Lend Lease loses its way
Recommendation
This new direction is about becoming a force in the global real estate market, a central plank of which is the development of the real estate investment business, or property trusts. The trouble is that start-up costs have already been higher and profit margins have been slimmer than the company had expected.
At the AGM management pined for the days when 'we had MLC'. From the bleeding heart speeches that shareholders endured you'd think the business was given away. It wasn't. Lend Lease sold its fattest cash cow and has so far failed to skilfully deploy the proceeds to replace the lost earnings power.
Suffering
You don't hear Southcorp's management complaining about the sale of its packaging business. Why? Because the funds from the sale were spent on a well-executed wine strategy. The same cannot be said of Lend Lease.
Shareholders had salt rubbed into their wounds when US-based executive Sheryl Pressler walked away with $15m for less than a year's work. The woman whose mantra in the 2000 annual report was 'perform, perform, perform' obviously didn't. What a travesty. While Ansett workers struggle to get their legal entitlements, failures at the top of the tree are paid huge sums just to walk out the door.
Her termination package represented about 10% of the company's 2001 bottom line and raised the ire of self-proclaimed 'corporate terminator' Jack Tilburn. Chair Jill Kerr Conway answered Tilburn's query by trotting out the tired line about competing in the international market and having to pay for quality. It won't wash.
Strategy unproven
Surely the company has some rudimentary negotiating skills, although these were clearly lacking in the five-year contract Lend Lease had to pay out to get rid of Pressler. We believe this is a symptom of deeper managerial problems and a company struggling with an unproven strategy.
Consider that at 30 June 2001 Lend Lease had $3.67bn in shareholders' equity. To earn a respectable 12% on that sum the company needs to turn a profit of $440m. Even after adding back the $90m in amortisation charges, as Conway asked investors to do at the AGM, the company is years away from achieving anything like this figure.
As you might have guessed, the past few months have only increased our concern with Lend Lease. The stock is down a little since we mentioned it last issue (Hold/Sell Down - $11.80) and we fail to see how it can deliver respectable returns to shareholders in the near future. We're moving to an outright SELL recommendation.