This article is from the Australian Property Journal archive
LENDLEASE is not expecting to hit its targeted group return on equity target until FY24 as it continues along the restructuring path, as it swung to a full-year net loss following the sale of its services business while dealing with growing construction costs and supply chain issues.
The $7 billion diversified group posted a $99 million loss after last year’s profit of $222 million.
“Resetting the organisation, including simplifying the group’s operating model and addressing legacy issues while managing the ongoing impacts of COVID, affected our financial performance,” said global CEO Tony Lombardo, who took on the job early in 2021.
Lendlease agreed to a $310 million sale of its services business early in FY22. It had previously sold its engineering business but will see out works on the Melbourne Metro tunnel project.
Its second half results offer cause for optimism heading in to FY23, with a first half loss of $264 million swinging to a $165 million profit, and core profit growing from $28 million to $248 million.
“We remain on track to meet our more than $8 billion completion target in FY24, along with the return on invested capital target for the development segment of 10 to 13%,” Lombardo said.
“The record level of work in progress, along with our assessment of project fundamentals, provides confidence in achieving both the completion and return targets.”
The group return on equity target of 8 to 11% is expected to be met from FY24.
Non-operating items after tax included investments segments revaluation gains of $70 million offset by development impairment expenses of $223 million, restructuring costs of $119 million and intangible impairments relating to digital activities of $55 million.
Gearing of 7.3% is below the target range of 10 to 20%, and the group has total available liquidity of $3.9 billion.
Some $6 billion of commencements – including the third and final residential tower at One Sydney Harbour – took work in progress to a record $18.4 billion, with master plan approval obtained for more than $8 billion of its pipeline.
Development capital was up from $4.4 billion to $5.4 billion. Invested capital is planned to be re-weighted towards the investments segment from FY24.
It has just partnered with Mitsubishi Estate Asia to take on the $3 billion One Circular Quay development in Sydney, next door to their recently topped-out $1.9 billion Salesforce Tower.
The investments segment posted a return on invested capital of 9.7%, in excess of the target range of 6 to 9%. This was boosted by a financial partner acquiring part of the asset management income stream of the US Military Housing portfolio, as well as a recovery in portfolio income and higher management fees. Returns for the segment in expected to be in the range of 6 to 7.5% for FY23.
In its construction segments, EBITDA and EBITDA margin were down due to COVID impacts, supply chain disruptions and related cost pressures. EBITDA margin is expected be in the range of 1.5 to 2.5% for FY23, lower than the 2 to 3% target.
Lendlease has made cuts totalling more than its $160 million savings target, but it recorded $170 million in restructuring charges and a $289 million impairment expense on underperforming projects.
