Devine Limited 2010 Full Year Results Presentation 26 August, 2010 - - PowerPoint PPT Presentation

Devine Limited 2010 Full Year Results Presentation

26 August, 2010 David Keir – Managing Director & CEO Paul Cochrane – Chief Financial Officer

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Contents 1. Overview 2. Financial Year 2010 Highlights 3. Divisional Performance 4. Capital Management 5. Development Pipeline 6. Strategy & Outlook 7. Profile – Senior Executive Team

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• 1. Overview

FY 10 Performance Overview

• Underlying profit after tax of $21.4 million; up 28% on FY09 result
• Net profit after tax of $8.2 million reflects one-off charges and impairments taken at

the half year

• Total revenue from operations of $571 million; up 33% on FY09
• Gearing (Net Debt / Total Assets) 23%; down from 49% in FY09
• Dividend of 1.0 cent per share fully franked
• Positive operating cash flow of $139 million; up 101% on FY09
• $66.3 million capital raising completed in March 2010
• Evergreen core debt facility renegotiated and extended to July 2012
• Record allotment settlements of 2,200 in FY10
• Carry forward contracts for housing and land very strong with approximately 40%

FY11 target secured

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FY10 Operating Highlights

Demonstrated Capability

• 2,200 residential allotments settled in FY10
• 1,057 houses commenced in FY10
• 450 unconditional apartment sales in flagship Hamilton Harbour project since launch in April 2009
• Successfully secured construction finance of $163 million for funding of Hamilton Harbour Joint Venture

with Leighton Properties

• Early completion of Bourke Street Apartment Hotel Project (pre-sold for $136 million)

Business Review Completed

• Business to focus on residential sector resulting in:
• Increased predictability of cashflows and earnings from operations
• Release of capital tied-up in non-aligned projects

Expanded Management Team

• New and expanded management team appointed to deliver strategic growth and direction

Growth Focus

• Residential pipeline replenished with addition of 2,700 lots ($500 million end value) across three new

projects in growth corridors

• Adoption of a Growth Plan focused on the established and emerging markets in Australian residential

sector

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Platform for Growth

Established Residential Brand

• The Devine brand is one of the most recognised in the Australian residential property industry
• Devine has created more than 18,500 homes and 3,000 apartments since it listed in 1993
• Opportunity to increase penetration via new projects, expanded product offer and geographic expansion

Integrated Developer

• The “Integrated Developer” business model is a strong competitive advantage
• Underpins Devine’s profit margin and market share through a diversified product offering and by

targeting a number of buyer segments

• Provides flexibility to take advantage of changing market conditions and opportunities
• Enables the efficient and seamless development of land and home construction – providing end-to-end

delivery

• Gives Devine greater access to the affordable housing market

Clear Focus

• Devine’s focus will remain on the residential sector, in particular:
• Housing and communities within specific geographies and growth corridors
• Density development from high rise inner city/near city apartments
• Density development on lower scale mid and low rise residential projects

Market Conditions

• Market conditions continue to be positive with

underlying demand for residential property to increase with strong population growth

• Residential demand continues to out-pace supply
• Several years of ‘catch-up’ are required as a result of

the imbalance and requires government interaction and reform

• Residential house prices have recovered strongly

through FY10, and are now stabilising with the annual capital city median house price growth at 10.5% to $465,000 at June 20101

• Recent interest rate movement has moderated

consumer confidence

• Affordability remains a challenge as a result of

increased financing costs and housing prices:

• Australian average of 32.6% of household

income to service home loan2

• Economic fundamentals remain stable:
• Unemployment rate remains low
• Vacancy rates remain low in all capital cities

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1 Source: RP-Data Rismark 2 Source: PRD Nationwide Research

Source: ANZ Economics Source: RP-Data Rismark

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• 2. Financial Year 2010 Highlights

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Financial Year 2010 Highlights

$ millions 2010 2009 % change

Revenue 570.9 427.7 33% Gross profit incl. other revenue but excludes

• ne-off items

138.8 136.1 Expenses excl. one-off items (87.5) (95.5) Depreciation and amortisation (0.6) (0.8) Equity accounted (profits)/losses (1.7) (1.8) EBIT from underlying operations 49.0 38.0 29% Finance costs (18.4) (16.4) Income tax expense on underlying

• perations

(9.2) (4.9) NPAT from underlying operations 21.4 16.7 28% One-off items1 (13.2)

• NPAT

8.2 16.7 (51%) Basic EPS 1.8 cents 4.9 cents Diluted EPS 1.8 cents 4.8 cents

1Net realised and unrealised impairments in FY10 are in relation to commercial and property development assets which have been exited or re-assessed. No impairments were

recorded in the second half.

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Balance Sheet Summary

$ millions 30 June 2010 30 June 2009

Assets - Cash 20.0 0.7

• Receivables

78.8 67.6

• Inventories/Investments

452.7 579.1

• Other

8.2 25.8 Total Assets 559.7 673.2 Liabilities - Trade and other payables 69.0 60.4

• Interest bearing debt

109.5 267.5

• Non-interest bearing debt

35.8 62.4

• Other

9.0 17.6 Total Liabilities 223.3 407.9 Net assets/shareholder funds 336.4 265.3 Net Tangible Assets (NTA) 333.1 248.2 Gearing1 23% 49% NTA per share 52.5 cents 78.7 cents

1 Gearing is defined as (interest bearing & non-interest bearing debt – cash held) / (total assets – cash held)

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Operating Cash Flows Extract

$ millions 2010 2009 Cash flows from operating activities Receipts from customers (inclusive of GST) 613.6 520.1 Payments to suppliers and employees (inclusive of GST) (446.1) (422.2) Net finance costs (24.3) (24.9) Income taxes (4.1) (3.7) Net cash inflow (outflow) from operating activities 139.1 69.3

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FY10 Divisional Results

$ millions FY 2010 FY 2009 % change

Housing and Land Revenue 448.8 322.5 39% Profit Before Tax 33.6 14.7 129% Apartments Revenue 126.4 110.5 14% Profit Before Tax (18.0) 10.7 (268%) Body Corporate1 Revenue 2.2 12.9 NA1 Profit Before Tax 0.1 1.3 NA1 Corporate/other Revenue 2.1 2.9 (28%) Profit (Loss) Before Tax (4.1) (4.7) 13%

1 Disposal of this division was completed on 26 August 2009

Revenue

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• 3. Divisional Performance

Devine Communities Devine Homes Devine Apartments Devine Construction

Devine Homes & Devine Communities

• Devine’s Housing and Land Division delivered

a strong profit before tax of $33.6 million, up 129% for the year

• Revenues grew 39% on the previous year to

$448 million reflecting the strong market share

• Targeted housing and land margins achieved

in FY10 of 27%

• Record 2,200 residential lots settled in the 12

months to 30 June 2010 (FY09: 1,669 lots)

• Residential backlog replenished by 2,700

dwellings during past six months with acquisition of three new projects in growth corridors with end value of $500 million

• Strong carry forward contracts for land into

FY11 representing approximately 35% of targeted settlements 14

1 Based on unconditional contracts

Land Settlements Carry In at Beginning of Year1

Land Settlements

• 1,057 houses commenced (FY09: 923)
• Strong profit performances from the Victorian

and South Australian operations and a turnaround year for Queensland.

• Home display program increasing awareness of

Devine range and elevating quality positioning in the market. 27 homes on display throughout FY10 growing to 40 homes in FY11

• In-house design and delivery experience

providing ability to explore new markets and respond quickly to demand changes, particularly as higher density solutions are accepted

• Strong carry forward contracts for housing into

FY11 representing approximately 43% of targeted settlements 15

Devine Homes & Devine Communities

1 Based on unconditional contracts

FY10 Carry In FY11 Carry In

Houses Commenced

Housing Starts Carry In at Beginning of Year1

Devine Apartments

• Strong sales performance for Hamilton Harbour project with 91% of the

first two stages at unconditional contract status

• Commencement of construction of the first two residential towers of

Hamilton Harbour in May 2010

• Successfully secured construction finance of $163 million for funding of

Hamilton Harbour Joint Venture with Leighton Properties

• Market release of the third residential tower (Riverside) with strong

sales achieved to date

• Completion of Serviced Apartment Hotel development in Bourke Street,
• Melbourne. Project completed six months ahead of schedule and pre-

sold for $136 million

• Development approval secured on the 17.3 hectare mixed-use

development site at Southbank in the Townsville CBD. This project is also being undertaken in a joint venture with Leighton Properties

• Progress made in finalising the development options on the company’s

two future residential apartment development sites in the Brisbane CBD

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Artist impression of Hamilton Harbour residential tower

Devine Constructions

• Awarded the contract by the joint venture partners to build

the first two stages of the Hamilton Harbour project. Work

• n this $170 million contract commenced in May 2010 and

is scheduled to be completed in late 2011.

• Secured two contracts to undertake school improvements

work being rolled out by the Federal and State

• Governments. Construction on both school improvement

projects is on track to be completed in August 2010. 17

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• 4. Capital Management

Capital Management

• Successful completion of $66.3 million capital raising in March 2010
• Renegotiated and extended core debt facility (evergreen MOF)
• Repaid $171 million of debt and reduced gearing to 23%
• Established new banking relationships and obtained $163 million debt facility from a syndicate of

three banks to commence construction on the joint venture development at Hamilton Harbour

• Also established new project specific debt facilities with two new debt providers, further diversifying

sources of debt

• Undrawn facilities plus cash of $110 million
• No substantial debt maturity for two years
• Fully compliant with banking covenants at 30 June 2010
• Renegotiated MOF covenant package to better suit ongoing business

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Strengthened Balance Sheet Key Benefits

Capital Management

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Key Metrics 30 June 2010 30 June 2009 Gearing1 23% 49% Weighted average debt2 2 years Minimal Undrawn facilities plus cash $110 million Minimal

1 Gearing is defined as (interest bearing & non-interest bearing debt – cash held) / (total assets – cash held) 2 By total facility expiry

Target Range

Gearing Debt Facility Profile

*

* Includes evergreen facility shown at July 2012

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• 5. Development Pipeline

Pipeline by Mix & Geography

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• Housing and Land portfolio well-diversified across existing

geographies

• Secured pipeline provides significant timeline of future earnings

Pipeline Summary

23 Housing & Land Apartments Construction

Projects 26 Dwellings / Allotments Remaining 8,350 Development Timeframe 10 years End Value1 $1.4 billion Projects 8 Dwellings Remaining 2,650 Development Timeframe 5 years End Value $1.1 billion Projects 3 Value of work $175 million Development Timeframe 2 years

1 Land value only

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• 6. Strategy and Outlook

Strategy

During the year Devine completed a comprehensive review of its future direction and strategic plan. Key elements include:

• A clear focus on the residential markets across key growth geographies to:
• Create residential communities (Devine Communities)
• Construct residential homes (Devine Homes)
• Develop a variety of residential and mixed use apartment projects (Devine Apartments)
• Undertake targeted construction projects (Devine Constructions)
• Devine has been successful in securing new projects using a capital-efficient model to fund land

acquisitions through third party capital over the past six months (JVs and land management agreements)

• Devine will continue to secure long-term backlog through expansion into new geographies.

Growth supported by continuing high level of under-lying demand for residential housing

• Devine will continue to provide affordable integrated housing solutions extending market reach

across key housing markets 25

Outlook

National Market Outlook

• FY11 forecast is for investor and upgrader markets to be key sources of demand
• First home buyers will continue to retract following the removal of government incentives
• Investor loans increased during the first four months of 2010 by both total value (up 30%)

and total volume (up 10%)1

• Funding constraints for medium and high density projects will ease gradually, potentially

increasing competition in higher density projects

• Net overseas migration is forecast to slow
• Changing demographic profiles will maintain underlying demand. For example, the

children of the baby boomers have entered household formation groups (25 – 35 years)

• Dwelling completion forecasts to be low for 2010-2012, exacerbating the national dwelling

stock deficiency

• Limited supply will continue to drive prices and increase affordability pressures
• Interest rates expected to grow marginally over next 12 months
• Unemployment levels expected to remain at historically low levels

1 Source: BIS Schrapnel

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Outlook – Regional Perspective

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Victoria

• Strong residential market which will continue to outperform other states
• State-initiated First Home Buyers stimulus maintaining activity in segment (expires June 2011)
• Population increase and employment growth are positive fundamentals for continued strength
• Supply of new development-ready land is limited, driving prices and undersupply issue
• Devine well-positioned in varying growth corridors to capitalise on market

Queensland

• New housing market is steady, but lagging in recovery
• Underlying demand for residential is forecast to be resilient in FY11
• Supply will be constrained by development approval timings, impacting affordability
• Devine has strong market presence in all Brisbane growth corridors

South Australia

• Robust conditions have seen better than expected performance in FY10
• Strong performance, with rising interest rates and withdrawal of First Home Buyers stimulus has

impacted affordability

• Weakening demand and forecast strong completions will likely see Adelaide in surplus in FY11,

resulting in a slowing down of price growth

Outlook - Operational

• Restructure and clear strategic focus has Devine well-placed to capitalise on emerging residential
• pportunities
• Devine enters FY11 with:
• A strong Balance Sheet
• A disciplined and innovative approach to capital management
• Strong carry forward of contracts from Housing and Land Division
• Experienced and strong management team
• Strong reputation in residential market
• Business strategy is to ensure consistent delivery from all operating divisions, however FY11 will

be largely dependent on Housing and Land Division with delivery of first two towers of Hamilton Harbour project to occur in FY12

• Results for FY11 are expected to be in-line with the current year’s underlying profit

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• 7. Profile – Devine Senior Executive Team

Senior Executive Team

David Keir - Managing Director and CEO 20+ years experience Delfin Limited, Delfin Lend Lease

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Andrew Brimblecombe – General Manager Housing & Land (Queensland) 20+ years experience Delfin Lend Lease, Macquarie Bank, Multiplex, Ariadne Steve Weightman – General Manager Housing & Land (South Australia) 30+ years experience Home Australia Viv Grayson – Company Secretary 35+ years experience AV Jennings Neil Anderson – General Manager Housing & Land (Victoria) 25+ years experience Urban Pacific, Medallist Paul Cochrane – Chief Financial Officer 20+ years experience Delfin Lend Lease, FKP, Ariadne, PWC

Senior Executive Team

Cameron Mana – General Manager, Business Growth 20+ years experience Dubai World, Delfin Lend Lease, Ericsson Limited, Delfin Limited

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Terry Conway – Manager, Devine Apartments 30+ years experience Brisbane City Council Jacque Courtney-Pitman – National Human Resources Manager 15+ years experience Jones Lang LaSalle, Veolia Water, Coca Cola John Kerr – Manager, Devine Constructions 35+ years experience Concrete Constructions, Multiplex, Westfield Warren Thomson – General Manager, Marketing 15+ years experience Lend Lease Development, Delfin Lend Lease

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Disclaimer

While every effort is made to provide accurate and complete information, Devine does not warrant or represent that the information in this presentation is free from errors or omissions or is suitable for your intended use. The information provided in this presentation may not be suitable for your specific situation or needs and should not be relied upon by you in substitution of you obtaining independent advice. Subject to any terms implied by law and which cannot be excluded, Devine accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in information in this presentation. All information in this presentation is subject to change without notice.