Fletcher Building looking to raise over $500m

Fletchers CEO Jonathan Ling

Construction giant Fletcher Building has announced plans to raise between $465 million and $505 million of new equity to reduce net debt.

The company also today confirmed previous guidance that net earnings before unusual items for the full year to June were expected to be towards the lower end of a range from $289m to $336m.

A preliminary assessment of balance sheet carrying values had indicated a potential impairment of certain assets of up to $150m may be needed at balance date, and a United States tax benefit of $50m would be written off, Fletcher said.

A focus on cash retention was being increased through a reduction in the final dividend.

Chief executive Jonathan Ling said the company's capital position was strong, but it was considered prudent to strengthen the balance sheet further and adopt a more conservative capital structure.

"This will ensure that the company remains well positioned for current market conditions and is able to access growth opportunities as markets recover," Ling said.

"There is also a need to ensure acceptable shareholder returns are maintained if reduced activity levels persist, and to this end we will be seeking to implement further restructuring and re-sizing initiatives across the business."

The equity is to be raised through an underwritten placement to institutions of $405m, a share purchase plan for New Zealand and Australian shareholders underwritten to $60m, and a top-up offer to eligible shareholders to a maximum of $20m.

The top-up offer would only be available if the share purchase plan was not fully subscribed to the amount of $100m.

Fletcher said it was also assessing initiatives to restructure and reduce manufacturing capacity through further rationalising business operations, to cost $25m to $45m, and streamlining manufacturing operations to improve efficiency and lower unit costs, with potential costs of up to $100m.

The placement was being conducted at a fixed price of $5.35 per share which represented a discount of 12.5 per cent to Fletcher's weighted average share price traded on the NZX yesterday. The placement was fully underwritten.

Under the share purchase plan, the subscription price would be the lower of the placement price or a 3 per cent discount to the average price of Fletcher Building shares over a set pricing period.

Fletcher said it now anticipated paying a final dividend of around 14c per share.

Since its half-year results were announced in mid-February, operating conditions in key markets had remained challenging and in some cases deteriorated further, the company said.

In this country, new residential dwelling consents were running about 1000 per month, tracking below the annual rate of 15,000 consents in the company's business plan base case. Commercial construction activity had continued to decline.

Those two factors were partially offset by continued strong level of infrastructure spending, which was expected to continue for some time, Fletcher said.

In Australia, non-residential construction activity continued to be weak, while new residential activity was going through a pronounced slow down.

But some Australian operations, notably the insulation and concrete pipes businesses, expected to benefit from a government fiscal stimulus package.

Fletcher Building shares are in a trading halt while the company carries out a book build.

- NZPA