Lendlease Group · ASX:LLC
Lendlease — Investor Presentation (July 2005)
31 slides from Lendlease's investor presentation, Jul 25, 2005
Slide 1: Stock Exchange Announcement: Lend Lease Accounting Changes under AIFRS
25 July 2005 The Manager The Manager Companies Section Companies Section Australian Stock Exchange Limited New Zealand Stock Exchange Limited Pages: Thirty-one (31) pages Dear Sir STOCK EXCHANGE ANNOUNCEMENT LEND LEASE ACCOUNTING CHANGES UNDER AIFRS MARKET | ae Lend Lease CORPORATION Lend Lease Corp
Slide 2: Media Statement: Lend Lease Ready to Implement AIFRS
ee ee Lend Lease CORPORATION MEDIA STATEMENT 25 JULY 2005 LEND LEASE READY TO IMPLEMENT AIFRS — NO MATERIAL IMPACT ON GROUP - In a market briefing today, Lend Lease Corporation Limited (“Lend Lease”) said that while transitioning of its financial reporting to new international accounting standards i
Slide 3: Media statement continued: effects on net assets and earnings
Mr Burrows said while there were many individual changes required, cumulatively they would result in: A slight reduction in Group net assets from A$2.8 billion to A$2.7 billion An increase in reported earnings because of the removal of amortisation charges on goodwill « ©The potential for some volat
Slide 4: Lend Lease
a Lend Leas
Slide 5: Disclaimer
The information provided in this presentation is our current best estimate of the consequences for Lend Lease Corporation of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) and has not been independently verified or audited. Consequently, the information provid
Slide 6: Overview
Overview Key Impacts Comments on Individual Components Transition Adjustments Reconciliation of December 2004 Income Statement Pro forma AIFRS Income Statement & Balance Sheet based on December 2004 Results Summary Q&A
Slide 7: Does not materially impact Group management decisions
Does not materially impact Group management decisions AIFRS will not affect net cash flow, ability to borrow funds, or dividend capacity Lend Lease will continue its current policy of paying dividends in a range of between 60% to 80% of operating profits after adjusting for unrealised changes in the
Slide 8: First-time Adoption of AIFRS
First-time Adoption of AIFRS Share Based Paymel AASB 124 9] AASB 127 UIG 112 Related Party Disclosures Consolidated and Separate Financial Statements Business Combinations Consolidation — Special Purpose Entities Insurance Contracts AASB 128 Investments in Associates Non-current Assets Held for Sale
Slide 9: Key impacts
Revenue recognition for the development businesses Intangible Assets Defined benefit plans (DBPs) Consolidation of Lend Lease sponsored share plan vehicles Investments Vv Vv VV VY WV Financial instruments (Hedge Accounting)
Slide 10: Revenue recognition: change of control of asset
> Profit will be recognised at time of change of control of asset rather than at % of project complete / contract exchange Business Effect of Change Delfin Lend Lease Not material Lend Lease Development Mainly affects treatment of higher density projects such as Jacksons Landing and Dock 5 Senior Li
Slide 11: Inventory revenue recognition criteria
> Inventory revenue recognition criteria — Revenue will be recognised for all development properties when «The significant risks and rewards of ownership transfer «Lend Lease transfers control of the asset and retains no continuing managerial involvement, and «The revenues and costs can be measured
Slide 12: Transition impact on development projects
> Change — Reverse some sales that were taken to income at June 2004 against retained earnings — Creates a timing issue between AGAAP and AIFRS at December 2004 > Financial impact (before tax) Transition Impact June 04 Dec 04 Agm A$m Lend Lease Development projects (13.3) 8.4 Delfin projects (1.5 (5
Slide 13: Senior Living properties
> Senior Living properties - Deemed to have continuing managerial involvement in most leasehold arrangements and some strata title (where there is a large sharing of a capital gain) — Atcompletion of development phase, the completed inventory will be reclassified as investment property and recorded
Slide 14: Indicative AIFRS impact by project group
I I Project Group D —— Project Group C — Project Group B — Project Group A —> Approx (3.0) Approx (5.0) Approx (2.0) AIFRS impact A$m after tax () FY04 FY05 FY06 FY07 () Indicative impact only based on current expectations "1
Slide 15: Crosby pre-sold units and earnings accretion
Pre-sold units marked to market on balance sheet post acquisition Minor earnings accretion in FY06 post AIFRS adjustments and funding costs Less significant AIFRS adjustment on FY07 earnings Full earnings accretion post FY07 Gross profit margin secured 2005 / 06 2006 ! 07 m Exchanged © Reserved © Av
Slide 16: Gross profit margin recognised under AIFRS
% Gross Profit Margin Recognised Under AIFRS 100% 2005 / 06 2006 / 07 2007 / 08 13
Slide 17: Goodwill and management agreements
> Goodwill - Goodwill is not amortised, but tested for impairment on a periodic basis (A$20.3m increase in earnings to December 2004) ~ Impairment test more onerous than AGAAP - Tighter requirements on booking restructuring provisions ~ No impairments identified on transition to AIFRS > Management A
Slide 18: Defined benefit plans
> AIFRS requires net assets or liabilities to be recognised on balance sheet >» Lend Lease has two defined benefit plans which will be recognised on transition A$m at June 2004 Lend Lease Australian Superannuation Fund in surplus 25.5 Bovis UK Pension Scheme in deficit (199.2) (173.7) ~ Booked to re
Slide 19: Actuarial gains and losses
> Actuarial gains and losses - Are experience adjustments such as = — Expected future salary increases = Demographic assumptions (mortality rates, turnover) - Are only recognised in the income statement if the cumulative unrecognised actuarial gains and losses at the end of the previous financial re
Slide 20: Defined benefit plan annual contributions and expenses
Annual contributions are subject to actuarial assessment and comprise — Current service costs — Interest costs ~ Expected return of plan assets ~ Actuarial gains / losses (if applicable), and - Curtailments or settlements Increase in net expenses after tax to December 2004 A$Sm Lend Lease Superannua
Slide 21: Consolidation of share plan vehicles
Amendments made to standards in December 2004 require entities to consider whether employee benefit vehicles and share plans require consolidation Lend Lease does not control any of its employee benefit vehicles Under AGAAP, Lend Lease is not required to consolidate plans Under AIFRS, Lend Lease is
Slide 22: Investments: accounting treatment examples
Examples King of Prussia Overgate Senior Living properties APPF APIC Global Fund LL Retail Partnership Other co-investments Accounting treatment | Mark to market to P&L Mark to market to P&L Mark to market to Equity (fair value reserve) Note: Bluewater is classified as Inventory and will not be mark
Slide 23: Fair value model for investment properties
Will elect fair value model Only applies to property held directly or through equity accounted investments Impacts Senior Living properties, King of Prussia and The Overgate Partnership Increase in book value on transition to AIFRS (at 1 July 2004) King of Prussia The Overgate Partnership Senior Liv
Slide 24: Financial Instruments
> Financial Instruments Effective 1 July 2005 for Lend Lease Transitional election made not to restate comparatives > Financial Assets Relates to all other investments Classified as “available for sale” under the standard Held at cost to June 2005 Any foreign exchange downside booked to the income s
Slide 25: Foreign currency and interest rate risks
> Foreign currency and interest rate risks Derivative instruments principally = Interest rate swaps = Foreign exchange contracts = Cross currency Swaps No change to interest rate risk management policies under AIFRS Current foreign currency hedging applicable for FY06 » Appropriate hedge documentati
Slide 26: Retained earnings reconciliation AGAAP to AIFRS
Retained earnings as at June 2004 under AGAAP 1,915.5 AIFRS Reconciliation: De-recognition of revenue from development properties (16.3) De-recognition of Senior Living Properties deferred management fees (37.2) Accelerated amortisation of APPF Management Agreement (2.9) Defined benefit plans net de
Slide 27: Net assets reconciliation
Net assets as at June 2004 under AGAAP AIFRS reconciliation - Retained earnings adjustments - Resetting of foreign currency translation to zero - Outside equity interest adjustment (due to discounting Actus receivable) Net assets as at 1 July 2004 under AIFRS Numbers are indicative only and have not
Slide 28: Profit after tax reconciliation to December 2004
ASm Profit After Tax to Dec 2004 under AGAAP Revenue re-recognition Communities business (including Senior Living) 3.9 Reduction in deferred management fees: Senior Living Properties (1.0) Defined benefit plan expenses (5.4) Elimination of distribution from Lend Lease share plan (EIT) ‘) (3.4) Rever
Slide 29: Pro forma income statement, six months to December 2004
6 months to Dec 2004 Movement AGAAP AIFRS Asm A$m Agm Revenue "") 4,302.1 4,305.1 3.0 Expenses (4,026.5) (4,045.9) (19.4) EBITDA 275.6 259.2 (18.4) Depreciation and amortisation (30.3) (10.0) 20.3 EBIT 245.3 249.2 3.9 Net interest revenue 9.4 8.3 (1.1) One-off items after tax 2) (38.6) (38.6) - Tax
Slide 30: Pro forma balance sheet at December 2004
Tangible assets Intangibles Total asset Total debt Other liabilities Total liabilities Net assets / Shareholders equity Debt to total tangible assets Debt / (Equity + Debt) Net asset backing per share Net tangible asset per security As at Dec 2004 Increase / AGAAP AIFRS (decrease) Agm Agm Asm 6,136.
Slide 31: Overall not a significant issue for Lend Lease
> Overall not a significant issue for Lend Lease Complex transition Potential for some increase in volatility of reported earnings Underlying operating earnings growth profile largely unaffected Cash flow and borrowing capacity unaffected Dividend policy unaffected Line-by-line transition data to be