This article is from the Australian Property Journal archive
IN a break with tradition, Lend Lease (ASX: LLC) has not provided a guidance for the year ahead, which analysts said could drive volatility in market forecasts.
Lend Lease posted a lower net profit result of $251.6 million for the six months to December 31, as a result of weaker earnings from the Australian and European businesses.
The half year result is down 16.4% from $300.9 million in the previous corresponding period.
Earnings per stapled security was 43.7 cents for the half year, down 17% from 52.5 cents last year, although distribution remained unchanged at 22 cents per security, unfranked. This represents a payout ratio of 50% of profit after tax.
CEO Steve McCann said the previous half year results included the initial earnings from the first two commercial towers at Barangaroo South.
He added that Lend Lease has delivered a solid financial performance for the half year.
“Over the last five years we have reshaped the business and are now delivering on our strategic objectives. The group continues to realise value from its significant pipeline of urban regeneration projects. Nowhere is this more evident than on the Barangaroo South project in Sydney where construction has progressed well and we are continuing discussions with potential tenants for International Towers Sydney.
“Once again, the strength of the diversity of our business has shone through. Our Australian and UK residential businesses are performing well and our US Construction business has offset the tougher conditions in our Australian construction business,”
“The group finished the half year with a robust pipeline of global construction backlog revenue of $15.5 billion and a global development pipeline with an estimated end value of $38.4 billion,” McCann said.
The Australian business posted a net profit of $223.5 million – down 26.6% from $304.3 million in the pcp, which included initial earnings relating to the first two commercial towers at Barangaroo South.
On a positive note, the Australian development business saw improved residential activity across communities with residential land lot settlements up 43% and pre sales up 28% and a stable contribution from the retirement operations.
The construction business results were lower than the prior half at $51.9 million. The result for the period was impacted by a charge of $25.5 million associated with the finalisation of the restructure which took effect on1 August 2013 and bid costs incurred in pursuing major projects.
Australian investment management profit increased substantially to $40.8 million following the group’s increased investment in APPF Commercial and APPF Industrial during the half year and FUM increased to $10.6 billion. Infrastructure development contributed $18.3 million to the result including fees relating to the financial close of the PPP component of the Darling Harbour Live project in Sydney.
The European business contributed a net profit of $8.2 million, significantly lower than $58.4 million last year.
The net profit from Asia increased to $69.1 million, up 184.4% on the prior half year, while Americas net profit increased to $48.1 million up 85.0% on the prior half year.
The group ended the half year with a strong liquidity position with cash and cash equivalents of $1,066.5 million and undrawn committed bank facilities of $940.5 million, providing substantial financial flexibility.
McCann said the outlook for Lend Lease is positive.
“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.
“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.” McCann said.
Morgan Stanley’s John Meredith said Lend Lease’s lack of guidance, and lack of confirmation on comfort with consensus could drive volatility in market forecasts.
“Prior results have seen LLC confirm comfort with consensus earnings expectations, however today’s interim result was perhaps more confusing with LLC effectively highlighting that it would have said something if it was uncomfortable with consensus. Whilst there are many moving parts in earnings, we have not made major changes to our FY14 NPAT forecast (MSe A$551m, Consensus A$547m).
“Mixed 1H performance highlights some benefits in geographic diversity. Simplistically LLC saw weak momentum in UK construction and infrastructure, whilst the US surprised on the upside. Asia was mixed, whilst Australia saw very strong momentum in residential, yet more provisions in construction.
“Major moving parts in our forecasts. We currently assume a Bluewater sale in FY15, a positive resolution of the Crown Barangaroo deal in FY14, and launch of the third Barangaroo office tower in FY15.
“Despite forecasting broadly flat NPAT, we see double-digit EBIT growth in FY14, and a strong FY15 with a Bluewater sale, before LLC enters the earnings sweet-spot in FY16 & FY17 as Barangaroo and E&C drive cash earnings.
“Given major projects such as Barangaroo and E&C won’t be contributing notable recurring cash earnings until FY16, the key for LLC will be managing the earnings profile until then,” he added.
Meredith forecast a 14% earnings before interest tax growth in FY14.
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