Fletcher to return $300m windfall to shareholders, reinstating dividends

Fletcher Building chief executive Ross Taylor, talking today. Photo / Greg Bowker

Fletcher Building has announced it will return $300 million capital to its shareholders through a buyback scheme and it will reinstate dividends after the business sold two major assets.

In the best news released by the company for some time, investors are to get a windfall, after suffering no dividend payout when the business recorded losses of almost $1 billion in its B+I division from loss-making construction projects.

The company has just released the good news in its presentation, sent to the NZX, for today's investor briefing in Sydney, beginning this morning.

"Fletcher considers incremental capital is available to be distributed to shareholders through an on-market buyback of up to $300m," the presentation said.

"This form of shareholder distribution takes into account tax effectiveness for all shareholders and earnings per share accretion. The buyback is expected to commence following the FY19 results release. Dividend has been reinstated in FY19," the presentation said.

The company's fortunes changed when it sold its American-headquartered Formica and its roof tile business.

In a separate statement just issued, chief executive Ross Taylor said more.

"Fletcher Building is continuously assessing its balance sheet position and investment opportunities to drive shareholder returns," Taylor said.

After selling Formica for $1.2b "we have now considered a few key factors for allocation of the sale proceeds," the company's statement said.

"The company is well below its target leverage range and better than previously forecast. We have around $600m of debt that we will repay over the next 12 months. We have around $250m of cash outflows to complete the legacy B+I projects and we remain confident that these projects will be completed within the current provisions," it said.

"Based on these factors, we are in a position to distribute up to $300m to shareholders with the most effective method being an on-market share buyback."

The company also confirmed guidance for the June 2019 financial year of $620m to $650m EBIT.

Shane Solly of Harbour Asset Management said: "The market had expected dividends and a capital return. Really important for New Zealand Inc is the announcement they are returning to the vertical construction market.

"Their profit guidance range may see the market downgrade forecasts by $10m to $15m at the EBITDA line. It looks like Australia is weaker than expected, with New Zealand better but mainly due to land development which tends to be more volatile," Solly said in reaction to further details issued today.

This month, the Herald reported Forsyth Barr analyst Matt Henry saying that post the Formica sale, Fletcher would have about $1.7b of cash and only $550-850m of debt maturing in the following 24 months.

Fletcher's net debt to earnings before interest, tax, depreciation and amortisation will be down to about 0.5 times, well below its 1.5-2.5 times target, he said.

"Fletcher has substantial available subscribed capital and can tax-effectively return capital through an on-market buyback or an off-market repurchase," Henry said in a note.

Arie Dekker at Jarden (formerly FNZC) said this month a small capital distribution was possible.

But "we reiterate our expectation that the board will take a conservative approach with a focus on the capital programme, potential M&A ambitions, the cyclicality of earnings, remaining Building + Interiors risks and potential to re-gear through a sustainable progressive dividend".

The B+I unit of the construction division, which builds high-rise projects such as Commercial Bay and SkyCity convention centre, lost nearly $1b in the 18 months ended June last year, a figure that includes provisions on the yet-to-be-completed projects.