And finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to welcome Bruce Nicholson, CEO, to begin the conference. Bruce, over to you.
Thank you. Good day, everybody, and thank you for joining us today. My name's Bruce Nicholson, as you just heard, and I'm the Managing Director and CEO of Fleetwood. I'm joined today by Andrew Wackett, our outgoing CFO and company secretary, and our incoming CFO, Cate Chandler. Together, we'll take you through our results for the first half of FY24. I'll start by providing some introductory comments, Andrew will go through in some detail our financial results, then I'll talk about our various businesses and the outlook.
If we move to slide 2, at Fleetwood we continue to focus on our three core businesses: our building solutions business, where we're in the midst of a turnaround and the early stages of transformation as we see the opportunity for long-term growth, community solutions, where we see significant opportunities to optimize Searipple in the near term and extend the business by pursuing development of new community facilities and key worker accommodation, and our RV solutions business, which continues to service the ongoing demand in recreational vehicles, caravans, camper trailers, and the motorhome sector.
If we move to slide 3, you'll note in the slide pack that Fleetwood recently celebrated our 60th anniversary, and we continued to bring to life our refreshed vision to be the leader in reimagining sustainable spaces, which is underpinned by 5 core values: zero harm, both to our people and the environment, collaboration, integrity, accountability, and innovation. Our values guide the way we operate on a day-to-day basis and have been integral to create a positive environment at our business, and I'm confident this will have a positive impact on our transformations as we successfully move forward. Moving to slide 4, Fleetwood has delivered an EBIT of AUD 6.3 million compared to a break-even result in the first half of FY23.
Driven by improved results in the building and community solutions business, the company has declared a fully franked interim dividend of AUD 2.5 cents per share and maintained a strong net cash position of AUD 34.1 million. Building solutions returned to profitability during the half as we progressed our build, transform, and growth strategy. The business has continued to target projects aligned with its current capability, and this focus saw gross margins continue to improve and, in fact, near our target levels. The order book grew from AUD 87 million in December 2022 to AUD 100 million in December 2023. Community solutions results improved, reflecting planned shutdowns and increased activity in the Karratha market. During the half, our efforts have been focused on contracting the next tranche of rooms and preparing Searipple for upcoming higher demand, further demand over the medium period.
Contracted demand includes the 2023 announcement of additional rooms booked by Rio Tinto under its accommodation agreement, which is expected to generate a further AUD 100 million-AUD 120 million in revenue until the end of the contract term in April 2027. RV Solutions was impacted by reduced consumer spending and increased pressure on margins during the half, with higher input costs and inconsistent demand experience month to month. Fleetwood finished the half year in a solid financial position with net cash of AUD 34.1 million as advanced contract payments were utilized during the period. Reflecting the balance sheet position and earnings momentum, the company has declared a fully franked interim dividend of AUD 0.025 per share. We continue to deliver our build, transform, and growth strategy in the business with the aim of focus on quality of revenue through diversification, generating sustainable margins, increasing utilization, and managing our overheads to improve earnings.
This is underpinned by a refreshed leadership team across the business to successfully deliver on our strategy for our shareholders. Moving to slide 5, I'll now pass over to Andrew to focus on some more financial details.
Thanks, Bruce, and good morning, everyone. Improved results in building and community solutions are partially offset by lower earnings from RV solutions. Overheads were lower than last year. While building solutions revenue was essentially flat year-on-year, lower major project revenues were replaced with our targeted project types. As expected, revenue grew strongly from the AUD 128 million recorded in the second half of FY23 as the business was reset. Also on a positive note, building solutions gross margins are nearing target levels, and the business is slightly ahead of its short-term EBIT margin goals. Community solutions had a solid half year with EBITDA up 83%, driven by major client shutdowns at Searipple Village, particularly in the Q1 of the year. This business is well placed with long-term baseload demand now contracted. RV solutions saw reduced consumer discretionary demand and difficult trading conditions.
Demand levels were inconsistent month to month. I'm on slide 6 now. The company maintains a solid net cash position of AUD 34.1 million. A high level of school year-end classroom moves, combined with the amortization of construction advance payments, which are traditionally received in the June quarter each year, resulted in Building Solutions using working capital in the first half of the year. This is in line with traditional seasonal patterns and is expected to mostly reverse by year-end. Capital expenditure was largely due to preparation works at the Searipple Village in Karratha in anticipation of an upswing in demand over the medium term. Project bonding fell over the period from AUD 22.5 million last year to AUD 18.4 million this year, reflecting reduced exposure to major projects. The group retains total debt and bonding facilities of AUD 81 million. Over to slide 7 now.
The balance sheet remains strong with net cash of AUD 34.1 million. As I said previously, working capital expanded from June, principally due to the reduction in advance payments on contracts, and the company continues to carry no balance sheet debt and retains over AUD 60 million in undrawn credit facilities. At the end of the period, AUD 18.4 million of the facilities were drawn for performance bonds and guarantees. Project bonding outstanding fell from AUD 22.5 million-AUD 18.4 million in December, reflecting reduced exposure to major projects. As Bruce said, the balance sheet position. Improved earnings momentum means the company has resumed interim dividend payments with a fully franked interim dividend of AUD 0.025 per share.
Our policy remains to pay out 100% of net profit after tax, and we have AUD 0.20 per share in franking credits currently available to support up to AUD 0.47 per share in fully franked dividends. So in summary, we continue to manage our finances prudently, and we are maintaining the strength and flexibility to invest in the development of the business. Back to you, Bruce.
Thanks, Andrew. We're on slide eight now. I'll now walk through the different business units and the outlook for each. Building Solutions returned to profitability during the half as progress was made with our build, transform, and growth strategy. There were no major cost closeout costs in the half compared to the major project cost closeouts of AUD 0.9 million in the first half of FY23. Revenue for the half was broadened as major project revenues were replaced by more traditional modular works. The Queensland business continued its excellent performance, where population growth is creating education and social housing demand. Activity levels in Victoria and New South Wales also improved in the half as renewed management teams drove our performance. Western Australia has also made significant gains in lifestyle housing and in the mining sector, and this continues to be a buoyant market for Fleetwood.
Gross margins improved as the focus on repeatable modular projects across the business, combined with procurement savings, delivered a step-change improvement in the half year. Overheads increased over the half, with labor shortages continuing to impact as competition for staff in the broader construction industry remains intense. This was reflected in wage pressure, particularly for white-collar staff. And while our staff numbers were flat, we did see an increase in costs. Materials shortages continued to ease during the period, and as I've mentioned, procurement savings began to deliver meaningful benefits in the first half. Overall, the business was slightly ahead of its short-term EBIT margin targets, as Andrew said, and the new leadership team now in place, we are confident we have the right team to deliver our build, transform, and growth strategy. Moving to slide 9. The reset of Building Solutions commenced in December 2021.
As I've previously spoken about, but as a reminder, this involves us qualifying work coming to our pipeline against key measures, including buildability for modular and our capability, the right margin, a deeper understanding of risks and opportunities, and the right customer department. While the opportunity pipeline has qualified workers reached its highest level in several years, driven principally by the compulsory kindergarten programs across the eastern states, as well as the recognition that modular can play a key part in solving both the shortage of key worker accommodation and social housing needs, particularly in regional areas, we're seeing decision-making from state governments continuing to be delayed as they work through their own internal processes. Manufacturing KPIs are now embedded across our eight factories and manufacturing hubs, and we've seen improved utilization of productivity across our business, which is feeding into better sales and operational planning.
Moving now to slide 10. Our build, transform, and growth strategy is now in its second year and provides the roadmap for medium to long-term improvement in the quality and consistency of our earnings. During the half, the refreshed building solutions leadership team settled into their roles. While staff turnover reduced, our safety performance had improved, and we made good progress on several of our system and process upgrades. The transform phase of our strategy, which the business is now focusing on, includes revenue diversification and moving from a builder under a shed to a repeatable manufacturer. During the half, we appointed a head of transformation to accelerate our shift to One Fleetwood, which leverages our national capability. We've embedded operational KPIs, including utilization and productivity across the business, and then using this to drive factory optimization to improve EBIT margins by defraying fixed costs.
Over the medium term, this is expected to deliver a stable and growing business able to effectively leverage the advantages of a national manufacturing footprint and the growing adoption of modular as a solution to the nation's housing crisis. Fleetwood launched its proprietary housing designs for the social and key worker accommodation in late financial year 2023, and we've seen significant interest in the product. We've recently completed our first project with this product for the Queensland Health Department. While the process is slow going with various state government departments, we anticipate that this segment will provide a long-term source of demand as the adoption of modular gains momentum. As we've said previously, Queensland, New South Wales, Victoria, and now South Australia have announced the move to make kindergartens compulsory, extending our education sector offering.
Although gain progress has been slow, we've seen a significant uptick in the opportunity pipeline, and we expect this to be another source of ongoing demand. Fleetwood's defense strategy has been defined and is underway with early wins in New South Wales. We've started to see a greater adoption of modular by the private school sector in most states as they recognize the ability to install high-quality permanent modular in existing school sites cost-effectively, quickly, and with a minimum of disruption to their sites. As we've said previously, the refocus has set the order bank from AUD 87 million in 2022 to AUD 100 million in December 2023. As we've noted previously, in addition to the order bank, building solutions generates approximately 50% of its annual revenue from long-term contracts or panel agreements with either the education sector or the housing sector.
This gives Fleetwood the ability to plan and manage utilization in many of its states and provides a solid foundation for our business. Customers include state education departments, lifestyle village developers, and now state housing authorities. While material shortages have eased, costs have also reduced with the procurement savings program starting to take effect in the first half. Despite the decline in general construction activity, labor continues to be constrained. Building Solutions anticipates a solid earnings in the second half of FY24, but constrained by the slow decision-making I've talked about with our key clients. In slide 11, the Community Solutions result reflects the benefit of the planned FY23 client maintenance shutdowns that extended into the early part of FY24, as well as increased activity in the Karratha market.
Effort during the half was focused on securing the next tranche of contracted accommodation and preparing Searipple Village for the increased levels of demand, both contracted over the medium term and expected in the near term. The five-year agreement with Rio Tinto executed in July 2022 and then expanded in June 2023 continued to underpin base utilisation and profitability during the half. Demand under this agreement will ramp up from April 2024. It has also created a strong negotiation position for our ongoing discussions with additional clients to support planned shutdowns of major projects over the coming periods. While opportunities remain for securing long-term demand in Searipple Village, we are observing delays in clients committing to rooms as the project start dates push back, and the projects are ramping up more slowly than was initially anticipated.
Osprey Village remains fully occupied on the waitlist for potential tenants, reflecting the strength of the Port Hedland market. Moving over to slide 12 now. The outlook for community solutions is buoyant, with a strong prospect that Western Australia's northwest will see significant future development of new projects in the oil and gas sector, fertilizer, and green energy sectors. Securing existing demand from current customers places Fleetwood in a strong position for the medium term. A growing number of energy transition projects are currently under consideration in the northwest. The requirement for communities to house and facilitate these projects is a significant medium-term opportunity for our community solutions business. The most significant new project is the AUD 6 billion per annum urea plant, which achieved financial close in April 2023, and will see the creation of approximately 2,000 construction jobs and 200 permanent roles in the Karratha region in time.
In the near term, Fleetwood is observing the need for investment in major repairs and upgrades in the region to existing aging infrastructure. The requirement to house and facilitate staff for these projects is a significant medium-term opportunity for our Community Solutions business. Commercialisation of the keyless lock and energy management system using the Fleetwood developed Glyde technology is underway. Fleetwood's development of the technology and its ability to deliver through our Building Solutions business positions the company as a digital market leader. In addition, Community Solutions is well placed to pursue build-own-operate-transfer, or build-to-rent opportunities in several sectors, leveraging the ability to source new villages at a competitive cost supported by our Building Solutions business and Fleetwood's balance sheet. Moving to slide 13. RV Solutions observed a reduction in consumer discretionary spend with inconsistent demand resulting in lower revenue and EBIT in the first half.
The original equipment manufacturers, or OEMs, experienced a significant slowdown in the Q2 as historic orders were filled, dealer inventory increased, and demand slowed. The aftermarket segment softened, continuing the trend. Sorry. The aftermarket segment softened, continuing the trend which began the Q4 of FY23. Demand weakness, a change in revenue mix between our OEM and our aftermarket, and higher input costs led to gross margin softening as increased raw materials, foreign exchange, and other input costs were unable to be fully passed on to customers. Wage inflation and significant increase in property costs or operating costs increased by 9% compared to the first half of FY23, which translated into lower EBIT margins. Moving now to slide 14. The medium-term outlook for RV solutions remains mixed. Poor order books from manufacturers are reduced, and there remains little evidence of sustained restocking by aftermarket customers.
The business remains in a strong position through our exposure to locally built RV market via the parts and accessory business Camec and to overseas inputs through our services business Northern RV. We believe that the booming caravan sales during COVID will continue to deliver demand for our aftermarket service and our renovation offering. Continued management of price and input costs is a key priority. New product development is beginning to gain traction. The new Infinita premium doo r has been launched in the market. With aluminum wall frames and new sandwich panel walls, roof, and floor products have received orders from multiple customers now. New imported products and range upgrades have started to come to market with the first half including a new washer, microwave, and window offering.
The increase in second-hand van sales provides opportunities for combining our products and the promotion of our renovations offerings through our service business NRV. Cost and margin pressure is expected to continue in the second half of FY24. While we've reached out our overseas head in the business, plans are in place to repeat these impacts through further targeted price adjustments and accelerating our new products over the balance of the year. Moving now to slide 15. Based on the solid Building Solutions order book and the forward bookings at Searipple Village, Fleetwood anticipates stable earnings in the second half of financial 2024. Building Solutions are stabilized, and the outlook remains positive, while forward bookings for Searipple Village will underpin its performance in the second half.
I'm pleased with the progress we have made on our strategy, and all three businesses have clear plans to improve revenue quality, capture future opportunities, increase utilization, manage costs, and in doing so, improve margins. As we've said, our balance sheet remains solid and will be prudent in the way we leverage this strength to support growth. I would like to thank all of our shareholders for understanding as we continue to work through our turnaround in Building Solutions and implement our build, transform, and growth strategy. We'd now be happy to take any questions.
If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. Your first question comes to line of Tony Mitchell of Shaw & Partners. Your line is open.
Hello.
Hey, Tony.
Bruce?
Yeah.
Hey, Tony.
Congratulations. Very, very good result. Excellent. Excellent. You deserve a big pat on the back. I want to just say.
Clean up it, Tony. Just clean up it.
Well, I want to give a big pat on the back to Andrew, who's done a wonderful job over many years, and we wish him only the best for the future. Bruce, I'd just like to ask you a few questions here. Given the difficulty in recreational vehicles, does it make sense to either sell the RV Solutions and use it for your either Building Solutions or Searipple, where the returns are obviously better?
Look, we're consistently reviewing our portfolio, Tony. I think it's a little bit unreasonable to expect a decision of that nature with one bad half, okay? So it has been a very solid business in the last three years. We have put a lot of effort in the last six months into renewing the ERP system, upgrading things, bringing new products, and product development. I think that business deserves the right to be treated as a good part of the Fleetwood business. As I've said previously, it's not necessarily poor business. I would also say now is probably not the right time to be selling that business in a market that's in decline, Tony, if we want to actually get full value for our shareholders. So I think my view is it's right for us to continue to own that asset right now as part of our portfolio.
I think the outlook, whilst I might be a little bit bearish in terms of our concern really stems from the fact there's just uncertainty. We'll have one really good month, and then we'll have two poor months in that business. And we have done a lot of work to try and reset the cost in that business and introduce new products. So I think that will be the wrong decision for the company in the near term. Of course, if somebody's willing to look at that business and pay us full and fair value, then we'd obviously have a look at that. That's part of our job every day. But right now, I don't think that's the right decision.
Okay. Now, I just want to be clear. When you said that the Rio contribution to Searipple's going to be ramped up from April, did you say that under the terms of the take-or-pay contract, that out to 2027, it's going to generate AUD 120 million in revenue, which would imply AUD 40 million a year? Is that right?
It's a bit hard to give you the number. That's why we've given you sort of AUD 100 million-AUD 120 million in the investment. And that's because of the fact that and because of the ramp up and ramp down of projects. The contract is out to 2027. I don't think it's reasonable to actually just divide that by three and say it's going to be AUD 40 million a year. We've got contracted and confirmed bookings right now through to sort of December. So we have a very clear lifecycle of how much they're going to consume. And then we probably reset in the second half of the year, Tony, and understand what the next six months is going to look like for them. But that is the base numbers that they're going to lock in.
What I was saying in the report is that we ramp up, so they will actually double their volume in April, and then it slowly ramps up so the camp will be more than half full this side of Christmas just under the Rio Tinto contract alone.
Okay. But is it fair to say, okay, that over the life of the contract, is it fair to say you're looking at, call it, AUD 5 million EBIT for the first half out of Searipple? So I suppose the question is, what percentage does Rio represent of that now? And then over time, that number should be increased quite substantially irrespective of other contracts you win.
There's a number of questions there, Tony. I'm not sure how to ask them. Maybe we want to have this conversation when we're doing the roadshow next week to give you a bit more detail.
But I suppose, Bruce, what I'm saying is the contribution of Searipple to the overall result should increase significantly with this revamped Rio contract.
Yes. Over the three years, it will.
Yeah. Right. Okay. So you've mentioned that there've been delays with other players in the marketplace. I suppose the question is, do you see any resolution of the Perdaman situation in the foreseeable future as to who they're going to appoint and when? And secondly, can you give us an idea of are you allowed to give us any idea of any potential new customers for you? And if so, what would be the size of their contracts?
Now, Tony, I would like to have some insight into what's happened, sorry, further insight into it. I've actually was with Clough And then, of course, you've got the potential need for others such as Woodside and Yara for both their shutdown and major maintenance projects up there. So we're talking to all parties in the market up there, Tony, that potentially could play. What I can say is even with things that we were talking about in November and December last year, what we have seen is the project start dates have just been pushed out. And I'd like to say I know exactly why. It appears there's a shortage of labor in the marketplace. It looks like decisions have just been slowed up in their own organizations. And so we're sort of very close to it. I can't give you much more detail than that, Tony, other than there are other things.
Look, Searipple also benefits if something goes bang and breaks up there, and they have to fill the camp up. So I'd like to think one of that might happen too. But we're not bargaining on that and certainly not putting it in our forecast. So in addition to Perdaman, at least three other counterparties we are in discussions with, probably more than discussions, Tony. And as I said, we have expected decisions to be made before this. They just continue to be pushed out, including that the Perdaman demand curve has now been softened and pushed right out in terms of their need for peak demand has been pushed out for 12 months now, which also affects the camp up there because ultimately, it means the projects are going to be delayed further, so.
Your next question comes from the line of Pierre Prentice from Asymmetric Asset Management. Your line is open.
Hi, guys. Great to see the turnaround in the Building Solutions business, in the test of shareholder patience, that's for sure. When you look at this business, you sort of feel it should be earning something in the very high single digits EBIT margin. But when I hear you say that you're already at expectations with gross profit and you've just clocked on with 2% EBIT margin, I'm beginning to wonder whether that's a realistic expectation. What do you think the optimized EBIT margin is for Building Solutions in the fullness of time?
Yeah. So just to be really clear, these are our internal expectations, Pierre. So it wasn't what we think that business is capable of in the future. So we actually expected that business to be between 0%-1% EBIT margin in the first half or even the first year, to be quite frank. And it's actually done better than that. We think that that business has the potential to get to between 7%-8% EBIT margin, Pierre. That's what we're targeting. Transformation is geared around driving to that outcome, okay?
Okay. That's what I'd expect. That's what I'd expect. But I just wonder if you're already there in terms of GP margin, how do you leverage fixed costs to that extent to get from 2%-8%?
Yeah. Great question. And I could spend the next hour explaining it to you, Pierre, because it's not one thing or two things. It's a combination of things. The biggest component for us is actually utilizing our factory footprint, deferring fixed costs across the business, pulling fixed costs out as we standardize systems, processes across the whole organization so we have less cost to serve. So there's a raft of things. Quite additionally, there's procurement savings. I think the procurement savings to date only attach to about AUD 30 million of the spend in the business. There's more to come from that. So it's a raft of different things, Pierre. So not one thing. As I said, as you shift people's mindset from being a residential builder in a shed or in a yard to manufacturing, that does create some confusion and concern for people because they're not used to that.
Then getting their mind around the fact that you can put things through a factory more quickly than they may have traditionally done and the importance of actually making sure you're utilizing the real estate in the factory is a new concept for this business. So when we started to measure utilization of our factory floor in the first half, Pierre, the numbers were as low as 30% utilization because the floor of our factories was not being well utilized, okay? We did peak before Christmas, but around 65% utilization at a national level, okay? Now, there's still more to be had in that and more work to be done there. Then you've got the productivity leg, which is how quickly we can produce things.
We now know, for example, that one of our businesses is very efficient and very high productivity in terms of how it produces school classrooms. Another of our businesses that does well in other areas actually takes twice as long to build one. So how do we actually get the two businesses optimizing? So that's the sort of things that will drive that efficiency and optimization, which actually will drive the EBIT margin, Pierre.
Okay. Thanks very much. And if I can just echo Tony's sentiments, thank you, Andrew, for the last few years.
Thanks, Pierre.
Your next question comes from the line of Matthew Chen from Moelis. Your line is open.
Hi, Bruce and Andrew. Just to follow on from that prior question, can you give us a sense of how we should think about that timing of the trajectory to increased margins in that Building Solutions, recognising that you've done some good work there?
So we have been very clear the build, transform, and grow strategy is 3-5 years. As I've just said, we're now in the second year of our build, transform, and grow strategy. So it's still 1-3 years away in my mind. And as you can imagine, with any transformation and those of you who've lived it like some of us here at Fleetwood have, it's sort of sometimes two steps forward and one step back. So it's not without its challenges. So yeah, we're still talking a 1-3-year timeframe to get to those more ambitious EBIT margin targets.
Okay. And in the kind of near term, is there anything that is kind of worth calling out that potentially would be a detraction from that recent half's performance?
Hang on. Sorry. Somebody's just started work on the building. Oops. Stopped. Sorry, mate. Look, I think I did call out in the announcement that, can you hear me right, Matthew? Sorry.
I can. Yep.
Yep, yep. We did call out that we are finding decision-making in particularly state government, to a lesser extent, local government slowing down at the moment. We've had tens of millions of AUD worth of work in the kindergarten section and the social housing sector that were bid well before Christmas, and decisions are still not being made. So if we've got headwinds, it really is about the ability for the state governments to actually execute on their strategies and actually get the purchase orders to us. Matthew, that's, I think, the headwind we're seeing in the business right now. As I said, the pipeline hasn't been as big as it is the opportunity pipeline, I'm sorry, hasn't been as big as this for several years. So I'm actually quite confident. I'm just awfully frustrated that it's just not turning into orders.
Yeah. But I assume that that's potentially a sense of kind of the timing of that conversion of the pipeline because it sounds as though, from your comments, the pipelines you're satisfied with how that is in that quantum. It's just the pace of that conversion into the order book.
Yeah. No, I am. I think it's a good reflection on the good work that each of the businesses has done to rebuild their pipelines. We are in a cyclical period right now where there's not a lot of orders get placed between December and January anyway because we're going through the school classrooms opening and things sort of start to ramp up towards the end of February, March again. So that's fine. So no, I'm quite confident. As I said, it's just a timing issue for us at the right moment. We're probably more frustrated than anyone. I think we've had sort of more than 35 groups go through our houses that we've got on sites now. They love them. But getting decisions made by state government authorities and in defense of them, these are new sectors they've not worked in before.
They have to establish a department. They have to get their processes and systems set up. They go through a whole process. But it's frustrating from where we sit when we see the need for these kindergartens and we see the need for social housing so important. We've got product and factory available to service that need. We are a little frustrated. We are working hard to lobby governments to actually lay an egg on this, if I can use that word, and push forward.
Great. Thanks for your time and comments. Andrew, best of luck.
Thanks, Matt.
Thank you, Matt.
As a reminder, if you wish to ask a question, please press star one on your telephone. Your next question comes to line of Caleb Weng from PAC Partners. Your line is open.
Hey, Bruce and Andrew. Congrats on the half. Just, I guess, joining in the conversation on margins. So you mentioned that procurement, which is one of the drivers for the margin expansion this half. There's still some bit of way to go. How about in terms of, I guess, disqualifying contracts and counterparties? Are you quite happy where that is at the moment, or do you still see quite a bit of room for improvement?
Sorry, you're a bit muffled, Caleb. I can't quite hear you. I'm sorry.
Heard now. Yeah. So how happy am I with the counterparties we're dealing with? Is that what you're saying in terms of our margin improvement?
Absolutely. Can you hear me now, sorry?
Yeah, we can hear you now, Caleb. Sorry.
Okay. Yep. Yeah, I guess so you mentioned procurement savings. That's expected to continue into the second half. I guess qualifying contracts and the counterparties, do you still see much, I guess, improvement there, or are you quite happy where you guys are currently sitting?
In terms of procurement, you mean?
No. Contract qualification and counterparties.
Okay. So look, we have a very detailed process now. As I said, we reset the business in 2021 to put those four gates in place, Caleb. We reset. And we do have really robust discussions internally with our projects as to whether that's the right counterparty to deal with. I can tell you now we've just walked away from AUD 40 million of potential business because we were not satisfied with the counterparty we were dealing with in that, Caleb. Typical pill to swallow sometimes, but I'm actually quite pleased that we made that decision and, quite frankly, not worried about the future because of it. So no, we have quite a robust discussion. Every once in a while, the team tries to bring us projects with a client that we don't really want to deal with. But that's becoming less and less now.
We are certainly we do have a catch. Our design and estimating team has been separated out from the Building Solutions business. So there's some governance and control. And they generally will flag if one of the sales teams or one of the general managers is bringing a project in that doesn't meet those four criteria for us.
Yep. Gotcha. All right. Next one, I guess. So you mentioned material costs are easing, but you're still getting a bit of labor cost pressures. A lot of the construction guys are kind of saying that it's near the peak of the cycle. What's your view on that?
Look, I'm probably not as close to it as some of the Tier 1 contractors are. They sort of live this every day. We're actually surprised at the shortage of particularly white-collar staff out there. And I'll sort of caution that by good-quality white-collar staff here. This is an area where it's probably been two years we've seen this incredible increase in the cost of these white-collar staff. And it is sort of double-digit wage growth in that sector, which is frustrating for us because we are also competing against the Tier 1 and Tier 2 builders or construction industry for that talent. And as we've reset the business and want to have better-quality outcomes, we've had to bring in better-quality people. So we are having to pay higher salaries. So I would like to think it's topping out.
But what's become very apparent is there does appear to be a lack of that availability in the market generally. I'd like to think that with the decline in major infrastructure spending sort of driven by the federal government, that that might free that market up. But I'm yet to see that, Caleb. Would probably be the best way to describe that.
There are no further questions at this time. So I'd like to hand back to our presenters.
Look, thank you. Look, I don't have much more to add. I would, however, like to add my thanks and appreciation to Andrew for the last 6.5 years at Fleetwood. I think Fleetwood today is a very different business than it was when Andrew joined. I know a large part of that's the input, the effort, and the drive that he has put into the business. I'd like to pass on my thanks on behalf of myself and the board of directors for the work that Andrew has done over the last 6.5 years and wish him all the very, very best in his future endeavors. Hope to keep in touch with him, keep seeing how he's going. As I said, just wanted to pass on my sincere thanks as well. I have nothing else.
I'm looking forward to spending the next four days with Cate. Cate and I will be doing the roadshow next week. I'm looking forward to introducing Fleetwood to Cate and just getting out and giving her great granularity as we get around the sites next week. Thank you.
does conclude our conference for today. Thank you for participating. I'm going to order scanning.