This article is from the Australian Property Journal archive
PROPERTY giant Lendlease has reported a 96% plunge in net profit, falling to $15.7 million in the HY19 compared to $425.6 million in HY18 and has warned of future restructuring costs of $450-$550 million as it looks to jettison the troubled engineering business.
Group EBITDA fell 38% to $556.8 million from $894.1 million in previous corresponding period, and the engineering & services business booked a loss of $473.7 million, on top of the $173.5 million loss in HY18. Earnings per stapled security fell 96% from 72.9 cents to 2.8 cents. Lendlease announced an interim distribution of 12 cents per stapled security versus 34 cents in the pcp.
Managing director Steve McCann reiterated his disappointment with the underperformance of the group’s Engineering business.
“This was a difficult period where cumulative issues in a number of engineering projects materially impacted the group’s overall result. The management team and I are very disappointed with this underperformance and are committed to working to restore securityholder value and confidence in Lendlease,” he added.
McCann said a review of engineering division has determined the business is non-core, and is no longer a required part of the group’s strategy. Alternatives for the business are being considered.
McCann warned that as the group works through the implications of this decision, it currently estimates that it may incur future restructuring costs of between $450 million and $550 million pre-tax. This is a preliminary estimate.
“The review concluded that it is in the best interests of clients, employees and securityholders to consider alternatives that will allow both the engineering and services business and Lendlease Group to focus on their core competitive advantages. The review also reaffirmed the attractiveness of Australia’s engineering sector – particularly transport engineering where the pipeline of federal and state government work is forecast to drive growth of approximately 5% per annum during the next five years.
“Engineering and services comprises a large, high-quality team with execution skills and experience across a broad range of projects. We’re considering a range of options to provide clarity for our people while seeking to optimise securityholder value,” he continued.
McCann said despite a challenging period, Lendlease continued to convert origination opportunities in global gateway cities – growing its development pipeline and successfully executing key initiatives with its capital partners.
During the period, the group added two new major urbanisation projects to its pipeline – Victoria Cross in Sydney, and Lakeshore East in Chicago – solidifying its position as a leader in transforming urban precincts. These projects have a combined estimated end development value of more than $3 billion. Post balance date the Group was also named preferred partner on London Thamesmead Waterfront and Birmingham Smithfield projects in the UK which have a combined estimated end development value of $17.2 billion.
In the capital partner division, Lendlease has formed a residential investment partnership with First State Super in the US which has acquired three apartment buildings at its development projects in Chicago and Boston. Funds under management grew by 20% to $34.1 billion and will be further supported by future conversion of the development pipeline.
CFO Tarun Gupta said excluding the impact of the engineering business, earnings in FY19 are expected to be skewed to the second half given the significant number of residential apartments due for completion. Lendlease expects the default rate on these settlements to be low.
Lendlease’s development pipeline grew to a record $74.5 billion during the half, including $59.3 billion from urbanisation projects. Construction backlog revenue for the building businesses stands at $14.8 billion with an additional approximately $10 billion of preferred work at 31 December 2018.
The investments segment is in a solid position to continue to deliver recurring earnings derived from the $3.6 billion of investments, $34.1 billion in FUM and $26.6 billion of assets under management.
McCann said, “Our portfolio of 20 major urbanisation projects across 10 cities delivers on our objective of diversifying to targeted international gateway cities. These long-dated projects provide strong visibility of future earnings.”
Australian Property Journal
