New Zealand based construction and building products group, Fletcher Building has joined Tabcorp in making its final dividend dependant on the attitude of its bankers.
While Tabcorp has decided not to pay a final dividend for 2019-10 in exchange for the bankers relaxing debt covenants or tests at June 30 and December 31, Fletcher has given itself the leeway to the decision on the payout being made, subject to actual trading conditions at the time.
In a statement to the ASX and NZX yesterday Fletcher said it had reached agreement with its banks on amendments to its banking agreements which will enable it “to rely on more favourable terms for covenant testing through to the end of 2021 if required.
CEO Ross Taylor said that given the impact COVID-19 was likely to have on the New Zealand and Australian markets, the Company was taking pre-emptive steps to reinforce its resilience for the medium-term.
The Company has agreed that, should it need to rely on the more favourable covenant levels, it will not pay a dividend until it returns to compliance with, and agrees to be tested by, its normal covenant levels.
In considering its decision on the FY20 dividend in August, the Board will have regard to the impact of COVID-19, the trading environment and outlook, as well as the terms of these amendment agreements.
Mr. Taylor confirmed that the Company expects to be in compliance with its normal covenant levels at June 2020.
So this looks like Fletcher might be able to pay a dividend, but that will be subject to the board’s assessment of the outlook for the building and construction sectors in the next year. That remains problematic.
Mr Taylor said Fletcher “ as a robust balance sheet position” at the moment with around $NZ1.5 billion in liquidity and a leverage ratio of around 0.8 times, below the Group’s target range of 1.0-2.0 times.
“We believe our current balance sheet sets us up well for the period ahead. That said we are also taking steps beyond this to ensure we will be well placed to negotiate the uncertain trading environment ahead, these include the reset of our cost base announced in May, and now the agreements we have reached with our lenders providing additional headroom on our lending covenants should we need it.
Fletcher shares rose 1% to $3.78 on the ASX yesterday.
