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28 February 2007
Lend Lease continues to build strong development, property funds management and construction pipeline
 | Diversified earnings base mitigates first half construction provision |
 | Interim dividend up 17% |
 | On track for strong full year result |
Lend Lease Corporation Limited (“Lend Lease”) has added A$6 billion in development opportunities to its Retail & Communities pipeline across Asia Pacific, the US and UK since June 2006.
At December 2006 Lend Lease had a total of A$10.2 billion funds under management (up 5% from June 2006) and a global construction Backlog Gross Profit Margin (“Backlog GPM”) of A$733.5 million (up 3% from June 2006).
The Company released these details today as part of its interim profit announcement for the six months to December 2006.
Net Operating Profit for the six months to December 2006 was A$163.5 million after tax compared to A$167.1 million after tax for the half year to December 2005. This result had already been flagged in a market briefing on 12 February 2007.
Statutory Profit for the six months to December 2006 was A$174.7 million after tax (A$176.6 million after tax – December 2005).
Lend Lease declared an interim dividend for the six months to December 2006 of 35 cents per share, which is 17% higher than for the corresponding six month period. This is 50% franked, which is at the top end of the range previously indicated to the market.
(1) The interim dividend is 50% franked, the interim dividend in the prior period was fully franked
As advised at the market briefing on 12 February, while the first half result was flat due to the A$118.8 million after tax provision against the UK construction operations, a skew of operating earnings to the second half is expected to keep Lend Lease on track to deliver strong profit growth for the full year to June 2007.
Lend Lease expects to achieve market consensus as recently reported on Bloomberg wire service (A$399 million net profit after tax) for the year to June 2007. Over and above this, Group earnings will include A$32.2 million after tax interest from the Australian Taxation Office (“ATO”) arising from a long-running tax dispute, following the Federal Court finding in favour of Lend Lease last December. While the ATO has informed Lend Lease that it is appealing, the Group is confident the Federal Court decision will be upheld.
Group Managing Director and CEO, Greg Clarke, said while the result for the six months was disappointing because it was significantly impacted by the UK construction provision, he remains confident in the full year outlook.
“The momentum that Lend Lease has achieved with its development pipeline and the overall health of its three core businesses augur well for the Group’s earnings outlook over the medium term.
“We divested around A$700 million in maturing and non-core investments and invested A$1.1 billion in new development pipeline projects such as the Somerset Central retail centre in Singapore and the Horizon City mixed use residential project in Denver, USA.
“At the same time, the Group’s current operations continued to generate strong cash flow,” Mr Clarke said.
Business Summary
Retail & Communities
The Retail & Communities business is on track for a good full year performance, with earnings skewed to the second half because of the timing of a number of transactions.
The global result for the six months to December 2006 was A$76.9 million after tax, compared to the corresponding six months to December 2005 of A$98.1 million after tax, which included profit from the sale of a major retail development asset.
Key profit contributions in the second half are expected from higher residential land settlements and further commercial transactions in the Australian Communities business; a number of Crosby projects completing in the second half; and development fees on a number of Actus military housing projects which are due to reach financial close.
Project Management, Construction & PFI
The Asia Pacific operations delivered a substantial increase to A$30.0 million profit after tax. The Americas operations were also up to A$30.1 million after tax. The combined UK/Europe construction result was a loss of A$89.2 million after tax following the provision taken against the UK operations, while the PFI operations in the UK delivered a A$17.5 million profit after tax.
Despite the loss in the first half, the global business completed the six months to December 2006 with an increased Backlog GPM of A$733.5 million, up 3% compared to June 2006. The business is expected to make a reduced but positive contribution to Group profit for the year to June 2007.
Investment Management
The Investment Management business delivered 46% growth to A$102.2 million profit after tax for the period while continuing to invest for growth, substantially increasing the size of its international funds management team and launching two new wholesale funds.
The major contributor to earnings was a better than expected distribution of A$33.2 million after tax from the Lend Lease Global Fund. The business also generated profit from the sale of its interest in the Generali Lend Lease funds management joint venture in Europe, which was no longer part of the investment management strategy.
Lend Lease raised approximately A$600 million in equity contributions from its investor base, including A$80 million of co-investments in new funds by the Group during the period.
Earnings for Investment Management are expected to be substantially higher in the second half, primarily due to further distributions from the Lend Lease Global Fund.
Group Financials
The Group maintained a strong balance sheet position, with its investment grade credit rating unchanged.
Gross debt to total tangible assets increased from 14.4% at June 2006 to 20.5% at December 2006. This was primarily because of the acquisition of the Somerset Central retail development in Singapore.
Interest coverage was 6.5 times at December 2006, above the Group’s target of a minimum of 6 times, and 86% of debt was at fixed rates with average maturity of 9.8 years.
The Company’s operations continued to generate strong positive cash flow of A$183.0 million for the period. Group CFO, Roger Burrows, said Lend Lease remained in an excellent financial position.
“With our strong cash position and comfortable interest coverage ratio, the Group clearly has ample capacity to continue growing its development pipeline,” Mr Burrows said.
“The Group is not reliant solely on gearing capacity to fund investment for growth. Lend Lease is actively focused on optimising the velocity of its capital, regularly recycling it from maturing and non-core investments into new opportunities.
“Profits generated from the recycling of capital contribute to earnings growth for our shareholders along the way, but not at the expense of reducing the Group’s invested capital base. While we invested A$1.1 billion of capital during the half, including A$533.3 million in the Somerset Central opportunity, we also divested A$700 million of investments during the period, including investments in Generali Lend Lease and distributions from the Lend Lease Global Fund. As a result, the Group’s invested capital base increased from A$4.1 billion at June 2006 to A$4.6 billion at December 2006.” Mr Burrows said.
Attachments
1. Highlights
2. Business Review
Financial Reports
Consolidated Financial Statement [pdf 381kb]
Five Year Profile [pdf 35kb]
Management Discussion Analysis [pdf 192kb]
Appendix 4d [pdf 25kb]
Directors' Report [pdf 100kb]
Portfolio Report [pdf 176kb]
Investor Briefing Presentation [pdf 1mb]media | stock exchange
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