Lendlease warns on inflation as investors seek faster start on projects

The company is under pressure to start producing big projects in its $114bn pipeline to deliver returns.

Lendlease CEO Tony Lombardo at Barangaroo in Sydney. His company is seeing inflation globally. John Feder/The Australian.

Lendlease has reiterated it is on track to deliver its $114bn global pipeline but company chairman Michael Ullmer warned at the company’s annual meeting on Friday that inflation could impact major economies.

The developer is looking to speed up delivery of its big ticket projects under new chief executive Tony Lombardo but is also dealing with a series of executive departures, including Kylie Rampa who this week was appointed to head Queensland government-backed funds manager QIC, and ex-CFO Tarun Gupta, who now heads Stockland, and is picking up senior staff.

Former Lendlease boss Steve McCann went to run James Packer’s Crown Resorts after he retired from Lendlease mid-year, handing over to the new chief, Mr Lomdbardo, who has unveiled cost cuts that saw 400 jobs go in Australia and a strategy to get development up to $8bn annually around the world.

Despite a share sell down in the wake of the new course being unveiled as investors will not reap the benefit for several years, and the company being hit by development writedowns and more costs on its exit from engineering, Mr Ullmer insisted the company was on track.

He called out the potential impact of inflation, with the narrative coming out of central banks around the world saying that the issues were “transitory around supply chain bottlenecks”.

But on Mr Lombardo‘ s recent international trip, in which he met with other business leaders, showed “they were all talking about the inflation they were seeing in their businesses”.

“The view is that it’s actually … more systemic and underlying and so that’s something that we’ve all got to think really carefully about how that will impact our business operations,” he said.

Mr Ullmer said that there may also be upside from inflation in the company’s residential business but it was also monitoring costs on projects.

Mr Ullmer apologised again for the performance of the engineering division and said the company was confident about its position in a legal case it has launched against buyer, Acciona, to recoup a final instalment due on the business.

Lendlease has previously been hit by hefty losses on the Melbourne Metro project but it was now confident that the consortia it was part of had appropriate measures in place to allow to completion of the project with the provisions the company had already established.

He defended Lendlease’s exit from the sector despite governments now changing their approach to handling big projects.

“The risk profile in this business is just so different to the rest of our business, and that’s why it was appropriate for us to separate the business, notwithstanding the engineering sector is booming in Australia,” he said.

Lendlease faces two years of resetting before earnings are forecast to pick up and Mr Ullmer said that urban development was a very long cycle business.

“I think management have done a good job on making it very clear to the market that we are very confident on the projects that we have coming through,” he said.

Investors are pushing for the business which ranges across multiple markets and numerous sectors to be further simplified. Part of the complexity is required for Lendlease to produce stock including build-to-rent and data centres for new funds, in addition to traditional property areas.

But Mr Ullmer flagged that the strategy laid out by Mr Lombardo would see a further sell down in retirement living business, saying there was “appetite in the market for another 25 per cent to be sold down”. In the land estates business the company could also ”potentially bring in a capital partner to work with us”. But as in retirement Lendlease would stay as manager.

Mr Ullmer said that despite the difficulties in engineering – which prompted pay reductions for top management and the board – the rest of the business had pivoted to build up an “incredible pipeline around the world and we continue to identify new opportunities”.

Proxy advisers recommended that big investors support the main resolutions at the meeting and they passed with near full support.

Lendlease shares closed 26c lower at $10.41.