It's all about building a sustainable business.
MR. IAN FERRIER, AM
Following on from a successful FY2015, we are well positioned to deliver FY2016 operating EPS of 39.4 cents, up 6% on FY2015.
Goodman has expanded and strengthened its business across all markets and continued to grow its development work book. To improve the quality of its portfolio, the Group is reinvesting in its development pipeline. Taking advantage of the favourable market conditions and selling existing assets to fund development of higher grade assets, has enabled customers to be relocated to higher quality, more strategically located, modern industrial properties.
Recent expansion into the Americas has focused on the establishment of key capabilities to support Goodman’s core own+develop+manage business model. Investment to fund the future growth of these businesses has been made across many areas including people, land banks, business processes and management oversight. This investment is structured to ensure that a consistent and differentiating quality of product and service is delivered for our customers and capital partners in these markets.
In the United States, we now have a team of over 30 people and a development pipeline of A$2 billion across 12 sites. During the year, Canada Pension Plan Investment Board (CPPIB) increased their equity commitment to the Goodman North America Partnership (GNAP) by US$500 million. In Brazil, the joint venture, WTGoodman comprises a team of 25 people with a development pipeline of US$1.3 billion across four sites.
Urban renewal realisations are beginning to emerge with sites to the value of $1.1 billion conditionally contracted as at 30 June 2015. This programme will be the most significant source of capital to fund future expansion and growth of the Group over the longer term.
Operating EPS (¢)
Hammer Group, Bedburg Logistics Centre, Germany.
Invest in the future to lay the foundation for stronger, more sustainable and more stable economic growth.
Despite the Group's growth and expansion, Goodman remains a prudently managed business, seeking to provide competitive and sustainable returns for all stakeholders. This is achieved through the efficient allocation of both human and capital resources to deliver a quality product and service for the long term.
One of our major global investors wrote to us and a number of other significant companies during the year highlighting the risks of “a short-termist phenomenon” that sees companies “underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long term growth”. They urged us to join them to “invest in the future to lay the foundation for stronger, more sustainable and more stable economic growth”.
These themes resonated very strongly with Goodman’s Board, management and capital partners. One of the Group’s key themes over the past several years has been sustainability, starting by setting competitive but realistic and sustainable long term return aspirations when communicating to investors and staff. This then enables Goodman to focus on developing the highest quality assets and partnering with the right capital to service customers globally. The Group seeks to deliver core real estate returns in partnerships designed to provide low volatility and stable income for the long term within an environment of high levels of governance.
For FY2015, the Group made a cash distribution of 22.2 cents per security, which totalled $388.3 million, in the form of a trust distribution. A trust is not subject to tax in Australia as long as it distributes all of its taxable income to its investors. That income is then taxable in investors’ hands. The components of the Trust’s distribution reflect the sources of the Group’s operating earnings being primarily, Australian income with other components reflecting the offshore activities of the Group. Australian resident Securityholders include 98% of the distribution in their taxable income.
Goodman has various strategies it uses to ensure sound and prudent financial governance. We continue to maintain a low risk approach to development by effectively deploying various strategies and policies to help manage these processes and the execution is made possible by the close relationships that the Group has built with both customers and capital partners. With $2.5 billion of developments completed this year, very little is undertaken speculatively, 91% of all developments were precommited prior to completion and 85% of all completions were for Goodman’s partnerships or third parties. Notwithstanding this, we acknowledge that there is risk in development and our capital management strategy is to lower our financial leverage to help further offset this risk.
The Group’s hedging and insurance policies are also examples of strong governance and risk mitigation. Goodman is an Australian group reporting and quoted on the Australian Securities Exchange (ASX) in Australian dollars. As a result, the Group seeks to undertake a conservative hedging policy to foreign currency risk management. Goodman’s policy is to hedge between 70% and 95% of foreign currency denominated assets and as at 30 June 2015, was in the middle of this band at 82%. As a property company, the Group also seeks to minimise any volatility that arises as a result of interest rate movements. Goodman’s policy is to ensure between 60% and 100% of current year interest rates are fixed and the Group currently has 94% hedged over the next 12 months.
Fisher & Paykel, West Industry Park, Melbourne, Australia.
A further example of prudent governance is the robust insurance programme that Goodman has in place around the world that protects the Group financially against unforeseen events, such as the hail storms that created significant damage to properties in western Sydney in April this year. These processes and policies, and the relationships we have built through all stakeholders, not only protect the Group financially but also provide us with the ability to quickly respond to our customers’ needs, mitigating further loss and damage.
The Group’s remuneration policy is focused on ensuring that it attracts, motivates and retains the best quality staff necessary to operate a global business of Goodman’s size and scale. With an approximate voluntary turnover of 4% per annum, Goodman is very proud of the high levels of staff retention achieved and recognises that the design of a competitive remuneration policy is vital in delivering the Group’s long-term goals. The remuneration policies have been designed to encourage and reward superior performance that is aligned with the business strategy and to provide compelling incentives for high performing executives to remain employed with Goodman.
Goodman is a global business operating in 16 countries, with offshore earnings contributing 55% of operating EBIT. The Board believes that given the Group’s global presence, scale and integrated business model, the remuneration levels for select senior executive roles should be referenced alongside international competitors, rather than more locally focused businesses. In the opinion of the Board, this is absolutely necessary to ensure the Group retains the skilled and experienced employees required to perform and deliver in Goodman’s global operation.
The Board also considers that in relation to incentive compensation, a significant component of total remuneration should be delivered through equity plans. This approach encourages long-term decision making and promotes strong alignment between the interests of Securityholders and employees. It is an appropriate model of incentivising and rewarding the Group Chief Executive Officer and other senior executives.
In addition to this, every Goodman staff member has some form of ownership in the business through participation in the Group’s Long Term Incentive Plan. The Board believes that this is an important aspect of working at Goodman and is a unique offering to employees. The outcome of this is the significant results that the Group has continued to deliver, along with enabling the investment made in developing quality staff to be truly realised.
It is Goodman’s absolute focus to add value in everything it does. It is the quality of its people and properties and its prudent financial management and the high level of service it strives to provide its customers and investors that defines the Group’s competitive advantage. I am proud of the outstanding result that has been delivered this year and would like to thank staff for their hard work and dedication and our Securityholders, customers and capital partners for your ongoing support.
MR. IAN FERRIER, AM
I am proud of the outstanding result that has been delivered this year and would like to thank staff for their hard work and dedication and our Securityholders, customers and capital partners for your ongoing support.
MR. IAN FERRIER, AM
Copyright 2015 Goodman Group