UGL to Split Property, Engineering Units After Profit Drop

UGL Ltd., the Australian company that acquired U.K. real estate broker DTZ Holdings Plc in 2011, plans to split its operations into two listed companies by June 2015 to allow each to follow its own growth strategy.

UGL will create two companies, one focused on global property services and the other on engineering, construction and maintenance services in Australia, New Zealand and Asia, it said in a statement to the Australian stock exchange today. The company today reported underlying profit after tax in the 12 months to June 30 fell 45 percent from a year ago to A$92.1 million ($84.7 million).

While UGL’s property division has been growing, recording a 21 percent rise in revenue in the 12 months to June 30, its engineering services business has been struggling as Australia’s mining boom slows, with revenue in that division down 30 percent. UGL’s engineering services unit -- which includes resources, rail, power and transport systems -- has been hit by cost cuts by major resources companies as Australia’s mining investment slows, Chief Executive Officer Richard Leupen said in the statement.

“The restructure could be a net positive for UGL and for the DTZ division,” Evan Lucas, a Melbourne-based market strategist at IG Markets Ltd., said by telephone. The split gives the company “clear air to restructure bad performing assets without impairing what’s obviously a very good division in the property space.”

UGL shares climbed 1.6 percent to A$7.52 at the close of trading in Sydney, compared with a 1.1 percent gain in the benchmark S&P/ASX 200 index.

Property Division

UGL in December 2011 bought the London-based DTZ for about 77.5 million pounds ($120.2 million), gaining access to China, where DTZ has the biggest geographic presence among international real estate advisory firms. The plan to separate the property division follows a 3.5 percent drop in the company’s share price this year as of Aug. 9, compared with a 8.7 percent gain in the benchmark S&P/ASX 200 index.

The company plans to complete the integration of DTZ globally and the property unit’s global headquarters in the U.S., and focus on reducing debt before the split, it said today. The board proposes that Leupen will continue to lead the company as it prepares for the separation, Chairman Trevor Rowe said in the statement.

UGL expects underlying net income after tax of between A$120 million and A$130 million in the year ending June 30, 2014, it said.

DTZ had revenues of A$1.9 billion in fiscal year 2013, and employed 45,000 people globally, including contractors, while the engineering services division recorded A$1.8 billion and had 8,000 people, according to UGL. The company, which is undertaking a cost-cutting program, in May said it would seek a further A$20 million of reductions in overheads in engineering, to be completed by August.

The engineering services unit “is expected to struggle somewhat in the short term and investors may want to distance themselves from exposure to that side,” Ben Le Brun, a Sydney-based market analyst at OptionsXpress, said in an e-mail. The property division “has the potential to improve and grow. It is expected to outperform the engineering business in the foreseeable future.”

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