Good morning, everybody. I'm Ross Taylor, CEO of Fletcher Building, and 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've provided pictures here on this slide so you can track them down during the breaks. All this team have significant industry experience in the region. They've 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 three 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. 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, get a microphone so those online can hear the question. One of the team will then bring you a microphone. 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. If we don't get to some questions, we'll follow up with answers tomorrow. 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 five. 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 two months. We're now seeing the residential market weakness finally start to flow through into volumes across our products and distribution businesses.
We estimate the volumes are now down around 5%-7% in overall terms. In the residential development business, we will sell and settle around 650 houses through the year. 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 NZD 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. 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.
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. 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 2024. That said, we'd expect that to start recovering through 2025. In construction, we continue to make very good progress on building out our large multi-year 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. Through the year, we expect to remain within our 1x-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 Pūhoi to Warkworth Expressway, we're now in the home stretch in terms of physical work to do. 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 seven. Pūhoi 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 COVID delay claims, which at the project level, are well in excess of NZD 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 risks to manage, though this is reducing as we get closer to completion. We also need to secure the remaining insurance proceeds and the last of our business' usual revenues, which together total around NZD 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. 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 NZD 40 million. While Fletcher Construction disputes this, it's likely to take at least the next 12 months to work through to a satisfactory lit 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. 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. It has been even slower to get to the New Zealand and Australian markets. Finally, relative to many international markets, this region is a good place to do business.
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. 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. There are four 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. 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. Within that, we look for businesses that are or can be number one or two in their markets. With that, can get to sufficient scale to allow investment levels that keep them globally and locally competitive.
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's performance and to ensure it delivers against our goals. In the coming slides, I 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 axis, 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 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 and 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 turn, means more of our sites have remained injury-free throughout the year. We're completely convinced we can get to a point where 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 two metrics I have on this slide show our good progress on decarbonizing our operations and products. We're well on track to achieve a 30% reduction in carbon emissions by 2030. We have good line of sight to net zero carbon emissions by 2050 or earlier. We're also very well-placed to reduce our waste that doesn't go to landfill to 70% in FY 2026. 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 are also our safest and most profitable businesses by a large margin, so it's a prize 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. While this is an okay level, and it's now trending back up in the right direction, we remain well off where top quartile is, 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.
When all competitors are compared with each other across both customers and non-customers, 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 omni-channel 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. 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, improved 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 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 NZD 800 million of capital to these.
This investment has been made on through the cycle levels of market activity, to ensure we can achieve a minimum return on funds of 15%. We show here three examples of the investments we're making, 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 NZD 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 two to three years. 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.
Kia ora mai tatou. Good morning, everyone. The theme you'll have heard through Ross's presentation is that Fletcher Building's established a really solid operating base on which we can now build for growth. The gains we've made over the past five years have been in a few key areas. They've 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 are 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 2023, we expect that for both the overall group and for our four materials and distribution divisions, we will have margins north of 9%. That margin performance in FY 2023, as Ross has said, has been delivered in a market which is already softening off the peak activity, which we saw in the second half of fiscal 2022. Compared to those levels, FY 2023 will be down around 5%-7%, with most of this fall concentrated in the second half of FY 2023. While this has been softer demand than we originally expected for the year, delivering those margin levels has been pleasing. Looking ahead to FY 2024, 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 2024, which would leave us down around 15% in total from the peak in the second half of 2022, 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, a net housing for stock undersupply, and an aging population will, we believe, drive long-term housing demand. Commercial and infrastructure pipelines, both for the private and the public sector, look strong.
In this environment, we believe the group can deliver 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, in short, investing in growth that is closely connected to our current business and mainly via 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, higher quality order book in roading and infrastructure services.
I'll 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 NZD 700 million to a committed NZD 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 NZD 120 million. On page 26, we lay out the expected timing of that investment, which is reasonably well balanced over FY 2023 to FY 2026.
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 charts 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 NPSs of around 60 or 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 our 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.
In FY 2024, we've set a minimum expectation of 30 NPS for all of our businesses and a group average going from 40-45. On the right-hand charts, 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. 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're 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.
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. 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 FY 2023, in what has been a very tough New Zealand housing market. For FY 2024, we expect sales volumes to be at roughly similar levels to FY 2023, 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 NZD 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 FY 2023 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 FY 2024 as we complete the convention center.
As Ross has highlighted, we need to land our final claims on these two key projects, these cash flows are dependent on dispute processes and are assumed to come in FY 2025. I note for completeness, all these are pre-tax cash flows. Looking more broadly, underlying cash flows for the business in FY 2023 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 NZD 1.3 billion, and our leverage ratio at 1.3x . This will lift in FY 2024 as we invest in the growth CapEx and complete the legacy projects, we will remain within our stated target range of 1x- 2x . In summary, Fletcher Building has delivered a solid FY 2023 in softer trading conditions.
While we expect some further market softening in FY 2024, 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. With that, we'll open it up for questions.
Oh. Oh, there you go. Oh, don't worry about the stools. We'll, it's okay, we'll stand.
Marcus Curley from UBS. Just two questions, if I can. When you talk about trying to hold on to operating efficiency gains in 2024, what would be a good outcome on margin if you're able to do that? Secondly, no comment about the finishing of the GIB manufacturing site. Is that expected to contribute positively to profitability in FY 2024?
Yeah, let me answer the second one first, and then you might as well do the first one.
Thanks.
Seems like a CFO sort of event. Thanks, Mark. It's commissioned really well. Hamish will update it more completely when he does his presentation, but it's commissioning well. We've commissioned it. We've got 10 mil and 13 mil board, which is our high-volume boards, which are in with brand's approval now. It's tracking well. We feel like we're in good shape with that. What it does give us is far more capacity, a lot of ability to actually do different products, and that'll take us through to about October to get all 25 of our products commissioned and up and running. 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.
Hamish will get right into that when he actually does his presentation.
On margins, Marcus, we're not gonna guide to 2024 margins today, I might disappoint you there. I would make the following points, that what you've seen through 2023, as 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's ability to deliver has been very good. We're talking to confidence in that operating performance. We'll get into 2024 before we talk to margins.
I think we've got one from online. Yeah?
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? When Bevan you speak to improvement in margins and ROFE at mid-cycle, what do you view as mid-cycle levels?
If I look at the residential numbers, I mean, there's an ongoing debate when we go around and talk to everyone, what is through-the-cycle volumes of residential, and where has it moved? Is it, do you look 12, 10 years back, 20 years back? Where is it? What we're saying is, we think the levels we're seeing now in the residential volumes are more a mid-cycle level. We could really have a semantic debate as to whether that's right or wrong, but that's sort of our thinking. 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, you know.
it's at bottom. 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. Their confidence levels are back. What we're seeing, and Steve will talk to it, but we're seeing about 20-25 sales a week. That's really starting to feel pretty solid. That's what we think it's about there. Then we think it's about mid-cycle.
I'd just add, Andrew, that what we're seeing at the moment and what we expect to continue, it's not a two-speed market, it's a multi-speed market, by which I mean that different parts of our sectors are performing at very different levels. 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 home builder end of the market, that is definitely softening. On the flip side, renovation, and particularly high-end renovation, is very strong, which is obviously a higher margin part of the business. There's a whole bunch of movements going on there, Andrew. Broadly, FY 20 24, we see that as mid-cycle, as Ross has said.
Morning, guys. Just hopefully a couple of quick ones. First one, just maybe back to Marcus's 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 2024 story?
No, we've already. We made the point that when we look at volumes, we've already had to suck up about 5%-7% of down, so. The business has been on a tempo of actually, you know, 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 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 has helped us in that quest is that turnover through the last 12, 18 months has been very high.
As we sort of needed to pull back a bit, that actually helped us, but we're actually starting to see all that stabilize. We've pulled those levers where necessary. We've shut some marginal bits of our operation, you know, and look at our footprint, so we've been working that all the way through this half, really, 'cause we're starting to see it flow through. I think we're well positioned. Possibly more to go in a few businesses, but feels, we feel like we've got it under control, yeah.
Thanks. Secondly, you know, you're talking to improving service levels. You know, I'm assuming the best performing business is Winstone Wallboards there, given the service offering. 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. I mean, in our distribution businesses, network efficiency is absolutely key. In Bruce's business, for example, Rohan, we've in-housed all of our freight over the last two 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. Then in Hamish's business, for example, you can look across the investments in efficiency, which are driving our cost positions in that market. Ultimately, if you're not cost competitive, then your customers in this environment are going to be going elsewhere. There's a whole bunch of stuff that's being done.
Candidly, we've got two or three 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.
Thanks. Final one, just free cashflow. You know, 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 cashflow and stabilize the gearing, given, you know, you're kind of talking to it rising in 2024 again?
We've got the three years of investment. Rohan, 2024 is obviously marked by those legacy cash flows, then we are done. That's a very deliberate strategy. The next three years, investors can expect that we're investing, and that growth comes in full run rate from 2027, but with aspects of it delivering from 2025 and 2026. Through all of that, Rohan, we've set the target range at 1.2, and we intend to remain within that. We've positioned balance sheet for two things. One, a softening of the market, which we've obviously seen. Secondly, so that we could invest in the business for future growth. Again, it surprised Ross and I, the amount of growth opportunity we have in our backyard, so we're very deliberately going after that.
Hi, Ross and Bevan. Thanks for taking the question. A couple from me. I think at H1, 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 2023?
That's broadly what we're seeing, but there are selective places where we, particularly in Distribution, and Bruce will probably talk about it, where he'll go sharper on something because it drives share of wallet. We are pushing around on that, but I think we'll broadly hold pricing and, but there'll be spots where we might give a bit up where it's sensible, you know? I don't think that's going to be a contagion across the business. 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've got through the last two years as we push on that.
What we're also seeing is the cost side of the equation, our input costs, are starting to abate as we sort of work through that, whether it be goods or labor. There will be a little bit of a pathway over the next six-nine 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 gonna throw in a weather question, not normally something I'd ask, but the NZD 5-NZD 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 NZD 5-NZD 7 you think has been Mother Nature?
The 5-7 is what we're thinking the background market is, and as you mentioned, Steven, it's been really hard to work out where the market is, but we actually fortunately are having a June, which is starting to give us a good sense of where it is, because June's been a bit more normal. The weather impacts are separate to that 5-7. If you remember, what kicked us off the guidance of NZD 855 million+ back in January, where we exit of the year, was really the weather events that occurred in the January, February period. They're sort of a little bit independent. The 5-7 is, I think, where we think market is.
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 resilience strategy?
Not a lot. I think it's actually. Cause we actually ended up getting a lot of stock out, so we've actually, cause what happened to support the market, how busy it got, we're sort of carrying less inventory than we would want. There's no real dramatic impact of that overlap. We need to call it there. I think we're sort of keep us on time. No one's gonna thank us for being late today, so I'll we'll move on, and then get. Is it Nick? Perfect. I forgot we had a video, so I might have easily have forgotten who's next.
Thanks for Ross and Bevan. Kia ora, welcome to the world of concrete. I'm excited to provide you with the highlights of our divisional results and plans for the future. Let's start with a short overview of who we are. We are New Zealand's leader in sustainable concrete products and solutions. 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. You will have noticed here that we also now include Humes in our division. 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 non-financial metrics, despite a softening market, inflationary pressures, and the recent weather events we just talked about. This performance is 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 strength and position in the resilient South Island market, where we added two quarries, as well as in the maintenance and repair markets with our extended Dricon product, though for Bevan already talked about before. We have increased our capacity to serve key constrained markets, such as the Winstone Aggregates quarry expansions, Firth insulation floors, and Golden Bay waste management capabilities.
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 or 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. We try to make it easy for customers to trade with us, leveraging digital tools. 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 circular construction.
Digital, leveraging the digital solutions to enhance our customer experience, improve our production and supply chain. In sustainability, capture the opportunities through scaling fast alternative fuels and raw materials, waste management, supplementary cementitious materials, concrete recycling, and reuse. The biggest opportunity in our industry is the transition to low carbon and circular construction. 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 PlaceMakers, based on offsetting the remaining emissions for the bag 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 RibRaft X-Pod, which allows efficient and resource-reduced construction, building more with less. Secondly, life cycle efficient solutions, like the HotEdge flooring system, which is in line already with the new H1 building code change. Thirdly, digital design tools for architects and engineers, like WaffleSuite, which allows 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 Winstone Aggregates. In 2023, we have recycled and reused more than 100,000 tons of waste across the following categories.
Just as a reminder, most of these 100,000 tons would have otherwise filled up the landfills of Aotearoa. 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 fast 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, where we save CO2 and costs, again, at the same time.
One particular highlight for us in this year has been the acquisition of The Urban Quarry, which adds two prime location in downtown Auckland. We are now ideally positioned to fast-track recycling of deconstruction and demolition wastes, 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 with Firth, we just started construction of our new flagship plant in Auckland. We are extending the Dricon 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 the water solutions.
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. 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. Finally, the strong pipeline of future growth opportunities across the businesses and adjacencies. That concludes the concrete presentation. I'm happy to take your questions and comments.
Thank you, Jeff. Jamie Craig, Investment Partners. I just wondered if you could You sort of glanced over it, but delve a little bit more into the EBIT chart there and this extraordinary, you know, 40% increase in margin. Talk a little bit about, you know, how that looks on a long-term basis, how that was achieved, whether that's sustainable. I mean, Ross has obviously mentioned that, you know, the feeling is you probably won't have to give up price much, but, you know, that's In a business which you often talk about margin gains in terms of basis points, that's an extraordinary gain.
Yeah, 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 Winstone Aggregates. You know, and still, we compare fairly well, if you would benchmark us against the Martin Marietta, Breedon, or Vulcans of the world. We are very focused on the flagship Winstone Aggregates performance, which is doing really, really well. We also have made great progress at Golden Bay, managing energy. The energy management, being efficient, replacing coal, which has gone through the roof, basically, 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.
The solutions play in concrete with Firth. I think 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 first, and we focused on infrastructure, commercial space, and all these solutions you have seen. Keep in mind also that the usage of concrete in New Zealand, compared internationally, is very, very low. 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. Thanks. Can you talk a little bit about the competitive environment in your space?
Yeah, as you know, we are the only local manufacturer of cement, there's obviously, I believe, more and more that's gonna give us an edge because more and more countries have CO2 systems or are thinking about it, pricing CO2, 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. We haven't even yet fully exploited SCMs, or we still have 50% of ways to go. 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. The whole network of terminals we have is a big advantage, too.
We have these brilliant positions in Winstone Aggregates on the ag in the major market cities, very close, now adding recycling to it. 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 downtown Auckland is. To realize projects, having the logistics capability and so on is getting more and more important rather than just having stone in the ground.
Thanks, sir.
Steve there or?
Morning, Sam from Citi. Maybe just one. It looks like that extra NZD 100 million CapEx for the circular opportunity, could you perhaps give us a little bit more color on the opportunity there, returns, and timing?
Yeah, look, I mean, it's not one big opportunity. It's a bunch of things. One is obviously looking at recycling places in the key markets. We started with Auckland, but we obviously wanna look at other city markets. That's the Winstone piece. Obviously, we have the waste platform we built up north, which is another kind of double-digit investment, and then going further into the alternative raw materials, which where we just signed the deal with Genesis to use their bottom ashes. It's not one big item there, but it is going back to the question before, those things all add up, supporting our supporting our EBIT margin target delivery.
Stephen, you had a question there or?
Hi, Nick. Thanks for the presentation. I think Golden Bay receives about NZD 600,000 or slightly over free carbon units. That allocation is currently under review, so sort of NZD 30 million of protection, I suppose, against the Emissions Trading Scheme. Does the government understand the opportunities that are in front of you as well as you're laying out today? How much of that NZD 30 million buffer, if you like, is at risk?
Yeah, you will have seen the latest kind of communications around the review of the ETS. We're obviously in close discussions with the government. Look, I mean, 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. Actually, Golden 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. 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. We feel very strongly that we have a good case to defend our allocation on the ETS. Look, we always promote that we do this in line with international standards, like the Europeans do that on based on benchmarking.
Because we are actually, as I said, having one of a fairly good asset up there with low, low carbon, if we go to international benchmarking, that would really good for us, too. 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 year, as we've moved Humes across to Nick's Concrete division, and we've recently acquired the Waipapa Pine asset. As we go through, and I'll talk to that later on. We now view the division in the following three 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 wire products, roofing, infrastructure assets, and our larger steel business, Easysteel.
It also includes, in Metals, our 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. Finally, the new addition is Wood, which is where we capture our recently acquired Waipapa Structural Timber mill, and over time, we'll look to expand our exposure in this sector, as we can see some really good opportunities going forward, and I'll speak specifically to Waipapa later in the presentation. Just looking through three FY 2023, we've continued to hold on to our gains from the cost base reset over the last three-four years. When coupled with very high first half volumes and good pricing disciplines in the second half, we'll 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%-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 two years. 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 two 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 2024 will 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 Coilcoaters, 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 a slide. Our digital solutions background work over the past two 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 2024, which will be market leading on launch and has two 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 businesses 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 did touch on it earlier, it's driving positive solutions in the industry, and we're heavily involved on the thinking and industry solutions around that. Product-embodied carbon is something you'll hear more and more about in the future years. 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. 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. Excitingly, our new Tauriko plaster plant is tracking on time and is now well into the product commissioning phases.
Since we pushed the start button in Auckland , 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 13 mil standard board undergoing brands appraisal at the moment, and should have 10 mil standard out this week, essentially for brands appraisal. 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 as our, as 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 timeframes, and we are very confident the plant is going to deliver on the original scope, and we can already see opportunities to the above 30% in-country capacity that was promised. It also opens up a lot more capability, and we should be able to introduce a much broader range of products going into the future. The waste recycling capability of the new plant is gonna give us some really exciting opportunities to expand our circuit construction waste journey along with Nick in that space. Jumping to slide 49. Outside of our near-term growth initiatives, the division has 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. 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. The unique hybrid 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 2026 to FY 2028 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.
It's 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 consents 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 are put in place, and we estimate that they will hold their current installation sales flat to FY 2023, as increased requirements will offset overall activity decline in the, in the base construction sector. Just an update on our new glass wool 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 building and the addition of the new manufacturing plant.
Once we have the consent, we will 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 will also triple the capacity in New Zealand. We are aiming to commence construction early FY 2025, and this is a two-year build. We do have committed supply from our technology partner, Owens Corning, that will bridge any supply gap in that build phase. We'll be able to import volume to offset any rises in activity in that period. Outside of these defined growth initiatives, we continue to explore more broad opportunities in adjacencies. The wood sector remains 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. With that, moving to the next slide. On the December 16th, as you all know, we entered an agreement to purchase the Waipapa Timber and Renewable Wood 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 June 9th. 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 2023 of about half a million.
We're forecasting circa NZD 12.5 million EBIT in FY 2024 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 three years. This will require us to get additional staff as we move to a two-shift pattern, and it will take approximately NZD 25 million of capital to unlock the 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. Just moving to the final slide. In closing, the Building Products division is well positioned to navigate this 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 two years, delivering customer benefits, new revenues, and several operating efficiency opportunities. Closeout of the Tauriko plant build in the next four-five months will unlock significant new capability for us in our core market, and will 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 Pine 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. That completes my presentation today, and open for questions. Thank you.
Hamish, I just wonder if you could talk a little bit about what's happening in terms of pricing across different, building products at the moment?
Okay. Yeah.
Yeah, you put GIB up. Anything else that you're doing at the moment? We're hearing in the market that timber's on the way down.
Yeah.
Probably one of the only ones on the way down. Yeah, has that affected your earnings assumptions for your new acquisition?
Yeah. No, absolutely. I'll start with the timber one. We do all our assessments on a through-to-cycle level. 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. We're very comfortable where we sit as we take that through. I had been hoping the cycle would last longer and I'd get upside in acquisition, but essentially, it's basically where we'd planned to be moving forward. In terms of. There's still a lot of pressure particularly on raw materials from an import perspective. Globally, raw materials are still under pressure, which is coming through from a pricing perspective.
We obviously did move GIB 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 through its prices, a little bit of pressure on strand flooring, which is going into the market now, but that's more of a 2%-3% type movement as we go through. 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.
Those have come off from a price perspective, but margins we have retained as a net movement as we go through. I hope that sort of flows through.
Thanks so much for the presentation. I think it was just a little under two years ago that USG Boral 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? Also, I think heading into COVID, you were already importing from competitors, some specialty boards because of capacity constraints. Just interested in hearing, how you optimize the mix of the new plant and what margin uplifts you could see there.
Absolutely. It's obviously been a messy 18 months in terms of exactly where it's at, and imports have pretty much stopped coming into the country since about February. Our share currently looks very high. It's going to take a little while to settle as we go through. 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. We've seen customers steadily come back as availability has freed up. Into the new plant, the capability of the new plant will allow us to make every product that we currently sell.
As you're right, Steven, we did import a couple that we wanted to get the market going ahead of the plant. As those commission through October, we will be able to produce everything we currently sell. We're also looking at starting to introduce boards that they have basically a magnesium additive into them and different chemistry, which means you can have more products you can sell in the outer area of the house and more into the cladding and that sort of space. Those will come probably over about 18 months after we get through the commissioning period as we land through.
Yeah, how the market's gonna land in terms of competitors and so forth, I think we just need to see how the next sort of six-eight months unfold as things settle down. We've got a big transition to do from a, you know, close Felix Street, get Tauriko fully opening and then optimize the distribution network that flows from that. In terms of benefits, yes, we will get benefits from that plant. It's more efficient, and we believe the distribution will ultimately be more efficient, but that's more in the second half of next year, assuming we execute well.
I'm just gonna add one more. I mean, you are sort of the market and plasterboard now, so you've got a unique sort of lens to look through. The five to seven that was talked about earlier, volume drop i n the second half, what have you seen?
That's, yeah. You are right. That's what we've seen. Yeah. 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. Yeah. I'm pretty confident with what Ross and Bevan talked to is what we're actually seeing.
Cool. I suppose the other dynamic next year is a mix shift away from resi into commercial infrastructure. You know, 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, in the big, in the big scheme of things. We just got quite a few dynamics going on because you've got the H1. Normally I'll be expecting insulation to come off, but we're actually expecting insulation 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've obviously got the new Wallboards plant coming through, so even though volumes are ultimately net will be down, we start to benefit from those efficiencies and sort of mopping that as we go through. The commercial was actually, infrastructure is really good for my steel businesses and even, and Iplex as well. Where they've probably been off in the second half, they're coming back strongly now.
Steel in particular, we've had two this month and where we're now, June, May and June, we've actually seen that market start to come back and go forward. I get good volumes and good margins through there as a sort of balance. GIB, we've sort of made our assumptions. Yes, residential was a key contributor, but they do a bit more on commercial than people would realize, and the margins are, they're the same. Okay. Anything online?
It's online.
Okay. Thank you very much.
Thank you, Hamish. Kia ora koutou. Good morning, everybody, and welcome to All Things Distribution. A little bit of a reminder of what the Distribution division comprises. Comprises the PlaceMakers and Mico branch networks, the PlaceMakers Frame and Truss business, and the Timber business that we acquired down the East Coast North Island in September of last year. Our geographic network reach positions us really well for the densification growth that was seen in the major metro markets. We've 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, where we're bringing to life the opportunities that digital and technology present to create a really efficient and market-leading supply chain. As we're 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've 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 three 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 owners' mindset, which helps us perform as the market dynamics quickly change across different parts of the country. Despite the challenges 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 in the targeted segments and geographies where we think we can win best.
We'll deliver a strong EBIT result this year, circa NZD 140 million in this financial year, with an EBIT margin growth to a forecast 7.7%. In addition, our return on funds employed will be around the mid-40s, circa 44, as we deploy our capital wisely. 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 disruptions. We really unwound a lot of our high inventory positions we started the year with. From a non-financial perspective, it's been really pleasing that we continue to make steady progress from a health and safety perspective. We're now five consecutive years being serious injury-free, which is something we really celebrate in the business.
Our TRIFR, whilst higher than other parts of Fletcher Building, about half of the global industry average for a distribution business, and something we continue to focus heavily on. With the challenges of a really tight employment market and that disrupted 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 the introduction of new tools and a 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, resulting market share, particularly as the market tightens up. We're continuing to focus on 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, and be it in particular segments or in particular geographies. At the Investor Day last year, I announced the proposed acquisition of the Tumu business down the east coast of the North Island. It was pleasing post that we were able to conclude that reasonably quickly and bring that into the division on the first of September. It was a big change for the Tumu team.
This was a family-run business over many decades, for us to buy it as a corp was a big change for that team. Our focus was 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 were actively looking to make sure they could take any advantage from any disruption that we might cause. Of course, we also wanted to deliver on our commercial objectives that we'd set out going into that adventure.
10 months in, we're really satisfied with the progress that we've made and that we'll deliver on all those year one 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. We're really, really well positioned for the growth and the rebuild activities that we'll see in the ensuing 12-24 months and beyond. As we look forward into 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 12-24 months.
We have a strong distribution business with sound foundations. When we look forward, over the ensuring period, we're looking 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, the next 12 months sees 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 trialing different branch formats. You'll see us doing some of this over the next 12- 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, trialing some smaller footprints and some things we've seen offshore from highly efficient, small footprint formats, adjusted for New Zealand conditions. We'll also be investing in our frame and truss business, a business that hasn't had a lot of investment in the past, but we're investing in that, particularly here in Auckland, as Hamish has already mentioned, to drive greater capacity and greater capability. In the Mico business and the plumbing distribution business, we'll complete the digital platform rollout that we've been working on, leveraging a lot of the work that PlaceMakers has 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 and hone our network model. We have the largest plumbing distribution footprint in New Zealand.
How do we hone that model and use D.C. capabilities to make it even more efficient and effective? 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 tinkering around with some concepts now about 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 Wallboards site on Felix Street. Once Hamish is out of there, around the end of this year, we'll start repurposing that site to build a frame and truss plant.
It'll be a state-of-the-art plant, incorporating the best of technology that we've seen from around the world. 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 gonna automate a lot of that. That will make it a lot safer. It'll also improve the product quality, demonstrably from where we are today, with much tighter dimensional tolerances than what we can achieve today. It's gonna enable us to innovate with different products that we simply can't do today, so things like roof and floor components, and ultimately, it'll give us significantly increased capacity from what we have now.
All driven by the use of advanced robotics and technology, which also drives the significantly improved efficiencies over what we do today, and 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. With this capability in place and that capacity in place, it really enables us to push a whole lot harder on frame and trust market share in the market, and how we go out and acquire that. Why do we want to do that? The resulting increased volume that comes from frame and trust across the greater share of wallet capture with our customers. In summary, the distribution division will deliver a strong financial result this year, and an improving margin and in turns on funds, in 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 three years. Irrespective of what the market conditions will be, we're focused on driving ongoing improvements and sustainable performance over the period. Primarily through 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 to the 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's the end of the formal slides.
Available to take any questions that you might have.
Thanks, Bruce. look, there's a lot of talk about digital and data analytics and that sort 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, you know, take it down a level to explain what exactly you are implementing?
Sure.
Does it go across PlaceMakers and the new frame and trust with Two Moon and Co, and, yeah, how far you are in this plan? We've all had sort of experiences which have been challenging with those sorts of implementations.
Yeah, we have. I think there's two parts to this, Ross talked about the ERP implementation will be going across the business, and that'll be going right across the distribution division. When I talk about digital opportunities, and some of the things that we're doing, that's 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 receive around 150,000 phone calls a month, for example. The ability to use smart technology like Amazon Connect to enable you to understand when a customer calls, having all their details pop up, knowing what their 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's it gonna turn up? Ultimately, we're digitizing that 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, we receive about 25,000-28,000 plans into the business, which we do takeoffs and estimates, et cetera. We do that today, we use the best technology available, but somebody's still sitting there doing the measurements, taking it off, and recording all that. Imagine doing that in a smarter way. You know, to give you an example, to do a takeoff on a duplex is a week's work.
We think we can do that in, like, 20, 30 minutes with AI. Those are the types of things we're tinkering with and working on. The things like SAP that Ross mentioned before, that's backbone, 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 when 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't achieve today?
Thanks.
Morning, Bruce. Just a question on the distribution business's performance on slide 13. There's a chart that looks at the EBIT margin performance of the divisions. I think they call it, the chart 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 when it was last presented, or the forecast measure for 2H 2022, last financial year. 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.
If you can give us an understanding of whether that's, you know, some unexpected underperformance within the distribution business, things could have been better, or is it, you know, your peers have moved further ahead of where Fletchers is?
Yep. I think the chart that was the one that Ross presented earlier, the charts then, and it actually shows growth on where we were. With respect to the second half of last year, I think you refer 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 a second half, first half business. You'll notice our earnings aren't 50-50, and we have a swing to the large second half. 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 that you see in the halves and you see through the COVID burst, we still see ongoing performance. 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.
Morning, Bruce.
Morning.
Just some questions on volumes that you're currently seeing.
Sure.
You talked about, or you've previously kind of given numbers around the estimations, for new builds and frame and truss orders. Are you able to just give us some color on how those are tracking?
Yeah.
Maybe versus second half last year or end of last year, and also how it's tracked over this year.
Yep.
Secondly, just cost of the frame and truss automation. There's no cost metrics there, and I'm also assuming there's a 15% ROFE target within that.
Yep. I'll do the second one first because it's easy. That'll be just a bit over NZD 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. 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, with what we've seen when we saw it around that October-November timeframe, is really the turn of the market. That 8 odd percent, 7%, 8% that Bevan referred to earlier and 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 estimations perspective. That's where we see the lead time of the market, we're actually seeing quite an interesting pickup in there. You've heard a number of people, a number of questions come out this morning around residential versus commercial. For our business, residential, we are roughly 78%-80% residential, but we break that residential down into various segments. Ross Taylor referred to it earlier, we look at the volume build end of the market, you would have heard it with a number of commentators talking about the reduction, you know, potentially 30%-40% reductions there. What we are seeing in the high-end reno market is growth.
We've seen a lot of growth coming through, primarily because of 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 the work that Kāinga Ora is driving, and individual developers who are selling those units to Kāinga Ora, we're getting really strong growth through there. It's a real mix. When I compare our estimate intakes, and remember, this is work that we won't see for another probably 150, 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. The H1 changes, you need to redesign some of those things. 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 when 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 all a bit of a guess, but hopefully come spring, the other side, we'll see a decent spring build and hopefully, some sunny weather as well to go with it.
With respect to the other question you asked around frame and truss bookings, frame and truss bookings are pretty short. You know, we're talking the next six to eight 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. Excellent. I've got a thing flashing up here for me. Look, that brings us to the end of the first session. I appreciate you've been sitting down for a little while. We're going to take a short break. There's refreshments at the back, and then when we return, you'll hear from Steve, Phil, and Dean about the other three divisions. Thank you.
Good morning. Kia ora. 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 NZD 2.2 billion, and 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 in specialist plant and equipment. 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 multi-year 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 self-performed services. We are well through our legacy projects, as Ross has mentioned earlier, and NZICC circa 75% complete. We have a strong and stable management team with a targeted completion date of late 2024. Pūhoi 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. Our teams are currently working through elements of deferred works with completion due over the coming months. We are entering FY 2024 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 Brian Perry 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 2025. Our current TRIRs, 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 TRIR performance. Our forward order book sits at NZD 2.2 billion, being a strong 1.8x multiplier on revenue, with gross margins forecast at average of 12% or better.
We have a preferred status of circa NZD 2.5 billion revenue, that once materialized in the coming period, will have Fletcher Construction at first half FY 2024, with an order book of circa NZD 4 billion. You'll see from the slide, that the dark green along the bottom is our secured order book, and the lighter green, when we convert our preferred projects. You know, with regards to Riverlink, that I'll talk about East Coast Recovery Alliance, Eastern Busway, particularly top two, that I'll talk through, and taxi way Mike, that we've just recently won with the airport, comes through. Well, that'll give us a multiplier at that first half of 2024 of about 3.3. We're sitting at 1.8 at the moment, so our order book is exceptionally strong.
It's not only strong, but most importantly, very well balanced. The majority being at low to medium risk profile, 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. The next three slides are examples of both secured and preferred contracts across our order book that I'll take you through. The Watercare enterprise model is a 10-year partnership of consultants and contractors working with Watercare 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 NZD 1.2 billion of revenue to Fletcher Construction. More revenue opportunity available. Through early contractor involvement and negotiated contracts, we're able to develop a detailed understanding of project scope and a considered approach to delivery and risk. The average construction package is circa NZD 50 million, with opportunity for continuous improvements, or improvement, across repetitive activities. The contract aims to reduce built carbon in Watercare's infrastructure, improve health and safety outcomes, and reduce capital cost. Brian Perry Civil are largely self-performing the construction work. Next slide. In mid-July this year, Fletcher Construction will enter into a project alliance agreement with our non-owner JV partners, who are Fulton Hogan and Downer. We will partner together with our owner participants, being Waka Kotahi and KiwiRail, for the recovery work in the East Coast due to Cyclone Gabrielle.
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 Waikare Gorge, Devils Elbow, Esk Valley, Te Puia to Tolaga Bay, Opotiki to Gisborne. an amalgamation of the State Highway NOCs, 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 NZD 850 million for Fletcher Construction, all of which will be negotiated packages of work and any risk allocation, or any, sorry, risk will be capped at our margin allocation, which is our LIM 2.
We have already made a start to the recovery works for our NOC contracts with Waka Kotahi. We are well positioned to deliver resilience into the network. Our major projects business has recently commissioned and opened two new expressway projects, being Peka Peka to Ōtaki, opening in time for Christmas holiday traffic last year, and Pūhoi to Warkworth opened to traffic on Monday morning. The business unit has two new foundation projects, being Eastern Busway in Auckland, with a construction value of circa NZD 800 million, and Riverlink in Wellington, with a construction value of circa NZD 600 million. Both of these projects are pure alliances, in 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 Centres, 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 two stages, circa NZD 600 million, and the team are currently working through the design and pricing for the next two stages, which is top two, circa NZD 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 is 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 2024 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 due to, 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 forward years.
Finally, the East Coast Recovery Alliance provides considerable scale for our Higgins and Brian Perry Civil business units. In closing, Fletcher Construction has in front of it a very strong market of circa NZD 172 billion in critical infrastructure spending over the next decade, and NZD 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 NZD 2.2 billion, and is expected to grow to circa NZD 4 billion in the first half of 2024, when our preferred status of projects converts from our pipeline into our order book.
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? You know, with that order book going to NZD 4 billion, you know, are you reaching capacity in terms of the annualized work that you can do? Second on that, you know, what's the ability to drag in, let's say, more skilled labor from some of the other parts of construction? Y eah, reducing over the next 12 months?
Yeah, good question. If you think about, you know, our revenue pull-through, it's really. You know, we're about NZD 1.2 billion, sort of year-on-year, over the next few years. We're actually not changing our capacity that much. That's one point. You know, yes, resources, as we all know, and, you know, construction is challenged in that space as well. 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, 'cause 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, you know, blue-collar workers in that as well.
We've managed to pull some really good work, workers out of the Philippines, mainly to support our Brian Perry and Higgins businesses. We've got, you know, the ability to transition the skills that we've got. You know, 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. A lot of those skills are transferable into the horizontal market, right? And we're looking at how do we place those resources into the order book that we've got. You know, we're in, you know, we're in a really strong position that, you know, 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. It's not around chasing revenue, it's around ensuring that we get good gross margins, and we're converting, you know, managing our overhead really, really tightly to achieve our EBIT performance. You know, we've got a target of 5%. Some of our business is already operating over that. You know, some of them are trading at 5.7%. When we get the kick in our major projects in FY 2025, that'll give us another NZD 14.5 million. That'll be at 7.6%. We've got some opportunities in a couple businesses.
Yeah, with 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, you know, 'cause we're a specialist business at the end of the day. We're a ground engineering, you know, geotechnical, highly complex, civil infrastructure, played with our roading business that, you know, it's all about laboratories and emulsions and polymers and sprayers and millers.
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.
If you don't have, let's say, a lot of extra capacity, is there any, you know, light at the end of the tunnel for the industry as a whole? If you think about the broader Fletcher Group, you know, in terms of benefiting from broader infrastructure spend.
You know, is that, is that actually gonna 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 all the, you know, inflationary pressures that are playing out. You know, when we have a look at the order book or the pipeline that's in front of us, and even if you look at the NZD 62 billion over the next three years, we're already starting to see some of that getting squeezed and some of it getting moved out, so it's probably gonna play to our advantage. You know, and, you know, we're able to, you know, get good pull-through. You know, the projects need to stack up on their own rights. And if we can, you know, with better together and we can support particularly our concrete business, I think that'll be, that'll be beneficial.
Yeah, 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? Again, 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. Because about 90% of our order book is low to medium risk. Some of the stuff we are fixed pricing, I think, you know, is about NZD 30 million-NZD 50 million, so are pretty repetitive by nature. They get turned around quite quickly. So we're relatively comfortable with that.
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 through Ross and the team, and up through the board as well. We think we've got some really good controls and focus on risk, and what we're prepared to take or not.
Hi, Darren Manning, Forsyth Barr. You've talked a lot about this lower risk, profile to the business, and we all remember the experiences t hat had been had here.
Yeah.
What can you give us in terms of quantifiable measures to look at and understand how much lower risk that profile is? What some of those processes that we can take comfort in, actually are, in terms of translating that through to actually understanding the numbers and what comes out of them?
Yeah, well, you know, we categorize all our projects from sort of one-five . When I talk about, you know, 90% of our order book, be it secured or preferred, as is low to medium risk, that's, you know, characterized by, you know, commercial models and, you know, where we've ended up with regards to, you know, types of contracts and all like. It's very well characterized, and the stuff that is big and chunky, you know, there are pure alliances, so we've only got our margin at risk and our corporate overhead, so we'll always be guaranteed our direct costs. You know, we're not in the business to trade at direct costs only, we know that.
These are highly collaborative forms of contract that we sit down with the principals and our, 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 gonna get proportioned. So we're quite comfortable that, you know, the days of doing these big PPPs with hard dollar DMCs are, you know, certainly gone from a Fletcher Construction perspective. So yeah, the work that we've just recently run at the airport is measure and value. Yeah, we take productivity risk, but we don't take any quantity risk, right? You know, that's cost plus measure and value. Alliance forms a contract. Those are the sort of standard forms of contract that we'll enter into moving forward.
Phil, thanks for the presentation. 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.
Oh, listen, when I'm saying we're running international campaigns, we've been running these for a little bit now. You know, we go into these, you know, very well-considered with regards to the projects, what we're gonna chase, how that's gonna play out, what types of resources we need moving forward. We've been very active, particularly in the U.K. and the South African market. You know, and 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, you know, the urgency through the immigration process. You know, we're doing lobbying there.
You know, we've been quite successful in bringing white-collar workers over, and even this last tranche of tradespeople and operators of, you know, very technical, complex machinery from the Philippines. We've already had two to three tranches of people through them, and 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 it's. You know, what does it look like to work for Fletcher? You know, how do we look after you? How do we support you? There's a lot of work that goes into that as well.
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.
Thank you.
Thanks, mate. Well done. Thanks, Phil, and Mōrena. 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 four business units, including three of the brands you can see here. The biggest is Fletcher Living, which contains our residential development teams, our house building business, and our apartments business. The remaining business units are 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 10-15 developments, whereas Christchurch has three 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. Our three-pronged approach to buying raw land, buying sections off 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 home building, 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. Despite the drop since the records of last year, our EBIT and EBIT margins are both at better levels than those in FY 2019. Bevan's also noted that we've sold some 650 homes in the last year, little bit down on what we'd put forecast. 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. Again, as Bevan has said, the value of the land currently on the balance sheet continues to sit about NZD 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. 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 standalone homes being constructed aim to showcase what is required to deliver more sustainable housing into the future. 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 FY19. 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. While we've performed well in FY 2023, or comparatively well into FY 2023, we are expecting to have further cost increases and sales price compression as we go through FY 2024. 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 2025.
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, the recent work that we've done on the new frame and trust 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. As you've heard from Bevan and Ross earlier, re: Growth, our 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, Topore, Diamond Henua Road, Firth Great South Road, and Comfortech Penrose for other parts of the wider Fletcher Building.
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 five 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. We've still got another three years of home building to complete at Waiata Shores. Such stories also exist on most of the sites which we are developing, from Silverdale to Drury, Whenuapai to Beachlands. Our master plan communities, where our customers want to live, continue to be a valuable and preferred offering in the market.
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 pre-sales through the developments at One Central to support that uplift in number. 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.
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 pop 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. 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 lands, are a result of long-term relationships based on shared values of care of the awa and the whenua, and create outcomes which we're all proud of now and into the future.
Our development of the old university land at Albany with Ngāti Whātua o Kaipara, and our latest Tauoma site at Morrin Road in Stonefields with Marutūāhu, 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 2025. 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. 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.
Morning.
Morning.
Just hopefully a couple of easy ones. Can you just talk to sales rates? You know, I noticed the website suggests things have improved over the last few months. Previously, you have had some pre-sales running into each year. Can you just talk to, kind of, the current levels that you're at now? You know, if you look at the 650 that you've hit this year, it suggests you're probably, what, 300 or so sales in the second half above first half and pre-sales. You know, that, your guidance for 700, 800 is a bit stronger. Can you just square the circle there as well?
Let me start with where we're trading at the moment. We're seeing now the market at about 20-25 homes sales per week. We've seen that for the last three 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. One of the reflections I'll give, as 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 20-25 homes, that puts us to a level where 800 is in good shape.
We have close to 150 of those, either conditionally or unconditionally, sold for delivery in FY 2024, which is normal for this type of our business at this time of the year. Okay, was there one other that I missed there, but can't remember. Sorry.
Maybe you can talk a little bit about the competition. You know, we're hearing the bank's pretty tight at the moment on large scale resi development. Do you see that as, you know, a growing advantage for you, maybe heading into the end of the second half of next year?
I thank Ross every day for continuing to 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 home builders, and we tend to do, we do across the board. What we are seeing is we're seeing group home builders that took positions over the last six or 12 months, get quite worried about those positions, and the developers that were reliant on those also being concerned. What I think is some of the developments that were forecast to go at pace will now slow down. That's the nature of the market that we're in.
As Bruce talked about further, that's large in the group home builder market. In the smaller space, we're continuing to see the development of urban Auckland continuing. That supports Bruce's model as he's talked about earlier.
What are the implications of a, say, a longer, slower recovery on the property market and so forth, your capability and how your business unit responds to a longer, slower, drawn-out recovery for us?
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. We've got that ability to control those levers or pull those levers. As the market continues on, we'll continue to do so.
If you, if you look back at the forecasts of a year, two years ago, we were forecasting a greater amount of funds employed within the residential business. We paired that back because the market doesn't yet support that. We'll continue to use those levers to do so. When the market comes back, we're ready to then go and deliver the volume growth and the margin growth into the future.
Hi, Steve. Just a couple of quick ones from me. Could you give us just some basic thoughts on the complexion of those 750 sales that you're expecting next year versus this year? Particularly interested in, you know, some of those selling fronts where you've owned the land for a long time. You know, are we gonna see any change there, away or towards those and type of house? Then the NZD 30 million-NZD 40 million land development for this year, is that going to sort of broadly repeat next, or are we back to kind of.
more long-term levels. I'll answer the second question first, which is 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. You look at Whenuapai and Red Beach and Waiata, for instance, they'll continue to deliver the circa 80 to 100 homes per year. Then you look at places such as Beachlands and Swanson, down at Karaka and at Manurewa, they are all just building up their volume. 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. In the next 12 months, you'll start to see Okahukura, the site at Albany, come across.
You'll continue to see great sales out at Homai and Browns Road. Equally, you'll see some new developments coming through at Karaka, then we start earthworks in sites such as Drury as we go forward. The business model is managing within a funds base, Steven, but it's actually selling comparatively the same products as we always have. Apart from what we're trying to do is bringing more typologies into those markets which are seeing revenue growth, because we still want to be at a price point which is attractive to those markets. 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, that's symptomatic of what we do across the whole of that business. Look, from a land development, 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. One of the sites at Kaipātiki 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.
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 two 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. You'll see a drop from the NZD 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. 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. Look, our Australian division is a combination, as you know, as manufacturing and distribution sites. Their annual turnover now approaching circa NZD 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 marginally 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.
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%-7% range. This has been driven by essentially four things: one, a strong performance in the categories that matter. Two, our pricing and procurement strategies continue to add value, which, by the way, has lifted our gross margin this year by about 250 basis points, just to size that. Three, I think we're seeing robust operational discipline backed by strong governance. 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 are well positioned to reduce our emissions by over 50% by the 2030 target. 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. 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 2%-3% based on that Oz, that BIS Oxford data. 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. 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, it's things like Tradelink own brand.
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 2024. We're really leaning in to Tradelink to recognize it is diluting our overall performance, and we need to get it right. Earlier, I just mentioned Laminex Digital. I just want to dig a little bit deeper with you on this. In Q3, 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 means 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 a constrained market. This has been rapidly embraced, materially lifted our online Net Promoter Score. We firmly believe we can get this division moving to the 7%-8% margin corridor. What does that mean? Well, it means we've got to deliver another NZD 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 up 400%. 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. It's the 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. Stramit, for those who know Stramit, still a traditional rollforming 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 a lower cost to serve and a much better customer experience. We're generally excited about our performance in our sheds and our category area of Stramit.
It's highly accretive play for us, and we'll be expanding capacity into this area, which takes us on to the next slide, the next case study. In the beginning, I talked about winning in the categories that matter for value. Stramit's now fighting fit and will deliver its highest profit performance in 15 years. With a unique integrated offer in this business for sheds and doors, that means we're more than just a rollformer, and our Fair Dinkum Builds brand offers us much more pull-through. That's a clear growth opportunity, and we're investing to win in these higher margin categories, like roller doors. Committed to expand our turret and door operations on the East Coast. This will meet those vertically integrated demands where we've delivered over 50% growth in this category in five years through that Fair Dinkum Builds business. I'd like to close with this.
We have delivered NZD 50 million of EBIT growth this year. We know there's more to do. With momentum, we're well set for profit resilience through the cycle as we hold on to those margins through the expected market decline in FY 2024. Four out of our six 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 tears up for more growth in the medium term. Our capital investments really lean into supporting our growth phase as we continue on that journey of value creation in Australia. With that, let's move to questions, please.
Could you give us an update on what's happening in Western Australia with the pipes?
Yeah, sure. Thank you. Look, no material change to Ross'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, like the regulator. We're really lent in to supporting those builders, fix those leaks in the interim, which, as you know, was a NZD 50 million commitment without any liability or issue around where we've found any faults. It is a Western Australia issue for us at the moment, and we're keen to lean into that.
Has there been any news out of the regulator in terms of what their approach may be for, you know, existing houses that have that product?
No, we just continue to have good dialogue with the, with the regulator as we unpack a highly complex supply chain environment. Any more for me? Hi, Sam.
I was just about to sneak off. Oh, sorry.
Oh, sorry, Stephen. All right.
Dean, can you give us some clues on what you've seen in your residential exposures versus your non-residential exposures over this half? I'm just interested in, unpick perhaps some of the inventory changes that your customers are undoubtedly seeing and some, and weather as well, I'm supposing.
Yeah, I'm trying to avoid the weather. We did have bad weather as well in Australia, but I won't go there. The market has changed. I think consistent with Ross and Bevan's story earlier, the market in volume is down about 6%. You'll have seen, if you read the ASIC, there's about 1,600 insolvencies in the construction industry in Australia right now. Touch wood, we're navigating that pretty well. But there is softening, particularly in what I think we call in New Zealand, those large group home builder movements, though the sales pipeline, a lot of our businesses is still pretty encouraging. I mean, Tradelink's up 22% in its sales pipeline. Similar story in Iplex.
I think it's focusing where we can win for category by being mindful of that backdrop, Stephen. 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. We've got good price discipline, and that's supporting a good year-on-year profit growth for us.
Hey, Dean.
Hey, Sam.
On the margin, it's a great outcome in a declining market. Maybe could you unpack where the momentum is currently and near term, where the actual opportunities are?
Yeah. Yeah. Look, first thing, to 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, and we want to get to top quartile. Margin is a big part of that. 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? Three 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.
The other one, I think has been 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. That's good. We are seeing builders start to re-tender contracts. That's an opportunity for us. We talked about MPD and Vitality earlier. A lot of builders now are looking for two parallel programs in specification. Homebrand 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 dual brand strategy with Laminex and Formica. We have Tradelink, we have Oliveri. We have brands that suit that changing market, those wants and needs.
Did I not see a question? Sort of. Any more? I won't go past the sill. All right. Listen, well, thank you for listening to me. I'll now hand you back to Ross Taylor. Thank you.
To sum up, I'll go back to the slide that Bevan finished our introduction on, and 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 NZD 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 two year, two to three years. 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.