Auckland-based building products and builder, Fletcher Building is the latest company looking for much needed cash via a bookbuild and issue to shareholders.
FBU shares went into a trading halt yesterday while the company conducts a capital raising seeking between $NZ465 million-$NZ505 million ($A385.3 million-$A418.4 million).
Final dividend is being cut to save cash and assets are being written down in value.
The placement is being conducted at a fixed price of $NZ5.35 per share which represents a discount of 12.5% to Fletcher Building’s weighted average share price traded on the NZX on March 31 of $NZ6.20 a share.
The company said it was looking to cut costs, write down asset values at June 30 and confirmed that full year earnings will be at the lower end of forecasts, assuming no further worsening in economic conditions.
The funds raising, restructuring, cost cuts, asset write-downs and commentary from the company could have come from any one of a number of other groups, large and small in the past six to eight months in Australia and New Zealand.
Fletcher forecast a potential impairment "of certain assets of up to $NZ150 million" ($A124.29 million) by balance date, June 30.
In its statement to exchanges on both sides of the Tasman, the company didn’t elaborate. The company also said that it also would write off a US tax benefit of $NZ50 million.
The company said that it would restructure its business and reduce manufacturing capacity, at a cost of up to $NZ145 million.
Most of that will be taken against the Formica group which was acquired in 2007, just before the credit crunch erupted in August of that year.
Of NZ$100 million earmarked to close old plants, NZ$75 million is for Formica, as is about NZ$140 million of NZ$150 million of asset write-downs expected across the business.
And weaker sales in America means benefits from NZ$50 million of tax losses related to the Formica purchase will also be “significantly delayed,” so FBU has written them off.
Formica cost FBU $US700 million, so the cost now has around $US200 million added to it, making it a very expensive deal.
In the update, the company confirmed earlier guidance at its first half announcement that net earnings before unusual items for the full year were expected to be "towards the lower end of the analysts’ consensus range at that time of NZ$289 million to NZ$336 million, assuming there is no significant further deterioration in trading conditions from those experienced in the year-to-date".
Fletcher also said that "operating conditions in key markets have remained challenging and in some cases have deteriorated further" since the first half announcement, in mid-February.
"Fletcher Building has decided to implement these steps to further strengthen its financial position through debt reduction, increase its financial flexibility and restructure its operations to improve performance," the company said in the statement to the exchanges.
"Mr Jonathan Ling, Chief Executive Officer said “While Fletcher Building’s capital position is strong, the board and management consider that it is prudent to strengthen the balance sheet further and pro-actively 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.
"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”.
FBU said that New Zealand new residential dwelling consents have been running at approximately 1,000 per month, thereby tracking below the annual rate of 15,000 consents in the Company’s business plan base case," Fletcher said in a statement.
"Commercial construction activity has continued to decline.
"These two factors are partially offset by the continued strong level of infrastructure expenditure and, on the basis of recent government announcements, this is expected to continue for some time.
"In Australia, non-residential construction activity continues to be weak," Fletcher said.
"New residential activity is experiencing a pronounced slow down, resulting in lower volumes, particularly in the laminates and panels segment.
"However, other Australian operations (notably the insulation and concrete pipes businesses) expect to benefit from the government’s fiscal stimulus package.
Fletcher said housing affordability in Australia and NZ, had improved through lower property prices and interest rates, but this was being offset by rising unemployment and stricter residential mortgage lending criteria.
"Government initiatives to encourage economic growth through broad fiscal stimulus and schemes targeting housing and infrastructure markets are expected to help lift activity in the medium term," Fletcher said.
"Nevertheless, the short term outlook remains uncertain."
Fletcher is seeking between $NZ465 million ($A385.3 million) and $NZ505 million ($A418.44 million) of new equity through an underwritten share placement with institutions of $NZ405 million ($A335.58 million), a share purchase plan for NZ and Australian shareholders underwritten to $NZ60 million ($A49.72 million), and a top-up offer to eligible shareholders to $NZ20 million ($A16.57 million).
