Long suffering shareholders of struggling building giant Fletcher Building have received an early Christmas present with news that their company is to reinstate dividend payments next year.
This follows announcement on Tuesday that the planned sale of Formica Group is going ahead for a sale price of US$840 million (NZ$1.226 billion).
The sale, to Dutch investment and holding company Broadview Holding, is subject to various conditions, including regulatory approvals.
Fletcher says dividends, halted after a series of monster writedowns on major projects, will recommence with an interim dividend to be declared upon finalisation of the Company’s half-year results on 20 February 2019.
The news of the sale - and perhaps more importantly, reinstatement of dividends, is something of a boost for Fletcher Building CEO Ross Taylor, who while still quite new in the job, did cop some flak recently for a fairly downbeat forecast of the profit for this financial year.
He said the divestment of Formica completed the company's strategy to exit non-core businesses having already completed the sale of Roof Tile Group in November 2018.
"Our five year strategy is to refocus Fletcher Building’s capital and capability behind our New Zealand and Australian businesses, with building products and distribution at our core.
“We are pleased to have signed the sale agreement in line with our target timing, and to have achieved a strong valuation for the business. We believe Broadview is a natural owner of Formica, being a leading player in the laminates industry. We are confident that the regulatory process required to complete the sale will go smoothly, and on that basis expect the sale to be completed by the end of FY19.”
Commenting on the intended use of the sale proceeds, Taylor said it was important to first complete the sale, and that Fletcher "would continue to take a prudent approach to management of its balance sheet".
The decision to reinstate the dividend was based on the Fletcher Building board’s confidence in the company’s "trajectory" and return to profitability in FY19.
"The Board will size the dividend prudently, having regard to the ongoing capital requirements of the Company. Given the expected settlement timing of the Formica sale, the FY19 dividend is likely to be weighted towards the final dividend."
The sale proceeds from the Formica transaction will be subject to certain deductions, including pension liabilities and other debt-like items retained in the business, and transaction costs. These items are expected to total approximately US$70 million (NZ$102 million). Formica will be classified as “held for sale” and subject to an impairment test in the Fletcher Building HY19 accounts.
The regulatory approvals required for the transaction relate to the competition regimes in a number of the countries where Formica operates.