Fletcher Building Limited (FBU) Earnings Call Transcript

[Foreign Language] Good morning, ladies and gentlemen. I am Bruce Hassall, Chair of your company. On behalf of the Board, it is my pleasure to welcome you to Fletcher Building's 2023 Annual Shareholders Meeting. Today's meeting is being held both in person and online by the Computershare online meeting platform. We welcome our shareholders, proxies and guests, both here in the room and joining online. Before we start the formal business of the meeting, I'd like to remind people in the room to ensure their mobile phones are silent. In the unlikely event of an emergency or if we need to evacuate the building, please leave by the nearest safe exit as directed by staff and security. Assembly is on Walters Road, which is behind us. As a quorum is present and due notice of this meeting has been given, I declare the meeting duly constituted and open for business. I will now introduce my fellow directors. On my right, your left, starting from the far end is Peter Crowley, Martin Brydon, Cathy Quinn. On my left from the far end along, we have Sandra Dodds, Doug McKay, Rob McDonald, Barbara Chapman. Your CEO, Ross Taylor, is seated on my immediate left; and Company Secretary, Andrew Clarke, is seated to my right. We also have in attendance members of our leadership team and our auditors, EY. Moving on to the agenda. Today's meeting will commence with addresses from me as Chair and from Ross Taylor, CEO. We'll then move on to the resolutions that are outlined in the notice of meeting. The resolutions will be decided by poll. Questions on a resolution will be dealt with before they are voted on. At the conclusion of the formal business, we'll then take the opportunity for your general questions from the floor and online. For those attending online, you can start submitting your questions now. Please note that questions will be moderated to avoid repetition and to summarize lengthy questions. We won't address questions that, in my opinion, are not reasonable in the context of this meeting or that repeat previous questions and do not allow all shareholders a fair chance to have their questions heard. Thank you also to the shareholders who have submitted their questions in advance. Ross and I will speak to a number of these in our addresses. Finally, if for some reason, we don't have the opportunity to answer your question, we will answer them in due course via e-mail. At the conclusion of the meeting, we invite you to stay and enjoy some light refreshments over there. On behalf of the Board, I'm pleased to report that in FY '23, Fletcher Building delivered strong underlying earnings of $798 million and a strong EBIT margin of 9.4%. This performance was well ahead of the prior year and was achieved despite a slowing residential market and disruption from severe weather events, which we all know about. We believe that it reflects the significant operational improvements made in the business in recent years. I acknowledge it was disappointing that we needed to book additional fire-related provisions on the New Zealand International Convention Center in the year. These were the main reason for the drop in our net earnings after tax to $235 million for the year. I'll speak further to the legacy construction projects as well as the Western Australia plumbing matter later in my address. On the dividend, the Board paid total dividends of $0.34 per share for the financial year. This reflects a solid FY '23 earnings result, while also having regard to the expected cash flow impact of the legacy construction projects through FY '24. The Board remains committed to driving strong outcomes across a range of ESG measures and continuing to drive a performance culture. As with our financial performance, we've also made progress on our key nonfinancial measures and outcomes during the year. We continue to make our workplace safer. Protect, our multiyear safety program, produced further improvements with a TRIFR of 3.1, which is world class, a 12% reduction on last year. This translated to 90% or 903 of our sites being injury free for the entire year. On sustainability, we continue to make very good progress on reducing our carbon emissions, which are down 16% from our 2018 base levels. Service performance to our customers also improved through the year, and our Net Promoter Score increased to an average of 40. This reflects ongoing improvements in on-time deliveries, stock availability and online offerings. Importantly, we also saw our overall employee engagement increase to a Net Promoter Score of 26. Whilst this improvement was pleasing, this result only places us in the median for global organizations. So we have more work to do if we are going to achieve global best-in-class levels of 40 and above. Turning to the West Australian plumbing matter. I'd like first to acknowledge the impact and distress on homeowners from the plumbing failures that are occurring. And I wish to assure our shareholders and all our stakeholders that the Board has taken this matter very seriously. We have a dedicated Board committee in place which provides strong oversight on the developing matters. The company's approach is focused on 3 aspects. First, we have put in place an interim $15 million fund to support builders and plumbers to repair leaks and any associated damage for homeowners while causation of the plumbing failures is better understood. We have undertaken detailed product testing with global experience and gathered evidence on installation practices from hundreds of homes. To date, we have not found fault with our product, but we have kept and will keep an open mind. For its part, Fletcher Building is committed to find an industry solution. A proportionate and evidence-based solution is in everyone's interest, especially those homeowners who have been affected. Ross will build on this further in his address. At this point, I'd like to reflect on how the company has evolved over the past 6 years or so since the current Board was appointed. In 2018, our underlying businesses in New Zealand had strong market positions, but they had been underinvested in and margins were on the decline. A key reason for this was our international business, which was capital hungry, spread across 30 countries and so stretched both our balance sheet and Board and management attention. Our businesses in Australia were contributing a good proportion of revenue, but close to nil margins. They made no money. They were reporting into 3 separate operating divisions, which served to mask the underperformance across many operational dimensions. Meanwhile, Construction had assembled an order book that was overweight in higher risk, lower-margin projects, which took up a disproportionate amount of Board and management time as issues arose. Of further concern was that our nonfinancial metrics were below par. While we had a safety program in place, an embedded safety culture did not exist in the company. We also had no carbon reduction plans, and we weren't putting the right focus on our customers or our people. In response to this situation, we took decisive action to firstly stabilize the company. We appointed a new CEO capable of handling the enormous task ahead. We completed a full board refresh and implemented more rigorous governance protocols. We oversaw a capital raise and moved to divest the international business with the implementation of a new strategy focused on New Zealand and Australia. In combination, the business was refocused and the balance sheet strengthened. We successfully achieved much of this through 2018 and '19, but we knew we had much more to do beyond that. This included dealing with the legacy issues and repositioning the go-forward business, which I'll cover off on the following slides. The legacy construction projects have been a major undertaking. We started with around 80 legacy projects. These were brought into the group when it had a different tolerance for risk in winning construction work prior to 2017. There are now 3 projects left to complete, which Ross will provide further details on. The Board and management share the frustration of our shareholders that these lengthy projects have taken longer and have cost more to complete than planned. Ongoing COVID lockdowns and the fire at NZICC added complexity to the tail legacy projects and have made it much harder. We accept that there are many risks to manage on these projects. These matters are a major focus of the Board, with regular review of management progress in place. At the same time, we've also had to focus on building a better construction business for the future rather than clearing up the past problems. We made the decision to exit the vertical building sector, and our teams have made excellent progress on lifting the skills, operating disciplines and governance across all the construction businesses. The best evidence of the success of this is a rebuilt forward order book with the right risk profile, which is low, and margins. The final part of the Board's strategy over the past 5 to 6 years was to reposition the go-forward business to deliver improved performance and growth. Combined with the issues in Construction, we had a challenged Australian business which was dragging down our overall profitability and margins. And we had a set of New Zealand assets with good market positions but needing investment in improved operating disciplines. This slide shows the group EBIT and margin performance over time. As we've taken the necessary actions, the operational gains we have made over the past 6 years have been in a few key areas. Firstly, cost efficiency, getting sharper on our products and the segments where we participate, and ensuring our pricing is both well controlled and linked to the value we deliver. In addition, we have been focused on investing for the future. We are close to completing the new $400 million Wallboards plant. This future proof is one of our most valuable assets, and we have a mature program of mainly organic growth projects underway. Our strategic focus on the New Zealand and Australian geographies has enabled us to both uncover and execute on these opportunities. Ross will touch on them more in a moment. Our approach to nonfinancial performance has been, in many ways, similar to the financials. In each of the areas of safety, sustainability, customer and engagement with our people and approach has been to understand what is best-in-class performance. What does it look like? And the operating discipline is needed to achieve it. We then hold ourselves to account against these standards. Pleasingly, progress on these over the past 5 years has been positive, and particularly on safety and sustainability, but we recognize that we need to get more consistent and move closer to best-in-class across our customer experience and the capability and engagement of our people. To summarize, the past 6 years has seen a significant turnaround of Fletcher Building. The company has been stabilized, and we pursued a consistent strategy focused on our home markets in New Zealand and Australia. We have almost completed the 80 legacy construction projects and we'll be through the final 3 by the end of next year. This does not take away from the Board's disappointment at the additional fire-related provisions on the convention center booked in FY '23. Equally, we are cognizant of the risk that still exists as we complete the final legacy projects, and we are highly focused on managing these and on resolving the Western Australian plumbing issues in a satisfactory way. Overall, though, over the past 6 years, the financial and nonfinancial metrics of Fletcher Building have improved significantly. And we believe the go-forward position is well positioned for performance and growth over the medium term. I'd like to take the opportunity to thank our management team and all of our 15,000 people for their considerable efforts over this period. In particular, over this period, the Board is very proud of the work that you have done and continue to do to improve Fletcher Building and position it well for the long term. I'd now like to pass to Ross for his overview. Ross, over to you.

[Foreign Language] Thanks, Bruce, and I'd also like to add my welcome to those joining our shareholder meeting today, both here in the room and online. The Fletcher Building businesses are performing well. They are also nicely positioned to navigate the softer markets over the next year or so and then to grow again from there. As Bruce has covered the recent results in some detail, I'll just make a few points on the 2023 financial year. Our overall margins increased nicely to 9.4%. And pleasingly, the Australian division delivered 6% margins. Our progress in achieving a world-class safety culture and performance levels continues, and it's nice to see this being reflected in lower injury rates across all of our businesses. We remain confident that there's more financial performance upside in the medium term, but this is going to be driven by getting our people fully engaged, genuinely passionate about what we do and really focused on our customers. Against this backdrop, it was pleasing to see improvements across both our customer and people metrics through the year. A particular call-out was the engagement of our top 300 leaders. This now sits at an industry-leading eNPS score of 50. And this sets us up really well to achieve the further overall performance improvements we're looking for into the future. We continue to take a longer-term view and are actively investing in a number of significant growth opportunities. And as we flagged previously, we've now committed around $800 million of capital to these. We show on the slide a few examples of the investments we're making in New Zealand. These are across timber, insulation, automation in our frame and truss plant and on the broader circular economy. We expect these investments to hit their full earnings run rate in the 2027 financial year and to deliver over $120 million per annum of extra profits to our bottom line from then on. Pleasingly, we're on track to finish the physical works on the final 3 construction legacy projects through the 2024 calendar year. The Puhoi to Warkworth Motorway was opened in June this year. And if you haven't driven out in it yet, you should go out and do so. It's a lovely piece of infrastructure to drive along. The final works will be completed in the second quarter of 2024, and it will be a matter of working through the major claims on the project with Waka Kotahi. We've now completed and handed over all the car park levels on the convention center. We expect the hotel to be complete in December and the balance of the project by the end of 2024. As we noted in our results presentation in August, there continues to be some cost risk to manage as we complete these projects. We also need to secure claims and insurance recoveries and manage any wash up issues that may arise to hold our current provisions. Resolution of the claims and recoveries, particularly on the convention center and Puhoi to Warkworth projects is likely to take until the end of the 2025 calendar year. On Wellington Airport car parks, we're working with the airport to determine an agreed remediation, but any costs we decided to take in that regard are not covered by the present provisions. There are no material updates on the detailed presentation I gave on the West Australian plumbing issue 2 weeks ago. For those of you that didn't see this and are interested in it, the full presentation and webcast are available on the Fletcher Building website in the online Investor Centre. As Bruce outlined, we continue to use the $15 million interim fund put in place early this year to allow us to support the industry and homeowners while causation of the plumbing values is better understood. We also continue to work with the industry and regulators to develop an effective solution. Our evidence, which is a combination of extensive testing of the pipes and a comprehensive review of the leaks that are occurring in the home, points to installation as the failure. Repair scenarios built on this evidence suggests an overall industry cost to repair these leaks of between $50 million to $100 million. At this stage, we have not made any provisions to contribute to this repair bill. Starting with our New Zealand and Materials Distribution businesses, I'll talk through the trading conditions we're seeing so far in this financial year. The infrastructure and nonresidential sectors remain robust. But the residential sector volumes are around 5% softer than our prior guidance. This puts them down around 25% from the peak we saw in late 2021. Our market shares are stable, and we're seeing solid pricing in our materials business with strong price competition in the merchant distribution channel. As such, our profit for these businesses are tracking slightly behind our previous expectations. In Australia, the division is performing well, and we expect profits in the first half of the year to be broadly in line with last year despite a slightly softer market. Encouragingly, we're seeing green shoots in the residential house sale market in our Residential and Development division. So far this year, house sales are tracking well. They're averaging around 20 to 25 per week. And house prices have stabilized and are now starting to trend up slightly. If this momentum in sales continues, there could be upside to our prior 700 to 800 unit sale target for the financial year. We continue to expect profit margins to be slightly below the 15% through the year and profits to be weighted to the second half due to the profile of settlements. This market trend is a positive for our New Zealand and Material Distribution businesses, as increased activity across the residential end market will ultimately flow into the volumes across these businesses. And in Construction, the work outlook in the market remains very solid and our order book remains strong. but a slower start to key projects will see our profits weighted to the second half of this financial year. The outlook for our trading cash flows continues to look robust, and our balance sheet remains well positioned. As previously guided, we expect leverage to move to the upper end of our 1 to 2x range, which still has material headroom to our banking covenants. We have $2.8 billion of debt facilities in place, and this ensures we'll maintain healthy levels of liquidity through this year and beyond. And we now have a Moody's credit rating in place at Baa2 stable. All these things leave us well positioned for the future. We're getting close to having the legacy construction projects in our rearview mirror. We're well positioned to perform through the cycle and then to drive both further performance improvements and upside volumes when the cycle turns. We are very advanced on our $800 million of committed growth projects, which we're confident will be delivered well and set us up for significant extra earnings in the next 2 to 3 years. And there remain plenty of other growth opportunities which we can take advantage of once we have a firmer sense of when the cycle is returning to growth. Our improvement aspirations extend beyond just the economics of the business, and we also have ambitious targets across our nonfinancial outcomes as we look forward. We're earnestly working towards being injury free as an organization. We want to continue to lead our sector in sustainability by decarbonizing ahead of the competition, having the most sustainable products and being heavily involved in the circular economy. We want to provide products and services to our customers that are global best-in-class levels. And we want to have a diverse, talented and highly engaged workforce that just love being part of Fletcher Building. We are well advanced across all of the key areas that will make Fletcher Building a great company and provide exciting outcomes for Fletcher Building's people, customers and shareholders. And I'll now hand back to Bruce to continue with the balance of the meeting.

Thanks, Ross. I'll now move on to the formal business of the meeting, which is to vote on the resolutions outlined in the notice of meeting sent to all shareholders in September. All resolutions are ordinary resolutions. To be passed, they require the approval of a simple majority of the votes of those shareholders entitled to vote and who vote on the resolution. I'm advised at the beginning of the meeting that we will vote on the resolutions by way of a poll. Any undirected proxy votes given to the Chair of the meeting or any director will be voted in favor of the resolutions. Any directed proxies given by the shareholder will automatically be cast as directed. For eligible online attendees, voting on the resolutions is now open, and you can vote at any time until I declare the voting closed. For shareholders and proxies in attendance at the meeting, I'll invite you to place your completed and signed voting proxy form in one of the ballot boxes which will be passed around the room after all the resolutions have been introduced to the meeting. If anyone in the room is unsure how to complete the voting form, I invite you to go back to the registration desk where someone be able to help you. I will now turn to the resolutions. As announced on the 11th of October, Resolution 6, which related to a proposed increase in the [ ARIT ] pool of funds available for directors' remuneration, was withdrawn. The resolution was withdrawn because it became clear during shareholder engagement that some shareholders considered the remuneration pool should not be adjusted until it was necessary. On matters relating to its own remuneration, the Board prefers a clearer mandate and as such, Resolution 6 of the notice of meeting will not be considered as an item of business at this meeting. Turning to the first resolution. As it concerns myself, I will hand over to Rob McDonald to conduct the resolution.

Thank you, Bruce. Kia ora. It is now my pleasure to move that Bruce Hassall will be reelected as a Director of the company. Bruce was appointed to the Board on the 1st of March 2017. He is a member of the Nominations Committee and the People and Remuneration Committee and is considered by the Board to be an independent director. His credentials are outlined in the explanatory notes to the notice of meeting. The Board unanimously recommends that shareholders vote in favor of the reelection of Bruce Hassall. I now extend to Bruce the opportunity to speak about his reelection before we proceed to discussion on the resolution. Bruce?

Thank you, Rob. [Foreign Language] It is my pleasure to seek your support for reelection as a Director of the Fletcher Building Board. I joined the Board 6 years ago. And as I outlined in my earlier address, it has been challenging. But I'm very proud that this Board and management have continued to persevere to remediate the issues that we all found when we joined the company back in 2017 and '18. Throughout my tenure to date, the Board has been disciplined on governance and resiliently focused on sorting out the construction predicament we all encountered. The subsequent NZICC fire only added to that challenge. But we divested our international group Formica and RTG for a good price. As a Board, we responded quickly and made some tough decisions through the COVID disruptions. We were honest on the performance of our Australian business and made the hard calls. As you have heard, they've delivered a much improved performance in FY '23. And the core New Zealand business delivered a very strong performance in FY '23 as well. During my tenure, we've also focused on driving nonfinancial metrics, and the group overall is on the right path for delivering on the stretched targets we have in place, but there's more to do. As I've said, we're nearly there on completing all our legacy construction contracts, but it's been very hard on shareholders and it is clearly impacting our share price. The Board acknowledges and understands the frustrations, but we have no other choice but to tough it out, but we're nearly there. We will finish the work on the New Zealand Convention Centre, as Ross said, in late 2024. The West Australian pipes issue is disappointing. I really emphasize with -- empathize with homeowners and reiterate our commitment to work with the industry and help develop a submission -- a solution to the problem. We have reset the company and have growth initiatives in place, investing in the heart of our New Zealand businesses. Today, our new wallboards plant at Tauriko, delivered under budget and ahead of time, is weeks away from being fully operational. It's a world-class facility and I'm very proud of that achievement. It's a credit to everyone involved in the project. We are increasingly regarded as leading from the front across safety, customer, community investment and emissions reduction. These things don't happen by accident. You need a clear strategy and then relentlessly focus on executing with great people. I look forward to the opportunity to continue to drive your company forward and ensure that Fletcher Building realizes its full potential. Thank you for your ongoing support.

Thank you, Bruce. I now invite discussion on the resolution. Are there any questions that shareholders would like to ask Bruce Hassall? If you're in the room, I invite you to raise your hand and a microphone will be handed to you. Before you ask your question, please state your name. Are there any questions in the room for Bruce? There does not appear to be. Are there any questions online?

There appears to be no further questions online.

Okay. Thank you.

Thanks, Rob. It's now my pleasure to move that Barbara Chapman be reelected as a Director of the company. Barbara was appointed to the Board on 1 September 2018. She is Chair of the People and Remuneration Committee and a member of the Nominations Committee. The Board has agreed that she is an independent director. Her credentials are outlined in the explanatory notes to the notice of meeting. The Board unanimously recommends that shareholders vote in favor of her reelection. I now extend to Barbara the opportunity to address the meeting in support of her reelection. Barbara?

[Foreign Language] I'm delighted to be here today, and thank you for the opportunity to present myself for reelection. As your director, I bring to the Board experience from my time as the former CEO of ASB Bank here in New Zealand as well as experience in Australia from my time on the executive team at the Commonwealth Bank. I currently serve on the boards of the Bank of New Zealand and the New Zealand Initiative and am a Chair of NZME and Genesis Energy Limited. These organizations enable me to see issues and trends across many sectors in New Zealand, which provides valuable insights into how New Zealand is traveling and how that might apply to Fletcher Building. You should rightly challenge what every director brings to the table. In the 3 years since my last election, my focus has continued to be on supporting and challenging management to enhance our customer experience, prioritize our digital agenda, drive for improvements in leadership, diversity and inclusion, and drive for strong business performance. I know we must compete and execute well in all our chosen markets to deliver the performance our shareholders expect, and that has been my focus. As a director and in my role as the Chair of the People and Rem Committee, I take a wide-angled view of the performance of our business and how that should be reflected in the remuneration of our people, and in particular, in the incentives that they earn. Over the past few years, we have provided you with enhanced disclosures to give you that clear line of sight into how executive performance is aligned with commercial outcomes and how we consider matters such as safety, risk and ESG considerations in our balanced scorecard approach. As a Board, we are supporting the management team's strategy to digitally transform the business, and I have a particular interest in this. The Digital@Fletcher program is a significant strategic investment to help us put the right technology and processes in place so that we can understand and serve our customers better and earn more of their business. I'm also proud to have endorsed the company's ambitious program for growth with a committed investment of more than $800 million to date. You will have heard about our significant investments in the Winstone Wallboards facility in the Bay of Plenty, along with our investments in Waipapa Pine, Laminex and Comfortech. It's certainly pleasing to see these growth initiatives come to life and to progress to a point where they will deliver strong shareholder value well into the future. Thank you again for the opportunity to present myself for reelection today. You can be assured that I'm committed to advocating for the best interests of our shareholders and ensuring transparency, accountability and ethical governance in our actions. [Foreign Language] Thank you.

Thank you, Barbara. I now invite discussion on the resolution. Are there any questions that shareholders would like to ask Barbara Chapman? If you're in the room, I invite you to please raise your hand and a microphone will be handed to you. Before you ask your question, please state your name. There's a question here.

Thanks, Mr. Chairman. My name is Alan Best and I'm the proxy holder for New Zealand Shareholders' Association members. And I think there's about 250 of them. So I have some responsibility to the work that's gone into preparing for this meeting. I would like to ask Barbara about her work commitments because a number of directors suggest to me that the company looks for busy people when it seeks a new director, and that's understandable because it's a big company and necessary to have the best possible directors. So could we ask Barbara [indiscernible] just for her feeling about the work commitments that she's undertaking at the moment?

Okay. Barbara, would you like to come up?

Thanks, Alan. Is my microphone on? Thank you, Alan. Look, I think it's a very fair question. And you heard me talk in my speech about my workload as the former Chief Executive of ASB and my time over in Australia. I would not stand for reelection if I felt I didn't have the time to put into this business. It's that simple as that. All these businesses, all of us as directors are well aware of the time commitment that is involved. I feel like for myself, I'm probably working at about 80% to 85% of the pace that I worked at as a Chief Executive in my executive life. I am very committed to making sure that I put in the time on this Board and all of my boards to get the work done that we need to do as your representatives, as directors. Thank you.

Thanks, Barbara. I would make one other comment. Alan, you often find that these directors are busy, and I wonder why that is. Are there any other questions? Are there any questions online?

Bruce, we've got a question from Bob Heywood of South Pacific Securities Limited. Bob asks, and it's a similar question to the last one, whilst we are impressed with Barbara's credentials and track record, can she truly give the necessary time to Fletcher Building with the other comprehensive commitments to other chair and board roles?

Okay. I don't think you need to respond to that, Barbara. I think you've dealt with that. I'll just make one comment. Barbara is an outstanding director. The shareholders are lucky to have her on the Board. She contributes enormously and her work commitment is extraordinary. So I have no concerns whatsoever on Barbara's ability to contribute and to fully do everything I need of her as a director. Okay. We're going to move on to the next resolution, so no more questions. It's now my pleasure to move that Martin Brydon be reelected as a Director of the company. Martin was appointed to the Board on 1 September 2018. He's a member of the People and Remuneration Committee and a member of the Safety, Health, Environment and Sustainability Committee, that's always a mouthful. The Board has agreed that he is an independent director. His credentials are outlined in the explanatory notes to the notice of meeting. The Board unanimously recommends that shareholders vote in favor of his reelection. I now will cede to Martin the opportunity to address the meeting in support of his reelection. Martin, over to you.

[Foreign Language] and kia ora. Good morning, everyone. It is my pleasure and a privilege to be here today to address you at your Annual Shareholders' Meeting. As you've heard, I joined the Fletcher Board in 2018, and I would consider a privilege to continue to be part of the Board. I bring more than 40 years' experience in the Australian building products and construction materials sectors, having started my career as an engineering cadet at BHP. I joined Cockburn Cement as an electrical engineer and was the CEO of that company when it was merged into the Australian-listed company, Adelaide Brighton Limited in 1999. I retired from Adelaide Brighton in 2019 after 5 years as the CEO and 3 years as the CEO and Managing Director. In between, I held a wide variety of senior executive roles, including engineering, operations management, sales and marketing, general management, and strategy and business development. I am also the Chair of Duratec Australia, an ASX-listed engineering, construction and remediation business that has operations across all states and territories in Australia. Being 1 of 2 Australian-based directors on the board of Fletcher Building, I bring valuable perspective on the Australian market. While it is very much work in progress, it was very pleasing to see the Fletcher's Australian division deliver a much improved result over the last financial year. Since my time as a director, I have visited numerous Fletcher sites across Australia. During these visits, I have enjoyed the talking to the staff, hearing about the challenges they have and discussing health and safety. As we have heard, the last 5 years has not been without its challenges for Fletcher Building. In addition to the disruption caused by the COVID-19 pandemic and ensuing supply chain issues, the company also suffered the convention center fire that resulted in a very complex, costly and protracted repair. However, over this period, the Board worked very closely with the management team to ensure focus was maintained on the agreed business strategy that is aimed at delivering profitable growth through the cycle. Examples of some of the achievements which -- some examples which you've already heard some of include our greatly improved safety record. That is something that the company is very proud of, what's been achieved in that regard. We have made significant progress in the important area of sustainability. The environmental impact our businesses can have on the environment is taken very seriously across the group, and our improved performance, as reported, is real. The reshaping of the Construction division was very important for the group. This business now has a very strong forward order book with materially lower risk projects and higher margin work. The company's recent investments in its core profitable businesses, with innovation and sustainability at the heart of these decisions, has been key. And last but not least, again, I reiterate what Bruce has said about the strength of the company's underlying financial performance despite some of the challenges we've talked about. I stand for reelection, confident that the Board is steering Fletcher Group in the right direction. I will continue to be a director to ask questions of management that I feel need to be asked to ensure the value is delivered to all shareholders in an ethical and sustainable way. Thank you for your consideration of my reelection. And with your support, I look forward to continuing to serve on the Board. Thank you.

Thank you, Martin. I now invite discussion on the resolution. Are there any questions that shareholders would like to ask Martin Brydon? If you're in the room, I invite you to please raise your hand and a microphone will be handed to you. Before you ask your question, please state your name. Okay. There's no questions in the room. Are there any questions online?

There appears to be no further -- no questions on the director reelection resolution.

Thank you. Let's move on to next one. Resolution 4, Sandra Dodds. It is now my pleasure to move that Sandra Dodds be elected as a Director of the company. Sandra was appointed to the Board on 1 September 2023. She is a member of the Audit and Risk Committee and a member of the Safety, Health, Environment and Sustainability Committee. The Board has agreed that she is an independent director. Her credentials are outlined in the explanatory notes to the Notice of Meeting. The Board unanimously recommends that shareholders vote in favor of her election. I now will cede to Sandra the opportunity to address the meeting in support of her election. Sandra?

Thank you, Bruce. [Foreign Language] I'm delighted to join you here today to seek your support for election endorsing my appointment to the Board of Fletcher Building earlier this year. While now Melbourne-based, I was actually born in Invercargill and went to school in Tuatapere and Gore before studying commerce at Otago University. I consider myself a very proud Kiwi, and hopefully more so on Sunday, with a global outlook. As such, I have had a long admiration for Fletcher Building, a company which is of similar South Island origin, expanding to operate across both sides of the Tasman as I do today. I believe that Fletcher Building is uniquely positioned to respond to some of the major challenges we have in our region, such as in housing, establishing and maintaining the critical infrastructure for population growth in our main centers and in showing the others how it is done as the company pursues its ambition for a sustainably better business into the future. For more than 30 years, I've held leadership roles in major construction and infrastructure businesses, including being CEO of Urban Infrastructure at Broadspectrum, formerly known as Transfield Services, and holding senior executive roles in Downer here in New Zealand and in later years in Australia and Asia. I now sit on the Boards of Contact Energy, Becker, OceanaGold and Snowy Hydro, which is based in Australia. In my -- in building my career in governance, I have developed a thoughtful portfolio of directorships with a deliberate mix of energy, construction, infrastructure and mining industries. Beyond being simply vital to society, these businesses and industries have significant environmental sustainability and corporate governance challenges, which I'm passionate to get my -- to get stuck into. I have a particular interest in audit and risk, which demands considerable economic discipline and risk attentiveness as well as a good nose for investment for growth. You can expect me to be plain spoken and no nonsense in my approach of matters of governance and to always bring an international lens, applying global expertise and driving performance into the wider organization. During my time with fleet ship building, I'm keen to get behind efforts to do things differently. And I'm encouraged by several innovative projects already on the go. I'm inspired by the disruptiveness of the Vivid living senior living initiative, providing great value homes in multigenerational neighborhoods for older residents who want the benefits of community living and the freedom to retain more of their hard-earned financial equity. I'm also excited to track the progress of the first time being built by an all-female build crew and the first low carbon home, in fact a living home built with 7x less embodied carbon than a standard build. These are fantastic showcases of the power of Fletcher Building companies when they come together to meet the moment. I'm confident that I have the right insights, experience and perspective to support Fletcher Building as it continues to perform and to grow to its great potential. I promise to be forthright and upfront in collaboration with my fellow directors, not shying away from the tough calls. I'm excited about the opportunities ahead, and thank you for your consideration.

Thank you, Sandra. I now invite discussion on the resolution. Are there any questions that shareholders would like to ask Sandra Dodds? If you're in the room, I invite you to please raise your hand and a microphone will be handed to you. Before you ask your question, please state your name. No questions in the room. Are there any questions online?

There appears to be no questions on the director reelection resolution.

Thank you. Thank you. We'll now move to the fifth resolution. I now move that the directors be authorized to fix the fees and expenses of the auditor. EY is the company's auditor and is automatically reappointed under the Companies Act of 1993. This resolution authorizes the Board to fix the fees and expenses of the auditor. EY audit partners are present should -- at the meeting should shareholders have any questions of them concerning this resolution. I now invite discussion on the resolution. Are there any questions in the room? There seems to be no questions in the room. Are there any questions online?

There appears to be no questions on the auditor fees and expenses.

Okay. Thank you. We'll now vote on the resolutions. I invite you to now cast your votes on the 5 resolutions displayed on the screen. Please now cast your votes. The voting on the 5 resolutions will close shortly. Please ensure that you have cast your vote on all resolutions. We'll take a few minutes' break now to allow you time to finalize these votes. For those in the room, please place your completed voting proxy forms in the ballot boxes that will be coming around. [Voting]

Okay. We've got all those ballot boxes. Good. Okay. Voting on the resolutions is now closed. You now see on the screen the results of the postal voting received ahead of the meeting for the resolutions. These postal votes do not include discretionary proxies held. These will be voted on at the meeting. The company's auditor, EY, will act as scrutineer for the polls. Please note that the final results of voting on the resolutions will be advised to the NZX and ASX this afternoon, which will obviously incorporate anybody that voted just now. Ladies and gentlemen, finally, we turn to the part of the meeting where shareholders have the opportunity to raise questions. I'd now like to give any shareholder, both present here and online, the opportunity to ask questions. While we wait for your questions, first in the room, we will address the presubmitted questions received ahead of the meeting which haven't been specifically answered through my or Ross's address already. We received a question from [ Rodney Harrison ]. Regarding the Western Australian pipe update, how much was allowed in the maximum $10,000 per home quoted to cover for homeowner disruption, including temporary accommodation until all work has been completed to the satisfaction of the homeowner or agreed authorities? That was the question. The response is in our presentation to the market on Friday the 13th, interesting date. We noted that currently, the cost of repairs are averaging about $4,000. That ranges from a simple leak repair, which is about $1,000, to a full ceiling pipe replacement, which is about $5,000 to $6,000. We provided a higher average estimate of $10,000 per home as individual homes may or may not need more. The second question is from [ Martin Gain ]. I want to understand what the Board is doing about the ongoing poor share price performance. Fletcher is being significantly outperformed by its peers. Thanks for the question. We have looked at this closely and engaged with shareholders and analysts to ensure the Board and management are not missing anything and our focus is correct. We heard consistent themes from investors: firstly, concern over the New Zealand macro outlook, the New Zealand economy; secondly, how Fletcher Building performs through the cycle, through the building cycle; and thirdly, the importance of clearing the legacy projects, which we've talked about. We can't do anything on the macro, but as you've seen from these presentations, we are very focused on ensuring Fletcher Building performs and grows, and we are focused on clearing the final legacy projects. We'll now answer questions starting with those in the room. Please raise your hand if you have a question and wait for the microphone to come to you. Why don't we get a microphone to you?

Good morning. Can you hear me?

Yes. Fine.

My name is [ Morta Lavache ]. Okay. You want me to stand up or just okay sitting? Okay. Now my first question is, it's not a question, it's an observation that, see, we have been plagued with this, what you call hurdles, all across, I have been a shareholder since 2017, I think since you took over. And first, we had the Sky City Convention Center. This is the legacy problem is still continuing. Then we had that [in Iamagu ] problem. Now suddenly, we develop this leaky pipe. Now can you tell me, since when this leaky pipe has started, are we [ negotiating ] for the first time? Or is it in existence prior to this? And whether there was no problem earlier and suddenly the problem has started, something is -- I will -- okay, then, I will go on keep on asking the questions?

You want to go -- why don't we respond to that? And then you can ask your second one. Okay. Ross, why don't you pick that up?

Yes. I think you asked the timing of it, so let me just frame it. So the period where we're seeing the issues in WA from the plumbing value is from roughly about 2017 to the end of, say, 2022 is the product.

Why it has come to light now?

So what we're seeing then is that the pipe roughly, when we look at the statistics of what we're looking at, we're seeing about -- takes about 3 years, and we're seeing evidence of leaks. And there is sort of a time lag with it. And what we -- as we've done our testing on the pipes and extensive in-house reviews as we've had our teams in there, what you're seeing is a real alignment of installation failures with the leaks. In fact, we've seen complete alignment. So wherever there's been a leak, there's been an installation failure. And to give you a sense of what that means is that this pipe can be bent but not too much and some of it's really bent over or kinked. It can be -- when it goes in a wall, it's got to go in there loosely, so it actually can expand and contract, and if you cement or concrete it in, it can't do that. And quite often, then there's a bunch of other -- I won't go into all of them. There are actually just -- there's about 4 different installation issues. And what that does is it puts extra stress in the pipe, and it just takes time then for that to manifest itself in a leak. So -- and therefore, it's sort of averaging about 3 years. And just to put it into frames, so it's that period of time, it's about 17,000 homes in WA, in Perth that are potentially affected. And we're seeing a leak rate of about 10.9% have leaked at this stage. And when you look at those, it's actually really concentrated to 2 plumbers and 1 builder. So 94% of the issue is that -- so what you find across the rest of the market there, we're not seeing anything like that rate. So all that sort of points to installation, and what we're doing to work with the industry, so the fund has been put in place. So while we work out exactly the causation, what the -- how to fix it and get industry, sort of we just didn't want to leave homeowners swinging. So we put the fund in place so we could actually support the plumbers and builders to actually get in there and get a fix so homeowners aren't suffering and where the fix gets done quickly. And as we get more data and when we get more sophisticated in what the fix is, we'll hopefully be able to work with the industry then to help them solve the problem and understand where it may or may not occur.

Ross, thank you for that. But I know we got little -- lot of technicality in that, doesn't matter. But now second question is whether this particular leaking problem is limited to Western Australia or was that supply done only in Western Australia or was it done all over Australia? And it has been manifested only in Western Australia?

So it was manufactured in Albury in Victoria. So one plant, and it's gone into around about 30,000 houses across Australia, 15,000 on the East Coast and around 17,000 on the West Coast. There is no abnormal leak rates on the East Coast. So all of those installations, there's no abnormal. It's only...

Have you investigated? Why is it so?

So yes is the answer. So as part of doing this whole piece of work, it's to understand, okay, it's not leaking at all abnormally on the East Coast. And then what you see is the difference in installation practices between the East and the West Coast. And then you go on the West Coast and as I said, there's quite a degree of variability between builders and plumbers as to where most of the leaks are occurring. So again, that aligns with installation.

Okay. That puts us in a better position. Okay.

Two questions. I'm going to stop there. If you want to ask a follow-on question, I'll go around the room, I'll come back to you. If there are any other questions anybody would like to ask? Down the back of the room.

[indiscernible] [ Stranahan ]. I'm a shareholder. These pipes, their plastic runs, do they use crimping or compression joints, do they? And following on to that, it's a question of if they're using that, does it actually -- are they used for both hot and cold water, and is the problem related to either hot or cold? That I understand that it's fairly common that with hot water system that you'll get the expansion and contraction with the actual pipe.

Okay. Great. A number of questions there. Why don't you pick those all.

I'd love to. I feel like I'm going to get really tested on my pipe technical expertise today, but I'm happy to go there with you all. So with the installation, and you talk about crimping, so what we -- what's in our specifications when we sell the market, sell the product into the plumbers is that if you're going to bend the pipe more than 10x the diameter of the pipe, you need to put an elbow in. It's not a crimp. It's actually then it gets glued into an elbow. And what we're seeing is where a lot of the issues are predominantly bending issues where the pipes have been massively over bent. And the particular issue that's where we're seeing a lot of it is when in Western Australia, it's a double brick construction. It goes up the brick wall and it comes out the top of the wall and they've got to bend it over under the roof. And because it's very small tolerances there, it gets over bent, quite often kinked, but quite often just over bent. Then there was a second part of that question I've just lost. Hot and cold, sorry. So we are seeing -- so it's both hot and cold. We're seeing more evidence of it in cold pipes, but it aligns with what I'd call the proportions, and I'll explain it this way. So what you see is the way the leaks are occurring broadly equally as you'd expect it in hot and cold. But in cold pipes, there's more cold pipes in a house. And then what you also see is cold pipes get used more. So when you adjust the percentages of leaks we're seeing for both the extra percentage of cold versus hot pipes and then the usage, and every time you turn the tap on and off or a washing machine goes on, it puts water hammer and pressure through the pipe. So those percentages line up exactly with the sort of percentage we're seeing in leaks between hot and cold.

So are all of the joints actually glued then? You talk about the elbow joints, but what about, for instance, if you...

So the issue is not in the joints. What the issue is, that in Western Australia for whatever -- or the plumbing practices as such, if you look at East versus West, broadly, everything on the East Coast will be done every bend is in an elbow. So the issue is not in the pipe in the elbow. The issue is where it's bent. It's overstressed and it's leaking where it's been over bent.

So they're not using elbows.

There's no issue with the joining method per se.

That's -- the glue -- there's no problem with the glue.

There's no problem with that. It's actually leaking through the pipe itself because it's been held in place and caught stretch, so it gets overstretched or it's been over bent.

Just as an observation, when we were discussing this in the Board earlier on, one of the people explained it to us, if you have your garden hose and you bent it like that and leave it there for a while, you will -- it eventually will crack or start to leak. So there's a complex -- in sort of layman's nontechnical terms, what seems to be happening here in a lot of the cases, significant number of the cases where we've gone in to look at installations. Are there any other questions in the room? Thank you, over there.

My name is David. I'm a shareholder. I'm just asking, you said these pipe issues are installation issues, correct, from 2 builders -- I'm sorry, 2 plumbers and a builder, right? Are they affiliated with Fletcher Building in any way?

No, they are not.

Then the real question is, why are we footing the bill for this? As you say, you set up a, what was it, $10 million fund for them to dip their toes into? Over this month, we've eaten a massive reputation hit to the company and huge cuts to our share price. So like I say, why do we need to take more of this cost?

It's a good question. Ross, why don't you pick that up?