Profits: Lend Lease Cuts Dividend/UGL Increases Payout

Lend Lease has lopped interim dividend from 20 to 16 cents, a slash of 25% after a small fall in earnings for the period to December 31.

That was after a near 4% drop in first half earnings and caution about trading conditions for the remainder of its financial year.

Analysts said the reduced dividend could be a sign the company saw the need to preserve capital for new developments, such as the Barangaroo project in Sydney.

Lend Lease yesterday said net profit fell 3.8% to $217.8 million in the six months to December 31, from $226.5 million in the previous corresponding period.

The group blamed the fall partly on negative property investment revaluations of $3.0 million after tax.

Investors shrugged off the lower payout and marked the shares up 2c at $7.31.

Chief executive Steve McCann said earnings in the 2012 financial year were expected to see continued accretion from the group's infrastructure business.

However, the group was cautious about the medium-term outlook given the uncertainty in global markets resulting from the debt crisis facing Europe and the potential impact that could have on funding availability and project timings, he said.

The Group has clear priorities and is focused on the delivery of its major projects, integrating the infrastructure business into the Australian region, optimising its portfolio mix and positioning the Group's offshore businesses for market recovery.

"During the six months ended 31 December 2011, the Group made significant progress implementing its strategy including the commencement of construction at Barangaroo South in Sydney and RNA Showgrounds in Brisbane, and the integration of the infrastructure business in Australia.

"In addition, the Group realised over A$780 million cash from recycling major assets, including the sale of King of Prussia, which will be reinvested in the Group's significant pipeline", said Mr McCann.

"In Australia, the engineering construction market remains attractive and Lend Lease has a strong internal pipeline which will help offset the low levels of activity in the non-residential building sector," Mr McCann said in a statement on Monday.

"Consumer sentiment continues to negatively impact the residential market in Australia with lengthening of time between inquiry and conversion."

Mr McCann said the outlook was more positive in Asia for its project management and construction businesses and there were signs of a recovery in the US economy.

"The group's significant backlog, development pipeline and access to capital provide a strong platform for future earnings," Mr McCann said.

"We will continue to focus on the successful delivery and execution of our pipeline, drive operational excellence and focus on portfolio management."

Operating profit at Lend Lease's Australian businesses rose 51.5% to $207.1 million in the first half, thanks to the acquisition of the Valemus group (Baulderstone and Abigroup) which produced better profits from construction and infrastructure businesses. Trading profit at the group's Asian arm jumped 82.3% to $28.8 million.

But as expected the businesses in Europe and the US saw weak earnings performance in the half year.

The European business suffered a 55% slide in operating profit to $43 million, while in the US it fell 37.4% to $18.1 million.

Lend Lease said it was in "a strong liquidity position with cash reserves of A$1,251.2 million and undrawn committed bank facilities of A$1,205.3 million.

"The average maturity of the Group's drawn debt facilities is 5.1 years and the Group's interest coverage of 6.5 times (operating EBITDA plus interest income divided by interest costs, including capitalised finance costs) significantly exceeds the Group's targets.

Group Chief Financial Officer, Tony Lombardo said "the Group is in a position of financial strength with over A$2.4 billion of available liquidity, low gearing of 3.4% (net debt to total tangible assets, less cash) and an investment grade credit rating with both Standard & Poors (BBB-) and Moody's (Baa3) with a stable outlook from both agencies."

Engineering firm UGL has reported a 15% fall in first-half profit due to acquisition costs but it says it is on track to deliver a 5% cent rise in full-year underlying profit.

UGL on Monday said net profit in the six months to December 31 was $55.4 million, down from $65 million in the prior corresponding period.

Most of the fall was due to $16.8 million in transaction costs associated with UGL's acquisition of UK property firm DTZ, the company said.

But excluding those costs, as UGL management did in yesterday's announcement, produced a 6% rise in underlying profit to $72.2 million, from $68.1 million in the previous corresponding period.

"The Board believes that underlying NPAT and underlying EPS provide a more accurate reflection of operating performance as the adjustments reflect costs incurred by the business which are associated with business acquisitions," UGL said yesterday.

Operating revenue rose 5% to $2.4 billion (HY11: $2.3 billion) and underlying earnings before interest and tax (EBIT) was up 5% to $110.3 million (HY11: $104.6 million) on the previous corresponding period.

UGL said it had secured over $3.4 billion in new contract wins and extensions increasing the order book to a record $9.5 billion as at 31 December 2011.

UGL CEO, Richard Leupen, said in the statement: "We are pleased to deliver another period of solid earnings growth which is testament to our diversified business model and the significant proportion of long term recurring maintenance style contracts which make up our order book.

Mr Leupen said the company was on its way to achieving a five per cent rise in underlying profit for the full financial year.

UGL declared a fully-franked interim dividend of 34 cents per share, up 6% on the previous first half payout.

The shares rose 32c to $13.46, a gain of 2.4%.