Good morning and welcome to the presentation of our full-year results for the 12 months ended 30th of June 2025. I must firstly apologize if I cough and slough a little bit as I picked up a lurgy overnight. If you're in this room, you'd notice everybody's at one end and I'm at the far end. Moving to the agenda on slide three, I will provide an overview of FY 2025 as well as the operating performance of our divisions. Will Wright, our Group CFO, will talk through our financial performance. I'll then cover the stakeholders that are so important to our business and close with how we are planning and thinking on the year ahead. We'll take questions after that. Please keep these to two each, though you are welcome to send through any more or additional questions to the media team.
Turning to slide five, a summary of our financial performance. FY 2025 was a challenging year across all sectors, with revenue and margin for the group both down. Net loss for the year was $419 million, which includes $702 million of significant items. Will is going to speak about these in more detail shortly. On a more positive note, we made substantial progress on our balance sheet reset, including reducing net debt to $999 million following the successful capital raise and divestment of Tradelink. CapEx was down, reflecting on our disciplined approach to capital allocation. Although net cash from operating activity was down, it was still robust given the trading environment. While the macro backdrop remains tough, we are positioning the business for the realities of the current market. Moving to slide six, our medium-term strategy.
At our Investor Day in June, we presented a clear, focused strategy to improve performance and deliver sustainable shareholder returns. This outlined a medium-term focus on manufacturing and distribution of building products and materials. The strategy rests on four key pillars. Firstly, taking immediate action and executing our turnaround plan to restore profitability and cash flow to target levels. Secondly, ensuring high performance in every part of the organization. Thirdly, empowering our leaders to make faster and more effective decisions closer to the customer. Fourthly, ensuring we have a resilient capital structure that supports investment while protecting against volatility. This is a deliberate and disciplined roadmap that will lead to a more focused, profitable, and resilient Fletcher Building. Moving to slide seven. Over the past 12 months, we've acted decisively to reshape the business, with many key priorities already implemented and clear actions for the short and medium term.
In Australia, Steel and Corporate, we've undertaken structural changes that will deliver around $15 million a year in annualized savings. We've closed underperforming operations, halted the SAP rollout, and reduced forward capital commitments. Our corporate functions are being decentralized to give divisions and business units more autonomy and accountability. While the divisional restructures, which are now completed, position us to focus our resources on the divisions and the projects that will generate the highest returns. We are progressing a number of potential divestments, including our Construction Division, CSP, and our 13.4% equity stake in the Puhoi to Warkworth Toll Road. Today, we are also announcing that we are moving to undertake a strategic review of our Residential and Development Division, which could result in divestment options being presented to us. We still have more work to do.
Over the medium term, we will embed the new operating model and continue simplifying the portfolio. As balance sheet targets are met, we will reset our dividend policy in order to deliver sustained shareholder return. Slide eight, operational highlights. To now look at some highlights from the year, which illustrate the underlying operational strength of the group. Firth has grown its ready-mix market share to approximately 40% nationally and more than 50% in Auckland, a position that will be further strengthened when our new 882 Great South Road batching plant comes online in FY 2026. Winstone Wallboards' Tauriko plant has consistently achieved A-grade recovery yields above our 95% target. Wiri Pipe plant is now operating at full capacity and is demonstrating the benefits of vertical integration with PlaceMakers. These achievements demonstrate that, despite market challenges, we are holding operational momentum. Slide nine, progress on legacy risks.
In parallel with improving our day-to-day performance, FY 2025 has been closing out historical legacy issues that have consumed management attention and balance sheet capacity. While some processes are ongoing, during FY 2025, we have materially reduced the number and scale of legacy risks, allowing us to focus more fully on the future. At NZICC, construction works are effectively complete. Acceptance testing and compliance processes are well underway, with client handover expected during calendar year 2025. We intend to vigorously defend ourselves against SkyCity's legal proceedings and are confident in the position that we hold. Court proceedings against the roofing subcontractors on NZICC are nearly complete, with judgment expected in the second half of FY 2026. No benefit has been assumed for this. On the Western Australia pipe matters, the industry response has made meaningful progress, and the remediation work of the around 40 participating builders is starting to build momentum.
As at June 30, 996 ceiling pipe replacements were complete, 55 homes had been fully remediated, and over 2,000 homes had leak detector units installed. Costs remain consistent with our provision estimates. For the Puhoi to Warkworth Toll Road project, full works completion was approved in May 2024, and we've now settled our COVID-related claims with NZTA and the weather-related and landscape events with insurers. Slide 10. Moving to slide 11, divisional performance. There are a lot of numbers on this page, so I won't talk to this slide as I'll be covering the divisions individually later in the presentation. It should be a useful dashboard going forward and also one that will get smaller as our divisional structure simplifies. The number of red arrows highlights just how widespread and difficult the current stage of the cycle is for the building and construction industry. Moving to slide 12, building products.
The building products division was impacted by cost inflation, softer residential demand, and lower volumes, but key business units still maintained high operational performance. EBIT for Winstone Wallboards held up well, with tight pricing controls and a well-executed plant production ramp-up. Laminex New Zealand maintained resilient sales in Melteca and Particle Board, and Comfortech saw solid demand for Pink Batts and PinkFit, though challenged by higher energy costs and competitive import pricing. Moving to slide 13, concrete. Concrete delivered a resilient result given the market backdrop and Golden Bay's MVAT breakdown. Golden Bay's EBIT was impacted by both logistics challenges and lower pricing, but asset reliability remained high and cost control was strong. Winstone Aggregates delivered a stable performance despite weather and project disruptions.
Firth was able to make market share gains with demand from the Auckland Airport expansion and other major infrastructure projects, providing solid volume support in the second half. Moving to slide 14, distribution. Distribution delivered a disappointing result, with a general market decline and historic loss in share impacting volumes, while intense price competition has compressed margins. Frame and Trust volumes did see positive momentum, rising nearly 5% on last year, and PlaceMakers and MYCO maintained strong customer engagement and service levels. By year-end, we had largely implemented an operating model adjustment and cost-out program, which are aimed at footprint optimization, better cost efficiency, and restoring margins in FY 2026. Pleasingly, both PlaceMakers and MYCO grew their market share in the latter half of the year. Slide 15, Australia. Australia experienced mixed performance. Laminex Australia achieved strong growth in premium product categories, particularly the next-generation wood grains range.
Fletcher Insulation delivered record monthly output and launched 16 new products. However, Iplex Australia and Stramit faced headwinds from declining activity in their respective markets and pricing pressure. Slide 16, residential and development. FY 2025 saw the residential and development division navigate persistent demand headwinds, cautious buyer behavior, and pricing pressures. Major milestones included the completion of Matai Springs in Canterbury and the launch of The Hill in Auckland, which has achieved strong pricing for its flagship Belvedere apartments. Three Kings also reached a major transformation milestone, which, with new housing, sports fields, and roading network, now opens. Lastly, the exit from Clever Core is now complete, with over 50% of its staff redeployed into PlaceMakers' new Frame and Truss plant. Slide 17, construction. The construction division delivered a meaningful improvement in FY 2025, driven by successful delivery of key projects, disciplined cost management, and resolution of legacy issues.
Higgins contributed material to margin growth and is meeting or exceeding NZTA KPIs, while Brian Perry Civil worked on critical infrastructure projects at both Auckland Airport and Seaview Wharf in Lower Hutt. Major projects continue to deliver the Eastern Busway project with the critical Rā Hihi flyover five months ahead of schedule, and they also secured the Riverlink Alliance project in Lower Hutt during the year. To recap on divisional changes on slide 18, as many of you will recall, we announced in May 2025 that from 2026 onwards, we will report under a simplified divisional structure. There will be five divisions: light building products, heavy building materials, distribution, residential and development, and construction. The new structure better reflects how we will operate today, focuses more accountability, and increases transparency for investors. It also aligns our reporting more closely with how capital is allocated and performance is measured internally.
Now I'll hand over to Will Wright and ask Will to make some comments.
Thank you, Andrew, and good morning, everyone. It's been a year of significant challenge and change. While market conditions remain tough, we've taken decisive action to reset the business, strengthen our balance sheet, and position ourselves for long-term performance. Moving to slide 20, let me begin with some updates to our reporting framework. These changes improve clarity and comparability between periods and better reflect how we manage the business. This year, we've enhanced our segment reporting to provide greater transparency. You'll see clearer breakdowns across EBIT and cash by segment and revenue, and this can be found on note 2.2 of the annual accounts. We've also moved to align our cash flow presentation with IFRS 18, providing additional detail on operating, investing, and financing activities. In particular, we are now clearer on where interest paid, interest received, and dividends received fall within the cash flow statements.
Turning to the income statement, revenue for the year was $6.99 billion, down 9% from FY 2024, with the largest decline in the Residential and Development division, which was down 30% from FY 2024. Gross margin held relatively steady at $1.95 billion, supported by cost-out initiatives, including changes to shift patterns and procurement savings. The results benefited from a total of $200 million in gross cost-out initiatives, including a net $75 million reduction in FG&A and warehouse and distribution expenses year-on-year. There was also a series of negative impacts above the EBIT line, which will not continue into FY 2026. These included the settlement of the historic P2W claim with NZTA for $16.4 million less than previously recognized, $9 million in losses relating to the Clever Core penalisation facility, and $6 million of costs relating to the MBEC breakdown.
Significant items from continued operations totaled $644 million, primarily driven by impairments, restructuring costs, and legacy project provisions. These are covered in more detail on slide 32. Turning to slide 22, this waterfall chart illustrates the key drivers of EBIT movement year-on-year. As you can see, while cost initiatives delivered meaningful savings, they were not enough to fully offset the impact of lower volumes and cost inflation. The key driver of EBIT decline was volume contraction. In our manufacturing businesses, this was most pronounced in Laminex Australia and Humes, whose volumes were down 10.6% and 15.1% respectively in the June quarter relative to 12 months earlier on a rolling 12-month basis. Similarly, our steel businesses contracted between 10% and 15% on a rolling 12-month basis.
There were some positive signs, with Iplex New Zealand seeing improved volumes off the back of strong rural sales and PlaceMakers' Frame and Truss volumes improving over the last six months due to improving market share. Balance sheet strength was improved by the capital raise, but we have more work to do. The normalization of working capital is ongoing. However, we saw less volatility at 30 June than in prior years. Net debt fell to $999 million, down from $1.77 billion, with the proceeds from the equity raise used to repay $680 million of debt. We remain above our target net debt range of $400 million to $900 million. However, we have several levers to reduce debt over time and move towards our target range. Firstly, shareholder distributions. We will use retained earnings to pay down debt.
The dividend will remain suspended until we reach the lower half of the target range. Secondly, ongoing optimization of capital expenditure, ensuring it is right-sized and not based on peak volume assumptions. We continue to review projects from across the portfolio for lower-cost solutions or better phasings of expenditure. Thirdly, land. We're actively managing our portfolio of sites to release capital from underutilized or inefficient sites. This includes not only our manufacturing and distribution sites, but also our land bank within the residential and development division. Lastly, as Andrew has discussed, we're pursuing strategic divestment. Operating cash flow was $501 million, down from $588 million since FY 2024, largely due to lower earnings. However, the impact of this was partially offset by a reduction in legacy construction cash outflows and reduced cash flows relating to significant items.
Investing cash flow improved significantly year-on-year, even after adding back the impact from divestments of Tradelink and the 50% share of Construction Fiji. Net outflows of $61 million compared to $398 million last year. This reflected a strong focus on disciplined capital allocation, including the scaling back of a number of projects and/or improved phasing of those projects through funds. On slide 25, you can find a breakdown of our central costs. As discussed at Investor Day, we will provide greater transparency on the quantum and nature of corporate costs moving forward. We see corporate overhead as a key medium-term opportunity for us to remove structural costs from the business. As signaled at Investor Day, we have taken approximately $30 million of structural central costs out of the business late in FY 2025. This will flow into FY 2026.
However, much of the central costs relate to longer-term contracts and licenses that will take longer to unwind. Working capital is an area where we see significant opportunity for improvement. While we've traditionally focused on year-end cash flows, we're now shifting to a more proactive year-round approach. Our working capital cycle is too wide, with too much volatility throughout the year. This leads to us having to carry greater levels of headroom in our banking facilities, and this ultimately comes at a cost. FY 2025 year-end removes the volatility that has been by design. For example, we ensured all of our suppliers were paid in June. The residential and construction divisions have also been large drivers of annual volatility. In many ways, this cycle is tied to the industry in which they operate, and this will be harder to address in the short term. Moving to slide 27.
In FY 2025, we invested $313 million in CapEx and investments, down from the $420 million spent in FY 2024, as we continue to focus on the scale and phasing of expenditure. $5 million of investments relate to contributions into construction JVs and the final purchase price adjustments on [Puhoi] . $16 million was spent on stripping costs in Winstone Aggregates, which are capitalized into stock and amortized as the resources sold. Other growth CapEx relate predominantly to the new Firth batching plant at 882 Great South Road and the new PlaceMakers Frame and Truss plant. The OSV plant under construction in Taupo is progressing well and remains on track for initial production mid-next year. We continue to work closely with the business on the scaling and phasing of CapEx. At this early stage, we expect FY 2026 CapEx to be between $320 million and $340 million.
This includes $130 million on the OSV plant. Additionally, we expect to invest approximately $30 million in quarry stripping and land acquisitions, and approximately $13 million on the construction of retirement village units. Moving to slide 29. We continue to manage our lease portfolio actively, with a focus on reducing liabilities and ensuring lease impacts are reflected in divisional return on invested capital calculations. Lease liabilities totaled $1.5 billion at year-end and represented 57% of group gross debt. Land and buildings accounted for the majority of leases, with plants and machinery responsible for the remainder. The increase in lease liabilities year-on-year primarily related to two transactions: the sale and leaseback of steel division land and buildings at Hinua, and Laminex Australia entering into a new warehouse lease agreement in Victoria.
We will be more active in managing lease liabilities moving forward, with an understanding that these place debt-like obligations on the business. We remain focused on reducing leverage and simplifying our funding mix. This will allow us to maintain investment-grade credit metrics and lower funding costs, which currently average around 5.6% pre-line fees, down from 6.1% at the half-year. The current group funding profile, as at 30 June 2025, had circa $2.1 billion of total credit facilities, a reduction from $2.8 billion from a year earlier. During the first half of the financial year, the group repaid and cancelled $569 million in borrowings. Additionally, in the second half of the year, we elected to redeem $80 million of capital notes that fell due in March. We have $1.1 billion in liquidity, including $916 million in undrawn credit lines. The average maturity of our debt is 2.2 years.
Pleasingly, Moody's reaffirmed our credit rating in July. Moving forward, our future capital structure will focus more on domestic senior funding sources and will likely include a mix of bank, wholesale, and listed debt. Slide 31 has a chart showing the components of the reduction in net debt from FY 2024 to FY 2025. The capital raise was the primary driver, but we also saw $88 million in additional deleveraging from operating cash flows and assets. As discussed earlier, ongoing debt reduction remains a key focus. Moving to slide 32, significant items. There are significant items of $702 million for FY 2025. In the first half of the financial year, we reported $251 million in significant items. This primarily related to the joint industry response in Western Australia, which will translate into cash over a number of years, and the Tradelink disposal.
The NZICC additional costs to complete announced in June added another $15 million. From the strategic review, there is $380 million in non-cash items and $44 million in cash items. These cash items include onerous contract provisions for SAP licenses and the costs associated with cost out and site closures. There is an additional $12 million in non-strategic review items from the second half. This relates to legal costs incurred from legacy construction projects and the WA pipe matters. These numbers are substantial, but they reflect our commitment to reshaping the business for long-term success. The strategic review is not just about cost, it's about clarity, focus, and positioning ourselves for sustainable growth. I'll now hand back to the slide.
Thank you, Will. Our success depends on our stakeholders, our people, our customers, our communities, and our shareholders.
In FY 2025, we've worked hard to strengthen these relationships, not just through a financial lens, but through a consistent commitment to safety, environmental leadership, and community engagement. We'd like to enlarge on these in the coming slides. Moving to slide 34. First, I want to acknowledge the tragic loss of Max, a team member who passed away following a crane incident in [van R2] at the start of FY 2026. This event and the 15 high potential incidents we see each month reinforce that we can never be too comfortable. Safety remains our highest priority, and we continue to work towards our promise that everyone goes home safe every day. In FY 2025, our [TRIFRA] was 2.9, the lowest ever recorded for Fletcher Building. Leaders completed over 19,000 critical control verifications and 25,000 leaders' walks.
We were proud to be named Safety Leader of the Year by the Australian Institute of Health and Safety and to have been finalists in five categories at the National Safeguard Awards. Amongst the many initiatives focusing on operating more safely, one outstanding action is the piloting of AI technologies to improve dynamic exclusion zones around mobile plants, with PlaceMakers and Easysteel achieving significant reductions in breach rates. Our people. Our people are at the heart of Fletcher Building. In FY 2025, we provided 45 welfare grants, supported diversity initiatives such as Girls with Hi-Vis and Women in Construction, and celebrated the achievements of our Whakatupu graduates. We also launched the Sonder app across New Zealand businesses, doubling the number of employees accessing 24/7 medical, safety, and mental health support. Moving to slide 36, our environment.
We have reduced scope one and two carbon emissions by 24% compared to FY 2018, with 78% of our revenue now coming from sustainably certified products. Initiatives such as plasterboard recycling with local councils, coal substitution at Golden Bay, and renewable energy generation in Australia demonstrate our commitment to supporting the environment and leading in sustainable building practices. Our community. We are proud to support the communities we operate in. Across our business unit, there are a wide range of grassroots sponsorships, donations, and volunteering initiatives that can't be encompassed on a single page. We've included some examples here where our teams have helped make a difference in their local communities. In slides 38 and 39, our customers. We are proud of the products and people that help our customers build New Zealand and Australia's future. These are just a snapshot of the work we do every day.
At Auckland Airport, Firth and Brian Perry Civil completed their largest ever concrete pour. The NZICC will be a meaningful asset for both Auckland and New Zealand, bringing large numbers of convention attendees from 2026. Humes and IPLEX supported the Waitangirua Link Road project, securing long-time water and power infrastructure in Eastern Porou. At Christchurch Stadium, we supplied the full spectrum of jib products. IPLEX supplied modular form maintenance holes to New Western Sydney International Airport. At the Te Waka Aorangi Child Wellness Centre, Laminex products were used to create durable, high-performance spaces for children with complex needs. These projects reflect the strength of our customer partnerships and the quality of our products. Now, a few words about the outlook going forwards. Slide 41, where in the New Zealand cycle are we?
Looking ahead in New Zealand, we expect a prolonged period of subdued demand in the residential and commercial construction markets. Building merchant sales remain a reliable proxy for sector activity, and our current data shows nominal sales have fallen across the wider merchant sector, tracking below prior year levels, even before adjusting for inflation. This weakness has persisted over the past 18 months, with monthly rolling 12-month figures well off the peaks of the last cycle. The softness is broad-based, affecting both residential and non-residential segments. We are planning on the assumption that these lower levels of activity will continue through FY 2026. Still, our operating model, cost structure, and capital plans have been set with this conservative view in mind, ensuring we remain resilient if the downturn endures, while also positioning us to move quickly should demand recover. On slide 42, where in the Australian cycle are we?
In Australia, we're seeing early signs that the gap between completions and commencements is beginning to close. For total dwellings, approvals and commencements are starting to align, indicating a potential stabilization in the pipeline. New house activity, however, remains slower to respond, with commencements still lagging approvals. Market conditions remain mixed. While some segments show resilience, others continue to face headwinds from interest rates, labor constraints, and elevated input costs. Against this backdrop, we maintain a cautious outlook and are focused on driving operational efficiency and project-led growth across our Australian businesses. Moving on to the outlook. As we look ahead to FY 2026, the operating environment remains challenging, and our plans reflect that reality. In New Zealand, we expect volumes to remain low and demand subdued.
While in Australia, there are some early positive indicators, it is too soon to say whether they will translate into materially higher activity or volumes. We will continue to execute our cost reduction initiatives, which will provide important support to profitability in the face of these volume headwinds. These are not just short-term measures; they're designed to structurally improve our cost base, giving us lasting efficiency gains. Our portfolio simplification work is progressing, with divestments and strategic reviews underway. While these will strengthen our balance sheet, the full cash flow and cost-out benefits are more likely to be realized in FY 2027. On slide 45, conclusion. As we close, I want to leave you with five key messages. We have taken immediate action. We have renewed our focus on our operating performance and customer needs. We are on track with net debt and have clear priorities for FY 2026.
While the New Zealand and Australian markets are likely to remain weak in FY 2026, our focus is for disciplined, actionable execution, maintaining cost discipline, protecting margins, delivering operational excellence, and positioning the business to accelerate when market conditions improve. Thank you for your time, and we're happy to take any questions you might have, remembering that we would like to restrict it to two per person. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We ask today that you please limit yourself to two questions per person. Your first question today comes from Kieran Cowling with Craigs Investment Partners. Please go ahead.
Morning, Andrew. Thanks for the presentation. First question is just around the outlook statement. We have said the construction sale process and residential strategic review are unlikely to result in any cash flow or cost benefits until 2027. Can you just elaborate on that point and talk us through why the construction sale process could take that long, given the inbound inquiries seem to be quite strong?
Look, it's a very complex transaction that we have to go through. First of all, we need to engage with parties who are showing interest. Secondly, there is a lot of detail to be gone through here and due diligence and so on. I think it's quite realistic to assume that the timetable is going to push out somewhat.
Okay, thanks. Is it fair to assume that you're more looking down the path of divestment for the residential business as opposed to more of a JV model?
We don't know the answer to that yet. We're carrying out a strategic review. The reason we're undergoing this is because, as we've said, the aim for the business going forward is to be the manufacturing distributor of building materials and products, and patently residential and development doesn't fit within that model. What we're doing is just trying to find out what options we have for the business going forward. That, again, could be quite a complex exercise and take a period of time.
Your next question comes from Rowan Coleman-Smith with Foresight Bar. Please go ahead.
Hi guys. Thanks for the additional color in the presentation and annual reports. Very helpful. Just on your outlook slide as well, the third bullet down, you talk about cost initiatives continuing and will help support profitability, but then operating leverage impacted by current run rates. If you add up all the kind of things that you've done so far, you know, Australia divisional restructure, Clever Core's gone, there's the cement issue, there was a subsidiary closure in Laminex, Puhoi to Warkworth, that gives you a pretty decent number. I guess you're expecting all of that kind of to be offset by, I guess, lower exit run rates from this year than, you know, on average. Does that mean that you're kind of suggesting here that earnings will be, you know, broadly flat despite all the cost gains?
Yeah, look, it's still pretty early in the year for us to be making a call on year-end. The outlook and environment are still very uncertain. What we're trying to do is focus on the things that we can control. We're taking costs out where we can, getting our businesses operating as efficiently as possible, and pulling all the mitigants to make sure that we've got a strong balance sheet that will see us through the cycle as well.
Thanks. Maybe just on that balance sheet, net debt was a little bit lower than you suggested a couple of months ago. Can you just talk us through what other capital calls there are in FY 2026? The remainder of the legacy projects, how much you expect to come out of Western Australia land that you need to buy, etc. Just want to get an idea of the kind of other headwinds that there are there in terms of pulling that number down further.
Yeah, sure. We're still working through a lot of that. We've given a good update in the appendix to the presentation on just the run rate on WA pipes, and we expect that to continue to gain momentum. It's had a slow start, but we think that will continue to gain momentum. Construction legacy cash outflows are reducing through time. We've put some photos in the results presentation, which you can have a look at, which is of what I would call a completed building at the convention centre. There's not a road cone or piece of scaffolding in sight, and they will reduce as we go through the year. We're still working through some of the residential land payments that are due. As you can imagine, we have a number of commitments to purchase land that were committed to in prior periods and also deferred settlement as well.
We still have some of the hill, for example, to pay for in this financial year. We're still working through the exact timing of those payments and what can be deferred and what we can potentially move on. That will be well north of $150 million this year as well.
Your next question comes from Stephen Hudson with Macquarie Securities, New Zealand. Please go ahead.
Hi, Stephen.
Hi, Andrew and Will. Just a question on the SIG items. Can you give us the cash outflow that you're expecting for FY 2026 from the provisioning that you've made, and to what extent you'd expect further provisioning to occur in 2026 on SIG items?
Yeah, sure, Stephen. I think, you know, of the restructuring cash costs, which were about $44 million, a large chunk of that relates to SAP licenses. Most of those don't actually hit the financials until FY 2027, FY 2028, and FY 2029. The cash component of that $44 million will flow predominantly in those years. There will be about $10 million -$15 million of those restructuring costs that flow in both the tail end of FY 2025, a small amount, and then in FY 2026.
I'll just sneak in another one because I think that was one question. Just on consensus, I guess there was an earlier question on, you know, whether or not a flat outlook looks a bit more realistic. The street's got you at close to $450 million for next year and $547 million of EBIT the year after. So 42% increase over a two-year period. Can you just give us a sense of how realistic you think that is as a management team?
Yeah, look, I think what we're seeing right now, Stephen, is a very challenging market. What we've undertaken to do is release our volumes of our key products on a quarterly basis. That should help to inform the market on a go-forward basis as to the situation as we see it. You would have seen in the June quarter that volumes continued to decline across a lot of our businesses. Where they didn't, like in PlaceMakers' Frame and Truss, it was really sheer gain and not market. I think we're still seeing a pretty tough market at the moment. We're not seeing anything different in this quarter as it's tracking so far. Obviously, we'll provide that update in sort of early to mid-October. Pre-AGM, you'll have a pretty good read on where we see this year tracking as well.
Your next question comes from Dylan Adrian with JP Morgan. Please go ahead.
Good morning, Andrew. Will, thanks for taking my question. Just on building products, how did margins shape up in that division on sort of an exit run rate basis? I know you called out an improvement as you exited the period, please.
Sorry, can you repeat your question? We didn't quite catch that.
Sure. Just on building products, how did margins shape up on sort of an exit run rate basis? I think you called out an improvement as you exited the period, as you exited FY 2025.
Yeah, look, I think, you know, again, margin improvement's hard won in that business at the moment because you're seeing reductions in operating leverage, right? Where we're seeing margin improvement, it's things like reductions in shift patterns, procurement savings, and then also being really smart about our pricing as well. Making sure that we're not offering unnecessary discounts, making sure that we're recovering our freight. It's a range of things that the team are doing. It's quite a different story across the different businesses as well. Margins are certainly not growing in all of the light building products businesses, but we are seeing some positive momentum in some and some compression in others. It's kind of a net benefit, I suppose.
Okay, thank you.
Your next question comes from Ramoun Lazar with Jefferies. Please go ahead.
Good morning, guys. Just a follow-on from the question earlier, just around the expectations into 2026. I guess second half of EBIT was about $220 million, which includes a bit more of those cost reductions through the June half. To what extent do the remainder of the cost outs annualize into the first half? How should we think about that? Also, if you could just touch on the typical seasonality, you think we should expect first half compared to second half, just given the timing of some of those residential developments?
Good question. I think, look, the cost out wins are hard fought. You're saying we've got a net $75 million benefit in SG&A and warehouse and in distribution, but you're constantly having to take cost out to fight inflation in this business. Inflation hasn't really gone away. We're continuing to see inflation pressure across the business. We're continuing to take cost out. In particular, we've got that $30 million of structural cost out that will flow into the business this year from the removal of corporate overheads, which I think is an important inflation mitigant and also will help operating leverage as the volumes come back. In terms of first half, second half, we generally see a second half weighting within this business on a historical basis. Looking at the residential business and the construction business, they're probably the ones that have the most volatility on half-on-half earnings historically.
As we sit here today, we think both of those businesses will be second half weighted. The construction, just in terms of where their projects are at, they've got a number of projects starting in this first half, and you have to get quite a way through those projects before you start to get certainty enough to recognize earnings. That will probably be in the second half for the construction division. In the residential business, it's more around the earthwork seasons and when you get completions of houses in New Zealand. That's why that tends to be a second half weighted business. In Auckland, which is really the bulk of the residential business, you can really only do earthworks between October and maybe April, maybe May if it's a really sunny year.
What that means is you tend to get all your sections at one point in time, you tend to then build on them and then deliver them into that second half of the year.
Okay, got it. Just a point of clarification. You expect to hold on to the, you know, depressed volume environment. Do you expect to hold on to those cost reductions that you've achieved today, plus the $30 million, given, you know, the comment around inflation, or should we expect, you know, that there will be some offset from inflation as a result?
Yeah, there'll be some inflation, and I think we'll fight hard to find more costs to offset that inflation as well, right?
Okay, thank you.
Your next question comes from Grant Swanepoel with Jarden. Please go ahead.
Hi, there. First question, following a lot of the others. If the ship pans up where you expect it, and you do get this construction sale somewhere in what your invested value of $303 million, I think you put in communication to that, it means that your balance sheet could come into that zone where you'd be at the bottom end or the bottom half of your debt range. Would the board consider resuming dividends second half of the year if that did occur?
Sorry, Grant, I think I caught most of your questions. It's not a great line, but what we have said is we won't resume dividends until we are in the bottom half of the net debt range. At the point in time where we're in that position, we will do a dividend policy review. We will go out and talk to shareholders about what they think is an appropriate capital return policy. Ultimately, any resumption of dividend is not Andrew or my decision, that's one for the board. I'll probably just leave it at that.
Okay. Just a quick one on metals contribution. You normally give that as a subset of building products. What was it for the full year? Was it $7 million at the half year?
I couldn't catch that, Grant, sorry. Can you repeat?
The metals division or steel within Building Products, you don't seem to disclose that at this end period. Was $7 million at the half year, what is it at the full year?
Oh, yeah, sure. Sorry, Grant. I will just...
Give us just one moment.
Make sure I give you the right number.
We're looking at a very big spreadsheet. Sorry, Grant.
Steel. The second half was -$ 6.5 million. What was the old steel division, Grant?
Is that answered?
Thank you. There are no further questions at this time. I'll now hand back to Mr. Reding for closing remarks.
I'd just like to say thank you all very much indeed for coming along today. If you do have any other queries, don't hesitate to reach out to our comms team and we will endeavor to answer them. Thank you all very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.