Lend Lease Profit Wiped Out


Lend Lease announced a horror first half result this week with profit dropping a massive 96% to just $15.4M with almost all components to the P&L suffering big losses.

The substantial shift in profit has come as a result of;

  • $300M reduction in Engineering profit, magnifying the loss in that division to $473M and signalling an end to Lend Leases work in that sphere

  • $183M reduction in development profits, following a 50% drop in settlements in Residential Communities

  • $110M reduction in investments, predominantly from lower valuations

A $350M write down in the Engineering business was announced last November. At that time, the company's explanation for the write-down was due to “a number of issues including lower productivity in the post tunnelling phases of NorthConnex; and excessive wet weather, access issues and remedial work from defective design on other projects".

Key Highlights

  • Profit after Tax of $15.7 million and earnings per stapled security of 2.8 cents (down from 72.9 cents)

  • Interim distribution of 12 cents per stapled security

  • Development pipeline of $74.5 billion, up 31 per cent

  • Growth in Funds Under Management (FUM) of 20 per cent to $34.1 billion

  • $500 million pre-tax impact from previously announced expected losses on Engineering projects

Strategic initiatives:

  • Urbanisation origination

  • Secured two major urbanisation projects in Sydney and Chicago

  • Preferred partner for $14.5 billion London Thamesmead Waterfront project

  • Preferred partner for $2.7 billion Birmingham Smithfield project

  • Capital partnerships: ̶

  • US residential investment partnership with US$1 billion equity commitment ̶ Increase in FUM from practical completion of three office towers at Paya Lebar Quarter

  • Comprehensive review determined Engineering and Services non-core and no longer a required part of Group strategy ̶ Alternatives are being considered

Lend Lease announced a strategic review of Engineering division with an intention of selling the non-core business. Until then, Lendlease is implementing a lower risk profile business strategy which includes operational improvements and a stronger focus on alliance style partnerships where risk is more appropriately shared with project partners. As the Group works through the implications of this decision, it currently estimates that it may incur future restructuring costs of between $450 million and $550 million pre-tax.

Despite those issues, Lend Lease grew Funds Under Management by 20 per cent to $34.1 billion following the conversion of the development pipeline into investment stock, a strategy that Lend Lease will continue to use going forward. The group added two new major urbanisation projects to its pipeline – Victoria Cross in Sydney, and Lakeshore East in Chicago with a combined estimated end development value of more than $3Bn. Post balance date the Group was also named preferred partner on London Thamesmead Waterfront and Birmingham Smithfield projects in the UK which have a combined estimated end development value of $17.2 billion.

LLC Trading Chart vs ASX200 AREITs

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Purple - ASX200 AREITs

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SYDNEY   NSW   1225

Tel: +61 412 173 476

Email: warwick@cmaust.com

ABN: 32 610 910 819

AFSL: 493605

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