Wagners Holding Company Limited (WGN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Wagners Half Year Results Briefing Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Cameron Coleman, CEO of Wagners. Sir, please go ahead.

Good morning, ladies and gentlemen. Welcome to our half year results presentation. I'm joined today by our CFO, Fergus Hume; and the CEO of our Earth Friendly Concrete Business, Michael Kemp. To date, 2022 is on target, delivering growth on the first half of last year. Overall revenue of $172 million for the first half was slightly ahead of the second half FY '21 and is up 10% on the first half of last year. The business has delivered an operating EBIT result of $12.6 million if we exclude the investment made into our Earth Friendly Concrete technology, a significant improvement on the prior corresponding period. This result has been driven by strong demand for construction materials and project services across the business. Our composites business has grown in revenue, although it delivered lower margins with increased costs and delays associated with continued lockdowns due to COVID-19, and we have continued to invest heavily into the establishment of the U.S.A business. Progress of our Earth Friendly Concrete technology continues to advance in the U.K. and Europe. EFC is now regularly being sold through our partners in these countries. We've increased our investment in EFC and have separated it from our operating results. I'll now hand over to Fergus to take you through the financial results in a little more detail.

Thanks, Cam. Looking at the operating results for this half, which now excludes the EFC results. Revenues have increased by 11% to $172.2 million compared to the first half of last year and 3% compared to the last half. The revenue compared to the prior corresponding period increased in cement, concrete, steel, precast and CFT, partially offset by reduced activity in our contract crushing business. Revenue compared to the second half of last year increased in the same business units as mentioned above, but these were partially offset by significant reductions in precast and contract crushing. The operating EBIT improvement of over 8% or $1 million on the prior corresponding period, bringing the first half of this year results to $12.6 million, is due to the improved performance of cement and precast compared to the first half of last year. The operating EBIT has decreased by $1.9 million or 13% compared to the second half of last year. This is mainly due to the reduction in gross profit as a result of the lower contributions from some major projects in precast and contract crushing businesses. We continue to invest in our CFT U.S.A expansion with an increased spend in this half. As previously planned, we have increased our spend in EFC to fund the international expansion of these products. And turning to the segment results, you can see the summary of our 3 operating businesses, and we'll go through each of these in a bit more detail in the following slides. Firstly, Construction Materials and Services or CMS. So the CMS segment is the largest business within the company. There's been a sustained improvement on the first half of last year with a revenue increase of 10% and a 26% increase in EBIT. Compared to the second half of last year, we grew revenue across most sectors with lower revenue from contract crushing and precast with the precast impacted by the completion of our initial tunnel segment project, the Cross River Rail. A major contribution came from our cement business, which delivered stronger sales. Our reinforcement steel business which is a much smaller business, has shown a significant growth with a 70% increase in revenue and a 50% increase in earnings on the back of high construction demand in Southeast Queensland and the opening of our [ Brisbane steel business ]. All concrete batch plants had increased sales in the first half, although they continue to be challenged due to the competitive landscape in Southeast Queensland. The overall earnings contribution through our concrete operations continues to be an area of management's focus. If we look at our Composite Fibre Technologies business [ compared to these ] results this half. Compared to the first half of last year, the reduced sales of pedestrian infrastructure into the Middle East and New Zealand, which had higher margins, impacted our earnings, whilst the business development costs have continued. Compared to the second half of last year, the composite fibre business recorded a decline in revenue of just over 4%, but the EBIT margin was an improvement of over 9%, reflecting the manufacturing efficiencies from our equipment upgrade. The supply and install of marine infrastructure, pedestrian infrastructure and road bridges provided revenue growth of over 45%, contributing a positive impact on the EBIT. We have increased our research and development spend this half. Now we look at the graph on the right. This shows our scale of investment in the U.S.A. The manufacturing facility was constructed during the last half and will start manufacturing in the second half of this year. As shown above, we've increased our resources and costs in the U.S. to develop a sales pipeline, which is starting to show in the revenue line as set out in the graph. Our ongoing business development costs in New Zealand, Europe and the Middle East continued despite the lack of sales, with COVID again providing some barriers. Looking at our Earth Friendly Concrete low-carbon technology. As we continue to invest in the EFC technology and market development, it's difficult to gauge our performance from the financial results. We received a negative $1.9 million EBIT contribution as an investment in this business and expect to see this increase immediately over time. We've increased the number of employees, including the appointment of a CEO, with more to follow in the second half. The performance of EFC will be measured in terms to the commercialization of the technology around the world. Michael will provide an update of our EFC in more detail later in this presentation. Let's turn to the cash flow now. The major impact has been the working capital, and our working capital has increased mainly due to the increased inventory holdings due to our expected delays in shipping. If we look at our capital expenditure, we have increased our capital expenditure this half, that's a $14.5 million worth of capital expenditure that has been spread across the business, with $1.7 million spent on the CFT U.S.A. facility and equipment, a further $2.5 million on CFT Australia plant, $1 million on EFC equipment and $7 million on mobile equipment. The remainder of the CapEx is fixed plant upgrades across cement and quarries. This CapEx spend is mainly growth CapEx and not maintenance CapEx. I'll now hand back to Cameron and Michael take you through the segments and the outlook.

Thanks, Fergus. If we start with our composites business, there are a number of highlights through the first half. In Australia and New Zealand, we achieved 30% revenue growth. The revenue growth was driven by the increase in sales in the supply and installation of CFT marine infrastructure, pedestrian infrastructure and road bridges. The increasing demand for our product has also identified an opportunity for us to establish an in-house installation capability. This increase in capability has enabled us to secure projects during the period which previously we may have been precluded from tendering for, therefore, contributing towards the revenue growth. On the back of a large R&D effort, we are currently commissioning 2 new pultrusion machines in our Toowoomba Facility that are capable of manufacturing power poles, light poles and marine poles. These machines are designed to service a market that we do not currently generate any revenue from. Our new Crossarm automation cell is delivering higher margins. And during the period, our R&D team continued their efforts into establishing new products, markets and production efficiencies. While the business did experience revenue growth, unfortunately, this was not reflected in the resulting EBIT for the period. This was due to a decrease in crossarm volumes, project delays and costs increases associated with COVID-19 and completing those works -- sorry, and completing those works quoted in earlier periods where costs have increased. We were unable to pass these costs on to our clients. Moving to the international CFT business. We have now built our facility in Crescent, Texas. The installation of our first pultrusion machine is almost complete. And we have employed a full complement of staff, including some that have relocated from our Toowoomba Manufacturing Facility to Crescent and will be treating product in April this year. Our business development efforts have delivered significant sales growth through this period. We've been encouraged by the strong demand for our product and made the decision to double our existing manufacturing capability to ensure we are well positioned to service the customer base that's been identified. We only realized minimal revenue from the Middle East in the first half as business development efforts were hampered due to COVID-19 travel restrictions. We still do remain committed to this region with resources remaining dedicated to identifying future opportunities. So looking forward to the next half for CFT, we expect an improvement in both revenue and margins. COVID restrictions are easing throughout Australia and New Zealand. We have a strong forward order book of pedestrian and marine infrastructure projects, and we anticipate an increase in crossarm sales compared to the first half. On the secured pedestrian and marine infrastructure projects, we expect improved margins as the anticipated increase in revenue dilutes our overhead expenses, and increases in supply chain costs are being recovered in future projects. We expect to experience further improvement on margins in our crossarm business as a result of the efficiencies expected from [indiscernible] upgrade and automation at our Toowoomba facility. We will see the first sales for power poles this half, and as is anticipated, the demand from this market will increase as other customers understand the benefit of this new product offering. Light pole sales are gaining momentum. And as I mentioned earlier, the new pultrusion machines we are currently commissioning will ensure we have the production capability to service these emerging markets. In the U.S., we expect to experience an increase in revenue now that we have in-country manufacturing at our Texas facility. We're also doubling the production capacity with the commissioning of a second pultrusion machine to ensure we have sufficient capacity to service the growing demand for our product. Our business development team are delivering repeat orders and have a strong pipeline of opportunities identified. As I said, while there was little activity in the Middle East in the first half, we are confident there is still significant demand for our product in this region. We're currently in the design and tendering phase for a large boardwalk similar to the previous projects we've completed in Abu Dhabi. We'll continue to pursue opportunities in the U.K. with a dedicated business development resource for the region. We remain committed to investing in research and development with our composites business. The team is currently working on manufacturing efficiencies, along with a number of potential new product lines. I'll now hand over to Michael to discuss our low-carbon concrete technology.

Thanks, Cam. Before I talk to the first half achievements, you'll see a couple of photos on this slide of 2 recent applications of EFC. One is of the EFC bridge which has been installed in Northern New South Wales. This is the first concrete road bridge using no ordinary [indiscernible], saving approximately 15 tonnes of carbon from the project. The other photo was taken in Germany following a production-run concrete pipes made from the concrete that are made in precast [indiscernible]. Fantastic to see our technology in community infrastructure applications such as these. We have a lot of exciting things happening in the EFC. Throughout the period, we commenced construction of our U.K. manufacturing facility, enabling us to reduce costs, improve service and quality. One of our strategic partners, Capital Concrete, has continued to manufacture Earth Friendly Concrete for a number of customers from their Silvertown batch plant and are now EFC capabilities to their Wembley plant, not only demonstrating their commitment to the product but also the demand for our technology. In addition to our partnership with Capital Concrete, we have established a number of strategic partnerships throughout the period with concrete manufacturers, consumers and suppliers. The concrete manufacturers and consumers are critical to ensure there is demand for the technology and ability to service the markets. We've also established agreements with key suppliers of raw materials. Some of these agreements provide additional revenue to our business through royalty arrangements over time. We've recently conducted a number of successful trials with precast concrete manufacturers in Germany and a large concrete roof design and manufacturer in the U.K. Number of these customers are seeking exclusivity arrangements for the use of EFC in their product lines in the U.K., Germany and Austria demonstrating the appetite for this carbon-reducing technology. Work continues with JSW in India, where we are seeking Indian state's approval for the application of EFC. And now to the outlook. Global demand for carbon-reducing technologies continues to grow at an exponential rate. EFC technology provides a carbon saving of over 70% compared to traditional concrete. This will provide significant carbon reductions for large-scale commercial and infrastructure projects just through the use of EFC as an alternative to concrete. In the coming months, we will complete our production facility in London. This will enable us to service the existing market we've established and position us well to service the increasing demand we're experiencing in this region. We started this half year with a full complement of management, production, technical and sales staff in the U.K. We expect this investment will accelerate the rollout of EFC. We continue to pursue new partnerships throughout the U.K. and Europe, to allow us to increase their sales. Following completion of a number of successful trials in Germany, we're now in negotiations with a number of concrete precasters that tend to replace traditional concrete in their products to earth-friendly concrete. The investment we have made in conducting these field trials and building these relationships with customers will begin to generate revenue this calendar year. Locally, our EFC team are manufacturing in Brisbane and continue to service consumers in the Southeast Queensland market with value carbon reduction. We're also committed to obtaining approval for the use of our technology in India. In conjunction with our partner, JSW, we see this as an emerging market that offers great potential for the future use of our EFC technology once approvals are gained. We're in the process of considering external investment in our EFC business, which would allow us to accelerate our international expansion along with product and market development. We'll continue to work with a number of investors through the next half who have expressed interest to date in investing in EFC. Regardless of the outcome of any third-party investment, we will continue to invest in our EFC technology and remain committed to the international expansion of the business.

Thanks, Michael. And just moving to the Construction Materials and Services, where demand for construction materials has certainly been strong in Southeast Queensland. Revenue has increased in all areas of our Southeast Queensland businesses for the first half -- compared to the first half of 2021. Cement volumes were strong for the period, and we've seen significant growth from our fixed concrete plant network. While there has been a 32% increase in concrete revenue, the market conditions continue to impact the margins in the concrete business. On a positive note, we've seen some movement in our average selling price in the last few months, and we remain hopeful this trend will continue. There has been an extremely high demand for reinforcing steel, creating the opportunity to establish an additional retail outlet in Brisbane, that will support our Toowoomba Fabrication Facility. We successfully completed the production of the precast concrete tunnel segments for the Cross River Rail project. The precast business is now busy producing additional elements associated with the Cross River Rail passenger stations, along with a number of other contracts for infrastructure-related projects in and around Brisbane. Our quarry revenue from our contract crushing business has reduced over this period as a number of large projects were completed. We did, however, commence a number of new contract crushing projects in recent months. These will have a positive contribution to our second half performance. At Toowoomba, quarry experienced growth during the period, and we secured a development approval for a new quarry site just west of Brisbane. We successfully negotiated a new contract for bulk haulage services in the Northern Territory with [indiscernible] Mineral Mining, which should deliver $33 million in revenue over the next 3 years. This contract complements the existing long-term work that we've secured in Northwest Queensland. We currently have more than 60 truck and trailer combinations and almost 200 people servicing these projects. Moving on to the outlook for the Construction Materials and Services business, where we do not expect to see any decline in demand in Southeast Queensland market. We expect cement volumes to remain strong in the second half of the year. However, we are faced with supply chain cost increases and are passing these on to consumers where market conditions and contracts permit us to do so. Concrete volumes are expected to increase. While there are increasing cost pressures on our concrete supply chain, we expect the improving market conditions will reduce the overall impact of these increases. Next month, we commence construction on our next concrete batch plant south of Brisbane, adding capacity and volume to our expanding network of concrete plants. Our precast business has solid forward orders for this financial year. We are looking to service new markets following the successful completion of the large project in Brisbane, where we were able to significantly reduce our cost base through innovation and optimization of our existing assets. Our mobile concrete business has not provided any significant revenue for a number of years, however, we have recently been awarded the concrete supply for a small wind farm project west of Toowoomba. We mobilized our plant equipment to site during January, and this project will contribute to our second half performance. While the project is relatively small compared to others we've undertaken, it is positive to see activity in this area of the business. We are actively tendering on other concrete projects identified in our pipeline. In the project services area of our business, bulk haulage and contract crushing will continue to provide a significant contribution given the long-term nature of some of the contracts in these businesses. So in summary, we are pleased with the business performance for the first half and encouraged by the level of activity and forward order book that we're presented with as we're moving into the second half. We look forward to the investment we've made in our composites business, generating even more revenue, but more importantly, more profit than it has in the first half. With the facility now established and manufacturing to commence in April, the U.S.A. composites business will generate additional revenue this half. It is well positioned to become one of the more substantial businesses within the Wagners Group. This, coupled with the global demand for our Earth Friendly Concrete technology, provides an exciting platform to generate international growth and long-term value. We remain committed to the expansion of our construction materials business in Southeast Queensland through our vertically integrated model. We continue to establish our concrete plant network. We are developing new quarry locations, and we've expanded our reinforcing steel business to ensure we capitalize on every opportunity these markets present. There is a hint of activity in our bulk haulage contract crushing businesses, at present, and we look forward to the contribution they will make to the overall business this financial year. And that concludes our presentation. We're all happy to answer any questions you may have.

[Operator Instructions] Our first question comes from the line of Kurt Gelsomino with Morgans.

I just got a few questions here if that's okay. Maybe just kicking off with EFC. I was wondering if you could provide, maybe a question for Mike, or just a bit more color on just the level of interest you are seeing in any investment process at the moment? And just any other color you can maybe provide on in terms of timing for any potential investment?

Kurt, I'll jump in first, it's Cameron here. Our EFC business is gaining a lot of momentum at the moment, and that has created the opportunity or created the necessity for us to move Michael into that business as the CEO just to provide 100% focus on all the moving bits we've got happening in our Earth Friendly Concrete business. I'll hand over to Michael to sort of talk about where we're at -- where we're currently at. There's obviously -- some of the information regarding the third-party investment is quite sensitive and confidential, but Michael will share with you what he can at this point.

Thanks, Cameron. Yes, Kurt, obviously, I guess, my move into this role signals that we are very confident in the EFC products. We are through -- going through the process, we can't say a lot more than that at this time, but we're getting more and more demand every day for the product. We'll have our facility operational in London by April. So we're starting to manufacture over in London rather than buying in chemicals. So we'll be able to reduce our cost to manufacture, increase our ability to supply the volume to the market. So we're very upbeat about EFC going forward.

So Kurt, just in relation to the investment process, we are working with a number of parties and our advisers, obviously, to sort of progress that third-party investment. It's still on foot, and we're quite happy with how it's progressing. There's probably not a lot more we can share without sort of opening up too much confidential information there.

Yes, understood. I guess the question is that you've been progressing this now in the last 12 months. I guess, you're still as a -- quite as optimistic as you were, you're thinking securing investment as you were maybe 12 months ago?

Absolutely.

Terrific. And maybe just a final one on EFC for me too. Mike, well, I think obviously, Boral is talking quite a lot about their low-carbon concrete offering and particularly, I think, ENVISIA, which they're sort of positioning as a more premium product. Can you just maybe provide comments as to how EFC compares to ENVISIA, maybe on a carbon reduction basis?

Well, I think that the key thing for us has been to -- there are many different companies taking many aspects to decarbonizing construction. Our drive is to create concrete that doesn't consume cement. So it's really -- it's probably the biggest bet technically, but it's also the greater -- it's a method of reducing the carbon emissions the most. So we've got the lowest-emitting concrete in the world. That's proven at scale, in Earth Friendly Concrete, with over 70,000 cubic meters placed with 0 cement in any of those cubic meters that have been put in the ground. So it's a significant drop in carbon comparative to any concrete, let alone Boral, but certainly anything in the world that has been used at scale. And that's the real driver for us.

Yes. Understood. Then just on maybe CMS, Cam. And just in the interest of time, we'll just get to one pretty simple question. I guess, you called out, I guess, a number of pretty positive dynamics for that business in the second half. I guess you might have a lower contribution from Cross River Rail, and you've called out some cost pressures also in cement. How are you sort of seeing that EBIT contribution for that CMS segment in the second half relative to the $18.6 million you delivered in this first half?

Kurt, we're seeing the CMS business very strong for the second half. Volumes in all areas of our Southeast Queensland business are anticipated to rise and increase on the first half. And that coupled with the level of activity in our project services business. The additional wind farm project that will fall into this half that we didn't have last half. And I think the additional activity we've got at the precast business with secured orders now are certainly meeting our expectations. When you look at all those areas of our business, we're sort of quite excited about the remainder of the year.

Understood. So I think it's still reasonable to assume probably a stronger second half contribution from that CMS business on that basis?

Yes, we're all working very hard to make sure that happens, Kurt.

And our next question comes from the line of Peter Steyn with Macquarie.

Just curious on your inventory book, could you give us a bit of a sense of which areas you've specifically buffered your inventories?

Sure, Peter, we've taken steel, CFT, mainly glass and resin on the raw side, and we've also produced some finished stock, which we are holding in stock to make sure that we can deliver on the second half order book that we've got. And cement, we've made sure that we've got more than enough clinker to get us through. So it's across those areas.

To pick up on the cement piece. How are you guys going for supply? Obviously, your long-term contracts are probably going to give you a little bit more visibility. But there's been quite a lot of chatter about the complexity of clinker supply into Australia generally. Just curious on that. And attached to that question, if you could just give us a bit of a sense of your [indiscernible] cover, and what your costs look like on that score?

I'll talk to the clicker supply. So clinker supply, we've got no issues. We've got a -- we've extended our agreement with our current supplier for 2 years at very similar rates, or with up and down sort of clauses in it. In terms of the shipping costs, we are going to see a significant increase in our shipping costs in the second half, but we are starting to sort of combat that. They are starting to see price rises in the market for cement, not only by us but also by our competitors, especially in Southeast Queensland.

And then I may now ask what level of price increase you're broadly expecting, Fergus, both at the cement level as well as your concrete environment over the foreseeable future?

So I guess in the concrete space, we're probably looking at somewhere -- over a year, you'll be looking at somewhere between 10% and 20% increases in prices is what we're considering should go through. And on a cement point of view, it would be similar size numbers as well. I mean, there's a direct relationship there. So...

Yes. Sorry, I hear you say 10% to 12%, did you say?

10% to 20%.

10% to 20%, okay. That's quite a wide range. Is that at the [indiscernible] of that range? Is that the expectation that perhaps the market somehow gets quite tight towards the end of the period?

There's an expectation. I mean demand is growing as we speak. There continues to be a lot of activity in Southeast Queensland. Both residential, small-term infrastructure and some major infrastructure work. So we are expecting the demand to increase. In terms of the price rises or the price increase, that's why there's such a big range. It depends on when some of that demand really kicks in and when the work comes along. So yes, we are expecting there to be a tightening in supply. We've already started to see a tightening in supply within the market. So the short answer is yes.

And our next question comes from the line of Peter Wilson with Crédit Suisse.

I might just follow up that question on price. I'm not sure I ever recall seeing such strong pricing intention. I got the impression from your earlier comments that margins might still be under pressure. Just maybe talk about whether or not that's true, whether the price is enough to offset costs. So I think earlier you mentioned that there's been competitive pressure, it's somewhat stabilizing in concrete. And then in cement, obviously, you got those -- new book cost increases, and you're passing it on where you can. But again, [ it didn't actually suggest it ] that you're getting kind of price greater than cost or any kind of recovery in margin?

I'll jump in there first. As Fergus mentioned, we have renewed our clinker supply agreement on more favorable terms than we expected. We've also renewed our energy agreement, again, on favorable terms. Shipping, we have known for quite some time we're going to face an increase in shipping costs and have been working hard to pass that shipping cost through to the market. Now that's okay when you pass it through to other producers. But when you pass it through to your concrete business internally, it's imperative concrete price increases accordingly. And there's been a lot of work over the last 6 months with 2 price rises to combat these additional costs being affected, and there are further price rises in the concrete business, and we've got a very, very strict pricing policy regarding those price rises to ensure that those increased shipping costs are passed through to the market, the consumer.

Okay. That's helpful. To the projects. I mean so there's some pluses and minuses. Can you maybe just give us a high-level view of like second half, if you think about all the project activity in your CMS business? Is that going to be higher or lower than the first half?

Well, in the bulk haulage business, we'll see higher activity on the back of the new contract with [ Corbel ]. In the contract crushing business, we will see some growth on the period we have just finished on the back of contracted orders we have in place. And then coupled with that in the contracting business or the services business, we have that wind farm project also providing a contribution looking forward, which we didn't have in the prior period.

Okay. Good. And obviously, I've got a couple of more questions if I can...

[indiscernible]

Yes. Sorry, Cam.

You're on. Sorry.

Okay. I was going to move on to EFC. And so I guess really exciting progress there. Can you give us some sense of scale of these U.K. and Europe partners? So Capital Concrete is not a company that I'm aware of. Or perhaps another way to think about it is what kind of revenue could you generate from this U.K. manufacturing facility that you've established?

Yes. I'll jump in first, and then I'll sort of hand over to Michael to talk about the type of customers that he has managed to bring along the journey with us. For us, we're selling our [ activator and mixture technology ], not the concrete. And to talk to revenue numbers over the next 6 months, I think we'll be more focused on investing money into that business over the next 6 months to create additional concrete producers -- to assist concrete producers to be able to offer the technology to the consumer. So the second batch plant in London to be able to offer Earth Friendly Concrete is coming online by I think about a couple of weeks. Or was it actually next week?

I think it's a couple of weeks.

2 weeks away. And for them to do that, we need to provide the equipment at their batch plants, which we hire, to the producers to be able to do that. So the big job of work for us at the moment is manufacturing the equipment required in London to enable concrete producers to get this product to market. Definitely work to do to be cash flow positive, which is why we're seeking that external investment. So it's about growing that market, getting international approvals for the use of the material. But what we are seeing is demand and people specifying. We are selling it at a premium price to traditional concrete, and it is being taken up on the basis of extreme credentials. [indiscernible] we are selling the -- in London, we are making a chemical manufacturing plant that is selling the activator, so the liquid chemical to Capital Concrete, the concrete supplying company in London that has a number of batch plants around the M25 in London. And we're looking to grow the number of plants that we service, obviously, in that region.

Sorry. Peter, if you haven't heard of Capital Concrete. They are a subsidiary of both Brett's and Breedon's, which are both quite large concrete manufacturers across the whole of the U.K. That is their London arm of the business that they put into London as a Capital Concrete sort of -- as Cam said, they're all within the M25. That's what their focus is. But through that relationship, we've also got relationships with both of those companies that own them, and they are looking at different areas in the U.K. of operating or turning on some of their plants to EFC.

To talk directly to the revenue, though, I think a great result for us over the next 5 months would be in the order of millions of dollars of revenue, not tens of millions of dollars of revenue.

Yes, I understand. The growth investment. I think most people agree that it's a good time to be investing in growth and investing in this product. Should we brace for an increase in the investment and the net average loss? Or is the current level of spend enough?

It's our intention to maintain the current level of spend. We may need to increase it a little bit, but maybe a little bit more than where we're investing now is our strategy at this point. The current level of investment does allow us to achieve what we've got on our radar for the next 12 months.

Great. And one last one, if I may. Just in the CFT business, I'm surprised to see the crossarm sales fell. Is that -- should we extrapolate that? Or is there a one-off, a kind of contract ended or something like that?

Our forward order book sees increased crossarm sales in this period. There was only one region where they fell, and that was in the New South Wales sort of region was the reduction in sales. And we're sort of working through that. There is a number of reasons that we still feel that certainly, some of the COVID restrictions limited our clients' ability to get around and replace crossarms. But certainly, on our forward orders, we're seeing growth in crossarm sales this half.

And our next question comes from the line of Raju Ahmed with CCZ Equities.

And Michael, I should say congratulations on your new role. I'll start with you, Michael, if that's okay. Just following on from the EFC discussions. You showed an interesting picture around the EFC pipes in one of the precast yards in Germany. And I'm just trying to get a feel for how you think about the -- I suppose the strategic pricing of this product? I presume people aren't necessarily going to overpay for low emissions products in the future. In any infrastructure or construction work, they have an IRR to meet. So how do we think about that for EFC relative to other low-cost concrete where the focus is on minimizing pricing and then regular portland concrete?

I think there's probably a couple of ways to look at it. So concrete is used to make different products. So on the -- the first way to look at it is concrete out of a batch plant delivered to projects. We're seeing projects are specifying carbon limits or net-zero emissions on a project. So the people running projects are driven to use low-carbon technology. So we're seeing that on HS2, that London to Birmingham railway line in London, for example. With the pipes specifically that you called out, we're primarily focusing on wastewater pipes. With a normal concrete pipe with [indiscernible] attacking the, I guess, the cementitious parts of that pipe. And often nowadays, you'll find that they are lined with HDPE liners. [indiscernible] concrete pipes don't need the HDPE liner. So we can actually sell it at a premium and be the least expensive option for a project. That's what you're seeing in those pipes in the presentation. So we see a massive market in the wastewater environment. Finally, I'll point towards carbon currency becoming a large opportunity. And in all of our efforts so far, we've had that add something for the future, but it's something that we're looking to work on and develop. It's a real opportunity for us as we offset our base, I guess, the use of carbon in the construction environment.

Okay. That's very helpful. The other quick one on EFC, Michael. From a regulatory standpoint, is there anything outstanding in the U.K. or Continental European region that is sort of, how should I explain it, a roadblock to encouraging sales in the next 12, 18, 24 months?

Sure. So at the moment, on a project-by-project basis, an engineer can certify the use of the products. In Germany, as we've talked about at numerous occasions, we have a certificate that allows the general use of the product that's been assessed through the German Technical Authority. To get that same general use and applicability in the U.K. and the rest of Europe we need a European Technical Authority -- sorry, a European technical approved. That has been launched, and we expect that towards the end of the calendar year. By the third quarter is what we're expecting. That has been launched. It does go through a process, which we don't control. So we are waiting for people to, I guess, review and approve. But we are expecting that between September and December of this year. So that will give us a blanket approval for use of the product where concrete is specified.

Okay. Just moving into CFT, if I may. You clearly incurred a lot of costs in the CFT business in the first half. Can you just give us a sense of if you were to repeat that same revenue in the second half, what would be potentially the quantum of cost that won't be repeated?

Certainly, we've got the supply chain issue behind us, and all work that we've been performing for the last couple of months is not subject to any of that supply chain, particularly shipping, where we had contracted orders, we'll basically increase container shipping prices to [indiscernible] into the company, but we elected not to pass on to the customers or were unable to pass on to customers. We're a growing business. We've got a lot of government contracts in place that once we've ended each of those contracts, that shipping price goes up, we're unable to recoup those costs. They're all behind us now, and forward orders do have an allowance for us to recover additional shipping contracts, shipping price increases. So we've got those behind us. What we will still be subject to though is continued investment in research and development for new product lines. So without that, we wouldn't be faced with the increased revenue. We'll see this half from our power poles, light poles and marine poles, we wouldn't have those new product offerings and new revenue streams, if it wasn't for the spend that we committed to R&D. So we will continue to spend on research and development for new products and production efficiencies. And then our ramp-up costs associated with the U.S.A. business have been spent, and we do expect a much stronger contribution this half, probably 4x what we saw last half in revenue from the U.S. business. And we're quite encouraged by the level of orders we already have committed in that space. So it's not pipeline. We already do have a number of committed orders. I think the committed orders we have at this point will meet our expectations in revenue from the U.S.A. this financial year.

Okay. So just to dwell on it further, Cameron. So in terms of -- what I'm trying to get my head around is what is the underlying EBIT margin as opposed that CFT is tracking? And I think in some of our prior conversations, you mentioned you would be targeting somewhere between a 15% and 20% sort of cutoff EBIT margin, so to speak. Can we...

Nothing has changed. Nothing at all has changed from that. And if anything, we may even see a stronger return.

Okay. So that's where I was getting to -- sorry to drill on this too much, I suppose. But that's what I was getting to. I mean EBIT margins were hit in the first half. I fully understand given the circumstances. But are we looking at -- should we be considering a double-digit EBIT margin for the second half and beyond? How do we forecast? I mean it is very difficult from an analyst perspective, that's all.

No, I understand, understand, and we will see our margins return to double-digit margins.

Okay. Fantastic. That's very helpful. And the last one, if I may. So you've talked about your bullishness, led with some concerns around costs in the CMS segment. There are clearly some tailwinds in the EFC, and you're talking about return to earnings, good quality earnings in the CFT segment. So is it safe to say that the second half EBIT would be better than the first half? Or that's too early to tell?

There are some headwinds there, as you said, Raju, but there are also some good positives that are coming out of it as well in terms of we should see -- we will see growth in EFC. Our level of spend in EFC will probably be maintained. We will see -- we should see some improvements across concrete with some price rises coming through. I guess the one place where we're probably not confident of seeing an increase in the second half is due to the increased shipping costs associated with the cement business. We are confident that we'll be able to sort of maintain where we are, but perhaps not grow where we are. And precast, we will have the jobs -- we, obviously, finished the Cross River Rail job in this first half, albeit that was sort of completed by about September. We have got work in precast, and we are very busy in precast, but they're not running on the 24-hour, 7-day-a-week program that the Cross River Rail project was running on. So there will be a slight reduction in the margins through the precast business.

And we expect improvement in bulk haulage and mobile concrete projects, and we expect a stronger performance from our contract crushing business as well.

And our next question comes from the line of William Cunning with Carter Bar Securities.

We've gone through a lot of my questions. But I guess just a couple from me. Is there any reason to expect that the sort of corporate overhead in the second half would look dissimilar to the first half?

No. There's no real reason. I don't think we're -- we're not expecting any major changes in our overall level of overheads. The only cost would be that we are -- I guess one thing that we are hearing in the corporate overhead costs is some of the consulting costs associated with the EFC process that we're running. So -- but that should be consistent half-on-half.

Great. And then I guess you guys have provided a lot of color on the second half for the CMS business. That's been very helpful. I guess just looking at some of the commentary that was provided at the back end of last year by major projects, units and infrastructure in Queensland. Some of them flagged a little bit of slippage maybe in their expectations, the second half FY '22, which you guys probably aren't quite seeing. But then the commentary on the back end of CY '22 was quite positive and actually sort of signaled a fair bit of uplift. Could you maybe just give a little bit of color on what you're seeing maybe going into the back end of this calendar year into FY '23?

Just on the major project side of things, we're not sort of too excited about anything significant getting started. The commentary we've provided through this presentation is based on the business as we see it today. There are some significant projects to get underway in Queensland -- in Southeast Queensland. However, we don't see those starting in the immediate future. And I guess probably even more significant one of all of them is the inland rail project, and we think we could be sort of 2 years of generating revenue from a project such as that. Whereas New South Wales are currently enjoying big sort of revenue uptick on that project. So the commentary we've provided is around the business that we know is occurring and doesn't really consider any that major project work.

And our next question comes from the line of Brook Campbell with [indiscernible].

Just got a question on this 10% to 20% price increase range you flagged earlier on. And look just to understand that a little bit better. So what was the most recent price increase for concrete specifically? And what was the percentage increase that you announced? And when do you expect the next one to come through as well?

Just to give you a bit of color about concrete pricing in Southeast Queensland compared to the Southern states. You've been paying $50 to $60 a cubic meter more in Sydney and Melbourne for concrete than it would be here in Southeast Queensland. So to acquire a 10% to 20% increase is not out of the realms of what people are paying in other places. So to -- just to put a bit of color around that sort of concrete pricing. Southeast Queensland has been suffering from depressed concrete pricing for 2.5 years, I would say. And it's starting -- surely, it's starting to be -- the movements are starting to happen.

Yes. Understood. Are you able to be sort of specific, like the most recent one you put through and the magnitude of the increase and the next one that you're planning to put through?

I can give some color around that. Between September and December, we had a 7.5% increase. And our next increase is a similar order of magnitude. I think it's around 10%. And then as these increased cement costs on the back of increased shipping flow through around March, we'll be forced to go, again, with a further price increase to offset those increased supply chain challenges.

Okay. That's great. Really appreciate the detail. Just the last one from me. You mentioned earlier on in your prepared remarks about investing in your quarry assets. I might have missed the detail there, but could you just provide more color around this? Are you looking to develop new quarry locations and essentially adding capacity? Or is this more looking to acquire established producing quarries?

It's great. Well, there's 2 significant activities in our quarries business in our fixed plants in Southeast Queensland. One is we're installing a new crushing plant at our Wellcamp Quarry here in Toowoomba, which will significantly increase -- decrease our production costs. We currently use mobile [ track-mounted ] equipment in that quarry, and we're about halfway through the installation of a large fixed crushing plant that will generate significant savings to our production costs. That's one significant part of the quarry business upgrade, if you like. And then the second is we have just obtained our development approval for a new quarry west of Brisbane. And we haven't made a decision as to when we're going to start to operate that quarry or not, but it is good to have the development approval process behind us now. And as market conditions and demand increase, we will consider the right time to open that quarry and begin servicing the market and ourselves. It's in a position that will service a lot of our concrete batch plants into the future.

That's great. What will that development approval allow you to produce per year on a -- tonnes out of that quarry? Is that the way it's measured. [indiscernible] improve, obviously, as you've pointed out.

Yes. It's a lot of development approvals limiting to 100,000 tonnes per year. Our approval on that site is in excess of 100,000 tonnes per year. So it's the larger category as far as the extraction approvals go.

And I'm showing no further questions at this time. And I would like to turn the conference back over to CEO, Cameron Coleman, for any further remarks.

Not a lot of further remarks. Just a passing comment that we are very happy with where the business is. We're excited about the opportunities ahead of us. We thank you all for your attendance and interest today. And we'll close the meeting. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.