Lend Lease

Had a bad day yesterday..................Construction down

Macquarie Comments:

Construction still suffering problematic projects…1H18 to be down on pcp.

LLC indicated FY18 will be impacted by underperformance in Australian construction “which relates to a small number of engineering projects”.

As a reminder, the Australian construction margin declined 60bps to 3.1% in FY17 due to bid costs taken above the line (~25bps), recent project wins not >20% complete to allow for profit recognition and underperforming projects. At the time we understood the number of problematic projects were lower, but the implied severity of each was higher. LLC previously indicated ground conditions on tunnelling jobs were a primary driver of underperformance.


With tunnelling projects such as NorthConnex M1/ M2 not completing until 2020 ($1,283m contract), this drag may continue. We understand the problematic projects are 40% complete and LLC may be able to claw some back via time extensions and claims. LLC indicated all problematic projects were legacy projects that had been mispriced by the prior construction management team. We currently forecast a $17m improvement in construction EBITDA in 1H18 to $113.5m but the update on construction gives cause for concern.