Andrew Reding, the new Fletcher Building boss taking over from Ross Taylor, who returned to Australia.
Repaying debt and avoiding asset sales is why Fletcher Building needs to raise $700 million in capital but it didn’t put it quite like that in the formal investor presentation.
The ASX- and NZX-listed business said it hoped to strengthen the balance sheet and improve financial stability and resilience via the offer, of which $282m is underwritten.
Andrew Scott, a Morgan Stanley analyst, questioned new managing director Andrew Reding on today’s conference call, saying the capital raise “keeps the wolves from the door”.
Reding said the $700m raise was a proactive response and the company’s investor presentation said it would allow the company to cut debt from $1.8b to $1.1b.
Market conditions were “challenging” and this gives headroom to focus on operational performance, Reding said.
“We are dealing with very challenging markets with regards to Australia and New Zealand, particularly with regard to the residential sector,” Reding disclosed on the analyst call.
But once market volumes recover, the business would be in a better position, he said.
He cited new board and management appointments and said the business had concentrated on reducing capital expenditure where possible.
The Horizon Hotel had been handed over to SkyCity Entertainment Group and Fletcher had made “significant progress” on the West Australian plumbing issue, Reding said.
Outstanding issues on remaining legacy construction projects were nearing completion and there was no change to provisions from HY24, he said.
But annual sales volume declines of 10% to 15% were affecting Fletcher’s materials and distribution divisions, Reding said.
“The near-term outlook is expected to remain challenging,” he added.
The capital raise aimed to improve that situation.
Fletcher revenue was weighted more than 50% from New Zealand and Australia’s residential sectors, he said.
The investor presentation reiterated that: “With more than 50% of revenue exposed to residential construction, the c.30%-40% decline in Australia and New Zealand housing activity over the last two years has weighed on Fletcher Building’s earnings.”
Rohan Koreman-Smit, a Forsyth Barr analyst, questioned Reding about Fletcher’s market share, citing particularly steel and insulation.
Reding said it was 18 years since he left Fletcher and he had been concerned about the focus shift since then but “we still have our business unit strengths”.
But he challenged market share losses, saying Golden Bay and Firth had picked up market share, while Winstone Wallboards had maintained its position.
Asked by another analyst if Fletcher was raising enough if earnings were to be severely depressed in FY25, Reding said the capital raise was deemed enough to cover its needs.
Phil Campbell of UBS asked why no new FY25 ebit guidance was provided. Reding said the company was aware of consensus numbers and cognisant of responsibilities on that front.
Campbell also asked about what management style Reding would have. The new managing director said there would be a “deep dive” review.
“In terms of my management style, I’m very much decentralist,” he said, referring to having a customer focus.
Stephen Hudson of Macquarie asked about the allocation of carbon credits for Golden Bay Cement, but former Fletcher acting chief executive Nick Traber said the company was in discussion with the Government about that. He referred to certainty about CO2 allocation being needed over a 10-year period.
Asked about the silicosis liability, Hudson asked about the estimate and the need for an assessment. Traber said that was a small piece of the allocation of costs, as people unfortunately suffered from the consequences of silicosis.
“No change there from what we said in the annual results,” Traber said.
Asked about the appointment of a new permanent chairperson, Reding said getting the right person was more important than the timing “so we’re undergoing the search “and at the moment that’s all I can say”.
On the A$170m sale of Australian business Tradelink, Traber said Fletcher had tried to turn that business around for many years.
Asked about whether asset sales remained a plan in the longer term, Reding said the capital raise was “to allow us the time to be able to do a proper evaluation of our portfolio. I wouldn’t presume what the outcomes of that would be. It’s too early.”
The investor presentation said Fletcher’s priorities were:
The company is in a trading halt on the NZX and ASX due to the capital raise.
“The equity raise is being undertaken as a prudent measure to strengthen the company’s balance sheet and improve financial stability and resilience in the current challenging environment,” the company said.
It expects market conditions to eventually recover but an improved financial position would help it focus on operational performance, reduce pressure to sell assets and maintain its investment credit rating.
Fletcher plans to issue 292 million new shares. The institutional entitlement offer and placement has opened and is due to close tomorrow.
The trading halt is due to be lifted tomorrow.
The equity raise will be at a fixed price of $2.40 a share, 17% below Friday’s closing price on the NZX.
Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.
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