It’s been a strange year for Greg Clarke and his band of followers at the highly self-sufficient property group Lend Lease.
Lend Lease kept investors more than happy announcing a final dividend of 31 cents per share fully franked, bringing total dividends for the 2006 financial year to 61 cents per share compared to 57 cents per share for the year to June 2005.
Clarke said the result underscored the value of being an international, diversified property group.
“Our focus on the retail and communities property sectors, together with construction management and investment management continues to deliver steady earnings growth,” Clarke said.
The Retail & Communities business delivered a 78% increase in operating profit to $167.5 million after tax, compared with $94 million for 2005.
“We saw good contributions from each of the regional operations in that business and the Group’s retail investments also performed very strongly,” Clarke said.
As expected, profit contributed by the Project Management, Construction & PFI business was flat compared to 2005 at $A134.6 million after tax. This was as a result of provisions against projects in the UK operations in the first half, offset by a strong second half and good performances in the US and Asia Pacific.
“We have not changed our view for overall flat global earnings from Construction & PFI from 2005 to 2007, as the UK operations need time to regain the earnings momentum interrupted by the provisions in the first half of the 2006 year,” Clarke said.
The Investment Management business saw growth in profit after tax of 11% for the year to June 2006. The $205 million Lend Lease Core Plus Fund was launched during the year and the Group’s flagship Australian wholesale fund, APPF Retail, maintained its market-leading returns, with Lend Lease earning performance incentive fees.
“We are confident about the prospects for the Investment Management business and its contribution to our overall strategy,” Clarke added.
“Shareholders can expect to see Lend Lease regularly sell down maturing investments, take profits and reinvest the capital released to grow the Company’s invested capital base as we achieve more synergies across the three businesses.”
Chief financial officer, Roger Burrows added that Lend Lease had continued to improve against key shareholder return criteria during the year.
“Earnings per share grew 24% to 88.7 cents. Operating cashflow was also very strong at $A660 million for the year and our interest cover, at 7.8 times, remains comfortably above our minimum target of 6 times interest expense”, Burrows said.
“In line with its strategy, the Group realised $A2 billion of capital, including the sale of the Chapelfield, Norwich retail centre. We reinvested $A2.5 billion principally in new and existing Retail & Communities operations such as Crosby Homes and the Chelmsford redevelopment. The reinvestment programme also included co-investments in APPF Retail and the new Core Plus Fund.
“Notwithstanding the significant investment activity during the year, gross borrowing at 30 June 2006 was only 14.4% of tangible assets, providing the Group with substantial capacity to invest in future opportunities,” Burrows said.
Given the proportion of earnings from overseas operations, Lend Lease expects dividends for the 2007 financial year to be between 30 and 50% franked.
Lend Lease said Retail & Communities business continued to build a very strong pipeline of retail development projects with a backlog of more than 93,000 residential sales lots in Asia Pacific and the UK and a further 27,700 residential units in its US military housing privatisation projects at June 2006.
Its Project Management, Construction & PFI business has maintained a healthy Backlog Gross Profit Margin of $710 million at June 2006, which should underpin a return to earnings growth in the 2008 financial year.
And, its investment management platform in Australia now offers a suite of wholesale funds across the risk return spectrum. Internationally, over the medium term the Group will invest in developing its funds management platform in the UK and South East Asia to build its earnings base and deliver further synergies with the Group’s other businesses.
“In terms of outlook, while there is increased uncertainty concerning the interest rate environment and the global economic impact of continued high oil prices, the fundamentals for the Company’s core businesses and chosen market sectors are still strong,” Clarke added.
“Notwithstanding these uncertainties, Lend Lease remains well positioned to achieve earnings growth from operations over the short to medium term.”
By Nelson Yap and Adam Parsons
