“The sale of Fletcher Construction is a significant step forward in delivering that strategy, while continuing the work underway to simplify the portfolio, lower debt and improve shareholder returns,” he said.
Vinci Construction is a global leader in construction and part of the wider Vinci Group, with a presence in about 100 countries through 1300 business units.
The final price for the New Zealand business could rise to $334.1m, with up to $18.5m in additional payments dependent on the outcome of several key contracts currently under negotiation, Fletcher Building said.
However, Fletcher Building said it expected to take additional provisions of $55m-$65m for legacy construction claims that remain with the group, excluding any potential New Zealand International Convention Centre (NZICC) litigation.
Grant Swanepoel – director of equity research at Jarden – said the sale was not unexpected but dividend payments were still some way off.
“The cash only comes in in the [June 30] financial year 2027 anyway, and it will require a decent recovery into calendar year 2027 to be confident that they will get a dividend in 2027,” he said.
Post-sale, the company would be better placed to start paying dividends in the next 18 months or so, he said.
Swanepoel said Fletcher Building had shown over the past 15 years that it had not been able to manage construction contract risk very well.
“It [the sale] is something that we called for a couple of years ago, and it’s finally come to fruition.”
Going back some years, Fletcher Building had decided on a “revenue over risk” policy and had taken on too much of the latter, he said.
“As an investor, I would rather be invested in GIB board, quarries and cement – stuff that is low risk, higher margin and a great business model.”
The construction division made $52 million in earnings before interest and tax, excluding significant items, last financial year.
NZICC is one of a string of projects that have cost the company dearly.
Last June, a settlement was reached with the New Zealand Transport Agency (NZTA) on the Pūhoi to Warkworth motorway project, which was delayed.
The completed Warkworth to Puhoi expressway. (Image: Supplied)
Salt Funds managing director Matt Goodson said the sale would go a long way toward restoring Fletcher Building’s balance sheet before what is expected to be a better economy this year.
Construction, he said, is generally regarded as a “lower multiple” business.
“The price, when you look at the retentions for potential contract blowouts, looks to be roughly in line with where the market’s valuing it,” he said.
It was not clear if there would be any preferred arrangements between Vinci and Fletcher Building as a supplier of building products.
Goodson said the sum involved would take Fletcher Building’s debt back to almost within its targeted regions.
“And if we get a reasonable recovery in the economy then hopefully they can return to dividend paying.”
Fletcher Building had previously viewed construction as a path to market for all the products they produce.
“But obviously they had a series of disastrous contracts which have created all sorts of trouble for them,” Goodson said.
“But that risk has now been taken off the table.”
Fletcher Building’s share price has been firming since June last year, when it traded at $3 a share, based on expectations of an improved economy, trading today at $3.81.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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