Lendlease Group has reported a robust turnaround in its half-year results, posting an operating profit after tax of $122 million and advancing its strategic capital recycling initiatives. The company is on track to reduce gearing and enhance operational efficiency amid ongoing market challenges.
- Operating Profit after Tax (OPAT) surged to $122 million, reversing prior losses
- Capital recycling initiatives announced or completed total $2.2 billion, targeting $2.8 billion for FY25
- Statutory profit after tax of $48 million despite $74 million negative investment property revaluations
- Gearing at 27%, expected to decline materially in second half of FY25 with $1.7 billion contracted inflows
- Construction segment impacted by project losses but new work secured and backlog increased significantly
Strong Financial Turnaround
Lendlease Group’s half-year results for the period ending 31 December 2024 reveal a significant financial recovery, with Operating Profit after Tax (OPAT) rising to $122 million, a $133 million improvement from the previous corresponding period. This turnaround marks a return to profitability after a challenging prior year, underscoring the effectiveness of the company’s strategic refocus.
Despite this positive operating performance, statutory profit after tax was $48 million, weighed down by $74 million in negative revaluations primarily related to international office assets. These revaluations reflect ongoing market pressures in global real estate sectors, particularly in Europe and Asia.
Capital Recycling and Simplification Strategy
Lendlease has made strong progress on its May 2024 strategic initiatives, notably capital recycling. The group has announced or completed $2.2 billion in asset sales and remains on track to achieve its $2.8 billion target for the full fiscal year. Key transactions include the sale of 12 Australian Communities projects, the US Military Housing business, and the Asia Life Sciences assets.
The company is also exiting its international construction operations, with the sale of the UK construction business announced and US construction operations completed. This divestment aligns with Lendlease’s strategy to simplify its business and focus on core Australian operations and investment management.
Operational Highlights and Segment Performance
The Investment, Development and Construction (IDC) segment delivered a 171% increase in Operating EBITDA to $341 million, driven by strong contributions from Investments and Development. The Investments segment benefited from the establishment of the Vita Partners Life Sciences joint venture and a $1.6 billion portfolio acquisition, boosting segment EBITDA by 148% to $228 million.
Development earnings improved significantly, supported by settlements at Residences Two, One Sydney Harbour, and a robust Australian development pipeline valued at $10 billion. However, the Construction segment faced challenges, reporting a $25 million EBITDA loss due to cost inflation, subcontractor insolvencies, and productivity issues on two major projects. Despite this, new work secured surged to $3.9 billion, and backlog revenue increased 59% to $6.2 billion, indicating a strong pipeline for future recovery.
Balance Sheet and Outlook
Lendlease’s gearing ratio stood at 27% at half-year end, reflecting delayed receipt of transaction proceeds and ongoing project investments. The company anticipates receiving $1.7 billion in contracted cash inflows during the second half of FY25, which is expected to reduce gearing by approximately 10 percentage points. Available liquidity remains strong at $2.6 billion.
Looking ahead, Lendlease maintains its FY25 earnings per security guidance of 54 to 62 cents, with 18 cents secured in the first half and 36 to 44 cents expected in the second half. The group plans to announce a securities buyback as part of its capital management strategy once further capital recycling is completed.
Cost Reduction and Efficiency Gains
Corporate costs fell 61% to $57 million, aided by the absence of prior restructuring charges and ongoing cost-saving initiatives. The company targets $125 million in pre-tax run-rate cost savings by the end of FY25, with workforce reductions primarily in international operations progressing as planned.
CEO Tony Lombardo emphasised the company’s focus on simplifying operations, strengthening the balance sheet, and returning capital to securityholders, positioning Lendlease for sustainable growth.
Bottom Line?
Lendlease’s disciplined execution on capital recycling and operational improvements sets the stage for a leaner, more focused business, but construction segment risks warrant close monitoring.
Questions in the middle?
- How will Lendlease manage potential further losses in its construction projects during FY26?
- What is the timeline and scale for the anticipated securities buyback following capital recycling?
- How will international investment management platforms evolve amid ongoing market volatility?