FRCEF (FRCEF) Q4 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Fletcher Building FY '26 Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Reding, Managing Director and Group Chief Executive Officer. Please go ahead.

Good morning, and welcome to the presentation of our full year results for the 12 months ended 30th of June 2026. Setting the agenda for today, I'll cover off the 2026 financial year and the progress we've made against our strategy. I'll then talk to the divisions and our stakeholders. Will Wright, our Group CFO, will then take you through our financial results in more detail. And finally, I'll return for our outlook, after which we will take questions. Before we get into the detail, let me give you a quick overview of the year as I see it. The end of financial year '26 signifies the end of the first stage of our turnaround. The first stage was the initial hard work to turn around this group, and we have now completed that. We have progressed with the portfolio simplification. We have made ROIC a discipline in our business. We've put a focus on performance. And we've taken out a major first tranche on cost. We have moved quickly and decisively, and we now have a fitter, leaner organization. The next stage is going to be about finding and proving up where growth comes from inside the core and continuing to pursue portfolio simplification opportunities. Turning to Slide 5. There are 5 points I want to make sure I get across today. We have delivered a steady performance in a tough macro environment. We have executed well and progressed the strategy consistent with what we set out at our Investor Day last June. We've continued to strengthen the balance sheet, and net debt is now inside our target range. Group ROIC has improved, although there is still more work to do on this. And operating cash flows were strong, albeit with some offsetting legacy project costs. Moving to Slide 6. There is no getting away from the fact this has been a challenging economic environment. Back at the start of this calendar year, we saw signs of the start of a recovery, but events in the Middle East have since caused a drop in economic momentum for both New Zealand and Australia. In the context of this backdrop, we have developed a respectable performance. Will is going to talk to the financials later, so I'll just focus on 3 measures for now. Firstly, net earnings were $228 million against a loss of $419 million last year. This is our first positive earnings result since financial year '23, the lack of impairments being the main driver. Secondly, net debt was $637 million, down from $999 million, which puts us inside the $400 million to $900 million range we set at the Investor Day. That came mostly from improved operating cash flows, property sales, and most importantly, divestments. Thirdly, ROIC, our core strategic measure, was 5.3% at the group level, 4.7% if you exclude land sales. We're just starting to head in the direction, but there is more to be done, and we have very clear plans to improve ROIC at each of our business units. Slide 7. At the Investor Day last June, we set out what we were going to do, and I won't go through every item on the page. The portfolio work is well in train with the construction divestment completing sooner than our own expectations. The cost and structure work is well advanced. NZICC is handed over. And the roughly 15 remaining legacy projects are now provisioned. Delivering an asset to the NZICC's quality despite the setbacks and challenges along the way, while also getting our arms around the remaining retained legacy construction projects, has been a substantial undertaking. I am proud of what the team has achieved. No single item on this list has got this here. It's the aggregate of all of them. Clearly, the major initiative for the year was construction. And I don't think anyone should underestimate what coming out of that does for our ability to perform as a group. As well as the financial drain, construction was costing the whole organization a lot in time and attention, monitoring its risk profile, managing the legacy projects and negotiating settlements with significant distractions from our core divisions. I know you'll have questions on Residential and Development. And what I can say is that we are working through the options to get the best outcome for shareholders. One more thing from the future column. It says further decentralize corporate functions. There is still more to do, but we're getting closer to an optimal balance. The reality is that some centralized corporate functions do carry real economies of scale, but I can assure you we are still running the ruler over everything. With respect to dividends, we will look to reset the dividend policy once we begin generating positive sustainable free cash flow and balance sheet targets are met. Moving to Slide 8 with financial year '26 operational highlights. It's been a busy year with many highlights, so I'm just going to pick out 3. The first is Cavendish Drive. Our new Frame & Truss plant in Auckland is now operational, and it gives us technology no one else has in the New Zealand market. We have been selling Frame & Truss below cost. So every extra unit we sold made the problem worse. The Cavendish Drive plant changes that. The second is The Urban Quarry, our network of metro collection sites for dealing with demolition waste. We opened a new site at Tamahere during the year with tonnage up 28% and cleanfill up 35%. This is the start of a real position in the circular economy, and it springboards off the capability that Golden Bay Cement already has in firing alternative fuels. Third is Laminex Australia, where disciplined structural cost out and site rationalization have improved earnings quality and positioned the business for margin and ROIC uplift. Slide 10, divisional performance. Given the challenging macro environment, this was a robust performance by our manufacturing divisions. Whilst these divisions performed well, the amount of red arrows highlights that more work needs to be done across the wider portfolio, especially on returns. I'll be covering the divisions individually over the next few slides. Moving to Slide 11. In our Light Building Products division, earnings grew 22%. Additions and alterations volume and activity in the rural sector offset weaker residential construction activity in the North Island, while the South Island and Australia performed relatively well. Winstone Wallboards grew volumes 4% on strong South Island demand, again delivering double-digit returns. While we generally had continued volume recovery across multiple businesses in the second half of the year, I wanted to call out Waipapa Pine volumes. Please refer to the chart on the right and the line in light green. This is an example of a business that's benefited from our wider portfolio leverage. PlaceMakers has been able to take in a greater volume of product, which illustrates the type of synergies we can create internally, owing to our critical mass in the markets in which we operate. Our insulation businesses have performed well with Fletcher Insulation in Australia reaching a double-digit ROIC. Slide 12, Heavy Building Materials. Heavy Building Materials also experienced earnings growth of 8% versus the prior year. Winstone Aggregates had a material improvement in the second half, generating a double-digit ROIC, driven by increased project activity and market share growth at The Urban Quarry, which I mentioned before. Firth continued to concentrate on long-term customer relationships. Lower input energy costs improved earnings, while the 12-month volume average, shown in a solid gray line, grew in the last quarter. The in-quarter growth on a nontrailing average basis was comparable to the wider reported market stats by Stats NZ. However, we know that the concrete piling market, which we take a large share in Auckland, has seen delays. Moving to Slide 13 on Distribution. Distribution performance improved materially in the second half of the year, returning to profitability with PlaceMakers regaining lost share. In the first half of the year, we spoke about needing to improve our operational efficiency and capability in our Frame & Truss operations. And we now have it with our new operation at Cavendish Drive. The new plant will help serve the Auckland market, possessing technology uniquely available to Fletcher Building in New Zealand. With a lift in Frame & Truss volumes, it is estimated that every dollar of Frame & Truss sales will be converted on average into $4.20 of higher-margin balance of house sales. Going forward, the structural cost of the division will benefit from both labor productivity improvement from the new plant, as well as a flatter organizational structure. A further lever for growth is our regional joint venture branch model, which we reestablished this year, commencing with 4 branches in Southland. Slide 14, Resi and Development. Turning to our Residential and Development division. The market in Auckland remained subdued with elevated inventories and pricing pressures, while Canterbury remained resilient, which is all in line with what we're seeing with the rest of the portfolio. Development mix transitioned during the year, influencing volume and margin. And I will note, there were no new land commitments entered into during the year, and all land payments related to prior commitments. Next, let me talk about our stakeholders. Our success depends on our people, our customers, our communities and our shareholders. Moving to Slide 16. Before discussing anything else, I want to acknowledge the tragic loss of Max, a team member who passed away following a crane incident in Vanuatu last July. Although our TRIFR of 3.7 is very credible, the loss of Max is totally unacceptable and reinforces the scale of commitment to safety required across the entire organization. We reviewed all 339 of our locations across Australia and New Zealand as part of our ongoing focus on improving our safety performance. And moving forward, we are conducting a further safety system review and refreshing our Protect framework for leaders in the business. Slide 17. There's no doubt the most important part of our organization is our people. You cannot operate a decentralized structure without a capable leadership team and general manager cohort. We have spent a lot of time and focus on our leaders, and their eNPS score is a world-leading 59. I also wanted to mention the secret weapon, that is our Employee Education Fund, which, due to its external funding, enables us to invest in training and performance of our colleagues independent of the organization's financial performance. And thirdly, I want to acknowledge just how much positive change I've seen coming back to the organization after my years away. We are now more diverse than ever with active support for [ pride ], reconciliation in Australia and women making up around 24% of all leadership roles in the company. Slide 18. Our people also reflect the communities we operate in. We have a role to play in both New Zealand and Australian societies, and we try to do our bit to make a positive impact. On the page, you'll see just a small example of the good work our teams are doing across our many locations, from supporting children living with critical illnesses to helping sports clubs raise roofs, to providing support to communities experiencing a food insecurity. Slide 19, our customers. On top of our community work, we are proud of the relationships we forge with our customers and the products we bring to help build the future in New Zealand and Australia. Again, this is just a small example of our latest projects spanning a huge range of work, from pouring concrete for renewable wind farms to laying down the building blocks critical to water infrastructure. Moving to Slide 20. We continue to be committed to our environmental targets. It's just good business. And 76% of our revenue comes from sustainably certified products. Golden Bay Cement is among the top quartile of low-carbon cement producers globally and received the Carbon Reduction Award from the Concrete NZ Conference Awards in 2025. As previously mentioned, other initiatives such as The Urban Quarry are great examples of our circular economy ambitions. I will now pass on to Will Wright, who will cover our financial performance.

Thank you, Andrew, and good morning, everyone. At a high level, FY '26 was a year of meaningful progress for Fletcher Building. Market conditions across New Zealand and Australia remained challenging, but the group delivered a stable financial result, materially improved cash generation and continued to simplify the portfolio. Turning to Slide 22, the income statement. Revenue from continuing operations increased 7.3% to just under $6 billion, reflecting improved volumes across the core manufacturing and distribution divisions. EBIT before significant items increased by $85 million to $414 million, with the core manufacturing and distribution divisions contributing $46 million of earnings improvement year-on-year. Excluding preannounced property sales, EBIT for the year was $362 million, an 11% improvement on FY '25. Pleasingly, all continuing operations businesses were profitable on an EBIT basis in the second half. 13 of our 19 core business units improved ROIC compared with FY '25. And Winstone Wallboards, Fletcher Insulation, Winstone Aggregates and ColorCote, all achieved double-digit ROIC. At a group level, however, returns remain below acceptable levels. Earnings per share were positive at $0.212, the first positive EPS result since FY '23. Now turning to Slide 23, discontinued operations. These results primarily reflect the Construction division, Reinforcing and Wire and Vivid Living, all of which have been presented separately to provide a clearer view of the continuing group. The most significant event was the sale of the Construction business, which completed on the 29th of May. Residual legacy vertical construction liabilities remain within the discontinued operations as we complete the wind down. The Reinforcing and Wire transaction is expected to complete within the first quarter of FY '27, and the Vivid Living divestment process continues. Overall, these actions simplify Fletcher Building and improve the quality of future earnings and cash flows. Turning to Slide 24. Total group significant items were $40 million. These include Iplex Western Australian pipes legal costs, the previously announced Cheltenham and Monkland property exits, silicosis-related claims, Taupo OSB transition costs and the remaining Winstone Wallboards property rationalization costs. Corporate significant items included divestment costs and residual surplus SAP licenses. These costs are largely associated with legacy matters, portfolio actions or investments required to position the business for future performance. In FY '27, it is proposed that the group moves towards an IFRS 18 compliant P&L and, therefore, will no longer have significant items as a category of expense. Slide 25 shows the primary drivers of the year-on-year movement in EBIT. Improved market volumes contributed $75 million and pricing added a further $13 million. These benefits reflect improved A&A volumes in our core and market share gains in select categories, as well as continued commercial discipline. The gains were partially offset by lower residential earnings and the net overhead cost inflation. Land sales contributed an additional $49 million year-on-year, reflecting active management of the property portfolio and our focus on releasing capital where appropriate. Turning now to Slide 26, the balance sheet. Investment capital reduced to $5.5 billion from $5.8 billion a year ago. This reflects continued portfolio simplification, lower lease assets and liabilities and disciplined capital deployment. Inventory reduced by approximately $75 million and debtors were also lower, reflecting a strong focus on working capital management across the business. Residential and Development invested capital increased as we settled previously committed land purchases and joint venture profit share arrangements. This was largely offset by lower build and land stock on hand. Previously contracted land settlement payments were $236 million in FY '26. Going forward, settlements are expected to be $110 million in FY '27, of which $75 million will be in the first half and $37 million in FY '28. Turning to Slide 27, cash flows. Net cash from operating activities increased to $715 million, up from $214 million in the prior year. This improvement reflected stronger earnings across the core manufacturing and distribution divisions, increased proceeds from surplus land sales, and materially lower cash outflows associated with legacy projects. Normalized operating cash flows were $707 million. This excludes $64 million of inflows from discontinued operations and $56 million of outflows relating to legacy matters. Funding costs were lower year-on-year. And net debt was reduced from $999 million to $637 million. We are converting earnings into cash more effectively. And the portfolio actions taken in FY '26 have materially improved financial flexibility. Moving to Slide 28 and central costs. Reducing central costs has been a major focus over the last 18 months. Technology costs reduced by 20% on a continuing basis, driven by more efficient use of licenses, lower project spend and the simplification of the technology operating model. Corporate costs before recharges reduced by 21% as we simplified the way we run the business and pushed greater accountability into the divisions. The objective is not simply to take cost out, but to make Fletcher Building faster, more accountable and simpler to manage. Turning to capital expenditure on Slide 29. Capital expenditure came in below guidance at $288 million in FY '26. Excluding OSB and divested operations, capital expenditure was $138 million. Investment in quarry consenting and stripping was $24 million. This was lower than previously indicated due to the timing of quarry land settlements. Looking forward to FY '27, capital expenditure is expected to step down materially to approximately $170 million, including around $40 million for OSB, plus around $30 million of stripping and quarry land acquisitions. This reflects a shift towards a more disciplined cash-focused business. Turning to funding and liquidity. We've made substantial progress simplifying the group's capital structure and improving financial flexibility. Whilst '28 maturities remain elevated, this reflects the transitional nature of the capital structure. We're currently finalizing a refinance, and the post-refinance weighted average maturity will increase from 1.6 years to 2.6 years. Finally, turning to the net debt bridge. Net debt now sits in the middle of the target range at $637 million. Inflows from divestment of Construction division and property sales were partially offset by capital expenditure, lease payments, funding costs and working capital investment in Resi and Development. Importantly, the reduction in net debt was achieved while completing major capital projects. As these become operational and CapEx reduces, we expect stronger free cash flows over time. In summary, FY '26 delivered improved earnings, stronger operating cash flow and lower net debt. We are not yet producing adequate returns, but the group is now in a stronger position with lower risk, better financial flexibility and clearer accountability for capital allocation. I'll now hand back to Andrew to discuss the outlook and priorities for '27.

Thanks, Will. As Will mentioned, we have a robust balance sheet to navigate whatever is in front of us. Let me now turn to what we are seeing in our markets. Slide 33 splits by what we are seeing by market. There is detail there for you to read, so let me just give you the shape of it. I'll start with New Zealand. Firstly, residential. Consents are back above 40,000 for the first time since 2023, and our volumes have lifted through the second half. The interesting part is that these consents are not converting into activity the way they normally would. Our read is that uncertainty is causing people to hold off already consented projects, given high inventory levels, rather than start them. That said, additions and alterations activity is providing a welcome offset and remains strong. Meanwhile, commercial remains weak, not much change there. And infrastructure is the offset with it just starting to bubble. Major roading and social infrastructure work is continuing. For example, the second Ashburton Bridge, the Hawke's Bay Bridge program, Northern Corridor, RiverLink, Otaki to north of Levin, and hospitals at Whangarei, Nelson and Dunedin. For Australia, population growth and underlying housing demand are supportive. Interest rates and affordability are not. Also, the picture varies more than usual by state. Renovation activity, however, appears more robust, mirroring what we're seeing in New Zealand. Meanwhile, commercial construction in Australia is supported by health, education and data center demand, concentrated in New South Wales and Victoria. This is partly offset by a contraction in office retail and industrial projects. And in terms of infrastructure, there is a strong pipeline, including the 2032 Brisbane Olympics. Growth is also expected to be concentrated in energy transmission, water and social infrastructure. With regard to infrastructure in both countries, I will point out that our exposure to this sector is smaller than both the residential and commercial sectors. The point I would leave you with is this. The reason the last few years have been so hard is that residential, commercial and infrastructure all came down at the same time in both countries. They are now moving again at different speeds, but we do not need all 3 to turn at once to make progress from here. That brings me to the outlook on Slide 34. As we look ahead to financial year '27, the operating environment remains volatile across New Zealand and Australia. Volumes did recover through the second half of financial year '26, although I would note that some of that was pricing pulling demand forward. It is too soon to say whether any recent improvements will be sustained. Customers continue to complete projects already underway, but many developers and businesses are adopting a wait-and-see approach when it comes to starting new projects. In a similar vein, I urge analysts to be careful with simply tracking consent numbers. We are not yet seeing these translate into project starts. But this could create a pent-up demand effect down the track. Economic, political and geopolitical backdrop remains uncertain, and we expect it to weigh on the first half, especially with the upcoming general election in New Zealand and the Victorian state election in Australia. But as you've hopefully seen today, we are focused on controlling what we can control. Putting that all together, we do not expect a meaningful recovery in underlying volumes until calendar year 2027. Finally, I would add that the work we've done since late 2024 has left us with a lower cost base and a leaner operating model. This means we have more insulation during challenging times like these, and it also means we have operating leverage whenever that demand does return. Slide 36, conclusion. Now to wrap up, back to my 5 takeaways on Slide 36. We've delivered a steady performance in a tough macro environment. We executed against our strategy. The balance sheet has been strengthened. Group ROIC improved. And operating cash flows were strong. As I said at the beginning, financial year '26 is the end of the first stage of our turnaround. The next stage is in front of us, and the job now is proving where the growth comes from inside the core and exploring opportunities to further simplify the portfolio. Finally, this has been another demanding year. And I would like to say well done to all our team for performing under both major organizational change and a challenging macro environment. With that, thank you for your time, and we're happy to take questions, but please do limit it to 2 per person.

[Operator Instructions] And today's first question comes from Ramoun Lazar with Jefferies.

Just a couple for me. The first one is, just if you could help us maybe bridge that earnings gap into the first half '27. Obviously, in the second half, you had a meaningful step-up in earnings -- sustainable earnings somewhere just north of $200 million. I guess, what level of permanent cost out or cost out carries into the first half? And any sort of offsetting factors from that volume pull-forward that you can point to just help us frame what that first half number could look like?

Yes. I'm uncomfortable giving you too much guidance on the first half because we think the underlying situation is very volatile. So in terms of cost out, I think we've taken structural of about 50-ish. Any update on that?

Yes. I think -- look, I think the market remains uncertain. And so, looking forward, what we undertake to do is to sort of update the market on a regular basis. But it is dependent on a lot of things. It's a really uncertain macro environment. It's also coming into election year in New Zealand as well. And so, the market tends to soften as we go into the election in November. Just your point on cost out, you'll see that we had a net $23 million of benefit in FY '26. And so, we're constantly having to take cost out across the business to fight against inflation at the moment that isn't fully recovered through price increases. So whilst we've taken significant cost out, our prices also continue to move.

Right. Okay. You can't provide us anything else, Will? I mean, just given it's a meaningful step-up into the second half and then we're just trying to frame what that first half number could at least look like, given all the work.

Yes, there's a reason why we don't provide guidance at the moment is it's just really uncertain. And I think I've said to you previously, at the end of February, I allowed myself to breathe a bit of a sigh of relief, and then the war kicked off. And so, it still remains volatile. What we don't quite know at the moment as we sit here today is, how much of that last quarter was market recovery and how much was related to either share gain or pull-forward of volumes because we put through a lot of price increases over that last quarter. And so, what that tends to do is, people buy up in advance of price increases.

Okay. Got it. And just one more, Will, for you. Just on financial costs into next year, your interest costs. I mean, you've obviously done a lot of heavy lifting on the debt number. So just anything you could help us there with?

Yes. No, it's a good question. I'd just point you to Note 2.1 of the accounts. You'll see that we made a couple of changes around accounting policies. And so, we've moved the gain on the pension asset from what used to be in corporate overheads into the interest line so that corporate overhead is a cleaner line. And also, we've moved FX movements on a U.S. dollar ship lease that we have as well into the interest line. And so, there are some positive numbers that are offsetting the interest cost in the interest line. Probably, as we sit here today, a little bit uncertain around what forward earnings look like, and therefore, cash flows. We expect probably interest costs around $60 million in FY '27.

And our next question today comes from Niraj Shah with Goldman Sachs.

I just wanted to double-click on Ramoun's question, just thinking about first half '27, but specifically on the distribution business. How should we be thinking about seasonality there? Just trying to get a sense of the base, given the strong recovery in the second half.

Yes. So yes, great question. Look, that business will be weighted to the second half because of the way that their rebates work. So, a number of their rebates are volume based. And so, you're not sure if you're going to get them until -- right until the end of the year. And so, a lot of those rebates flow in sort of May and June. And because their earnings base is so low, they're actually a larger-than-normal percentage of their earnings at the moment. But what we are seeing in that business at the moment is really positive momentum. They had a very bad Q1 FY '26, but the business has improved materially from that Q1. And so, we are expecting a slightly better first half result out of them this year.

Got it. And just a second one. You've alluded to that sort of potential pull-forward a couple of times. Is that sort of -- I know it's sort of uncertain and hard to read, but do you think that risk is sort of broad-based? Or are there any businesses or products where you see that more likely than not?

Yes. I'd probably call it out in -- Iplex in Australia is probably one area in particular, if I was to call out any business, just because they have had significant price increases off the back of significant resin increases. But it is in a number of other pockets across the business as well, potentially.

And our next question today comes from Kieran Carling with Craigs Investment Partners.

Well done on the improved result. First question from me, you've made good progress simplifying the business over the past year or so since the Investor Day. But obviously, your ROIC is still tracking well below the WACC target. Now that you've divested Construction and shut down a range of loss-making businesses, can you just talk to some of the specific levers you're looking to pull in the year ahead to improve returns from here?

Right. So look, I mean, all our businesses have got business improvement plans if they're not performing adequately in terms of return. But we have some significant opportunities ahead of us. For example, we've got the new Taupo plant, which will become operational at the end of this calendar year, and that's got significant market opportunities ahead of it, really some very exciting ones. I think the performance improvement of PlaceMakers, we can confidently say that that's going to be a significantly improved business, and then, a whole range of other businesses where we can turn around and improve performance. So I can't -- I don't want to point to specifics but just point out that we broadly have a program in place for that.

Okay. I mean, looking at your outlook statement, I know we've covered it off largely already, but you talked to no meaningful improvement in volumes until 2027. I guess, beyond the lift in consents that we've seen more recently, is there anything that gives you confidence in the second half recovery at this stage?

Well, look, I think those consents probably represent some pent-up demand. So I think that's encouraging. I think you have to think about the -- taking the 2 markets separately. In New Zealand, the net migration numbers have been firming. They're not going through the roof, but they are firming, and that tends to be supportive for the residential housing market. And even though interest rates are uncertain, they are still stimulatory at the moment in New Zealand. So I think there's some supportive tailwinds there. It's the headwinds that are causing us to be deferring a meaningful volume recovery until 2027. And that's obviously the situation in the Middle East, the uncertainty caused by the election coming up. And going forward, there is some uncertainty about where interest rates are going to end up. If the Middle East continues, [ this inflation will ] spiral. In Australia, it's a very state-by-state picture there. I think the population growth and historic backlog in housing is giving us a tailwind. But as headwinds, there are some significant economic issues being occurring in Victoria, for example, and the Reserve Bank, although they paused the OCR at the last meeting, it is still quite a punitive interest rate environment there.

And our next question today comes from Lee Power at JPMorgan.

I hate to labor the point, but just on the second half '26, like is there any more color you can give us on the pull-forward? Like were there limits on the prebuy or anything that at least maybe caps out what could have been pulled forward? And then, maybe just the view on what like the diesel price moves kind of meant for the second half and maybe then for the first half '27?

In both the Iplex New Zealand and Iplex Australia businesses, they did put customers on quotas. So they referred back to historic ordering patterns and limited people to that plus a percentage. So, that would have, in some ways, limited what the pull-forwards were, but we still think there was significant upstocking by merchants as well as people who have broadly got projects underway. The extent of that, we just don't know. We would expect to see that playing out in the first half of financial year '27 in a softer way. In terms of diesel, the overall impact was certainly ameliorated by the fact that we had fuel adjustment factors in all our businesses. And what surprised us most actually was the collaborative way that people in New Zealand turned around and accepted that this was a factor outside suppliers' control, and therefore, they were actually taking on board those fuel adjustment factors. So the impact of what today is a net 55% increase in diesel overall has been very minimal.

Okay. And then, just on, I think, Will's comments about Distribution before and the seasonality, like you've obviously made a lot of changes in the overall business. Can you just give us a reminder of like where seasonality -- like what we should be thinking of seasonality in the other divisions going forward? What's a more normal view of the market?

Look, it really does depend a lot on how the subsequent quarters go. What we saw in FY '26 is, we saw it was very heavily weighted to the second half. The reason for that is, there was just a really poor Q1 in FY '26. That was driven by a number of factors, some of it economic, some of it also weather-related, and that was just a very wet start to the winter. I think, also historically, most of our seasonality outside of FY '26 has come from our Residential business and our Construction business. With Construction outside of the portfolio, that will remove some of the seasonality. However, Residential is still weighted more towards the second half, as it always has been.

And our next question today comes from Rohan Koreman-Smit with Forsyth Barr.

Maybe just going back to Kieran's point on ROIC, there's more of a focus across the group. I understand that you've got 13 out of 19 businesses improving ROIC year-on-year, and you outlined a few that are double digit. And management teams now have that as part of their incentives or a key performance indicator. Can you maybe provide some color on what you think longer-term sustainable ROICs are for the businesses? I mean, maybe also the level of invested capital that you'd need to generate these ROICs? I guess, given all the work you've done, you should have some idea. Plus, you've also talked previously, WACC a first step, and then maybe something higher is achievable. But any color on that would be appreciated.

Yes. Look, I mean, I think, we prefer to focus on getting our ROIC up to WACC, first of all, before we start talking too much about where we're taking the group after that.

Yes. I think, look, Rohan, we've probably got a long track record of dangling out ambitious targets and not hitting them. So we're trying to be pretty conservative on this one. What I can say is, it was really pleasing to see the improvement that we did in the year, albeit off pretty poor levels and still not good enough. The businesses that did go backwards, because implied in that statement is that some went backwards, by and large, it was for reasons of investments and business strategy. So for example, Laminex New Zealand was one of the businesses that went back. As we build the OSB plant, their invested capital goes up. Likewise, PlaceMakers' return on invested capital went backwards as we invested in the Frame & Truss site. And Humes is another one I'd call out, where we've expanded the distribution network, and so their lease debt has gone up. So look, it's certainly an area of laser focus for all of our business unit leaders, and we are targeting further improvement into FY '27.

And I'd just add Fletcher Insulation Australia to that list of businesses where it went back, but that was because they've invested in their new Tauranga plant, and that's just coming up to speed as we speak.

That's helpful. Just maybe a more technical point. When you look at this new disclosure that you're providing or new accounting standard you're working to, should we be looking at $414 million as the comparable, or $373 million, which is the significant items included? How should we think about your communication in terms of what earnings are going forward?

Yes. It's something that we'll probably come and talk to the market about over the next 6 months. I think, one, we don't want to do anything that's out of step with what shareholders are expecting or the analyst community. And also, I think it would be nice to get some sort of consensus across industrial stocks as well, as to what they're going to measure themselves on. As you'll know from reading the standard, operating margin, as you currently see it in our P&L, is a reasonably prominent number, but that excludes things like JV income as well. And then, what is now currently called significant items will be broken into a number of line items. So, more -- [ that will ] pull out the categories of costs. So there will be a category such as restructuring costs going forward. So I think the short answer is, we don't quite yet know, and we would like to reach some sort of consensus across the wider market. But I think that will be a bit of test and adjusting as we're one of the first to move on IFRS 18.

And our next question today comes from Phil Campbell at UBS.

Just a couple from me. I was wondering, Will, if you can give us any color -- the fourth quarter volumes, particularly Iplex New Zealand, we saw some of that pull forward. Are you seeing so far into the first quarter, any kind of reversal of that?

Yes, we are. Yes. So we have seen volumes pull back in both Iplex New Zealand and in Iplex Australia so far in this quarter.

Okay. Awesome. And then, I suppose the second one I just had was just around the election. Like if you go back and look at kind of Fletcher's trading history around elections, what do you kind of expect in terms of softer volumes kind of pre-election? I'm assuming like maybe 2 or 3 months before an election, you could see like 5% to 10% lower volumes or -- is it something like that? Or have you got any data that gives an indication of what you might see?

Yes. It's really hard to like put a data point on it specifically and put it down to one specific event. But what we are seeing is, more generally, because of the uncertainty of which the election is one of those uncertainty points is, we're seeing a lot of developments put on hold and in particular, pushing out into next year, and things like the downtown development is a really good example, but a number of those CBD developments going on hold. We're also seeing people sort of pull back on their commitment to things like new warehouse space. And so, there's a bit of an oversupply of warehousing development sites at the moment, and so seeing quite a pullback in sort of our forward order book around pouring piles for things like warehouses.

And our next question today comes from Harry Saunders at E&P.

Firstly, asking a different way to bridging '27 to '26, can you quantify the various non-macro tailwinds that you're anticipating for the full year, so including incremental cost out as inflation? If there is any turnaround of underperforming businesses, the start-up of OSB -- the new OSB plant, Construction exit, if there's any cost out benefit there, and the exit of Reinforcing and Wire? Maybe just sort of talk through those factors, please.

So if I start with the last one, all of the costs that were associated with those businesses that we've exited are sitting in the discontinued line. So you should be thinking of that continuing operations P&L as sort of a go-forward P&L, and that's why we've done that. Just -- sorry, what was your third point you made, Harry?

I was just -- so the other factors were cost out, negative inflation, turnaround of businesses, if there's any sort of broader benefit yielded there, and start-up of the new OSB plant?

Yes. So in terms of the new OSB plant, we don't expect any impact from that -- positive impact from that in this financial year. I think sort of any positive impact will be offset by the cost of setting up a new plant. So that's kind of a net zero in this financial year. And then, in terms of cost out, we're -- and business improvement, we're on a constant performance improvement program across all of our businesses. And we've said we want to make an acceptable return in all markets, and we're a long way away from that. And so, we think there's still a lot of self-help initiatives that we can do across the portfolio, be that cost out, be that the manufacturing excellence program that Andrew has spoken about, or be that just really simple things like restarting exports in some of our businesses so that we can get overhead recoveries on those export sales.

Just also a follow-up on the macro potential pickup in calendar '27. Just wondering if you could give a sense if you think that, that could be a benefit in the second half of FY '27 or you think sort of later in the calendar year? And I'll sneak one just on tax rate expectations for the year.

Yes. Look, I mean, that's a difficult one to answer because obviously, we're saying that there's a high degree of uncertainty as we come through to calendar year '27. But assuming -- and this is a base assumption, but assuming that the factors that we know of at the moment don't get any worse and we have resolution of the elections, one could reasonably expect the second half of financial year '27 to start to benefit from some of those tailwinds we've spoken about.

And our next question today comes from Grant Swanepoel with Jarden.

First question is around the strategic review on Residential and Development. Is there a capital gain still sitting in that book value assessment that sits in your $811 million of invested capital? And how many units are you holding for sale in the housing division?

Sorry, what do you mean by capital gains, Grant? Do you mean on like theoretical market value of the land bank?

I assume you mark to market the land bank. And is there a gain sitting in that at the moment?

No, the land bank is held at historical cost because it sits in stock. [indiscernible]

I know it's held at historical cost. But in the past, Fletcher Building used to give us what their assessed capital gain was sitting in the book value. Are you guys no longer willing to do that?

No, I think because we're going through a process, that probably wouldn't be wise. We'll probably keep those sort of numbers to ourselves at the moment.

Okay. And the number of units that you've sitting on your books at balance end that's held for sale?

Off the top of my head, I think it's about $120 million, Grant, but I'll have to get back to you on that.

And my second question is just on Iplex Australia, the Western Australia saga. $10 million of legal costs, is that going to be an ongoing number until this court case is over? Or is that just one hump we're seeing at the moment? And how is the court case going?

Well, there are several court cases underway there. The level of legal costs -- it sounds a bit facile, I apologize for it -- but it will be what it will be because we're responding to other people's positions. At the moment, we believe that the provision we've got for Western Australian is adequately provided for. All the modeling we're doing around the leak rates and so on that we're suffering are within the bounds of what was originally used to create the provision. At the moment, we have 58 builders in the industry response, but Buckeridge have not yet joined that. And the legal costs that we're suffering are mainly in response to Buckeridge and Buckeridge not having joined that industry response.

And our next question comes from Keith Chau at MST Marquee.

First question is a follow-up on the Distribution business. I know we're all trying to work out what the momentum in that business is with respect to the improvement in earnings power. But maybe, Andrew, if you can help us understand in broad buckets, how much of the improvement in the second half for Distribution was related to Cavendish Drive and how much of that...

Sorry, I was going to say, Cavendish Drive, it wasn't completed until June. So you won't have seen any Cavendish Drive improvement in financial year '26, but we should see it starting to flow through as from now.

Okay. And what would the quantum of that benefit be at EBIT roughly?

I'm not really sure I want to start getting into that degree of specifics at the moment.

Okay. And Will, just another follow-up on the interest piece. I think you spoke to a $60 million number before. Is that a gross or net interest number? And what are leases likely to end up to be? The reason I ask is, there's quite a variation in expectations for your overall net financing cost line. And given where the net debt balances come to and changes in the portfolio, there could be -- continue to be significant variation. So if you can help us there, that would be appreciated.

Yes. No, it's a good point, Keith. So that's sort of -- that $60 million is just the interest costs on the debt. It doesn't include lease interest costs, which are approximately another $65 million to $70 million. And it will obviously be subject to any further meaningful reduction in debt as well. It's sort of a [ ceteris paribus ] situation.

Sorry about that. That does conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Reding for closing remarks.

I'd just like to thank you all very much indeed for coming along today, and I look forward to meeting with many of you as we do our road show. So have a great day. Thank you.

Thank you, sir. That does conclude our conference for today. Thank you for participating. You may now disconnect your lines.