Lend Lease primed for growth

 Lend Lease chief executive Steve McCann in Sydney yesterday. ‘Our development business is in a strong position to leverage positive trends’. Picture: James Croucher Source: News Corp Australia

Lend Lease chief executive Steve McCann in Sydney yesterday. ‘Our development business is in a strong position to leverage positive trends’. Picture: James Croucher Source: News Corp Australia

LEND Lease Group says it is in a strong position in the improving residential sector, despite posting a drop in first-half profit due to a significant decline in earnings from its construction arm.

The giant contractor, developer and fund manager posted a 16.4 per cent decline in net profit to $251.6 million over the first six months of the 2014 financial year. This reflected restructuring costs and higher-than-expected bid costs on infrastructure projects.

The prior corresponding half benefited from the first profits from its Barangaroo project in Sydney. “Our development business is in a strong position to leverage positive trends in the residential sector and our construction business has proved resilient, despite more challenging conditions around the globe,” chief executive Steve McCann said.

Profits at the company’s Australian business slid 26.6 per cent over the half, with earnings from its local construction arm down 41 per cent to $75m.

Its construction arm in Europe posted a loss of $18m for the period. However, its building operations in the US rose 174 per cent to $35.4m. Profits from its Asian operations jumped 184 per cent to $69.1m thanks to its Jem mixed-use project in Singapore.

Offsetting the weak construction result was a bumper haul in its residential business in Australia and Britain, with sales over the half hitting $1.52 billion. The company declared an interim dividend of 22c a share, unchanged from the prior corresponding period.

Mr McCann said the company was on track to meet market consensus for its full-year earnings, which currently stand at $545m. Lend Lease does not provide official guidance.

“Forward sales in our residential development business and embedded returns in our pipeline of opportunities clearly underpin our earnings visibility over the next three years,” Mr McCann said. He added the low interest rate environment would continue to benefit its major projects in Melbourne’s Docklands as well as at Elephant and Castle and Stratford in England. The value of its 33 per cent stake in Bluewater Shopping Centre, which it is planning to sell, rose to $1bn over the half.

Mr McCann said he was confident of signing a deal with James Packer’s Crown Resorts over the hotel component at Barangaroo ahead of the end of the pair’s exclusivity agreement in August.

Cash outflow for the half was $543m, reflecting increased investment in development projects and managed funds, including two that were hit with a rush of redemptions over the half.

Its construction backlog also declined to $15.4bn from $16.2bn six months earlier.

Mr McCann said he found recent commentary that the company’s agreement with the construction union was “dangerous” and that the company should be forced to testify at the royal commission into corruption in the construction industry “deeply offensive”.

Morgan Stanley analyst John Meredith said Lend Lease was on the verge of a cash-rich profit delivery from its major development pipeline in the next three years. “But near-term focus will remain on earnings transition from construction and capital recycling,” he said.

Lend Lease’s shares closed down 43c yesterday at $11.14.

Source: The Australian

 

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