Lendlease unveils double-digit growth

Lend Lease new offices at Barangaroo tower 3,in Sydney, Australia. Photo: Anthony JohnsonGlobal developer and infrastructure group Lendlease has unveiled a 13 per cent rise in net profit to $698.2 million, based on high residential settlements, the current construction boom and rising forward construction contracts.
Nanjing Night Net

With its cranes dotting the skyline of most capital cities, the group has said it is well placed heading into the 2017 fiscal year with “financial strength and diversity, and visibility of earnings”.

Lendlease’s most visible development, the $6 billion Barangaroo project at Sydney’s Darling Harbour, was a major contributor to the residential settlements, which were up 7 per cent to 4,790 units.

Work has also started on the new Crown resort at Barangaroo, which sits near the three commercial towers and apartments on the site. Lendlease has also recently moved into its new offices at Barangaroo which still has some space to lease in the last office tower, still under construction.

Lendlease never give earnings forecasts, but analysts said, based on the figures released for the full year and the forward contracts, they are predicting about 7 per cent earnings growth for the 2017 financial year.

Chief executive, Steve McCann said Lendlease settled over 1,200 apartments with non-settlements at less than 1 per cent versus the historical average of closer to 3 per cent.

“The forward sale of three major commercial buildings, two at International Quarter London and one at Darling Square in Sydney, has further de-risked our development exposure,” he said.

The Australian construction result was robust with earnings before interest tax, depreciation and amortisation (EBITDA) margins up by more than 1 percentage point to 3.7 per cent. The Investments segment, representing 37 per cent of operating EBITDA, continues to deliver solid recurring style earnings.

The construction backlog revenue of $20.7 billion was up 20 per cent and the funds under management of $23.6 billion, up 11 per cent.

During the year Lendlease boosted its unlisted funds business with a new $400 million managed investment vehicle.

The group’s overseas business results were mixed, reflecting the different speeds of the world’s economies.

In Europe, the EBITDA increased to $180.1 million from $129.5m, up 39 per cent on the previous corresponding period.

Brokers said positively contributing to 2016 growth was a 110 per cent increase in property development EBITDA from $66.3 million in June 2015 to $139.5 million in June 2016 due to the international quarter sell-down. This however was offset by reduction in EBITDA across infrastructure development, construction and investment management business units.

In the  Americas, EBITDA of $104.5 million was down about 33 per cent from the 2015 year of $155.4 million due to a material fall in construction earnings from $116.9 million to $56.4 million as a result of the roll-off of work in the military housing sector.

​Macquarie Equities analysts said operating cashflow of $853 million compares to negative $166.6 million in 2015 which is a good outcome and should go some way to alleviating concerns on settlement risk of apartment product. Cash flow has been a negative for Lendlease for the last few years given the high amount of production capital.

“Whilst enjoying a better re-rating of late, the Lendlease share price has lagged in the last 12 months reflecting fears of significant apartment defaults which will derail an otherwise very strong earnings and cash flow profile in our view. With today’s result indicating the cash is coming in and the stock still trading on about 11 times earnings,” the analysts said.

A final distribution of 30¢ per stapled security was declared, taking the full year distribution to 60¢ per stapled security, payable on September 14.

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