Lendlease Annual Report 2024
28 Lendlease Annual Report 2024 Financial Refining our business model to provide improved risk adjusted returns for securityholders. Financial strategy Following the strategy update in May 2024, new financial metrics have been adopted which replace the existing Portfolio Management Framework. Consistent with the strategic direction taken to refocus on the high performing Australian business and international Investments platform, there will be a material reweighting of Group capital to Australia over time to more than 75 per cent. Segment allocation of invested capital between Investments and Development is intended to be greater than 60 per cent for Investments as the Group transitions to more sustainable, recurring earnings. Following the wind down of the Capital Release Unit (CRU), approximately half of the Group's earnings are expected to be derived from the Investments segment, with 35 per cent from Development and 15 per cent from Construction. The Group's target gearing range will reduce to 5-15 per cent, reflecting the lower expected risk profile of the Group. The shift to a higher proportion of investment earnings and lower business risk is expected to support an improved investment grade credit rating over time. The distribution payout ratio remains unchanged at 30-50 per cent of Operating Profit after Tax. Measuring performance Reflecting the Group’s refocussed strategy, evolving market conditions and a continued focus on securityholder returns, external market guidance will focus on Earnings Per Share (EPS) from FY25. Group Return on Equity (Group ROE 1 ) will continue to be the Group's primary long term measure of return for securityholders. The Group aims to deliver through-the-cycle returns for securityholders, over and above the Group's cost of equity. Strategy update - financial targets 2 1. Target return Group ROE > Cost of equity 2. Group EBITDA mix 1 Investments 50% Development 35% Construction 15% 3. Invested capital mix 2 Investments >60% Development <40% Australia >75% International <25% 4. Capital structure 2 Gearing 3 (end FY26) 5-15% Investment grade credit rating 5. Distribution policy Distribution payout ratio 4 30-50% 1. Excludes corporate costs and excludes investment property revaluations in the Investments segment. 2. Through-the-cycle target. 3. Net debt to total tangible assets, less cash. 4. Based on Statutory Profit after Tax excluding investment property revaluations in the Investments segment and other exceptional items as determined by the Board. Sustainable financing Lendlease is one of the leaders in sustainable financing in Australia. Of the Group’s total financing facilities, more than 70 per cent or $4.1b are green or sustainability-linked. Accessing green and sustainability-linked borrowings has allowed us to facilitate the following outcomes: • Lengthen the maturity profile • Diversify funding • Support the execution of the Group’s sustainability strategy • Improve lender engagement • Provide good access to markets while achieving competitive funding costs Capital Allocation Framework A new Capital Allocation Framework has been developed, setting out a transparent hierarchy for capital deployment. Excess cash generated by the Group will be allocated to debt reduction, capital returns to securityholders and growth. In the short to medium term, debt reduction and capital returns to securityholders will be prioritised over growth. By the end of FY26, we are aiming to reach our revised target gearing level of 5-15 per cent. In addition we will look to return up to $500m of capital to securityholders as capital is released from the $2.8b of assets that are currently on- market, subject to the following: • Completion of the previously announced Communities transaction • Forecast gearing reaching target 5-15 per cent level by the end of FY26 • Maintaining existing credit ratings • Buy-backs being accretive to EPS Going forward, we'll continue to assess the merits of debt reduction, investing for growth and returning capital to securityholders. 1. Calculated as Operating Profit after Tax (OPAT) divided by average equity. OPAT for FY24 is calculated as Statutory Profit excluding investment property revaluations in the Investments segment and excluding other exceptional items. From FY25, OPAT will only exclude investment property revaluations in the Investments segment. 2. Announced on 27 May 2024. Represents through-the-cycle targets post simplification. Detailed financial performance For detailed information on our FY24 financial performance, refer to the Performance and Outlook section on page 48 and the Financial Statements on page 95. Opposite: Sydney: Residences One One Sydney Harbour
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