Lendlease Profit Drops, Confident in Resi Market

It’s been a difficult year for Lendlease largely due to its underperforming engineering projects hurting the development giant’s bottom line, but Lendlease chief executive Steve McCann remains confident in the company’s core business, as Australia’s residential market bottoms and Lendlease grows its international project pipeline.

McCann said the group was disappointed with the performance of its non-core operations, namely the company's engineering business, which posted an after-tax loss of $337 million for the period.

ASX-listed Lendlease announced its net profit fell 41 per cent to $467 million for the year to June, compared with $793 million a year ago.

“As the separation process progresses, we remain committed to delivering the best possible outcome for our clients, employees and security holders,” McCann said of the troubled engineering arm which was offered for sale in the first half.

Lendlease said the sale process has “generated a good level of interest”, with “several parties currently undertaking detailed due diligence”.

A $500 million provision for underperforming assets related to three engineering projects: The Gateway Upgrade North, Kingsford Smith Drive, which is expected for completion in 2020, and Sydney's North Connex M1/ M2 Tunnel which is 85 per cent complete.

While the group's backlog worth $3.8 billion primarily consists of two projects, the Melbourne Metro Tunnel Project, and Sydney’s WestConnex (lead picture) M4-M5 Link Tunnels.

“A very strong long term outlook”

The company’s core business recorded a profit after tax of $804 million.

And in a win for Lendlease (and Casino giant Crown), the NSW government dropped its appeal on Monday, reaching a confidential out-of-court settlement with the companies, which now ensures unobstructed harbour views from their Barangaroo waterfront developments.

There were 1,623 residential for sale apartment settlements in the year, up on the prior year.

Darling Square, Sydney; Victoria Harbour, Melbourne; and Elephant Park, London accounted for the large majority of these settlements.

While Lendlease completed its first ever residential build-to-rent apartment building, The Cooper, in Chicago.

McCann said the group’s development pipeline, which spans Australia, Europe and North America, was now approaching $100 billion in project value.

“Underpinning a very strong long term outlook,” he said.

Urbanisation projects

Lendlease has 21 major urbanisation projects across 10 cities, which has seen the group’s urbanisation pipeline grow from $25 billion to $80 billion in the past five years.

“Broadening our urbanisation expertise into targeted international gateway cities has driven strong growth in the Group’s long dated development pipeline,” McCann said.

Lendlease secured the major $21 billion project with Google in the San Francisco Bay Area last month, and is delivering three major urbanisation projects in Milan, Chicago and Sydney.

Combined these four projects have an estimated end development value of approximately $27 billion.