Jones Lang LaSalle Incorporated — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Unless noted otherwise, amounts below are in U.S. dollars. The company provides real estate services through Investor and Occupier Services (IOS)—Americas, EMEA and Asia Pacific—and Investment Management.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Revenue | $680.3m | $576.1m | $1,261.0m | $1,070.4m |
| Operating income (loss) | $57.3m | $17.4m | $75.3m | $(10.2)m |
| Net income (loss) attributable to common shareholders | $31.8m | $(14.4)m | $32.0m | $(75.9)m |
| Diluted EPS | $0.72 | $(0.40) | $0.73 | $(2.15) |
- Q2 revenue rose 18% year over year, as reported and in local currency. First-half revenue rose 18% in U.S. dollars and 15% in local currency.
- Management reported Q2 operating margin of 9.0% excluding restructuring charges, versus 5.7% a year earlier; first-half adjusted margin was 6.4%. Reported Q2 operating margin was approximately 8.4%.
- Compensation was 64.4% of revenue in Q2, compared with 66.2% a year earlier; first-half levels were 65.5% and 67.6%, respectively.
- Net interest expense was $12.9m in Q2 and $24.2m for the first half. Income tax provision was $9.6m for both Q2 and the first half; the reported effective tax rate was 23.0%.
Segments and material period changes
- Americas IOS: Q2 segment revenue was $295.5m, up 18% in local currency; operating income was $32.4m versus $18.6m. First-half operating income was $41.5m versus $14.2m.
- EMEA IOS: Q2 revenue was $170.7m, up 26% in local currency, and operating income was $5.9m versus a $0.7m loss. First-half operating loss narrowed to $3.7m from $22.1m.
- Asia Pacific IOS: Q2 revenue was $154.7m, up 21% in local currency; operating income was $11.1m versus $2.7m. First-half operating income was $16.4m versus a $0.9m loss.
- Investment Management: Q2 advisory revenue was $56m, down 6% in local currency; incentive fees were $3m. First-half advisory fees were $114m versus $119m. Assets under management were $38.3bn at quarter-end.
- IOS growth reflected higher Leasing, Capital Markets and Hotels, and Property and Facilities Management activity. Across the firm, lower restructuring costs and substantially smaller real estate venture losses also contributed to the earnings improvement.
Cash flow, balance sheet and liquidity
- First-half cash used in operations was $80.4m, compared with $85.9m used in 2009. Investing used $58.4m; financing provided $124.5m. Cash declined $14.3m to $55.0m.
- At June 30, 2010, total assets were $2.97bn and total liabilities were $1.59bn. Current assets were $894.7m and current liabilities $902.4m.
- Credit-facility borrowings were $268.0m, with a further $63.7m of short-term borrowings, including $33.6m in local overdrafts. Cash was $55.0m. Facility capacity was $840m, plus up to $49m under local overdraft facilities; facility maturity was June 2012. The company said it complied with all debt covenants.
- Facility pricing was 4.25% at quarter-end; the average borrowing rate was 4.0% in Q2, versus 3.4% in Q2 2009. Debt was variable-rate, and no interest-rate swaps were outstanding.
- First-half dividends paid were $4.5m. No share repurchases were made in 2009 or the first half of 2010. A $0.10-per-share semiannual dividend was paid June 15, 2010; future dividends remain subject to board approval.
Outlook, risks and unusual items
- Management said business prospects for 2010 remained good and cited a cyclical recovery in real estate markets, while noting it was monitoring market and economic conditions. The filing provides no formal full-year revenue or earnings guidance.
- Results are seasonal: revenue and profits have historically been higher in the third and fourth quarters, so first-half results are not necessarily indicative of full-year results. Transaction timing, incentive fees and foreign currency movements can cause substantial variability.
- Real estate venture impairments were $8.7m in the first half of 2010, versus $43.8m in the first half of 2009. Further impairments are possible if real estate values decline. Goodwill was not considered impaired at June 30, but management noted that deterioration in economic conditions could change that assessment.
- Real estate venture investments totaled $162.1m. Maximum potential unfunded commitments were $11.3m for LIC I and $348.7m for LIC II; the latter includes the company’s share of future co-investment funding. Management anticipated net co-investment funding of $40m–$50m in 2010.
- Deferred acquisition obligations were $372m. Potential earn-out payments on 12 acquisitions could reach $168.9m over the next three years if performance conditions are met. The 2012 payment relating to the Indian operations share repurchase was not quantifiable in the filing.
- Litigation arose in the ordinary course of business; some claims were substantial and may exceed insurance coverage. Management did not expect resolution to materially adversely affect financial position, results or liquidity. Self-insurance and captive-insurance estimates are subject to uncertainty.
- Foreign currency translation reduced first-half equity by $49.6m. The company reported that currency forward-contract revaluation losses were offset by gains on hedged intercompany loans, with no significant net earnings impact.
Important facts for investors to verify
- Whether the operating recovery and transaction-related revenue growth continued after Q2, given seasonality and market sensitivity.
- Cash conversion and working-capital trends, particularly the first-half operating cash outflow despite a return to profitability.
- Debt levels, covenant headroom, variable-rate exposure and refinancing needs ahead of the June 2012 facility maturity.
- Real estate venture impairment assumptions, future co-investment funding needs and the scale and timing of acquisition-related obligations.
- Whether management’s stated positive business prospects translated into full-year results; the filing does not provide formal earnings guidance.