Fletcher flags $300 mln share buyback, uses Formica funds to cut debt
By Paul McBeth
June 26 (BusinessDesk) - Fletcher Building plans to buy back as much as $300 million of stock, with the bulk of the billion-dollar Formica sale proceeds being used to cut debt.
The country's biggest listed construction firm is hosting investors in Sydney today and has outlined its plans for the $1.24 billion it pocketed from the sale of its Roof Tile Group and Formica units.
Fletcher plans to repay an additional $600-$650 million of debt during the coming financial year, leaving it with $1.1-$1.12 billion of drawn debt in June 2020. That's expected to cut its interest bill to $80-$90 million for the June 2020 year, from $130 million in the current period, according to presentation slides for today's meeting.
Another $240-$250 million of those proceeds will go towards Fletcher's troubled projects in the Building + Interiors unit. The vertical construction division has been an albatross around Fletcher's neck during the past couple of years, with cost overruns leading to almost $1 billion of losses over an 18-month period.
Chief executive Ross Taylor said he's confident the remaining B+I work will be completed within Fletcher's current provisioning, and well below its target leverage range.
"Based on these factors, we are in a position to distribute up to $300 million to shareholders, with the most effective method being an on-market share buyback," he said in a statement.
At yesterday's share price of $5.33, that would be about 56.3 million shares or about 6.6 percent of the company's total stock.
The buyback won't start until after Fletcher announces its annual earnings on Aug. 21.
The company affirmed guidance for earnings before interest and tax of $620-$650 million in the year ending June 30, down from $710 million a year earlier. That forecast excludes a $145 million loss on the sales of Formica and Roof Tile Group and $100 million of restructuring charges.
Fletcher trimmed the top-end of its guidance earlier this month on the early settlement of the Formica sale.
The company expects softer market conditions in New Zealand and a contracting residential market in Australia for the 2020 financial year. It anticipates modest profit growth across the Tasman and is set to resume bidding in New Zealand vertical construction.