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21 August 2008
Lend Lease announces full year profit
 | FY08 Net Operating Profit After Tax of A$447.1 million |
 | Statutory Profit After Tax reduced to A$265.4 million through: |
| - | Adjustment to Carrying Value of Inventory for UK Communities of A$121.5 million |
| - | Negative Property Investment Revaluations of A$60.2 million |
 | Dividend payout 69% of Net Operating Profit After Tax |
 | Full year FY08 dividend 77 cents per share, in line with the prior year |
 | Construction Backlog Gross Profit Margin of A$788.3 million, up 10% |
Lend Lease Corporation (“Lend Lease”) delivered a Net Operating Profit After Tax of A$447.1 million for the year ended 30 June 2008. This represents an increase of 8.1% from the FY07 comparative profit of A$413.7 million (excluding Australian Taxation Office interest received of A$32.2 million after tax).
The Group’s Statutory Profit After Tax of A$265.4 million was impacted by the previously announced reduction in property investment revaluations of A$60.2 million and writedown of the carrying value of Crosby Lend Lease inventory of A$121.5 million.
Lend Lease declared a final dividend of 34 cents per share, franked to 45%, bringing total dividends for the year to 77 cents per share, in line with the previous full year dividend. The full year dividend represents a payout ratio of 69% of Net Operating Profit After Tax.
| Profit After Tax | June 2008
A$m | June 2007
A$m |
Net Operating Profit After Tax
ATO Interest Received
Adjustment to Carrying Value of Inventory
Property Investment Revaluations | 447.1
(121.5)
(60.2) | 413.7
32.2
51.6 |
| STATUTORY PROFIT AFTER TAX | 265.4 | 497.5 |
| | |
Full Year Dividend (1)
Earnings Per Share (2) on Operating Profit | 77.0 cps
111.5 cps | 77.0 cps
111.4 cps |
(1) The final dividend is 45% franked; the interim dividend for the period ended 31 December 2007 was 40% franked
(2) EPS is calculated based on operating profit after tax and weighted average number of shares including treasury shares.
Managing Director and Chief Executive Officer Mr Greg Clarke, said: “We have delivered a solid operating result, strong operating cashflows and continue to have low gearing in the face of continuing volatility in the global credit and property markets. This highlights the strength of our diversified portfolio and conservative approach to capital management.
“The Project Management and Construction business, Bovis Lend Lease, performed strongly, returning to profit in all key markets. In particular, the Australian business delivered a record amount of new work secured of A$350.5 million, up 115% on the prior year.
“The Public Private Partnerships businesses performed well, with our US operations, Actus Lend Lease, reaching financial close on six projects and being named preferred bidder on another project.
“Investment Management continued to contribute to the Group through the recycling of capital, with the sale of a proportion of its interest in the Lend Lease managed Australian Prime Property Fund (“APPF”) for a profit after tax of A$40.1 million.
“As highlighted earlier this month, the Retail and Communities businesses continue to face strong headwinds, especially in the UK. As a result we took the prudent step to writedown the carrying value of Crosby Lend Lease inventory by A$121.5 million and the Group recorded a reduction in property investment revaluations of A$60.2 million after tax principally due to continued expansion of capitalisation rates on our retail assets in the UK. The Australian business is well positioned and continues to perform in spite of the continuing slow market conditions,” Mr Clarke said.
Outlook
Commenting on the outlook for the Group, Mr Clarke said: “We expect the current property market volatility to remain for the foreseeable future with the timing of recovery in property markets in the US and UK dependent on the recovery of liquidity in the financial markets. The US and UK residential markets continue to suffer from lack of liquidity and inventory overhang. In comparison, the Australian market is stronger and, while slowing, should not see the same level of impact.
“Lend Lease is in a solid position, because of its diversified earnings business model and financial strength, to manage its way through these market headwinds. Our strong positive cashflow, combined with capital recycling, has provided cash on hand of A$842.8 million, allowing us to continue to fund our investment pipeline while exploring growth opportunities.
In the current market our priority is to manage our business efficiently, while continuing to build a portfolio of superior long term property projects to ensure we will be in a leading position when the market recovers.
“We remain committed to our conservative approach with low levels of debt and positive cash flows and continue to invest in long term projects to build lasting shareholder value,” he said.
Group Financials
Lend Lease maintained its strong financial position at 30 June 2008 with significant capacity to fund growth opportunities. Gross borrowings to total tangible assets stood at 14.4% and interest coverage was 7.2 times, comfortably in excess of the Group’s internal target of a minimum 6 times. Eighty four per cent of the Group’s debt is at fixed rates with long term maturity.
Annuity style earnings from property assets and funds under management represented 28% of EBITDA, well above the target of 15-20% which supports the Group’s investment grade credit rating.
At 30 June 2008, Lend Lease had approximately A$800 million in undrawn facilities and A$842.8 million in cash on hand.
Group Highlights
Retail
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 | Strong development pipeline across UK and Asia Pacific of A$4.8 billion; |
 | Like for like Net Operating Income growth (excluding developments) of 5%+ across Asia Pacific managed centres; |
 | Property investment valuations declined in the UK, due to expansion of capitalisation rates; |
 | Acquisition of Craigieburn, a greenfield mixed use development in Victoria; |
 | Construction commenced on two major projects in Asia Pacific; the 313@Somerset project in Singapore and Mid City in Sydney’s Central Business District; and |
 | The UK business continued to invest in its retail pipeline which consists of a concentration of mixed used retail schemes, such as Preston. |
Communities
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 | Continued strong deal flow in Asia Pacific, with the award of Gawler and Blakeview adding 4,350 lots to unzoned backlog; |
 | A 23% increase in settlements in Asia Pacific due to improved conditions in Queensland, Victoria and South Australia; |
 | Market conditions remain challenging in the UK residential market; |
 | Signed interim development management agreement with Olympic Delivery Authority (“ODA”) on Athletes Village, Stratford; and |
 | No material earnings exposure to US residential markets. |
The Australian Communities businesses secured a number of key projects during the year, including the 64,000 square metre Darling Walk project in Sydney, adding significantly to the development pipeline. Additionally, Lend Lease extended its retirement village portfolio with the A$17.0 million acquisition of Lutanda Manor retirement village at Pennant Hills, Sydney.
As reported earlier this month, the Group took a prudent step in writing down the carrying value of inventory for its UK Communities business, Crosby Lend Lease, in light of the continuing challenging conditions in this market. Our pipeline of UK based quality residential projects remains very sound. Elephant & Castle, Greenwich Peninsula and Stratford are each progressing through various stages of the development process, and we continue to invest in these projects to deliver long term shareholder value.
The US Communities projects continue to progress through planning phases, with Lowry Range being included in the Denver Regional Council of Government’s Urban Growth Boundary.
Public Private Partnerships
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 | Actus Lend Lease reached financial close on six projects and was announced preferred bidder on another; and |
 | The UK PPP business closed Lancashire Schools Phase 2 during the year. |
In the US, Actus Lend Lease increased the number of units under management by 5.5% to 44,750 and, coupled with strong occupancy levels across the portfolio, has delivered another strong result.
The UK PPP business, Catalyst Lend Lease, increased its foothold in the UK Government’s Building Schools for the Future (“BSF”) initiative with the financial close of Phase 2 of Lancashire Schools, and has been short listed as one of two remaining bidders for both Birmingham and Salford BSF projects.
Investment Management
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 | Performed well with continued strong fund performance for institutional investors; |
 | Increase in income in Asia Pacific, primarily as a result of the sale of a proportion of the Group’s investment in APPF; |
 | Continued investment in our Singapore platform to support the opportunities in this market; |
 | UK market push has slowed as a result of poor market conditions; and |
 | Funds Management business continues to enjoy strong support from its wholesale investor base, with a new managed investment mandate secured at the end of 2007. |
The Lend Lease Investment Management business has a quality platform that is focused on delivering for investors and driving value for Lend Lease shareholders through our integrated business model.
Project Management and Construction
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 | The Asia Pacific business delivered an increase in profit after tax of 26% reflecting the strong market conditions and successful completion of a number of projects across Australia; |
 | Delivered a strong result, with Bovis Lend Lease delivering improved performance across all markets; |
 | Backlog GPM growth of 10% to A$788.3 million as at 30 June 2008; and |
 | The Australian business delivered record growth in new work secured which was up 115% on the prior year. |
The European market performed strongly, but the result was still impacted by the workout of the UK projects where a provision was taken in December 2006.
Further information:
Sally Cameron
Lend Lease Corporation
Tel: 02 9236 6464
Financial Reports:
Consolidated Financial Statement [pdf - 1.56mb]
Five Year Profile [pdf - 103kb]
Management Discussion & Analysis [pdf - 1.34mb]
Segment Results [pdf - 424kb]
Portfolio Report [pdf - 206kb]
Appendix 4e [pdf - 75kb]
Directors' Report [pdf - 938kb]
Market Briefing Presentation
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