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Operator: Thank you for standing by, and welcome to the Fletcher Building Fiscal Year '26 Half 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.
Andrew Reding: Good morning, everyone, and thank you for joining us for Fletcher Building's half year results for the 6 months ended 31st of December 2025. Turning to the agenda on Slide 3. I will begin with an overview of the first half of financial year '26 and the key themes for the half and then step through our operating performance across the divisions. Will Wright, our CFO, will follow with a detailed review of the financial results, and I will then return to discuss our outlook for the remainder of the year. Turning to Slide 5. Overall, conditions remain tough, particularly in New Zealand. And whilst we have some earlier operation -- early operational and efficiency improvements from the implementation of our strategic plan, we still have a long way to go. There are 5 key messages from the half. Firstly, our performance was mixed across the period with quarter 2 volume improvements unable to fully offset quarter 1 weakness. Secondly, our core businesses demonstrated resilience despite subdued markets. Thirdly, we continue to exhibit disciplined capital allocation. Fourthly, further cost-out initiatives were implemented, and these will increasingly benefit the second half. And finally, we made significant progress on portfolio simplification, including the divestment of Construction. Slide 6 shows the tangible progress we continue to make on our turnaround plan. Starting on the left-hand side, over recent months, some of the key initiatives we've executed on are the Australian and Steel divisional restructure, the first phase of corporate restructuring, reduced forward capital commitments and implementation of the decentralization restructure. In the middle column, our short-term focus continues to be on key strategic priorities that simplify our business and ensure that we have a more robust balance sheet going forward. We'll now focus on 3 key strategic priorities, in particular, completing the construction divestment, completing the sale of Felix Street and progressing the residential and development strategic review. Finally, over the medium term, we are going to continue to embed the new operating model, simplify the portfolio further and reset the dividend policy once we move into the lower half of our net debt target range. Turning to the Construction divestment on Slide 7. You'll already be familiar with the terms of the deal announced last month. This is a major step in simplifying our portfolio and strengthening our capital structure. The headline sale price is $315.6 million, and there is a potential increase subject to contract outcomes of up to $18.5 million. After adjustments and transaction costs, we expect net proceeds of around $300 million to $315 million, and all of this will be applied to debt reduction. Regulatory approvals are underway, and our current best estimate of completion is during the first quarter financial year '27. VINCI knows Fletcher Construction well and has a deep commitment to New Zealand and the country's infrastructure pipeline. That makes VINCI an excellent long-term owner for the business and its people, customers and partners. On Slide 8, we have a brief overview of the group financials for the half. Overall, you will notice our performance was broadly consistent year-on-year. This is a creditable performance given the continuing weakness in the New Zealand and Australian building sector, particularly during the first quarter. Revenue was broadly in line with the prior period at $2.9 billion, down just 0.5%. Continuing operations EBIT was $145 million, nearly flat year-on-year. On a like-for-like basis, including discontinued operations, it was $151 million compared to $167 million in the first half financial year '25. Net profit from continuing operations was positive at $45 million, and this is the first positive result since June 2023. These results are supported by cost-out initiatives and market share gains in key businesses. Net debt increased to $1.16 billion. This is below our internal expectations and reflects disciplined working capital management and capital allocation decisions, partially offsetting historical residential land purchase commitments of $151 million. Cash flows from operating activities improved materially to $156 million compared to $87 million in the prior period. Overall, the core businesses delivered stable performance despite challenging trading conditions in the first quarter. Moving to Slide 9. Despite the market environment, operational execution across the group remains strong. Firth opened its new flagship batching plant in Auckland. Golden Bay delivered a resilient result and lifted coal substitution. Humes added 3 new branches, enabling a market share growth initiative and Winston Aggregates advanced recycling initiatives and established a quarry joint venture. Winston Wallboards successfully trialed up to 10% recycled content in plasterboard production, and Laminex Australia delivered $14 million of cost out whilst Fletcher Insulation commissioned its new acoustic panel plant. These actions help demonstrate the underlying operational momentum we're building. I'll now turn to operating performance. Over the next few slides, I'll step through divisional performance and the demand backdrop across New Zealand and Australia. Slide 11 provides a snapshot of performance across the 5 divisions. Overall, a mixed bag. Light Building Products grew EBIT despite the environment. Heavy Building Materials experienced some margin pressure, reflecting softer volumes and cost inflation. Distribution remained challenged with further margin weakness. However, we have seen early signs of stabilization nearing the calendar year-end, and we continue to monitor that closely. Residential and development volumes were materially lower, owing to phasing of key developments, while product mix changes due to bulk section sales also impacted on earnings performance. Construction now discontinued, experienced reduced activity as key projects completed and pipeline phasing moved out. On Slide 12, we can see that New Zealand demand has remained subdued, especially in the first quarter. Wallboard volumes were broadly flat, and we're seeing very gradual improvement in daily sales. Aggregates volumes were down more than 13%, owing to weak roading activity and further major project delays. Golden Bay volumes were flat year-on-year, but up 4% versus the second half of financial year '25. PlaceMakers frame and truss volumes continued to recover with a strong December. However, intense competition again means margins are challenging. Humes was materially impacted by civil and subdivision markets, which have remained extremely weak over the last 2 years. In general, competitive intensity remains high across many categories, keeping margins under pressure. In comparison, Slide 13 shows how Australian volumes were more positive. Laminex Australia achieved 6.6% growth, supported by increased activity in residential renovation and competitor supply constraints. Fletcher Insulation volumes improved owing to the shift towards higher density products under updated building codes and Iplex Australia volumes varied by segment, being strong in Electrical and Plumbing, but softer in Civil. Stramit volumes were below the prior corresponding period on a 12-month rolling basis, but when compared on a 6-month basis, have started to show improvement. Overall, we're seeing a more balanced environment than New Zealand. Also, our ongoing cost-out efforts have positioned the Australian businesses well for operating leverage as volumes recover. Turning to Slide 14. Residential and development volumes were 27% lower than the prior corresponding period with 223 units taken to profit. You'll see in the chart at the right, this was the second lowest half since financial year 2020. Bulk land sales formed a higher proportion of the mix, so margins were lower and thus it's difficult to compare to prior years. Weekly net sign-ups averaged around 10 per week compared to 16 last year, reflecting cautious buyer behavior. I will now ask Will to address the financial results in detail.
William Wright: Thank you, Andrew, and good morning, everyone. At a high level, this is a result that clearly reflects a challenging operating environment, particularly during the first quarter. While volumes across a number of end markets remain subdued, particularly in residential and distribution, we are seeing meaningful progress on cost reduction, cash generation and transitioning to a more resilient balance sheet. Moving to Slide 16, the income statement. Revenue for the half was $2.9 billion, broadly flat year-on-year. However, the headline number masks some quite different underlying trends. On the positive side, we saw volume and share gains in businesses exposed to renovation-driven demand, such as Winstone Wallboards and Laminex. These gains were offset by lower residential settlements, weak infrastructure demand and compressed margins in our distribution businesses. Warehouse and distribution and SG&A expenses have seen an annualized decrease in structural costs of $63 million with approximately $31 million of benefit in the first half. Like-for-like EBIT, including discontinued operations was $151 million in the half compared to $167 million in the prior corresponding period due primarily to lower construction earnings. EBIT from continuing operations was $145 million, down just $2 million year-on-year. This is despite significant volume headwinds and reflects disciplined cost management. Turning now to discontinued operations, which relates primarily to the Construction division. For the half, discontinued operations recorded revenue of $519 million and a net loss after tax of $56 million. EBIT was modestly positive at $6 million, but this was more than offset by $81 million of significant items made up of additional provisions for legacy vertical projects, closure and wind-down costs in the South Pacific operations and legal costs associated with legacy construction claims. The transaction materially simplifies the group, reduces risks and improves the quality and predictability of earnings and cash flows going forward. Any cash flow and cost-out benefits from the divestment are expected to be realized from FY '27 onwards. Slide 18 illustrates the key drivers of year-on-year movement in EBIT. The most significant headwinds were lower volumes, particularly in residential and development and distribution as well as in infrastructure-exposed businesses, alongside ongoing cost inflation in areas such as energy, labor and leases. These impacts were largely offset by a combination of cost-out initiatives, market share gains in core products and improved operating discipline across the group. Cost out has been broad-based, spanning manufacturing efficiencies, procurement, overhead reduction and simplification of organizational structures. We have more work to do on underperforming businesses with 8 business units losing money in the first half with a total negative EBIT contribution of $12.9 million. Turning to the balance sheet. Invested capital is $5.9 billion, down from $6.3 billion at December '24, reflecting portfolio simplification, asset impairments taken in prior periods and disciplined capital deployment. Working capital is well controlled with inventory and debtors both lower than the prior year, reflecting a more balanced and less volatile approach to managing trading cash flow. Residential and development invested capital increased during the half, driven primarily by $151 million of land purchases. We expect a further $65 million of purchases in the second half with additional commitments of $100 million in FY '27 and circa $35 million in FY '28. Overall, the balance sheet is in a stronger position than 12 months ago, and we remain focused on further simplification, lease reduction and disciplined capital allocation. Turning to Slide 20. Net cash flow from operating activities was $156 million, up from $87 million in the prior period despite a challenging trading environment and significant residential working capital investment as a result of land purchase commitments made several years ago. This reflects strong EBITDA conversion, disciplined capital management of working capital and legacy construction cash inflows. Investing cash outflows primarily relate to growth projects, which have been in flight for a number of periods, including Taupo OSB plant, new frame and truss capacity and the Auckland first batching plant. Moving to Slide 21. Central costs reduced materially year-on-year, reflecting the actions taken to simplify the organization and decentralized decision-making. Group technology costs reduced following the restructuring and rationalization of digital projects. Corporate overhead costs also reduced, reflecting a smaller head office, lower insurance costs and lower short-term incentive accruals aligned to first half performance. As the portfolio continues to simplify, particularly following the construction divestment, we expect further opportunities to rightsize central functions. Turning to Slide 23. Working capital volatility has been a key focus area for the group. Over the past 2 years, volatility in trading cash flows has required the group to maintain elevated levels of debt headroom. As you can see on the chart, in the chart on the left, whilst we have more work to do, the actions taken to improve discipline are now delivering more stable outcomes with movements returning closer to long-run averages. As you can see on the chart right, portfolio simplification, including the exit of construction and potential changes in the residential division are expected to materially reduce working capital volatility over time. This will support a more efficient capital structure and reduce reliance on excess liquidity buffers. Capital allocation remains tightly controlled with a focus on improving ROIC. CapEx and investments totaled $161 million in the half, broadly flat year-on-year. As you can see in the chart, spend was prioritized towards in-flight projects, including continued investment in Taupo -- in the Taupo OSB plant, frame and truss capacity and concrete manufacturing assets. The divestment of construction will result in a meaningful reduction in future CapEx requirements, particularly around asphalt plant renewals previously planned for FY '27 and FY '28. Excluding OSB, stay-in business and growth CapEx was down $17 million versus the prior corresponding period. We remain committed to disciplined capital deployment and expect overall CapEx to moderate as the portfolio simplifies. We now expect full year CapEx to be approximately $290 million to $310 million, down from the previous guidance of $320 million to $340 million. Moving to Slide 24. Lease management is an important lever in improving ROIC and balance sheet resilience. Continuing operations lease liabilities reduced by $172 million, driven by a reassessment of our lease renewal assumptions and site exits. Construction divestment is expected to reduce lease liabilities by a further $76 million, materially lowering group exposure. The inclusion of right-of-use assets into ROIC calculations has helped to ensure lease impacts are fully reflected in performance assessment. Turning to funding and liquidity. The group continues to make progress in transitioning to a simpler, lower cost, more resilient cap structure. The USPP debt was fully repaid and canceled during the period with associated break and make-whole costs recognized in funding expenses. The decision to exit the USPP market simplifies the funding mix and covenant package and lowers the effective interest rate. We also established a new $200 million 2-year liquidity facility and extended our $325 million tranche of the syndicated facility to FY '30. At period end, we had $750 million of undrawn facilities, providing good liquidity headroom for our business. Average debt maturity is 2.3 years. And whilst FY '28 maturities are elevated, this is a reflection of the transition of our capital structure, and we are already working on refinancing options. Pleasingly, Moody's reaffirmed our rating, and we remain committed to maintaining investment-grade credit metrics. Finally, net debt on Slide 26. Net debt increased to $1.16 billion compared to $999 million at June '25. The primary driver of the increase was residential working capital investment, particularly the $151 million of land purchases during the half. Importantly, excluding construction proceeds, we expect full year FY '26 net debt to be broadly flat compared to FY '25, reflecting stronger -- expected stronger operating cash flows in the second half. Net debt reduction remains a clear priority and underpins our longer-term objective of returning to a more resilient capital structure. I will now hand back to Andrew to conclude on broader outlook.
Andrew Reding: Thank you, Will. I'll now turn to the outlook on Slide 28. In New Zealand, we think volumes will remain soft and meaningful improvement is not expected until calendar 2027. In Australia, early volume trends in Laminex and [ Setra ] insulation are encouraging, although conditions remain mixed. Margin compression will persist, but our cost-out program will help offset these pressures. As well as the recently announced sale of Felix Street, we also have other sale processes underway for industrial sites that have the potential to generate EBIT. If achieved, this should offset some of the weakness in residential and development and allow for some further modest improvements to the balance sheet. Portfolio simplification remains on track with the construction divestment currently estimated to complete in the first quarter FY '27, while the residential and development strategic review is ongoing. Please note, we won't be making any comments about the strategic review today in order to preserve the confidentiality of the process. Concurrently to this portfolio simplification, our capital structure simplification has also continued at pace. Overall, we are confident that the changes currently taking place will make Fletcher Building more simple, more resilient and more profitable throughout the economic cycle. With that, we will close the formal presentation and take your questions.
Operator: [Operator Instructions]. Our first question comes from Kieran Carling with Craigs Investment Partners.
Kieran Carling: Just thinking about the balance of the year, you've obviously been fairly clear with your messaging around subdued market activity and margin compression, but you've called out some benefit -- some further benefits to come with cost out in the second half. From what I can tell, consensus EBIT stripping out construction, is it about $350 million for the year, which implies a 10% growth rate in the second half. Do you think cost out will be enough to get you there? And can you maybe just touch on what benefit you expect from further land sales and how that will play into the resi division?
Andrew Reding: So I'll take the second part first. Look, we have a number of opportunities to maximize the -- or optimize our footprint, both here and in Australia. But we don't have much control over the timing of those and neither do we want to turn around and start putting information into the marketplace that might impact on our ability to negotiate. So we're not going to be saying a lot of those going forward. In terms of cost out, we have, as you know, talked about cost out for quite a long period of time now. When we did the cap raise, we talked about having an annualized total of $200 million of cost out. And of that, we think structurally, there was about $17 million, and we'd expect about $8.5 million of that to come through in the first half of FY '26. In May '25, we talked about a further GBP 15 million out, which is all structural and there's probably about GBP 7.5 million of that comes through in the first half of '26. And on the Investor Day, we announced another GBP 30 million of structural out, which again would probably equate to about GBP 15 million out in the first half. So in the first half, we've got GBP 45 million of cost out, GBP 31 million of which is structural. We've also announced at the ASM that we were looking at a further GBP 100 million cost out with a run rate of around about GBP 50 million. So I think reasonably, we can expect some of that to come through. But my hesitation on saying it's exactly going to be GBP 50 million is that we are seeing changes in market conditions. And obviously, we will turn around and move or change the nature of our cost out according to what we see in terms of the market activity. And the best example here, I think, is one, for example, like ready-mix concrete where we would be cutting our nose off to spice our face if we were making ready-mix concrete truck drivers redundant when we're actually seeing a lift in some of the volumes there. So it's slightly indetermined exactly how much we'll be taking up in the second half.
Operator: The next question comes from Ramoun Lazar with Jefferies. It appears that Ramoun has dropped off the line. The next question is from Rohan Koreman-Smit with Forsyth Barr.
Rohan Koreman-Smit: Just on the volumes, it looks like you've done a pretty good job taking market share to offset the cycle, and there's been a bit of a I guess, strategic direction that you've taken. You're talking to some signs of volume improvement in the underlying market now. When do you switch from market share focus to margin focus?
Andrew Reding: It's a very good question. And I think the trouble is it's very dependent on which business you're talking about. I mean there will be a point in time where if you're using margin to drive market share, you'd want to swap to a higher margin rather than. So it's very business unit dependent.
Rohan Koreman-Smit: Do you think you're at the point when you'll soon be switching some business units to more of a margin focus than a market share focus given that you do have some signs of underlying activity picking up?
Andrew Reding: The answer is yes. But again, it's so much dependent on which business unit. If you take Golden Bay Cement, for example, if we see increases in volumes in cement demand across the market, I would expect to see selling prices rise. In aggregates, if aggregates started to pick up to where our expectations were, one would expect to see average selling price rising. So it is very much dependent on which activity you're talking about.
Operator: The next question comes from the line of Brook Campbell-Crawford with Barrenjoey.
Brook Campbell-Crawford: Just keen to hear your views around the distribution business. Obviously, had a pretty tough period. But if you look at a couple of years to mid-cycle, how do you think the earnings power of that business now should look like given your position and sort of what's happening across the various players? I guess what I'm trying to understand is sort of EBITDA averaged about EUR 100 million over the last decade. Do you think get back to those sorts of levels? Or has the market changed such that we should think about perhaps a lower level of earnings?
Andrew Reding: Yes. Look, I'm not really going to comment on what we think those earnings might be in the mid-cycle. What I will comment on is the fact that we've carried out a very deliberate turnaround strategy at our distribution division. So we know that if you get your frame and trust volumes that the value of the balance of house is somewhere in the order of $4 to $1, depending on the precise projects you're looking at. And we know that there is stickiness. So if you've done the frame and trust, you will tend to end up with the balance of house. So we've carried out a very deliberate strategy of being competitive on frame and trust, which is why there's been some margin pressure there. But we would expect as the balance of house comes through for the mix to margin that's being demonstrated to rise. And that's also been a focus on increasing its market share. So look, we think we have a very strong distribution business, and we think the actions that we've taken will start to come through in the not-too-distant future.
Operator: The next question comes from Lee Power with JPMorgan.
Lee Power: Andrew and Will. Andrew, just following on from Rohan's question. Like if I look at your Frame and Truss comments, I guess that the backdrop is not amazing, but improving volumes in December estimation, volumes got positive momentum. You talked about positivity in concrete. Like your share comments notwithstanding, like how much do you think of what you're seeing is share versus early stages of a market recovery? Because I would have thought some of these things would be a decent indicator for resi generally.
Andrew Reding: Look, because we have such a broad spread of activities here, it's very difficult to turn around and give you a blanket answer across all. So we do know, for example, we've seen residential consent start to pick up towards the end of last year. But we also know that when you get a consent come up, it's 9 months to a year before you see the slab being put down and there being meaningful activity from it. We have seen a bit of an increase in some of the commercial inquiries coming out, and we do have a forward workload of commercial concrete, which is slightly ahead of where we were last year. But each of these activities, you have to look up very much on their own merits. So it is very difficult to turn around and give you a single answer that covers everything.
Lee Power: And then just a follow-up.
William Wright: I was just going to say, quite pleasingly, in most businesses, we have stopped losing market share, which is really positive. And it is starting to lift in a number of areas. And so when you do see lifting volumes, it tends to be improving market share rather than a broad-based recovery.
Lee Power: And then just a follow-up. You were talking about the -- I think it was $151 million just around continuing to purchase land and development business. Is there any way or ability to change? I guess there's options around that land, but is there any ability that you have to change or flex that spend profile given obviously the business settlements as we see now are not obviously looking amazing.
William Wright: No, unfortunately not. These are commitments that were signed up to, in some cases, many years ago. And that $151 million is after we have pulled all levers and flex what we can. And so just to sort of reiterate, there's a further $65 million in the second half of this year as well, as well as about $100 million in '27 and $35 million in '28. What we can do about these forward commitments all forms part of the strategic review and process that we're going through on the residential business at the moment.
Operator: The next question comes from the line of Grant Swanepoel with Jarden.
Grant Swanepoel: On house sales, have you seen a trend pick up? I know you've got some presales on the 10 per week that you were saying to us to try and get some sort of model done for the second half of the year. And then on your ROIC, have any businesses start to line up as not achieving those ROICs you said you would adhere to, to keep businesses or get rid of them?
Andrew Reding: So I think what you were asking about was residential volumes grow?
Grant Swanepoel: Yes, please.
Andrew Reding: Yes. So -- we are not seeing buoyant residential volumes at the moment. We think that that's partly due to probably some developments which aren't in the optimum places to be like our South Auckland operations. And we may not be putting the right typology in there. So this is probably limited to the number of units that we're selling at the moment, but that is under review, obviously. I think your second question was on ROIC. I didn't quite catch all of it. Will did --.
William Wright: So Grant, look, as I said in my speaking notes, I don't know if you picked up on it, 8 businesses lost money in the first half. And so that's a good place to start in terms of businesses that we're not happy with the ROIC that they're generating at the moment, and they are certainly under review. And we want to see a clear path to those businesses returning to achieving ROIC. And where businesses can achieve ROIC, I think we've been pretty decisive as you saw with like the closure of the panelization plant, for example, the closure of Laminex MADE. And so we're certainly being pretty disciplined about that ROIC target for businesses.
Andrew Reding: But obviously, when we have identified the businesses that are underperforming, what you need to do then is to work out what the improvement plan that you could apply to it would result in and then turn around and strategically decide whether that end result is something that is adequate or not.
Operator: The next question comes from Stephen Hudson with Macquarie Securities.
Stephen Hudson: I know you no longer report on this basis, but I just wondered if you can talk through your Aussie dollar sales and EBIT PCP and why they moved as they did in the half?
William Wright: Yes. We do still report on that basis, Stephen, in segment reporting. So I just refer you to the annual report on Page 17 has our Aussie -- our geographical segments. So EBIT from our Australian businesses before significant items was $53 million.
Stephen Hudson: That -- it was obviously down quite a way and sales were down quite a way. I just wondered if you can comment on what's going on there, which businesses were moving.
William Wright: Well, obviously, I'm not sure what numbers you're looking at for your comparator. But obviously, Tradelink has come out of the Australian business, which was a significant portion of revenue. I think Andrew gave some good color around what we're seeing in terms of the wider market in Australia. So Australia is obviously a more resilient economy. It's much larger and demand is more broad-based, although we do see state-by-state markets. And so I think broadly consistent with what everyone else is seeing. We're seeing a reasonably strong market in Queensland and in Western Australia and a slightly more subdued market in New South Wales and Victoria. But what I would say is probably Victoria has surprised us a little bit to the upside, and that's probably more to do with our customer segments rather than the wider market. So we're well positioned with a number of the large volume homebuilders in Victoria. They've recently had ownership changes and those new owners are really swinging into care in terms of ramping up development. So that's been positive for our Victorian business.
Andrew Reding: And then there's been an increase in the A&A market of the alteration amendments market, which we managed to tap into very effectively through Laminex.
Operator: The next question comes from the line of Sam Seow Citi.
Samuel Seow: Just wanted to lean into that market share question a little bit further. I think on Page 18, you're flagging $15 million in EBIT offsetting market declines. Given that's an EBIT slide, maybe give us some more color about where specifically you're seeing that profitable share growth or maybe how that number is made up or [indiscernible] ?
Andrew Reding: Just looking through the presentation, [indiscernible] Slide you're referring to.
William Wright: Yes, absolutely. It's predominantly, the share gains have been in the light building products and in the heavy Building Materials segment. So I think what we're seeing is we are a domestic manufacturer coming up against imported product. We're seeing significant benefit to domestic manufacturing at the moment and seeing share gains in those businesses. And also in product categories where there's a competitor that is struggling financially as well, we're seeing significant share gains. So I think if we're talking in our heavy building materials distribution -- heavy building materials division, Firth in particular, has seen very good market share gains. And in our Light Building Materials segment, we're seeing good share gains across Winstone Wallboards, Laminex in Australia and New Zealand and Iplex [indiscernible] picked up market share quite significantly as well.
Samuel Seow: Okay. That's really good and really helpful. And maybe just on distribution. You've called out some competitive pressures. But actually, revenue and gross margin look okay and looks to be more of an overhead inflation issue. Just wondering if there's something there you can kind of change in the second half to get that business profitable again.
Andrew Reding: There's a couple of aspects to that. Firstly, PlaceMakers have very high lease liabilities. So we've obviously suffered CPI increases on those leases, which we need to understand better as we go forward as to whether we can change that. But the other side of it was I think I've made reference earlier on to there being a deliberate strategy to turn around and capture the frame and trust side of things. What we've done now, I think everybody is aware, we've got the Cavendish Drive Frame and Truss plant, which should be operational come May. But what we've been doing is taking on board significant extra resource around the manufacturing of our Frame and Truss so that we can make sure we can make it as competitively as possible. So that's where a lot of the increase in cost has been.
Operator: The next question comes from the line of Harry Saunders with E&P.
Harry Saunders: Firstly, I know we talked about the second half already. Wondering if we could just think about the bridge from the first half to the second, any benefits or headwinds you anticipate sequentially versus the EBIT you reported, including, I guess, the $11 million gain on the sale of Felix Street or any other likely property sales and what you think the incremental net cost out could be and what seasonality benefit we could see, please?
William Wright: Yes, that's a very broad question. Look, what we're trying to do is trying to be as open and transparent with the market in terms of what we see today as to how our individual businesses are performing. So look, we'll continue to provide quarterly volume updates that will give you an insight as to how the individual businesses are tracking into the second half. There is generally a second half weighting, but that has historically actually been driven by -- more by our residential and construction businesses and less so by our core light building products and heavy building materials. The other thing to bear in mind is the cost-out benefit moving into the second half. So we estimate up to $50 million of cost out from the $100 million will benefit will flow into the second half. But as Andrew said, we're just having a bit of a watch on that. What we don't want to do is take cost out and then have to put it in a few weeks later because demand has picked up. And so we're just constantly monitoring where that sort of tipping point in forward orders is that we want to hold on to that cost. In terms of site sales, we'll continually keep the market informed, just like we did when Felix Street was announced last week. And so if any more happen to fall in the second half, we'll certainly keep the market informed.
Harry Saunders: Also just wondering if you could give a sense of any mid-cycle margin targets you have across the new operating divisions given we've got a new reporting structure, please?
William Wright: Yes. Look, we're trying to stay away from this sort of mid-cycle target piece. Fletcher has probably got a pretty long track record of holding out EBIT margin targets and not hitting them or being creative in the way in which they've hit them. So we're firmly focused on ROIC. And our first step on the ROIC journey is to make WACC because on our estimation, it's been a very long time since Fletcher Building has made WACC.
Operator: The next question comes from the line of Ramoun Lazar with Jefferies.
Ramoun Lazar: Just one on -- if you can comment on the roading market and those project delays. Have you seen any sort of indication of a pickup or change in the market environment there into the second half?
Andrew Reding: Yes. So what we think happened in the first half was in New Zealand, they have what they call the IDCs and the -- all the roading contracts are under an IDC and they turned down and retendered all of New Zealand all at the same time. And we think that whilst the evaluation of those IDC tenders was underway, they choked back on previous road maintenance work. So we saw a significant drop off in our aggregates volumes up to Christmas, and that was 13-odd percent. There have been some indications that the aggregates is picking up as we come into the new year. And certainly, those IDCs are expected to be awarded in the very near future, but it seems to be a bit of a moving piece because they want to turn around and do a grand review and name them all at the same time. But certainly, we'd expect in the next few weeks that the IDCs will be announced and that will actually then lead to the roading activity continuing.
William Wright: I would say, and as much as we don't like to mention the weather, February has been a particularly unhelpfully wet month. And so we would expect when the drier weather comes that we see a bit of an uplift in roading maintenance activity.
Ramoun Lazar: Okay. Great. And just one for Will. Thanks for the color around CapEx and how to think about debt into the back end of the year. What -- any sort of changes in the sort of provision cash expense into the second half? And perhaps if you can give us some guide into '27. And maybe if you can include sort of an idea of CapEx into '27 as well, help us just to frame up the cash and the balance sheet.
William Wright: Yes. There's no sort of acceleration of legacy cash flows into the second half. So the sorts of things we're talking about are a little bit difficult to forecast. But it will continue at a similar run rate as to what we saw in the first half. In terms of CapEx moving into '27, it's probably a little bit too early for us to issue any sort of guidance. But what I'd say is like we're firmly focused on lowering the forecast CapEx number across the go-forward period across multiple years. And so what we were trying to indicate in that chart in the results presentation is if you actually take out the OSV CapEx that we've actually had a half of pretty low levels of CapEx across the remainder of the business. And actually, within the $18 million of growth CapEx, there's a number of projects that were committed to many years ago as well. And so going forward, we do expect a lower level of overall CapEx.
Operator: The next question comes from the line of Keith Chau with MST Marquee.
Keith Chau: First question, actually a follow-up on Lee's question earlier about residential investment. So maybe another way for us to ask a question is, as you sell through the residential units, albeit the numbers are lower at the moment, with the release of inventory and working capital from unit sales be enough to offset the costs associated with the pre-committed land purchases such that capital employed declines? Or is the way to think about capital employed in that business still that it is rising from here on a net basis?
William Wright: No. So you're correct that we will look to release capital employed from that business as we work through the developments. And so it is a little bit hard to forecast in terms of the second half given the uncertain nature of the residential property market at the moment, but we would hope to see an unwind in that funds employed in the second half of this year.
Keith Chau: Okay. And then the follow-up to that is outside of residential units, just the potential EBIT from land sales and perhaps, Will, if you can comment on the payables balance as well. It just seemed a bit high to us and it looked like it was high relative -- sorry, it was a bit low relative to our expectations and low relative to consensus as well. So just trying to understand where that payables balance should go in the periods ahead, if possible.
William Wright: Yes, sure. Sorry, what was the first part to that question? Payables, second part...
Keith Chau: First one was land sales.
William Wright: Land sales. So I think we're obviously working through as part of the residential strategic review, also looking at our whole wider property portfolio. So we have a number of processes going on at the moment. The level of earnings from those is uncertain as is the timing of those. So sort of the best we can do is kind of keep the market informed at regular intervals as we go through the year if and when any of those happen to look like they're going to fall in the second half. In terms of payables, what we're really trying to do is move -- and I think Slide 22 sort of demonstrates this is just to a more consistent working capital cycle. And so when you look at historical comparators, there is a lot of noise in those comparators. And so what we're trying to do is move to a more normal cycle where it's a lot smoother throughout the year. So I think this is probably -- December was really probably the first period end where we haven't seen sort of movement in payment timings to try and improve the working capital number.
Operator: The next question comes from Daniel Kang with CLSA.
Daniel Kang: Just with all the announced divestments and you're flagging for more to come, your net debt should comfortably fall back to the target range of $400 million to $900 million. Just wondering how the Board would be thinking with regards to reinstatement of dividends or capital returns?
Andrew Reding: Well, I mean, that absolutely is up to the Board to decide. What we've already said is that we will consider dividend policy once we get to the lower end of that $400 million to $900 million range. So let's wait for the event to happen.
William Wright: I'll just probably add to that. Look, free cash flows in the first half wouldn't support any sort of dividend either. So we can't get ahead of ourselves. We've still got a lot of work to do. And what we won't be doing is paying a dividend out of debt going forward.
Daniel Kang: Yes, makes sense. And just with regards to WA pipes, I know there's a slide there, and good to see that there's no change to provisions. Can you just provide any color on how the whole process is progressing? Any potential for resolution with BGC?
Andrew Reding: So we think it's progressing well in the sense that we've got over 50 builders now signed up into the industry response. As you know, what we're trying to do is to limit the overall exposure caused by any like peak -- pipe leaks. So we now have -- I think it's 4,188 leak detection units installed. And they are quite a clever little artificial intelligence valves that will turn around and track how your normal pressures flow in the house. And if anything happens outside that normal, it just cuts off the water to the property, so it prevents any of the damage happening. The reason that's important is because although we've made little progress with BGC in coming in to join the industry response, they are cooperating wholeheartedly on getting LDUs installed into all the houses that they built. So what they are recognizing is that even though they don't -- they haven't yet wish to participate in the IR, they are trying to participate in that mitigation of damage that might be caused by pipes. And then furthermore, we've carried out, I think it's 1,176 ceiling pipe replacement. And one of the interesting consequences we're seeing of that is that once we've replaced the ceiling pipes, it actually removes pressure from the rest of the system. So as we do a ceiling pipe replacement, it looks as though a full house replacement number is dropping. So all in all, we've got a very good process in place in Western Australia. It's fully staffed. We're in control of understanding the costs and being able to turn around and kick off when people apply for a replacement. And I think all the modeling we're doing at the moment says that the original provision is still comfortably enveloping what we're seeing in practice.
Operator: There are no further questions at this time. I'll now hand back to Mr. Reding for closing remarks.
Andrew Reding: All I'd like to say is thank you all very much indeed for coming along today and listening to us, and we look forward to probably touching base with most of you personally over the next couple of weeks. Thank you very much indeed.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.