Lendlease announced a statutory loss of $99m for FY22 but has seen conditions improve over the last 6 months with core operating profit rising to $248 million, up from $28 million in the first half.
Global Chief Executive Officer and Managing Director, Tony Lombardo said, “We made significant progress in resetting our company for future growth. We are now a leaner organisation and more agile in responding to our customers. This year, we formed approximately $11b of investment partnerships that will underpin strong growth in funds under management while work in progress is at a record $18.4b”.
“We remain on track to meet our more than $8b completion target in FY24, along with the Return on Invested Capital target for the Development segment of 10-13 per cent. The record level of Work in Progress, along with our assessment of project fundamentals, provides confidence in achieving both the completion and return targets,” said Mr Lombardo.
Core Operating Profit after Tax, the Group’s measure of underlying earnings, was $276m for the year ended 30 June 2022. Core Operating Earnings per Security of 40.1 cents represents a Return on Equity of 4.0 per cent. Distributions per security of 16 cents, represents a payout ratio of 40 per cent.
The Group’s Statutory Loss after Tax for the year ending 30 June 2022 was $99m. Non operating items of negative $333m and a non core segment loss of $42m provide the reconciliation of core operating profit to the statutory loss of $99m.
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. This was reflected in a Statutory loss and a modest Core profit.
The Group’s financial performance improved in the second half and there is solid momentum going into FY23. Core profit rose from $28m in H1 to $248m in H2 and development commencements accelerated from $1.5b in H1 to $4.4b in H2.
The Group Return on Equity Target of 8-11 percent is expected to be met from FY24.
Highlights
- Statutory Loss after Tax of $99m
- Core operating1 Profit after Tax of $276m:
- Full year distributions of 16 cps, payout ratio of 40%:
- Final distribution of 11 cps
- Earnings Per Security of 40.1 cents
- Significant recovery in H2 provides momentum for FY23:
- Statutory result: $165m profit in H2; $264m loss in H1
- Core profit: $248m in H2; $28m in H1
- Development commencements $4.4b in H2; $1.5b in H1
Business renewal:
- Refreshed leadership and simplified organisation structure
- Recalibrated cost base – delivering savings >$160m per annum
- Exit of Non core Services business
- >$1b strategic portfolio divestments
- Formed c.$11b of partnerships to drive growth in funds under management
- Record Work in Progress of $18.4b
Specifically, the Group advanced numerous strategic initiatives:
- Refreshed leadership and structure of organisation
- Reducing the cost structure, exceeding our savings target of >$160m per annum;
- Simplified the Group by exiting our Non core businesses with the divestment of Services;
- Formed c.$11b of investment partnerships to grow the platform;
- Obtained masterplan approval for >$8b of the development pipeline;
- c.$6b of commencements taking Work in Progress to $18.4b; and
- Repositioning the Australian Communities business with lot sales up 61 per cent.
Financials
Core Operating Profit after Tax, the Group’s measure of underlying earnings, was $276m for the year ended 30 June 2022. Core Operating Earnings per Security of 40.1 cents represents a Return on Equity of 4.0 per cent. Distributions per security of 16 cents, represents a payout ratio of 40 per cent.
The Group’s Statutory Loss after Tax for the year ending 30 June 2022 was $99m. Non operating items of negative $333m and a non core segment loss of $42m provide the reconciliation of core operating profit to the statutory loss of $99m.
Non operating items after tax include Investments segment revaluation gains of $70m offset by Development impairment expenses of $223m, restructuring costs of $119m and intangible impairments relating to Digital activities of $55m. The impairment of the Digital assets followed a strategic review which has prioritised products with expected higher returns.
The Non core loss primarily reflects costs associated with the exit of the Services business in FY22. We have maintained provisions we consider to be appropriate to complete our share of the retained Melbourne Metro project and for potential warranties associated with the now exited Engineering and Services businesses.
Group Chief Financial Officer, Simon Dixon, said “Maintaining financial strength, reflected in gearing of less than 10 per cent, was a priority for the Group as we transitioned through a reset year. This was achieved while deploying an additional $1b of development capital during the year.”
Gearing of 7.3 per cent is below the target range of 10-20 per cent, placing the Group in a strong liquidity position with total available liquidity of $3.9b.
Development capital was up from $4.4b to $5.4b as development expenditure accelerates along with Work in Progress and subsequent completions. Invested capital is planned to be re-weighted towards the Investments segment from FY24.
The recurring operating cost savings derived from our simplification initiatives during the year surpassed our target of >$160m pre tax, generating annualised savings of $172m.
Restructuring charges incurred to meet these savings were $170m pre tax. In addition, the change in strategy on a small number of underperforming development projects incurred an impairment expense of $289m pre tax.
“Our simplification has prepared the Group for continued acceleration in development activity and growth across the investments platform. We have also retained the financial capacity to support these growth ambitions,” said Mr Dixon.
Operating Segments Investments
The Investments segment outperformed with a return on invested capital of 9.7 per cent, well in excess of our target range of 6-9 per cent. The outcome 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. Investments EBITDA rose from $141m in the first half to $356m in the second half.
Investment partnerships formed during the year included a joint venture to redevelop the Comcentre in Singapore; a joint venture to develop the remaining office precinct at International Quarter London; the establishment of a value add Australian diversified fund; and the launches of a US life sciences partnership and an Asian innovation fund. We have added key leadership talent to facilitate future growth.
Development
The subdued contribution from the Development segment was the result of fewer completions and the impact of the change in approach to our joint venture projects, which more closely aligns the timing of development profit with cash flow and capital at risk. Development EBITDA recovered from $39m in the first half to $142m in the second half. While the returns from the segment were well below target, Work in Progress rose to a record $18.4b.
More than $8b of the development pipeline received masterplanning approval. In addition, approximately $6b of projects commenced including: 1 Java Street, New York; 60 Guest Street, Boston; Certis Centre, Singapore; Phase 1 of the Tokyo data centre; and the third and final residential tower at One Sydney Harbour.
Construction
In the Construction segment, we delivered a resilient outcome with our teams implementing a range of mitigation strategies to offset ongoing COVID impacts, various supply chain disruptions and related cost pressures. Nonetheless, EBITDA and the EBITDA margin were down on the prior year as a result of these factors.
Backlog revenue remains solid at $10.5b and is diversified by client type and sector, although dominated by Australia with $7b of backlog revenue. The lagged impact of the pandemic and our decision to remain disciplined in bidding for work has resulted in the Americas backlog declining to significantly below historical levels. We have maintained capability given our confidence that backlog and revenue will recover over time.
Outlook
The Group enters the new financial year with solid momentum, providing confidence in the Create phase of our five-year roadmap. While our integrated model enables a high degree of control in executing our strategy, we will be influenced by the external environment of higher inflation and interest rates.
The Return on Invested Capital for the Investments segment is expected to be in the range of 6-7.5 per cent for FY23, including $73m pre-tax from the further sale of 13 per cent of the Military Housing asset management income stream. While the development pipeline is expected to continue to provide the predominant source of future growth for the investments platform, new initiatives will be pursued selectively alongside our investment partners.
The Return on Invested Capital for the Development segment is expected to be in the range of 4-6 per cent for FY23. Higher commencements and a record amount of Work in Progress are driving a recovery in both completions and profit. The joint venture to acquire the c.$3b One Circular Quay development early in the new year is expected to form part of our targeted $8b of commencements and improve our returns over time by working with investment partners. However, scale benefits will not be achieved in FY23 and the revised approach to joint ventures means profit on new projects is anticipated to be deferred. As a result, returns in FY23 will remain below our target.
The EBITDA margin for the Construction segment is expected to be in the range of 1.5-2.5 per cent for FY23, lower than our target range of 2-3 per cent due to risks including ongoing COVID disruption, cost pressures and supply chain constraints. These risks have been well managed to date but their persistence, along with low activity in the Americas, is likely to impact performance in FY23.
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