Hello, everyone. I'm Ross Taylor, CEO of Fletcher Building, and I'd like to welcome you all to our Investor Day presentation. While you'll be hearing from most of the executive team through the day, we'll all be focused on a couple of themes: what our areas of business are how we feel we have them performing what we see their outlook to be and finally, what we're doing to drive their growth into the medium term. Hopefully, we can bring this to life for you and get you all as excited as we are on where we can take Fletcher Building from here. We have structured the agenda to allow participants to stay for the whole day or jump in and out for particular areas of interest.
To ensure this works, we'll be sticking to the time shown on the slide. Through the day, we'll cover an overview of the full group a spotlight on our safety approach, our people and how we're driving innovation and sustainability and presentations on each of the 6 operating divisions. Following each presenter, there'll be an opportunity to ask questions for around 10 minutes. The exception to this is where we'll wait until Bevan and I have both spoken before jointly taking questions on the overall group outlook. And at the end, I'll wrap up with a short summary and a few final questions.
Also, following today, all these presentations will be available on our website for later viewing. This slide shows the full Fletcher Building executive team. And as you saw from the agenda, you'll hear from most of them through the day. This will be a great opportunity for all of them to interact directly with you and to answer any specific questions you might have on their businesses or functional area. I'd now like to run through a number of housekeeping matters and point you to some things that may enhance your viewing experience.
If you're using desktop, you can adjust your viewing panes by grabbing the edge of any window you'd like to resize and make it bigger or smaller, just like you do to any browser window. You can also move any windows in the same way. A big part of today's event is the ability to ask questions directly to all our presenters following each of their presentations. Questions can be submitted at any time, and I'd encourage you to do so as early as you'd like. On your screen, you'll be able to see a Q and A tab.
To ask a question, simply click the Q and A tab, type in your question and then press the New Question button to send it through. I'd also like to note a couple of things: that while you can submit questions from now on, they'll be not addressed until the relevant time in that session that your questions may be moderated, so if we receive multiple questions on one topic, then they're likely to be amalgamated together. And that we also have our sell side analysts on the line who are able to ask questions live over the phone, and we would encourage you to do so at the appropriate time. If you're using a mobile device, tap the menu icon at the top left hand corner to open the panel and then tap the Q and A icon. Enter your question to the text box and then to send, tap New Question.
Fletcher Building has a rich and impressive history in both New Zealand and Australia. We are in good shape. We have all the businesses well positioned to drive ongoing operational improvements and to land some exciting future growth opportunities. But before outlining these, I wanted to step back and provide an overview of the businesses that make up Fletcher Building. Fletcher Building is a leading player in building products and distribution with operations across New Zealand, Australia and the Pacific Islands.
In New Zealand, we have around 9,000 people generating $5,200,000,000 in revenue. Our businesses here span the broader construction value chain, from resource extraction, product manufacture, distribution through the property development and construction. And in Australia, we have around £4,500,000,000 in revenue. Here, we're focused on the manufacture of building products and their distribution. Just over half of our revenue is exposed to the residential sector, with the balance being relatively evenly split between the infrastructure and commercial sectors.
We have a diverse and strong shareholder base and are listed on both the NZX and ASX exchanges. Our New Zealand businesses have many well known and strongly positioned brands,
and
they generally hold either the number 1 or number 2 position in their respective markets. And while our main revenues come from the Auckland Golden Triangle area on the North Island, we have locations that cover the length and breadth of New Zealand. In Australia, we're focused only in our core areas of distribution and building products. And like our New Zealand businesses, they are number 1 or number 2 in their respective markets. And while we do have operations across all of Australia, our main revenues come from the Eastern Seaboard.
Slide 11 shows a high level view of the plan we've been working to in Fletcher Building for the last 3 years. We remain on track, and FY 'twenty one is seeing solid performance outcomes being achieved across all our areas of business. And pleasingly, this performance is showing up in our bottom line results. We are now in great shape to build from this position and drive both further operational improvements and above market sales growth. To reflect this shift in focus, we've amended the strategy framework we outlined at the market 3 years ago, and I'll now take you through this.
This slide shows a summary of our strategy framework on a single page, and I'll now talk to elements of it on the following slides. Our aim remains to be the leader Our aim remains to be the leader across New Zealand and
Australia in building products and solutions.
Our purpose blends 3 critical themes. It recognizes our obligation to ensure what we do is not just sustainable, but where possible, that we make things better. It calls out that we want to be smart about what we're doing, whether it's accessing the best ideas around the world or through innovation in our own right. And critically, we want to do this in ways that make our customers' lives easier, where we help them simplify a world that's getting more and more complicated day by day. We've combined these themes into a short and simple purpose statement, improving the world around us through smart thinking, simply delivered.
This purpose fits well with the four values we want to see consistently lived by our people across our organization: to visibly care about getting their workmates home safely each and every day to be bold, to speak up and have a go at doing things better to be focused on the customer, ensuring what we do is better than what the competition can offer and finally, to embrace diversity, respect each other and importantly, work well together as a team. These values define what it means to work at Fletcher Building wherever you are. I now want to move down the page to an area highlighted yellow on Slide 14. There are 5 key areas we're focused on to ensure we successfully drive towards the vision we have set ourselves. We have a belief all injuries are preventable.
We want to get everyone home safely each and every day. We want to see each business absolutely focused on its customers, making sure the solutions and services they're offering to them are better than what anyone else in the market can achieve. We need to be ever vigilant that we have our costs under control against both local and global competition. To achieve this, we will relentlessly benchmark, evolve and invest to ensure we maintain this position. We want the economic performance of each of our businesses to be in the top quartile of similar businesses, but globally, not just our local competition.
And finally, we need to take advantage of both our relative scale in New Zealand and Australia and our distance from the larger Northern Hemisphere markets. This allows us to innovate and drive sustainability as a fast follower and to disrupt our home markets and ourselves before others do. This done well should allow us to readily achieve above market growth in our revenues. Unsurprisingly, we want to see the traits in our people that mirror and reinforce what we're trying to achieve: a relentless focus on operational excellence a true global perspective and expertise, but critically, an ability to deliver this locally an obsession on driving better and better outcomes for our customers a restlessness that sees them constantly innovating and looking for both small and big things that drive growth and will make us better at what we do and of course, to be driven by our purpose and to live our values. This will be both their natural disposition, but also where we'll invest in our efforts in training and development.
And finally, we've laid out what we want to achieve from all this through a clear set of measures we put in place back in 2018. ROFI and free cash conversion, we've already achieved, and we now need to maintain them at or above these levels. For EBIT margins and carbon reduction, we've laid out clear plans and timing on when we expect to achieve these goals. And the others, while they remain more aspirational, we'll continue to measure and work towards them across all our businesses. We remain confident this strategy positions us well to drive growth in shareholder value across both the short and longer term.
We're focused, and we're running similar businesses across only 2 geographies. We have a very strong and robust balance sheet, liquidity position and operating cash flows. We continue to have a significant near term value creation opportunity in what I characterize as self help and in our control. And this should see our operating margins improve by a further 150 to 200 basis points over the next 2 years. Then looking to the medium and longer term, we continue to believe that the global and regional trends remain supportive for growth in our markets and for us to have a sustained competitive advantage from our scale in country positions across New Zealand and Australia.
And finally, we're confident that the many investments we have made in both growth OpEx and CapEx over the last three years will successfully mature over the medium term and underpin growth in our overall profits into the future. I now want to turn to our markets and then provide a short update on our present trading and future outlook. The market in New Zealand continues to look favorable. The economic backdrop remains robust, and we're continuing to see strength in both the residential and infrastructure markets. But while the many lead indicators, such as residential consents and the planned government investment and infrastructure are at record levels, this is not translating in a similar spike in work being put in place.
Market capacity issues such as the international supply chain bottlenecks and emerging scarcity of select commodities, the ongoing border restrictions keeping an effective cap on the availability of key skills and the generally low inventory levels across the industry will all combine to have an effect of smoothing these spikes and, in all likelihood, elongate the period the market stays at these levels. In Australia, the economic backdrop is also broadly favorable, and we're seeing forecasters pointing to increasing market volumes across all our sectors into the medium term. That said, the immediate story is a bit more complex when you dig down into the subsectors. In Residential, the strength is in the areas of detached housing and alterations and additions, while high density housing remains weaker. In Infrastructure, the key sectors we're exposed to, water, gas and civil subdivision, have been slow to recover.
But that said, the project pipeline is looking increasingly robust. And as you'd expect, the broader commercial market remains somewhat subdued. Against that market backdrop, trading conditions in the second half have been broadly consistent with the first half, and we expect the revenue for our full year to be around $8,000,000,000 Input cost pressures have been a feature of the half, and as the industry operates at or near capacity in certain areas, and in most cases, this has been flowing through to price. In New Zealand, I'm hopeful that the natural winter slowdown will allow the opportunity to rebuild inventory levels and alleviate some of the bottlenecks for the sector. We remain on track to deliver strong earnings growth for the year, and we expect to deliver a full year profit in the range of £650,000,000 to £665,000,000 This sits at the top end of our previous guidance.
Strong cash generation continues to be a feature, and debt levels remain low. Against this backdrop, we've announced our intention to conduct an on market buyback of up to 300,000,000 of our shares commencing in June. And as we noted in the interim results, the Board expects to declare a final dividend in August. As we look ahead, we are confident we can continue to deliver against the plans we laid out 3 years ago. We remain on track to get our overall EBIT margins to around 10% by FY 'twenty three.
This improvement will come from 3 key areas: lifting margins in Australia to between 5% 7% and construction margins to above 3% continue to drive margin expansion across the New Zealand core businesses and the profitability benefits we get from further growth across our higher margin residential and development business. At the same time, we've been actively investing both capital and overheads to set us up for growth beyond FY 'twenty three. Importantly, we are doing these investments within our ongoing overhead and capital envelopes. Our growth initiatives are focused across many areas and include product adjacencies, disruption opportunities, improving customer ecosystems and our own backbone systems to support them, modernizing and improving our manufacturing processes, delivering on our carbon decarbonization ambitions, growing to over 1,000 houses per annum and building a scale apartment business, to name a few. I'd now like to hand over to Bevan, who'll add further detail to this series presentation, and then we'll come back together for a combined Q and A when he finishes.
Thanks very much, Ross, and good morning, everyone. In this section of today's presentation, I'll spend some time running through Fletcher Building's key financial settings, the progress we've made towards achieving our targets and where we're focusing our investment over the medium term to deliver sustainable growth and shareholder returns. I'll also provide some more color on the company's balance sheet position and our decision to undertake a share buyback, which Ross spoke to briefly earlier. In June 2018, Ross and I laid out our key financial targets and capital settings for the company. These have remained consistent over the past 3 years.
And as summarized on Slide 23, we've made material progress towards achieving our targets. We'll look at each of these in more detail in the presentation. But to summarize here. Our key priority has been sustainably growing margins across the business, with a medium term target of 10%. Our efficiency programs in the past 3 years have delivered material cost reductions, and, as a result, a 100 basis points improvement in margin.
We now have a good base on which to drive ongoing performance and growth and a clear pathway to achieving around 10% EBIT margins in FY 'twenty three. In terms of investment and returns, we've consistently targeted a return on funds employed, or ROFI, of above 15%. This year, FY 'twenty one, we'll deliver a ROFI of around 18%. We've made some key investments over the past 3 years, which means our base CapEx envelope has now reduced to a sustainable range of £200,000,000 to £250,000,000 per year, including ongoing investment in growth and efficiency initiatives. On cash flow, our key focus has been improving working capital management.
We committed to improving our core division's working capital cycle by 5 days by F 'twenty three, and we've delivered on this goal 2 years ahead of plan. We've also seen very strong free cash generation in our residential and development business in the order of around 120% of earnings. This means that in FY 'twenty two, we'll be looking to rebuild land and housing stocks as we continue to scale this business. On balance sheet, we've had a consistent preference for more conservative metrics as we execute our strategy. We've reduced gross debt by around $1,000,000,000 and annual funding costs by around $100,000,000 Our target leverage range or the ratio of net debt to EBITDA continues to be a range of 1 to 2x.
We expect to exit this financial year at around 0.3x levered, which has been a key factor in our decision to return up to $300,000,000 of capital to shareholders through an on market buyback. Finally here, our dividend policy is unchanged, targeting a payout ratio of 50% to 75% of net earnings before significant items. We paid an interim dividend of $0.12 per share in March of this year, and the Board has stated its intention to declare a final dividend at the full year results in August. I'd like now to step through each of these areas in turn. On Slide 24, we lay out the key drivers that we believe will lift our EBIT margins from about 8% in FY 'twenty one to our target of around 10% in FY 'twenty three.
We have momentum here, having improved margins by 100 basis points in the past 2 years. Looking ahead to the next 2 years, the way we think about the pathway to the 10% target is in 4 areas. In Australia, as Dean will talk to later, we've materially reset our cost base. We've improved the operating disciplines in key areas like pricing and honed in on the profitability of a number of underperforming segments. This has expanded the division's margins from around 2% to around 3.5% this year.
We're now pursuing targeted growth to drive operating leverage on this base. Margins of at least 5% are achievable in FY 'twenty three, assuming a stable market environment, with an aspiration to lift to 7% plus. In construction, Peter will show later how we've totally reset our order book to a lower risk profile, which we are confident can deliver net margins in a range of 3% to 5%, and that's up from 2% currently. Our revenues are increasingly weighted to smaller projects, alliances and maintenance work, particularly in our Brian, Perry and Higgins businesses, where we're already delivering EBIT margins in excess of 5%. In our New Zealand core divisions, that's building products, Concrete and Distribution, EBIT margins have lifted from around 10% in FY 'nineteen to around 11% this year.
That's been driven by our efficiency programs, especially our investments in modern manufacturing and supply chain. As Hamish, Nick and Bruce will show later today, we think there's still room to expand margins slightly in the New Zealand core, mainly through growth in market share and pushing into adjacencies. Finally, our residential and development business has been one of our key growth engines. We see an opportunity here to deliver further top line growth in this division, both by scaling our base housing business and by pursuing growth in apartments and off-site manufacturing. We'll continue to target margins here and returns as well above 15% on a funds base of around $750,000,000 We expect this to be accretive to the overall group margins.
Turning now to Slide 25. This summarizes the impact of our efficiency programs over the past 3 years, which has been a key contributor to the margin improvement. In 2018, we commenced a significant piece of work to reset the cost base of the business. Initially focused on Australia and then on to our New Zealand businesses, this program has delivered more than $250,000,000 of gross cost savings. These savings have principally been in the area of fixed costs and particularly in our core divisions.
A portion of this cost out has served to offset inflation. But as can be seen here from the material improvement in overhead cost percentage, which has been achieved on a broadly stable revenue base, a significant portion of the efficiency benefits have dropped to the bottom line. We consider that our cost base is now broadly rightsized, and our focus from here is on pursuing targeted top line growth so that we can drive operating leverage across this space. As we'll show on a subsequent slide, we do intend to make some focused investments in overhead spend to support the delivery of these growth initiatives. Before that, though, I'd like to summarize our approach to capital allocation across the group.
On Slide 26, we show the focus areas for our base CapEx envelope, which is $200,000,000 to $250,000,000 per annum. Depreciation in our business, and that's excluding right of use depreciation, is around $180,000,000 per year, and our maintenance CapEx will be at around this level over the next 3 years. We're able to sustainably operate at this level of CapEx given some of the more significant investments we've made in recent years, especially in our products businesses. Important to note too that this maintenance spend of $150,000,000 to $200,000,000 per year is inclusive of our investments to accelerate the transformation of our core system environment. We consider this as critical to future proofing our businesses and providing the right backbone to support our customer facing digital tools.
Growth and efficiency CapEx will average $50,000,000 to $100,000,000 per year, and we continue to target a return of at least 15% on these investments. This will be focused on organic investments in modern manufacturing, on enabling entry into product adjacencies and disruptive categories and also investing in digital and customer ecosystems. The one major CapEx investment which sits outside this base envelope is our new Winstone Wallboards plant in the North Island of New Zealand. Winstone Wallboards is a world class business, and our current Auckland plant is nearing end of life. The new plant in Tauranga is a $400,000,000 project, which will enable a degree of manufacturing and logistical efficiency, provide the capacity to support long term demand for plasterboard in New Zealand and importantly, enable opportunities around innovation and sustainability.
The project is running ahead of schedule and remains firmly on budget. Ahead of schedule and remains firmly on budget. With this good progress, we now expect FY 'twenty one CapEx for the Winstone Wallboards plant to be around $80,000,000 versus our previous guidance of around $50,000,000 This is a timing variance only with no change to the overall project cost. Turning to Slide 28, we show the profile of our investment in the Residential and Development division. Land and work in progress in this business is accounted for as working capital, and so investments here sit outside the CapEx line.
In FY 'twenty one, the very strong demand for housing in New Zealand has meant that both our land and housing stocks have reduced below expected levels. Positively, this has meant that we've generated very strong cash flows, with cash conversion averaging 120% over the past 3 years. In FY 'twenty two, we intend to rebuild our land and housing stocks. This will enable us to scale our base housing business to around 1,000 units, pursue growth opportunities in apartments and off-site manufacturing and also trial a complementary retirement offer in our existing communities. This will mean a lower cash conversion in the next two financial periods with a net investment of around $200,000,000 expected in FY 'twenty two, bringing total funds to around $750,000,000 at the end of FY 'twenty two.
We do still expect to generate margins and returns above 15% on this capital base. As mentioned earlier and as shown on Slide 29, our focus on performance and growth will be supported by some targeted OpEx spend over coming years. In aggregate, we expect this to be in the order of $30,000,000 to $40,000,000 per annum. This spend is incremental to our FY 'twenty one overhead cost base, but is factored into our pathway to around 10% EBIT margins in FY 'twenty three. Our approach will be to test and prove out the growth opportunities rapidly and then either scale them or move on.
We expect a degree of additional OpEx investment will be required to support our investments in digital and backbone systems as well. And finally, the transition to our new Winstone wallboards plant towards the end of FY 'twenty three will result in some one off non recurring costs that we expect will be classified as significant items. To conclude the section on investment and returns, we're pleased with the strong ROCE that will be delivered in FY 'twenty one. Over the next 2 years, our investment will lift the operating funds base from around GBP 3,700,000,000 to a range of GBP 4,200,000,000 to GBP 4,400,000,000 Our earnings and profitability targets mean that ROCE is expected to stay above our long term target of at least 15%. Turning now to cash flow, and we highlight on Page 31 the improvements we have made to working capital in the past 3 years.
The target we set in FY 'eighteen was to reduce our working capital in our 4 core divisions by 5 days by FY2023 and to do so through improved management of inventories and receivables. We saw the opportunity here for a cash release of around $75,000,000 To support this objective, we significantly increased our performance reporting and changed our incentives from 1 based on overall trading cash flow to 1 based on the efficiency of the management of inventory and receivables. Pleasingly, we've delivered on our target 2 years early, and the working capital disciplines in these businesses are now well embedded. Given the strong market activity levels and supply chain constraints we're experiencing currently in some areas, we do see the need for a small amount of investment, around $25,000,000 in inventories to rebuild them over the next year. And that's to ensure we have the right resilient stocks and are able to meet market demand.
Otherwise, we consider that working capital in the core divisions is now at appropriate levels. As a result of the group's improved profitability and effective working capital management, cash generation has been strong. Underlying trading cash flow has totaled $2,000,000,000 over the past 3 years, with a particularly strong result expected in FY 'twenty one. Looking ahead, we expect trading cash generation in the quarter visions to remain strong, supported by further uplift in profitability and ongoing good working capital disciplines. At an overall group level, cash conversion will be lower in FY 'twenty two and 'twenty three as we return to cash tax payments in New Zealand and make the key capital investments we've outlined.
These will be investments we make, however, from a position of material balance sheet capacity. Turning to balance sheet and first to funding. Our objective here has been to materially reduce gross debt and our funding costs, while maintaining strong liquidity and maturity across a diversified set of funding sources. Since 2018, our gross debt has reduced by more than $1,000,000,000 and that's particularly through the exit of higher cost debt from USPP, and funding costs are down from $155,000,000 in FY 'eighteen to around $50,000,000 in FY 'twenty one. We expect our funding costs to remain at around this level in FY 'twenty two.
Our liquidity remains strong at around $1,400,000,000 as does the maturity profile of our funding at an average of 4.7 years. As mentioned at the start of the presentation, the group has had a consistent preference for conservative balance sheet metrics over the past 3 years. This approach was to ensure the key phases of our strategy, first to stabilize and focus and then to perform and grow, could be executed from a position of stability. Good levels of cash generation have meant that our leverage ratio, that's our ratio of net debt to EBITDA, has steadily reduced. At the end of FY 'twenty one, we expect this leverage ratio to be around 0.3x, with net debt at around $250,000,000 to $300,000,000 The capital investments we have planned for FY 'twenty two and FY 'twenty three will lift this leverage ratio above the current level.
However, we expect it to remain below the bottom end of the target range over the medium term due to the underlying cash flows being strong. Ross has mentioned our decision to commence an on market share buyback. Our approach is to regularly assess our balance sheet position and our investment opportunities in order to drive shareholder returns. We continue to have a preference for prudent balance sheet management as we execute on our strategy. We're confident, however, that the profitability, investment profile and cash generation of the business means that we're likely to remain below the bottom end of the target range for the medium term.
For this reason, we consider this an opportunity to deliver value to shareholders and drive accretion in earnings per share through an on market buyback. Therefore, we intend to commence the buyback of up to 300,000,000 of Fletcher Building shares, both on the ASX and NZX exchanges in June of this year. On Slide 36, we reconfirm our dividend policy, which is to target a payout ratio of 50% to 75% of net profit. We're pleased to have paid an interim FY 'twenty one dividend of $0.12 per share earlier this year, and our expectation is that the Board will declare a final dividend at the annual results in August. As the company returns the cash tax payments in New Zealand in mid-twenty 22, our expectation is that we'll be able to impute the FY 'twenty two final dividend.
As Ross has noted, FY 'twenty one EBIT before significant items is expected to be $650,000,000 to $665,000,000 which is at the top end of our prior guidance range. Trading conditions in the second half have remained broadly consistent with the first half, and we've seen continued strong benefit on the cost line from our efficiency programs. There's been some adverse impact in the second half from supply chain constraints as well as from some input cost pressure, particularly in energy and in steel. We estimate that the combined impact of these on second half EBIT has been around $10,000,000 to $15,000,000 In the land development business, the sale of the Gale site in Australia has exceeded prior expectations and means FY 'twenty one EBIT for this business is likely to be in the order of $50,000,000 That's about $10,000,000 higher than previously expected. On Rockler, the divestment process continues with completion targeted for the Q1 of FY 'twenty two.
If completed, the sales price is expected to be $60,000,000 which would mean an impairment of around $20,000,000 plus we have a reclassification of the foreign currency translation reserve on this asset of around $30,000,000 I'd highlight that both of these expenses would be non cash and that they would be significant items. Finally here, group CapEx is expected to be around $230,000,000 for the full year FY 'twenty one. This comprises base CapEx of about $150,000,000 which is in line with prior guidance. And as I mentioned earlier, CapEx of around $80,000,000 on the new Windstone wallboards plant. In summary and to conclude, the group has made material progress against the key financial objectives we laid out in 2018.
Our efficiency programs have delivered good benefits into the cost base, especially in reducing fixed overheads. We're now well positioned to drive operating leverage on this base through targeted top line growth. Our investments will continue to be focused organically with attractive opportunities, we think, across our products, distribution and residential businesses. We will make some OpEx investments to support this growth, targeting EBIT margin expansion to 10% and continuing to deliver returns above 15%. Cash management disciplines are in good shape, and we've positioned our balance sheet to support the key growth investments as well as the one off CapEx required to secure the future of the world class Whinstone Wallboards business.
The group's funding costs are low, whilst also maintaining strong liquidity and tenure in our funding lines. We are pleased to have returned to dividend payments in FY 'twenty one and also to be delivering additional returns to our shareholders through an on market share buyback of up to $300,000,000 over the next 12 months. We are confident that as the group continues to exit on its execute on its strategy, we're in a good position to deliver sustainable growth of these shareholder returns over the coming years.
Okay. So let's take the first question from the phone.
Thank you. Your first question comes from Lisa Hung from Citi. Please go ahead.
Hi, good morning, Ross. Hi, Bevan. I guess I just had I was interested in the comments you made about the industry reaching capacity. I guess can you talk about what you're seeing in terms of capacity utilization across your own network at the moment and whether there's potential to unlock a bit more down the track should the cycle run for longer than we expect? Thanks.
Yes. So we've got opportunity. We obviously plan to be able to meet the market as best we can and we do have runway to actually do that. The comments I was making were less aimed at ourselves and more aimed at the broader market and what we're seeing in our supply chain into the country as well as just what commodities are doing. And a general comment on inventory and the thing I'd say about inventory is this time last year, we all thought we're heading into quite a different market, which surprised us on the upside.
So people generally ran ourselves included inventory down a little bit, and I expect that to sort itself out to some degree through winter. So but I guess the overarching thing is that there are capacity constraints out there and it will smooth to some extent the jump in New Zealand to over 40,000 consents. It still means work put in place in my mind will be very solid to up, but it will just smooth it. So you're not going to see the same spike in work put in place as what we're seeing in residential consents.
Okay. Sure. So just to confirm, I guess, capacity constraints aren't impacting Fletchers at the moment?
Not holistically. There are areas where I'd say that's true. But across the board, broadly, we've got capacity to increase volumes and meet the market should we need to. I do think though that it's a broader market issue. So how many tradesmen have you got?
How many tradeswomen have you got? How many how much can you how much structural timber is there in the market? Those sorts of questions will which aren't our commodities or our supply chain are actually going to put a bit of limit there as well. So I think it's more of what's going on broadly in the market than particularly Fletcher Building.
Okay, sure. And I guess just second question for me. If I just look at the divisional EBIT guidance, concrete the concrete guidance is the only division that infers the slowdown relative to the first half. Can you just talk about what's driving that, just given the stronger demand environment? Thanks.
It's principally energy, Lisa, is the long and the short of it. You've seen, obviously, in New Zealand, very high electricity prices. We've had some hedges in place. We're broadly about 50% hedged. Long term, we're about $100 a megawatt hour normally, and you've seen electricity price in New Zealand up around $2.50 So that's been the main clip on concrete in the second half.
Your next question comes from Andrew Scott from Morgan Stanley.
Ross, a question for you. Appreciate all the color in the presentation, but we're looking now, obviously, record levels activity in New Zealand, Australia improving. You're talking about some cost pressures. When I look at your 4 sort of pathways to 10% margin in FY 'twenty three, I'm quite surprised we're not seeing a price optimization category there. I thought this would be the opportunity to really put price on the agenda from a head office perspective and try and drive those margins higher.
Wondering why that's not the case?
Okay. Look, the way I characterize is we've been on this journey now for over 3 years. We've had a very strong focus across the last 3 years on our pricing price disciplines. And a lot of the benefits you're seeing flow through the bottom line as we speak, a result of whether it be a cost based optimization or how we've got better at our own pricing disciplines and regimes. So the pushback I'd give you on that is that I think a lot of that works in place.
And what you're seeing is, as we've there's a there are inflationary pressures out there in the supply chain, particularly in commodities, and we've done well at moving price as a result of those into the market. And we've got a slight delta there, which Bevan sort of alluded to in his presentation. But I actually argue where our pricing disciplines are pretty good, and we're actually seeing the benefit of that in sort of the numbers that we're producing through FY 'twenty one. And I don't believe that will go backwards at all as we go forward. I think that will continue to improve, but it won't be the feature going forward as it has been in the last couple of years.
Okay, okay. Bevan, maybe just a question for you. The OpEx items you called out, there's a couple in particular around systems and decarbonization. I just wanted to understand, do you think those are return generating projects? Or do we think of those sort of cost of doing business, license to operate type projects?
On decarbonization, we're very bullish, as we've spoken before, Andrew, about the potential for that long term. That's obviously a bunch
of work to get to
that point, but long term, we think that's a real opportunity. So that's a return investment. The systems, the digital, it depends how you want to look at it. We think that's critical to what this business needs to do in the long term. As we've spoken about before, if we don't do that, we need to position the company for future growth around how it interacts with its customers.
So I'd argue it's growth, but you could equally say it's just what Fletchers needs to do in order to be in the shape that it should be in the next few years.
Your next question comes from Brook Campbell Crawford from JPMorgan.
Mine is on the Australian EBIT margin. It flagged that through the focus areas will be operating disciplined and targeted growth initiatives to drive that margin higher. Do you mind providing a key example for each of those two focus areas, please, just so we can understand what might drive the improvement from here?
Yes, look, sure. I'll do what I call a quite a high level sound bite on that because Dean, when he presents later in the Australian presentation, actually put some real meat on the bones as to where he's going with that. And a number of the businesses are actually got active programs on and I'll use, say, let's say, Lemonix as an example. We're driving really good progress through our range refreshes through the Lemonix core business where and introducing different products around that, that actually have high margins and actually are growth categories that don't cannibalize the base business. He'll talk about a whole disruption a kitchen disruption play as well, but I'll leave him to talk about that through that.
And then when you look at cost optimization, we've done a lot of the heavy lifting to now, but some of the things we're doing have a longer burn. You can't just overnight rationalize every DC around the country or every manufacturing plant. So there's a bit more of that to go as well. Plus, you've got to keep having an ongoing focus on it. But again, I just Dean will cover that in some detail to give you some real confidence around how he's working on both the cost base and also what he's doing to drive growth in that business.
And I think it's all very exciting and really does point to an ability to get into the 5% to 7% range over the next couple of years. So quite excited about what we've got going there.
Thanks. And just a second question again on Australia. I'm surprised to see there's not an expected bigger pickup in the second half EBIT versus the first half, just given the broader market demand has accelerated and taken into consideration the lag. And do you mind just sort of providing any comments there why perhaps we're not seeing that uplift and if it's sort of top line, lack of leverage or maybe some cost pressures?
Did you understand that?
Sorry, it was just very blurry. I'm looking perplexed because I didn't quite hear it properly. Bevan's ears are younger than mine, so I'll hand over to him to answer that.
So, yes, taking this out, look broadly that business operating as it should lead is broadly equally weighted first half, second half. You've seen a small benefit in the second half. But as others in the market have pointed to, we do have an elongated pipeline of work out there. The other thing I'd highlight is that we have had some of that steel cost pressure in Australia. So that's clipped Stramit a little bit in the second half as you've had the IPP pricing coming in through steel into Stramit.
So that's taken a little bit of the heat out of the second half result.
Your next question comes from Simon Thackray from Jefferies.
Your order pipeline looks solid, but there are some obvious and pretty apparent hand breaks in New Zealand as a macro prudential and government policy. You've said you're prepared to invest some OpEx to pursue top line growth above market. So taking your comment of a clear pathway to 10% EBIT margins or around 10% EBIT margins, I should correct myself, in FY 2023, including this incremental OpEx that Andrew referred to earlier, what are your top line expectations for the group through 'twenty two and 'twenty three to underpin your confidence in that margin target?
Yes. Look, I'd like to say we've been pragmatic about that. It goes back to my comment on, so you're seeing the spikes in residential. What we can point to is residential looks strong. I think it will get smooth, though.
I don't think you're going to see the work put in place follow the sort of consent spike we're seeing, even if it'll just take longer to flow through. We think infrastructure looks solid, simply because if you look at the government expenditure program, it's real and it might take a little bit of time to rev up, but it will occur. And look, commercial, the broader commercial is a bit more subdued, but not to any it's down a little bit, but not dramatically. So as we look at it, we're quite confident, I hate the term stronger for longer, but it should be sustainable at these levels for the foreseeable future is my view. We're not baking in a lot of growth in our assumptions.
We almost think it might all even out to be broadly flattish, give or take. So and hopefully, we're surprised a bit on the upside with that, but our outlook comments are based on a broadly flat work in place work put in place outlook.
That's helpful, Ross. I'm just wondering then about your ambitions to pursue above market growth. Is that in addition to this outlook you're providing in your margin assumption?
Yes. So when I look at that, I mean, and you'll see it come to life very much as each of the divisional CEs present because we've actually focused on in those presentations why do we believe our cost base where it is and profitability is sustainable, but then what are we doing to drive it beyond that. So that you'll get a good sense of that. And then as you mentioned, there's a lot of detail on there, but as you work through that, it'll hopefully bring that to life for you. But to give you the quick answer, I mean, the reason we still think there's a little bit of optimization and performance improvement around margins to do across a number of the businesses in our core in New Zealand.
So there's a little bit more there. But then what we've seen is, as we've pointed to holistically, we've been pretty active in investing either overhead or a bit of CapEx in the business to drive growth. And what you can see there is and we sort of pulled it out a little bit is, as we you can sort of talk about where residential goes and that's a higher margin business that drives it. We've talked about and you'll hear what we can think we can do in distribution, what we can do in concrete and what we can do across building products. So when you add all that up, that's where it's going to come from.
So it's a bunch of bits that will drive it and help us get there beyond the construction uplift and then the Australian uplift.
Your next question comes from Keith Chow from MST Marquis.
Ross, just a follow on from Simon's question. At this time, more so on cost. It seems as though the gross cost out program is largely completed. Just can you get a sense of whether there are some run rate benefits that flow through in FY 'twenty two and 'twenty three that should help you toward that margin target? And you've talked about cost optimization a couple of times.
Is it at all possible to put some sort of framework or number around that cost optimization at the group level?
Look, I'll let Bevan have a go at this. I clearly didn't land it on my response. So why don't you have a crack?
Very consistent with half year discussion, Keith. There's a little bit of run rate benefit from what we've done in 'twenty one into 'twenty two. And what I'd highlight is we do still have a range of initiatives going in the business, particularly in the COGS and warehousing lines of the P and L. So there is a chunk of benefit over and above what we've already delivered from new initiatives that will come through. But we're also very conscious, we're heading into what we think is a slightly more inflationary environment.
So we've got to eat that inflation. So when we talk about the cost base being rightsized, we're hoping aside from the additional investments in growth to broadly hold it and eat those inflationary impacts through the cost. So that's the way I'd be leaning into it.
Okay. And I think you mentioned there were some slight impacts from cost inflation through the period through the most recent period. Is it safe to assume that you won't be as upside down in FY 'twenty two on cost versus price, given some of these initiatives, should continue to generate some cost benefits going forward? Or should it kind of end up square for FY 'twenty two? Any thoughts on that would be appreciated.
You'll
see it's a good question, Keith. You'll see a more normal profile in 'twenty two. That's in 2 parts, the cost pieces you talked to and then also in Steve's business just around the timing of residential housing sales. The core divisions overall, they're about 49%, 51 weighted ordinary course. That's what we'd expect to be returning to and also with a normal profile when we're taking our houses to market as well.
So yes, 'twenty two should be returning to that more normal profile.
Your next question comes from Stephen Hudson from Macquarie Securities.
Just a couple of questions for me. I just wondered if you could remind us what the Australian high margin assumptions are for your FY 'twenty three target. I think you've got sort of 5% for steady volume and then 7% sort of high volume assumptions. Just what are those? Secondly, construction, is it core, particularly as you complete a lot of the investments in your core New Zealand business?
And then I guess a quick one for Bevan, can you give us a feel for what depreciation and corporate costs are going to be in FY 'twenty two?
Yes. Okay, Stephen, I'll start. So we haven't put out a high volume for the what gets us to the 7%, and I don't intend to. I mean, so basically, we've committed to get above 5% and if the volumes are better, we've actually laid out in our presentation, you'll see the market assumptions. So that's base.
So if they're better than that, then we start to get opportunity up. So I haven't really got into the, okay, if it's this, this and this, this is what the gradation looks like. So apologies, I'm not going to satisfy you on that. The on construction, our focus on construction has been very much about getting it through its recent journey and we're very close to that and we're seeing some great results in terms of where Peter and the team have got the business in terms of the order book and well through the legacy work. And that's what we're just focused on is how we got that get that business positioned so it's sustainable and profitable and a business we can have a lot of pride around and confidence around its performance.
And on the 2 others, Stephen, depreciation will tick up slightly from the roughly $360,000,000 this year. That's including right of use, but not significantly. And then on corporate costs, we'll be $55,000,000 this year. They'll tick up slightly in 'twenty two to around 60,000,000 and that's principally we got to lean into what's probably going to be a market study and there'll be a bit of cost associated with that. Otherwise, our underlying corporate costs are very much consistent with this year.
Thank you. Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Good morning, Ross and Devin. I just wanted to look forward as we come out of COVID and the borders start opening up. What type of, I guess, readiness does is SBU in, in terms of a slowdown? And also, what sort of lag are you do you think that you'll see in the market?
Yes. So look, I mean, you've always got to be ever ready. I mean, and I don't mean that to be a glib statement. And I think a good evidence of our tempo on that is as we sort of lent into what we thought would be a tougher market last year, we moved quite quickly to get ourselves fighting fit. So through all the cost focus and the sort of volatility we've sort of been dealing with over the last couple of years, I think we're very much fighting fit and got a very good fix very much across what our variable versus fixed cost is across the businesses and also have a good tempo should that occur to move quite quickly.
I mean, it's hard to get into any more specificity than that. So I'm quite comfortable. That said, I'm just not sure when the borders open, that's necessarily that's a bigger negative. I think there's a it's always hard to look too far forward. We have to use the forecast as much as anyone.
And the things I sort of get a bit of comfort out of is if I look at the both sides of the Tasman, the infrastructure investment plan by governments are big projects and that ends up getting momentum and going for a while. So I think that's quite solid. I think the residential side of things equally, because of the smoothing effect you're getting of the consensus, it just feels like that will go for a while as well. And I don't know how long it is, but that's what all the forecasters are saying. So even as borders ease over the next year or year and a half, I'm not expecting a precipitous outcome as a result of that.
I feel stronger for longer. But if it does move, we're ready to move with it.
Okay. And then just a bit of more of a strategy question. You made remarks in your outlook commentary that you're rightsized you've now rightsized the business. Do you feel that your portfolio is now right sized? Are there any particular gaps in your business offering that you think needs addressing?
So I think we've got ourselves to a nice place. We've got a business that's sort of got a good cost base. It's actually good tempo. And but clearly, where there's opportunities, I mean, I think we're in a relatively opportunity rich environment around us. And I don't mean that therefore M and A, I mean that in you look at the CapEx and the OpEx, we talk about investing, it's on adjacencies or product disruption.
And you'll get a flavor of that as we as the divisional heads present. So I think there is quite a number of opportunities around us to grow the business in our control through organic or capital investment, and that will come to life. And so I think it's quite exciting. I think it points to we've got what I call that margin trajectory we've pointed to over the next couple of years. But as you listen to the presentation today, I'm hoping you'll go away with that, gee, okay, there's a bunch of stuff the business is doing, which is going to fuel growth beyond that.
So I think that'll come out of today's interactions for you.
Thank you for your questions. We will now move on to the next presentation to ensure we stay within the schedule.
Okay. Thanks very much. I hope you enjoy the day. I mean, we've put a lot of work into this, and I'm hoping it gets across those messages I talked about in my intro. And we'll now pause and come back in about we'll go straight into it in a minute or so.
Anyway, whatever happens will happen on screen. I know I should have had a better transition than that, but I was always going to get a bit off pace at one point. But thank you.
As you've seen, a key element of our overall strategy is to get everyone home safe every day. As an executive and leadership team, we are absolutely committed to making this a reality. We set ourselves a goal of 0 serious injuries. This is an important interim goal on our path to preventing all injuries. We know that good safety is critical for our people and it is simply good business.
Our current injury performance is improving with serious injuries dropping from an average of 25 per year down to around 8. That means on average 17 more people went home safe to their families in the past year, free from serious or life altering injuries. That's a good start. Our total recordable injury frequency rate, our TRIFR, is down slightly from last year. With a TRIFR of around 5, we are better than most of our peers in Australia and New Zealand.
However, we know that the best companies in the world get below 3. So we'll be driving to get Trifer down under 3 as we continue on our path for preventing all injuries. To understand where we are and how we can realistically get to 0, we turn to global experiences and best practice. We wanted to understand how the best in the world have achieved 0 and a good safety culture. From this, we've established a strategic vision for our future and a realistic plan to get us there.
There are 5 fundamental pillars to this strategy. As an executive, we are fully committed to delivering each of these pillars to achieve our goal of 0. First, we knew we had to shift mindsets. It started with making Protect a core value part of our DNA. To achieve 0, we knew that we needed our people to personally connect with Protect and to believe 0 is possible.
2 years ago, when we embarked on this journey, only 42% of our people believed all injuries were preventable. That meant that most of our people continued to experience harm at the same rate. They expected that, that the injuries were just inevitable. We are pleased to report that our latest engagement survey told us that 79% of our people now believe all injuries are preventable. It's a good sign that our strategic focus is making a difference.
Secondly, we know that culture starts at the top and we know that safety needs to be line led not led by the safety team. In the past year, our leaders have completed over 4,000 leader walks engaging with our teams to understand the work that they do and supporting safety improvements. Our new safety leadership program was launched in February and is dedicated to developing our leaders further, connecting with their hearts and their minds, providing them with the skills to grow and lead safety more effectively. A key aspect of the leadership program is that it is facilitated and coached by the line managers leading their own people on the safety journey. It is truly line led.
The 3rd pillar of our strategy is enable the frontline. As our leaders grow through the safety leadership program and they start to embed our values, the frontline is being enabled to think about safety differently. We've been working with the frontline to shift their mindset, engage with Protect and agree a few simple life saving rules, simple actions that we know can save a life. In the coming year, our frontline development program will be line led as well and it will connect with the hearts and minds of our frontline teams. It will be focused on enabling our people to speak up, challenge their risk perception and shift the way that they think about safety at work.
Manage critical risks is a key pillar of our strategy. This past year, our leaders learned how to complete risk containment sweeps on their sites. Now they're out there every day with fresh eyes hunting out and containing exposed risks that could have caused serious or fatal injuries if they were left untreated. In the coming year and beyond, we'll be implementing a full critical risk framework based on global best practice. This approach will enable us to focus in on a few critical controls, verify that they're in place and assess their effectiveness.
This will give us confidence and visibility over the things that really matter to save a life. And the last part of our strategy is focused on driving accountability. We wanted to get confidence that we had the right organizational structures, systems, processes and plans to support our vision and goal. As part of this, we've ensured that we have EHS councils in place, so our leadership teams govern the safety performance and plans for their businesses. We've committed to simplifying and decluttering our safety systems, so they're clear and focused on the right things.
We've reviewed our safety functional support both capability and reporting lines to enable the safety team as trusted partners of Lyme. We also reviewed our targets, plans and reporting to ensure that they were aligned to our strategic focus. As part of this, our leadership team now actively embraces the red to help our people respond in a measured way to bad news and we regularly celebrate the grain sharing the great work being done across our businesses. As you can see, we've done a lot of work to shift safety across the organization. However, we know we're not done yet.
We know it takes years to change a culture. We're now into our 2nd year of this journey and we want to share with you some of what we've been doing to protect our people and build a safety culture we are all proud of, a culture where 0 injuries every day is possible. It's really important that you hear about this work from the Chief Executives who are really leading and owning this journey.
Flitcha Building's safety commitment is to get every person that works for us or with us home safely each and every day. Fundamental to achieving this is that all our people believe that 0 injuries are possible and that they are authentically committed to this outcome every day that they come to work. This expectation is specifically called out as one of the core values that we look for and expect in each person if you wish to work here with us at the Fletcher Building. Our Protect Safety program is focused on ensuring this belief is real and embedded across all the people in our organization and to provide them with the skills and the tools to help them achieve this.
Along with the values, the executive and business leaders came together and identified 4 behaviors. These were simple things that all our people can do every day to make a difference. 1, believe all injuries are preventable. We need to believe in order to make 0 possible. 2, never walk past, speak up and take action.
This is critical as we all have a role to play. 3, celebrate the good stuff. We realize that safety can feel really negative and prescriptive, but there's a lot of good and creative stuff out there, and we need to celebrate it. 4, care for each other. This came through strongly from our business leaders as fundamental to our DNA.
Leader Walks have been a foundation at Fletcher's for a few years now. Now we are taking them to the next level as we start to embed our new way of thinking and our role in driving safety. As leaders, we are actively engaged in safety, walking the walk, getting out into the business and genuinely listening and engaging with our own. One way we think about this is that we all have monthly scorecards, KPIs. But it's not until we get out onto the field that we understand how the game is truly being played.
One of our greatest challenges was to get all of our teams on board and pulling in the same direction. A big part of this were our mirror walks. Basically, a mirror walk is having the voice of your people and the experts reflected back at you, a process that's quite confronting. It made every person in the room really reflect on the reality of safety in our business and what kind of future we want for our people. Very powerful and sobering sessions.
We recognize that safety culture starts at the top with us as executives and our leaders. We developed the safety leadership program, which is by us for us and is focused on shaping the hearts and minds of our teams. This started with Ross leading out with the executive and each of us cascading to our businesses. Our people have told us that it's been powerful for their own leaders facilitating workshops and sincerely leading these discussions. Additionally, the vulnerability of our leaders sharing their personal safety stories has made a significant positive impact on our people.
A key activity our managers have been driving to ground this year is risk containment. Basically, risk containment involves people sweeping their sites with fresh eyes and fresh thinking. Essentially, they're hunting out the stuff that can cause serious or fatal injuries and actively containing these before anything happens. It's been very effective and we're starting to see some fantastic results.
When we looked at our critical risk, we knew there were some things that people could do to make it personal in their lives to help save a life. We've called these our life saving rules. And as we rolled them out, we intentionally gave our people an opportunity to express their why. Why do they want to go home safe? They're whanau every day.
By focusing on this why, it's helped build a national commitment and a real purpose around why we exist for everyone to start playing a part in driving a goal to 0 injuries every day.
Okay, great. Let's take a question from the phone. Do we have any questions?
Thank you. Your first question comes from Peter Wilson from Credit Suisse. Please go ahead.
Thanks. I'll withdraw this question. Cheers.
Thank you. At this time, we are showing no further questions. I will now hand back to the presenter.
Do we have any questions on the webcast?
With the first question from Webb, how realistic is it to aspire to 0 injuries?
It's a
good question. Look, the executive, we spent a lot of time carefully thinking about this one. We set 0 serious injuries as sort of the interim goal for us on our path to all injuries. And it was an important time of reflection and we thought about it very carefully. But really, there's no other acceptable goal to set for us.
And we truly believe all injuries are preventable, and we really believe in the strategy that we have to get us there.
Next question from the web. What's been the response from business leaders with expectations that safety is Line led?
Yes. You heard me speak to the fact that Line really has to lead this and it has to be by them and for them. And it's quite powerful, to be honest. I think the fact that we led this from the top, I mean, Ross really led out and the full executive all led out on this. So that really set the expectation, but it also set the example for what we needed to do to embody this and bring it to life.
And I have to say the GMs, the managers, the senior managers have all really stepped up to the plate. They're leading the safety leadership program. They're doing the risk containment walks. They're really owning it. And I think they're really starting to feel those results when they're connecting with their people.
Thank you.
Thank you. There are no more questions from the web.
Okay. Thank you. I'll now hand you over to our next presenter, Hamish.
Hello, all. I am Hamish Macbeth, the Chief Executive of the Building Products Division. For those who don't know me, I'm approaching 20 years with Fletcher Building, working across a variety of operations management, sales and senior leadership roles during that time. I started in my current role as Chief Executive of Building Products in May 2019. The Building Products division is the leading building products provider in New Zealand.
We view this division in 3 parts: products, pipes and steel. Products consist of Winston Wallboards, Lamin x and Tasman Insulation. Winston Wallboards is New Zealand's only manufacturer and distributor of plasterboard under the iconic Jib brand. Lamin x New Zealand provides an extensive range of decorative surface and panel products. It manufactures particleboard and low pressure laminated products and distributes a range of products, including Strand Board for Micro HPO and Caesarstone.
Tasman Insulation is New Zealand's only manufacturer of glass wall insulation and distributes under the Pink Batts brand. They also sell a supporting range of insulation product offerings like building reps and things like that. Pipes grouping consists of Humes and Iplex New Zealand. Humes is a manufacturer of concrete pipes and precast concrete products. Humes also has an extensive branch network allowing it to offer a complete range of civil drainage solutions.
Iplex is a manufacturer of extruded plastic pipes and provides a wide product offering across a broad range of sectors. The business has also added large scale mobile extrusion capability in the past 12 months. Steel is a portfolio of businesses that come under the Fletcher Steel umbrella. We view this business in 3 sectors. The distribution sector contains Fletcher Wire Products, Diamond Structural and our largest steel business, Easy Steel.
The roofing sector includes diamond roofing and Pacific Core Coaters. The final sector is infrastructure, which includes Fletcher Reinforcing and CSP. Here you can see an illustrative representation of our network. We have a solid presence across New Zealand and over the past 3 years have consolidated a number of sites, which has allowed cost resets and relocations to purpose built facilities. As an example, we've just built a new combined Tasman Insulation and Lamin x facility in Christchurch, allowing us to exit 2 30 to 40 year old sites.
We are regularly doing network optimization, and we have an ongoing pipeline of activity, but it's fair to say the majority of the heavy lifting has now been completed for our division. The Winston Woolboards Talrico plant is the natural exception. All of these businesses have a strong market share, but nevertheless need to compete against both strong local competition and imported products. The market sizes demonstrated here are currently defined by our existing product offerings and traditional product uses. A key part of our strategy over the next 2 years is to introduce new products and innovation of existing products to expand the overall addressable market of this division.
The circle on the right of Slide 4 shows the Building Products division revenue is split across 3 main sectors, but weighted towards a higher residential exposure. Based on the work put in place projections, our current pipeline of new products, we believe this revenue split should remain broadly consistent over the next few years. We have derived a strong benefit from the cost base reset post last year's lockdown and coupled with the strong demand environment has seen our EBIT margin improve to 14%. The medium term demand forecasts give us strong confidence this level is sustainable. Return on funds employed has remained stable at around 25%, but as the new Winston Woolworths Telrico plant investment crystallizes into the fund space over the next 24 months, we will see this return on funds trend down to circa 19%.
All business units are driving improvements in customer service and engagement. Targeted digital investments are delivered improving improved customer intimacy, and we will continue to invest in this space. Our average NPS across the division has improved steadily over the past 2 years. Staff engagement has held steady through a challenging period for all our teams, and we are very aware of the stresses the past 12 months have put on our people. We have just completed our engagement survey and working closely with all our teams to cover off any areas of concern.
Carbon emission is broadly flat for us when FY 2021 is annualized. We have a very defined pipeline of emission improvements, which largely materializes as we modernize our plants and supply chain. Our key areas of focus are Winston wallboards, Tasman Insulation, Pacific Core Coaters and Lamin x Taupo, whom all have industrial ovens as part of their processes. Wallboards, Tasman and Pacific Core Coaters all have new oven upgrades in play over the next 4 years, which will materially improve their positions with further upgrades planned prior to 2,030. Lamin x Taupo is still exploring the best solutions for its upgrades, but will likely be solutions in FY 'twenty six.
We also have strong engagement with our freight providers around hydrogen and electric powered solutions that are becoming more feasible for adoption over time. Tasman Insulation has just converted its manufacturing plant to electric forklifts, and we're using this as a trial site to test more broader rollouts. The core of the division is strong, and we see good opportunity to achieve small share gains in our main markets in the near term. We have been involved in regular global innovation scans in the past 18 months, which has introduced us to a wider range of cost effective automation solutions and accelerated our new product and innovation pipeline. In the past 18 months, Winston Woolworths has seen strong growth in its weather line rigid air barrier product.
Its purply pink color is very distinctive and quite visible as to its growing adoption as you pass through developments. Barrier Line into the Tennessee solution is also growing well, and this introduction has timed well with the changing style of housing solutions offered in New Zealand. Iplex has entered the rainwater market in recent months, and although early in its rollout, we see good interest in our alternate solutions. Diamond Roofing is experiencing good growth in its solar roofing profile, Solar Rip. The solution allows for an aesthetically appealing solar roof, and with PV technology improving has now made this premium offer more achievable for homeowners.
CSP is seeing good growth and demand for higher products that are solar powered like lighting, security cameras, etcetera. This year, we have also introduced solar pods to our higher range, which essentially acts like a mobile power station and is ideal for the early stages of large infrastructure projects where site power is not readily available. A key deliverable of our new product program over the next 2 years is to widen the addressable market our products cover. In addition, we have established a new ventures team to identify and execute on medium term growth adjacencies. Our automation investments are ensuring cost pressures are controlled, capacity is expanded and services improved.
Tasman Insulation is a good example of where some targeted introductions of modern automation have seen productivity improvements of 7% over the past 24 months. In all these cases, the solutions have used less floor space than previous equipment, and this has allowed us to explore expanding product offerings from the same existing footprint. Lamin x is about to commence a similar program that will free up capacity upon completion. This will allow us to speed up the introduction of new products into our existing distribution network. Hughes' 2 thirds through an extensive network optimization and plant automation program.
This has seen us consolidate from 27 distribution sites down to 14 sites and move all our North Island pipe manufacturing into a single site in Papakura. This network consolidation has significantly reduced the business cost base, but has an impact on the volumes processed and we are seeing improved customer engagement metrics. We have identified 4 new locations to round out our network coverage and plan to open these 4 new branches over the next 9 months. Once completed and when combined with our partner distributors, Humes retains a very good coverage of New Zealand for short lead time products and systems. In the next 12 months, we aim to complete an automation upgrade of our Auckland pipe manufacturing.
This will improve capacity, modernize handling equipment and increase the undercover processing area by onethree. Once fully operational, we expect to be able to free up around 20% of the site's land to the Fletcher Building industrial development team to repurpose. Humes is delivering very solid year on year improvement on all areas of the business, and now on completion of the FY 'twenty two program, we'll be very well positioned to deliver solid growth into the subsequent years. The steel sector was very challenging in FY 'nineteen and FY 'twenty with sharp margin compression evident in FY 2019 and the first half of FY 2020, coupled with declining steel prices. There was initial improvement in the second half of FY 2020, but then the lockdown generated construction delay exposures and bad debts to round out this period.
Throughout these challenges, the steel businesses have remained robust and have quickly bounced back in the improved volume environment of FY 2021. We continue our strong focus on cost minimization and have continued investment in plant modernization and automation and reinforcing diamond and Easy Steel. Our next major investment will be the upgrade of the ovens for our Pacific Coil Coaters business, which will occur over the next 2 years. Once completed, we will see improved operational efficiencies and we'll have better capability to offer improved product offerings. The existing ovens are over 35 years old and with the new oven technologies of today, we're aiming for a 50% reduction in carbon emissions once commissioned.
Over the past 4 years, we have been undertaking a significant network optimization program, which is largely completed now after we moved our Wellington branch into a new purpose built facility in the latter part of 2020. Our footprint is designed to be able to provide high availability locally on short lead time categories supported by large DCs in Christchurch and Auckland for the larger quantity products. In commodity based businesses, your key differentiators are people, service, technical knowledge and availability. Steel has a strong engaged team, and we have continued to invest in specialist product knowledge. Our steel lab has again expanded this year, giving us further in house ability to support our customers.
Steel availability is the key challenge for the industry at the moment with both local mills and global mills struggling to supply on time. We are seeing lead times expanding and shipping is proving to be unreliable, which has been well documented. We are managing, but we'll look to try and expand stock levels a little in the short term to help mitigate impacts on our customers. Overall, the business is well positioned for further growth and, in particular, have opportunity to expand our product offerings in the infrastructure part of the business. Next, I'd just like to play you a video highlighting the key elements of Winston Wallboards and where we are at with our new plant build and some of the improved capabilities this will deliver.
With the new capability in mind, we've expanded our new product development team in Winston Woolworths to focusing on expanding our product range opportunities ahead of the commissioning. As of today, the construction phase is progressing well and is tracking slightly ahead of our original plans. All equipment suppliers tracking to plan, and we have arranged for early delivery of some equipment to mitigate possible shipping delays. In closing, the Building Products division is well positioned. Post our cost base resets and refreshed business strategies, we're getting significant improvements in performance.
Our current EBIT margins of circa 14% are sustainable at current activity levels. We maintain a strong focus on modern automated manufacturing plants to continue to drive operational efficiency and our investment program supports this. We refreshed our new product development focus around 18 months ago and we're starting to see the benefits of this coming through. A key focus has been to take our capability and broaden the addressable market. In addition to this, we have established a team to explore opportunities to push into adjacent sectors to deliver medium term growth.
That completes my presentation today. We're now open for questions. Okay, we'll start with questions from the phone.
Thank you. Your first question comes from Keith Chow from MST Marquis. Please go ahead.
Good afternoon, Hamish. Thanks for taking my question. My first question is just on the Lamin x business. I think you mentioned the Christchurch facility has been upgraded and Taupo is on the cards. Just wondering, when these investments are completed, how cost competitive do you think you will be relative to your competitors?
And from a product perspective, how does that place you or what position does that place you to compete more effectively against your key competitor in the U. S. Sorry, in New Zealand?
Yes. So look, where we currently sit now, we think we're effectively as we're operating now, we're cost competitive. And the recent changes we've made in Christchurch has just really improved our distribution cost in that space. So not a marked step improvement, but enough to make sure we're competitive in the South Island. What we're looking at and just really exploring at the moment is around the Lamin x Taupo, what we need to do to upgrade that.
Yes, part of that is to deal with carbon emissions, Part of it is to look at new products and capacity and those sort of things. Early stages, I think if we go ahead with what that looks like, that will put us in a very good position from a cost perspective, particularly locally and internationally, to be honest.
Okay. And then my second question just on the potential investigation of the New Zealand Commerce Commission on building products. Granted, there's been a report that the Flitch Building was done back in 2018, which sets out some views. But is there anything we should be aware of or cognizant of with respect to your portfolio of products that we may need to pay a bit more attention to in respect to that investigation?
No. And actually, we're well aware of the government's intention to proceed on that path. And look, we're very comfortable that where we sit in terms of our competitive offerings to the market as we go forward. So we welcome it and we'll participate and cooperate fully, but we don't have any concerns at this point.
Your next question comes from Simon Vaccaro from Jefferies.
Good day, Heinish. Thanks very much for the update. I've got 2 questions. First of all, can you just talk a little to the import competition across the portfolio? I mean, obviously, subject to some of these supply line supply chain constraints.
And where you
think you need to be
the most vigilant would be the first question. And the second one is you talked a little bit about expanding your total addressable market, your TAM. Can you give us a sense of where you really see the opportunities to increase TAM and the materiality of that expansion versus the base business? Thank you.
Yes. Okay. So the import side of things, that was from the competition side. So every part of our business ultimately faces import competition at the moment. We've benefited this year clearly from having a local manufacturing footprint because the supply lines into New Zealand on all products, and that includes raw materials versus finished product, which royalty competing against has been quite challenged.
So we've had a number of opportunities to increase a little bit of share, and naturally, we hope to hold that going forward as we move forward. And what was the second question, sorry?
TEGGLE is around total addressable market.
Yes, the total addressable market. And how big? We've got 2 areas there. We're looking at some immediate stuff really, which I talked about just the rainwater, for example, for Iplex as a new adjacency for us, which we haven't been at before. The incumbent in that area has got 100% market share.
So, yes, that's a reasonable opportunity for us and just as a single example of what's real and what's now. We've also got quite a new product program, which you've seen me refer to, that's going through, which a key part of that is just really working out what can we take in terms of our existing product groups and move them into other areas. So Jib is a key one for that. With the capability of new plant coming online and also sort of improvements we've seen internationally and some ingredient mixes you can make, we really think we can take our existing Jibson offerings, combined with our new technology and just sort of move them into different envelopes in the building envelope, so you can take exterior claddings and those sorts of things. So they're all considerable markets, dollars 50,000,000, dollars 100,000,000 opportunities in terms of market sizes that we can potentially move our products into.
So we think there's some really clear opportunities in terms of those new products. And then naturally, we're exploring total new markets, which I haven't pinned down yet. We've still got a fair bit of work. I've got a team looking at that, and that's probably more FY 'twenty four type opportunities.
Your next question comes from Peter Wilson from Credit Suisse.
I was just hoping, can you provide a little bit more detail on the Hume's, I guess, new distribution strategy? And also, I guess, give some color on in terms of the consolidation of distribution sites and the manufacturing sites, how far you are through that journey and how much of that benefit will come through FY 'twenty one as opposed to FY 'twenty two?
Yes. So that one, we've already so in terms of distribution changes, we had quite a, as we said, 27 sites. It was but it was quite an old network. And equally, geographics have moved and demographics have moved. So a lot of those sites have sort of been mispositioned.
So we've taken opportunity over the last 3 years to really consolidate them into better locations. Noting that I said, we've still got 4 to add to sort of round out that total presence. And in the same time, we've modernized and or installed the process probably a year to go in terms of modernizing the plants there. And we're seeing good improvements in terms of customer engagement from those new sites as we deliver through. In terms of the manufacturing side of things, we've had good consolidation by closing the plants in the North Holland down to that single site.
And at the moment, we're upgrading that single site even further. So we're probably benefit for this year in the humans business is probably in the region of £2,000,000 to £3,000,000 really just in terms of the cost base or the consolidation. This year, we don't get too much benefit from the upgrades in the Papakura plant. That more flows through into the subsequent year FY 'twenty three, where we'll probably get a 20% lift in that particular business as we go forward.
Okay. Am I right in saying that, I guess, you're leaning on the Myco network a bit to be your, I guess, retail store pool?
Yes. We do have yes, we do a little bit. So Meiko definitely represents us a little bit in the outer regions as well. It just we also have other partners that we sort of have distribution ships with, and that's but Meiko is a key part of that as well. It just gives us that more points of
How does that tie to your commercial strategy, your kind of personnel, your marketing, your pricing strategy?
Well, they're very they're separate business. I mean, the humes business is particularly focused on the civil pipelines. Where the mica sort of crosses over is more on the drain layers. So you have some drain layers who prefer to use the mica mentions. And so really, it's just a line to making sure we're getting a good offer of our overall products because don't forget the Humes network also represents the Iplex product line.
So it's just really getting as much points of presence we can get for our Humes products and our Iplex products into the market.
Your next question comes from Stephen Hudson from Macquarie Securities.
Just a few quick ones for me. I just wondered if you could give us a feel for how separate the New Zealand Building Products businesses are from their Australian sisters. Secondly, with the extra 10,000,000 square meters of capacity you're going to be getting down in Tauranga, Is that just future proofing New Zealand for New Zealand demand? Or could you push into Australia? And then thirdly, can you give us a feel for what the steel business did in the second half?
Was it as strong as the first half?
Yes, okay. I'll go backwards because it's easy if I remember. So the steel business here was broadly in line second half, first half is how we've gone through. Different mix of how we got there, but basically in terms of where it's landed, it's broadly the same as the first half. The how operationally close are we to the our sister companies in Australia, look, we do talk.
Naturally, we're a little bit different in terms of size and scale, but where we've got automations or innovations, we naturally do share them and then we also do benchmark against each other in terms of operational sort of elements. And what was the second one? I forgot my second one, actually.
Just the 10,000,000 square of capacity out of China or the unit equivalent. And could you push into Australia?
Yes. So the extra so at the moment, one of the key reasons for building the plant is we are starting to come up on our maximum capacity on our existing plants. We've got a little bit left, but the new plant address fee addresses that. Yes, it is designed for future proof in terms of just the growing demand because this is a 50 year investment. And then also, we are looking at making some other products for some international partners on their behalf.
So we will look to export some products to other people, not specifically necessarily Australia, but we've got some partnerships that we want to use that capacity for as well. We're very good at making high end sort of niche trades on board, and that doesn't necessarily suit some of the bigger operators overseas. So we'll take advantage of that.
Your next question comes from Marcus Curley from UBS.
Hamish, just wondered if you could talk to what sort of margin benefit you get from the new when it's operational? And secondly, can you just talk a little bit to the pricing environment for building materials at the moment? Obviously, you spoke about holding on to margins, sustaining margins, but what level of pricing are you going to put through to match the cost pressure?
Yes. Okay. So with the new wallboard plant, interesting enough, our existing plant is very efficient. And I think we're recognized globally for how we produce wallboard. So the new plant, it's not a big tick up in terms of efficiencies on the plasterboard manufacturing element, but we do get significant freight benefits.
The fact that we're combining all our distribution into one site and then and then its location, which was a key bit of work for us, does give us a cost benefit in terms of distributing from freight. It's not massive, but it's in the percentage sort of ranges. And what was the other question, sorry?
What's happening on raw
material prices? Yes. So look, it's a very fluid market at the moment. We're seeing significant raw material movements across the train. And then shipping also is a significant one.
So it's a very volatile is probably a good way to put that. So we're doing regular monthly reviews on our position in terms of the cost of raw materials and being coupled with freight. And we're probably finding freight as the biggest unknown variable, which is sort of changing on a monthly basis depending on what you need. And some of the decisions we're having to make around do we spend more on freight to guarantee something here is a big one. So all our building products are regularly reviewing and most at the moment having to do sort of 2 monthly or 3 monthly price movements in the market, which range is a big range, but probably sort of 2% to 5%.
And as we sit here today, it's still continuing on as we go forward.
Thank you. There are no further phone questions. I will now hand back to the presenter.
Okay. Do we have any questions on the webcast?
We have one question from the webcast regarding Laminex productscustomers. Is there competition from thermal wrapped cabinet fronts, etcetera? What's the response?
There's a little bit, but it's not significant at this point, but it is an area that we're looking at at the moment, and that's one of our areas that we're thinking about possibly investing in, in the next 12 months.
There are no further questions from the web.
Okay. Thank you. I'll now hand over to the next presenter, Nick.
Good afternoon. I'm Nick Treiber, the Chief Executive of Fletcher Concrete. I'm very pleased to be with you today to provide an overview and insights about Fletcher Buildings' Concrete division. I joined Fletcher's earlier this year after more than 18 years with Holcim. I led several of their key operations across the globe and most recently, their home and testing ground in Switzerland and Italy.
At the core of my work was to drive the company's transformation in innovation, digital and sustainability. Fletcher Concrete is New Zealand's leading concrete company based on strong brands, capabilities and footprint. We cover the full concrete value chain and are the only in country manufacturer of cement. Fletcher Concrete consists of 3 businesses, each of them leader in their area with long heritage and iconic brands. 1st Concrete is the leader in 3 areas: certified concrete, ready mix masonry, covering a wide range of concrete blocks, veneers and pavers and drycon, backed dry concrete.
First operates more than 80 plants across New Zealand. Golden Bay Cement operates New Zealand's only integrated cement plant at Portland in Northland. Golden Bay has a comprehensive distribution network by truck, rail and ship with 6 service centers nationwide. Winstone Aggregates operates 17 Aggregates and Clean Fill operations across New Zealand as well as comprehensive logistics services with a fleet of more than 70 trucks. We have a unique nationwide footprint and strong production, logistics and service capabilities to serve the needs of our over 4,000 customers across New Zealand.
We do this from our more than 100 points of sales from Kateia in the north to Invercargill in the south. Our products and services are customer and application specific, with Firth alone offering over 1,000 concrete mix designs. Our team consists of about 1200 concrete people. To serve our customers, we annually complete more than 38,000 nautical miles of cement shipping, 225,000 truckloads of aggregates and 340,000 ready mixed concrete deliveries. As can be seen on this map, our footprint allows us to serve both the major centers as well as local markets across the concrete.
Looking at the whole concrete value chain, we have a well balanced position. And we are the leader in each one of the main markets, be it certified ready mix concrete, aggregates, cement, masonry or drycon. This allows us to be the technology leader and capture respective synergies. It also provides us with attractive growth opportunities, especially in the fragmented concrete and aggregates markets. Our exposure to main construction sectors is also well balanced and particularly strong in the growing residential and infrastructure segment.
We expect concrete to benefit from that growth based on its benefits related to local availability, versatility of application, sustainability as well as fire resistance. Over the last years, we achieved solid absolute EBIT improvements. We lifted our EBIT margin from 11% to well over 13% and our return of funds employed from 14% to over 18%. We achieved this on the back of focused volume growth, strong cost improvements as well as pricing and investment discipline in all three businesses. Our performance improvement is also reflected by our non financial measures, such as the well below industry average health and safety injury rates, the improved customer Net Promoter Score, the high people engagement or our 20% lower CO2 footprint versus imported cement.
Looking forward, we are confident that we can sustain the current momentum, driving further margin expansion of 1% to 2% and above market growth, thanks to initiatives we have put in place in line with the Fletcher Group strategy. In the short term, we focus on: 1st, driving top line through market leading solutions and services. On the one hand, we see growth to come from differentiation, such as our enhanced first product portfolio or the enlarged service offering at Golden Basin Land. On the other hand, we expect to get the full volume benefit from our asset renewal and debottlenecking program. This covers, for instance, our new block or ready mix concrete plants and the several extensions of our aggregates quarries.
2nd, we aim to be the cost leader in all three businesses based on the benefits from our footprint and supply chain optimization, operational excellence and keeping a lean support organization. In the medium term, we see attractive growth opportunities coming from: 1st, innovation, scaling our innovative products and services and offering integrated solutions for key applications 2nd, digital, optimizing our operations and supply chain and providing an enhanced digital customer experience. 3rd, sustainability, building on our low leading position in our CO2. We want to accelerate the replacement of traditional fuels, such as coal, with alternative fuels and raw materials, increase the usage of supplementary cementitious materials and scale concrete recycling and reuse. So let me provide you with some concrete examples of what we have achieved so far and what is in our pipeline with regards to innovation, digital and sustainability.
Let's start with innovation. Over the last years, we have successfully developed and brought to market innovative products and services, which have provided us solid growth. For example, our enhanced masonry products, particularly pavers and veneers, have resulted in more than 25% sales growth year on year. Another example are the differentiated certified products like special colored aesthetic concretes or solutions like permanent paving, rainwater absorbing and foundation products. Looking into the future, we see further growth to come from integrated solutions, which serve specific customer needs.
Good examples here are our retaining wall system for residential or infrastructure, which has seen 30% growth this year And the XPOT flooring system. XPOT provides a sustainable alternative replacing polyesteral concrete flooring with recycled material. It also provides a solution for difficult ground conditions. Next is digital. We have made good progress reaping the benefits from digitalizing the way we operate and deliver our products.
In 4th, more than 40% of our certified deliveries are now digital and paperless. By the end of this calendar year, we aim to achieve more than 80%. Same for our quarries at Winston Aggregates. We now survey our quarries with drones and design them digitally, saving us more than NZ1 million dollars per year. Next, we see opportunities to grow and improve efficiencies by providing a digital and enhanced customer experience.
1st, we look forward to the upcoming launch of our digital customer sales platform for 1st, which will be a New Zealand's first. 2nd, we want to scale the digital supply chain management at Golden Bay Cement, which already covers 50% of our dispatched volume today. Coming to sustainability. We see sustainability as a major opportunity for growth and differentiation. Thanks to our state of the art operations and supply chain, we already today have a 20% lower CO2 footprint than imported materials.
This provides us with a strong base to build on. In line with our 30% CO2 reduction target by 2,030, we are working to continuously improve our footprint. We have particularly made good progress with the substitution of fuels, mainly coal, with alternative fuels from wood and tire waste. Our substitution levels are now reaching more than 35 percent. On the customer side, 95% of our ready mix concrete products now have an environmental product declaration.
We see increased usage of EPDs by architects, specifiers and structural engineers, which proves that customer value and seek products with enhanced sustainability credentials. Looking forward, we see growth providing circular solutions. First, we want to further increase the use of alternative fuels and raw materials from wastes. This not only provides society with sustainable disposal of critical wastes and replaces coal on our side, but we also see this as growing business, whose contribution we expect to double from the NZ3 million dollars this year. 2nd, we want to increase the usage of so called supplementary cementitious materials.
This replaces the clinker in cement with other materials with binding properties, for example, porcelain. This year, we expect to use more than 25,000 tonnes of mostly fly ash, while we are testing the usage of porcelain. We just recently completed a test pour, shown on the middle picture, of more than 400 cubic meters with encouraging results. 3rd, we plan to fast track the usage of recycled concrete and other materials from deconstruction. This allows us to close material cycles, replace virgin aggregates, saving backfill space and precious mineral reserves.
We are convinced that concrete provides great opportunities for growth, thanks to its many benefits. So let me bring our vision of Concrete as foundation for New Zealand's future more to life with a short video. Summing it up. The New Zealand Concrete business provides a strong platform for sustainable growth, thanks to its leading position along the value chain and strong brands, capabilities and footprint. We are confident that we can sustain the current growth momentum, thanks to initiatives in place to drive top and bottom line performance improvement and capture growth opportunities related to innovation, digital and sustainability.
Those initiatives will allow us to drive further margin expansion of 1% to 2% and above market growth in the short and medium term. Thank you very much for your attention. We now open the lines for your questions. Are there any questions from the
Your first question comes from Simon Zackray from Jefferies.
Pricing
and competition dynamics in New Zealand has been a study we've spent more years trying to understand, and I think I want to actually admit to. Can you talk to the competitive behavior, the cost behavior against demand and how that's translated into industry pricing outcomes? First of all, the extent to which the size of the government wallet may act as a restraint on price. And thirdly, how the having 20% lower emission product than imported cement has helped your market position.
Thanks for your question. I'll take the first one first. So related to the pricing dynamics, I think as you can see from the geography of New Zealand, we are obviously exposed to various degrees of import pressures, and that's what has partially driven pricing over the last couple of years. Maybe sharing some insights there. I think we are at the inflection point at international cement markets.
I think you know very well that CO2 plays a more and more important role. We have seen major exporter of cement like Europe totally stopping that on the back of CO2 pricing. We have seen China shutting down major capacities, which have had obviously an important impact there. So on the supply side of cement, on the international markets, I think we see a decrease of availability. The other part, you have already heard that before from Hamish, is shipping.
I mean, shipping rates have been very, very low for many years. That's changing very rapidly as there is not many new ships coming onto the market, but we also see raising costs because of the changing fuel legislation. So I think the pricing from an import pressure side, we see rather favorably moving forward coming out of historical low ones. At the same time, coming to your second point, I think we see more and more customers really sensitive about sustainability of the product, it's not just CO2 really. Also, a lot of people look for circular recyclable products.
And I think that's where we have an edge. And I think it's starting to kick in. I think we're starting to see readiness from customer to price that into their decisions. Can't give you exact figures how that's going to pan out, but I think we are pretty positive about the future in terms of pricing of cement.
Your next question comes from Keith Chow from MST Marquee.
It seems like you've got quite a strong framework in place to continue to deliver volume growth into the market, particularly incremental volumes from that B2C initiative as well as your other innovations. Just wondering if you can help us understand how much capacity you've got left to supply growth into the market? Are we talking something like delivering another 10%, 20% of volumes into the market from a capacity standpoint?
Yes. Look, I mean, historically speaking, concrete in this part of the world and in many mature markets is pretty stable in terms of volume. So having said that, we have flexibility in our system, both on the production and the distribution side, to stretch or leverage across. And currently, we are actually quite seeing dynamic dynamics going on there. We can pull in all three businesses additional capacity, be it in 1st with mobile plants, mobile equipment also on the aggregates quarries and also we can complement in Golden Bay.
So we have some capacity of 5% to 10% of volume right there if we need to. I think in New Zealand, don't forget the logistics is very important. So there, we are in a good position because we have a network of shipping with our dedicated shipping fleet, but also on the road and actually also rail logistics to a certain extent, which allows us at the moment actually also we are quite stretched to deliver all our customers on a very stable level. So there is this kind of flexibility built in even if we would see further upside on the growth. But I think you heard before from Ross and Bevan that we see at the moment volumes rather stable, but we are prepared in case it would go up.
And then my second question is just around competition again. I think this time last year, we were talking about 1 of the independents in the business going into administration. I think that business has continued to operate and is currently under an acquisition offer from another party in New Zealand. Just wondering to what extent did the troubles of that competitor help the competitive dynamics in the market? And do you expect it to change at all if that business is ultimately bought out by another independent competitor?
I assume you're relating to the dry concrete business, which has been in receivership. It hasn't stopped operating. It has actually continued to operate also at a reduced level. We have seen some volume up pick from that. Yes, we have taken a bit of share there.
But the competition stays there, whoever picks that up, and we welcome that. We're probably more focused on actually driving the growth of our dry con business ourselves rather than watching too much the competition there. And we are pushing very hard to have further innovative additional products to underpin our growth ambition there.
Your next question comes from Peter Wilson from Credit
Suisse. Just one for me on energy costs. I think we heard a comment earlier that electricity costs have increased in the second half. But holistically, when you include coal costs, alternative materials, can you give us some direction on energy costs, alternative materials, can you give us some direction on energy costs, particularly in Golden Bay?
Yes. I think, look, I mean, the cement business, thermal and electrical energy are probably each 20% of the cost bill normally in this industry. So as Devin has explained, electrical prices currently have peaked in New Zealand. We expect it to be temporary, driven by 2 things. First is that hydropower plants have really low water levels, unusual low water levels.
And the other way, other piece is that the gas supplying to Huntley is constrained. So those things combined have led to a peak of electricity prices. We believe this is temporary, but it's hard to predict because there is a lot of additional electricity capacity and also network upgrades coming on stream. We have it hedged at the moment also, which helps us to keep that under control. We haven't seen much movement on the coal side.
That has been rather stable. And actually, thanks to the tire feeding you have seen in the video, together with the other streams we already had before, that helps us to further decrease our fuel bill. So overall, if the electricity costs normalize, we would see there a couple of 1,000,000 improvement overall on our energy bill.
Thank you. Your next question comes from Stephen Hudson from Macquarie Securities. Please go ahead.
Hi, Nick. Thanks very much for the presentation. Two questions from me and they're both on the supplementary cementitious material strategy that you've outlined. I just wondered how important that strategy is to your 1% to 2% margin expansion target? And secondly, unrelatedly, can LafargeHolcim participate in an SCM strategy through their terminals and their silos in New Zealand?
Or is that quite difficult for them?
Yes. Look, I mean, SCMs have been around quite for some time, if you look around the globe. I mean, our project is focused basically on 3 elements. Well, first, it is very, very important for our road map of CO2 reduction by 2,030. So that's one benefit we'll get there.
The second one, it gives us additional volume in case the market would further grow. And you know, New Zealand immigration has not stopped, quite the opposite. So if the market keeps expanding, we get this flexibility. And the third point is we also expect better resilience of our supply chain in New Zealand. So we would have a second production site, which we can leverage in many different ways.
Obviously, we're also targeting a margin improvement on the back of an improved sustainable offering, which we believe will be valued by the customer. We are currently testing those products. We're also looking at the right route to market to bring it in. It's still a couple of years ahead of us because we are finalizing the feasibility study, but we believe we have a strong case there. How much our competition is looking into that and what they're planning to do is really would be speculating from my side.
But we if you look at our footprint across the value chain, we certainly are well positioned not just to come with a different binder, but also actually offer a real differentiated concrete product, which I think is where the differentiation really happens.
Thank you. I will now hand back to the presenter.
Are there any questions on the webcast?
We have one question from the web. Will your existing CO2 reduction measures deliver 30% cut in CO2 by 2,030? Or are there other initiatives required?
Thanks for that question. If we assume a kind of a status quo scenario, we will get very close to the 30% scenario with those two initiatives. But obviously, we are also preparing for a potential further growth scenario of the market. And we see along the three lines you have heard, be it further efficiency gains of the operation, be it more alternative fuels or be it reduced clinker factor in cement, I think we see enough leverage with those three areas to achieve the 2,030 objective.
There are no further questions.
Thank you. So I will now hand you over to our next presenter, which is Bruce.
Good afternoon. My name is Bruce McEwen, and I'm the Chief Executive of the Distribution Division. I've been with Fletcher Building for 7 years, the last three as the CE of Distribution. Prior to that, I worked in FMCG Distribution and Private Equity, focused on business turnarounds and business change. In this session, I'm going to take you through an overview of the distribution division and the progress we've made in resetting the business and positioning for growth.
The distribution division is comprised of the Placemakers and Myco branch networks, Placemakers Frame and Trust Manufacturing and the Foreman Business Units, strong respected brands delivering customer leading solutions. We are the leading plumbing and building supplies trade distributor in the New Zealand market. Our geographic network reach has us well positioned for the increasing levels of densification growth in the larger metro markets, coupled with strong regional representation across New Zealand that diversifies sales and earnings risk. Over the last 18 months, we've worked hard to reset the cost base of the business, whilst continuing to focus on delivering the service fundamentals our customers require every day. In addition, we've pivoted the business focus to harnessing the opportunities that technology and digital capabilities present to create an integrated digitized supply chain to enhance service and efficiency, and therefore, firmly setting the business up for the future.
Across the division, we have 140 points of physical presence in New Zealand, from Kaitaia in the north to Invercargill in the south and most places in between. As a result, we are deeply embedded in the local communities in which we operate and are proud of the active role that we continue to play in these communities. Through our branch network, we service over 70,000 trade customers with over 4,000,000 customer visits to our sites each year. Our physical branch presence is really important for trade customers who value the locality and personal interaction. And whilst we have high frequency site visitation, a growing trend for customers is to have their products shipped direct to the sites they're working on.
This has resulted in us growing to roughly 1,000 customer deliveries each day, enabling the customer to save time and money by not having to leave the site to fetch supplies. Our total addressable market is circa NZ8 billion dollars with nearly 40% of that market being retail or B2C spend. Whilst we have a small halo into the retail or B2C market, this is predominantly the domain of the big box stores. Our business is firmly focused on the trade segment of the market. Within that trade segment, we classify our customers based on key attributes, such as the type of work they typically undertake, annual spend volumes and their service needs.
As you can see from the chart on the left, the small to medium sized building and plumbing customers are a core component of the New Zealand market. And a key segment we increasingly look to target with our service offers, all aimed at making it easier for our customers to do business with us. It's the largest segment in the market and our current position offers opportunity for market share growth. And within the overall market context, you can see our revenue mix is weighted heavily to be over 80% in the residential sector with a strong forward growth outlook and a smaller exposure into the commercial sector of the market. With the initiatives undertaken in the last 12 months to reposition and improve operational performance, the business is performing strongly.
We will deliver an EBIT result of $125,000,000 to $130,000,000 this financial year, compared to $115,000,000 in the 2019 financial year. A strong EBIT result was an improving quality of EBIT margin expansion from 7.2% in 2019 to a forecast 7.5% this financial year. Whilst we operate in a highly competitive market, our focus has been on generating sustainable and profitable volume growth through solid top line operational disciplines. In addition, our return on funds employed is strong at over 50% and growing as we deploy capital wisely and actively manage the key elements of our working capital usage. From a non financial perspective, in a period of significant change, it's been very pleasing that we've been continued to make steady progress on safety, having been serious injury free for 35 consecutive months and with Trifer reducing every year for the last 4 years.
And we're clear on the opportunities in front of us to lift our customer service NPEA scores and rebuild our employee engagement scores after what has been a challenging 12 months through COVID. Our customer focus centers firstly on delivering the service fundamentals every day, whilst continuing to grow our service offers around convenience and creating efficiency for our customers. And whilst we're a low carbon emitter, we continue to focus on initiatives such as sustainable packaging and trying EV and hybrid fleet options. With strong market leading brands, deep customer connections and great people, we have strong foundations on which to drive further organic performance improvements in the near term. Through the use of deeper data analytics, we can gain insight into our customer spend behavior, targeting offers based on their needs.
And the better we service our customer needs, the deeper the loyalty, the greater share of wealth opportunities. And with an ongoing focus to deliver improved daily service fundamentals, enabling us to capture a greater mix of margin accretive customers to drive market share and earnings growth. I'm now going to play you a short video to give you a bit more context as to to who we are, what we do and where we're going. As we look forward to driving market share gain and earnings growth, we have a number of key strategic priorities that are outlined on this slide and aligned to the strategic pillars for the wider Fletcher building. These initiatives are focused around our customers, with services and solutions that enable them to succeed in the market by harnessing technology to create digital services and enabling seamless integration into our customers' ecosystems.
They're focused around driving cost efficiency through new ways of working to improve customer centricity and drive improved performance metrics. It's about improving our sales capability and pricing disciplines to capture more profitable market share and more of our customers' share of wallet and delivering sustainable returns through innovation and disruption, disrupting ourselves before someone else does. I'm going to take you into more detail on 3 of these initiatives to outline just how these initiatives drive convenience and value for our customers, making it easier for them to do business with us and therefore deepening customer loyalty and engagement. Whilst our physical network and geographic reach remain key competitive enablers, it's clear that technology offers opportunities to enhance the customer experience through greater service capability. Our aim is to create an unmatched digital experience in the New Zealand market.
Whilst the trade industry in New Zealand has been slower to embrace digital tools, we can see from offshore experience that this will change and it will accelerate. Accordingly, we're actively taking innovation that we see offshore to disrupt ourselves, to enable our customers to do business with us when and how they want, taking us from a physical analog business limited by physical location and operating hours to an always on omnichannel experience. This year, we've launched an e commerce capability with a mobile first focus. This enables customers to view their specific pricing for any product items in any location, to check stock availability in any location across the country and to place an order for click and collect or for delivery to site, all from their mobile device without leaving the work site at a time that suits them. We've had a good early uptake from our customers with 27% of our trade customers now registered on our digital platform and digital sales growing to over 2% of total sales from 0 just 9 months ago.
To continue to drive awareness and adoption, over the next 12 to 18 months, we'll be undertaking a number of regional test and learn experiences to help customers to migrate and understand what's possible with these new tools. With the digital platform fundamentals in place, we're now working to constantly improve the customer experience to make it easier to use our digital tools with features like skip the counter, where the customer can place an order, then pick it up, no checkouts, no paperwork in and out of the branch much quicker, a little bit like what you'd see at Amazon Go. We also have a roadmap of ongoing developments to continue to enhance the digital experience, which enables a faster, always on customer experience, enabling not only the basic customer self-service queries such as what's my price or do we have them in stock, but to more elaborate and connected features to make us an integral part of the customers' world when and where they want, ultimately driving improved convenience for our customers. As we reviewed how we best leverage our physical network, we've realigned geographically close Placemakers branches, reconfiguring our network to not only drive efficiency, but to improve the customer experience.
In our largest market in Auckland, we've created 3 hubs. In doing so, we've simplified and aligned regional leadership in Auckland, going from 10 branches, 10 leadership teams, 10 sales teams to 3 hubs working together as one Auckland team. This change enables efficiencies for our customer and that they can get what they want when they need it from the site closest to where they're working, rather than traveling across the city to their traditional home branch. It enables efficiencies for our business as we deliver to the customer site from the most logical stocking point, reducing delivered kilometres. It enables a tighter, more focused sales team within defined territories and enables us to better leverage our scale purchasing powers, also aligning and consolidating inventory holdings as opposed to locations always holding a full stock range.
We've established branch hubs in Auckland and Christchurch, which represents approximately half of our sales volume and the early feedback received from our customers has been positive. Our customers' demand for products to be delivered direct to site they're working on continues to grow. We expect that up to half of all sales will be delivered direct to customer sites within the next 18 to 24 months. With this growing trend, we've recognized the need to make this service not only more efficient, but frictionless to the customer. We are replacing the traditional analog paper based approach and have created an end to end digitized distribution service using technology we found operating in a large US distributor.
This starts with capturing the customer order information digitally, increasing resulting in increased accuracy of picking, then making that information available in the customers' hands, ultimately delivering it to the customer's site on our own delivery fleet. By creating our own fleet, this has enabled us to not only create a safer and more efficient delivery service, but enables the customer to transparently track the order from creation all the way to delivery to site. From their mobile device, they can check what product items are included within their order, adding to or amending the order as required. Once it's been picked and dispatched, they can track their delivery truck, much the same way that you or I would track our Uber, giving surety of the timing of the delivery and also pinpoint delivery location with GPS tracking. The product is photographed, delivered on-site with images captured and available immediately and for future reference on the customer's invoice.
End to end surety of delivery, critical given most tradies work across multiple sites in any given day. And with advanced analytics within the transportation software, we can not only track our performance better, but better understand our customers' needs. In summary, the distribution division will deliver a strong financial result in the current year with an improving EBIT margin and return on funds employed performance. The key strategic initiatives to grow margins and market share are well underway to strongly position the business for the future. This gives us confidence in our ability to drive sustainable earnings growth through focused, profitable top line sales growth, improving our pricing disciplines and continuing cost efficiency initiatives.
With an ongoing focus on innovation for the benefit of our customers, we're confident in our ability to capture increasing market share of 0.5% to 1% over market share growth each year. And as we look forward a couple of years to FY 'twenty three, we're confident with the plans and initiatives we have in place that we will continue to drive EBIT margin expansion of 50 to 100 basis points, whilst continuing to deliver a strong return on funds employed. Thanks for your interest in distribution. I'm now able to take any questions you may have.
Your first question comes from Simon Thackray from Jefferies.
I've got two questions. You've got a much bigger mix of imported product in your portfolio than some of the other divisions and product that embeds quite a lot of commodity and supply chain inflation. Can you talk to the frequency of price increases over the last 12 months and how you've communicated those to recover inflation of commodity and freight? And the second question is just on the consolidation strategy for placemakers, which looks very sensible and a reflection of what Trailing has been doing in Australia. What is the quantum of the margin improvement you believe is being delivered by that specific approach and how much more may be available?
Thank you.
Sure. So I guess two questions there, Simon. The first one around price increases. I think what we've seen in the last 6 to 12 months is a real change in the pricing environment. If we go back a year or 2, price was a lot more benign.
You saw increases much more in line with inflation, the 2% to 3% range. And you'll see those increases coming through generally on an annual basis. With the disruption in the supply chain, be it from offshore or input cost pressures locally, you've seen a greater volatility in price increases. So we're now seeing price increases coming through every quarter. Sometimes we'll see them 3 times a year.
And you'll see them vary in sizes and shapes, so all the way from 2% to 3% all the way up to high single digits. So for us as a business, we've had to get very good at how we firstly capture those upcoming price increases and notify our customers. Of course, our customers work on long build cycles, so they need to make sure we're communicating those to our customers about what price increases are coming and then passing them through in a way in which enables our customers to still complete their builds. But from a price volatility perspective, this is probably the greatest volatility we've seen in quite some time. The second question you asked was around consolidating our physical footprint.
Just to be clear, when we look at that hub strategy and where we've done it in Christchurch and in Auckland, we haven't necessarily shrunk our physical footprints. Our physical footprints and our points of presence to the customer are critical, be it how they interact with us on a daily basis. What we're looking to do from that hub strategy is very much about how we work in the market. So how we operate instead of operating with branches across geographic isthmus like Auckland, very much operating as one. And so from an ongoing efficiency perspective, it's just one of the many initiatives we're looking to do to make sure that we can keep that cost to serve going down and make it efficient in the business.
Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.
Thank you. Hi, Bruce. I just wanted to delve into Placemakers a bit and the store ownership structure there. Could you talk about what your mix of franchise versus owned stores is at the moment? How that's trended over the last few years?
And what you see as optimal, please?
Sure. Hi, Andrew. So where are we at the moment? We're about a 75%, 25% mix. So 75% Fletcher distribution owned and 25% is in some form of joint ownership structure.
Our ownership structures in the past have very much been much more of a joint venture of fifty-fifty. That equity stake has changed over time to be much more Fletcher distribution owned. We talk about an optimum structure. We don't have a designed optimum structure. What you'll see from our if you were to map that joint ownership structure around the country, you'll find that that joint ownership is primarily in the non metro areas, in the regionals where local ownership and involvement in the local communities is quite critical.
We see it as a much stronger link than we do in the metros. So we're running about 75, 25 and don't have a plan to shrink or grow that in the near future.
Okay, great. And then just one more. I think globally we've seen a trend where the big boxes of the larger chains came through COVID, able to do click and collect a lot better, took some share, but that seems to maybe be persisting. Is that something you'd be saying would be evident within your business and you're seeing in the New Zealand market?
Not so much. We certainly saw the New Zealand market and through COVID, we saw all our competitors operate differently through COVID. We were very agile in the way we were able to operate through the Level 4 and then into Level 3 lockdowns. And we were able to operate a click and collect operation, albeit manually to start with. We adapted very quickly to a manual click and collect and then have digitized subsequently.
So now we haven't seen any real share shift change from COVID effect around click and collect in the New Zealand trade market.
Thank you. Your next question comes from Brook Campbell Crawford from JPMorgan. Please go ahead.
Yes. Hi, there. I just had a quick question around digital. Just curious to see if you can provide an idea to tell
you some of
the investment you're making in that capability and how you're expecting that to grow over the next couple of years?
So can you just repeat the last part, Krish, around capability?
Just in digital, how much you invest in that now and what you expect that to grow to over the next couple of years?
Sure. What we've established in the last 12 plus months as a team, so digital is kind of 2 parts to it. 1st, creating the technical capability and establishing a team to actually be able to do all the behind the scenes technical things to create digital products and digital solutions for the market and then how we adopt and take those tools to market for the customers to actually see the benefits from them. So we've invested around $5,000,000 to $10,000,000 to date on that digitization. And going forward, it really much comes so much more from being a project actually as a business BAU function.
So it really just becomes part of our ongoing OpEx stream into the future. And so where to from here is very much around how do we continue to develop the technical capabilities and the tool sets that the customers can use, but much more about how do customers adopt digital tools. Building them is one thing, getting customers to use them and to get the benefits from them is really the next stage in our journey.
Thank you. Your next question comes from Peter Wilson from Credit Suisse. Please go ahead.
Thanks. Hi, Bruce. So the I guess the expectation going forward is that the segment will grow above market. But on a backwards looking basis, since these numbers we've last presented, it looks like the segment has lost market share, particularly in the SME segment, which you've highlighted as your core customer segment. And so I'm wondering, I guess, if you could articulate why it is you've lost share over a 3 year period.
And of those things you identify, are there any kind of, I guess, trends that you think of it have now abated and won't affect you going forward?
Sure. When we look over the 3 to 5 year period, what we've seen is we're operating intensely competitive market. And what we've seen is all those competitors have pushed very hard into that small medium space, particularly the big boxes. What we've been focused on is how we reposition the business in the last 12 to 18 months to get family focus back in that space. And a number of initiatives we've outlined in the slides, particularly around digital and how we service that market, not really been limited to our opening hours or our physical presence and how we can use digital tools to service that market.
It's a market that we see developing quicker into digital from our overseas experiences and seeing what others are doing in that space that small to medium enterprises adopting onto digital a lot quicker than perhaps some of the more traditional or larger builders. So for us, it's very much about positioning and where we've positioned the business to focus into the future in that space and how we take a little bit more share back in that sector.
Okay. And 27% of trade customers on the platform versus 2.1% of monthly sales, I guess based on what you observed overseas and what you expect, is that a good number? Are they good numbers?
We're really pleased with the 27% on the platform. And we've got to remember, we haven't been going too long. This is in this financial year that we kicked it off. So we've only really been 9 months live. And to have nearly a quarter of those trade customers registered is really pleasing.
So it shows the high level of interest. What we've seen from overseas examples is it takes time to get to a tipping point. So once you get to about 5% to 6% of sales, it is a bit of a journey and then it starts to ramp a little bit from there up into double digits. So for us, really pleased with what we've achieved around registrations. Now it's about adoption.
Now it's about changing traditional habits that people have had to really show and highlight the benefits they can get from those tools.
Thank you. Your next question comes from Lisa Huynh from Citi. Please go ahead.
Hi, Bruce. I just had a question just following on online. Can you just talk about how you're thinking about the cost of the online channel relative to the bricks and mortar store network? And ultimately, what does that mean for profitability and margins going forward as online penetration rises for placemakers?
Sure. Really, I mean, we don't look at the 2 channels separately. We look at them as an integrated. So we don't see bricks and mortar versus digital. It's very much an and strategy for us.
What we're seeing from customers and what we're seeing from overseas examples is customers still want physical presence, but to be able to use digital tools as well. So we don't look at the 2 channels as necessarily competing or one cannibalizing the other. So very much it's about an overall integrated strategy. From a cost to serve perspective, the more we can have our customers staying on-site and being more efficient for them, the more we can use our delivery fleet, etcetera. The less visitations we get into site, the lower the cost to serve comes down.
At this stage, we're pretty early in that journey. And so we've factored in various scenarios that may occur. But until we get a little bit further along, we're not baking in big gains out of that.
Thank you. Your next question comes from Stephen Hudson from Macquarie Securities. Please go ahead.
Hi, Bruce. Just a couple of quick ones from me. I just wondered if you could give us your take on what's happening in the timber markets here in New Zealand and whether or not you're benefiting or being held back by the lack of availability there. And secondly, I just wondered if you could talk about any new product opportunities, chunky ones such as fiber cement with James Hardie shutting down here in New Zealand, are there any opportunities to distribute different products there?
Sure. Two questions in there, Stephen. First one around timber. It's well publicized that New Zealand is running at record high consents and high NA renovation work as well. And I think as Ross said earlier, coming out of COVID, a number of the mills used that rebuild time to use up some of the stock they already had, to do maintenance, etcetera, and we're caught a little bit behind on supply.
The situation we have at the moment, it's still very tight. We have long term and deep relationships with the key mills in New Zealand as well as a number of regional mills. If we had more stock, we could sell more stock. There's no doubt about that. Are we being held back and is it really suppressing our results or earnings?
Not particularly. It's certainly very tight in the market. So we are working with our customers, particularly around planning and trying to get our customers to plan a lot further forward such that they don't get caught short and it doesn't create a constraint in our business as well. Your second question, Stephen, sorry, was new products?
It was just around new
products, Bruce.
Yes. And specifically the fiber cement, so fiber cement, yeah?
Yes? Yes. So again, well publicized. James Hardie have moved their manufacturing offshore to Australia. James Hardie is still a very important partner for us and they supply into a key category for us with this Clarity and one we've had a lot of focus in the past.
We continue to talk to a number of different suppliers, manufacturers both locally and offshore around new products that are coming to market. And when they come along, we look to take them into the market. We tend to pick on categories rather than particular products. So for example, in the last 18 months, we've picked very much on landscaping, cladding and other categories like that, where we can bring different products into an overall mix as opposed to a specific new killer product if you like. So we tend to focus very much more from category and how we bring that whole category together to win the market and to take share as opposed to an individual one.
So that's the things we'll keep working on in the future. I think that's us for time now. So thank you for your interest. I'll now hand over to our next presenter, Steve, from Residential and Development. Thank you.
Good afternoon, everyone. My name is Steve Evans, and I'm the Chief Executive of the Residential and Development division. I've been leading the division since 2014. This division includes the core residential house building business, the residential and industrial development businesses and our off-site manufacturing business, Clever Core, which is a year into its delivery of penalized homes. The division is also currently establishing and growing an apartments and retirement business, and I'll explain these separately later in the presentation.
The residential business is focused on Auckland, where we deliver about 80% of our houses, as well as Christchurch, where we deliver the remainder. The residential business has about a 7% market share in Auckland on the basis of 15,000 new homes constructed in Auckland last year, and we are the biggest of the homebuilders here. In Canterbury, where we sold over 150 units last year, our market share is slightly larger, but still less than 10%. I'll explain each of the businesses in more detail later, but as I do so, it is worth remembering that the key metrics we are concerned with across the division are shown here. Our overall EBIT figures for both FY 2019 2021 are as shown here, showing a significant uplift over the period.
Our divisional EBIT for FY 2021 is at record levels, particularly in the residential part of the business. Whilst EBIT margin is shown as falling, I will show later in my presentation that the weighting of EBIT is pivoting more to the residential business. ROCE continues to be strong and in FY 2021 is forecast to be 26%. This has been boosted in the last 12 months due to the reduction in stock in what is a strong residential market. I've also listed here some non financial metrics, which show the success of our division.
We are the leading residential industry in safety and this shows in our trifah. Through the recent rollout of our Protect Safety ethos and our leadership role through the COVID alert level protocols, we are recognized as being a key part of transforming the house building business. Our Net Promoter Score is at world class levels and is a key focus of our division, keeping customers happy with their new homes. We're also consistently running engagement scores of 80 and above, signifying a world class engaged workforce. That's important to me as the delivery of this division's work is very much a team effort and a team of close to 300 that's been built over the last 5 years consists of high caliber people across all disciplines of development and delivery.
And on top of delivering a record number of sales this year, we are continuing to hold good levels of sections for future delivery. I will delve more into this later in the presentation. The residential business does what we've been doing in New Zealand since 190 9, we build homes. And by focusing on developments which usually generate at least 100 homes, we're creating communities where people want to live. Take Waiata Shores, for example, where our original plan was to develop 4 80 homes.
Through the passage of time, we're now building over 700 homes, but also including cafes, retail and childcare. And not just standalone homes, but terrace homes, multi dwelling units and the like. It epitomizes our continual focus on evolving our product, focusing on where value is best added to maximize EBIT and return on funds employed. Our competitive advantage is that we control the master planning, ensuring that we can create parks, play areas and other amenity. This not only brings the community to life, but allows us to reduce the size of land that each house is built on and thereby intensify the number of houses while delivering homes at lower price points.
And this focus on price points is important. We focus on where the demand is the strongest and that is in homes generally below $900,000 and in desirable locations. Over the last year, we've continued to evolve our home offerings, including responding to desires of our customers post COVID. This has involved introducing homes that include studies or study nooks, focus on getting the most out of spaces without fundamentally changing the size or price ranges of our homes. We've also commenced some work on understanding the future of sustainable housing, including a focus on the 1.5 degree house and incorporating trends in technology, including EVs and home automation.
In the video you'll see at the end of this presentation, we show our pipeline of projects across Auckland. This currently has close to 5,000 secondtions on our balance sheet for future delivery and we have another circa 2,000 homes in final stages of negotiation or where we are under conditional agreements. Numerically, it only counts our recent purchase of land at Topeka in Northwest Auckland as 2 sections being the 2 titles we've acquired. However, as we progress rezoning this land, we'll change this to add an additional 1500 sections on these two sites alone. Over the last 5 years, we've continued to buy land either as undeveloped land, the service sections or through partnerships with EWI and government.
This same strategy is the one I articulated to you over the last 5 years. Some of these pieces of land such as Topaki are 10 years away, but for those who go back this far, projects like Waitara are now 7 years into the delivery. Some is land in areas not currently zoned for residential. However, our history of managing consenting to get the value through zone uplift is important part of our land acquisition strategy. Given the above metrics and our proud and capable team, we're continuing to look at growing this part of the business for the foreseeable future.
We're continually looking to acquire the right land in the right locations and to use our community creation differentiator to continue to add value to the division and importantly to our customers. Our plan is to have the residential business increasing its delivery by circa 100 homes per annum. That means that we'll be delivering 900 residential homes next year, then 1,000 and so on. 3 years ago, we started the journey to create an off-site manufacturing business. This business, known as Clever Core, is now capable of producing a variety of home types.
We have delivered over 100 homes in the last year and are planning to double that in FY 2022. We've used Clever Core to build standalone duplexes and terrace houses and in the next 12 months, just less than 20% of the homes built through the Fletcher Living Residential business will be delivered through Clever Core. The advantage of this method has been widely publicized. From the waste minimization through to the Healthy Homes benefits, it's a better product in environmental terms. In terms of recycling of working capital and time savings, it's also good for business.
And the delivery of the off-site business has continued to show benefits for our customers. The journey this year has reflected the lessons we're learning through this pioneering system, whether it be in the use of design for manufacturing and assembly, the partnerships with building consent authorities, the direct sourcing of materials or the way in which we transport and assemble our homes, there have been step change improvements across each part of the manufacturing and assembly process. The result is that we're confident now of its long term success. This is highlighted by the recent order we've received from Kainga Ora for the first of our Clever Core Homes to be delivered in the next financial year. The process we've gone through in Clever Core has also identified some innovative adjacencies, which we'll endeavor to realize over the coming period.
This includes the use of Clevercore to produce apartment external wall panels and even bathroom pods. These are a natural extension of the design led approach taken to date. It will also involve a step up in the manufacturing capability and we'll be investigating the scaling up of the plant over time. The trend to densification of our cities is still continuing and against this backdrop, we've decided to formalize our approach to apartments and to scale it. The development model is very similar to our proven low rise model, mid market, good value for money homes And it continues our relentless focus on sweating the details to get this right.
So we've now also built a strong internal design function to supplement the development team. How and where we access apartment sites is important. Quite often, these will be in our low rise communities and we're seeing this at Tamaki, at Three Kings, the latter stages of Waitara and Stonefields. But we also have confidence in sourcing apartment sites in the right locations to support our growth ambitions, including suburbs such as North Coast and Panmure. Some of these apartments will include commitments to deliver Kiwi Build or other government programs such as shared equity housing.
Our plan is to scale to 300 homes per year by FY 'twenty four. We're well on the way to achieving this. In terms of returns, we are running models where we expect this to return circa 15% per annum. It is also a key future market for the off-site manufacturing part of our division, as I've discussed already. In recent years, as we've master planned to build out our new communities, we've seen the breadth of our customer base grow.
Up until now, we've not catered for a large part of the market looking for new houses, being retirees and older downsizers. We think that in the Auckland and the Christchurch markets, there is now an opportunity to deliver a product that appeals to people who are looking to downsize from what was originally a large family home and are struggling to find new 1, 2 or 3 bedroom homes outside of the traditional retirement village model. These customers are also looking for a home that sits within an established community, possibly where some of their own family may already live and is close to services amenity, but has the security of an enclosed village. We're therefore now launching our retirement developments with 2 trials that are currently underway in our Red Beach and Way Out of Shores communities. These will be small villages of single level duplexes and terrace homes with a communal residence lounge and clubhouse.
We think a number of key features of our retirement communities will differentiate them from other options out in the market. This includes the level of management fee we'll charge, but also sharing the capital gains. And whilst we'll have on-site communal facilities and a concierge, we've entered into an agreement with an external partner to contract directly with our residents for the provision of a full range of care if needed in any of our retirement units. We've already started to plan additional sites within our existing and proposed developments where more of these facilities could be built. Although we expect only a modest delivery and sale of houses in FY 'twenty two, we expect the pace of development, developing retirement units to accelerate.
Our target is to achieve over 100 sales per annum in future years at attractive margins. Development Retirement Units provides also provides an additional channel for Fletch Living Homes with the added benefit of an enduring earnings stream. It's a natural progression in the communities we build and fills a gap in demographics that we previously not targeted. Over the last 6 years, we've continued to evolve our development business. Initially, the focus of this team was on adding value to existing surplus Fletcher Building assets, maximizing the value of sales of these assets.
The performance of this part of the business has been stellar, adding significant EBIT over the last 6 years. This has included developments such as the Old Fletch Steel in Penrose, the Wherry Quarry and this year in the disposal of properties in Gales and Penrith in Australia. The skills that the team have built in this part of the business have now enabled us to look at development of further industrial property. As a result, we're now acquiring long term strategic land for future development of industrial in Auckland. The advantage we have is our track record in the rezoning and delivery of land.
In New Zealand, there are few businesses that can do this work, as reflected by the significant shortfall of industrial land in our biggest city. In 2021, the development business is expected to generate circa $50,000,000 worth of EBIT. And as Ross and Bevan has stated, we're continuing to aim for $25,000,000 EBIT per annum for the foreseeable future through this part of the division. As you can see from our relatively short presentation, we believe there's a number of reasons to be excited about the future of this division. We've invested in a large and long dated pipeline of land held both on and off balance sheet that will ensure we have the ability to deliver a certain number of homes in our core residential business over a number of years into the future.
We expect this to drive residential sales volumes increase above 1,000 units within 2 years and a commensurate increase in EBIT. We have an industrial development business that will transition from selling legacy Fletcher Building sites in both New Zealand and Australia to one that's focused on developing New Zealand sites from raw land and consistently deliver $25,000,000 of EBIT per annum. And we have 3 businesses that we think can innovate their way to providing significant earnings growth, Apartments, Retirement and Clever Core. And not only are we continuing to build earnings divisionally, we're moving from a history which included lumpy development earnings to one where the residential business continues to deliver increasing profits supported by a more regular industrial development pipeline. And I'm confident that with the growth engines defined above in Apartments and Retirement Light, supported by continually evolving off-site manufacturing business, we can continue to increase our contribution to the Fletcher Building results.
On that note, I'm pleased to show you a short video that shows some of the amazing things we're doing across the business.
Your first question comes from Simon Thackeray from Jefferies.
Steve, nice to hear from you today. Many years ago, you provided a healthy time line, graphical time line of how the business would evolve across land and residential. Now we've got apartments, retirement, industrial. Can you maybe help us frame this opportunity and the plan in terms of time line and targets beyond FY 'twenty three, so over the next 5 to 6 years? And how much additional fund investment may be required?
That's the first question. And then the second one, if I can lead you into some policy ruminations, is what you think about government and central bank policy and how that's interacted to impact the business in either direction over the course of 'twenty two and then looking into probably the years beyond that? Thanks, Steve.
Thanks for the questions. Look, the first one comes back to the articulation of the strategy that goes back that 5 years. And it hasn't really changed. It's about community. So we've always been about creating communities and the community that was probably typified 5 years ago was more of the standalone homes and terrace homes and duplexes.
And what we've seen is the industry has progressed and so have we through that process. So we're seeing more of the terrace homes. We're seeing the introduction of greater densification in our city. And therefore, we're seeing the opportunities that exist in apartments, for instance. As you move that into the broader community, what we're also getting is questions from our residents of, are there places that we can look at as I retire, as I want to downsize, my parents are interested in something.
And that's driven us around a model of looking at retirement as a further opportunity within the community. So as I go forward, I see very much the strategy continuing to morph. I see that the focus will continue to be on creating those communities that we are now very well aware of. The second one, I guess, is central bank policy. Look, the bank has done a number of moves
to try
and quell the investment, particularly in the investment side of housing. We've seen some movement in that, but what we've also seen is a flight to quality that we do provide to the communities that we're delivering, to the price points that we're delivering. So I can see that continuing to be the case. Our moves into the apartment business is not just about providing homes within the communities. It's the right points and right price points within those communities.
So really, we work with government. We anticipate what they're trying to do. And but at the end of the day, it's the customer that speaks and they're speaking volumes at the moment.
Your next question comes from Keith Chow from MST Marquis.
Just a follow-up on Simon's question earlier on the funds employed profile of the business, Steve. So the target is to get up to £750,000,000 by the end of FY 'twenty two. Can you give us a sense of where that number heads to as you execute on your residential strategy?
Look, I think that the $750,000,000 has been widely publicized by Bevan, so I won't comment necessarily on that. Inevitably, as you get into the apartment business and you get into retirement, there's 2 separate things
at play here. From an
apartment business point of view, capital requirement in the apartment business. It's a little bit different in the retirement space because, in the retirement space, given that we're going through an aura process, the balance sheet will reflect a higher funds model even though the cash has been received once we go through and actually get retirement customers into the home. So yes, we do see an increase in funds employed over the period, but we see that to be relatively modest.
Thank you. Your next question comes from Peter Wilson from Credit Suisse.
Suisse. Just a question on what you're seeing in terms of the price of developed and undeveloped lots. And if you could explain the mechanics of how that flows through your current and expected earnings?
Crikey, I don't think I've got that much time. The strategy that we've always had is about a third of our land coming from raw land or a third of our sections coming from raw land, a third through finished sections and then a third through partnerships with Ewe and government. So what we have seen, particularly over the last 2 years, is an increase in sectional prices. We operate a very disciplined regime in terms of working out how much we think prices are worth. And what we're finding is that a lot of the developers that have longer term aspirations like ourselves will continue to have dealings with us and do that at a, if you like, a wholesale price rather than a retail price.
From an overall land point of view, you'll see from the acquisitions at places like Topaki, we need to look further into the future and say where do we think that land exists. And 3, the partnerships that we have with EWI with government get us access to land, not necessarily at a retail price. So whilst we are seeing definite movement, we think that we've got a very disciplined process to actually get to the right land for the right price. Hope that answers the question.
Thank you. Your next question comes from Andrew Scott from Morgan Stanley. Please go ahead.
Good day, Steve. A couple for me. Just firstly, just if you could talk regionally. I think in the presentation, you specifically mentioned Auckland and Canterbury as driving the residential pathway. Should we think of that being the only places you're interested in?
Are there any other markets where you're seeing the right attributes would entice you there?
Okay. Look, from a we've always tended to focus on Auckland and Christchurch because that's where the demand is. We are continuing to look at other areas, whether that be Wellington or Tauranga or around Hamilton. What we've got to get to at the end of the day is we've got to get to scale to deliver. For those that were around 6, 7 years ago, Canterbury was based on a premise of 5 to 6 years' worth of work.
And that's what we need to create the communities that we are now well known for. So yes, we'll continue to look at those areas. I won't say never, but at the moment, Christchurch and Auckland are the focus.
Thank you. Your next question comes from Rowan Kaufman Smith from Foresight
Good afternoon, Steve. Just a couple of quick ones. On Apartments, the recent messaging has been, it's been a bit expensive, I guess, to build versus standalone homes and vertical construction hasn't had a happy history within the firm. Maybe us some color on why you're now comfortable doing those. And on retirement, I understand low DMF and sharing of capital gains is an attraction for the residents there.
But I guess what makes you think you can compete against the established operators?
I might take that second question first because we're not trying to compete against the established operators. When you look at the vast majority of retirees, they're actually living in large houses and looking to downsize. So we think the existing retirement operators actually do a really good job for the residents that they have. So we're not trying to compete in that space. What we see ourselves as doing is providing yet another offering in the communities that we deliver.
And we're hearing from a lot of people saying they want to be part of that. They want to be having the access to the facilities we provide. They want the security we can design. So that's why retirement makes a great deal of sense in its initial form, let alone, as you mentioned, the DMF and the capital gain. Coming back to the first question, apartments.
Look, we are the cost to build apartments is higher than it is a conventional home, but we're living in a city where we need to densify. And so the solution for us is focusing on the details, wetting the detail as we do in our traditional residential business to make sure that design is right and the costs are then attributed to the right parts of the business. As I touched on in the presentation, we're focusing on the mid market. We're not looking to try and invest in apartments in the middle of Auckland or downtown. So we think that there are there is room to move.
On the previous history, apartments are a complicated process and you need to get the right builder, the right design team, the right sales process and that's what we're focusing on and we see a great opportunity in the future.
Thank you. Your next question comes from Stephen Hudson from Macquarie Securities. Please go ahead.
Hi, Steve. Thanks for the press release. Just two quick ones from me. Just on your residential section pipeline, I just wondered if that fully captures any uplift from the Auckland unitary plant. It sounds like from what you said on the way out of shores front, there's been a very significant uplift.
I'm assuming part of that was the AUP. So just how conservative is that pipeline of 4,900 secondtions? And secondly, can you give us an idea what the land development pipeline is? I know years ago, there was talk of thousands of industrial sites across the group that you might eventually get your teeth into. Can you give us an update there?
Look, I think that rather than talk about necessarily the Auckland unitary plant, I'll talk about the customer and the customer is now accepting a greater sense of density. So there is obviously an uplift in what sections we will develop in the future versus what I've reported today. For instance, I've reported as only having 2 pieces of land at Taopaki, at Taopaki. And really, when we get the zoning through there, it'll be 1500 or could probably by the time we get to develop, it'll be a lot more. So there is uplift in terms of how we go and continually morph the master plan as we go through each of the developments into the future.
In terms of the second discussion, land development pipeline, we still have a reasonable amount of pipeline in the Fletcher Building assets. Obviously, Rocklatte, Emu Plains is the dominant one out of the Australian environment. But you've heard earlier today from Hamish about some of the excess land that might come as a result of Humes. And equally, as we move from Felix Street, the Warboards plant over to Talrico, obviously, that becomes a big asset to try and deal with. So it's a couple it's 2 things.
It's a, focusing on those, but really, they're lumpy. And what we're trying to do is build a business which is more regular in terms of that development earnings. That's the focus. That's what the team needs to do. And again, some good work going on with it,
Your next question comes from Chris Byrne from Craig's IP.
It's
a really interesting presentation. Just on the retirement side of it, just wondering what you're thinking about in terms of tenure of the resident. So the lifestyle village will attract a younger tenant and I guess in that term if they're going to be there quite a bit longer, do you think that DMF sort of covers as a reasonable sort of return within the resident could stand this for feasibly 15, 20 years?
Yes, look, good, great question. We do see our people that move into the retirement as being somewhere midway between a lifestyle village and a retirement village per se. So yes, you will have an extended length of tenure. We're very comfortable with the DMF that we've set as being the right level of DMF to take into account what we know is our obligations to those customers. When you look at a traditional operator, a traditional operator has to spend a lot more on maintaining assets that won't be provided by us, the swimming pools and tennis courts and bowling greens and the like.
So we're pretty comfortable that we've got that right. The key to retirement from our own point of view is it also recognizes the development earnings that we would get from developing those houses and we think that we do that better than most in the industry. Thank you. I'll now hand you over to our next presenter, Peter.
Good morning. I'm Peter Reedy, Chief Executive of Fletcher Construction. Fletcher Construction is a leading New Zealand Tier 1 contractor. We are a project delivery and infrastructure asset services business. We maintain and construct critical infrastructure for sectors that primarily underpin the New Zealand economy, including transport, 3 Waters, buildings, renewable energy, Marine Imports.
We operate across New Zealand and the South Pacific region. Our portfolio incorporates 3 brands across 5 business units, namely Higgins, Bryan Perry Civil and Fletcher, which covers our commercial buildings, infrastructure and the South Pacific region. Bryan Perry Civil, Higgins and our Fletcher businesses in the South Pacific have specialized assets and self perform delivery capability. Bryan Perry Civils specializes in ground engineering, marine and water services. Fletcher South Pacific delivers commercial buildings across 7 islands and Higgins delivers for roading construction and maintenance services in New Zealand and Fiji.
Higgins is the number 2 asphalt producer in New Zealand for the current year and will achieve number 1 position by volume during FY 'twenty two. We have operated in the South Pacific for over 70 years, delivering self performed capability, primarily in commercial buildings. Our infrastructure and buildings businesses under the Fletcher brand are project management entities, which largely deliver large scale infrastructure and commercial building projects for both public and private sector customers. The construction sector matters to New Zealand, and this slide talks about the size and the breadth of our footprint. The New Zealand construction market is linked to the New Zealand government growth story to improve living standards.
Our sector matters to New Zealand as it employs 9% of New Zealand as it makes up 6% of New Zealand's GDP. The New Zealand construction market size, excluding residential and professional services, is circa $18,000,000,000 to $20,000,000,000 per annum of work put in place. We're predominantly delivering critical infrastructure projects with a share of 13% in that market. And after a depressed 12 months post COVID, the private sector commercial buildings market is starting to come back to life. But we'll take a selected view on future commercial building projects.
We have a workforce of 3,600 employees across New Zealand and 7 South Pacific countries, with over 4,000 subcontractors working with us on any one day. Bryan Perry Civil, including Pipeworks and Pilex, has 4 branches across New Zealand and is complemented by a range of specialist plant, equipment and geotechnical expertise. Higgins have 12 branches across New Zealand with a strong presence in the Central and Lower North Island. They predominantly deliver long term maintenance contracts for Waka Kotahi, New Zealand Transport Agency. Higgins also delivers services in Fiji for Fiji Roads Authority.
Our One Island South Pacific presence positions us as a local player with a strong New Zealand heritage. This is a positive position for Ministry of Foreign Affairs and Asia Development Bank and World Bank funded projects. We are currently positioned primarily in the transport building and 3 water sectors. In New Zealand, we've seen government investment in highway and rail upgrades, dollars 12,000,000,000 over the next 6 years. The health sector has a strong commercial building construction portfolio, up to $15,000,000,000 spend.
And the upcoming water reform may require investment in excess of CHF 100,000,000,000 over the next 25 years to meet new regulated water standards for drinking water, wastewater and stormwater. We are well placed for growth in these sectors due to our regional footprint, our large project and program management capability and our specialized self perform capability and assets. We will close out our large legacy roading projects within the next 12 to 18 months. We've been successful in the last 12 months in securing large alliance type transport projects, namely Auckland Transport's Amity Eastern Busway Pure Alliance, and we won 2 preferred bidders for Penlink, a highway and bridge construction in Auckland for Waka Kotahi. This year, we have successfully completed a large rehabilitation project on the Auckland International Airport runway and are working closely with them on future commercial building and infrastructure projects as they start to resume investment in capital projects.
The upcoming reform in the Three Waters market in New Zealand represents a strong opportunity for our portfolio and aligns with our regional footprint and capability. We currently deliver 50% of Water Care's capital works program in Auckland and 20% of capital projects for Wellington Water. Pipeworks, part of Bryan Civil, is a specialist in trenchless pipeline construction and rehabilitation, and Higgins delivers stormwater installation and management as part of its road maintenance contract portfolio. In addition to transport, buildings and water, we're also focused on renewable energy. Higgins are the largest constructor of wind farms across New Zealand, having delivered projects for Meridian, Genesis and in the last 6 months, TILT Renewables.
This slide covers the current earnings, which are reflective of our nil margin legacy work. In the current year, 15% of our revenue has zero margin. This mainly relates to the ends of ICC pre fire build and 2 infrastructure major erosion projects. Without these nil margin legacy projects, our operating margin would be 3% in the current year. Our legacy project runoff will largely be completed in FY 2023, with FY2024 only representing 1.2 percent or AUD 18,000,000 of legacy revenue.
With regards to our non financial measures, over the last 2 years, we've had a big focus on safety and have made a substantial investment in safety leadership training for project and frontline leaders. As a result of this investment, we're starting to see positive safety mindset shifts. Our rolling 12 month total recordable injury frequency rate as of the end of April is reduced by 19% to 5.1 incisions per 1000000 person hours. We see an increased reporting and transparency of high potential critical risks. This is a positive cultural step.
Our carbon emissions are primarily driven by our vehicle fleet. We are redesigning a new fleet plan to reduce our carbon footprint. We will shift 36% of our leases, which are up for renewal in 2022, introducing 85 hybrid vehicles. This slide highlights how we have reshaped our forward order book risk profile, providing for a sustainable future and a strong start to FY 2022. Our order book has increased to $3,300,000,000 That represents a forward revenue ratio of 2.4 times current revenue.
The $3,300,000,000 includes $500,000,000 of preferred status for specific projects, including Amity Eastern Busway. Of significant note is our historic legacy high risk and lump sum design and construct contracts now only represent 9% or GBP 300,000,000 of our forward order book. This compares with 76% or GBP 2,200,000,000 at the half year period in FY 2018. We will complete $200,000,000 of legacy work by June 2022. We expect to enter FY 2022 with a secured order book of 75% budgeted revenue.
And as with normal contracting businesses, our focus will be to secure the remainder order book within the year of operation, and we have a number of opportunities at advanced negotiation stage. In FY 'twenty one, 2 thirds of our revenue is being generated by our infrastructure services specialist businesses such as Bryan Perry Civil, Higgins and South Pacific. Each of these businesses have a self performing workforce and specialized assets such as asphalt plants, piling equipment and bitumen distribution storage. These businesses are predominantly delivering smaller, lower risk construction and maintenance type contracts, programs of work that pull through high margin roading projects such as asphalt, bitumen and emulsions. The remainder of our revenue is generated by major projects in the buildings, transport and water sectors.
Our revenue is largely from local and central government customers. We're seeing strong contract win momentum, particularly in Bryan Perry's Civil and Higgins. The water market makes up 40% of Bryan Perry's forward revenue, and increasing level of early contractor involvement from our customers during the bid phase enables us to negotiate better terms and risk positions. Our current contract rate with Higgins for larger projects is 40%, and we're seeing steady growth with local councils, particularly in the Lower North Island. In the South Pacific region, an increasing level of early contractor involvement opportunities are in play off the back of Ministry of Foreign Affairs, Asia Development Bank and World Bank funded projects.
Our forward revenue momentum will predominantly be focused on 3 major Pacific Islands: Fiji, Papua New Guinea and Tonga. This slide shows our 3 stage road map to create value. Over the last 2 years, we've had a clear plan to reshape our portfolio over these 3 stages. Stage 1 has seen us strengthen and stabilize the portfolio by investing in project delivery capability and capacity. We've also developed digital project risk management reporting platforms.
We're building technical delivery and engineering skills across our portfolio and investing in specialized assets and field tools to lift productivity. Stage 2 has seen us focus on wrapping our portfolio of brands and systems technology together for the benefit of growth customers. This integrated delivery model of specialized workforce, technical assets and major program management experience provides certainty to customers with shovel ready projects and long term programs of work. Stage 3 will see us focus our investment into operations and maintenance, and this will enable us to provide a broader range of integrated services, products and technology to support customers through their asset life cycle from planning to construction, maintenance and operations. Long term asset owners and operators such as Water Care, Wellington Water, Auckland International Airport and Waka Kotahi all have a commercial interest in the economic life cycle of their assets.
So they're very encouraged by our integrated service delivery proposition. In Phase 1, we're focusing on investing in a specialized plant. We've recently invested in a 250 tonne an hour asphalt plant in Silverdale to service the Poo Horta Walkway project and the emerging growth area in North Auckland. We've also invested in mobile asphalt plants throughout New Zealand and Fiji as well as a modern polymer bitumen plant laboratory capability and storage facilities in Napier. The water and marine market is growing, and we'll be investing in additional piling equipment for marine structures.
To reduce the carbon impact of rehabilitating water networks and to increase productivity, we're working with partners to assess technology options for our water customers. With regards to upskilling our people, we're building critical skills with respect to both preconstruction and project delivery. We've introduced stronger project commercial governance discipline, experienced industry leadership and a national project management commercial training program for project based leaders. Currently, women only make up 14% of our total workforce, and this is lower compared with the industry at 17%. So improving the gender diversity across Fletcher Construction is a core initiative.
This year, we've established a woman in construction network, we're rolling out leadership training and we've recently achieved a fifty-fifty gender split in our graduate program. In Higgins, we have a strong apprenticeship program of 40 currently in training and we're now taking this initiative across Bryan Carey Civil. We're investing in building a digitally enabled business with a common data environment to support our project delivery teams and engagement with our customers and supply chain. Our 1 Cobham platform that we're now calling Fletcher 1 has a structured framework for our project delivery and includes transport parent dashboard reporting to track program, cost, progress claims and quality. We've also adopted the use of next generation field tools such as survey LiDAR drones and vehicle sensors to drive productivity and safety in the field.
The second stage of our road map is to build capability around growth customers, and we've secured or achieved preferred contractor status for longer term programs of work with growth customers such as Water Care in Auckland, Wellington Water, Auckland Transport, Auckland International Airport and Fiji Roads. The Water Care Enterprise model is a 10 year program of work, which we secured in 2019 to deliver Water Care's infrastructure project. And as part of this project, Water Care have engaged Fletcher exclusively in the last 9 months as their construction delivery partner for several Auckland drought projects, including Waikato 50, the Fast Track pipeline south of Auckland. By bringing several of our brands together and partnering with global and local competitors, we can leverage specific technical skill sets and knowledge for the benefit of our customers. An example of this is Auckland Transport's Amity Eastern Busway Pure Alliance project, where we have preferred status with global and local selected partners.
This is a large $500,000,000 urban multimodal alliance project, which includes bus, cycle, pedestrian and road networks. This project will link the districts of Botany and Pakeharanga, currently 3rd largest road corridor in New Zealand, in terms of traffic usage. In Fiji, we're recognized as a Tier 1 contract rehabilitation and maintenance services for Fiji Roads Authority. And over the last 6 months, we've secured preferred contractor status for £18,000,000 of work, including larger parcels of road rehabilitation work and £5,000,000 of emergency services support during the recent COVID lockdown periods. The 3rd stage of our road map is to grow asset life cycle products and services.
This is a key part of our plan to diversify revenue streams and offer a broad range of integrated services and technology for our customers. Currently, 16% of our total revenue comes from operations and maintenance services, primarily through Higgins Road contracts and our Auckland Waterview Tunnel operations and maintenance contract. We see opportunities to grow our operations and maintenance capability to complement our construction capability. To support this, we're investing in integrated field based technology that captures customers' asset data to build predictive maintenance programs and seamlessly integrate into our customer systems. As this slide shows in Higgins, we're currently using artificial intelligence to receive geolocation data from 12 GPS satellites, which enables us to update customers' assets positions and condition in real time.
We're identifying other potential international partners to accelerate this asset management capability and service proposition. Bitgimus products are a key earnings contributor for our business. Our contracting services model in Higgins pulls through our high margin bitumice products, including asphalt, emulsions and bitumen binders, a critical ingredient for the rehabilitation, construction and maintenance of roads. Our recently commissioned flagship asphalt plant in Auckland and our emulsions facility in Napier will be at the forefront of developing new products to reduce embedded carbon and to support our customers' drive to lower their carbon emissions through the asset lifecycle. In summary, over the last 2 years, we have successfully reshaped our forward order book with growth rebalanced to lower risk.
Our legacy runoff will largely be completed by the back end of FY 'twenty three and our forecast secured forward order book for FY 'twenty two is strong at 75%, with 50% secured for FY 2023. We are seeing solid contract win rate momentum, particularly across Bryan, Perry, Civil and Higgins, and we're investing in specialized assets, digital risk management tools, safety leadership and people development programs. We expect our EBIT to be at the bottom of the margin range of 3% to 5% by FY 2022 as our forward order book replaces these nil margin legacy contracts. Our strengthened, build and growth strategy will create a sustainable Fletcher Construction in the future. Now let's take questions from the phone.
Thank
you. Your first question comes from Simon Vaccari from Jefferies. Please go ahead.
Great. Thanks very much, Peter.
Just a very quick one. We've heard plenty about capacity constraints in trades and labor. I'm just wondering if that's impacting any of the delivery time frames and sort of looking forward at the order profile, which is building. Do do you have any concerns about the timing of delivery given those constraints and particularly with the borders still closed?
Thank you for the question. Well, if you think about the large projects, we're primarily out of those next year, late next year. We've got we're in the last stages of the program. We've got the resourcing. We've got the teams and the programs are pretty committed.
So, I don't have any concerns there. On our smaller projects, it's very regionally driven. We are seeing labor constraints, particularly in the Lower North Island. Wellington and Palmerston are becoming very, very busy areas. The South Island is not so capacity strained.
And as some projects come and go, then you'll see different changes. So primarily, not really, probably around the asphalt surfacing. Labor there is a little bit tight. And we're also seeing some labor demands in Auckland that are a bit tight. And look, as the borders open up, particularly Australia, we'd be positive that we'd see some relaxation there.
Now let's take questions from the phone.
Thank you. We have another question on the phone. Your next question comes from Stephen Hudson from Macquarie Securities. Please go ahead. Pardon me, Stephen, do you have yourself on mute?
Peter, sorry, I did. Thanks for the presentation. Just one very quick one from me. I just wondered if you could expand on the Water Care Alliance and in particular, whether or not the involvement at Fulton Hogan is I know it's a couple of years old now, the contract, but whether or not that is indicative of a more rational competitive environment in contracting and contract pricing?
Well, look, it's a very innovative project approach in New Zealand and Water Care really took the lead on that. We as you can see, we secured that with Fulton Hogan. So, it's got a 10 year program of work. And what we've been doing in the last 18 months is going through each project, looking at the costing of each project, doing program management around that. Fulton's have had theirs and we've had ours.
We just got the Waikato 50 last year, which is a significant drought driven project. I think what you're seeing in the market is we're starting to see more ECI or early contractor involvement work. We're definitely seeing the risk allocation shift from 3 years ago. We've certainly seen the contracting market stand up and manage that risk a bit better and Fletchers have been leading that. In the Water Care market, a lot of people are looking at that market.
I don't know Kainga Ora. ECI, early contract involvement, has the ability to negotiate better risk terms. We're also seeing companies like Kainga or Centaport adopt a similar approach. So I think the market is shifting slightly compared to what it might have been 3 years ago from a risk management perspective.
Thank you. Your next question comes from Keith Chow from MST Marquee. Please go ahead.
Hi there. Thank you for the presentation. Just one question on your contract mix going forward. I think you've provided some details on the contract makeup within the portfolio between major projects and infrastructure and also sector between private and local government. Just wondering whether those splits are representative of what the desired splits are going forward?
Or are there particular segments or sectors that you'd be looking to shift the portfolio profile to, please?
Yes. Good question. Look, we've got a very clear view on our balanced portfolio approach, and that's across our high risk contracts, medium and low risk. We're very comfortable where our order book is now. It's balanced from a weighted perspective more to medium and low risk.
From a government perspective, we've seen that those contracts, particularly local councils, so 55% of our work from Brian Pear and Higgins' local council, we like that sort of work. It supports our self perform workforce. It supports our regional strong footprint. And for managing the risk allocation is probably a bit better. So I'm comfortable with seventythirty split.
I think you'll see the commercial buildings market come back post COVID, but we'll take a selective view on that. So very comfortable where our order book is from a balanced perspective now.
Thank you. There are no further phone questions at this time. I will now hand back to the presenter.
Thanks very much. I'll now hand you over to our next presenter, Dean Friesling. Thank you.
Good afternoon. I'm Dean Frasley, Chief Executive of Australia. In this session, I will provide you with an overview of the Australian division and the pleasing progress we've made. The Australian division is a portfolio of manufacturing and distribution assets that operate right across the country. Our 7 businesses supply plumbing, joinery, roofing, insulation and pipeline solutions.
They are well recognized brands and established as 1st or second in their markets, providing leading solutions to the residential, commercial and infrastructure sectors. We have made material improvements in the business in the last 3 years and are well positioned for growth. We will evidence this as we travel through the presentation today. In Australia, the outlook for the sectors in which we play as per Biz Oxford Economic Data is expected to be broadly flat over the next 1 to 2 years with a market uplift in FY 'twenty four and beyond. And whilst our profit uplift is not reliant on the expected market growth from FY 'twenty four, this will provide additional leverage and profit.
Pleasingly, that growth, in particular, the residential sector provides confidence given our exposure to that sector is now over 60%. And I'm pleased to say government stimulus has mitigated the risks of falling housing demand through the homebuyer grant and we expect sustained residential demand to continue. The commercial market remains soft in the near term with the broader civil and infrastructure demand remaining higher in areas such as transportation and mining where we have reduced exposure. Despite the overall market remaining broadly flat, we have grown share and profit in a number of businesses. And critically, we have materially improved our performance in key assets such as Lamin x, Stramit and Tradelink.
And whilst the overall market activity versus 2019 is lower, our year profit forecast this year is well above that time period, driven by category growth and share gains. Later in this presentation, we will see specific examples how we've sustainably improved the quality of our underlying earnings and are confident about future growth. This provides a clear pathway to achieving profits of 5% to 7% in FY 'twenty three with potential for further growth in the medium term. Our foundational work to that pathway of growth has been built out well in 2 critical areas. Firstly, our cost out programs right across the division have provided a sustainably leaner model, underpinned by strong operational discipline.
And secondly, we have embedded the growth levers of innovation, new product development and made logical strategic choices about where we play for value. And in terms of organizational health, these actions have delivered strong efficiencies in sales and gross margin per employee. In fact, our gross margin has grown faster than revenue with expansion in margin accretive products and segments. This all washes through to the bottom line with improved gross margin realization and will deliver a circa 30% EBIT growth on FY 2019 and more than double prior year earnings despite that softer market. This will see us deliver profits in the range of $100,000,000 to $105,000,000 this year.
At the same time, the division has shown robust working capital discipline with pleasing improvements in debtor management and inventory management. We do recognize that our addressable market through to FY 'twenty three is expected to remain flat, but we are confident that our strong business unit strategies are winning and will continue to deliver healthy profit growth. And in this environment of high change and cadence, I'm pleased to say that our health, safety and environmental work have produced good results, the highlight being no serious injuries for over 30 months. Our customer service score, NPS, has fluctuated over the past 12 months. This has been driven by expanding our survey to potential customers and global supply chain pressures.
So let's now dig a little deeper into the strategies and actions that are producing better returns for growth. Let's break this down into 2 areas. 1, strategies that get us to that 5% to 7% EBIT margins by FY 'twenty three and secondly, levers of growth that can take us beyond that forecast. And of course, if the market warms more quickly, well, that will be a bonus. In the near term, we are well on track to achieve 5% returns by delivering on key initiatives, such as our embedded price effectiveness program across all our businesses.
In fact, divisional gross margin is up 130 basis points on last year. We're making good progress here and we're actually targeting further gains. And our investments into the digitization of our business units provide both efficiency and organic growth as evidenced by share improvements in Lamin x and Tradelink. Furthermore, we will see profitable maturation of our vitality and bold plays in innovation such as the exciting new joinery distribution model that launches in June this year. We continue to make good headway on the new product development, which sees our vitality across the division at circa 10% of revenue.
These products are margin accretive, as seen in Tradelink's own brands and Oliveira's expansion into bathroom solutions. Plus, Fletcher Insulation's rapidly growing supply and install offer and Stramit's outdoor buildings category expansion, and we'll cover these in the business unit slides. We now step through each business unit starting with Lamin x, our market leading joinery and surfaces business. Lamin x is performing very well in market with gross margin back to its historic top quartile levels and sustainably low overhead costs. This business is performing strongly in the areas that matter with accelerated growth in decorative sales over the past 2 years.
This is critical to the decorative category as it's the lifeblood of our business and a key profit generator. We also have a market leading digital offer, which is now the largest detailer across the group with online revenues annualizing at about $170,000,000 Alamex has delivered a bolder material change in their range and offer, exiting some 9,000 individual products, and we now have a stronger dual brand strategy with Laminex supported by Formica, offering an increased choice to our customers. This iconic business was once famous for vitality, and I'm proud to say that the business is now back leading the industry with new product development, well over 10% of its annual sales. This does support gross margin expansion and attracts new customers. So if we go a little deeper on specifics, whilst we are happy with our customer leading digital offer, we have 2 more exciting phases of online expansion that will further improve our offer.
This is important, as you can see, the growth of new customers on the left, which supports the business showing strong market share performance. We said previously the decorative range is the heart of the Laminex business. And we can see from the chart that through range authority, we are getting strong growth. Importantly, we will continue to see the expansion of decorative sales as we execute the next phases of our product innovation. These include a broader church of exploration, including bamboo as an alternative to regular wood fiber.
This has been tested as an MDF substitute and is also being trialed as a substrate option for particleboard. Another exciting development in our innovation strategy is Haven Kitchens. Following extensive market research in a global scan of joinery trends, Laminex will launch Haven by Formica in June this year. This is essentially a market beating joinery distribution model that solves customers' problems for value. The office centers around a network of well stocked, rigid carcasses and joinery componentry supported by digital planning and estimation, which allows design to install in a matter of days.
We have 1st mover advantage here in our geography and the model is not too dissimilar to the European based company Howden's, which now accounts for 1 in 3 kitchens in the United Kingdom. This is a multimillion dollar investment and a significant profit growth that Laminex has achieved will fund this and still deliver earnings growth, while we incubate Haven into profit. Trail Link in Oliveri, our plumbing distribution business has made good progress, winning in their target markets despite softer macro conditions. Trail Link continues to rebalance revenue mix towards the more profitable residential market and is growing share of the SME plumber, one of our core strategic pillars. This will see our plumbing distribution business achieve a 3% margin in FY 'twenty two with a clear path to earnings growth beyond this.
This is being achieved by market leading quoting and estimating services. Completion of a 2 year showroom refurbishment program, this gives our B2B customers and their customers a much improved experience. Growing own brand participation to record levels, this creates value for the customer and for us. This is winning share and critically our own brand front of wall sales are now at 35%, which is well ahead of previously declared targets and trailing specification and primary demand team are providing upstream solutions and this in turn grows own brand and private label sales. And this year, the business launched its B2C website and I'm pleased to say that it is running above forecast and is attracting new business at margins well above its mean average.
This gross gross margin year on year and evidence is a firm base for better returns through the economic cycle. At Oliveri, its successful strategy has seen it move from a sink manufacturer to a blended master distributor and manufacturing model. This has seen it materially grow gross margin and profit year on year and its continued expansion into white space and adjacencies such as vitreous China and bathroom products is running well above business case and offers upside for future growth. And we do recognize the role that TradeLink plays in the profit upside in the division for long term and sustainable growth. And as we build out that profit, I'm pleased to say that TradeLink has materially improved its sales and gross margin per FTE, and its operating model is well governed.
Pricing disciplines are also at pleasing levels too. Tradelink has been building out its own brand strategy for several years and is now harvesting better returns with own brand front of wall sales at 35% and growing. This is driven by Raymore and Oliveira new product development and its range expansion is taking share from other brands at higher margins. It has a clear path to build out a market leading digital offer, and that will be live in FY 'twenty two for our B2B customers with the ultimate goal of having a digital marketplace and other best in class digital solutions. In summary, we're making good progress here and I'm confident that this business is on a path to 5% margins in the medium term.
Flitcher Insulation has completed its transformational change and has quickly moved from turnaround into growth. This business is now at its lowest cost to manufacture and distribute, achieved by an extensive network optimization of bricks and mortar, plus sensible capital investment into automation. This gives us a manufactured cost per tonne that is best in class domestically and competes against foreign imports. Fletcher Insulation now has the lowest SG and A in its history, and we've grown well in key targeted categories, taking share in core pink bats and enjoying expansion into adjacencies like market leading supply and install business called EE Fit, and this provides upstream pull through too. The focus on growth has been supported by best in class product availability with our delivered in full and on time performance at 95%.
And additionally, we're brought in new products to market like ThermoSoft Range, which has been well received by customers and helped us penetrate new revenue streams. Iplex is the leading player in the pipeline solutions market. Our targeted segmental growth has seen us simplify the business model, exiting ranges and focusing on key strengths where we can create value. We've now consolidated our manufacturing base and at the same time, we've invested in advanced technologies that provide a competitive advantage at lowest cost to manufacture. For example, we've consolidated our PE manufacturing from 2 to 1 sites providing scale and we've exited a large portion of our locally manufactured fittings where we recognize we cannot compete globally.
This has freed up capital to invest in more margin accretive areas in Iplex such as high speed lines and new product development. And we've made good progress on new product development and innovation, specifically in 2 areas. Firstly, our direct to site branch network is now complete nationally. This provides a seamless best in class customer service to civil customers with delivery on time in full at over 95% with a net promoter score of 53. And secondly, Iplex Connect provides an industry leading digital portal that has been well received in market with over 25% of the customer base now using it.
Stramit is the country's 2nd largest roll former and number one shed supplier. The business has grown profit and revenue quickly year on year and we expect to see earnings back to its historical top quartile level in FY 2021. And this has been driven by 3 key things: 1, profitable market share growth 2, a strong performance in margin accretive categories like sheds and garage doors and 3, operational discipline on pricing and robust segmental economics that is focusing on the products, customers and geographical segments where we can win and get maximum value. At the same time, STROMET has begun building out its focus on innovation. This is Cien's digitization program and new product development.
So in closing out, the overview of our Australian division. We are evidencing profitable growth and are well on track for 5% to 7% EBIT margins by FY 'twenty three. We see further margin upside should the market become more vibrant. Our operational disciplines are well embedded and will deliver increased leverage as we move through the economic cycle. We're actually ahead of where we forecast we would be in terms of vitality and new product development.
Our digital programs are being built out with learnings and synergies being shared across the division as we then digitize at pace. And then finally, we are reducing our carbon footprint with an absolute commitment to 0 harm with the mindset that all injuries are preventable. We'll now move to questions. Thank you. Due to the risk of COVID, we pre recorded our Australian presentation.
But I'm pleased to say I'm now live and in Auckland. So let's take questions from the phone, please.
Thank you. Your first question comes from Brook Campbell Crawford from JPMorgan.
This is on TradeLink. Ross earlier on noted the targeted top quartile performance for all business units. Just wondering, is there a deadline in mind to achieve this for TradeLink? And a follow on from that, maybe for Ross, but if you can't achieve that top quartile performance for TriLink or for other business units actually, will you sort of pursue divestments with that one and return capital to shareholders or reinvest back where you do have an edge?
Yes. Thanks, Brook. Let's take the trailing question first. Look, we're making good, pleasing progress in trailing, driven by, I think, 3 things: SME growth, which is what we always said we would do second one, we've got really good SG and A controls in that business as evidenced in its sales per FTE and its gross margin per FTE. And the second one is the gross margin expansion has been really pleasing.
So I think we're heading towards medium quartile, and I'm quite comfortable that in the sort of near to medium term, we'll hit those top quartile returns in Tradelink Plumbing globally. 2nd one, we're quite happy with the assets that we've got. We have one business that's held for sale. That's Rockler. And apart from that, none of our businesses are for sale at this time.
Thank you. Your next question comes from Simon Zagreb from Jefferies. Please go ahead.
Many thanks, Dean, for the welcome update. You seem to be tracking ahead of many of the self set targets, brand product expansion, digital, etcetera. And yet the 5% to 7% margin target for 'twenty three remains the same. Now not to be a wet blanket, but there's so many initiatives ahead of plan. Is there any reason why this target has not actually shifted upwards even without the market help?
Yes. Thanks, Simon. Look, in the near term, we're happy with our own discipline, our own cadence and around programs and strategies that are winning, Simon. So I see us getting to 5% to 7% around that near term number, that FY 'twenty three. Look, you'll know from the Biz Economic data that we're currently 25% off peak commencements.
We don't need the market to get to 5% to 7%. If it comes any warmer the market, if it comes there sooner, then that'll be a bonus, Simon. So I'm just pleased we're at this point in our journey and we'll be traveling well.
Thank you. Your next question comes from Grant Swinpaul from Jarden. Please go ahead.
Good afternoon, Dean. My question really just follows Hunt from Matt actually.
So your
net cost out benefit in the first half was $42,000,000 of the $51,000,000 EBIT to the organic pricing volume is down $22,000,000 So let's take a little bit more on the specific amount in the second half. But your top line guidance is now $54,000,000 at the EBIT level, assuming a €35,000,000 is the soft cost out program. That means the organic was down another €15,000,000 on the second half twenty nineteen. Why is organic still so weak or is costs starting to creep back?
Yes. Thank you. You sound a bit broken there. So I think you're saying why is not H2 stronger than maybe it could be. We've seen as in the presentation there that the civil infrastructure market still remains a little bit soft for us in areas where we play.
So we won't see any lumpy project volume coming through there. We are quite comfortable that we've got very good cost control, granted we're not getting cost creep. In fact, our SG and A is the lowest that it's been in our historical history in those assets that we have in Australia. It's more the lumpiness, I think, of the exposure to the civil and infrastructure markets as opposed to anything else. Thanks, Grant.
Thank you. Your next question comes from Stephen Hudson from Macquarie Securities. Please go ahead.
Hi, Dean. Thanks for all of your thoughts. Just 2 for me. The 5% to 7% range, what are the biggest swing factors in that range? Can you call out the key ones?
And just on Iplex and Flutter Insulation, you obviously rationalized some of your capacity there. Do you have sufficient headroom for any sort of market upswing above your expectations?
Yes. Thank you. Again, a little bit crackly. In terms of your question, in terms of 5% to 7%, I think that that's the question. I think there's 2 or 3 drivers for us.
We do have really good cost controls. We've had those in the 2 previous divisions with RUN. That will continue. Hopefully, that's what we do. I think second one is we've been really working hard on price effectiveness.
So I think you've mentioned it earlier on today a couple of times. There is cost price inflation in the industry. We've got good discipline, good governance around price effectiveness. So we see price as an opportunity. In my earlier presentation, I said our basis points growth was about 130 bps in gross margin.
We will see that to continue into next year. And the other one is we know our innovation is strong. That's a multiyear pipeline. That's margin accretive. And again, that supports gross margin.
So I think that positions just well between that 5% to 7% corridor quite well. In terms of going on to the site rationalization, we have rationalized 50 sites around Australia ever since we put the division together over a 3 year period. That's been good work. It's given us a good cost control, particularly in property leases. We have nucleated operations in Fletcher Insulation out of Rooty Hill down to our master factory in Dandenong, which is performing very well.
We've got good capacity. We've actually blended that with landing some overseas product into what I would call the ears of Australia, WA and Queensland. So again, we've got capacity there. In terms of Iplex, we have optimized where we play in terms of PE and fittings. We do have capacity.
I think the bigger question is what is the lumpiness of the civil infrastructure market. We work with the Business Council Australia and governments on that. We'd like to see those be phased and smooth a little bit more, but we'll take them when they come. But we have capacity.
Your next question comes from Peter Wilson from Credit Suisse.
Thanks, Dean. Just to follow-up, that point on pricing in the 130 basis points gross margin benefit you got last year, I guess thinking about that and your comments, you expect further gross margin growth going forward. How much of that is like for like price growth versus the mix effect of the new products, the range rationalization, the increased home run, etcetera?
Yes. Thanks, Peter. Look, a great question. The 130 basis points, just for clarity, is this year. That's a very nice run rate that gives us into next year.
If you work backwards, our percentage vitality, it's about £280,000,000 of sales is new product. Yes, it's accretive. It's not enough to give us that big kick of 130 basis points. So for total transparency, it's been really hard yards, good work, good training, skills, development of our people on pricing disciplines, changed our skill mix. And of course, we've now got digital in there.
So we've got about $200,000,000 of revenue, which is now online. That does give us a margin effect. So it's a combination of good disciplines, Peter, combined with the sprinkling of MPD, and we've got manufacturing efficiencies that wash through. So it's really that trinity, and we're well in control of it, and we're quite confident of that trinity moving forward into next year.
Your next question comes from Keith Chow from MSP Marquis.
Just one on the trading business. Just noting the shift in sales to the small to medium sized enterprise up to 46% of sales. Just wondering, has that been an intentional shift? Is that a function of the markets moving? Or have you lost share in retail?
I'm just wondering if you could give us a similar split, not on sales, but on earnings. And the crux of my question is just around whether Trident is continuing to gravitate towards the trade end market segment and deliberately moving away from retail?
Yes.
Thank you, Keith, and good to hear from you. Let me just take the SME question first. You remember, for several years now, we've been saying trading we do want to grow SME. We recognized it's the most consistent category of that $4,000,000,000 market. That's where we see margin accretion.
That's where we see value. So that's a continuation of the strategy. That strategy is performing well in SME. To support that, quite obviously, we've built out that 2 year pipeline of showroom refurbishment programs, over 90 showrooms across Australia that are built to a very good standard. So we do want to continue to keep growing.
That's SME business. It's very stable. Where we migrated it from is, as I said earlier, you recognize the commercial market is a bit flat. For those who know Tradelink, we were probably over indexed in our revenues and earnings out of that commercial market. So we've actually migrated the weighting from commercial over to SME, and we've taken some share in SME, which is nice.
We do have a low revenue exposure to retail. We would like more. You might have seen the new Tradelink, essentially a B2C website that's been launched in the previous months. That's well out of the blocks now and is growing incredibly well. So in fact, our revenue mix has probably grown a little bit in retail, if I'm honest, and we see that as a further growth opportunity.
So SME priority 1, we've got good work with builders, B2C is growing well. And the commercial, again, if it comes back next year or the year after, as expected by Bizz Economic Data, that will be a bonus.
Thank you. There are no further phone questions at this time. I will now hand back to the presenter.
All right. Listen, thank you so much for your questions. I'll now hand you over to our next presenter, Claire Carroll.
Good afternoon. My name is Claire Carroll. I've been with the company since 2013 and have been in my current role as a member of the executive team since 2018. In this 15 minute session, I'll provide you with an overview of 3 key areas of the business: sustainability, innovation and people. Firstly, sustainability.
Sustainability is front and center in our purpose. We genuinely care about it and feel a strong sense of responsibility to do our part in achieving meaningful change. We also appreciate it's critical for our own competitiveness and success, enabling us to deliver for our customers, attract the people we want and support the communities in which we operate. We believe that a strategic focus on sustainability will drive innovation right through our products and processes. We are actively getting ahead of many of the key trends impacting our markets and taking advantage of our opportunity to build leadership in this area, ensuring we are well positioned for the transition to a low carbon economy.
Our sustainability strategy has 6 aims, which are delivered through the business units: be the leader in making sustainable business products careful management of our resources and emissions, partner with our supply chain to deliver sustainable outcomes, build healthy homes and deliver sustainable infrastructure, support our people in our communities and provide transparent environmental, social and governance reporting. I'm going to spend time today going deeper on carbon because reducing it is a key part of our sustainability strategy. We set a science based target in 2019 to reduce direct and indirect carbon emissions by 30% by 2,030. We're the first to do this in our sector in Australia and New Zealand. Looking into our total carbon emissions, there are 4 main sources: clinkerandcoal@goldenbaycement, electricity in Australia, diesel used for New Zealand transport and process heat.
And looking at this by business unit, this chart has our emissions up the y axis against time and shows the highest carbon emitters, therefore, where we need to focus our efforts to reduce our carbon footprint. They are Golden Bay Cement and Windstone Wallboards in New Zealand and Lamin x, Fleet Transylation and Iplex in Australia. Together, they make up 87% of our total emissions. Across the business, each has a roadmap like this, which shows in more detail where carbon reduction is possible and how to achieve it. Through these, we currently have line of sight to our targeted reduction in direct and indirect emissions by 2,030 from our FY 'eighteen baseline.
This is largely achieved from 12 big initiatives. Those developed by Golden Bay Cement contribute 15% of the overall 30% reduction. You heard plenty from Nick on this earlier and the progress that they're making in concrete. Addressing electricity in Australia amounts to 9%, and we have actions to reduce our usage as well as reducing emissions through securing forward purchase agreements for green electricity. Meaningful reductions are being made through our multi year energy efficiency program in Tradelink and with manufacturing sites in the other business units.
We're also actively looking at renewable energy generation and have completed the first stage of feasibility for rooftop solar. Carbon reduction initiatives addressing the diesel and process heat emissions amount to another 4% reduction. Across the business, we have staged plans that move us to hybrid and then electric vehicles. We are starting by transitioning 30% of our largest fleet, our construction fleet, from diesel to hybrid in FY 'twenty two. We've also added solar generation to our Hamilton Laminates plant, and we've designed our new wallboards plant to be highly energy efficient.
We'll do this within our planned CapEx envelope that Bevan talked you through earlier and in a way that ensures we remain economically rational. To finish on sustainability and carbon, we've already achieved a great deal and we have big ambitions to do more. Our aim is to continue to strengthen our processes and capabilities and be a real leader in our industries. We actively horizon scan for consumer and regulatory trends so that we are well positioned for the future changes. And as part of leading in our industries, we are proactive in providing a positive industry voice where we support the direction of regulation.
Stepping back to the 6 aims in our sustainability strategy, one aspect I want to highlight is that our commitment to transparency and disclosure is very real and shows through across the areas of our sustainability strategy. For example, as part of our commitment to diversity and inclusion, we're disclosing gender representation through Champions For Change in New Zealand. We are transparent about what is in our products. We are well advanced with our environmental product declarations with over half complete, and we'll have the balance done by the end of FY 'twenty three. And we disclose our performance to leading ESG investor indices, and we are pleased to see our actions being reflected in improvements in our ratings.
With the Carbon Disclosure Project, over the last 2 years, we've moved from a D grade to a B grade. And in 2021, we were awarded the most improved company in New Zealand. In 2019, we met the standard for membership of the DJSI Australia Index. In 2020, we meet the standard for the membership of the DJSI Asia Pacific Index. We are one of 16 companies in our sector and one of only 4 New Zealand companies in any sector included in the DJSI Asia Pacific.
Turning now to innovation. There's no doubt that sustainability and innovation are fundamentally linked. A focus on sustainability is energizing our innovation culture. Our people really care about it, and it ensures we are taking advantage of our sustainability and business growth opportunities. Delivering this growth means we'll nurture homegrown innovation and at the same time explore new ideas and trends around the world and bring them to our customers first.
This involves disrupting markets, our competition and sometimes ourselves. Innovation has really got to happen in the business where we can get close to our customers. So what we're doing from the center is creating the spark for growth and innovation across 3 key areas: supporting our people out in the business with the right tools, process and disciplines. This supports a rapid learning approach, evaluating opportunities based on customer desirability, technology feasibility and business viability with a rapid test and learn mentality. Then the explorers mindset.
There's a range of things we're doing out in the business with our people, helping shift mindsets around new opportunities, running interesting and practical activities with them, particularly on customer opportunities to drive growth. To share an example, this Fletcher Steel Innovation Challenge engaged with 180 of our people and generated 400 ideas. Those ideas were narrowed down to 11 and are now included in Steel's innovation roadmap for commercialization. Another really interesting example we're pursuing is bio resins, so we can offer environmentally friendly options to create healthier homes and spaces. As part of this, our New Zealand team is working with Fion to assist the commercialization pathway for their Largate, 100 percent bio based adhesive technology.
And the 3rd pillar of our innovation strategy is around bringing the outside in and partnering with disruptors. We're actively going out globally, finding out what's worth pursuing and bringing it into the businesses. So I'll spend a bit more time here. We run systematic ecosystem scans, which identify technologies, partners, opportunities and threats. And over the last 18 months, we've completed scans in clean concrete, environmental sustainability, modular off-site construction, distribution, and we currently have underway transport and logistics.
You can see a real theme of sustainability driving innovation. This comes together in tech demo days where senior leaders are introduced, hear from and interact with a set of prioritized companies. We're getting involved with VCs focused on the built world, looking to invest so we have another path for strengthening connections externally. We now have a deep understanding of trends, disruptors and are using this to our advantage. It's giving us insight, crystallizing where to focus and getting traction.
So where are we at so far? We're working with 150 senior leaders, looking at major trends. We've mapped what's happening externally with over 700 startups and innovators. We've picked the partners we've liked, bought them in, and with the top teams in the business, started actively piloting 20, signing a number of software agreements and piloting technologies. So watch this space as you see these new products and ways of engaging with customers in the market.
And finally, to a very critical part of our business, our people. We're very focused on driving growth, so we're performing to our potential. And to do this, we need a range of talented people from diverse backgrounds with different perspectives and experiences. So with this in mind, we're very focused on building a culture and working environment where we attract, retain and grow the talented people we need to achieve our vision. They too then are growing personally and professionally with us.
To do this, there are some really key traits that we want to land. There are more, but these are the ones that we think really matter, and we're already seeing the benefits flowing in the results. We've been very focused over the last couple of years on operational excellence, getting ourselves fit and driving the basic operational disciplines. And I'd like to touch on a couple of key examples here. Firstly, safety.
Wendy spoke earlier about shifting the hearts and minds of our people, and it's a critical part of this operational discipline. Our safety leadership program is facilitated by line managers, bringing instant credibility to the delivery, cascaded so no one's asked to lead differently until they felt a difference in their own leader, with coaching also delivered by the line to ensure the learning is translated to site. This is seeing real benefits. Ross has led the program with the executive team and in turn, they're leading it with their general managers and so on. This is the focus of our leadership development for the next 18 months and it's receiving the most positive feedback from our people that we've had on the leadership program to date.
We're seeing serious injuries coming down from 21 to 8. We're seeing a shift in the hearts and minds of our people. Our latest check-in showed that 80% of our people believe all injuries are preventable. Another key part of our operational excellence is around pricing. What we know is that a good proportion of our margin expansion has come from better pricing discipline and capability.
We're continuing to focus on building our capability in the businesses with learning delivered in a very applied manner. Some of this learning is in the classroom, but the trick has been getting our people to apply it in the context of their own business and the dynamics that they need to deal with in their market. Getting them to think about pricing from the customer perspective, what creates value, and we're seeing this in margin expansion. We need to keep going with operational excellence, but as we're now very focused on growth, we've boiled down what we think will make the biggest difference in how we think and behave. Obsession for customers, global expertise locally delivered and striving for innovation and growth, and these three things all work together.
We're focused on building a true obsession with customers, orientating our business towards them, getting closer to them, listening to them, including those customers we haven't won yet and using data and analytics to build this understanding. We've lifted NPS 10 points over the last 3 years. We'll see another lift this year and we'll keep going. Delivering to our customers means we need to find new ways to embrace the disruptive global trends and support our people to do so, bringing the outside in. The conversation around eco schemes and tech demos that I spoke to earlier are central to this.
They're focused on delivering what our customers need now and anticipating what they will want in the future and supporting our leaders to build these connections. A big part of this is commercializing quicker than our competition, staying ahead of the curve and using our scale positions to stay ahead of the market and bring what's most relevant to our customers in Australia and New Zealand. Our values underpin our strategy. For us, they're genuinely more than words on a page. They lie at the heart of the way we do business and guide the decisions we make and the actions we take.
They're very linked to the areas that I've just been talking you through. Protect, we have an authentic focus on health and safety and it's paying dividends. Be bold, being prepared to have a go, really push our thinking, partner with disruptors. Customer leading, doing what I've been talking about so we bring it all together and deliver for our customers. And finally, better together in a way where we take full advantage of our scale and the diversity of our people.
So on that note, thanks everyone and turning to questions. So let's now take questions from the webcast.
The first question for the web is, what's the proportion of females you have in your workforce?
So women represent about 22% of our overall workforce. And in our functional roles, so that's safety, finance, HR, legal, those types of roles, we have about 54%. So clearly, the focus needs to be on the operating side where we have about 19%. So the things that we're doing, it is getting a lot of focus and internally really targeted development for our women. And then externally, we're really trying to attract women into our industry.
So we're quite involved with things like women in construction over in Australia, women in plumbing with Tradelink. And it's that old adage that you manage what you measure. So it's part of our monthly operating reviews. It's getting a lot of focus. It's in our senior leader STIs and that sort of thing.
So we're working hard at it.
The next question from the web is, where do you predominantly invest in your people?
So the investment in our people is really quite tightly tied to those traits that I've just been talking about. So the leadership the safety leadership program is getting a lot of investment and then operating capabilities. So pricing, sales, service, they're delivered in the business and alongside the innovation type things that I talked about. And then diversity and our core leadership program, so we're keeping them running just so we keep a really strong foundation in those areas.
There are no further questions from the web.
Okay. So do we have any questions on the phone?
Thank you. Your first question comes from Simon Vaccari from Jefferies. Please go ahead.
Thanks, Claire. Thanks for the presentation. Very helpful. It looks like quite a step change in the approach Sirches is taking. And I appreciate the positive feedback you're getting internally on that change.
I just want to understand some of the drivers. So if we exclude the layoffs, unfortunately, there's no other layoffs around COVID, what's the like for like employee turnover across Focha Building? And so and how much is new thinking from new people versus existing folks connected with the change?
So turnover sits at around 13%. And so as we've looked to bring new people into the business, that's been very much targeted on those traits that I've been talking to. So looking for those people that bring those different sorts of capabilities, and we're finding that they're really sparking the people that we have with us, and it's really helping get a step change for us.
Thank you.
Thank you. There are no further phone questions at this time. I will now hand back to the presenter.
Thanks very much. I'll now hand you back to Ross.
As I outlined at the beginning, we have refocused our strategy to ensure we continue to drive both further operational performance improvements and set ourselves up for growth. We remain confident this strategy positions us well to drive growth in shareholder value across both the short and longer term. Hopefully, the various presentations you've seen today have brought this to life, providing you with tangible examples around what we're doing to ensure this is achieved. As we look ahead, I would summarize what you've heard today as follows. In FY 'twenty one, we remain on track to deliver strong earnings growth for the year, and we expect to deliver a full year profit in the range of 6.50 to £665,000,000 Importantly, strong cash generation continues to be a feature and will commence a share buyback of up to £300,000,000 in June.
We remain on track to get our overall EBIT margins to around 10% by FY 'twenty three. This improvement will come from 3 key areas: lifting margins in Australia to between 5% and 7% and construction margins above 3% continuing to drive margin expansion across our New Zealand core businesses and the profitability benefits we get from further growth across our higher margin residential and development business. At the same time, we've been actively investing both capital and overheads to set us up for growth beyond FY 'twenty three. Fletcher Building is a great business staffed by exceptional people. And while we have achieved some good things over the last few years, I truly believe the best is yet to come.
Well, now I'd just like to start before I throw to any questions that might be over the phone. There's a number that have come through from the webcast, and we've aggregated those to 5 quick questions. One of the ones came out was, is the government mandating green concrete specifications? We're not seeing absolute mandateship. What we are seeing emerge in the market is what I call more broadly scorecards.
And therefore, as you're assessed on your attributes when you're bidding, and it's not just concrete, it's building materials or if you're in construction bids, just your whole approach to sustainability and environmental and carbon. And you would have heard a few of the presenters also talked about EPDs becoming more prevalent because that's a much more broader sustainability lens. I think this is the thin end of the wedge. I think we're going to see more of it, and I think it will start to get mandated and will become quite a big deal in bids as you go forward into the immediate future. Another question came out was, do we see as the pricing improvements we've made as temporary?
And I think that's what the question meant. Or do we think it might then go backwards into the future? Look, the way I talk to this, I don't think our pricing success is actually market based. What we've had to do is implement a whole lot of self help is the way I'd call it over the last couple of years. So therefore, I see our disciplines in pricing and the way we're achieving price is actually something that's a permanent feature of what we're doing because we've got those disciplines much improved.
There's still work to do which we can build on which should make it improve further. But so therefore, I see is what we're achieving in price now as a permanent feature of the way Fletcher Building will run itself into the future. A question came up around brand consistency across the Tasman between things like Placemakers and Tradelink. We won't go that we will run the separate brands. It's quite important.
They're very well known. They're actually worth something. They're familiar. And there's no real benefit in trying to homogenize those brands. It's better to get behind the brands we've got, build them and make them meaningful in their markets.
So we'll continue to run the separate brands in both countries. Another question came up around on our retirement village approach around the DMF or the capital guarantee. We guarantee no capital degradation, but does it work both ways if there's capital gains, sorry, they get the capital gains, but not the capital degradation. We've put a floor under it. So if people come into the village, into the house, they don't take the downside risk, we take that.
That said, I think it's very limited because these will be over longer periods. So I'm very comfortable with that position and taking it on in our retirement offering. And now the last one on the from the online stuff is the Clivacore margins. When will do we think they'll shift to positive and just what are we looking for there? So the answer is we're in this to make money.
We actually separate the money we're making. We build a house from what we want to achieve in clavacore. As we've flagged, it's been running at a slight loss as we've got it tuned into scale. So we'd expect that to make profits in the short to medium term. To give you a sense of it, like everything where we invest, we want to get a 15% return on capital.
So it's really quite important that we build profitability in that business to achieve those returns, and that'll be a key metric we'll be looking for over the next couple of years with that business. So with that, I'm sorry, if there's any other ones that people didn't get answered, by all means, please put them through and later we'll actually pick them up or we'll answer them after this afternoon. So I'd now like to open up the call to any final questions that people may have on the phones.
Your next question comes from Keith Chow from MST Marquee.
Certainly a lot of details with respect to how each of the business units are looking to improve their margins going forward. I've got a question just from, I guess, a divisional makeup perspective. Just trying to understand to get your 10% target, is it possible for you to, I guess, proportion how much of the step up from FY 'twenty one's 8.2% outcome will be driven by underlying improvement within each of the businesses? And how much you think will be driven by a change in the mix of earnings contribution across each of the divisions?
Yes. Look, the way I think you could get to it without getting too sophisticated because I'm not going to have the ability to get too sophisticated quickly. But if you look at the Australian revenue as it sits there, we and that goes from its present margins up to 5% and above that, you can get a proportion quite quickly of what's coming from the Australian business without getting into the complexity of where the revenue goes. Again, you've got a good fix on our construction revenue as it sits there now. So as it goes from its present percentages up into the 3% pluses, you get a good fix on that.
You've seen Steve had a graph at the back of his presentation on just what we think the residential housing volumes will look like. It's not hard to translate the margin that comes from that growth as you think about that because remember that's we're looking for 15% plus margins there, so you can get a reasonable fix on that. And then the balance is going to come from loosely what we call our core businesses and a couple of those when we went through the presentations actually had margin targets, what they thought they could improve over the next couple of years. And again, just use the revenue basis, give or take, they've got now. And you'll get a pretty good proxy of the proportions when you work through it.
And I'm not trying to give you homework, but that's the best way through it if you're off the cuff.
Thanks very much, Ross.
Thank you. There are no further phone questions at this time. I will now hand back to the presenter.
Look, thank you, everyone, for participating, and that concludes our virtual Investor Day. We've covered off a lot of content across the many parts of our business, and I just want to thank you for joining us, and we look forward to updating you at our year end results in August. And as I mentioned earlier, any other questions, please feed them through to a later, and we'll get back to you with an answer. But again, thank you very much. Long day.
Appreciate your attendance. And I'll finish up there. Thank you.