LendLease Group Financial Analysis

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LendLease Group Financial Analysis

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Contents

1. Company Overview.. 3

2. Income Statement 4

2.1 Revenue. 4

2.2 Expense. 5

2.3 Net Profit 5

2.4 Overall Analysis. 5

3. Balance Sheet 5

4. Financial Statement Notes: 7

4.1 Note Summary: summarise the information found in this note. 7

4.2 Why does the company include this note in the annual report?. 8

5. Newspaper article. 8

5.1 Summary: write a one paragraph summary of the article key points. 9

5.2 Annual Report: how does the information in this article relate to the current annual report or future annual reports. 9

6. Ethics. 9

6.1 Ethical Issue:  explain your ethical issue. 9

6.2 Impacts of ethical issue:  use in text citations to show your research. 10

Reference List: 11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Company Overview

 

The product or service they provide

 

LendLease Corporation was formed in 1958 by Nick Dusseldorp, fields like who invested in various fields like construction, development and finance. The company’s achievements in the past six decades have been founded on Nick’s ambition which is to create a distinction. LendLease is one of the largest international companies in Australia and employs more than 13,000 employees. LendLease’s headquarters is located in Sydney, Australia and operates in various continents like Asia, Europe and America. Through the employees, LendLease is able to leave a positive legacy by providing innovative health and safety solutions.

 

Who the customers are?

 

The continued rise in urbanization has led to growing demand of public infrastructure. LendLease uses a strategy that enriches the customers by delivering sustainable solutions. LendLease continues to expand into multiple sectors to meet the changing customer’s needs. The company’s financial strength enables the company to become the leading infrastructure and international property.  To maintain its competitive edge, LendLease continues to use the latest technology advancements to increase its production. LendLease also fund, build and manage major infrastructure projects in the urban cities.

 

LendLease development segment comprises key activities like urbanization, infrastructure development, retirement living and communities. The company manages the overall process of purchasing land, designing the masterplans and consultation with other stakeholders in the project management.  The company forms partnership with other partners to boost its sales in different cities. The communities segment as a strong presence in Australia, such as building of schools, university facilities and entertainment facilities

 

Where does the company do its business?

 

In Australia, LendLease holds major projects in Perth, Sydney, Brisbane and Melbourne. The company has achieved a major milestone in Australia especially in the construction of commercial buildings. An example is the construction of the International Convention and Exhibition Centre, which is delivered via public and private partnership.  The building is expected to complete by the end of financial year ending 2019, and will host 1000 residential apartments and a public library. Currently, LendLease Corporation has 15 active projects including pipeline development. In the American market, LendLease corporation has instituted he first phase which includes development of apartments and residential projects in New York, Boston and Chicago.  In financial year 2018, LendLease entered into a joint venture to develop its own telecommunication towers in the US. The business development in Asia cuts across the commercial and residential sectors. The company delivers large projects in Singapore, Kuala Lumpur and Lifestyle Quarter. In 2018, the company delivered its first major project in the Chinese market (Lendlease Group, 2018, p.17). In Europe, Lendlease continues to partner with the local communities and the government to create sustainable development. Some of the notable projects in financial year 2018 across Europe include the construction of High Road West in London, Silvertown Quays in the Eastern London, two LendLease Group Financial Analysis
apartment properties in Elephant Park, Canada.  

2. Income Statement

·         Screenshot of Income Statement

Figure 1: Consolidated Income Statement (LendLease Group)

Source: LendLease Group 2018, p.73

2.1 Revenue

Name

2018 $m

2017 $m

Difference

Horizontal Analysis

Revenue

16,556.1

16,659.0

-102.9

99.38%

2.2 Expense

Name

2018 $m

2017$m

Difference

Horizontal Analysis

Other expenses

1007.2

1035.9

-28.7

97.23%

Vertical Analysis

6.08%

 

6.22%

X

X

2.3 Net Profit

Name

2018 $m

2017 $m

Difference

Horizontal Analysis

 

Profit after tax

793.6

758.7

34.9

104.6%

Vertical Analysis

4.79%

4.55%

X

X

 

2.4 Overall Analysis

Based on the analysis, revenues were $16,659.0 million in 2017 and then decreased to $16,556.1milion in 2018. This was contributed by a decline in revenues from the sale of development properties in $2829.3 million in 2017 to $2602.9 million in 2018. Revenues from the investments decreased from $507.0 million in 2017 to $291.9 million in 2018 (LendLease Group, 2018, p.73).  Despite this, other expenses which form a large proportion of the company’s expenses lowered from $1035.9 million to $1007.2 million in 2018.  As a result, the profit after tax slightly increased from 4.55% to 4.79% in 2018 because of the decrease in the revenues.

 

Profit after tax shows the ability of a company to generate net income after all the company’s expenses are deducted (LendLease Group, 2018, p.73). It is also the return which shareholders receive from their investment in the company. An increasing or higher ratio is recommended since it shows that a company us profitable. Based on the analysis, Lendlease had a ratio of 4.55% in 2017 and then increased to 4.79% in 2018.

3. Balance Sheet

·         LendLease Group Financial Analysis
 Screenshot of Balance Sheet

LendLease Group Financial Analysis

 

Figure 2: Statement of financial position (LendLease Group)

Source: LendLease Group 2018, p.73

 

 

Name

2018 $m

2017 $m

Difference

Horizontal Analysis

Receivables

2670.2

2749.2

201.1

106.17%

Total Assets

 

16,963.6

20,854.2

-3,890.6

81.34%

Vertical Analysis

15.7%

 

13.18%

 

 

 

 

Numerator

(top number)

Denominator (bottom numbers)

Answer

Receivables turnover ratio

16556.1

2670.2

5.08

 

4. Financial Statement Notes:

·         LendLease Group Financial Analysis
Screenshot of the Receivables

Figure 3: Loan and Receivable note (LendLease Group)

Source: LendLease Group 2018, p.90

4.1 Note Summary: summarise the information found in this note

Loan and receivables are under the financial note 22.  Particularly, it includes trade and other receivables which are determinable payments, non-derivative financial assets and payments which are not equity securities. Lendlease receivables arise when the company provides goods or services to the debtor without an intention of trading the receivables. Other receives include property development, investment management and miscellaneous items.  Lendlease uses the effective interest method in amortizing the loans and receivables. The method discounts the future receipts over their term (LendLease Group, 2018, p.90). The expected loss method is used in evaluating the impairment loss of loans and receivables.

 

The current trade receives less impairment is $1240.8 million in 2017 and $1604.5 in 2018. The total current receivables were $2749.2 million in 2017 and $2670.2 million in 2018. The total non-current assets were $507.7 million in 2017 and $787.8 million in 2018. The current and non-current assets results to total loans and receivables of $3256.9 in 2017 and $3458.0 in 2018.

 

4.2 Why does the company include this note in the annual report?

LendLease includes the above note so that it can explain the total items contributing to the total loans and receivables. This is because it’s difficult to put all these items in the income statement (LendLease Group, 2018, p.90). Additionally, it indicates the changes in these items from one financial year to another.

 

Footnotes refers to the financial statements which helps a company arrive at its financial statements. These statements helps explain inconsistencies and irregularities from one financial year to another (Averkamp, 2019).  Financial notes acts as a supplement and provide clarity to the financial statements. Additionally, these notes helps in explaining the underlying issues in the financial statements.

 

Footnotes on loans and receivables helps in making predictions in the next financial period. These may include notable business activities which may have an impact on the company.  These activities may either have a positive or negative impact to the business. Description of changes of payment policy may also be included in this note (Averkamp, 2019).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. Newspaper article

Figure 4: Screenshot of first page of the article

 

LendLease Group Financial Analysis

 

  Source: Financial Times

·         Article Title: LendLease slashes dividends : revenue slumps $1 billion in tough trading period

·         Author & Publisher: Michael Bleby

·         Date: 25/02/2019

 

5.1 Summary: write a one paragraph summary of the article key points

The article talks about how LendLease cuts its dividend by two third due to its pre-tax loss. This is because of the reduction in revenues by $1 billion, which also included a $500 write-down in engineering business (Bleby, 2019).  The company announced a 12¢ dividend for the six months to December, being a reduction from 34¢ a year earlier. In 2019, the revenues decreased to $7.7 billion from $8.7 billion in 2018.  The article indicate that the development sector earnings before income, taxes and depreciation doubled, while the construction revenues encountered a loss of $362.3 in financial year 2019.

5.2 Annual Report: how does the information in this article relate to the current annual report or future annual reports?

The article shows the financial challenges that LendLease encountered in the half year of 2019. This is contributed by the adverse impacts from the engineering projects. This made the company’s shares to drop from 91¢, to $13.28, making the company the third-worst performer on the S&P/ASX 200 index on Monday. During this half period, the company’s shares have declined a lot over the past half year.  The slowdown in the NorthConnex road project in Sidney mafe the company’s performance to decline in 2019.  This sector forms the basis of the company’s core operations.  The construction revenue in Australia also declined $3.7 billion to $3.4 billion. Despite the many issues in the engineering sector, LendLease continues to highlight higher visibility in the future earnings.  The urban redevelopment contract in London worth $14 billion is one of the largest projects in the Europe. This is expected to foster high revenues by the end of 2019 (Bleby, 2019).

 

6. Ethics

 

6.1 Ethical Issue:  explain your ethical issue

Health and Safety is an ethical issue in LendLease Corporation since it is involved in construction of building and property. Employees are therefore exposed to accidents like falls which results to permanent disability or even death. For the financial year 2018, the company experienced fatal accidents on its projects, showing LendLease weaknesses on safety vigilance.  However, the company is committed at improving its safety practices and other outcomes to enhance a safety culture (LendLease Group, 2018, p.12). The company also regularly reviews its policies and procedures to enhance continued improvement.

 

LendLease is known to cover up serious incidents like the one that happened in Barangaroo worksite.  A senior former manager in charge of environmental health and safety refers the company’s attitude as an absolute disgrace. The former manager argues that there is culture of intimidation in the organization (Joyner, 2016). This prevents the staff from speaking out of fear of losing their positions. Worksite incidents are not only hidden internally, but also from the regulator. Hiding the incidents internally means that the organizational statistics are kept very low, to enable LendLease secure many tenders in future.  This culture is spread in all the subsidiaries, meaning that there is a huge problem. Additionally, the behaviour is driven from the top managers in a project to supervisors and then to ground level.

 

According to (Joyner, 2016), the workplace incidents reported at Barangaroo project is multiple times that of large construction sites in Australian cities. Data reported by the ABC news shows that there were 123 incidents at the harbourside construction site between 2014 and 2016.  This number is significantly higher than the 25 reported incidents at Metro rail project and Darling Harbour Precent , Sydney. The manager also reports that these incidents are just a tip of the iceberg. In most occasions, the staffs were instructed by the senior managers of the project, to hide things and not disclose them.

 

On one incident, the elevator gates came off from its hinges, and fall from level 32 to the ground floor during a particular night shift. Despite the severity of this incident, it was never reported to any authority.  In another event, a canvas bag was basically used as a lift bag in carrying a hundred of products.  In a particular day, one of the canvas bags carrying 500 kilograms of steel failed as it was lifted. The steel run off from the bag to the ground floor.  The staff reported the incident, but the management failed to pay adequate attention to the worksite safety.  The senior manager also revealed that there were unreported incidents which ranged from minor to the upscale.

 

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6.2 Impacts of ethical issue:  use in text citations to show your research

Due to these incidents, LendLease has encountered a lot of criticism for its plans to construct the Sydney casino, owned by James Packer’s Crown Resorts. Over the years, LendLease, the main contractor of Barangaroo has employed thousand workers in its major

Projects (Joyner, 2016). However, these incidents make the company’s projects to be controversial. A former delegate and an official from the Electrical Trades Union o the Barangaroo site, indicate that there were strict protocols during the project construction. According to the SafeWork NSW, LendLease is supposed to notify the state the construction regulators about all potential notifiable incidents.  In this case, LendLease management failed to report the incidents.  The underreporting of the incidents by the LendLease management raises a lot of concerns about its safety measures. Fred Barbin, the Barangaroo regulator reported that there was an incident where he was supposed to delegate, but nobody reported it. Fred confessed that the issue was hidden and only found out it through a third party. The staffs were threatened or under pressure to report these incidents, despite their safety being at risk.

 

The impact of these accidents is that it may lead to litigation cases which may cost the company a lot (Joyner, 2016). The company will receive negative reputation from the media and public if it fails to address the issue accordingly. This will make the customers go slow on LendLease products resulting to lower revenues. Apart from low staff turnover, the government may impose high compliance or regulation to the company which affects its normal operations.

 

Some of the employees that have worked in LendLease argue that this is not a safety company to work for. Additionally, the staffs confess that nothing meaningful has changed. This portrays clear information that LendLease need to change its safety culture. This entails compliance with all the procedures and policies involved in construction and development projects.

 

 

 

 

 

 

Reference List:

 

Averkamp, H., (2019) What are the notes to the financial statements? Retrieved from:

https://www.accountingcoach.com/blog/what-are-the-notes-to-the-financial-statements

Gerrish, J., 2019, ‘LendLease drops by with its earnings’, Market Mattters, viewed on 22nd

August 2018<https://www.marketmatters.com.au/news/2018/08/22/lendlease-drops-by-with-its-earnings/>

Joyner, T., 2016, ‘LendLease Covering up serious Incidents on Barangaroo Worksite, former

Safety manager says’. Viewed on 2nd Dec, 2016 <https://www.abc.net.au/news/2016-12-02/barangaroo-incidents-covered-up-former-safety-manager-says/8086054>

LendLease Group (2018) Annual Report, pp.1-109.