've had a partial settlement of insurance proceeds on NZICC and with the remaining legacy cash outflows concentrated in F '24 as we complete the Convention Center. As Ross has highlighted, we need to land our final claims on these 2 key projects, and these cash flows are dependent on dispute processes and are assumed to come in F '25. And I'll note for completeness, all these are pretax cash flows. Looking more broadly, underlying cash flows for the business in F '23 will be at good levels with a strong second half delivered in line with our guidance at the half year. Balance sheet remains strong. We'll exit this year with liquidity of around $1.3 billion and our leverage ratio at 1.3x. This will lift an F '24 as we invest in the growth CapEx and complete the legacy projects, but we will remain within our stated target range of 1x to 2x. In summary, Fletcher Building has delivered a solid F '23 and softer trading conditions. While we expect some further market softening in F '24, we remain confident of preserving the operational gains we've made and positive about the medium-term outlook for our businesses. Our sectors are supported by macro tailwinds. We're well advanced with our program of great -- growth investments. We see opportunities to improve our operating performance in the areas of customer, people and innovation, and our balance sheet remains in good shape to support this strategy. And with that, we'll open it up for questions.

Marcus Curley from UBS. Just two questions, if I can. When you talk about trying to hold on to operating efficiency gains in '24, what would be a good outcome on margin if you're able to do that? And secondly, no comment about the finishing of the manufacturing site. So is that expected to contribute positively to profitability in FY '24?

Yes. Let me answer the second one first, and you might also do the first one. Seems like a CFO [indiscernible] . Thanks, Marcus. Look, it's commissioned really well. Hamish will update it more completely when he does his presentation, but it's commissioning well. We have commissioned it. We've got [ 10 mill and 30 mill ] board which is the high-volume boards, which are in the brands approval now. So it's tracking well. So we feel like we're in good shape with that. And then what it does give us is far more capacity, a lot of ability to actually do different products, and that will take us through to about October to get all 25 of our products commissioned and up and running. And then we've got a real opportunity in terms of putting more emphasis into the higher-value parts of the board products we put out there. But Hamish will get right into that when he actually does his presentation.

Our margins, Marcus, we're not going to guide to '24 margins today. So I might disappoint you there. I would make the following points that what you've seen through '23 is you've already had softening of the markets is that the business margin performance has been good, which reflects a couple of things that's control of the cost base and the pass-through of price that we continue to achieve. Now we expect that pricing environment to obviously get a bit sharper as markets come off. What we have seen is the business' ability to deliver has been very good. So we're talking to confidence in that operating performance. We'll get into '24 before we talk to margins.

I think we've got one from online, yes.

Got one question from Andrew Scott. Your residential forecasts seem to imply a cycle trough above long-run averages. Can you talk to your confidence about this higher floor? And when Bevan, you speak to improvement in margins and at mid-cycle, what do you view as mid-cycle levels?

Yes. So if I look at the residential numbers, I mean, there's an ongoing debate when we go around and talked around what is the -- what is through the cycle volumes of residential? And where has it moved? And is it you look 12, 10 years back, 20 years back, where is it? So what we're saying is we think the levels we're seeing now in the residential volumes are more a mid-cycle level, and we could go -- we could really have a [ secured as debate ] as to whether that's right or wrong, but that's sort of our thinking. And the other point we'd make is we feel like what we're seeing in the market and the sentiment as it is stabilizing. And for those over here in New Zealand, what you are hearing is the rhetoric has really changed around the residential market in that it's at bottom. And so what you're seeing is a lot of people coming in now feel that interest rates are probably getting to the peak and the pricing of houses are probably at the trough. So their confidence levels are back and what we're seeing -- and Steve will talk about it, we're seeing about 20 to 25 sales a week. So that's really starting to feel pretty solid. So that's what we think it's about there, but then we think it's about mid-cycle.

And I'll just add, Andrew, that what we're seeing at the moment and what we expect to continue, it's not a 2-speed market, it's a multispeed market, by which I mean that different parts of our sectors are performing at very different levels. So if you look at, for example, infrastructure is strong and looks to stay that way. Commercial likewise, in residential, new build, particularly at the group homebuilder end of the market, that is definitely softening. But on the flip side, renovation and particularly high-end renovation is very strong, which is obviously a higher-margin part of the business. So there's a whole bunch of movements going on there, Andrew. Broadly, F '24, we see that as mid-cycle, as Ross has said.

Just hopefully, a couple of quick ones. First one, just maybe back to Marcus' margin question. You previously talked about having 10% of labor being variable. Have you already moved on taking some of those costs out? Or is that more of a '24 story?

No. We've already -- and we made the point that when we look at volumes, we've already had to suck up about 5% to 7% of down. So -- and the business has been on a tempo of actually -- some are still busy. So if you talk about a Winstone Aggregates business, for instance, it's in a very strong infrastructure market. You can go over into some of our more residential-focused businesses, where we've been on a -- where it's -- it is quite hard, and we've actually had to move on a lot of that to date. The other thing we're seeing is that what helped us in that quest is the turnover through the last 12, 18 months have been very high. So as we sort of needed to pull back a bit, that actually helped us, but we're actually starting to see all that stabilize. So we pulled those levers where necessary. We've shut some marginal bits of our operation and looked at our footprint. So we've been working that all the way through this half, really because we're starting to see it flow through. So I think we're well positioned, possibly more to go in a few businesses. But it feels -- we feel like we've got it under control, yes.

And secondly, you're talking to improving service levels. I'm assuming the best-performing businesses [ once ] given the service offering. But can you just give us some examples of what you're doing in the other businesses to improve the service offering and maybe something that you've already done and implemented?

Sure. So I mean in our distribution businesses network, efficiency is absolutely key. So in Bruce's business, for example around we've in-housed all of our freight over the last 2 years, so we get greater control of that delivery performance. Frankly, it's actually given us greater insight into where actual performance levels are because you are controlling it. As we get our systems and data in better shape, the stock distribution across our networks is much better. And then in Hamish's business, for example, you can look across the investments in efficiency, which are driving our cost positions in that market. And ultimately, if you're not cost competitive, then your customers in this environment are going to be going elsewhere. So there's a whole bunch of stuff that's being done. Candidly, we've got 2 or 3 years more work, which is why you've heard us talk about the opportunity beyond here. We're at what we would describe as middling levels of service performance across our businesses. So it's the uplift that excites us.

And final one, just free cash flow. You've obviously sold a business, and you've been reinvesting a lot in opportunities that you see. When do you think Fletchers will start to generate free cash flow and stabilize the gearing, given you're kind of talking to it rising in '24 again?

We've got the 3 years of investment. Our run '24 is obviously marked by those legacy cash flows, but then we are done, but that's a very deliberate strategy. So the next 3 years, investors can expect that we're investing and that growth comes in full run rate from '27, but with aspects of it delivering from '25 and '26. Through all of that run, we've set the target range at 1.2, and we intend to remain within that. And we positioned balance sheet for two things: One, a softening of the market, which we've obviously seen; but secondly, so that we could invest in the business for future growth. And again, it surprised Ross and I, the amount of growth opportunity we have in our backyard. So we are very deliberately going after that.

Couple from me. I think at the half, you were talking about the manufactured product business and distribution being able to hold real pricing. What are you seeing at the moment through the second half of '23?

That's broadly what we're seeing. But there are selective places where particularly in distribution, and Bruce will probably talk about it where he'll go sharper on something because it drives share of wallet. So we are pushing around on that. But -- and I think we'll broadly hold pricing and -- but there'll be spots, where we might give a bit up where it's sensible. But I don't think that's going to be a contagion across the business. And the second part of the answer to that is we'll still put price into the market, but we probably won't get as much as we would have got through the last 2 years as we push on it. But what we're also seeing is the cost side of the equation. Our input costs are staying to abate as we sort of work through that, whether it would be goods or labor, but there will be a little bit of a pathway over the next 6 to 9 months, I think, as that sort of starts to abate and everything sort of comes back to what I call normal run rates.

I'm going to throw in a weather question, not normally something I'd ask. But the 5% to 7% that you've had to eat over this half, obviously, it's been a remarkable period here in Auckland and across most of the country or North Island at least. Can you give us some idea about how much of that 5% to 7% you think has been mother nature?

So the 5% to 7% is what we're thinking in the background market isn't as you mentioned, Stephen though, it's been really hard to work out where the market is. But we actually fortunately having a June, which is starting to give us a good sense of where it is because June has been a bit more normal. So the weather impacts are separate to that 5% to 7%. And if you remember, what kicked us off the guidance of $855 million plus back in January, where we exited the year was really the weather events that occurred in the January, February period. So they're sort of a little bit independent. So the 5% to 7% is, I think, where we think market is.

And then just last one on Wallboard -- the new Wallboard plant. I think you're going to be running Felix Street in parallel for much of the remainder of the calendar year. What sort of cost is going to be associated with that kind of our resilience strategy?

Not a lot. It's actually -- because we actually ended up getting a lot of stock out. So we've actually -- because what happened to the support the market, how busy it got we're sort of carrying less inventory than we would want. So there's no real dramatic impact of that overlap. Now we need to call it there. I think we're sort of keep us on time, and now is going to thank us for being late today. So I'll -- we'll move on and then get -- is it Nick?

Perfect.

I forgot we have a video, so I might have easily have forgotten who's next.

Thanks, Ross and Bevan. And welcome to the world of concrete. So I'm excited to provide you with the highlights of our divisional results and plans for the future. But let's start with a short overview of who we are. We are New Zealand's leader in sustainable concrete products and solutions. And this is based on the following three attributes. First, because of our unique operational footprint and supply chain network with a well-balanced exposure to end markets; second, our technical capabilities and strong well-known brands. And you will have noticed here that we also now include Humes in our division; and third, our leading position across the value chain, which actually allows us to provide our customer tangible benefits such as resilience of supply and simplicity of interaction. Moving to the next slide, 37. As you can see here, we are delivering strong performance, both in financial and nonfinancial metrics, despite a softening market, inflationary pressures and the recent weather events we just talked about. This performance is a testament of our resilient business model, which is based on the following things: a well-balanced sector exposure and differentiated offers for commercial and infrastructure, particularly, which allows us to compensate for the softening residential market; our strengthened position in the resilient South Island market, where we added 2 quarries as well as in the maintenance and repair markets with our extended dry con product offer Bevan already talked about before; then we have increased our capacity to serve key constrained markets, such as the Winstone Aggregates quarry expansions, first insulation floors and Golden Bay waste management capabilities; then we have our improved operational performance and supply chain flexibility, which allows us to quickly adjust to energy volatility and transport disruptions; last but not least, our decentralized profit and loss ownership and lean organization, which allows us to fast adjust and reallocate resources based on market and demand shifts. Looking into the future, our midterm performance is customer driven, and we focus on the following elements: differentiated and innovative solutions, which support asset owners and specifiers to decarbonize the built environment; then we may try to make it easy for customers to trade with us, leveraging digital tools; and then our improved market coverage and product availability through the capacity increases and bolt-on acquisitions. This is then underpinned by our performance focus across the following areas: innovation, leading the transition in low carbon and circle construction; digital, leveraging the digital solutions to enhance our customer experience, improve our production and supply chain; and in sustainability, capture the opportunities through scaling fast alternative fuels and raw materials, waste management, supplementary cementitious materials, concrete recycling and reuse. So the biggest opportunity in our industry is the transition to low carbon and circular construction. So let's see how are we going to capture these opportunities? Let's start with low carbon construction. We have the industry's largest range of low-carbon products and solutions. As you can see on the left side of the slide, our low carbon cement and concrete now accounts for the vast majority of our sales. And we continue to launch leading products like the first carbon-neutral offer, together with our colleagues at the PlaceMakers based on offsetting the remaining emissions for the back offer. On the right side, we are making decarbonizing the built environment easy for our customers with our low-carbon solutions offers. First, smart systems like Riveroft export, which allows efficient and resource reduced construction, building more with less. Secondly, life cycle efficient solutions like the hot edge flooring system, which is in line already with the new H1 building go change. Thirdly, digital design tools for architects and engineers like [indiscernible] which allow us to directly develop all the documents you need for a resource consent with just a few clicks. The other major opportunity for us is circular construction, where we are fast scaling both waste management at Golden Bay and recycling services at Winston Aggregates. In 2023, we have recycled and reused more than 100,000 tonnes of wastes across the following categories. And just as a reminder, most of these 100,000 tonnes would have otherwise filled up the landfills of [indiscernible] . Starting with alternative raw materials at Golden Bay where we replace natural raw materials with waste from process industries, basically ashes, saving both precious landfill space, our own natural raw material reserves and obviously reducing our CO2. Next, we first scale our alternative fuels usage, replacing coal with things such as waste timber, tires and soon plastics and other industry wastes, again, reducing our CO2, landfill space and energy costs. We are also growing our usage of waste from industry to replace the main ingredient of cement and main source of CO2, which is clinker. Very safe -- CO2 and costs again at the same time. One particular highlight for us in this year has been the acquisition of Urban Quarry, which adds 2 prime locations in downtown Oakland. So we are now ideally positioned to fast track recycling of deconstruction and demolition waste and offer a true circular materials and solutions to our customers. Moving to Slide 41. We have a strong pipeline of organic growth across the division to drive the future growth. Starting it first, we just started construction of our new flagship plant in Auckland. We are extending the dry con product range and our roading and permeable solutions. At Golden Bay, we have plenty of growth opportunities focusing on the decarbonization, but also increasing capacity and resilience. At Humes, we are focused on leveraging the recently commissioned industry-leading technology at Papakura and then grow their water solutions. And finally, Winstone Aggregates, we scale the recycling operations, as just mentioned, as well as keep on expanding our quarry capacities to serve key markets. Finally, we also keep looking for attractive adjacencies to enter and capture the opportunities in circular and decarbonization. In summary, the division is set up for sustainable growth, and we have an attractive platform based on the following three things: our resilient business model; our performance focus driven by providing our customers differentiated solutions based on innovation, digital and sustainability; and finally, the strong pipeline of future growth opportunities across the businesses and adjacencies. That concludes the concrete presentation, and I'm happy to take your questions and comments.

I just wondered if you could just tell you, you sort of glanced over it, but delve a little bit more into the EBIT chart there and this extraordinary 40% increase in margin? And talk a little bit about how that looks on a long-term basis? How that was achieved? Whether that's sustainable? I mean, Ross has obviously mentioned that the feeling is you probably don't have to give up price much. But that is a -- that's -- in a business, which you often talk about margin gains in terms of basis points, that's an extraordinary gain.

Yes, obviously, there's a lot of hard work behind that across the division and the different businesses. As Ross has said, we should always kind of keep in mind that our flagship business is Winston Aggregates. So that -- and still we compare it fairly well if you would benchmark us against the Martin Mariettas, Breedons or Vulcans of the world. So we are very focused on the flagship, Winstone Aggregates, performance, which is doing really, really well. But then we also have made great progress at Golden Bay managing energy. So the energy management being efficient, replacing coal, which has gone through the roof basically and with substitution with waste, but also smart flexibility on qualities we take on, our procurement, we set up a leading procurement team there as well. And then the solutions play in concrete with Firth. I mean that's a little bit just to give you the whole kind of portfolio of things where we have been focusing on. There's also quite deliberate focus on different parts of the market. I think we have deliberately kept our exposure to the residential limited and -- in Firth, and we focused on infrastructure and commercial space and all the solutions you have seen. But keep in mind also that the usage of concrete in New Zealand compared internationally is very, very low. So actually, if we start to use more concrete in roading, for instance, that would be a big upside and close that gap to other places.

Sure. And can you talk a little bit about the competitive environment in your space?

Yes, as you know, we are the only local manufacturer of cement. And that's obviously, I believe more and more that's going to give us an edge because more and more countries have CO2 systems or thinking about it, pricing CO2. And that's what also has made us really competitive. We have one of the lowest clinker lines in terms of CO2 on the planet up there. And we haven't even yet fully exploited SCMs or we still have 50% of waste to go. So I'm very confident on that cement asset up there being ideally positioned. The other thing is, don't forget, the complexity of logistics in New Zealand. So the whole network of terminals we have is a big advantage, too. And then we have this brilliant positions in Winstone Aggregates on the ag in the major market cities very close, now adding recycling to it. And don't forget, the big infrastructure projects working together with our colleagues and Phil's team is really, really important for the future because -- I mean you know how downturn outcome is to realize projects, having the logistics capability and so on is going -- getting more and more expense and more and more important rather than just having stone in the ground.

Sam from Citi. Maybe just one, it looks like the extra $100 million CapEx for a circular opportunity. Could you perhaps give us a little bit more color on the opportunity there, returns and timing?

Yes. Look, I mean it's not one big opportunity. It's a bunch of things. So one is obviously looking at recycling places in the key markets. So we started with Auckland, but we obviously want to look at other city markets, that's the Winxpiece. Then obviously, we have the waste platform we built up North, which is another kind of double-digit investment. And then going into -- further into the alternative raw materials where we just signed a deal with Genesis to use their Bottom Ashes. So it's not one big item there. But it is going back to the question before, those things all add up supporting our EBIT margin target delivery. Steve had a question there?

Nick, thanks for the presentation. I think Golden Bay receives about 600,000 or slightly over free carbon units. That allocation is currently under review. So sort of $30 million of protection, I suppose, against the emission trading scheme. Does the government understand the opportunities that are in front of you as well as you're laying out today and how much of that $30 million buffer, if you like is at risk.

Yes. You will have seen the latest kind of communications around the review of the ETS. And we're obviously in close discussions with the government. Look, you hear a lot of criticism of the market-based instruments. But actually, if you look at the CO2 emission trends, most of it is coming from the businesses, which are not part of the market-based instruments. So actually, Goldman Bay is probably a really key example that those market-based systems work because we have now one of the lowest CO2 assets on the planet driven by the ETS and the investments, which the ETS allowed us. We should also keep in mind that having pretty much no CO2 in electricity, which we use quite a bit for grinding, clinker and then make cement, also having more than 50%, we ship across the country, which is again very low CO2, so we have a very low CO2 base with local manufacturing and I think the government understands that pushing that or pushing us into kind of an import model would be really, really bad news for the climate. So we feel very strongly that we have a good case to defend our allocation on the ETS. And look, we always promote that we do this in line with international standards, like the Europeans do that based on benchmarking and because we are actually, as I said, having one of a fairly good asset up there with low carbon, if we go to international benchmarking that would be really good for us too so. I think that's it, if we don't have anything online. Thanks very much and I hand over to Hamish. Thank you.

Good morning, everyone. I thought I'd start off with a quick snapshot of the division, which has changed in the past years. We've moved Humes across to next concrete division, and we have recently acquired the Waipapa Timber asset as we go through and I'll talk to that later on. We now view the division in the following 3 parts: Light Building Products, which contains the well-known iconic brands, GIB, Laminex, Iplex and the newly rebranded Comfortech, which is our specialized insulation business. All of these units have very significant in-country manufacturing capabilities. We also then look at metals. This includes the steel portfolio of businesses that come under the Fletcher steel umbrella. These include wide products, roofing, infrastructure assets and a larger steel business, EasySteel. It also includes metals that are 50% joint venture of Altus, which gives us good exposure to the extruded aluminum windows and also has quite an extensive industrial aluminum distribution business. And finally, the new addition is wood, which is where we capture our recently acquired Waipapa structural timber mill. And over time, we will look to expand our exposure in the sector as we can see some really good opportunities going forward and I'll speak specifically to Waipapa later in the presentation. Now just looking through to FY '23, we've continued to hold on to our gains from the cost base reset over the last 3 to 4 years. And when coupled with very high first half volumes and good pricing disciplines in the second half will deliver a record margin and earnings for this division this year. Return on funds employed is now circa 18%, and this will ease to sort of 14% to 15% over the next 24 months. The main drop at the moment is obviously the crystallization of the Winstone Wallboards plant. And then the future investments that will be ahead of earnings will take place over the next couple of years. But the longer-term outlook for this division is to return to around that 18% return on funds as the earnings start to come with those investments. All business units are driving improvements in customer service and engagement and targeted digital investments are delivering improved customer intimacy and we will continue to invest in this space. Our average NPS across the division has continued to improve steadily over the past 2 years and is now very close to that top quartile range. We were very pleased to see another positive lift in our staff engagement after the COVID disruptions with employee NPS now into the upper quartile range in our comparative sectors. Carbon emissions for our division has remained broadly flat this year but FY '24, we'll see a solid reduction as the Tauriko Wallboards plant becomes our primary plant, and we'll have a full year under our new electric ovens at Pacific pool covers, which commissioned last month and are going well. A key requirement under the building for climate change going forward is the embodied carbon levels of our manufactured products. Our baseline benchmarking puts us ahead of our competitors in the space and our planned carbon reductions over the coming years will ensure we remain positioned well with our product offerings and solutions to our customers. Just moving forward to slide. Our digital solutions background work over the past 2 years is now starting to deliver some real investments. Laminex has been the main pilot in my division for this work and now 40% of its revenue is via digital channels, and this is still growing. Dimond Roofing will be launching a customer ordering solution early FY '24, which will be market-leading on launch and has 2 further expanded phases already in the pipeline. The digital backbone we have created in the division will allow significantly faster and lower cost market launches for other business units from here forward. This is exciting for our customer base and also internal efficiencies will be subsequently unlocked as they come through. Building for climate change, I touched on it earlier, it's driving positive solutions in the industry and we are heavily involved on the thinking and industry solutions around that. Product and body carbon is something you'll hear more and more about in the future years. And as I mentioned earlier, we benchmark well at this position. And with our investments and plans we have that we'll maintain a very favorable position against our competitors in that space. And also it will become the product of choice as that becomes a key requirement for building. Just moving to Slide 48, an update on the Tauriko plant. Exciting our new Tauriko plasterboard plant is tracking on time and is now well into the product commissioning phases. Since we pushed the start button in mid-May, we have been producing board and progressively finding the line to reach our standards. It's always a nervous point when you push the start button, but she started out beautifully. We have 30 mills standard board undergoing brands appraisal at the moment and should have [indiscernible] standard out this week, essentially for brands appraisal. And we then start, as Ross touched on, we start progressively commissioning all the other products and should be fully commissioned by the start of November is our target. Our target is then to commence the closure of Felix Street around this time. And once we are clear Bruce McEWEN will take over the site for the installation of the new frame and trust manufacturing facility, which he will talk to later on. The project has been delivered within budget and slightly ahead of the original time frames and we are very confident the plant is going to deliver on the original scope, and we can already see opportunities to -- above the 30% in-country capacity that was promised. As well as now being able to introduce it also opens up a lot more capability and we should be able to produce a much broader range of products going to the future. And the waste recycling capability of new plant is going to give us some really exciting opportunities to expand our circuit construction waste unit along with Nick in that space. Jumping to Slide 49. Outside of our near-term growth initiatives, the division has a very clear medium- to long-term growth trajectory with several of these opportunities well underway. Construction of the new Laminex Taupo hybrid board plant commenced in May and is targeted for plant completion in June 2025. Since we announced this last year, this project has expanded slightly to now include a fully integrated process and packaging line after the manufacturing process. This will generate further operational efficiencies and increase the number of products we can offer. There are good growth opportunities in wood fiber boards and panels, and the unique hybrid of nature of this plant will position us well to participate across the full spectrum offer in this category. Earnings growth will increase progressively through FY '26 to FY '28, as products are launched into the market. Timing has also allowed for several key staff involved in the successful delivery of our Tauriko plasterboard manufacturing plant to now be redeployed into this project as it has actually been quite seamless as that's come across. As you may be aware, the H1 building code changes have come into effect for new consent from May. A key element of this has changed in the increase in installation requirements. Comfortech will see an increased demand as these new consents have put in place and we estimate that they will hold their current installation sales flat to FY '23 as increased requirements will offset overall activity decline in the base construction sector. And just an update on our new Glasswool production line. We are expecting consent to be issued in the next few months. It has taken a little while, but it's looking pretty close. For the expansion of our existing board and the addition of this building and the addition of the new manufacturing plant. Once we have the consent, we will then commit to the detailed design phase and final costings with our technology, Owens Corning out of the U.S. The new line will use the latest technology and we'll also triple the capacity in New Zealand. We are aiming to commence construction in early FY '25 and this is a 2-year build. We do have committed supply from our technology partner, Owens Corning, that will bridge any supply gap in the net build base. So we'll be able to import volume to offset any rise in activity in that period. Outside of these defining growth initiatives, we continue to explore more broad opportunities in adjacencies. The wood sector remains in an area that we see several future opportunities and we'll continue to evaluate these through the current cycle. Our recent acquisition, which I'll talk to now on the next slide also allows us to get a deeper understanding of these markets. And with that, moving to next slide. On the 16th of December, as you all know, we into an agreement to purchase the Waipapa Timber and renewable fuels business. And I'm very pleased to say that we got overseas investment office approval at the start of June and we transacted this business on the 9th of June. This is a very well-run business and existing vendors will stay on with us for 12 months to ensure the knowledge transfer and integration is successful. Due to the final timing of the transaction after the approvals, we will see a small contribution in FY '23 of about $0.5 million, but we are forecasting circa $12.5 million EBIT in FY '24 for its first full year within the division. We have a detailed investment plan as part of our integration of the mill with the aim of roughly doubling the output capability inside 3 years. This will require us to give additional staff as we move to a 2-shift pattern and it will take approximately $25 million of capital to unlocked existing equipment constraints. Any volume above existing customers' demand can be flexed to the PlaceMakers network and we see some real growth opportunities in the renewable fuel section of this business as well. Let's move to the final slide. In closing, the Building Products division is well-positioned to navigate the stage of the cycle and has a clear path to deliver meaningful medium and long-term growth. Our digital and new product strategies are beginning to bear fruit and we have a very steady launch program over the next 2 years, delivering customer benefits, new revenues and several operating efficiency opportunities. Closeout of the Tauriko plant build in the next 4 to 5 months will unlock significant new capability for us in a core market and also demonstrate we can execute on large plant builds and commissioning. Our other organic investment programs are now well-defined and will bring step-change earnings on their completion. Waipapa Timber integration will be key in the next 12 months and our learnings here will help round out that longer-term wood strategy. We are confident our assets are fit and we can flex to meet the market requirements and that completes my presentation today and open for questions.

Hamish, just wonder if you could talk a little bit about what is happening in terms of pricing across different products at the moment. So yes, you put up anything else that you're doing at the moment and we're hearing in the market that timbers on the way down, you're probably one of the only ones on the way down. Has that affected your earnings assumptions for your new acquisition?

No, absolutely. So I'll start with the timber one. So we do all our assessments on a through-to-cycle level. So when we do the assessment for the acquisition, we'd assume this market level that we're going into. And equally, our price assumptions we made at the time were actually lower than what we're still seeing. So we're very comfortable where we sit as we take that through. I have been hoping the cycle would last longer and I'll get upside on acquisition, but essentially, it's basically where we had planned to be, moving forward. In terms of -- there's still a lot of pressure, particularly on raw materials from an import perspective. So global raw materials are still under pressure, which is coming through from a pricing perspective. We did -- we obviously did move back in February, which was a reasonable increase, but that was on the back, we didn't change pricing through the supply shortages, which I still think was the right decision as we go through. We moved insulation at a similar time. Laminex is pretty much true. Its price is a little bit of pressure on strand flooring, which is going into the market now, but that's more of a 2% to 3% type movement as we go through. Now the other businesses being steel and Iplex are heavily commodity based. So their pricing flex based on resin and steel price. So that's always up and down flexible as we go through. So those have come off from a price perspective, but margins we have retained as a net movement as we go through. So I hope that sort of flow through.

Thanks, Hamish, for the presentation. I think it was just a little under 2 years ago that Boral USG pulled out of New Zealand, had about a 6% market share. Can you just talk about what impact that's had on the Wallboard business and pricing backdrop? And also I think heading into COVID, you were already importing from competitors, some specialty boards because of capacity constraints. So just interested in hearing how you optimize the mix of the new plant and what margin uplift you could see there?

Yes. It's -- in terms of where I think it's been -- it's obviously been a mixed of 18 months in terms of actually where it's at and imports have pretty much stopped coming to the country since about February. So our share currently looks very high. It's very -- it's going to take a little while to set as we go through but we're definitely well back into the 90% share as we came through. We dropped down to probably I think our last point was about 82% through that period as we go through. So we've seen customers steadily come back as availability has freed up. The new plant -- the capability of new plant will allow us to make every product that we currently sell. As you're right, Stephen, we did import a couple that we wanted to get the market going, here the plant. So as those commissions through October, we will be able to produce everything we currently sell. But we're also looking at starting to introduce boards that they have basically a magnesium additive into them in different chemistry, which means you can have more products that you can sell in the outer area of the house and more into the cladding and that sort of space. So those will come probably over about 18 months after we get through the commissioning period as we've gone through. But yes, how the market is going to land in terms of competitors and so forth. I think just need to see how the next sort of 6 to 8 months unfold as things settle down. We've got a big transition to do from a closed Felix Street get Tauriko fully opening and then optimize the distribution network that flows from that. So in terms of benefits, yes, we will get benefits from that plant is more efficient and we believe the distribution well to be more efficient, but that's more in the second half of next year, assuming we execute well.

I'm just going to add one more. I mean you are sort of the market in plasterboard now. So you've got a unique sort of lens to look through. The 5% to 7% that was talked about earlier, volume drop in the second half what have you said ?

You are right. That's what we're seeing. Yes. So we're a pretty good indicator of where the actual fundamental demand is. And we're also now at about the right levels that we can see next year going into this area. So I'm pretty confident with what Ross and Bevan talked to us and what we're actually seeing.

I suppose the other dynamic next year is a mix shift away from residential, commercial and infrastructure. How do you think about that from a margin perspective? Is that a headwind or a tailwind or a neutral outcome?

It's pretty neutral, really, in the big scheme of things. We will get -- I was got quite a few dynamics going on because you've got the H1. So normally, I'll be expecting insulation to come off, but we're actually expecting inflation to grow in the second half. And we've got good efficiencies at those sort of volumes as well. So it's coming through. We also got the new Wallboards plant coming through. So even though volumes ultimately will be down we start to benefit from those efficiencies and sort of mapping that as we go through. The commercial was actually -- infrastructure is ready for my steel businesses and iPlex as well. So where they have probably been off in the second half, they're coming back strongly now. So still, in particular, we've had too this month and where we now in May and June, we've actually seen that market start to come back and go forward. So I get good volumes and good margins through there as a sort of balance. And GIB, we've sort of made our assumptions. Yes, residential was a key contributor, but they do it more on commercial than people would realize. And the margins are there to say.

Thank you, Hamish. Good morning, everybody, and welcome to all things distribution. A little bit reminder of what the distribution division comprises, comprises the PlaceMakers and Mico branch networks. The PlaceMakers Frame and TRUSS business and the Tumu business that we acquired down the East Coast of North Island in September of last year. Our geographic network reach positions us really well for the densification growth that we've seen in the major metro markets. But we also got a really strong regional representation, which ultimately enables us to diversify earnings and sales risk across as those different markets move, don't all move at the same time in the same direction. Our primary customers are firmly focused on the trade and we're bringing to life the opportunities that digital and technology present to create a really efficient and market-leading supply chain. As we really unwound now from the effects of COVID, we've really got a supply chain, those disruptions have really died down from where we were. We really refocused their efforts back on the fundamentals and back on the fundamentals of what our customers require every day to win in their market. We've also taken forward the key issues and learnings from the last 3 years with strong pricing disciplines to make sure that we're always and consistently recovering cost inflation. And particularly as prices move up and down, as you just heard from Hamish with some of the industry metrics driving those. Alongside that, we've reset our cost base and our network configuration to make sure that we can deliver scale efficiencies as we are a scale business. That coupled with the decentralized P&L management. P&Ls are owned at the lowest level right across our business, which means that we've got really strong owner's mindset, which helps us perform as the market dynamics quickly change across different parts of the country. Despite the challenge of the last 12 months, improved operating disciplines have really positioned the business strongly. We operate in a very competitive market right across the country but our focus has been on generating sustainable and profitable earnings and volume growth. And the targeted segments and geographies where we think we can win best. We'll deliver a strong result this year circa $140 million in this financial year with an EBIT margin growth for forecast 7.7%. In addition, our return on funds employed will be around the mid-40s, circa 44% as we deploy our capital wisely. And we've actively managed the day-to-day elements of our working capital usage, particularly unwinding the high stock positions we came into due to the supply chain disruption we really unwind a lot of our high inventory positions we started the year with. From a nonfinancial perspective, it's been really pleasing that we continue to make steady progress from a health and safety perspective. And now we have 5 consecutive years been serious injury free, which is something we really celebrate in the business. And our TRIFR rate, whilst higher than other parts of Fletcher Building, about half of the global industry average for a distribution business, it's something we continue to focus heavily on. And with the challenges of a really tight employment market and the disruptive supply chain mostly behind us, we've refocused our customer service offering. With our second half customer NPS tracking well ahead of the year-to-date 30-odd you'll see on the screen up there, we're now back well into the 40s and tracking back to what we'd expect to achieve as a business what our customers need from us. As we look forward and we look forward through the cycle, the key drivers for us and the key drivers of performance are really centered around our customers and optimizing our network, making sure we can leverage that network through delivering best-in-class customer support with introduction of new tools and renewed customer-centric focus spending less time scrambling with supply chain disruption. We're enhancing our sales capability to make sure we can capture a greater share of wallet and therefore, result in market share, particularly as the market tightens up. And we're continuing to focus and harnessing the opportunities that technology presents for our business to create an integrated digitized supply chain to deliver best-in-class service and fulfillment. We're also looking at the formats of our branches. We're looking at not only where they fit within that digitized supply chain, but also looking at size and shape, making sure that we've always got a physical network that meets within the reach and needs of our customers. Market-leading fulfillment and best-in-class customer support is where distribution businesses win, basically to nail customer needs. That enables us to take market share where we target in particular segments or in particular geographies. At the Investor Day last year, I announced the proposed acquisition of the timber business down the East Coast of the North Island. And it was pleasing post that, we were able to conclude that reasonably quickly and bring that into the division on the 1st of September. There's a big change to the timber teams is a family run business over many decades. And for us to buy it as a corp was a big change for that team. So our focus is very much on ensuring and maintain the key talent within that business and the key leadership within that business. We did that quite simply to enable us to preserve the culture and the very strong customer support that, that business provided in its market, particularly as our competition, we're actively looking to make sure they could take any advantage from disruption that we might cause. And of course, we also want to deliver on our commercial objectives that we've set out going into that adventure. [indiscernible], we're really satisfied with the progress that we've made and that we'll deliver on all those year 1 core objectives that we set out, which, therefore, has us really well-positioned, particularly in light of the devastating flood events that occurred at the start of this year. So we're really well-positioned for the growth and the rebuild activities that we'll see in the ensuring 12 to 24 months and beyond. As we look forward to the next 12 months, we'll see us further integrating that business. We'll look to make sure we can leverage the core distribution scale and skills that we have, but also keep a strong local flavor. We'll make sure we keep the branding in the market and make sure we keep that strong customer support for at least another 12 to 24 months. We have a strong distribution business with sound foundations. And so when we look forward over the ensuring period, we look at how do we drive improvements in our core rather than reinventing the wheel, ultimately to make sure that we can capture the market share in those targeted customer segments and geographies across the market. Those ones that are the most attractive to us. Across PlaceMakers and Tumu in the next 12 months seize investment in our front-end sales capability with technology that will enable us to service customers in new and different ways and to deliver a best-in-class service. We're also trying different branch formats. You'll see us doing some of this over the next 12 to 24 months, different layouts to better target customer needs, some changes in categories and which ones are most important to us. You'll also see us looking at trying some smaller footprints and some things we've seen offshore from highly efficient small formats adjusted for New Zealand conditions. We'll also be investing in our frame and trust business. A business that hasn't had a lot of investment in the past, but we invested in that, particularly here at Auckland as Hamish has already mentioned, to drive greater capacity and drive greater capability. And the Mico business and the Plumbing distribution business will complete the digital platform rollout that we've been working on. Leveraging a lot of the work that PlaceMakers is also done and working alongside our sister business in Australia Tradelink to have best-in-class digital tools. We're also looking at our network model [indiscernible] network model. We have the largest plumbing distribution footprint in New Zealand. How do we hone that model and use DC capabilities to make it even more efficient and effective. And we'll continue to work in the digital space. Data and analytics is a real opportunity for our business as is AI, and we're tempering around with some concepts now how we can use that deep data and potential AI to make us more efficient and also enable us to provide services to our customers that we don't today, all designed to maximize customer experience and to maximize our share of customer spend. As I mentioned earlier, we will be investing in Frame and Truss capability. We're going to repurpose the Winstone Wallboard site on Felix Street once Hamish is out there around the end of this year. We'll start repurposing that site to build a Frame and Truss plant. It will be a state-of-the-art plant incorporating the best of technology we've seen from around the world. The new plant will be safer for our people with a whole lot more automation. Frame and Truss manufacturing is a very manual process, a heavy lifting nail gun type process. So we're going to automate a lot of that and that will make it a lot safer. It'll also improve the product quality demonstrably from where we are today with a much tighter [indiscernible] tolerances from what we can achieve today. It's going to enable us to innovate with different products that we simply can't do today, so things like roof and floor components. And ultimately, it will give us significantly increased capacity from what we have now, all driven by the use of advanced robotics and technology, which also drives a significantly improved efficiencies over what we do today of what is largely a manual manufacturing process. That enables us to produce repeatable volume at scale at a lower cost from where we are now. So with this capability in place and that capacity in place, really enables us to push a whole lot harder on Frame and Truss market share in the market and how we go out and acquire that. Why do we want to do that? Because the resulting increased volume that comes from Frame and Truss across the greater share of what capture with our customers. So in summary, the distribution division will deliver a strong financial result this year and an improving margin and in turns on funds and what has been a fast-changing market. The performance will be achieved despite those rapidly changing market conditions through the strong operating disciplines that we've deployed throughout the business over the last 3 years. Irrespective of what the market conditions will be, we're focused on driving ongoing improvements and sustainable performance over the period. Primarily for driving our ongoing pricing disciplines, we'll continue to make sure that we offset input cost inflation. We'll continue investing in our customer efficiencies and our capability programs and we'll look for future with ongoing investment in technology and expanded capability. The ongoing focus on innovation for the benefit of our customers, we're confident in our ability to capture increasing market share where we target it. And we have the plans and initiatives in place to continue to drive EBIT margin expansion and therefore, strongly position the business for the future. With that, that's the end of the formal slide, so available to take any questions that you might have.

Look, there's a lot of talk about digital and data analytics and lots of thing. And I think Ross mentioned that the new ERP scheme would cross 20 different businesses. Could we just hear from you a little bit -- take it down a level to explain what exactly you are implementing. Does it go across PlaceMakers and the new Frame and Truss with Tumu. How far you are in this plan because we've all had experiences, which have been challenging with those sorts of implementations.

Yes, we had. So I think there are two parts to this. And Ross talked about ERP implementation will be going across the business and that will be going right across the distribution division. When I talk about digital opportunities and some of things that we're doing that further out for us, that's another 12 plus 18 months away. So we're not relying on that. What I'm talking about is basic things like we received around 150,000 phone calls a month, for example. And so the ability to use smart technology like Amazon Connect to enable you to understand when a customer calls having all the details pop up, knowing what the last order is, knowing where their product is? Of those 150,000 calls, around 70% of them are basic things like where's my order? Are you in stock, what's the price, when is it going to turn up? Ultimately, we're digitizing the whole process. So a builder or a plumber on site, jobbers who live on their phones can literally see all that digitally in their hand. That's why I talk about real efficiencies and taking us to a level that no one else is working on. With respect to things like AI and we receive about 25,000 to 28,000 plans into the business, which we do take off on estimates, et cetera. We do that today, we use the best technology available, but somebody is still sitting there, doing the measurements, taking it off and recording all that. Imagine doing that in a smarter way. To give you an example, to do a takeoff on duplex's a week's work. We think we can do that in like 20 to 30 minutes with AI. Those are the types of things we're tinkering with and working on. But things like SAP that Ross mentioned before, that's back buy and we need to make sure we've got the best available backbone for what's available for the next 25 years to build the business on and we have a really, really strong supply chain. We're not waiting for that. We'll get to that when we're ready and the business is ready for us. Right now, it's what are those simple things that we can do to drive a service level that we can achieve today.

So just a question on the Distribution business' performance on Slide 13. There's a chart that looks at the EBIT margin performance of the divisions. And I think they -- the chance looks at industry economic performance relative to peers. If you look at the section for distribution, New Zealand, it looks like it's fallen relative to where it was last presented or the forecast measure for 2H '22 last financial year. So can you give us an understanding of why that has come backwards. It looks like, at least from the chart, qualitatively, it's gone below the median line, whereas prior, it was above. And I think it's one of the only divisions that's gone down. So if you can give us an understanding of whether that's some unexpected underperformance within the distribution business, things could be better or -- is it your peers have moved further ahead of where Fletchers.

Yes. So I think the chart was the one that Ross presented earlier, the charts there and it actually shows growth on where we were. With respect to the second half of last year, I think you referred to. One of the challenges we have as we're coming out of that very busy period in the second half was we had extreme demand, less pricing pressure, et cetera. Also, we are second half, first half business, you'll notice our earnings at 50-50 and we have a swing to the large second half. So when you compare halves on full year averages, you don't get the same result. When we look at where we've come from across from, say, 2019, 2020, earning around the 7.3%, 7.4% up to 7.7%. When we look through those bumps, you see in the hands and see through the [indiscernible], we still see ongoing performance. So no not slipping back but when we compare it to the second half of last year, yes, it would be a reduction half-on-half versus the full year result primarily.

Just some questions on volumes that you're currently seeing. You talked about what you've previously kind of given numbers around the estimations for new builds and Frame and Truss orders. But just give us some color on how those are tracking, maybe versus second half last year -- end of last year and also how it's tracked over this year. And then secondly, just cost of the Frame & Truss automation. There's no cost metrics there. And I'm also assuming there's a 15% ROFE target within that.

Yes. I'll do the second one first because it's easy. That will be just a bit over $100 million investment when we take the land, the building and the equipment. The land investment is already on our balance sheet. We purchased that this year. And yes, it does meet the 15% threshold or hurdle that you'll hear Ross and Bevan constantly talk about investing through the cycle. With respect to volumes, for us, we started the year well and what we're seeing when we thought around that October, November time frame is really the turn of the market. And that 8-odd percent -- 78% that Bevan referred to earlier, Ross referred to is what we're seeing coming through in the second half and you'll see that, I think, run a little bit longer. What's really interesting for us is what's happening from an estimation perspective. That's where we see the lead time of the market. And we're actually seeing quite an interesting pickup in there. And you've heard a number of people -- a number of questions come out this morning around residential versus commercial. And for our business, residential, we are roughly 78% residential, but we break that residential down into various segments. And so -- and Ross referred to it earlier, when we look at the volume build into the market and you will heard it with a number of commentators talking about the reduction, potentially 30%, 40% reductions there. What we are seeing in the high-end [indiscernible] market is growth so we've seen a lot of growth coming through primarily because the availability of product and the availability of trades to actually complete some of that work. We're seeing growth in a lot of the social work, so a lot of work that Kainga Ora is driving and individual developers who are selling those units Kainga Ora, we're getting really strong growth through there. So it's a real mix but when I compare our estimate intakes and remember, this is work that we won't see for another probably 150 to 180 days when they pull the slab or erect the frames. We're seeing those intakes after having seen those decline pretty much every year last year, they turned in January and we're seeing double-digit growth. Some of that will be because of the H1 changes you heard about before because the H1 changes, you need to redesign some of those things. But even if you strip out the H1 changes, we're still seeing double-digit growth in quote intake. Some of that will be because more people are getting more quotes. It's a more competitive market. Even we strip out the likelihood of that, we're still seeing growth, which gives us quite a lot of hope and promise around what we see and where the curve will start to turn. Hopefully, it's a little bit of a guess, but hopefully come spring, the other side will see a decent spring build and hopefully some sunny weather as well to get with it. With respect to the other question you asked around Frame and Truss bookings. Frame and Truss bookings are pretty short. We're talking in the next 6 to 8 weeks. They don't really give us a strong indicator of the full market, pretty much that's the market we see today. All right. Any other questions? Nothing online. Things are flashing up here for me. So that brings us to the end of the first session. I appreciate you've been sitting down for a little while. So we're going to take a short break. There are refreshments at the back. And then we'll return, you'll hear from Steve, Phil and Dan about the other 3 divisions. Thank you. [Break]

Good morning. Fletcher Construction continues to be a leading construction, maintenance and specialist infrastructure provider. Our brand recognition is strong and is considered a strength with our clients and across our supply chain. We have an exceptionally strong order book of circa $3.2 billion in key growth markets being transport water, marine and airports, most of which is public sector funded. The barriers to entry remain high in these sectors, mainly due to the subject matter expertise of our people, and the investment required and specialist plant and equipment. So we are very confident that we will continue to thrive in these environments. Our order book is well organized and diversified with long-term maintenance contracts and multiyear program framework agreements. These specifically align to our core offerings of specialist self-performed construction, maintenance and major engineering projects and services. Our portfolio has been refocused into the critical infrastructure market where we can generate stronger and more reliable returns from our specialist outperformed services. We are well through our legacy projects as Ross has mentioned earlier, NZICC, circa 75% complete. We have a strong and stable management team with a target completion date of late 2024 and Puhoi to Warkworth and pleasingly, the road was open to traffic only on Monday morning. So we're very pleased about that. And some of you will have the experience this afternoon to ride on that. And our teams are currently working through elements of deferred works with completion due over the coming months. We are entering FY '24 well-committed at 82% sold on revenue and 72% sold on margin, this is well up from previous years. Our core infrastructure services business in Higgins and BrianPerry Civil are together delivering an EBIT margin of 4.5% with division at 2.6% with our secured major project works, this alone will lift divisional EBIT by 120 basis points in FY '25. Our current TRIFR, total recordable injury frequency rate is at 2.7%, which is an 11% reduction from previous years and we continue to lead our industry peers on TRIFR performance. Our forward order book sits at $3.2 billion, being a strong 1.8x model multiplier on revenue with gross margins forecasted average of 12% EBITDA. We have a preferred status of circa $2.5 billion revenue that once materialize in the coming period, we'll have Fletcher construction at first half FY '24 with an order book of circa $4 billion. You'll see from the slide that the dark green along the bottom is our secured order book in the lighter green when we convert our preferred projects with regards to Riverlink that we'll talk about East Coast Recovery Alliance, Eastern Busway, particularly TOP2 that I'll talk through and Taxiway Mike, that we just recently won with the airport comes through that will give us a multiplier that first half of '24 of about $3.3 billion. So we're sitting at 1.8x at the moment. So our order book is exceptionally strong. And it's not only strong, but mostly importantly, very well balanced the majority being at low to medium risk profiles such as cost plus, measure and value and alliance forms of contract. This is a significant change in risk tolerance from previous years. New Zealand has a very strong pipeline of infrastructure through our exposure to this work. We expect significant synergies and pull-through for our Fletcher Building Concrete division. And the next 3 slides are examples of both secured and preferred contracts across our order book that will take you through. The Water Care Enterprise model was a 10-year partnership of consultants and contractors working with Water Care to provide new and upgraded water and wastewater infrastructure. This includes transmission lines, network upgrades, pump stations, treatment plants across the Auckland region. The contract, which runs until 2029 is expected to bring $1.2 billion of revenue to Fletcher Construction and more revenue opportunity available through early contractor involvement and negotiated contracts be able to develop the detailed understanding of project scope and a considered approach to delivery and risk. The average construction package is circa $50 million with opportunity for continuous improvement across repetitive activities. The contract aims to reduce built carbon and water cares infrastructure, improve health and safety outcomes and reduce capital costs. Brian Perry Civil were largely self-performing the construction work. Next slide. In mid-July this year, Fletcher Construction will enter into a project alliance agreement with our nonowner JV partners who are Fulton Hogan and Downer. And we will partner together with our owner participants being Waka Kotahi and KiwiRail for the recovery work in the East Coast due to Cyclone Gabriel. The scope is to deliver capital and maintenance works from Opotiki to the East Cape to south of Hastings. The works entails improving levels of service across a number of state highways and structures, including State Highway 2, State Highway 5, State Highway 35 and State Highway 38. Rebuilding rail infrastructure between Hastings and Wairoa, major rebuilds at [ Waikato Gorge ], Devils Elbow, Esk Valley to [ Puerto ] Tolaga Bay, Opotiki to Gisborne, an amalgamation of the state highway [ NOx ], which were our maintenance contracts to augment an online recovery and management of assets. Construction and maintenance costs at these very early stages are estimated to be upwards of $850 million for Fletcher Construction, all of which will be negotiated packages of work in any risk allocation of -- sorry, risk will be [ capped ] at our margin allocation, which is our [indiscernible]. We have already made a start to the recovery work through our NOC contracts with Waka Kotahi so we are well positioned to deliver resilience into the network. Our major projects business has recently commissioned and opened 2 new expressway projects being Peka Peka to Otaki opening in time for Christmas Holiday traffic last year and Puhoi to Warkworth open to traffic on Monday morning. The business unit has 2 new foundation projects being Eastern Busway in Auckland, with a construction value of circa $800 million; and RiverLink in Wellington with a construction value of circa $600 million. Both of these projects are pure alliances and that the project budgets have been built through highly collaborative frameworks with our clients and key stakeholders and any risk is [ capped ] at our margin allocation. Eastern Busway is an alliance project in East Auckland between Pakuranga and Botany Town Centers, which will provide better connections and sustainable travel options for pedestrians, cyclists, motorists, bus and train customers. The collaborative contract is underway for the first 2 stages, circa $600 million, and the team are currently working through the design and pricing for the next 2 stages, which is top 2, circa $200 million. The alliance includes Auckland Transport, construction partners, Acciona, and design partners, AECOM and Jacobs. RiverLink is a collaborative alliance project in Hutt City that was won earlier in the year and as a partnership and shared risk model with AECOM, Waka Kotahi, Hutt City Council, Greater Wellington and local iwi. The project will provide a broad scope of crucial flood protection, resilience and river restoration work, improvements to public transport, walking and cycling routes, local roads and State Highway 2, Melling interchange and as well as urban revitalization of the Lower Hutt City Center. These projects are forecast to generate strong contributions to earnings beyond FY '24 and provide extensive pull-through for Higgins, Brian Perry Civil and Fletcher Building. Fletcher Construction is focused to deliver ongoing margin improvements over the medium term to generate EBIT returns at 5% or better. This is highly achievable duty firstly. Our legacy projects are materially completed, and our teams are now focused on our new, high-quality order book. Secondly, our major projects business unit has been rebalanced to lower forms of contracts generating substantive returns over the 4 years. And finally, the East Coast recovery alliance provides considerable scale for our Higgins and Brian Perry Civil business units. So in closing, Fletcher Construction has in front of it a very strong market of circa $172 billion and critical infrastructure spend over the next decade and $62 billion over the next few years, all of which is in our key sectors and core delivery offerings. So we're very well positioned to capture a significant piece of this activity. We have a strong and enviable order book of $2.2 billion and is expected to grow to circa $4 billion in the first half of '24 when our preferred status of projects converts from our pipeline into our order book. And finally, we're able to be very selective on the opportunities in the market due to the quality of our order book, enabling us to continue to drive performance and profitability of Fletcher Construction. I'm now happy to take questions. Thank you.

Phil, can you talk about capacity. So with that order book going to $4 billion, are you reaching capacity in terms of the annualized work that you can do? And second on that, what's the ability to drag in, let's say, more skilled labor from some of the other parts of construction, which may be reducing over the next 12 months?

Yes. Yes, good question. Yes, if you think about our sort of our revenue pull-through, it's really -- we're about $1.2 billion sort of year-on-year over the next year. So we're actually not changing our capacity that much. So that's one point. Yes, resources, as we all know, construction is challenged in that space as well. We're in the -- at the moment, we're running international campaigns up in the U.K., South Africa and the likes. We're also up in the Philippines, or we've just come back from the Philippines because it's not only all about professional services with regards to project managers, project directors, engineers and commercial resources, it's much about having machine operators and blue-collar workers in that as well. So we've managed to pull some really good workers out of the Philippines, mainly to support our Brian Perry and Higgins businesses. And we've got the ability to transition the skills that we've got. We've got some work to do at NZICC. Don't get me wrong. We're 75% complete with that. We want to finish early next year. But a lot of those schools are transferable, went to the horizontal market, right? So -- and we're looking at how do we place those resources into the order book that we've got. So we're in a really strong position that our order book is strong. We can be very, very selective in what we're chasing and why. Some of our business is already at 92% sold. So it's more around -- it's not around chasing revenue. It's around ensuring that we get good gross margins, and we're converting -- managing our overhead really tightly to achieve our EBIT performance. We've got a target of 5%. Some of our business is already operating over that. Some of them are trading at 5.7%. When we get the kick in our major projects in FY '25, that will give us another $14.5 million, that will be at 7.6%. So we've got some opportunities in a couple of businesses. But yes, with the trend -- the short answer with the transferable skills from our vertical business, we're out of the vertical game for all the right reasons, we can get better returns in the horizontal market that plays to our specialist expertise because we're a specialist business at the end of the day. We're a ground engineering, geotechnical, highly complex civil infrastructure, played with our [ roading ] business that it's all about laboratories and emulsions and polymers and sprayers and millers. So if we can continue to really focus on our specialist services, we'll get the returns that we need, and we're comfortable with what we're doing at the moment with regards to our international campaigns and the transferable skills of our people and basically keeping our revenue fairly static across the periods we should trade okay.

So if you don't have, let's say, a lot of extra capacity, is there any light at the end of tunnel for the industry as a whole? If you think about the broader Fletcher Group in terms of benefiting from broader infrastructure spend, is that actually going to turn up in activity? Or do you think it's really just capacity constrained despite all the increased requirements from government?

Well, we've seen a lot of pressure on projects at the moment because of all the inflationary pressures that are playing out. So now when we have a look at the order book -- all that pipeline that's in front of us and even if you look at the $62 billion over the next 3 years, we're already starting to see some of that getting squeezed and some of the getting moved out. So it's probably going to play to our advantage. And we're able to get good pull-through. The projects need to stack up on their own rights. And if we can with better together and we can support particularly our concrete business, I think that will be beneficial. But yes, we just need to be really careful and very considerate about what projects we're chasing and why do they play to our value proposition? Are we able to differentiate our services so we can attract the margins that we expect? And again, we're in a -- I think we're in a quite a strong position that we're able to decide what we want to chase and why we're chasing it and to ensure that the risk appetite is appropriately managed. About 90% of our order book is low to medium risk. Some of the stuff we are fixed pricing, I think it's about $30 million to $50 million. So pretty repetitive by nature, they get turned around quite quickly. And so we're relatively comfortable with that. And we've got very good controls through our governance process with what we call TRC, tender review committees, delegations, how we manage that, what our risk profile is and how that gets managed through Ross and the team and up through the Board as well. So we think we've got some really good controls and focus on risk and what we're prepared to take or not.

Darren Manning, Forsyth Barr. You've talked a lot about this lower risk profile to the business, and we all remember the experiences that had been hit here. What can you give us in terms of quantifiable measures to look at and understand how much lower risk debt profile is, what some of those processes that we can take comfort in [indiscernible] in terms of translating that through to actually understanding the numbers and what comes out of them?

Yes. Well, we've got -- we categorized all our projects from sort of 1 to 5. So when I talk about 90% of our order book, be it secured or preferred is low to medium risk that's characterized by commercial models and where we've ended up with regards to types of contracts and the likes. So it's very well characterized. And the stuff that is big and chunky, they're pure alliances. So we've only got our margin at risk in our corporate overhead. So we'll always be guaranteed our direct costs. We're not in the business to trade at direct costs only. We know that. But these are highly collaborative forms of contract that we sit down with the principles and our clients to build up the price from first principles, understand what the risk is, understand who's taking the risk and how it's going to get proportioned. And so we're quite comfortable that the days of doing these big PPPs with hard-dollar [ D&Cs ] are certainly gone from a Fletcher construction perspective. So yes, the work that we've just recently run at the airport [indiscernible] value. So here, we take productivity risk, but we don't take any quantity risk, right. So that's cost plus measure and value, alliance forms of contract. Those are the sort of standard forms of contract that we'll enter into moving forward.

Just circling back to your comments on the international campaigns that you're running. How joined up is the current thinking from government on migration? We're obviously seeing a pretty big spike at the moment. I was rather hoping you'd be telling us that those people are already here.

Listen, when I'm saying we're running international campaigns, we've been running these for a little bit now. We go into these very well considered with regards to the projects, what we're going to chase, how that's going to play out, what types of resources we need moving forward. So we've been very active, particularly in the U.K. and South African market. We've been working with government and lobbying government to try and ensure that these skill sets that we're seeing are very, very difficult to fulfill in the New Zealand market, get the [ urgency ] through the immigration process. So we're doing lobbying there. And we've been quite successful in bringing white collar workers over and even the last tranche of tradespeople and operators of very technical, complex machinery from the Philippines. We've already had 2 to 3 tranches of people through them. It's just about bringing them into the country, but also making sure that you're creating a good environment for them as well, and you're setting them up for success, particularly what does it look like to work for Fletcher, how do we look after you, how do we support you? So there's a lot of work that goes into that as well because ultimately, at the end of the day, we're a people business and our ability to be successful and drive the performance that we need is by having highly technical people that are looked after appropriately. I think I've been told to wrap it up.

Thank you, Ross. Thanks, Phil, and [ Marina ]. Good morning, everyone. Most of you know who I am, Steve Evans. I'm the Chief Executive of the Residential and Development division. This division contains 4 business units, including 3 of the brands you can see here. The biggest is Fletcher Living, which contains our residential development teams, our housebuilding business and our apartments business. The remaining business units at Clever Core, our off-site manufacturing business, which is now the only remaining at scale provider in Auckland; Vivid Living, our retirement business; and finally, the industrial development business. Since we caught up 12 months ago, we've continued to sell well across our developments in Christchurch and Auckland. We're selling about 90% of our homes in Auckland across 10 to 15 developments, whereas Christchurch has 3 sites, including the One Central project in the City Center, and less than 15% of our sales are in the KiwiBuild or state housing space. Our unique provision of selling completed homes in great communities, coupled with our strong reputation for a quality build, has reinforced the attractiveness of our offering. And our three-pronged approach to buying raw land, buying sections of other developers where we can control the master plan and having development partnerships with government and iwi provides us with a variety of levers to flex our business model, slowing or ramping up, not just homebuilding, but also development work as we manage our funds responsibly. As you can see on Slide 35, this is very important in a market such as this, as it allows us to deliver a strong ROFE through the cycle. And despite the drop since the records of last year, our EBIT and EBIT margins are both at better levels than those in FY '19. Bevan's also noted that we've sold some 650 homes in the last year, a little bit down on what we'd forecast. But when you look to our forward pipeline, we have over 5,000 sections, which means that we don't need to chase more land unless the fundamentals are right. And again, as Bevan has said, the value of the land currently on the balance sheet continues to sit about $350 million above its book value despite the change in the market over the last 12 months. From a customer viewpoint, our customer Net Promoter Score is world class at 72 and continues to show the satisfaction of our customers as they move into new Fletcher Living homes. And our marketing, which I know a lot of you have seen and/or heard, continues to resonate well with future customers. On the sustainability front, we continue to drive innovation that also benefits other parts of Fletcher Building. Last year, we introduced LowCO to you. We're now halfway through constructing these low-carbon homes. The terraces and stand-alone homes being constructed aimed to showcase what is required to deliver more sustainable housing into the future. And over the last year, our division has diverted about 40% of our waste away from landfill, and these moves show our pathway to meaningfully change the way in which the residential industry addresses sustainability not just in my business itself. Internally, our TRIFR sitting at 2.6 reflects a great positive trajectory in safety and is 30% better than last year and 60% better than FY '19. Our eNPS, our employee Net Promoter Score, sits at 40, a great result being top quartile worldwide and reflecting the strong culture we continue to have within the division. Whilst we've performed well in FY '23 or comparatively well into FY '23, we are expecting to have further cost increases in sales price compression as we go through FY '24. As a result, we'll continue to carefully manage funds through this period, but be build-ready for the turn in the market, which we see in FY '25. And as this graph shows, we continued to deliver the majority of our homes below the median house price, where we continue to see the greatest demand and where our focus will remain through the year. That being said, we've made some strategic land purchases at Stonefields and further development work at sites such as Three Kings and Red Beach continue to see higher-priced homes being delivered with commensurately higher margins. Turning to the medium term. Each of our BUs has significant potential for growth as the market returns. In particular, our development teams across the apartments, residential, Vivid and industrial BUs are continuing to seek the necessary plan changes, resource and building consents to be ready when the market returns. In residential, as noted on the previous page, we continue to develop great sites and develop new home typologies to keep our customer offering in the areas of strongest demand. In Vivid, our sales continue at Red Beach as we approach completion of this first site and occupation of that in the third quarter of this calendar year and further starts at [ Karaka ] and Waiata are imminent. Vivid continues to offer a previously unavailable offering to retirement age customers within our existing developments. In the apartment space, which has been hit hardest by the margin squeeze of the last year, we'll hold off starting development of any new blocks until the conditions improve and use this period to get a faster and better delivery outcome for when that market does return. In Clever Core, the business is now on a clear pathway to profitability, and the recent work that we've done on the new frame and truss plant at Penrose also shows a potential capacity uplift for off-site manufacture. The government's recent announcement on a continued support of off-site manufacture supports the proposition at Clever Core. And as you've heard from Bevan and Ross earlier [ regrowth ], industrial team, besides continuing with the consenting of our North Auckland land, continues to support the consenting and design components of our new growth facilities at Laminex Taupo, Diamond Hunua Road, [indiscernible] Great South Road and Comfortech Penrose for other parts of the wider Fletcher building. And for those that have been on the division's journey since we showcased Waiata Shores at previous investor days, including when it was the old golf course at Manukau over 5 years ago, the great news is we continue to morph this project with the new countdown supermarket and medical facilities now open. This has allowed our Vivid offering to grow in size and a range of new typologies, including smaller terraces, our collective or hipster complex and our unit over unit homes to be introduced as we further intensify this project. And we've still got another 3 years of homebuilding to complete at Waiata Shores. Such stories also exist on most of the sites, which we are developing from Silverdale to Drury, from [indiscernible] to Beachlands our master planned communities where our customers want to live continue to be a valuable and preferred offering in the market. So as I look forward the next few years, the future looks really good, and we'll continue to flex our business to suit the market conditions. Our view of the current market is it supports the circa 800 homes we are forecasting for next year. Interestingly enough, that is about a hold of the volumes we have in Auckland with an increase in Christchurch, where we've already got presales through the developments at One Central to support that uplift in number. But as this slide shows, we're ready to grow in all areas of the division when the market conditions allow us to do so. Our aim continues to be growth to over 1,500 units in the longer term. And our readily available consented land as well as our future land bank with an experienced and proven development team that can extract further value from it shows that we continue to be ready to deliver strong margins and returns when that occurs. In this second to last slide, you'll see progress on a number of our partnership projects. Partnerships are important to us and make land available, which would otherwise not be possible for us to secure. And government particularly values the partnerships we're continuing to build with a variety of iwi partners. These partnerships on private as well as local and central government land are a result of long-term relationships based on shared values of [indiscernible] and create outcomes, which we're all proud of now and into the future. Our development of the old university land at Albany with [indiscernible] and our latest [indiscernible] in Stonefields with Marutuahu,are our third projects with each iwi and there are more likely to come. To summarize, our current year performance has shown solid performance through the cycle. And as we move into the next year, our careful management of the levers we have available to us to manage capital results in continued strong metrics as we ride out the current market before seeing an uplift in FY '25. Our midterm performance is secured through current actions to progress projects through consenting pathways for the future, coupled with strong disciplines to do so cognizant of managing funds responsibly. Our teams are highly engaged and motivated to be ready for the inevitable return of the market, where margin expansion is projected on top of volume growth. And with our strong strategic land bank, this, together with our continued discipline on acquisitions and great partnerships, leads us to a very bright future. I'm now happy to take questions.

Just hopefully, a couple of easy ones. Can you just talk to sales rates. I noticed the website suggests things have improved over the last few months? And previously, you have had some presales running into each year. Can you just talk to kind of the current levels that you're at now? And if you look at the $650 million that you've had this year, suggests probably, what, $300 million or so sales in the second half above first half and presales. So that your guidance for $700 million, $800 million is a bit stronger. Can you just kind of square the circle there as well?

Let me start with where we're trading at the moment. So we're seeing now the market at about 20 to 25 homes sales per week. We've seen that for the last 3 months. It's fair to say that before that, particularly over January, February and the back end of last year, it wasn't like that. And one of the reflections I'll give is our business is that we're usually first in because we're selling completed homes versus first out when that market returns. In terms of where we see the pathway to the future, if you argue that 20 to 25 homes, that puts us to a level where $800 million is in good shape. We have close to $150 million of those either conditionally or unconditionally sold for delivery in FY '24, which is normal for this type of our business at this time of the year. There was one other I missed. I can't remember, sorry.

Maybe you can talk a little bit about the competition. We're hearing the banks pretty tight at the moment on large-scale resi developments. So do you see that as a growing advantage for you, maybe hitting into the end of second half of next year?

I think, Ross, every day continuously let me spend our company's money and you, as investors, particularly also. Look, hard to comment on the opposition because in our space, you've got developers and you've got group homebuilders, and we tend that we do across the board. What we are seeing is we're seeing group homebuilders that took positions over the last 6 or 12 months get quite worried about those positions and the developers that were reliant on those also being concerned. And so what I think is some of the developments that were forecast to go at pace will now slow down and that's the nature of the market that we're in. As Bruce talked about further, that's largely in the group homebuilder market. In the smaller space, we're continuing to see the development of urban Auckland continuing and that supports Bruce's model as he's talked about earlier.

What are the implications of, I would say, a slower recovery on the property market and so forth, your capability and how your business unit responds to a much longer, slower drawn out recovery from?

Look, we've been incredibly careful in the way in which we manage our funds. About 70% of our funds are tied up in land and the development of that land and about 30% of it in-house building itself. As the market continues to shift, we flex those levers. Over the last 12 months, you would have seen that we've held off a little bit of our development of raw land. We've actually got to a position where our stock levels are down because we've made deliberate decisions in those areas that are slower, not to build as many houses and then to build more in those that have demand. So we've got that ability to control those levers or pull those levers. As the market continues on, we'll continue to do so. Our -- if you look back at the forecast of a year, 2 years ago, we were forecasting greater amount of funds employed within the residential business. We pared that back as the market hasn't yet -- doesn't yet support that. We'll continue to use those levers to do so. But when the market comes back, we're ready to then go and deliver the volume growth and the margin growth into the future.

Steve, just a couple of quick ones for me. Could you give us just some basic thoughts on the complexion of those 750 sells that you're expecting next year versus this year. So particularly interested in some of those selling fronts where you've owned the land for a long time. Are we going to see any change there away or towards those and type of house? And then the $30 million to $40 million land development for this year, is that going to sort of broadly repeat next? Or will we be back to kind of more long-term levels?

I'll answer the second question first, which is more -- towards more long-term levels. What we see in terms of the demand is that it's occurring in new subdivisions as well as the old ones. So you look at Whenuapai, Red Beach and Waiata, for instance, they'll continue to deliver the circa 80 to 100 homes per year. But then you look at places such as Beachlands and Swanson down at [ Karaka ] and [ Manurewa ], they are all just building up their volumes. So the way I look at the business is a steady state of the longer land positions, a flex of those short positions and then supplementing that as the market comes on. So in the next 12 months, you'll start to see Okahukura, the site of Albany, come across. You'll continue to see great sales out at [ Homai ] and Browns Road. But equally, you'll see some new developments coming through at Karaka and then we start earthworks in sites, such Drury, as we go forward. So the business model is managing within a funds base, Stephen, but it's actually selling comparatively the same products as we always have. Apart from what we're trying to do is and doing is bringing more typologies into those markets, which are seeing revenue growth because we still want to be a price point, which is attractive to those markets. And I talked about Waiata Shores being a great example. If you look at the first couple of stages at Waiata, we were delivering freestanding homes, we then went into [ terrace ] homes, we're now into unit over unit development, all to keep the price of those homes about the same, but yet intensify so that we've got longer to run in terms of the profit delivery out of those type of projects. And that's symptomatic of what we do across the whole of that business. Look, from a land development, we have -- we will continue to do about the same as we have this year. What we've seen on some of the developments is a need to manage it again within the capital envelope. So one of the sites at Kaipatiki in Glenfield, we won't start earthworks for 12 months because actually we've got enough in the pipe to satisfy the demand for volume, and we'll delay that. But again, I come back to the original question after the presentation. It's about levers and how do you use those levers and flex those levers to continue to have the land available to build on for now and into the future. Sorry. In the industrial land space, what we'll see over the next year or 2 is a drop in the amount of EBIT generated from the industrial business as we go from what we said a couple of years ago, selling excess Fletcher Building sites into development of raw land for industrial purposes. So you'll see a drop from the $25 million that we've said in the long run for that short period before it then picks back up as we continue to consent that land for industrial purposes. We don't see ourselves as being a developer or a builder, I should say, of industrial land, rather a developer of land for industrial using the same skill sets as we have in the residential business. I'm cognizant that Ross is giving me the look as well. Look, thank you for that. I'm out of time. So thanks for your questions. I'll now hand over to Dean to go through the Australian business.

Thank you, Steve. Good morning, everyone. Let's talk about Fletcher Building Australia. So look, our Australian division as a combination, as you know, is manufacturing and distribution sites. Their annual turnover now approaching circa $3 billion in NZ currency with our brands being positioned first or second in their respective markets. That revenue-weighted sector exposure is broadly flat to what you saw last year at the same Investor Day, albeit we continue to focus on that repair and replace, R&R market, and that additions and alterations, A&A. Those areas being margin accretive to our average returns. This, combined with a stronger performance from our businesses, like Iplex and civil and infrastructure markets has seen us deliver a really pleasing performance in what is a softening market. So as per commitment last year, at this Investor Day, we will deliver a healthy profit increase this year. This takes our earnings margin into that targeted 5% to 7% range. This has been driven by essentially 4 things. One, a strong performance in the categories that matter. Two, our pricing and procurement strategies continue to add value, which, by the way, is lifting our gross margin this year by about 250 bps just to size that. Three, I think we're seeing robust operational discipline backed by strong governance. And four, we've materially lifted our customer metrics, both in satisfaction scores and delivery performance, which in turn helps us get price attract and retain customers and not just financials. We're performing well in both our safety and our sustainability strategies. We are accelerating our carbon reduction activities where we're well positioned to reduce our emissions by over 50% by that 2030 target. And again, we've lifted people engagement every year since we formed this division as we continue to go through that transformation and growth in this Australian division. So we do feel well positioned to create further value, having grown EBIT by essentially $100 million since 2019, set against a residential market, that's only grown somewhere between 2% to 3% based on that BIS Oxford data. So I think the question is what big rocks are we lifting to ensure we deliver more value in the medium term? Well, for us, winning the customer remains critical. We continue to invest in areas that are important to them and solve their problems for value. Our digital strategies are just doing that actually. We're making it easier every day for our customers to do business with us, like in Laminex, where over 35% now of our total revenue is now sustainably online. That's 40% of our customer base, transacting with us every month that reduces our cost to serve, lifts our margin, which is why Laminex this year will almost be a circa 10% EBIT margin business from 5% in 2019. And vitality, new product development, our sales from new products continue to lift gross margin, have been well received by our customers. In fact, we now see almost about 15% of our total annual revenue coming from new product sales. That's things like Laminex Surround, things like Tradelink and [ own brand ]. And speaking of Tradelink, despite decent progress in things like SME, digital and own brand, we are disappointed to see those benefits been eroded due to higher cost to serve in what is a constrained labor market and higher property rents. We are recovering those costs via price, and we're back on track in FY '24. We're really leaning in to Tradelink to recognize it is diluting our overall performance, and we need to get it right. So earlier, I just mentioned Laminex digital, and I just want to dig a little bit deeper with you on this. In quarter 3, we launched our mobile app version for our customers, which essentially moves us from a customer desktop experience to a smartphone, seamless experience. What does that mean? It's more information at hand for our customers, less need to contact sales reps or even the call center. It's quite a compelling offer for our busy customers in the constrained market. And this has been rapidly embraced, materially lifted our online Net Promoter Score. So we firmly believe we can get this division moving to the 7% to 8% margin corridor. What does that mean? Well, it means we've got to deliver another $100 million of profit. And that's going to come from some select strategies, some key programs of work. Like Laminex, we've got a very healthy pipeline of those product plays in that decorative category, which let's not forget, is the core driver of EBIT in that business. Haven Kitchens, we're seeing good revenue growth. It's actually 400% up. We now want to see this lift as we get more customers on board to potentially go to the next phase of that. Tradelink, like Laminex, now launched its mobile commerce platform. This will continue to help move revenue mix more to the SME plumber to its highest margin segment. Digital also reduces our cost to serve. This business gets about 150,000 calls per month, most of which can be self-served online as we digitally mature. And Stramit, for those you know Stramit, still a traditional roll-forming business at heart, and there are digital and automation strategies in manufacturing, we can further reduce its cost to serve. Let's not forget today, we process over 300,000 orders manually per year. We're automating that and that's going to deliver lower cost to serve and a much better customer experience. So we're generally excited about our performance in our sheds and our category area of Stramit. It's highly accretive play for us. We'll be expanding capacity into this area, which takes us on the next slide, the next case study. In the beginning, I talked about winning in the categories that matter for value. Stramit is now fighting fit and will deliver its highest profit performance in 15 years. We've a unique integrated offer in this business for sheds and doors, that means we're more than just a roll-former. And our Fair Dinkum Builds brand offers us much more pull-through. That's a clear growth opportunity and are investing to win in these higher-margin categories, like [ roll doors ]. Committed to expand our Taurean Door operations on the East Coast, this will make those vertically integrated demands where we've delivered over 50% growth in this category in 5 years through that Fair Dinkum Builds business. So I'd like to close with this. We have delivered $50 million of EBIT growth this year. We know there's more to do with momentum, and we're well set for profit resilience through the cycle as we hold on to those margins through the expected market decline in FY '24. 4 out of our 6 businesses in the division today are producing their highest returns in well over a decade, with more value still to come, especially as we recognize Plumbing division. Our customer-leading focus and strategies combined with winning in key categories that really [ ties ] up for more growth in the medium term. And our capital investments really lean into supporting our growth phase as we continue on that journey of value creation in Australia. So with that, let's move to questions, please.

Could you give us an update on what's happening in Western Australia with the pipes?

Yes. Sure. Thank you. Look, no material change to ROFE's market announcement in April. Firstly, I want to recognize the discomfort leaks caused to the homeowners. We're working with the builders in Western Australia to identify root cause, which still hasn't been found and no single source of failure. We're working well with external stakeholders, lock the regulator, and we're really lending to supporting those builders fix those leaks in the interim, which, as you know, was a $15 million commitments without any liability or issue around where we found any fault cities of Western Australia issue for us at the moment, and we continue to lean into that.

Has there been any news of the regulator in terms of what the approach may be for existing houses that have for that product?

No, we just continue to have a good dialogue with the regulator as we unpack a highly complex supply chain environment. Anymore for me? I was just about to sneak off. Sorry, Steve.

Dean, can you give us some clues on what you've seen in your residential exposures versus your nonresidential exposures over this half. I'm just interested in [ unpack ] perhaps some of the inventory changes that your customers are undoubtedly seeing and weather as well, I'm supposing.

Yes. I'm trying to avoid the weather. We did have bad weather as well in Australia, but I won't go there. Look, the market has changed, I think, consistent with Ross and Bevan's story earlier. The market in volume is down about 6%. You'll see if you read the [ AFR ], there's about 1,600 insolvencies in the construction industry in Australia right now. Touchwood, we're navigating that pretty well. But there is softening, particularly in what I think we call in New Zealand, those large group homebuilder movements, though the sales pipeline, not of our businesses, is still pretty encouraging. I mean trailings of 22% in its sales pipeline. Similar story in Iplex. So I think it's focusing where we can win for category by being mindful of that backdrop, Steve. But the latest BIS data also softened a little bit. And I think we're seeing that in H2, which is why we're really pleased about our price effectiveness despite a softening market where we've got good price discipline and that's supporting a good year-on-year profit growth for us.

Dean, just on the margin, it's a great outcome in a declining market. Just maybe you could unpack where the momentum is currently and near term where the actual opportunities are?

Yes. Yes. So look, the first thing, thank you. There's more to come as my boss would say, and we're still on that journey. We're into mid-quartile returns now. We want to get to top quartile margin is a big part of that. So in terms of what are we seeing in price, we still see price increases as Hamish said earlier, particularly in commodities. We still see value in that process. We expect to see some softening. And I think, for us in terms of margin, how do we think about margin in 3 areas. I think one for us is we've got a clear view on cost price inputs. We've got good governance of our pricing strategies and our pricing council, I talked around that last year. And the other one, I think as we mentioned earlier, I think we'll see some category movement, and it's where we play for value, and we're focusing on getting maximum price where we can get good customer metrics to get our prices to stick and we're seeing that. So that's good. We are seeing builders start to retender contracts. That's an opportunity for us. We talked about MPD and [ vitality ] earlier. A lot of builders now looking for parallel programs in specification. Own brand is particularly attractive to them versus some proprietary brands. As you know, through previous Investor Days, we've really built out our own brand in places like Laminex. We've got [indiscernible] strategy with Laminex and Formica. We have Tradelink. We have Oliveri. So we have brands that suit that changing market to those wants and needs. Did that answer your question? Anymore? All right. Listen, thank you for listening to me. I'll now hand you back to Ross Taylor. Thank you.

So to sum up, I'll go back to the slide that Bevan finished our introduction on. I'll make really a couple of points. We will deliver a solid 2023 financial year. We're well positioned to perform in the 2024 financial year and through the cycle. We're getting close to having the legacy construction projects in our rearview mirror. We're actively focused on further improvements to our overall operational performance and have a good set of metrics beyond just margins to demonstrate progress. We're well into $800 million of committed growth projects, which we're confident will be delivered well and set us up for significant extra earnings in the next 2 years -- 2 to 3 years. And there remain plenty of other growth opportunities, which we can take advantage of once we have a firmer sense of when the cycle is returning to growth. All in all, I think Fletcher Building is very nicely positioned for both the present market cycle and an exciting future beyond this. Thank you.