Lendlease Annual Report 2022

62 Lendlease Annual Report 2022 Construction segment Key financial and operational metrics FY21 FY22 Revenue ($m) 1 6,398 6,579 Operating EBITDA ($m) 173 131 Operating Profit after Tax ($m) 100 68 New Work Secured ($b) 1 6.9 5.3 Backlog ($b) 1 11.3 10.5 1. Construction revenue to be earned in future periods (excludes internal projects). Performance The Construction segment delivered EBITDA of $131m, down from $173m in the prior year. The result was adversely impacted by productivity delays relating to COVID, lower new work secured, and increased cost pressures due to inflation and supply chain challenges. Notwithstanding these challenges, our strong client relationships, risk management approach and dedicated teams enabled a resilient performance. Revenue of $6.6b was modestly up on the prior year. This was driven by an 11 per cent uplift from Australia. Asia and Europe were broadly in line with the prior year. Revenue from the Americas was down seven per cent because of reduced new work secured since the onset of COVID, particularly in the northeast residential market. Several health related projects drove higher revenue in Australia. This included the Tweed Heads Valley Hospital and Randwick Campus Redevelopment; and the Pathway to 144 Mental Health Beds project which responds to the Royal Commission into Victoria’s Mental Health System. Office and residential buildings in New York and Los Angeles contributed to revenue in the Americas. The EBITDA margin was 2.0 per cent, the bottom end of the target range of 2-3 per cent. Australia’s margin was strong at 3.8 per cent, while margin pressure was driven by lower productivity across projects in Europe and the Americas. This compares with an EBITDA margin of 2.7 per cent in FY21, which included COVID induced temporary cost reduction measures as well as project completions that boosted the margin. New work secured of $5.3b was well down from $6.9b, with gains in the Australian business offset by continued weakness in the Americas and Europe. In Australia, new work secured of $3.6b was underpinned by the Frankston Hospital Redevelopment, Powerhouse Parramatta and two health related social infrastructure projects. New work secured of $1.1b in the Americas was significantly below historical averages, reflecting ongoing subdued activity in key markets, including delays in projects being brought to market. The business is preferred for $4.6b in new projects, including several social infrastructure projects in Australia and office projects in Europe. Extensive sector expertise and geographic diversity has been critical for the business to navigate a difficult operating environment. Outlook The EBITDA margin for the Construction segment is expected to be in the range of 1.5-2.5 per cent for FY23, potentially lower than our expected target range of 2-3 per cent, with the Australian region expected to be the main contributor to earnings. The outlook is subdued with ongoing disruption from the pandemic, cost pressures and supply chain constraints. The Group is closely monitoring these risks and has implemented various mitigation strategies. Backlog revenue remains solid at $10.5b and is diversified by client type and sector. Public sector projects account for two thirds of the backlog, while three sectors: social infrastructure; defence; and commercial account for more than 85 per cent. Australia has a strong workbook, with $7.0b in backlog revenue. Key projects include the Frankston Hospital Redevelopment, RAAF Tindal Stage 6 and USFPI Airfield Works, Powerhouse Parramatta, Liverpool Health and Academic Precinct and the North and South Towers of the Over Station Development at the Sydney Metro Martin Place Integrated Station Development. The Americas has backlog revenue of $2.6b. The lagged impact of the pandemic and our decision to remain disciplined in bidding for work has resulted in the Americas backlog declining to significantly below historic levels. We have maintained capability given our confidence that backlog and revenue will recover over time. Backlog revenue in Europe is $0.7b, and Asia backlog revenue is $0.2b. The Construction segment will continue to support the integrated model and target leadership positions in key sectors by leveraging its competitive advantage, focusing on key market trends and maintaining execution excellence.