Fletcher to maintain credit lines 'for rainy day', keeps eye out for distribution assets

Thursday 18th February 2016

Fletcher Building, which has about $600 million in undrawn credit lines and cash, plans to maintain its debt facilities for a "rainy day" and to give it more flexibility to acquire new businesses, says chief executive Mark Adamson.

The listed building supplies and construction group had about $2.3 billion of debt and credit facilities stretching out to 2027 as at Dec. 31, of which it had drawn $1.9 billion. Currently 2017 is the year it faces the biggest maturity, at $372 million. The company was also holding $221 million of cash.

"Every year we roll over our debt - it was imperative to get a lot of debt around the time of the global financial crisis," Adamson said. "A lot of that is coming off now and we can get it more cheaply. I think initially we will keep those lines of credit for a rainy day like another GFC, but it also gives us a greater degree of flexibility over what we do with our business portfolio."

The average interest rate on the debt is 5.3 percent, with 44 percent in Australian dollars and 36 percent in kiwi dollars.

Adamson said his focus is on extracting more value from existing assets and for Fletcher, M&A in the past has been "extremely distracting and can be value-destructive." But the company sees the distribution business as a core skill and is keeping potential targets on its radar, he said. Having access to capital means the company can look at assets "on the downside, when everyone else is running."

Its latest two deals were the acquisition of Higgins Group Holdings, New Zealand’s third-largest road construction and maintenance company, for $315 million, a deal announced this month that will settle at the end of June.

It is also forming a joint venture with National Aluminium, or Nalco, folding its aluminium assets into the JV and closing its own manufacturing plant in Auckland within 18 months. That partnership was "a manufacturing strategy play", with a reduced footprint of factories but with a "dramatically improved" factory in Hamilton with equipment imported from Europe and using patented "easy-fit" technology for making windows and doors.

Fletcher's contribution to the Hamilton plant is about $6 million and the value of its stake will be about $45 million to $50 million on day one, the company said yesterday.

Adamson described the Higgins acquisition as "a courtship", saying he "courted my wife for a lot less time than I did this company." It was a two-year process to persuade the family owners to sell a business he describes as "a top-line synergy play, not really a cost play", which would help lift Fletcher's exposure to sectors such as ports and may drive expansion into markets such as Papua New Guinea.

Fletcher is booking an $85 million profit on the sale of Rocla Quarries assets in the current year. The company has been shedding under-performing assets to focus on sectors where it was dominant or had a competitive advantage. Fletcher has about 30 major business assets and has no plans to sell those, Adamson said yesterday. Below them were another 30-to-40 assets, and it was possible some of them would be sold, he said.

The company reported net profit of $172 million for the first half, meeting analyst expectations, on a 2 percent gain in revenue to $4.4 billion. It also affirmed guidance for full-year earnings before interest, tax and significant items of $650 million to $690 million, from $653 million last year, excluding the Rocla gain.

BusinessDesk.co.nz

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