Another construction giant in Australia has seen its profits impacted by COVID-19.
Releasing its half-year results for 2020/21, property and construction giant Lendlease reported a 26 percent fall in its core operating (underlying) profit after tax (Core NPAT) from $278 million in the half-year to December 2019 to $205 million in six months to December 2020.
Add in non-core items and the Group’s statutory net profit after tax fell by 37 percent from $313 million to $196 million.
Whilst the group’s construction business performed well, its development and investment segments have been impacted by COVID.
Across its development segment, the group saw earnings before interest and tax (EBIT) decline by 10 percent from $272 million in 1H 20 to $244 million in 1H 21 as uncertainty impacted both tenant demand and investor appetite particularly in the office sector.
In investments, EBITDA plummeted from $224 million to $101 million as returns were impacted by lower asset management fees predominately in retail property.
In construction, the group’s EBITDA edged up marginally from $101 million in 1H20 to $104 million in 1H21 amid effective cost management and the reaching or near-reaching of completion for several projects.
This occurred despite productivity on sites and delays in the commencement of new work.
The construction section also bagged an impressive $4.9 billion in new project wins (up from $3.1 billion in the previous corresponding period) thanks to strong activity on social infrastructure projects in Australia and Europe.
More broadly, Lend Lease also said the weaker environment has provided its development arm with an opportunity to secure new urbanisation projects alongside investment partners on attractive terms.
In New York, the company will transform a city block on 1 Java Street into apartments for rent with an estimated end value of $1.0 billion.
It also secured its first urbanisation project in Los Angeles at La Cienega Boulevard, which has project has an estimated end value of $0.8 billion and will include a mix of apartments for rent and office space.
Both projects are in partnership with Aware Super and will support the growth of the company’s investments platform.
The results follow relatively similar earlier results from another Australian construction giant CIMIC, which earlier this month reported a 25 percent drop in profit.
Lendlease Group Chief Operating Officer and Managing Director Steve McCann said the company has responded well in a challenging environment.
Whilst earnings remain below pre-pandemic levels, he points out that profits have recovered somewhat from the worst of the COVID impacts in the six months to June last year.
“The Group has displayed resilience through a very testing period with a recovery in operating conditions gathering momentum towards pre COVID-19 levels,” McCann said.
“Core operating EBITDA was $405 million, a significant improvement from the second half of FY20, although lower than the $525 million in HY20”
Going forward, Lend Lease did not issue earnings guidance and warned that its conversions over the near term would be impacted as long at uncertainty surrounding COVID-19 persists.
With development work in progress to the tune of $12.2 billion and an aim to convert more than $20 billion of its development pipeline by the end of FY23, however, the group remained confident over the medium term.
In addition to new development work, a strong focus for Lendlease is its new climate targets.
It has set targets to achieve Netzero carbon emissions for emissions with are classified as Scope 1 and Scope 2 under the Greenhouse Gas Protocol by 2025.
These include all emissions which are owned and controlled by the company’s own sources along with indirect emissions from the purchase of heating, cooling and electricity used in its own operations.
By 2040, it aims to emit absolutely zero carbon under Scope 1, 2 and 3.
This incorporates not only items under Scope 1 and 2 but also emissions which arise from upstream and downstream sources such as the purchase of goods and services, business travel, employee commuting, waste disposal, use of sold products, transportation and distribution and investment.
The results follow the announcement earlier this month that McCann will retire as the head of Lendlease from May.
He will be replaced by current Lendlease Asia CEO Michael Ullmer.