Lendlease Annual Report 2022

6 Lendlease Annual Report 2022 Chairman’s Report As an international real estate group operating in targeted gateway cities globally, Lendlease is well positioned to understand and respond to the changing nature of cities. Cities have always evolved, but will remain the engine of economic, social and cultural life. Throughout the period our gateway cities remained resilient despite emerging geopolitical issues, the lingering community health and social instability of the pandemic, and the continuing impacts of climate change. Our operations have been impacted by these challenges, but the organisation has been able to anticipate, mitigate and adapt to reset our business for future growth. First term as Chairman Now that I am in my second term as Chairman, I have reflected on the progress we have made over the last three years. On becoming Chair, my immediate priority was to lead the Board in a strategic review of the business, which resulted in the Engineering and Services businesses being deemed non core. Plans were enacted to separate them from the Group, with both businesses now divested. Simultaneously, a comprehensive review of the Board’s governance practices identified opportunities to enhance the effectiveness of Board processes. Changes were implemented to increase the focus of the Board on strategy, reputation, customer and our people. Two new directors, Robert Welanetz and Nicholas Collishaw, strengthened the Board’s experience in real estate investment and development. Nick, along with David Craig and Nicola Wakefield Evans, are seeking re-election at the 2022 Annual General Meeting. The Board remains committed to appointing directors with deep experience in our core sectors and expects to appoint an additional Non executive Director in FY23. Tony Lombardo was appointed Global Chief Executive Officer in June 2021 and oversaw executive leadership changes and the refresh of the Group’s strategy and organisational structure. The strategy to leverage our competitive advantage in the urban renewal of large-scale, mixed- use projects and to grow the investments platform remains at the centre of our five year roadmap. A streamlined operating structure supports the execution of the strategy, with increased transparency in our reporting. We acknowledge it has been a difficult period for our securityholders. On behalf of the Board, I recognise we have more to do in rebuilding confidence. However, the decisions we have made in the last few years have made a difference. The Group is well on the way to meeting its medium term investment and development targets, while maintaining delivery excellence in construction. I am confident this will lead to future cash generation, which should deliver sustainable growth in securityholder value over time. Health and Safety The health and safety of our people, our subcontractors and the communities in which we operate remains our number one priority. We are deeply saddened by the fatality of a subcontractor on one of our construction sites in New York, in an area under subcontractor management. Our sincerest condolences are extended to the family and colleagues of the young man who lost his life. It is a sombre reminder of the importance of our focus on safety for all people who interact with our places. It is also why Lendlease goes well beyond industry practice for reporting fatalities. Our safety culture, which instils pride among our employees, is exemplified by the implementation of innovative solutions. For example, the improvements we have made to the perimeter screens on steel framed buildings has set the industry standard in reducing the risk of falls from height for workers and materials. Further details on health and safety are provided on page 34 of this Report. Financial result Lendlease reported a Statutory Loss after Tax of $99m. This comprised a Core operating profit of $276m, a loss for Non operating items of $333m and a Non core loss of $42m. While disappointing, the outcome reflects the challenging global operating environment and the decisions we flagged to the market in August 2021 that we would be taking to reset the Group for future growth and the refocus of our digital activities. Core operating profit of $276m was down from $377m in the prior year with lower Development segment earnings, in part due to a revised approach to joint venture arrangements, more than offsetting a strong recovery in the Investments segment. While the financial performance was subdued, a recovery in operating momentum is expected to result in improved financial performance over coming years. Full year distributions of 16 cents per security reflects a payout ratio of 40 per cent on Core operating earnings per security. Our refreshed executive leadership team has simplified the business, created a leaner organisation and improved expected returns as a result of a reduction in annualised overhead costs of approximately $170m and redirecting capital. Restructuring costs associated with these changes were $342m after tax and include allowances for employee redundancies and tenancy exit costs and development impairments on a small number of underperforming projects. The impairment of intangibles relating to our Digital investments was $55m after tax. The Non core loss primarily reflects costs associated with the exit of the Services business. We have maintained provisions we consider to be appropriate to complete our share of the retained Melbourne Metro project and for potential warranties associated with the now exited Engineering and Services businesses. The Group entered FY23 in a strong financial position with a healthy pipeline of work, cash and cash equivalents of $1.3b and gearing of 7.3 per cent. The strength of our balance sheet positions the Group to increase development activity and grow the investments platform. Sustainability Businesses must have a clear purpose aligned to a long term strategy for shared value creation to achieve sustainable success. This is reflected in our purpose statement, creating places where communities thrive. Living our purpose means we help to create the best places for customers and the communities we serve, inspire our people, preserve our