Lendlease Faces Gearing Rise Amid $48M Profit and Strategic Divestments

Financial Turnaround and Strategic Progress

Lendlease Group has marked a significant financial turnaround in its half-year results for the period ending 31 December 2024, reporting a statutory profit after tax of $48 million compared to a loss of $136 million in the previous corresponding period. This recovery comes despite an 8% decline in revenue to $4.527 billion, reflecting ongoing challenges and strategic repositioning within its business segments.

The company’s operating profit after tax (OPAT) rose sharply to $122 million, driven by improved performance in its Investments and Development segments, offset partially by subdued results in Construction and the newly disclosed Capital Release Unit (CRU) segment. Operating earnings per security stood at 17.7 cents, delivering a modest 5.0% return on equity.

Segment Highlights and Operational Shifts

The Investments segment saw a 148% increase in operating EBITDA to $228 million, bolstered by the sale of its Life Sciences interests in Asia and a growing funds under management base now at $49.6 billion. Development rebounded strongly with operating EBITDA of $138 million and a return on invested capital of 14.9%, supported by apartment settlements at One Sydney Harbour and ongoing project commencements.

Conversely, the Construction segment faced headwinds, reporting an operating EBITDA loss of $25 million due to cost inflation, subcontractor insolvencies, and productivity issues on select projects. However, new work secured surged to $3.8 billion, with a robust backlog of $6.2 billion, predominantly in social infrastructure and defence sectors, providing a pipeline for future recovery.

The Capital Release Unit, newly reported this period, recorded operating EBITDA of $34 million, down from $143 million previously, reflecting the transition and capital recycling efforts including the sale of Australia Communities projects and the Asia Pacific Life Sciences platform.

Balance Sheet and Liquidity Position

Lendlease’s net debt increased to $3.8 billion, with gearing at 27%, driven by transaction delays and development spend. The company anticipates significant deleveraging in the second half of FY25, with approximately $1.7 billion in cash proceeds expected from completed or announced asset sales and apartment settlements. Total available liquidity remains strong at $2.6 billion, supported by committed facilities and cash reserves, providing flexibility to manage financial obligations and strategic initiatives.

Key Transactions and Outlook

Post-balance date, Lendlease announced a binding agreement to sell Capella Capital to Sojitz Corporation for $235 million, expected to contribute around $70 million to FY25 operating profit after tax, subject to regulatory approvals. Additionally, the $516 million sale of its US Military Housing business to an entity managed by Guggenheim Partners was completed in January 2025, marking a further step in the Group’s strategic portfolio rationalisation.

Looking ahead, Lendlease plans to continue capital recycling, grow its international investment platform, replenish its Australian development pipeline, and pursue cost reduction initiatives. The company also signaled intentions to announce a securities buyback in line with its May 2024 strategy update, aiming to enhance shareholder returns as it simplifies operations and strengthens its balance sheet.

Governance and Leadership Changes

The half-year period saw leadership transitions with J C Gillam appointed Chairman in November 2024, succeeding M J Ullmer, AO. The Board remains focused on executing the refreshed strategy and navigating the evolving market landscape.