Losses in UK hit Lend Lease

Australian contractor and housing developer Lend Lease reported a flat first-half operating profit yesterday due to losses on two British construction projects, sending its shares down 4 per cent.

Investors were spooked by the losses on the British projects, reminiscent of rival Multiplex Group's Wembley stadium woes and Leighton Holdings' problems on a Perth rail project.

"It's probably down because of the provisions on those two UK projects," Constellation Capital Management investment manager Richard Morris said of the drop in the share price.

Lend Lease said it still expected its full-year profit to rise by around 13 per cent, based on old accounting rules, on strength in its shopping malls, home building and investment management businesses.

"We believe we'll have a very strong second half," Lend Lease chief executive Greg Clarke said.

Operating profit after tax for the group, which also owns shopping malls in Australia, Britain and the United States, fell 1.5 per cent to A$176.6 million ($193.4 million) in the six months to December 31 from A$179.3 million a year earlier.

Five analysts on average were expecting a profit of A$181.1 million.

Lend Lease shares slid as much as 5.8 per cent to A$13.42, their biggest fall in 21 months, and last traded down 4.2 per cent at A$13.65 in a broader market down 0.3 per cent.

"Nothing's changed in the outlook, and we see compelling valuation in it compared to Leighton," said Shaw Stockbroking analyst Brent Mitchell.

Lend Lease is trading at 15.8 times forecast 2006 earnings, compared with Leighton at 20.7.

Lend Lease's net profit rose 26 per cent to A$176.6 million as the first-half profit a year earlier included A$50.8 million in costs for restructuring and Lend Lease's failed bid for GPT.

Lend Lease's retail and communities division doubled its profit to A$98 million, largely boosted by profits on the sales of the group's shopping mall development in Norwich in Britain and its Gotham project in New York.

"Without those, the result would have been very poor," said an analyst.

Fund management profit grew 42 per cent to A$80 million despite losing management fees from General Property Trust, which dumped Lend Lease as its manager last year.

But profit from Bovis was halved by A$37 million on provisions for rebuilding BBC Broadcasting House, where it ran into technical problems, and building a high-rise apartment block in Leeds, where it lost a cement subcontractor and winter winds delayed crane work.

Clarke said the team had underestimated the challenges of the BBC project and the Leeds team hadjust experienced bad luck.

- REUTERS