• Operating Profit After Tax: $122 million, up $133 million.
• Operating Earnings Per Security: $0.17.
• Group Operating Return on Equity: 5%.
• Core Operations Return on Equity: 16.3%.
• Distributions Per Security: $0.06, payout ratio of 34%.
• Statutory Profit: $48 million.
• Gearing: 27% as of December 31.
• Funds Under Management: $50 billion.
• Co-Investment Yield: Gross yield of 4.4%, distribution yield of 3%.
• Development Completions: $2.3 billion.
• Construction Revenue: $1.5 billion, down 18%.
• Backlog Revenue: $6.2 billion, up 59% from FY24.
• Net Debt Increase: $3.8 billion.
• Available Liquidity: $2.6 billion.
• Cost Savings Target: $125 million annual savings by FY26.

• Warning! GuruFocus has detected 7 Warning Signs with LLESY.

Release Date: February 16, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lendlease Group (LLESY) has made significant progress in simplifying its operations, reducing its risk profile, and recycling capital, with $2.2 billion of transactions already announced or completed.
• The company is on track to deliver $125 million in cost savings by the end of FY25, with a new management structure and cost-saving initiatives already in place.
• Lendlease Group (LLESY) has secured $1.5 billion in new mandate wins across Australia and Asia, indicating strong growth potential in its investment management segment.
• The company has a strong backlog of construction work, with $6.2 billion in backlog revenue, and anticipates a return to profitability in the construction segment in the second half of FY25.
• Lendlease Group (LLESY) has successfully exited from international construction in the US and UK, ahead of expected timelines, which is expected to reduce risk and improve focus on core operations.

Negative Points

• Lendlease Group (LLESY) experienced construction losses predominantly on two projects due to difficult operating conditions, including material cost inflation and supply chain issues.
• The company's gearing remains elevated at 27%, although it is expected to decrease with ongoing capital recycling initiatives.
• Operating earnings per security were relatively low at $0.07, with a group operating return on equity of only 5%.
• The company recorded a statutory profit of only $48 million after allowing for $74 million of negative investment property revaluation.
• There is a level of tail risk retained from the sale of international construction businesses, which could impact future financial performance.

Q & A Highlights

Q: Hi, Tony, in your closing remarks, you seemed confident about the outlook with military housing and the Capella sale. Did you consider tightening FY25 guidance given the wide range? A: Thanks, Simon. The nature of our business involves some volatility, so we are comfortable with the guidance range remaining unchanged. We have several transactions in progress, including military housing and the Capella sale, which support our outlook. We will update the market as we progress with other initiatives.

Q: Can you confirm that the original $2.8 billion asset sales target for FY25 remains on track for completion? A: Yes, Simon. The TRX retail, retirement in China, and Australian retirement assets processes are underway. We are focused on accelerating capital release in international development and optimizing the rest of the international development capital.

Q: $1.5 billion of new mandate wins across Australia and Asia post-balance dateare there more opportunities in the pipeline? A: These mandates were tendered in the market. One in Australia will be announced in April, and another from a key capital partner across Asia. We aim to grow international investment management with low capital balances needed alongside this capital.

Q: Can you talk about key items driving earnings in FY26 and 27, particularly in development projects? A: Investment is underpinned by $50 billion of funds under management, with new mandates expected to grow fee income. Construction is projected to grow to $4 billion in revenue in FY26, with historical average margins. We are focused on restocking the pipeline with $20 billion of near-term opportunities, and anticipate interest costs to reduce as we lower gearing levels.

Q: Are you still targeting a $500 million initial quantum for the buyback, and what about the timing? A: Gearing remains elevated at 27%, but we have a clear path to deleverage with capital recycling initiatives. We intend to announce a securities buyback upon executing the $2.8 billion of capital recycling initiatives. The buyback is sized at up to 10% of capital, roughly $500 million.

Q: What's the risk retained on non-core construction businesses sold, and expectations for the second half? A: We've completed the US construction sale and announced the UK sale. We have provisions and insurances to manage tail risk. We expect some profits on the UK sale, but net neutral in terms of tail risk exposure. We've provisioned appropriately for international construction risk.

Q: On Victoria Cross, is there potential for profit once leasing progresses? A: We are progressing on leasing, now at 25%. Since the Metro opened, North Sydney has become a leasing priority. We've seen a slight valuation decrement, but there's future profit potential as leasing progresses.

Q: Can you provide more detail on the two construction projects with losses and how to avoid such issues in the future? A: These projects date back to 2020-2021 and were fixed price, impacted by material cost inflation and supply chain issues. We are pursuing recoveries not accounted for in this period. We've reviewed all projects and have new leadership in the Australian construction team.

Q: On the $20 billion advanced projects, is there anything expected to come in the near term? A: We have exclusive positions on several off-market deals and are progressing them. One is nearing completion and will be announced soon. We are also bidding for on-market deals like Arden in Victoria and Black Wattle Bay in New South Wales.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.