Lend Lease (LLC) shares fell more than 7% yesterday after it became the latest company to join the ‘bad news’ club with an indifferent earnings update.
The company told the ASX, in the context of a deal in Singapore, that it planned to restructure its Australian construction and infrastructure businesses.
Lend Lease directors also revealed that weak results from offshore would pressure earnings growth in the year to June 30, but didn’t quantify the impact, which upset some analysts.
Lend Lease said it would consolidate Abigroup, Baulderstone, Project Management and Construction and Infrastructure Services businesses and that the unquantified costs of those changes would be taken in the 2013 financial year.
These businesses were acquired in the Valemus takeover in 2010 from the the German construction company, Bilfinger Berger for $960 million.
But they have struggled in the weak construction sector for over a year that has recently led to brokers cutting back their full year forecasts for Lend Lease.
One analyst suggested yesterday that 100 jobs or more could be lost in the revamp which is an obvious cost-saving move.
Lend Lease shares fell 8% to a day’s low of $8.57 before staging a slight recovery to end at $8.66 for a loss of 7.5% on the day.
Including yesterday’s fall, Lend Lease shares are down 17% since they peaked at $11.25 five weeks ago.
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The construction division being revamped is Lend Lease’s biggest business, generating 42% of group earnings in the 2011-12 financial year.
Australia was the biggest contributor to group profits on a geographical basis.
Also worrying investors yesterday were suggestions in the media that Lend Lease might be thinking of investing up to $200 million into a couple of property trusts it manages, one of which owns the Bangaroo development in Sydney’s CBD.
But the big news was the restructuring and hint that the 2012-13 profit might be a bit light on.
Justifying its action, Lend Lease CEO Steve McCann said the transition will increase the group’s capacity for growth and facilitate more robust end-to-end client solutions.
"The strengths of these four businesses will be transitioned into sector-based businesses – one business in each of the building, engineering and infrastructure services sectors.
"The combination of core skills in each of these organisations will result in best-in-class delivery capabilities," he said.
"We will have businesses that compete for the leading market position against our external competitors in each of the engineering, building and infrastructure services sectors," Mr McCann said.
The new structure will take effect from August 1 and will be overseen by the construction and infrastructure business leaders – chief executive officer David Saxelby, chief operating officer Dale Connor and chief financial officer Andrew Muller.
In the statement, Lend Lease also offered an update on its financial position to the market, saying the composition mix of its fiscal 2013 profit has changed.
Lend Lease said its Asian development, Australian infrastructure development and Australian property businesses were performing better than the prior year, but the underlying construction markets in Australia and EMEA had softened in the second half of FY13.
This had contributed to reduced earnings from the construction businesses in those regions, the group said.
"Certain costs associated with this and other restructuring activities in EMEA will be booked in FY13," the group said.
Lend Lease has revealed as well that it had launched the Lend Lease Jem Partners Fund to acquire the group’s stake in Jem, a suburban retail and office asset in Singapore.
The company said that its 25% equity interest had been to the fund for $S227 million ($A189 million).
Lend Lease is the investment manager of the new fund and will remain as the property manager of Jem, but will not be a co-investor in the new fund.
One analyst, Simon Thakray of Nomura, told the media yesterday that the statement is in effect an earnings downgrade for 2012-13.
