Lendlease Annual Report 2022

58 Lendlease Annual Report 2022 Group performance Key Financials 1 $m FY21 FY22 Var. Core Business Investments 276 497 80% Development 469 181 (61%) Construction 173 131 (24%) Segment EBITDA 918 809 (12%) Corporate Costs (161) (180) (12%) Operating EBITDA 757 629 (17%) Depreciation & Amortisation (148) (146) 1% Net Finance Costs (137) (116) 15% Operating Profit before Tax 472 367 (22%) Income tax expense (95) (91) 4% Core Operating Profit after Tax 377 276 (27%) Reconciliation to Statutory Profit / (Loss) after Tax Non Core (181) (42) 77% Non Operating Items 2 26 (333) NA Statutory (Loss)/Profit after Tax 222 (99) NA Group Core Operating EPS cents 54.8 40.1 (27%) Distribution per Security cents 27.0 16.0 (41%) Total Group Statutory EPS cents 32.3 (14.4) NA Total Group Statutory ROE 3 % 3.2% (1.4%) NA 1. Operating earnings presented reflects Statutory earnings adjusted for non operating items and the Non core segment. Non operating are Investments segment property revaluations, restructuring charges and impairment expenses. 2. Non operating items after tax for the year ending 30 June 2022 includes Investment segment revaluations $70m, offset by restructuring costs $119m, development impairment costs $223m, intangible impairments relating to the Digital business $55m, other intangible impairments $6m. Prior year includes Investment segment revaluations $26m. 3. Return on Equity is calculated using Profit after Tax divided by the arithmetic average of beginning, half and year end securityholders’ equity. Performance The Group’s Statutory Loss after Tax for the year ending 30 June 2022 was $99m, compared with a Statutory Profit after Tax of $222m for the prior year 1 . This included a loss of $333m from Non-operating items driven by restructuring costs, and a loss of $42m from the Non-core segment. The Group recorded Core Operating Profit after Tax of $276m for the year ending 30 June 2022. Core Operating Earnings per Security of 40.1 cents represents a Return on Equity of 4.0 per cent. Distributions per security totalled 16 cents, representing a payout ratio of 40 per cent of Core Operating Profit. Good progress has been made in advancing several strategic priorities which provide momentum into FY23 and beyond. These include approximately $11b of investment partnerships and the commencement of $5.9b of developments. Core segment EBITDA of $809m was down from $918m 1 . Investment earnings were up substantially with both higher fund management fees and a recovery in investment income. Development profitability remained suppressed with limited completions, and Construction earnings continued to reflect COVID impacts, cost pressures and lower new work secured in Europe and Americas. The Investments segment outperformed with a 9.7 per cent return on invested capital, above our target range of 6-9 per cent, boosted by the part divestment of the asset management income stream of the US Military Housing portfolio, as well as a recovery in portfolio income and higher management fees. The lower contribution from the Development segment reflects fewer completions and the impact of the change in approach to our joint venture projects, which more closely aligns the timing of profit with cash flow and capital at risk. While the return on invested capital of 2.2 per cent was well below target, albeit within the expected range for FY22, progress continues to be made towards converting the development pipeline with Work in Progress at a record $18.4b. In the Construction segment, revenue was up driven primarily by the Australian region. The Americas, where new work secured has reduced significantly since the onset of COVID, recorded a decline in revenue. The construction EBITDA margin of two per cent was at the bottom of the 2-3 per cent EBITDA target range. Corporate costs of $180m were higher due to a combination of one-off provisioning in the current year and several one- off benefits which reduced reported costs in the prior year. Excluding these one-off items, corporate costs would have declined. Net finance costs of $116m were lower with reduced committed facilities and lower average drawn debt. The average cost of debt was largely unchanged despite base rate increases due to the high proportion of fixed rate debt. The balance sheet remains in a strong position with gearing of 7.3 per cent and total available liquidity of $3.9b. The Non-core loss primarily reflects costs associated with the exit of the Services business in FY22. We have maintained provisions we consider are appropriate to complete our share of the retained Melbourne Metro project and for potential warranties associated with the now exited Engineering and Services businesses. At the beginning of the year the Group announced a five-year roadmap to deliver long term sustainable performance, with FY22 a Reset year. The roadmap has simplified the business and created a leaner organisation. Restructuring costs associated with these changes, recorded as Non-operating items, were $342m post tax and include allowances for employee and tenancy costs, and development impairments on a small number of underperforming projects. Recurring annual savings arising from simplifying the Group’s operating model were $172m, which have exceeded our target of more than $160m pre tax on an annualised basis. Additional cost savings are anticipated in FY23. Restructuring charges of $170m pre tax were incurred to generate these savings. A change in development strategy across a small number of projects incurred an impairment expense of $289m pre tax. A review of the Group’s digital business reaffirmed the importance of the strategy, along with a more focused product offering. A refinement to the existing strategy will enable a more efficient use of the Group’s capital. An impairment expense of $55m post tax was recorded in relation to products that have been discontinued. 1. Comparative period the year ended 30 June 2021.