Lendlease plunges to loss on weak development, construction
Plummeting development and construction earnings have pushed Lendlease to a net after-tax loss of $264 million in a tough first half that the diversified developer and investor says will be a trough and a reset as it cut costs under new chief executive Tony Lombardo.
The swing to loss from a $196 million profit a year earlier reflected the halving of lot settlements to 504 in its residential communities business, a three-quarter reduction in earnings before interest, tax, depreciation and amortisation at its commercial urban business to $45 million and a 19 per cent drop in construction EBITDA, largely due to COVID-19 impacts on work at its US operations.
Mr Lombardo said the company had pushed on with the restructure announced last year to sell less-profitable projects and nearly double funds under management, removing $160 million worth of costs each year. Profitability would improve in the second half, he said.
“We’re confident Lendlease has passed the low in profitability,” Mr Lombardo said.
“While COVID risks remain, improved visibility of factors within our control provides more certainty on the outlook for the group.”
Investment EBITDA rose 17 per cent to $141 million as funds under management grew by 11 per cent, investment income picked up and its retirement living business delivered a higher contribution.
Pandemic clouds remain over the development business. Lendlease narrowed its returns outlook for development return on invested capital in the current year to a 2-4 per cent range from 2-5 per cent.
The company boosted its ROIC outlook for its investments arm to 7.5-8.5 per cent from 5-8 per cent and kept its anticipated construction EBITDA margin unchanged at 2-3 per cent.
The pandemic had cut construction work in the US, it warned.
“Significantly reduced new work secured in the Americas since the onset of COVID resulted in a further decline in revenue,” the company said.
“Overall returns were in the middle of the target range.”
Lendlease said it remained on track to secure the targeted $160 million in cost savings this year, with 60 per cent of the actions needed to make the savings achieved to date. It said that “most” of the remaining initiatives were likely to be implemented by end-June.
The improvement over the six months to June would come as the benefit of cost savings was realised, from the $170 million sale of a 28 per cent stake in its US military housing income stream, an anticipated $2 billion-worth of completions in development projects and improved productivity in construction as COVID-19 restrictions eased, the company said.
Lendlease declared an interim distribution of 5¢ a security, one-third of the 15¢ it paid a year earlier. It is payable on 16 March.
