Lend Lease Corp Ltd
Annual Report 2020

Plain-text annual report

1 Creating together Lendlease Annual Report 2020 Lendlease Annual Report 2020 Managing and Measuring Value2 All financial amounts in this report are in Australian dollars unless otherwise specified. Lendlease Corporation Limited ABN 32 000 226 228 Incorporated in NSW Australia Lendlease Responsible Entity Limited ABN 72 122 883 185 | AFS Licence 308983 as responsible entity for Lendlease Trust ABN 39 944 184 773 | ARSN 128 052 595 Lendlease Annual Report 2020 3 Contents Directors’ Report 1. Overview Chairman’s Report Group CEO and Managing Director’s Report FY20 snapshot 2. Our Business Our vision: To create the best places Our strategy Global presence, local knowledge Development Construction Investments 3. Creating Together By shaping cities Through creating the best places Through partnering By engaging with the community By looking into the future 6 14 28 4. Managing and Measuring Value 42 Our five focus areas of value creation Health and Safety Financial Our Customers Our People Sustainability 5. Risk 60 Risk governance and management Key risks and mitigation 6. Climate Related Risks and Opportunities 68 7. Performance and Outlook 8. Governance Board of Directors’ information and profiles Remuneration Report Directors’ Report Lead Auditor’s Independence Declaration 9. Financial Statements 10. Other Information Securityholder information Glossary Corporate directory 76 90 142 214 Front cover: Singapore: Paya Lebar Quarter c.$4 billion lifestyle precinct. This page: Sydney: Daramu House, Barangaroo South 4 Lendlease Annual Report 2020 5 About this report The Lendlease Annual Report 2020 has been prepared with reference to the International Integrated Reporting (IR) Framework that encourages businesses to consider what creates value for them and how this value contributes to long term sustainable returns for securityholders. Materiality A matter is considered material if senior management and those charged with governance believe it could significantly impact the value created and delivered in the short, medium and long term. We identify and capture material matters through the following processes: • Project Control Group (PCG) sessions, which include key internal stakeholders and represent the governance structure for overseeing the completion of the Annual Report • Capturing feedback through engagement and research during the financial year from key external stakeholders including investors, analysts, and other relevant groups • Engagement with the Board • Confirming that the strategy is consistent and relevant with the information collected above. The outcomes of these processes are the material issues noted on page 44 and 45, and in the section Our Business on pages 14 to 27. Reporting suite Our reporting suite provides information about the organisation and its key financial and operational achievements including: Directors’ Report and Operating and Financial Review (OFR) The required elements of the Directors’ Report, including the OFR, are featured on pages 4 to 141 of this report and include the sections: Our Business, Creating Together, Managing and Measuring Value, Risk, Climate Related Risks and Opportunities, Performance and Outlook, and Governance. The OFR is covered specifically on pages 4 to 89. All non financial metrics included in the Directors’ Report on pages 4 to 75 have been verified through our internal verification process. The Remuneration Report on pages 106 to 137 and the Financial Statements on pages 142 to 205 have been audited by KPMG. • The Annual Report Features information about Lendlease, our strategy, integrated financial and operational performance, corporate governance, Directors’ Report, Remuneration Report and Financial Statements • Biannual Results Presentation The current reporting period’s financial results and detailed segment information for projects including major urbanisation projects, investments and pipeline • www.lendlease.com Includes additional information on sustainability reporting, corporate governance, tax compliance and historical financial information. Our focus areas We have five focus areas that create long term value. They underpin our ability to create safe, economic and sustainable outcomes. Our success is measured by the value we create in these five focus areas and can be found throughout this report. Health and Safety Everyone has the right to go home safely. We remain committed to the health and safety of our people, and all of those who interact with a Lendlease place. Financial A strong balance sheet and access to third party capital enables us to fund the execution of our pipeline and deliver quality earnings for our securityholders. Our Customers Our customers love the places we create when we partner effectively, collaborate and innovate. Only through these actions can we respond to a changing world. Our People Our people are the greatest contributors to our success and enable us to fulfil our vision to create the best places. Sustainability Sustainability is core to our planning and clear in our outcomes. We have a proud history of giving emphasis to environmental, social and economic impacts. About us Lendlease is an international property and investments group with core expertise in shaping cities and creating strong and connected communities. Founded in Sydney in 1958, Lendlease was born out of a vision to create a company that could successfully combine the disciplines of Development, Construction and Investments. Headquartered in Sydney, our people are located in four operating regions: Australia, Asia, Europe and the Americas. We create award winning urban precincts, living options for any stage of life, retail precincts and workplaces to the highest sustainability standards. Our people and our partners are the greatest contributors to our success and underpin our ability to deliver our vision: To create the best places Places that we have created together with our customers, partners, securityholders, the community and our people. Sydney: One Sydney Harbour, Barangaroo South Artist’s impression 6 Lendlease Annual Report 2020 Overview 7 Overview Chicago: The Cooper, Southbank Lendlease is undertaking a major revitalisation on the banks of the Chicago River, on a site that has been mostly dormant for half a century. 8 Lendlease Annual Report 2020 Overview 9 Chairman’s Report It is impossible to present our year in review to securityholders without first acknowledging COVID-19 and its impacts on the regions in which we operate and our stakeholders including our people, securityholders and customers. The pandemic has reshaped most aspects of society. Governments around the world quickly responded to help shield their citizens and economies from the worst of the virus’s effects. This was, and continues to be, an entirely appropriate course of action. In a similar vein, the Board moved decisively to tackle COVID-19 related risks – including the health and safety of our people, our customers and the communities in which we operate, as well as our operations and our balance sheet. A Board subcommittee, which was formed in March 2020, had primary oversight of the Group’s response to COVID-19. Health and Safety This past year has reinforced that the health and safety of our people, and those who interact with our operations, is Lendlease’s number one priority. This year the Group recorded our lowest incident frequency rates for both Critical Incidents and Lost Time Injuries since we began reporting these metrics. Notwithstanding this strong performance, a construction worker tragically passed away in hospital from an infection contracted following surgery after a critical incident on one of our sites in Kuala Lumpur. This provides a strong reminder of why we have such an unrelenting focus on health and safety. Our sincerest condolences are extended to the deceased worker’s family and colleagues. Financial Result Lendlease reported a Statutory Loss after Tax of $310 million, as $368 million of costs previously flagged in February 2019 relating to the exit of Engineering were brought to account. While disappointing, the Board remain confident that exiting Engineering and focusing on our Core business is in the best interests of securityholders. Our first half Core profit of $308 million was followed by a $212 million loss in the second half of the year. Distributions to securityholders reflect the distribution of 54 per cent of first half earnings, 30 cents per security, and the distribution of Trust earnings in the second half of 3.3 cents per security. The Board moved decisively to tackle COVID-19 related risks – including the health and safety of our people, our customers and the communities in which we operate. A range of measures were implemented in the second half of the year to strengthen our financial position. This included raising $1.2 billion of new equity, arranging additional debt facilities, reducing operating costs and reviewing project expenditure. The equity raising provides additional flexibility and capacity to continue the delivery of our development pipeline while pursuing further investment opportunities. The equity was allocated 48.4 per cent to Lendlease Corporation and 51.6 per cent to Lendlease Trust. This allocation will enable the Group to continue to implement its strategy of conducting its active business in Lendlease Corporation, while holding its passive assets in Lendlease in an efficient manner, and will provide the Trust with additional capacity for investments to grow recurring earnings within the Group’s overall portfolio management framework. The Group entered FY21 in a strong financial position with cash and cash equivalents of $1.6 billion, undrawn debt facilities of $4.2 billion and gearing of 5.7 per cent. Board Renewal During the year, we continued to focus on our program of Board renewal and appointed two new Non Executive Directors, Margaret Ford OBE and Robert Welanetz. However, given the disruption caused by COVID-19, including continuing global travel bans and ongoing time zone challenges, Margaret has elected to step down from the Board. Margaret will continue to assist the Lendlease Board in respect of the Group’s Europe operations in an advisory capacity. Margaret has expressed a willingness to re-join the Board once the COVID-19 restrictions have significantly subsided. Robert, who brings significant international experience in our core sectors of Development and Investments, continues to serve as a Non Executive Director and will be standing for election at the Annual General Meeting. After more than eight years of service, Colin Carter will retire at the conclusion of our 2020 Annual General Meeting. During his tenure, Colin made an outstanding contribution, including oversight of the Board’s long term renewal and succession strategy and Board performance assessment. His depth of experience in strategy, sustainability and governance has helped shape Lendlease’s position on these critical issues. On behalf of the Board, I thank Colin for his unwavering support. More broadly, I am confident the Board has the right mix of skills, experience and diversity to govern Lendlease in the best interests of all our stakeholders. Executive Reward Strategy In this challenging year, the Board has considered a number of factors when determining remuneration outcomes for our CEO and senior executives. While the business performed well during the first nine months of the year, the dual impacts of COVID-19 and accounting for the costs associated with exiting Engineering, resulted in a statutory loss. On this basis, no short term award in relation to financial performance was made to the Group CEO or senior executives. Based on the achievement of non financial metrics that support long term value creation, the Board recognised the efforts of the CEO and senior executives via a Deferred Equity Award vesting over two tranches in FY21 and FY22. The Board considered that the recognition of the performance in this area, albeit at a reduced quantum from prior years, to be fair and appropriate as these contributions position the Group for success in FY21 and beyond. Further detail on the Board’s deliberations in this regard is provided in the Remuneration Report. Risk Culture After extensive internal consultation and testing, Lendlease’s Risk Appetite Tolerances were approved by the Board Risk Committee. These provide guardrails to assist management in aligning Lendlease’s appetite for risk with our decision making and review processes. They also provide a mechanism to identify, manage and report on risks through the lifecycle of projects and investments. The strength and maturity of our risk framework was evident in recent months as we navigated through the initial phases of COVID-19. Sustainability At Lendlease, we have a long and proud history of achieving numerous sustainability firsts. This continues to be the case. Following deep engagement across our entire business, including with the Board and Global Leadership Team, Lendlease has committed to two bold new sustainability targets. First, market leading carbon targets to meet our vision to live in a world warmed by no more than 1.5ºC. Second, we are aiming to create $250 million of social value by 2025. While recognising these new targets will be difficult to achieve, we believe they are worthwhile striving for, as our leadership position on sustainability continues to be a key competitive advantage. Commitment to First Nations Peoples The Board is also proud of the way we support and implement the principles of the UN Global Compact. Our Elevate Reconciliation Action Plan (RAP) is one way we demonstrate our operational performance on human rights, and specifically Indigenous peoples’ rights. It outlines our commitment to First Nations Peoples, acknowledging their unbroken connection to country and creating respectful relationships that provide opportunities for equal social and economic outcomes – this aligns to our purpose, and is vital to meeting the expectations of our people and those of key relationship customers. Looking to the Future Finally, I would like to thank my Board colleagues and the entire Lendlease team for the extraordinary effort they have made in steering Lendlease through one of the most turbulent times in living memory. Importantly, while we have responded comprehensively to the challenges that COVID-19 has thrown at us, the team have continued to lay down the strategic foundations that position us to create long term value for securityholders. M J Ullmer, AO Chairman 10 Lendlease Annual Report 2020 Overview 11 Group CEO and Managing Director’s Report 2020 will be a watershed year in history with the impacts of COVID-19 likely to reshape society for years to come. I start this report by recognising the unwavering support and commitment of the people of Lendlease; to each other, our customers and to the strength of our organisation. Our people have drawn on the resilience, adaptability, focus and care that have long been hallmarks of our business to steer us through an extraordinary operating environment. While Lendlease delivered a disappointing financial result for the year, we made substantial progress on our strategic agenda including growing and converting the development pipeline, achieving important planning milestones and creating new investment partnerships to support projects moving into delivery. We made significant inroads into positioning the organisation at the forefront of sustainable development. This included investment in people, process and technology which has laid the foundation to better enable and fast track the delivery of our pipeline to meet the needs of changing urban landscapes. Health and Safety Tragically, a construction worker was seriously injured in a critical incident on a project in Kuala Lumpur where Lendlease is the construction manager. He subsequently passed away from complications following surgery. On behalf of Lendlease, I extend my heartfelt condolences to his family, friends and colleagues. It is difficult to call out positive achievements given this tragedy, but I do want to thank the commitment of our teams which has enabled us to reduce critical incident and lost time injury frequency rates to their lowest levels since we began reporting these metrics. As COVID-19 set in, an extraordinary effort was made by our teams to keep our people, and those who interact with us, safe and to support the continuance of operations. This level of focus was applied across all businesses and locations, through adjusting office and site-based working arrangements and quickly introducing new policies, education and support for employees and customers as restrictions and social distancing protocols became first lines of defence against the virus. Lendlease’s ability to deliver transformational urban precincts with a focus on financial, environmental and social outcomes is being recognised globally. This has resulted in significant growth in the development pipeline to more than $100 billion. To support our people, Lendlease launched a Hardship and Wellbeing Fund with grants to help cover expenses for employees experiencing hardship during the pandemic. Financial performance The Group’s Core business generated Profit after Tax of $96 million, Earnings per Security of 15.9 cents and a Return on Equity of 1.5 per cent. The Core business was adversely impacted by COVID-19. Our performance in the second half of the year was down significantly across the Core operations. A solid Core operating EBITDA in the first half of $628 million was followed by a $65 million loss in the second half as the Group experienced a substantial deterioration in operating conditions. The Group reported a Statutory Loss after Tax of $310 million for the year ended 30 June 2020. Engineering exit costs of $368 million after tax, along with $19 million of goodwill impairment relating to the anticipated completion of the sale of Engineering, were expensed. Progress on converting opportunities across our urbanisation pipeline was hindered. The impact across our construction projects was greater in our international regions, particularly in cities where mandated shutdowns were implemented. The Group’s investments portfolio was impacted by declining real estate values. We implemented a range of measures to strengthen the financial position of the Group. Costs were reduced along with the reassessment of capital and project expenditure. The issuance of new equity and the arranging of additional debt provides the Group with the capacity to manage through a potential sustained downturn and positions the Group for a market recovery. While our financial performance was curtailed, we achieved substantial growth in our development pipeline, established new investment partnerships and extended existing partnerships. Wherever we operate, Lendlease has continued its partnership approach with governments by responding to the public health and economic crisis presented by COVID-19. We provided practical support, including surge capacity plans to extend hospital infrastructure as well as accommodation to frontline workers and food and other supplies to the most vulnerable members of our community. We also shared our safety standards to help make construction sites across our operations globally, COVID-safe. We acknowledge that our government partners have adopted the same approach and recognised the crucial role of the property and infrastructure sectors in the economy. The Group accessed wage subsidy support in markets where it was offered. Further details are set out on page 160 of the Financial Statements. Strategy The cornerstone of the Group’s strategy is to create value through the best urban precincts in key global gateway cities. We have demonstrated over more than two decades our ability to deliver major urbanisation projects, and together with our integrated business model and placemaking skills, have created a point of difference few can match. A demonstrated track record of superior outcomes for placemaking, sustainability and connectivity has helped us in our aim to be the global urbanisation partner of choice and has underpinned the strong growth of our Investments platform. Two new major urbanisation projects with a combined estimated end value of $37 billion were added to the pipeline during the year. The unlocking of these and other opportunities across our targeted gateway cities has resulted in the development pipeline more than doubling over the last five years to above $100 billion. This includes a portfolio of 21 major projects across nine gateway cities. Creating value for future generations We aim to tackle the climate crisis head on. We launched two new ambitious targets: to be a 1.5ºC aligned company and to create $250 million of social value by 2025. These were developed after extensive analysis and consultation with clients, partners and employees. They are our call to action and will be a measure of our success. We have set market leading carbon targets to meet our 1.5ºC aligned commitment. Net zero carbon scope 1 and 2 by 2025 and absolute zero carbon by 2040 will be challenging but will inspire our next generation of leaders and we believe can be achieved while delivering client and shareholder value. Outlook While the duration of the impacts of the pandemic is uncertain, the Group entered FY21 in a strong financial position. Business resilience and adaptability are critical to navigate the uncertainty the world still faces. We have a tremendous team and an outstanding pipeline of projects and are well placed to drive high quality earnings growth and pursue new opportunities as we emerge from the current economic challenges. On behalf of the Group I again thank our employees, along with our investment partners, securityholders and financiers for supporting Lendlease throughout the year. Stephen McCann Group Chief Executive Officer and Managing Director 12 Lendlease Annual Report 2020 Overview 13 FY20 snapshot $37 billion Two major urbanisation projects secured in London and San Francisco Bay Area Safety Record low Critical and Lost Time injury rates, sadly one fatality 48%1 Increase in development pipeline to $113b Listed Lendlease Global Commercial REIT in Singapore Two Investment partnerships established to deliver One Sydney Harbour2 and the Victoria Cross over station development #1 Ranked fund in GRESB3, with four funds ranked in the global top 10 Milano Santa Giulia New investment partner to deliver the $4 billion4 project c.$4 billion Paya Lebar Quarter completed Australian first Barangaroo South named Australia’s first carbon neutral precinct ($310 million) $96 million Group Statutory Loss after Tax Core Profit after Tax 33.3 cents Distributions per stapled security 1.5% Core Return on Equity #1 Ranked infrastructure contractor for Australian Department of Defence TCFD5 Four climate scenarios developed and published in line with TCFD recommendations 70%6 Increase in residential funds under management Milan: Milano Santa Giulia Artist’s impression 1. Comparative period 30 June 2019. 2. Formed post balance date. 3. Global Real Estate Sustainability Benchmark. 4. Total estimated development end value. 5. Task Force on Climate Related Financial Disclosures. 6. Comparative period 30 June 2019. 14 Lendlease Annual Report 2020 Our Business 15 Our Business Artist’s impression Kuala Lumpur: The Exchange, TRX Lendlease’s largest integrated development in Asia. It will comprise six residential towers, a large scale retail mall and a luxury hotel. 16 Lendlease Annual Report 2020 Our Business 17 Our vision: To create the best places Our values Respect Be dedicated to relationships. Integrity Be true to our word. Innovation Be challenging in our approach. Collaboration Be one team. Excellence Be exceptional in everything we do. Trust Be open and transparent. Guiding what we do Our vision and values guide everything we do. We strive to create some of the world’s best places, places that people love and want to experience. Our integrated business model, encompassing Development, Construction and Investments, enables our vision. We develop inner city mixed use developments, apartments, communities, retirement, retail, commercial assets and social and economic infrastructure. Our Construction segment delivers project management, design and construction services for the Group’s pipeline and for external clients across a range of sectors. With our investment management platform and co-investment strategies, we can orchestrate the funding to make the vision a reality. This powerful combination of capability, tightly aligned to our vision and values, allows us to shape cities and connect communities. We believe it delivers great outcomes for our customers and the communities we serve, inspires our people and provides sustainable growth for our securityholders. Sydney: Barangaroo South 18 Lendlease Annual Report 2020 Our Business 19 Our strategy a r g Int e t e d Business M D e v e lopment o d el To Create the Best Places s t n e m t s e v In C o n struction Artist’s impression Opportunities have been unlocked across our targeted gateway cities, with the urbanisation platform comprising a portfolio of 21 major projects across nine gateway cities. An important component of the strategy is the capital efficient land management model where land is typically drawn down in phases and payments linked to development activity. It is designed to withstand market cycles. The outcome is an urbanisation led strategy focused on global gateway cities. These cities have attributes that are typically more resilient through property cycles and attract more global investment capital. They often contain sites well suited to regeneration and infrastructure upgrades and play to our strengths. End to end capabilities across all aspects of real estate – from concept and planning, to design and delivery through to funding and investment management – generate superior economic, social and environmental outcomes. The cornerstone of the Group’s strategy is to create the best urban precincts in key global gateway cities. The ability to deliver major urbanisation projects through our integrated business model, together with our financial strength and strong track record, provides a point of difference we believe few can match. More than two decades of experience creating large scale mixed use urban precincts has enabled the Group to deepen its expertise and sophistication to become, in our view, the preeminent urbanisation specialist. It has also underpinned the strong growth of our Investments platform. The success and vibrancy of our completed precincts is testament to our capability. This demonstrated track record of superior outcomes for placemaking, sustainability and connectivity has helped us achieve our aim to be the global urbanisation partner of choice. London: International Quarter London A global platform combined with local expertise across targeted gateway cities enables us to deliver the most value and create the best places. Our strategy is supported by a strong risk management and governance framework which requires robust safety and sustainability standards and a structured approach to capital allocation. While the development pipeline is expected to be the main source of growth for the Investments platform, we will look for other growth opportunities that leverage our ability to add value. Our strategy must evolve to remain successful. The foundations of a global platform for growth are being assembled to accelerate the delivery of our development pipeline. This involves enhancing our operating structure by employing an enterprise wide approach to facilitate production at a greater scale. A key component of the pipeline acceleration is our aim to lead digital disruption in the construction industry. A once in a century pandemic is having a profound impact globally and it is too early to gauge its lasting effects. It may result in the acceleration of existing trends such as online retail and a deterioration of housing affordability, but potentially a reversal in some others such as densification in the workplace and demand for inner city living. Business resilience will be critical to navigate the uncertainty that may persist for some time. Our urbanisation led strategy with its mixed use capabilities is uniquely placed to adapt to prevailing market conditions as opportunities arise across a range of property sectors. 20 Lendlease Annual Report 2020 Our Business 21 21 Global presence, local knowledge Development pipeline $113 billion1 Construction backlog revenue $14 billion Funds under management $36 billion Assets under management $29 billion Chicago • Southbank • Lakeshore East London • Thamesmead Waterfront • Euston Station • Silvertown Quays • International Quarter London • Elephant Park • High Road West • Deptford Landings1 Milan Our urbanisation led strategy focuses on gateway cities around the world. These cities often contain sites well suited to regeneration, playing to the breadth of our skills. Broadening the platform has driven rapid growth in our pipeline with 21 major2 urbanisation projects across nine gateway cities. Our teams of locally based professionals combine their property expertise and capability with the scale of our global platform. San Francisco • San Francisco Bay Area Project Los Angeles • 30 Van Ness Boston New York • Milano Santa Giulia • Milan Innovation District Rome Beijing Shanghai Tokyo Lakeshore East, Chicago Milano Santa Giulia, Milan The Exchange TRX, Kuala Lumpur Victoria Cross over station development, Sydney Kuala Lumpur • The Exchange TRX Singapore Brisbane • Brisbane Showgrounds Sydney • Barangaroo South • Sydney Place • Victoria Cross over station development Perth • Waterbank Melbourne • Melbourne Quarter • Victoria Harbour 1. Formerly The Timberyard. 1. Remaining estimated development end value. 2. Projects with an estimated development end value greater than $1 billion. 22 Lendlease Annual Report 2020 Our Business 23 Development a r g Int e s t n e m t s e v In t e d Business M o d el D e v e lopment Disciplined Portfolio Management to Maximise Securityholder Value C o n struction The Development segment comprises activities across urbanisation, residential and retirement communities, and infrastructure development. Financial returns for the segment are generated via: • Development margins • Development management fees • Origination fees Our capability Placemaking is the capability that sets us apart to realise our vision to create the best places. We create environments where people consciously choose to dwell by being sensitive to a community’s needs and the elements that attract its members to an urban location. Effective place design requires active engagement with partners who provide input as co-creators and is informed by an understanding of their vision and aspirations for the urban space they will inhabit. Managing the entire development process is essential for success; from securing land, creating masterplans, consulting with authorities and communities, through to project management, sales and leasing. A willingness to undertake ambitious projects, to challenge the status quo, and collaborate with a range of partners to generate the right solutions are key elements in our approach. Development opportunities across our Australian retirement portfolio have been boosted with approvals for unique developments at three villages, including a new concept, multi generational village adjacent to the University of Wollongong. Our development expertise in retirement was recently extended to Shanghai where we are delivering an initial c.850 senior living homes. In the US, our Military Housing portfolio is expected to offer periodic redevelopment opportunities. Infrastructure development We provide infrastructure development services for Public Private Partnership projects in Australia. Financial arrangements, and transactional and other advisory services, are delivered in the capacity of sponsor for projects in a range of sectors, predominantly in social infrastructure. The Sydney International Convention, Exhibition and Entertainment Precinct was one such project. FY20 Development segment highlights Development pipeline of $113 billion:2 $99 billion urbanisation $14 billion communities Secured two major urbanisation projects: Thamesmead Waterfront, London: c.11,500 homes San Francisco Bay Area project: c.15,000 homes Completed Paya Lebar Quarter – Singapore’s newest lifestyle precinct: Retail mall Three Grade A office towers 429 residential apartments These, combined with patience, thoughtfulness, experience and humility, lead to achieving great outcomes. Urbanisation Lendlease’s core strategy is focused on urbanisation in targeted gateway cities and we aim to be the urbanisation partner of choice. Securing major urbanisation projects where the breadth of our skills can be applied is where our competitive advantage excels. Our integrated model is fundamental in delivering these projects. Working with Development, our Construction segment provides design and delivery excellence, while Investments attracts investment partners for financing. Our first major1 urbanisation project was secured in Melbourne almost two decades ago and still offers a substantial residential pipeline. This is typical of the type of project we look to secure: long dated; capital efficient; whole of precinct; and spanning multiple property cycles. In recent years we have broadened our urbanisation platform via targeted international gateway cities. They include projects in London, Milan, Chicago and the San Francisco Bay Area. These projects form part of a portfolio that comprises 21 major projects across nine gateway cities. Being awarded these projects from both public and private sector clients is a strong endorsement of our expertise. Our sustainability credentials have been critical in the selection process, with consistent feedback that the integration of all aspects of sustainability within our placemaking capabilities resonates strongly. Our urbanisation pipeline is set to produce more than 56,000 residential units and more than 50 commercial buildings over a c.25 year horizon. We expect our development activity to accelerate over the medium term as our secured pipeline progresses through planning and into delivery. Residential and retirement communities For more than 50 years we have created and delivered new suburban communities. They range from inner urban villages to large scale, masterplanned communities with integrated town centres. We have 17 active projects in key population growth corridors that are anticipated to deliver approximately 47,000 individual land parcels. Shanghai: Ardor Gardens, Qingpu District Artist’s impression 1. Projects with an estimated development end value greater than $1 billion. 2. Remaining estimated development end value. 24 Lendlease Annual Report 2020 Our Business 25 Construction a r g Int e s t n e m t s e v In t e d Business M o d el D e v e lopment Disciplined Portfolio Management to Maximise Securityholder Value C o n struction The Construction segment provides project management, design and construction services across a wide range of sectors. Financial returns for the segment are generated via: • Project management and construction management fees • Construction margins1 Our capability Our construction capability is showcased in the places and structures we create – workplaces for some of the world’s largest organisations, vibrant retail centres, residential apartments, including affordable housing options, state of the art hospitals, and other buildings of civic and social importance. We have delivered construction projects around the world for more than six decades, creating thousands of buildings. And projects delivered by businesses acquired by Lendlease span more than a century. We are recognised for creating innovative places that stand the test of time and we have been entrusted to create and restore iconic buildings that shape city skylines. It’s a legacy of which we are proud. The Lendlease approach The Construction segment combines the benefits of global scale and the rich heritage of corporate knowledge with a localised capability, capacity and network to deliver high quality projects. Specialist design and project management teams combine deep sector We expect future built form environments to be increasingly tied to precincts and hubs. The experience and knowledge gained from the delivery of the extensive urbanisation pipeline strengthens our ability to be a partner of choice. Innovation We use our scale and capacity to innovate and lead disruption in the construction sector. Our investment in smart design and advanced manufacturing has improved safety, sustainability and efficiency, and has created exciting architectural and sustainable solutions. We have innovated in the manufacture and use of engineered timber in Australia, and now use the product across our global business. We have also developed other product solutions across supply chain, prefabrication and modularisation. We are developing stronger digital capability to enhance our construction business. This is enabling us to simulate all aspects of construction from design to structural integrity to system performance and user preferences. We expect this to lead to a faster pace of innovation and productivity across the business. FY20 Construction segment highlights Construction backlog revenue of $14 billion Well diversified by sector and client $7.5 billion of new work secured including: Curtin University School of Design and Built Environment, Perth HMAS Watson Redevelopment Delivery Phase, Sydney 4 Hudson Square, New York Completed projects Wesley Place, Melbourne4 60 Martin Place, Sydney Paya Lebar Quarter, Singapore and product knowledge with strong customer relationships to create places that are innovative, sustainable and commercially viable. A successful project is more than just the delivery of buildings. An integral element is our flexible approach where our team of industry experts work collaboratively with the client to identify, plan and deliver what is important for them. A significant proportion of repeat business is a testament to being a trusted and strategic partner. Our risk management processes have evolved from decades of experience. Disciplined origination and diversity by client, contract type and sector are hallmarks of our approach. Substantial derisking takes place prior to commencement of construction. Production and programming controls monitor and manage delivery, while a rigorous commissioning process is applied for a smooth transition to the client. Areas of expertise We are one of Australia’s largest construction companies and in 2020 we were named the top infrastructure contractor for the Australian Department of Defence. In the US, we have been ranked the top multi-family residential contractor2 for 20 consecutive years. Across Europe, we are exceptionally well placed to participate in the integrated delivery of the region’s c.$50 billion3 urbanisation pipeline. Our Asian business has specialist expertise in the life sciences, education and telecommunications sectors. In Japan, we have delivered more than 75,000 telecommunications towers and rooftop antenna sites. Construction’s role in Lendlease’s integrated model Our Construction segment typically designs and delivers the built form for our urbanisation pipeline. A shared vision generates superior outcomes for all stakeholders. For example, design iterations running in parallel with planning lead to more creative, cost effective and timely solutions to meet occupier and investment partner demand. Paya Lebar Quarter is an example of where our delivery expertise and the certainty we provide to partners on long dated projects is an important component of our offer. Perth: Curtin University School of Design and Built Environment 1. From external clients only. 2. As ranked by ENR Sourcebook for Top 25 Multi‑Unit Residential. 3. Remaining estimated development end value. 4. Formerly 130 Lonsdale Street. 26 Lendlease Annual Report 2020 Our Business 27 Investments a r g Int e s t n e m t s e v In t e d Business M o d el D e v e lopment Disciplined Portfolio Management to Maximise Securityholder Value C o n struction The Investments segment owns and manages property and infrastructure assets. Financial returns for the segment are generated via: • Fund and asset management fees • Income and capital growth from ownership interests Our capability For decades we have been managing funds and assets for some of the world’s largest money managers including sovereign wealth funds and large public and private pension funds. Our expertise spans many property sectors across both unlisted and listed property trusts and mandates. We have deep relationships with c.150 institutional investment partners. We offer a research led investment capability supported by active asset management with leadership in sustainability a critical element to our approach. The key point of difference for our Investments segment is the high quality and sustainable product we create through our integrated model, which offers investment partners diverse, long term investment choices on a global scale. Funds management Our global funds management platform manages $36 billion of investments, predominantly across the office and retail sectors. We also have a burgeoning residential platform. The portfolio comprises c.40,000 residential and more than 12,000 lodging units across 50 Military Housing communities. We have long term agreements with the US Department of Defense to manage these estates for military personnel and their families. The Group added residential for rent to the asset management platform for the first time. Retirement Living One of the global trends that drives our strategy is the ageing population. We are one of the largest owners, operators and developers of retirement living communities in Australia. Our footprint extends nationally across 72 villages and offers a range of accommodation options including premium resort style living and a variety of standalone units and apartments. We draw on our significant placemaking and asset management skills to provide a strong sense of community for our c.17,000 residents. Other investments Lendlease’s other investments include telecommunications assets and an equity interest in the US Military Housing portfolio. FY20 Investment segment highlights Funds under management of $36 billion – 2% growth Launched Lendlease Global Commercial REIT, Singapore Completed Paya Lebar Quarter, Singapore – $3.3 billion funds under management Introduced a new investment partner to the platform – investment in Milano Santa Giulia Awarded c.$2 billion multi sector mandate in Australia2 Our world class asset creation capabilities focus on placemaking to create vibrant and diverse precincts. Buildings that respond to the needs of occupants typically outperform over the long term. Since FY14, our funds under management has more than doubled. The majority of that growth has been generated from the completion of assets across our urbanisation projects. The recently completed Paya Lebar Quarter in Singapore has contributed $3.3 billion of funds under management. Further growth is expected to continue over the medium term as the urbanisation pipeline converts into investment grade product. We expect our residential for rent product to be a strong contributor to this growth. Demonstrating our highly regarded funds and asset management capability, we launched the $1.5 billion Lendlease Global Commercial REIT in Singapore. The REIT was seeded with the Lendlease developed 313@somerset retail centre and three office properties adjacent to our Milano Santa Giulia project. Maintaining strong alignment with our investment partners, we have $2 billion of co-investments in our funds platform. This also provides a steady source of income for Lendlease. Asset management We have been managing retail centres across the world for more than 50 years and currently manage retail and office assets valued at more than $15 billion. Our asset management capability enables us to create places that thrive for the long term. We continually revitalise our assets to stay ahead of industry trends and deliver optimal customer experiences. The introduction of digital tools throughout our global retail portfolio, such as the Lendlease Plus App in Singapore, has provided our malls’ customers with the latest access to many benefits and provided new opportunities for our members during COVID-19. Digital technology has also been key in communicating with more than 3,1001 retailers within our Australian retail portfolio, providing a seamless customer experience. Residential In the US, we manage a $13.6 billion Military Housing portfolio, which provides a steady and high quality source of earnings. Singapore: 313@somerset 1. Figure as at 31 December 2019. 2. Secured post balance date. 28 Lendlease Annual Report 2020 Creating Together 29 Creating Together Creating the best places is not something we do alone; it comes from the creativity and commitment of our customers, our investment partners, governments, landowners, suppliers and the community. Creating Together – powerful partnerships to deliver the best places, now and into the future. Sydney: The Exchange, Darling Square The centrepiece of the new Darling Square community. 30 Lendlease Annual Report 2020 Creating Together 31 By shaping cities For more than six decades we have been at the forefront of projects that have become the cornerstones of cities and communities. Our objective is to leave a positive legacy for future generations and build a respected brand. Our ethos demands continual re-evaluation of past achievements to find innovative solutions that redefine the benchmark of best practice. Our integrated business model has evolved to focus on urbanisation in key gateway cities. The first long dated and large scale mixed use project we secured was Victoria Harbour in 2001. The 30 hectare precinct, bounded by the Yarra River and Victoria Harbour, includes kilometres of public waterfront promenade incorporating retail, commercial, residential, leisure and community facilities that cater for thousands of people. The ongoing management of precincts and assets is just as critical as their delivery. Our ability to positively impact all parts of the property and construction lifecycle creates health and safety benefits for all those who construct, maintain, and interact with our precincts. Through our Investments platform, we value our fiduciary role for institutional investors and investment partners, and our experience is deep. We launched Australia’s first real estate investment trust in 1971 and since that time we have fostered trusted relationships with key global investment partners – offering them tailored real estate investment solutions. For more than two decades we have been refining and developing our placemaking expertise. Our credentials are highlighted by the numerous development and sustainability awards attained and the overwhelmingly positive feedback we receive from those who live, work or visit our precincts. Strong track record Singapore: Paya Lebar Quarter Singapore: Paya Lebar Quarter Tower 2 Singapore: Paya Lebar Quarter Mall Singapore: Park Place Residences Being chosen as the development partner for transformational projects by both public and private sector clients is a strong endorsement of our urbanisation capabilities. Singapore’s newest lifestyle precinct The completion of Paya Lebar Quarter (PLQ) this year marks the culmination of a four year journey which has delivered a c.$4 billion business and lifestyle precinct for Singapore. Bid in joint venture with the Abu Dhabi Investment Authority (ADIA) in 2015, the four hectare site was originally a vacant plot, earmarked by the Singapore Government as a new commercial hub. Delivered through the integrated business model, Paya Lebar Quarter showcases our ability to create a progressive, safe and sustainable mixed use city precinct. It features some of the highest sustainability ratings achievable and has been recognised for showcasing exemplary safety standards and innovation. Going forward, we have a critical role to play in the ongoing success of the precinct, providing extensive asset management services. We have attracted a number of Singaporean and multi national corporations to the precinct, as well as more than 200 leading retailers. We are the fund manager for the commercial component which is valued at $3.3 billion and have a 30 per cent interest. Paya Lebar Quarter showcases our international experience in large scale urban regeneration projects, while tapping into our local expertise of operating in Singapore for more than 45 years. The PLQ precinct A bustling pedestrian friendly precinct with a rich cultural heritage: 83,000 sqm of Grade A office space across three towers – Home to key Singaporean and multi national corporations including Lendlease’s Asian headquarters Retail mall featuring more than 200 stores – Leading retailers and alfresco dining 429 residential apartments across three towers – Direct access to shopping and lifestyle amenities and transport Community spaces including public plaza, playgrounds and roof gardens Melbourne: Victoria Harbour 32 Lendlease Annual Report 2020 Creating Together 33 We create place by responding to the common interests of all stakeholders, enlisting bold thinking and applying a visionary approach. We create places that meet the needs of people today and well into the future. London: Elephant Park Through creating the best places Our core capability is placemaking. We aim to design places that are vibrant and authentic. They are crafted and thoughtfully curated to help people feel safe, belong and thrive. We view placemaking as a collaborative process that enables physical spaces to meet people’s needs and resonate with their aspirations. The places we create are meaningful, appealing and enduring. By doing this, we create value for all stakeholders. Placemaking is our competitive advantage and a commercial imperative for us to remain the partner of choice. Not only is it key to securing projects and attracting capital, we see it as our responsibility and the legacy we will leave for future generations. Great places are accessible and convenient; activated and sociable; responsible; and genuine and memorable. Bringing together design and living metrics provides a framework to assess placemaking. This also provides a method to identify priorities and inform investment decisions. Understanding the history of the land and precincts we reinvigorate is fundamental to curation of place. Acknowledgement and genuine respect for heritage provides context and enhances place creation. London: International Quarter London The Wellbeing Capital – International Quarter London Adjacent to the 2012 London Olympic site, International Quarter London (IQL) anchors the transformation of the district into London’s newest cultural quarter and a desirable place to live and work. Inspired by Stratford’s rich cultural heritage and nurtured by its Olympic legacy, IQL has been designed to encourage movement, interaction, engagement and creativity. It features state of the art workspaces that promote wellbeing and encourage interaction, as well as a variety of outdoor meeting spaces in the precinct’s three acres of parklands. In the public realm, plant life and foliage are being chosen to eliminate the need for chemical pesticides, and pollination by insects is being encouraged to reduce airborne allergens. A variety of bird species are being targeted for inclusion in a biodiversity strategy that recognises the psychological benefits of birdsong. IQL’s lasting contribution will be the richness of the social, economic and individual wellbeing it helps create amongst all who visit. Brisbane: Yarrabilba Sydney: Barangaroo South Connected Community – Yarrabilba In Queensland’s South East, we are building a complete community from the ground up. Drawing on a rich and diverse heritage, Yarrabilba, or ‘place of song’ in Wangerriburra/Bundjalung language, is set to become home to more than 45,000 residents. More than a quarter of the 647 hectares will become parkland, sporting fields and nature sanctuaries, all linking to the surrounding bushland rich in history. Residents will benefit from a lively, healthy lifestyle provided by easy access to green open spaces and innovative leisure facilities that offer a balance of community and nature. Yarrabilba offers an inspiring new address, where people are given the opportunity to grow and prosper. It is a fresh new place that residents feel proud to call home. The Streets of Barangaroo – Barangaroo South, Sydney Barangaroo South introduced six new streets, lanes and walkways to the city, each taking its name from an historical aspect of the site and showcasing a very distinct purpose and personality. These streets became the heart of placemaking for the precinct. Home to a highly curated mix of cafés, restaurants, bars and retail stores, they also act as public thoroughfares, places to eat and meet, and a civic canvas for a diverse program of events and activations. Innovative collaborations with the City of Sydney, local community groups, artists and commercial partners enhance the place by continually introducing diverse and inspiring experiences within the precinct that are accessible to all. 34 Lendlease Annual Report 2020 Creating Together 35 Sunnyvale • Moffett Park Mountain View • North Bayshore • East Whisman San Jose • Diridon Station Area Artist’s impression Artist’s impression Through partnering Whether it’s urban redevelopment projects, nation building infrastructure such as hospitals and universities, or fostering long term investment relationships, we create lasting legacies through collaborative partnering. Artist’s impression From client to partner Lendlease prides itself on building long term partnerships with institutions, landowners and investors across the globe. This has been no different with Google. What began as a traditional client service relationship to help build Google’s London HQ has evolved and, in 2017, we expanded our relationship to work with Google on c.15 acres within their property holdings in the San Francisco Bay Area. A resulting two year consultancy helped us in being selected as the preferred development partner for up to 15 million square feet of residential, retail, hospitality, and associated community uses across three major cities in the Bay Area. To successfully deliver a project of this scale, we have assembled a cross functional team of experts to explore solutions to some of the industry’s most pressing matters, such as lack of affordable housing, issues with transportation, and creating opportunity pathways. Understanding before the shovel hits the ground how a project will look, feel, work and impact the environment will simplify interdependencies in the decision making process and allow us to achieve a more productive, safer and efficient approach to the life of the projects. Development grounded in digitisation While the projects may be grounded in the physical world, it is undeniable that digitisation will power a transformation of the built environment. As part of our work across all our projects we will harness this potential and seek to recognise the significant advantages it may offer in building more livable, efficient and sustainable communities. Moreover, the built environment we create as a result of these insights will create solutions more tailored and adaptable to its users. In exploring these new approaches we succeed in our mission to improve the human experience with a more affordable, inclusive and resilient future. This is an extraordinary opportunity for Lendlease, and just the beginning of this important partnership as we help Google realise their vision for mixed use communities. 36 Lendlease Annual Report 2020 Creating Together 37 Unlocking an underutilised riverside location in London Leading UK housing association, Peabody, selected us to jointly deliver 11,500 homes at Thamesmead Waterfront in London. The 250 acre site is currently undeveloped and benefits from 2.5km of river frontage. The project will rejuvenate the existing town centre and create new cultural, community and commercial spaces. Artist’s impression Through partnering London: Thamesmead Waterfront Sydney: HMAS Watson Image courtesy of Department of Defence Trusted partner for the Australian Department of Defence We were named the top infrastructure contractor for the Australian Department of Defence in FY20. During the year we were selected to complete several large new contracts including the delivery of training facilities at HMAS Watson, the Navy’s principal navigation training facility in Sydney Harbour; and new facilities to support the operation and maintenance of offshore patrol vessels at HMAS Stirling in Western Australia. Queensland: Sunshine Coast University Hospital Birmingham: Birmingham Smithfield Chicago: Lakeshore East Artist’s impression Providing critical health infrastructure In the past decade, we have proudly delivered more than 50 public and private hospitals and health related projects across Australia. Our expertise was recognised by the Queensland and NSW Governments with the awarding of two significant projects: the Caboolture Hospital redevelopment, which includes design and construction of a five storey clinical services building to increase hospital capacity; and the main works contract to build the Prince of Wales Hospital’s new Acute Services Building, part of the NSW Government’s $720 million Randwick Campus Redevelopment. Transport enabled development opportunities in London We have been selected as the preferred development partner by Birmingham City Council to deliver a $2.8 billion urban quarter incorporating more than 2,000 homes and a new site for the city’s historic Bullring retail markets. Birmingham Smithfield will be a short walk from the new High Speed 2 (HS2) terminus station. Phase One of HS2 will link Birmingham to London, and the line will terminate at Euston Station, adjacent to the site of our $10.9 billion urbanisation project. A step closer to Milan’s new innovation ecosystem Working collaboratively with the Arexpo SpA Group, planning consent was received for Phase One of the Milan Innovation District, a 100 hectare mixed use redevelopment set to regenerate the site of the 2015 World Expo. Dubbed a ‘real city in the city’, the precinct is set to become a world leading science, knowledge and technology hub. Separately, transformation of the broader precinct has begun with work underway on the Galeazzi Hospital. Following an international competition, a design has been chosen for the Human Technopole – a new building for scientific research. Investment partner relationships Our investment partners have unique access to Lendlease’s leading development capability and pipeline, with investments focused on generating sustainable, long term returns. Throughout the year we progressed several initiatives with investment partners. In Milan, we introduced PSP Investments to the platform through a 50/50 partnership to develop Milano Santa Giulia. The $4 billion urban regeneration project is expected to deliver more than 2,500 residential units, 124,000 sqm of office space and 108,000 sqm of retail, leisure and entertainment areas. The first phase of the partnership will develop c.50,000 sqm of office space across two buildings, which are already c.85% pre leased. In the residential for rent sector, a further two buildings at Elephant Park were put into delivery under our existing UK Residential Investment Partnership with CPP Investments. In the US, our partnership with First State Super committed to developing a further residential building at our Southbank urban regeneration project in Chicago. We launched the Lendlease Global Commercial REIT in Singapore and listed on the Singapore Exchange. The REIT was seeded with the Lendlease developed 313@somerset retail centre and three office properties adjacent to our Milano Santa Giulia project. We were selected by TCorp, the investment and financial management partner of the New South Wales public sector, to manage a c.$1.5 billion diversified property portfolio. The mandate has subsequently grown to include an additional asset and is now valued at c.$2.1 billion. Artist’s impression Milan: Milan Innovation District 38 Lendlease Annual Report 2020 Creating Together 39 By engaging with the community Promoting diversity in construction industry employment Increasing participation of under represented communities in construction is a Lendlease social sustainability focus area. This year, the Lendlease Foundation expanded its construction industry employment barrier reduction program in Chicago with the launch of a new funding partnership with HIRE360, a workforce development organisation made up of construction industry wide partners. HIRE360 acts as a hub for job candidates seeking to start careers through apprenticeship training programs in the building trades, offering a one stop shop for job seekers to receive mentoring, enrol in training, connect with trades employers and other support services. As of April 2020, the funding has benefited 54 job seekers including high numbers of women, minorities and veterans. All 54 were either accepted into or in the process of applying to and pursuing an apprenticeship program at the time of service provision. Lendlease support for Australian bushfire recovery In response to the devastating bushfires in Australia, the Lendlease Foundation worked with partners to directly support communities in need immediately and for the long term. Lendlease and our employees from around the world helped raise more than $1 million to assist the Australian Red Cross in supporting communities most affected by bushfires. Working with our partner, Landcare, plans are underway to identify appropriate employee volunteering projects tied to the support and recovery of communities affected by bushfires as part of the Lendlease 2020 Community Day later this year. In addition, ten Lendlease Community Grants have been allocated to help bushfire affected community/non profit organisations. Two For Tea And A Chat COVID-19 has had significant impact on our Retirement Living residents’ opportunities for social interaction and connection. In response, we developed a national program designed to better connect residents isolated by social distancing requirements. The program included ‘Two For Tea And A Chat’ weekly calls to participating residents from Lendlease employees and volunteers. Our employees’ children have also been encouraged to send letters or drawings to residents as a thoughtful surprise. London: Silvertown Quays Artist’s impression Community consultation – Silvertown Quays and Elephant Park Engaging with the community is an important part of Lendlease’s approach to urban regeneration and the creation of thriving, sustainable communities that are rich in culture and context. London’s Silvertown Quays and Elephant Park exemplify this approach. Silvertown Quays will provide thousands of new homes and non residential spaces for commercial, retail, hotel and community use. The Silvertown Partnership, a joint venture between Lendlease and Starwood Capital, aims to create a place that is innovative and environmentally sustainable and will provide tangible benefits for the local community for the long term. The partnership is committed to engaging residents, the community and other key stakeholders throughout the development process. As well as providing high quality homes, jobs and business opportunities, Elephant Park is centred around a park, providing a new green public space for the Elephant and Castle community. To ensure the park reflected local aspirations, we provided the opportunity for those who live in, work in or visit Elephant Park to input to the park’s design. Both projects have initiated a range of activities to ensure consultation and engagement including workshops, public exhibitions and site tours, open days, walking tours and digital communications. London: Elephant Park A place to call home – FutureSteps FutureSteps is a Lendlease shared value initiative grounded in the belief that everyone needs a place to call home. The aim of FutureSteps is to empower vulnerable people by partnering with established not for profit organisations to boost the availability of quality accommodation and support services, and by investing in targeted skilling, training and jobs programs. FutureSteps has awarded close to $200,000 in grants and provided more than $170,000 in kind to program partners via skilled volunteering and procurement savings. We will continue to expand FutureSteps with revenue from our Australian residential business. 40 Lendlease Annual Report 2020 Creating Together 41 By looking into the future New digital mentor technology supports project management excellence globally Key to thriving in our industry is the ability to anticipate and even initiate technological disruption. An important digital technology initiative that has begun roll out at Lendlease is the One Lendlease Interactive digital mentor platform, or ‘OLi’ as it is more commonly known. Its purpose is to help us more consistently deliver projects via an endorsed Lendlease Way so that customers experience the same high quality products and services delivered at scale anywhere in the world. OLi integrates all traditional project management steps into the process and digitises the full project lifecycle, from business development and origination to delivery, asset management and potentially divestment. Once fully rolled out, this global tool will connect our people with our best practice Knowledge Gateway, pre populate digital templates, systematise the investment committee process, and automate team task management. Additional future capabilities will include project team collaboration space, project mobilisation and resourcing tools and a dynamic approval system that adjusts to changing project characteristics. Sydney: Digital Twin, 60 Martin Place Image courtesy of Willow Inc. Accelerating digital twin adoption in the property and construction industry Digital twin technology combines geometry, physics and process to create a digital rehearsal of the built world. While this technology has been around since the early 2000s, its application in the construction and property industry is relatively new and facilitated by advances in the Internet of Things and increased cost effectiveness. In the past year, we have accelerated the development of our digital twin capability and expertise. Our goal is to drive disruption in the property and construction industry to deliver better outcomes in safety, cost and time savings, risk management and sustainability. We have taken a leading role in championing this technology through partnering with government, industry and academia. This has included becoming a founding member of the Digital Twin Consortium, a global group of users working together to accelerate the digital twin market and demonstrate the value of technology. Chaired by Bill Ruh, CEO Digital, Lendlease, the consortium includes companies such as Ansys, Dell Technologies and Microsoft. We have also partnered with the NSW Department of Customer Service to establish the NSW branch of the Digital Twin Consortium. Through the NSW Government spatial twin, we are collaborating to share anonymised data across public and privately owned spaces and building assets. This will provide NSW with insights that help improve planning and decision making in the development of new places within the state. It will also enable access to critical data for our first responders in the event of an emergency. Carbon neutral – building a better world We are committed to creating strategic resilience across our business and addressing the climate impacts of our business with greater focus and direct action. In line with our Carbon Target and building on our Australian construction business’ achievement of net zero carbon in FY19, we have commitments in place for assets representing more than $12 billion in Gross Asset Value to operate at a net zero carbon basis by 2025. In December 2019, our business signed up as the first property and infrastructure company to become a member of the ResponsibleSteel initiative, which aims to drive low to zero carbon steel solutions for our supply chain. Also at the end of last year, Barangaroo South was certified by the Commonwealth Government as Australia’s first carbon neutral precinct. Our carbon neutral innovation achievements were also recognised this year with selection as a finalist in Fast Company’s Best World Changing Ideas APAC category for our holistic efforts to change what we create and how we create it to be carbon neutral. Townsville: The Science Place, James Cook University 42 Lendlease Annual Report 2020 Managing and Measuring Value 43 Managing and Measuring Value London: Euston Station One of London’s largest urban renewal projects. 44 Lendlease Annual Report 2020 Managing and Measuring Value 45 Our five focus areas of value creation We measure our success by the positive outcomes we generate through five focus areas. They underpin our ability to create economic, safe and sustainable outcomes for our customers, partners, securityholders and the community. While we approach our focus areas with an innovative mindset, our decisions are supported by disciplined governance and risk management. Area of focus Material issue How we deliver value Value created How we measure value Operating safely across our operations and projects. Maintaining the health and wellbeing of our employees and those who engage with our assets and sites. We are committed to the safety of our people and those who interact with our assets and sites. Through our Global Minimum Requirements (GMRs) we operate to a consistent standard across all operations. These GMRs extend to physical safety and people’s mental health and wellbeing. Operating safely helps people feel valued and cared for, and fundamentally makes us more consistent, reliable and efficient in everything we do. Percentage of projects with no critical incidents: A critical incident is an event that has the potential to cause death or permanent disability. This is an indicator unique to Lendlease. Critical Incident Frequency Rate: A Lendlease indicator measuring the rate of critical incidents. Lost Time Injury Frequency Rate: An indicator and industry standard measuring a workplace injury which prevents a worker from returning to duties the next day. Delivering securityholder returns. Maintaining strong capital management to support ongoing investment in our future pipeline. We deliver returns to our securityholders and adopt a prudent approach to capital management with a view to maintaining a strong balance sheet throughout market cycles. Margins, fees and ownership returns across Development, Construction and Investments. Our Portfolio Management Framework sets target guidelines for how we manage our portfolio. Return on Equity: The annual Profit after Tax attributable to average securityholders’ equity throughout the year. Earnings per Security: Profit after Tax attributable to securityholders divided by the average number of securities on issue during the year. Understanding our customers and responding to changes in the market. Designing and delivering innovative, customer driven solutions to win the projects we want to win and ultimately deliver the best places. Embedding a process of continuous improvement based on customer insights and actions identified through market research. This approach also consistently measures customer satisfaction and advocacy. Attracting, developing and retaining diverse talent. Ensuring we have the right capability across the organisation to deliver results for all stakeholders. We attract, develop and retain diverse talent by building a culture of collaboration and continuous learning, where successes are recognised and people are rewarded. We invest in developing leaders and capabilities to drive our success. Managing and optimising our performance in the context of challenges facing the built environment, including climate change and social pressures such as population growth and housing affordability. As a signatory to the United Nations Global Compact, we are committed to the continuous improvement of our operations. We integrate strategies to mitigate the impact of climate change. For example, as a developer Lendlease is committed to the creation of independently rated green certified buildings and precincts and climate resilient communities. We aim to deliver inclusive, healthy and adaptable places that can thrive through change. Sustainability Evolves our ability to improve the customer experience, building our brand and reputation, enabling us to win more work and grow our business. Customer feedback also provides greater insight into product development and innovation opportunities. Customer satisfaction and advocacy tracked: Measured at the regional and business unit level and reported regularly to our Global Leadership Team. Action plans are developed to drive continuous improvement in the customer experience, supporting the delivery and growth of our development pipeline, construction backlog and funds under management. Capable and motivated people committed to the long term success of our business. Effective succession planning and leadership transitions support business continuity and can reduce risks. Diversity of thought and experience can support innovation, knowledge sharing and better decision making. Retention of key talent: The organisation benefits from its investment in leaders and key workforce capabilities. Succession strength: Demonstrates depth of capable talent ready to progress into leadership roles. Leadership positions held by women: Demonstrates our broader commitment to diversity and inclusion, and our objective of increasing female representation across our business. Recognised leadership in sustainability enhances our brand and is a competitive differentiator. It also provides more opportunities to partner with governments, investors and the private sector who are placing increasing importance around Environmental Social Governance (ESG) matters. Measurement of, and reporting on our progress towards our sustainability targets and the tangible examples of the ways in which we are addressing our sustainability imperatives: Carbon Target: We are a 1.5ºC aligned company: – Net zero carbon scope 1 and 2 by 2025 – Absolute zero carbon by 2040 Social Target: Create $250m of social value by 2025. Health and Safety Financial Our Customers Our People 46 Lendlease Annual Report 2020 Managing and Measuring Value 47 Health and Safety FY20 has reinforced that the health and safety of our people, and those who interact with our operations, is Lendlease’s number one priority. In a year of unprecedented events, we recorded improvements across a number of key indicators. Performance metrics Across our organisation we have seen critical incident and lost time injury frequency rates at the lowest rates recorded since we commenced reporting on these metrics, with the percentage of operations without a critical incident at 90 per cent or above for the fourth consecutive year. These results are testament to the dedicated focus of our teams. Operations without a Critical Incident1 FY19 FY20 Critical Incident Frequency Rate2 FY19 FY20 90 91 0.8 0.7 Lost Time Injury Frequency Rate3 FY19 FY20 1.8 1.5 1. A Critical Incident is an event that caused, or had the potential to cause death or permanent disability. This is an indicator unique to Lendlease. 2. The Critical Incident Frequency Rate (CIFR) is calculated to provide a rate of instances per 1,000,000 hours worked. 3. The Lost Time Injury Frequency Rate (LTIFR) is calculated to provide a rate of instances per 1,000,000 hours worked. These key metrics were trending towards new record low levels prior to COVID-19, which impacted the end of the financial year. Maintaining these low frequency rates during the COVID-19 period demonstrates the diligence of our operational teams in retaining a focus on workplace safety in the midst of applying a range of new workplace practices and protocols. Fatality Despite a significant improvement in performance across a wide range of safety metrics, it is with much sadness that we report a fatality on one of our operations during FY20. Tragically, in September 2019, a construction worker was seriously injured in a critical incident on a project in Kuala Lumpur where Lendlease is the construction manager. While recovering from surgery in hospital, the man contracted an infection and subsequently passed away. We extend our deepest sympathies to the family, friends and colleagues of the deceased worker. COVID-19 The onset of COVID-19 resulted in significant disruptions across Lendlease’s operations and a significant broadening in the scope of our health and safety objectives. In response to the pandemic, we developed a range of global standards addressing project shutdown protocols, personal screening for people entering our operations, social distancing applications, COVID-19 specific personal protective equipment requirements, and protocols in the event of confirmed cases. In addition, an online learning module was developed as part of our mandatory learning requirements. This module addressed the revised ways of working and directed our people to support services available to those whose mental health has been affected. Objectives and targets In support of Lendlease’s ongoing commitment to health and safety, we developed a range of objectives and targets to be applied from FY21 to help re-affirm our purpose when it comes to health and safety, as well as establishing a broader range of key performance indicators. To coincide with this revised approach, updated Global Minimum Requirements (GMRs) will be released in FY21. The GMRs are the global standards we apply to environment, health and safety across all our operations and the updated standards will be the fourth edition of the GMRs since first released in 2008. The Lendlease view is that a place that cares is a safe place to work. To demonstrate how this approach is applied through the lens of our operations, we have developed a set of objectives in line with our core values. In future reports we will supplement the incident frequency rate metrics already provided in this report with a wider range of health and safety metrics that have a greater focus on leading indicators. The broader range of leading and lagging indicators will provide a more rounded approach to health and safety as well as the resulting performance. South Australia: Osborne South Development Project Eliminating work at height The Osborne South Development Project (OSDP) in South Australia involved the assembly of a collection of large scale industrial facilities – the largest of which spans 187m long, 87.4m wide and standing 50m high. In bringing together innovation and safety, the project team was able to develop techniques to assemble the walls and roofing structures at ground level – with the vertical elements then raised into position mechanically, and the roof structure then undergoing strand jacking to be lifted into position. Meticulous planning resulted in thousands of hours of work at height being eliminated and the results were widely acknowledged by the client, the Australian Department of Defence. “I have not felt safer on a job than I have on this one. If all jobs took into account what has been done here, I’d be fine with that.” 20 Year Concrete Foreman Revised construction methods The 17 storey towers and town homes that comprise 845 West Madison in Chicago includes 586 residences. During the planning and construction phases of the project, a number of substantial changes to locally accepted construction methodologies were applied that provided significant benefits to the project and the workers involved. The project has adopted revised methods for erecting interior core platforms and elevator shafts, revised structural formwork systems, and altered the approach to the façade of the building – all with the intent of delivering safe yet productive outcomes. Traditionally high rise projects have their amenities on the ground floor. We have designed an innovative solution to provide fully functioning facilities that are transferred floor to floor as the structure takes shape to support our workers. The workers on the project have provided the ultimate compliments: Chicago: 845 West Madison “Never thought there would be a full restroom totally plumbed, heated, and with proper sanitation on a working deck.” Tradesmen “If I could work on a project like this throughout the rest of my career, I would take it in a heartbeat.” 15 Year Pipefitter 48 Lendlease Annual Report 2020 Managing and Measuring Value 49 Financial How we measure financial performance When measuring financial performance, we focus on Return on Equity and Earnings per Security to measure the returns we achieve for our securityholders. The Portfolio Management Framework outlines target returns at a segment level. These returns are used to derive a Return on Equity target within the 10 to 14 per cent range, and Earnings per Security used to make distributions within the 40 to 60 per cent payout ratio target. FY20 – equity raising On 28 April 2020, the Group announced the launch of an equity raising via an institutional placement and Security Purchase Plan (SPP) to eligible securityholders. The Group raised $950 million via the institutional placement and $260 million via the SPP at the offer price of $9.80 per new security, resulting in the issue of a total of 123.4 million new fully paid ordinary stapled securities. Detailed financial performance and outlook For detailed information on our FY20 financial performance as measured under the Portfolio Management Framework, refer to the Performance and Outlook section on pages 76 to 89 and the Financial Statements on pages 142 to 205. Our approach to financial performance The Portfolio Management Framework provides structure and financial discipline across the operating segments of Development, Construction and Investments. It is designed to maximise risk adjusted returns for securityholders and deliver value for our customers. Combining the three operating segments leverages the competitive advantage of our integrated model, enhancing value for our securityholders, partners and the community. This has included award winning and innovative design excellence, the creation of better public places and superior sustainability solutions. Financial strategy The Portfolio Management Framework is the core of our financial strategy. This framework sets target guidelines and is designed to: • Maximise long term securityholder value through a diversified, risk adjusted portfolio • Leverage the competitive advantage of our integrated model • Optimise our business performance relative to the outlook for our markets on a long term basis • Provide financial strength to execute our strategy, maintain an investment grade credit rating, and capacity to both absorb and respond to market volatility. The Group is currently reviewing the framework in conjunction with the strategy review. The revised framework will be provided in FY21. Portfolio Management Framework Maximising long term securityholder value 1. Capital allocation Focused on gateway cities Australia International regions 50-70% 5-20%1 2. Business model Integrated model synergies Target EBITDA mix: Development Construction Investments 3. Target returns Group ROE Development ROIC 40-50% 10-20% 35-45% 10-14% 10-13%2 Construction EBITDA margin 2-3% Investments ROIC 8-11%2 4. Capital structure Investment grade credit rating Optimised Weighted Average Cost of Capital Target gearing3 10-20% 5. Distribution policy Payout of earnings 40-60% Capital management discipline New York: National September 11 Memorial 1. Per region. 2. Through cycle target based on rolling three to five year timeline. 3. Gearing definition: Net debt to total tangible assets less cash. Artist’s impression San Francisco: 30 Van Ness 50 Lendlease Annual Report 2020 Managing and Measuring Value 51 Our Customers Our customers range from individuals to the largest government, investment and corporate organisations. Successful customer relationships depend on our ability to understand what is truly important to customers and then delivering what they want. Customer experience research Over the past three years, our global customer experience research program has been embedded across all regions. The program helps us understand how customers perceive their experiences with us and identify where we can improve. It also guides decision making on customer experience improvement planning and new product and service development. In FY20, approximately 25,000 customers participated in our customer satisfaction (C-SAT rating) and loyalty (NPS rating) research, an increase of approximately ten percent on FY19. Notwithstanding the impact of events such as the COVID-19 pandemic, Brexit and the Australian bushfires, our performance this year remained steady and positive. The Development portfolio results saw a small upward NPS result for B2C and small downward movement for B2B, with C-SAT remaining steady. Overall Construction results saw a small downward movement in NPS. Investment Management had a solid increase in NPS and small positive increase in C-SAT. Customer experience feedback clustered around relationship performance, service delivery and product quality. Strength of relationships drives trust and provides a buffer in difficult times. Highly skilled employees embed confidence in the relationship, whilst having a compatible cultural fit can provide a strong input into driving elements of trust, a key driver of customer experience (particularly for B2B customers). Customers also highlighted the importance of having customer centric service delivery and communication processes to keep them informed, resolve problems and respond effectively in a timely manner. Product quality, and a positive experience with Lendlease products, gives customers confidence and is a key factor in future engagement and advocacy. The ability to “go the extra mile” and add value (beyond price) results in customers justifying their purchase/ investment decision. Customer snapshot1 200 million Retail visitors annually2 (approximate) 110,000 Residents in US Military Housing (approximate) 471,000 Residents across apartments and communities3 (approximate) 17,000 Retirement living residents (approximate) 1. As at 30 June 2020. Internal data capture, not audited. 2. Number excludes urban regeneration retail. 3. An estimate of current and future residents based on our projects to date and existing pipeline. Customer experience improvement initiatives Each year across Lendlease a range of customer experience improvement initiatives are implemented to improve customers’ and residents’ experiences. Customer facing digital portal In the UK, in collaboration with the Global Residential Practice, a customer facing digital portal is being developed and progressively implemented to improve the customer experience by enabling tailored communication with the customer. This will empower customers to do what they want, when they want and interact more easily with Lendlease all the way through their journey. Military Housing Privatisation Initiative (MHPI) Customer Care Program Our US Communities business launched a customer care program with the vision to provide outstanding customer service to communities where military families live, work and thrive. The program is based on a commitment to six pillars: to provide Safe and Healthy Homes, Quality and Consistent Service Experience, Communication and Education, Organisational Culture of Caring, Sense of Community, and Sense of Value. As a result, we have successfully identified and are implementing new ways of listening to and engaging with more than 110,000 residents in over 40,000 homes. At the centre of our resident engagement strategy is our intent to establish a Resident Advisory Board (RAB) in each of our Army and Marine Corps/Navy communities. These RABs are designed to give residents the opportunity to directly work with local property management teams to help shape their community, express their concerns, share their ideas and suggestions, and to work directly with them to develop and implement effective solutions. Retirement Living connecting residents The Australian Retirement Living business launched a new free app called Lendlease Together, designed to help residents feel more connected to their community, keep informed and easily access their friends, family and the village management team. Using the app, residents and their family and friends can access the latest village news, wellbeing ideas and resident stories as well as video chat with loved ones. COVID-19 drives customer rewards program innovation Our Singapore shoppers’ rewards program and app, Lendlease Plus, launched several new COVID-19 stimulated offers in FY20 to the program’s approximately 128,000 members. This included new food delivery special offers with partners GrabFood, foodpanda and deliveroo, designed to support customers who did not want to leave home and provide indirect support to participating food and beverage retailers. Members could also donate reward dollars to Willing Hearts, a local meal delivery charity supporting people in need during the COVID-19 period. 52 Lendlease Annual Report 2020 Managing and Measuring Value 53 Our People Wellbeing In our most recent People Survey, we achieved a significant increase in the effectiveness of leaders as measured by their direct employees. Improving the effectiveness of our leaders remains a key focus for us as we deliver our global pipeline. Workforce management With a focus on preserving jobs and reducing costs, a number of workforce management actions were implemented in response to COVID-19. Working with a set of globally consistent principles, leaders tailored their plans and actions based on the situation in each location – in some cases accommodating site specific requirements and accessing government support where it was available. This enabled us to implement workforce management actions that our people understood and were relevant to their local experience. The range of actions include reduced pay for a temporary period without a corresponding reduction in hours, reduced hours of work, furloughs and stand downs and, in a limited number of cases, redundancies. Our people are the greatest contributors to our success and enable us to fulfil our vision to create the best places. As we continue to grow our influence internationally, the way we work is evolving. Together with our partners, we aim to deliver large scale projects faster by drawing on innovation, knowledge sharing, leadership excellence and our diverse and capable workforce. Our ambition is to create a work environment that: • Values and cares for its people, with safety and wellbeing our priority • Has inspirational leaders who others aspire to emulate • Is team oriented, inclusive and diverse • Fosters a unique culture that balances innovation, knowledge sharing and risk management. To support these ambitions, our people strategy has focused on developing leadership excellence, codifying and sharing knowledge globally, creating a consistently positive employee experience, and developing and deploying our talent globally. Developing and deploying key talent As the scale of placemaking increases, we continue to invest in developing the capability of our people to deliver. This investment is across all career stages, from our global graduate program to our Construction Director Program and Urbanisation Project Director Program. We currently have 404 of the brightest new graduates across our four operating regions in our Global Graduate Program. Now in its fourth year, this program immerses the graduates in Lendlease practices to accelerate their careers and build lasting knowledge and relationships. To deliver the best places we need the best leaders on our projects. We continue to grow our expertise in project and construction delivery. In FY20, we had 39 senior leaders participate in our Construction Director Program and Urbanisation Project Director Program. Our target retention rate for key talent is 90 per cent or higher across all talent programs. This year we achieved a retention rate of 91 per cent. In FY20, our pipeline of successors for key leadership roles, along with the number of females in our succession pool, increased. For senior executive positions, we have a target of three unique successors and in our FY20 talent and succession review, 75 per cent of senior executive positions met this target. While the number of unique successors has decreased, the readiness of those successors has improved. Succession strength1 FY19 FY20 Leadership positions held by women2 FY19 FY20 78% 75% 26.1% 26.9% The employee experience Listening to our people helps us to create an environment and experiences that support our employees. It provides an environment where our people are recognised and rewarded for living our values and building the culture we need to create the best places. We continuously communicate and engage with our people in designing and evolving the way we work to foster greater enterprise wide collaboration, continuous learning and open and transparent dialogue. As part of this open dialogue, we measure the effectiveness of our leaders through Our People Survey, conducted every six months. During the year, we embarked on a targeted Leadership Excellence Program to build leadership capability. This focused on direction setting, leading effective teams and regular and open communication. 1. For all senior executive positions, we have a target of three unique successors. We define this as succession strength. This year we have moved from an average measure across the cohort to a percentage of positions that met the three or more target. 2. Leadership roles include a number of levels in the Lendlease Career Job Framework, including executive level roles. Health and wellbeing response to COVID-19 In response to COVID-19, Lendlease put in place a range of measures across our global operations to support our people’s health and wellbeing. Hardship and Wellbeing Fund The Lendlease Hardship and Wellbeing Fund was established to support team members impacted by COVID-19 who need short term help to cover the essentials and expenses of everyday life. This includes things like a mortgage or rental payment, groceries, utilities and medical expenses. Online programs With most of our office based employees working remotely due to COVID-19, we were able to adapt our suite of health and wellbeing programs to be delivered online. The Roadmap to Wellbeing Program covers nine topics themed around Productive People, Performance Stamina and Positive Connections. They are offered as one hour bite sized workshops, short toolbox talks and ten minute digital learning modules that can be accessed at any time from any device. Leader webinars focused on equipping our leaders to support their teams as well as a range of additional services such as an online doctor service, meditation and movement programs. Mental Health First Aid Lendlease has long had a focus on the health and wellbeing of its people and developed a holistic framework and initiatives to promote and support this focus. Since 2014, Lendlease has partnered with Mental Health First Aid (MHFA) to help our people identify and support mental health in the workplace. In FY20, we trained 186 employees and now have more than 1,850 trained MHFA Officers globally. To expand our support of mental health in the workplace, we launched the MHFA Leaders Program with more than 400 leaders completing the training. The program aims to provide our people leaders with the tools and skills to support employees with mental health issues. Mental health support is part of the wider Lendlease health and wellbeing framework and for the second year we have been certified as a ‘Healthy Workplace’ by the Global Centre for Healthy Workplaces. Knowledge sharing To better codify and share our global intellectual property (IP), in 2019 we launched two ‘Practices’; Urbanisation and Residential Development. These practices bring together a community of senior sector leaders and subject matter experts to develop specialist sector IP that is available to anyone in Lendlease. Direct guidance from practice affiliate members, as well as access to expert validated knowledge, boosts our peoples’ professional development. It also protects our IP if an individual leaves the business. Joining a practice as an affiliate member is an aspiration of our most accomplished subject matter experts. It is recognition of a person’s abilities, commitment to continuous improvement and contribution to our knowledge sharing culture. Our practices clearly articulate the expectations of our affiliate members and foster the behaviours that are key to Lendlease maintaining our position as an industry leader. Attracting future talent Since the launch of our Global Graduate Program four years ago, we have welcomed 924 of the best and brightest students to our organisation. Our two year program offers a breadth of experiences designed to accelerate learning and readiness of graduates. It is an opportunity not only for the graduates to learn but also for the organisation to learn. Along with their formal learning pathway, we engage them in projects to create innovative solutions and enhance operations across the organisation. Our entry level talent program is also an opportunity for us to focus on bringing a diverse range of candidates into the organisation. In the past three years, we have achieved a 50/50 gender balance globally, which builds a pipeline of talented women for future leadership roles. We will continue to focus on providing opportunities to under represented groups in our industry. 54 Lendlease Annual Report 2020 Managing and Measuring Value 55 Sustainability We are a 1.5ºC aligned company Net zero carbon scope 1 and 2 by 2025 Absolute zero carbon by 2040 Introducing our new sustainability targets Our vision is to live in a world warmed by no more than 1.5ºC and to be responsible for creating measured social value on the journey. We are a 1.5ºC aligned company We are excited to launch these targets. They are our call to action and will be our measure of success as we begin the next chapter of our sustainability story. We are acutely aware that these targets will be difficult to achieve – and believe it is this challenge that makes them worthwhile striving for. We look forward to working with and learning from our clients, partners, tenants and supply chain as we create the pathways towards achieving these targets and supporting industry transformation. Create $250m of social value by 2025 Committing to transformation Sustainability has always been a priority for Lendlease. We have a long and proud history of leading the evolution of the built form to be more sustainable, with numerous sustainability firsts achieved. In June 2019, we announced our new Sustainability Framework, focusing our efforts on three global imperatives to deliver on our sustainability objectives and help in achieving our vision to create the best places. As the business has implemented this new strategy, we realised we need to act faster as an industry to transform how we design, construct and manage the built form. Industry collaboration is key to achieving the type of radical change needed in our sector. This includes changes such as electrification of buildings and equipment, decarbonisation of materials manufacture and the eradication of waste to landfill – all while maintaining our commitment to using our work as a platform for creating social value for those who live, work or visit the places we create. We have committed to two new sustainability targets, aligned to our framework and sustainability imperatives. The targets have been set after consultation and deliberation with clients, partners and our employees. Imperatives Focus Area: Environmental Focus Area: Social To Create the Best Places Sydney: Barangaroo South As a 1.5ºC aligned company, we aim to tackle the climate crisis head on while delivering client and shareholder value, maintaining our employee value proposition and honouring our sustainability legacy. Achieving zero emissions will be approached by setting short, medium and long term goals, addressing our immediate emissions activity, and fostering industry participation and partnerships to help respond to wider, indirect emissions. The following five steps are required to achieve our target: 1. Create a decarbonisation investment strategy in 2021 2. Phase out diesel and gas in our operations 3. Use 100% renewable electricity before 2030 4. Collaborate with supply chain partners to set pathways to zero carbon by 2040 5. Collaborate with our tenants and residents to transition to renewable electricity by 2040 Taking action together With a target as ambitious as ours, we need to collaborate with others. We are already working with our suppliers and advocacy groups to develop multilateral responses to emissions in the built environment. This year we announced our partnership with ResponsibleSteel, becoming the first property and investment company to join the initiative. ResponsibleSteel brings together many innovative steel suppliers and manufacturers, partnering to reduce emissions across the supply chain. We also intend to play a similar role in advocating for low carbon cement. We are also working in our gateway cities to respond to the evolving demands of a zero carbon economy. After almost a decade of work in partnership with the NSW Government, Barangaroo South became Australia’s first carbon neutral precinct. What 1.5ºC aligned means To combat climate change we need to minimise global warming. 1.5ºC is a reference to the level of global warming we hope to help limit the world to, based on pre industrial levels. Due to the amount of greenhouse gases (such as carbon) already in the system, even with our best efforts, the planet is set to warm by 1.5ºC (it has already warmed to 1ºC). With no change to current practices, the planet will warm by over 3ºC, which will catastrophically impact the ecosystem and lives. The Paris Agreement is striving for less than 2ºC warming. The term ‘1.5ºC aligned’ is a commitment to take actions to reduce our emissions to the levels required to limit global warming to 1.5ºC. Governance 56 Lendlease Annual Report 2020 Managing and Measuring Value 57 Create $250m of social value by 2025 Assessing shared value partnerships beyond project and asset obligations Using industry accepted methodology Hindsight 2020 Global Real Estate Sustainability Benchmark (GRESB) leadership FY20 was the fifth year in the past six years that APPF Commercial has attained the prestigious number one global GRESB ranking. Remarkably, the Fund has grown its net lettable area by 23 per cent over the past six years, while simultaneously reducing its carbon footprint by 39 per cent. Three other Lendlease funds achieved top 10 global rankings in the 2019 GRESB: • Lendlease International Towers Sydney Trust (Towers Two and Three and International House at Barangaroo) – third globally overall and third in the office sector (across listed and unlisted funds) • APPF Retail – global first in the retail sector (across listed and unlisted funds) and fifth overall • Lendlease Sub Regional Retail Fund – global third in the retail sector (across listed and unlisted funds) and tenth overall. Locally across Australia and New Zealand, APPF Industrial was ranked first in industrial (unlisted) and Lendlease’s Asian retail funds came first, second and third place for unlisted Asia retail funds. Lendlease Community Day volunteering Our Corporate Social Value Target is intended to demonstrate our corporate commitment to creating social value in the communities in which we operate, above and beyond what we are required to do at the project or asset level. This target will account for our investment in our corporate led, shared value partnerships. It is based on achieving an average 1:5 social value return on investment, primarily via our Lendlease Foundation, but also through other key business initiatives such as FutureSteps. Work is underway to deploy new metrics and data collection at the asset and project level to allow us to expand this target to include the social value we create at that level. We have also commenced work with a number of social value evaluation experts to help develop industry accepted, simplified, yet robust, social value assessment methodologies to evolve the social sustainability narrative beyond philanthropic spend, to one of social value created and the multiplier of shared value partnerships. Partnering to increase the value Key to the success of our new social value target is the shared value partnerships, we will continue to establish and foster via investment from our Lendlease Foundation. Through our partnerships we have been able to both deliver and receive social value outcomes for our communities, as well as our own employees, who get to interact with our partners in various ways, including through volunteering. It is incredibly rewarding to work with partners on important social agendas aligned to our Sustainability Framework and even more exciting when we can bring partners together to amplify impacts. An example of this approach was the use of Lendlease Foundation funding at the start of the COVID-19 lockdown to support The Pure Group, a social enterprise that runs our Barangaroo café. They were able to stay operational for a period, employing staff to use our facilities to prepare 4,000 meals that were then shared with another partner, OzHarvest, who delivered the meals to charities in need. We have also been able to offer employees the opportunity to help pack OzHarvest hampers for deployment to charities around Australia. What is ‘social value measurement’ While there is no universally accepted definition of ‘social value measurement,’ it is essentially a process to understand how much positive social change has occurred and can be attributed to the activities undertaken by an organisation. An assessment of ‘social value’ should account for the many facets of life that may affect an individual’s wellbeing, including but not limited to: economic circumstances, environmental issues, education, physical and mental health, and employment. Sydney: Barangaroo A look back at the 20% by 2020 targets (FY14 to FY20) The Group’s performance against the 2020 targets has fluctuated over the past five years. Endorsed in July 2014, our flagship 20 by 20 sustainability goals included a 20 per cent reduction in energy, water and waste sent to landfill for our operations1 by the end of FY20. The targets were ambitious for the time and aimed at driving meaningful change across the organisation, as evidenced by numerous initiatives that have made a big impact to our energy, water and waste performance over the years. There have been a number of key lessons learned, which we have applied to the drafting of our new targets and metrics. In July we retired our 2020 energy, water and waste targets. FY20 Performance (as at Q3) Energy2 – 20% reduction Investment in new, more efficient assets, retrofitting of older assets and the development of faster construction methods over the past five years has helped the business achieve its 20% energy (intensity) reduction. Water2 – 5% reduction Investment in efficient water fixtures and use of non potable water for construction purposes has helped the business reduce its water (intensity) use. Water intensive tunnelling projects and challenges retrofitting older assets limited our ability to reach our 20% goal. Waste2 – 22% reduction With most waste generated from our construction activities, innovative reuse pathways (e.g.: recycled glass for road base) and partnerships with our suppliers to reduce packaging, has helped the business reach its 20% reduction (waste to landfill) goal. 1. Energy and water are measured as reductions in intensity. Waste is measured as a reduction in the rate of waste sent to landfill. 2. The above performance is at March 2020 and is a cumulative measure. Full FY20 performance is subject to Limited Assurance by KPMG and will be available on www.lendlease.com in October 2020. 58 Lendlease Annual Report 2020 Managing and Measuring Value 59 Elevate Reconciliation Action Plan (RAP) Reconciliation Australia has extended our current Elevate Reconciliation Action Plan to September 2020 and we have again been invited to submit an ‘Elevate’ level RAP in recognition of our continued leadership and proactivity in delivery in this area. We will release the new Lendlease Reconciliation Action Plan 2020–2023, titled ‘Country, Truth and our Shared Story’, in late 2020. Providing cultural engagement and learning opportunities for Lendlease employees 6,030 Lendlease employees in Australia have completed face to face or online cultural awareness learning since FY12. Promoted reconciliation through our sphere of influence by activating our projects, offices and assets in celebration of National Reconciliation Week 2020 and NAIDOC Week 2019. Increasing the number of Aboriginal and Torres Strait Islander people directly employed at Lendlease 1% Of Lendlease Australian employees identify as Indigenous Australians. Pivoted RAP actions in FY20 due to COVID-19 by developing a COVID-19 RAP Response Plan including a greater focus on support and retention of existing Lendlease Indigenous employees. Updated our Indigenous Talent Strategy and Resourcing Strategy under the leadership of newly appointed identified Indigenous managers. Increasing procurement activity with Aboriginal and Torres Strait Islander businesses 128 $55.3m Supply Nation businesses engaged (registered and certified Indigenous businesses). Spent in FY20 with registered and certified Indigenous businesses. Lendlease Building – local and indigenous engagement In February 2020, our team commenced the staged hand over of the $495 million New Air Combat Capability facility at RAAF Base Tindal in the Northern Territory. The completion of this facility will support the arrival of Australia’s cutting edge F-35A Joint Strike Fighter aircraft. Through this project, Lendlease awarded 64 per cent of the total work packages to Northern Territory businesses, representing some $242 million injected into the Territory’s economy. Through a bespoke Indigenous work training program developed by Lendlease, the project also contributed to local Indigenous employment, with an eight per cent Indigenous workforce participation rate and three subcontracts, valued at $27 million, awarded to Indigenous companies. First Nations design in placemaking – Darling Square Commissioned by the landowner, Place Management NSW (State Government), and Lendlease, ‘The Canopy’, by Aboriginal artist and Head of Design for Bangarra Dance Theatre Jacob Nash, arose from a vision to reinvigorate a piece of urban infrastructure and share stories of Aboriginal culture with the public. The installation has beautified the area and attracts people to gather and use the previously dark Pier St Underpass that divided sections of Darling Harbour. The Pier St underpass art installation represents the three constants that have always been here: the land the artwork is on, the Wangal and Gadigal clans of the Eora Nation in Sydney that care for this country, and the night sky above us. The night sky depicted evokes primal ideas of creation, dreaming, wonder and home, and it holds stories about our place in the universe. It showcases how First Nations’ culture and design knowledge can unite us and connect people and place. Modern slavery We acknowledge the increasing expectations on businesses to address modern slavery risks in global supply chains. Eliminating modern slavery from our supply chains is a goal we take very seriously. We intend to submit a Modern Slavery Statement in 2020, covering our global operations. Our supply chain risk initiatives have taken a risk based approach, promoting consistency and standardisation across our business, and have included: • Implementing a new global Supplier Code of Conduct (available on Lendlease.com) setting out our expectations of suppliers, contractors and their supply chains across a range of areas including health and safety, sustainability, human rights and modern slavery. Embedment into business processes, including within major standard contracts globally, is underway • Adoption of Ethics Point, a global platform for employees and suppliers to raise concerns around improper conduct. This platform is accessible in local languages • Developing a modern slavery risk heat mapping tool to identify global supplier categories and associated products against countries with elevated risks of modern slavery • Convening regional Modern Slavery Communities of Practice, focusing on implementation of modern slavery risk mitigation initiatives and capacity building • Conducting modern slavery awareness training sessions and developing a Modern Slavery Guide for our employees, providing practical guidance for mitigating modern slavery risks • Active engagement in business forums on industry level responses to modern slavery risks, including UN Global Compact Network Australia’s Modern Slavery Community of Practice, Achilles Building Confidence Community of Practice in the UK, and Sustainability Supply Chain Schools (UK and Australia) • Working with key Global Supply Chain partners and critical equipment manufacturers to understand their supply chains and their suppliers in more detail. We acknowledge the economic impact of COVID-19 will have a disproportionately adverse impact on vulnerable worker populations. Awareness of this risk and internal knowledge sharing on risk mitigation measures e.g. for migrant workers and responsible disengagement principles (where we needed to pause) has been a specific focus for our regional Modern Slavery Communities of Practice during this period. Respect for human rights is consistent with our values, our commitment to safety and sustainability, and drives the way we work. Lendlease recognises tackling modern slavery successfully relies on strong, open collaboration with our suppliers, our people, and other key stakeholders. Given the breadth and complexity of our global supply chains, our efforts will require a phased, multi year approach. 60 Lendlease Annual Report 2020 Risk 61 Risk Honolulu: Hickam Communities A vibrant masterplanned community providing homes and amenities for the US Airforce. 62 Lendlease Annual Report 2020 Risk 63 Risk Our approach recognises the nature and level of risk we are willing to accept to achieve our strategic goals and key performance targets to create securityholder value. Internal audit Formal processes provide supplementary assurance to operational businesses. External audit Formal, independent regular reviews. Policy and procedure Board approval process The Board has matters that are reserved for its determination under the risk appetite of Lendlease, and further, under the Limits of Authority. The Board approval process is set up so decisions and commitments of a predetermined magnitude require Board approval, thereby supporting sound governance and continued alignment with strategy. Investment committees Investment committees are in place at regional and Group levels in order to assess and approve potential projects/ commitments. Limits of Authority Limits of Authority are in place to outline matters that are specifically reserved for determination by the Board and those matters that are delegated to management. Risk tools Risk management platform Lendlease uses a risk management platform throughout all regions to allow consistent risk identification and assessment. We continue to focus on aligning Board and management to drive informed and consistent decisions, achieving effective and efficient allocation of capital and resources, providing an understanding of risk limits, context to identify, report and manage risks, and creating a culture of risk awareness and accountability. Our risk framework remains unchanged from a governance perspective, and continues to mature, underpinned by a robust three lines of defence model. The ‘Voice of Risk’ roles we added in FY19 continue to mature, providing further independent assurance within each region with alignment as a group being coordinated through the Group Chief Commercial and Risk Officer and Group Head of Risk and Insurance. The strength and maturity in the structure has been well evidenced in recent months as we navigate through COVID-19. A mature crisis management framework and appropriate business continuity plans are in place through all regions and functions, providing a stable platform on which we can continue to operate safely and plan strategically. Structure Board Risk and Audit Committees Review the effectiveness of the Group’s enterprise risk management system and seek assurances that material risks are identified and appropriate risk management processes in place. Group risk function Liaises with regional CEOs and risk specialists on business specific and enterprise wide risks in order to assist the Group’s businesses to further develop their risk management processes are in place. Sydney: Victoria Cross over station development Artist’s impression 64 Lendlease Annual Report 2020 Risk 65 Risk governance and management Specific examples of how risk governance and management have evolved in the reporting period include the implementation of some granular risk appetite principles and tolerances in key areas of risk. These focus on areas such as latent conditions, contamination and existing structural risk. Further development of risk appetite will continue to evolve in other granular areas of our enterprise risks. Each region continues to have a directly appointed ‘Voice of Risk’ executive who is part of each Regional Leadership Team. Importantly, these individuals do not have P&L accountability, nor are they part of the risk function. They are independent and are mandated to challenge both the business and the risk function on genuine matters of strategic, tactical and operational risk. Three lines of defence Board and Committees Global Leadership Team Regional Leadership Teams Risk Based Governance Functions Business Integrity Group Internal Audit External Audit First line of defence Second line of defence Third line of defence Business Operations First line of defence – responsibilities Identify Assess Control and Manage Monitor Report Individual business units are the first line of defence responsible for identifying, managing and owning their risks. These business units have the appropriate tools and interaction with the various Group functions to execute business responsibilities effectively. Stage gates Across our property and construction operations, the conversion and delivery of projects is governed by a number of ‘gates’ utilising proprietary and in house developed systems, as follows: Business development pipeline. 1. Project go/no go. Protect conversion process. 2. Commit to pursuit costs. 3. Authority to submit to customers. Submit proposal. 4. Changes to initial proposal. Execute contract. 5. Authorisation to proceed. Delivery. 6. Regular project reviews. Review lessons learnt. 7. Implement for new projects. Stage gates are underpinned by business unit milestone views/health checks and portfolio reviews during delivery. Inform Plan Oversee Guide Report Group functions involved in the second line of defence include corporate risk and insurance, operational assurance and performance, safety, legal, information technology, sustainability, people and culture, and finance. Function specific policies outline the assurance measures to enable each business to identify and manage risks appropriately Assess Plan Execute Report Follow up Internal and external audit make up the third line of defence, acting independently from the first and second lines of defence and reporting directly to the Board and Risk and Audit Committees. Second line of defence – assurance measures Third line of defence – independent processes In November 2019, the Board Risk Committee approved the Risk Appetite Statements against each of the 12 Enterprise Risks. These Risk Appetite Statements define at a high level, the expectations of management and the Board regarding the nature and extent of risks the Group is willing to take in pursuit of its strategy. They assist in: • Maintaining alignment amongst the Board and management about the Board’s appetite for risk in order to drive more informed and consistent decision making • Effectively allocating capital and resources to projects that are more likely to be approved by management and the Board. Risk Appetite Framework In May 2020, after extensive internal consultation and testing, the Board Risk Committee approved the Risk Appetite Tolerances. These provide guardrails that will assist in aligning Lendlease’s appetite for risk with our decision making and review processes, namely: • Providing a clear understanding of Board approved risk limits, where there is zero tolerance and where specialist approvals and endorsements are required to mitigate risks • Providing a mechanism for identifying, managing, and reporting on risks through the lifecycle of projects and investments • Providing an appropriate avenue for the ‘Voice of Risk’ to be heard, and a culture of proactive risk management to be embedded within all levels of the organisation. Implementation The Risk Appetite Framework is being integrated into the existing risk management and corporate governance processes within Lendlease, as shown in Diagram 1. This ensures a seamless deployment of the Framework and an improvement in the management of risk within the organisation. Continuous improvement In the first 12 months of implementation, the framework will be reviewed on a quarterly basis. After this period, it will be reviewed annually by the Group Chief Commercial and Risk Officer and approved by the Board Risk Committee. Any changes outside of the annual review cycle that encompass the addition of new statements and tolerances will be reviewed and approved by the Board Risk Committee. Risk Appetite Framework deployment Board defines its appetite and applies governance Board Defines its appetite for the 12 Enterprise Risks through the Risk Appetite Framework Corporate risks managed by Group Group Disruption . Cyber / Data . Regulatory . Culture . Business Continuity Appetite deployment mechanisms Group Strategy; Investment in Digital; IT Policies; Management of Compliance Obligations; Business Continuity Policy; Limits Of Authority (LOAs); Code of Conduct; Formalised Investment Approval Processes Business risks managed at regional level Regions / Businesses Customer . Geopolitical . Environmental . Commercial Performance Scalable Growth . Health, Safety and Wellbeing . Project Execution Appetite deployment mechanisms Strategy Approval; Policies; Regional Investment Committees; LOAs; Formalised Investment Approval Processes Operational issues / risks managed at project / investment level Projects / Investments Appetite deployment mechanisms Project Reviews; LOAs; Localised Policies; Project Approval Gates Health, Safety and Wellbeing Disruption Commercial Execution Geopolitical Regulatory and Counterparty Corporate Culture 66 Lendlease Annual Report 2020 Risk 67 Key risks and mitigation Description Mitigation The value we create Failure to provide an environment that promotes health, safety and wellbeing impacts our ability to achieve our corporate and social responsibilities Responsiveness to disruption, including digital disruption as well as other new methods and materials emerging in the Development, Construction and Investments sectors Commercial performance fails to meet our corporate objectives Failure to execute strategy or projects affects our ability to meet our corporate objectives We are committed to the health, safety and wellbeing of our people. Through our Global Minimum Requirements (GMRs), which include both physical safety and health and wellbeing, we empower our people to operate in a consistent standard across all our operations. With the increasing dependence on technology, our strategic intent aims to turn disruption into an opportunity by creating a culture that fosters innovation and focuses on adopting leading edge technologies to deliver innovative solutions and generate a competitive point of difference. Our capital deployment guidelines mitigate risk and improve performance. Quarterly business reviews assess business operations against approved strategy to drive consistent, focused and risk assessed investment decisions. Our risk management approach, including the use of stage gates across our property and construction operations, which is articulated earlier in this section, contributes to the mitigation of execution risk. To inform our investment decisions, we use internal research to develop a ‘house view’ of property cycles in every region and the strength of our gateway cities. Global and local events or shifts in government policy occur in the regions in which we operate, adversely impacting our ability to achieve strategic objectives. Failure to adequately understand governments’ mandates, expectations and performance standards We are committed to growing our business in sectors that are supported by positive global trends. We are sensitive to geopolitical shifts and concentration risk and coordinate our approach to government in all regions to mitigate against sovereign risk. • Non compliance with regulatory and policy requirements by Lendlease or our clients/suppliers • Client, investor or supply chain ethics fail to meet Lendlease standards • Failure to adequately select, govern and drive value from counterparties • Failure to comply with government regulations impacts our ability to access government opportunities Failure to create and maintain culture which supports Lendlease’s core behaviours, principles and values to drive disciplined strategy execution Cyber/Data Governance/ Asset Protection Failure of cyber resilience and defence systems. Leakage, misappropriation or unauthorised storage of data. Unauthorised control of systems and physical asset infrastructure (i.e. lifts, security, air conditioning) Customer Loss of existing customer (including government) relationships, or inability to tailor services to future customers’ needs, impacting Lendlease’s financial objectives Non scalable Growth Corporate and Environmental Sustainability Business Continuity People: inability to attract, retain and upskill key talent necessary to deliver strategic objectives Process: lack of scalable processes to support predictable growth Failure to comply with regulatory, societal and investor expectations of corporate and environmental sustainability such as climate change and social responsibility Failure to properly plan for and/or appropriately respond to events which may disrupt Lendlease’s business To further improve our culture of compliance, we focus on aligning business priorities with the necessary compliance and assurance measures. We are focused on maintaining an ethical supply chain to ameliorate the risk of material substitution and modern slavery. We have an appetite for relationships with parties who are aligned with our values. Our values drive our approach to business and delivery of long term value. We empower our people to make business decisions that are aligned to our core values and behaviours, principles, and five areas of value creation. To provide a ‘Voice of Risk’, we have separate reporting routes outside of those who can influence risk issues through optimism bias. Physical and data security continue to be key focus areas globally. We invest in preventative technology and education of employees to achieve a sustainable security culture. Bid leadership training of key employees reinforces understanding of customers’ requirements. Recurrent customer survey feedback informs our business strategy. A single platform assists in customer data security and aligns customer service across all regions. To deliver the desired level of performance, we continue to invest in growing our core capabilities through active talent management and targeted professional employee development to attract, retain and grow the best people. Our processes are designed to be consistent, scalable and effective. We are committed to creating the best places and optimising our corporate and environmental sustainability performance (including climate change and social responsibility) through our Sustainability Framework and integrating sustainability considerations into our business strategies. We continually increase engagement through training programs to promote sustainable behaviours in the organisation globally. We have endorsed the TCFD recommendations on climate change and have begun reporting Lendlease’s resilience to the changes in both policies and the physical environment (as noted in the sustainability section). To achieve organisational resilience, we are committed to operating in a way that supports our ability to respond to threats and disasters without affecting our core business operations. We continue to invest in our peoples’ learning and development to better prepare them in the event of disruption through training programs and various threat scenario simulations to stress test the plan. 68 68 Lendlease Annual Report 2020 Climate Related Risks and Opportunities 69 69 Climate Related Risks and Opportunities London: Google UK HQ Dubbed a ‘landscraper’ for being as long as a skyscraper is tall. 70 Lendlease Annual Report 2020 Climate Related Risks and Opportunities 71 Our Climate Related Risks and Opportunities Our Climate Related Impacts The business leaders identified and ranked climate related risks and opportunities, which have been grouped into ten climate related impacts for our strategic 2050 Future Climate Scenarios. The TCFD framework could be seen as just another layer of disclosure. However, for us, it has helped transform the way Lendlease is positioning itself to respond to the climate crisis and the way in which we will be communicating and executing on our ambition to be a 1.5ºC aligned company. In sharing our experiences and outcomes from scenario planning for climate impacts, we hope others will be encouraged to commit to this important evaluation and disclosure. Our process for identifying climate related impacts When we committed to TCFD we wanted to make climate change easier to understand and actionable by senior leaders. Most business leaders are not climate scientists; they are generally time poor, with their own day to day priorities. Getting them to focus on and understand climate related impacts is probably the biggest challenge to any organisation on this journey. To address this challenge, we created climate scenarios and a scenario planning process tailored to our business. Our tailored approach has generated a high level of senior leader engagement, with the outputs integrated into short term business planning and long term strategic thinking. This has helped us set up new and ambitious sustainability targets, aligned with our TCFD work. Our Board engaged with management and attended a number of workshops on the four climate scenarios to test business strategy and how best to respond to key trends in line with TCFD recommendations. Engagement commenced with the Global Leadership Team (GLT). The GLT was instrumental in deciding that our Resignation scenario (RCP8.5) should only be used to assess the inherent climate change physical risks and not for strategic business resilience. The top 200 senior leaders from across our business were engaged in risk and opportunity workshops. In these workshops, participants identified risks and opportunities that might arise, ranking them in line with the Lendlease risk matrix. Participants also identified actions their business unit should take within the next 3–5 years to prepare for climate related impacts. These actions will be integrated into the FY21 business planning process. The risks and opportunities identified have been consolidated into 10 climate related impacts per strategic scenario. This output will continue to play an important role in our response to the TCFD recommendations, first in our qualitative analysis this financial year and informing our financial disclosure in FY21. Risks and opportunities workshops Our industry in 2050 What are the risks and opportunities in the next 20-30 years? Which of the high likelihood and high impact risks and opportunities could arise in the next 10 years? 10 Climate related impacts per scenario What are the material financial impacts of the risks and opportunities? What risk management processes are needed for the risks and opportunities? FY21 FY20 What metrics and targets are needed to manage risks and opportunities? What actions do we take now (2-3 years)? What strategic imperatives should we embed in the Lendlease 10 Year Strategy? Task Force on Climate Related Financial Disclosure (TCFD) Climate change and society’s response to it are now recognised as foundational drivers of risk and opportunity within the global economy. In 2018, Lendlease committed to incorporating the TCFD framework into our disclosure regime. As a result, we are much better equipped to provide our investors and stakeholders with insights into how we are building resilience to climate related risks and opportunities. Process and timeline for implementing TCFD into the business Envision the world in 2050 Polarisation Scenario Paris Alignment Scenario Transformation Scenario Polarisation A world warmed by 3ºC Our Polarisation Scenario imagines the world falters on serious climate action, with a resultant national self interest taking precedence over multilateral cooperation. This scenario sees higher levels of economic protectionism with significant impacts on global supply chains. Risk Opportunity Development Construction Investment Development Construction Investment Climate Related Impacts Impact of climate change on assets and communities Increase market share from public sector Access and cost of capital Availability of international products Availability and cost of labour Reduced availability of materials and resources Impact of climate change on the way we work Shift in consumer preference toward secure and resilient communities Industry leadership in decarbonisation valued Impact of climate change on cities Not often identified as an impact Lower frequency of identified impact Higher frequency of identified impact Strategic resilience Our business has many attributes for strategic resilience in a Polarisation Scenario. Existing public sector partnerships position us well for likely increased climate adaptation work for the public sector. Our sustainability leadership positions us well, where decarbonisation and climate resilience and adaptation are valued, such as at Barangaroo. Climate related impacts The most frequently identified risks across the business, for this scenario, came from the impact of climate change on the way we work and on our assets, particularly for our Investments business. Conversely, the impact of climate change on cities has a high frequency of opportunities related to adaptation. The risk of nationalism on global supply chains was identified as a key impact, with most risks identified for our Construction business. Conversely, the impact on global supply chains was seen as an opportunity for the Construction business due to disaggregation of supply chains. Although this scenario sees a more severely impacted climate and less global cooperation, the business leaders recognised an inherent need for decarbonisation, seeing continued value in our leadership in sustainability. Artist’s impression 72 Lendlease Annual Report 2020 Climate Related Risks and Opportunities 73 Paris Alignment A world warmed by 2ºC Our Paris Alignment Scenario sees a market led transition to a lower carbon future through global government commitment to the Paris Agreement. This scenario differs from our Transformation Scenario in that it relies heavily on negative emissions technologies, such as carbon capture and storage, as a stress test of a situation in which the economy is decarbonised without any significant structural change occurring. Climate Related Impacts Risk Opportunity Development Construction Investment Development Construction Investment Increase speed of change in climate related impacts Misalignment between legislation/regulation and Lendlease strategy Increase cost of carbon Demand for decarbonisation of supply chain Increased scrutiny over actions versus branding Demand for negative emissions and geoengineering solutions Changing preferences away from new build development Demand for zero carbon infrastructure Increase market share from public sector Industry leadership in decarbonisation valued Not often identified as an impact Lower frequency of identified impact “ideal image would be a solar panels on top of a lendlease building - barangaroo resi is the best one” Higher frequency of identified impact Climate related impacts The most frequently identified risks came from the increased demand and need for decarbonisation of construction supply chains, creating a potential increase in the cost of materials, as well as likely scarcity of products and materials. Risks were also identified if we did not align our leadership in sustainability with the legislative direction of a government led decarbonised world. Conversely, opportunities were identified if we aligned early or even exceeded regulation. An increase in carbon cost was identified as both a risk and opportunity, particularly for Development. Opportunities were also identified related to new build no longer being as valued and zero carbon solutions attracting greater value. Strategic resilience Our sustainability leadership creates strategic resilience in a Paris Aligned Scenario. We are well positioned to build on our global track record of delivering commercially successful green and carbon neutral solutions needed for a decarbonised world. Transformation A world warmed by 1.5ºC Our Transformation Scenario sees a societally driven, controlled and rapid decarbonisation pathway, where global emissions peak in 2020 and are close to zero in 2040. Instead of relying on technological fixes, the Transformation Scenario sees a substantial reduction in emissions through lifestyle changes and a reprioritisation of capital to community level investment. Climate Related Impacts Impact of climate change on assets and communities Increase market share from public sector Access & cost of capital Availability of international products Availability & cost of labour Reduced availability of materials and resources Impact of climate change on the way we work Shift in consumer preference toward secure and resilient communities Industry leadership in decarbonisation valued Impact of climate change on cities Not often identified as an impact Lower frequency of identified impact Risk Opportunity Development Construction Investment Development Construction Investment Higher frequency of identified impact Climate related impacts It was anticipated that a shift in social licence to operate would occur in a societally driven decarbonisation scenario and that this shift would present risks across all aspects of business. A rapid decarbonisation would likely see a preference away from new build developments, due to the emissions from building products and materials (embodied emissions). This shift in preference would likely generate both risks and opportunities across our business. The speed of decarbonisation in our Transformation Scenarios was highlighted as presenting both transitional opportunities and risks. The expectation for private sector investment in decarbonisation was highlighted as an opportunity. Strategic resilience Our track record in social sustainability leadership, combined with our leadership in green real estate, would help position us well for societally driven decarbonisation. Our integrated business model, with a focus on digital, will allow us to respond quickly to the speed of change in this future scenario. Sydney: Barangaroo London: Elephant Park Artist’s impression 74 Lendlease Annual Report 2020 Climate Related Risks and Opportunities 75 Integration into risk management processes In addition to further integrating climate related risks and opportunities into the Risk Appetite Framework, we have also further developed physical and transitional risk assessments. We have refined and piloted our physical risk impact assessment process on several assets and development projects across the world. Using Representative Concentration Pathway RCP8.5, our greater than 4ºC Resignation Scenario, we have focused on eight key physical impact areas. This process will continue to be refined in FY21 and will form the starting point for physical risk assessment for financial disclosure. In FY20, we introduced a transitional risk assessment for a regulatory price on carbon, using a shadow carbon price within investment assessments. Our leadership in TCFD Our place based approach to scenario planning and integration of the TCFD recommendations into our business processes has led to invitations to take part in key TCFD forums and advisory groups. This year we have been proud to be members of, and active contributors, to: • The TCFD Construction Preparers Forum, which seeks to provide guidance to construction industry companies undertaking TCFD disclosure • The TCFD Secretariat Scenario Advisory Group, which seeks to provide practical guidance for climate related scenario analysis. Our disclosure progress and next steps In FY18, we made the commitment to disclosing under the TCFD recommendations and in FY19, we disclosed our 2050 Future Climate Scenarios. This year we integrated scenario planning into our business through risk and opportunity workshops to identify emerging risks and opportunities. We integrated the outcomes of the workshops into business planning, a strategy refresh and setting new sustainability related metrics and targets. In FY21, we will integrate the outcomes of the risk and opportunity workshops into our financial disclosure. Actions FY19 FY20 FY21 Governance Disclose the organisation’s governance around climate related risks and opportunities Strengthen Board and management oversight of climate related risks through the Board Sustainability Committee Establish a cross functional TCFD steering committee chaired by Chief Commercial Risk Officer Strategy Disclose the actual and potential impacts of climate related risks and opportunities on the organisation’s businesses, strategy and financial planning where such material is financial Undertake risk and opportunity workshops across the business to identify short, medium and long term risks and opportunities for each scenario Assess the climate related impacts on the business, strategy and financial planning Physical Risk Assessment Risk Management Disclose how the organisation identifies, assesses and manages climate related risks Integrate climate related impacts into strategy refresh to build strategic resilience Climate related risk integrated into Risk Committee Climate related risk assessments integrated into investment committee decision making process Integrate climate related risks into Risk Appetite Framework (see page 65) Establish global TCFD working groups to coordinate the assessment of physical and transitional risks and opportunities Heatwave Sea level rise Wind storm Wildfire Increased temperatures and heatwave Sea level rise and storm surge Cyclones, tornadoes and extreme wind events Wildfire risk with resulting poor air quality Metrics and Targets Disclose the metrics and targets used to assess and manage relevant climate related risks and opportunities where such information is material Establish metrics and targets for managing climate related risks and opportunities (see page 54 for sustainability related metrics and targets) Continued disclosure of scope 1 and 2 emissions Establish scope 3 emission reporting boundaries and methodologies Disclose scope 3 emissions Water scarcity Urban flooding River flooding Cold spell Drought impacts and severe water restrictions Extreme rainfall events leading to urban flooding Extreme rainfall events leading to river flooding Increased duration cold weather events Completed Commenced Target completion year Ongoing action 76 Lendlease Annual Report 2020 Performance and Outlook 77 Performance and Outlook Suzhou: Roche Diagnostics 48,000 sqm greenfield manufacturing facility. 78 Lendlease Annual Report 2020 Performance and Outlook 79 Group highlights The Group experienced a challenging year with a Statutory Loss after Tax of $310 million for the year ended 30 June 2020. Engineering exit costs of $368 million after tax, along with $19 million of goodwill impairment relating to the anticipated completion of the sale of Engineering, were brought to account and the Core business was adversely impacted by COVID-19 in the second half. The distribution per security was 33.3 cents. The Group’s Core business generated Earnings per Security of 15.9 cents and a Return on Equity of 1.5 per cent. Performance in the second half of the year was significantly down across the Core operations with the onset of the COVID-19 pandemic impacting performance from March 2020 onwards. A solid Core operating EBITDA in H1FY20 of $628 million was followed by a $65 million EBITDA loss in H2FY20 with each of the three segments impacted. In the Development segment, a number of large transactions were deferred, mandated site shutdowns, lower productivity and lower new work secured impacted our Construction segment and valuation reductions impacted our Investments segment due to deteriorating market conditions. A range of mitigating actions were implemented in response to the onset of the pandemic. Overhead and employee costs were reduced, along with a review of project expenditure. In addition, a range of measures were undertaken to strengthen the financial position of the Group. $1.2 billion of equity was raised through an Institutional Placement and Share Purchase Plan and additional debt facilities of approximately $1.3 billion were arranged to enable the Group to manage through a sustained downturn. The strengthening of the balance sheet positions the Group to accelerate the delivery of the development pipeline and take advantage of new investment opportunities. In the Development segment, despite the below target profit outcome, significant progress was made on growing and converting the development pipeline. This included securing additional major urbanisation projects, achieving planning milestones and creating new investment partnerships to support projects moving into delivery. In Construction, the impact of COVID-19 was greater in our international regions, particularly in cities where mandated shutdowns were implemented. This included lower productivity, projects being put on hold, and delays in the commencement or securing of new projects. This led to losses in H2FY20 for the segment across the Americas, Europe and Asia. In the Investments segment, COVID-19 had a significant impact on real estate valuations across the Group’s investments. Operating earnings within Investments was resilient, rising in the year on higher funds management fees, including performance fees, and a solid performance from the military housing operations. The Non core segment recorded an EBITDA loss of $495 million, which included accounting for $525 million pre tax in Engineering exit costs. Corporate costs, depreciation and amortisation and net finance costs were all impacted in the year following the adoption of AASB 16 Leases. It resulted in the reclassification of $88 million in Core operating lease expenses to finance costs and depreciation. The net impact to the Income Statement on adoption of AASB 16 Leases is an $11 million pre tax increase in expense in FY20. Net finance costs were $153 million. Net debt ended the period at $0.8 billion, down from $1.4 billion in the prior year. The average cost of debt was 3.4 per cent with an average debt maturity of 4.2 years. Group outlook While the duration of the impacts of the pandemic is uncertain, near term effects from COVID-19 are continuing and we expect current conditions to suppress first half earnings. The Group entered FY21 in a strong financial position with the capacity to execute the delivery of the global development pipeline and take advantage of other investment opportunities as market conditions improve. Progress has been made on planning consents for projects across the urbanisation pipeline, which supports the conversion of these projects to delivery. Post year end, the Group established an investment partnership to deliver Tower 1, One Sydney Harbour, which is expected to make a significant contribution to profit in FY21. The development pipeline grew significantly during the year from $76 billion to $113 billion. We remain focused on delivering the urbanisation portfolio safely, sustainably and profitably. The portfolio of 21 major urbanisation projects across nine gateway cities provides long term earnings visibility and a strong platform to deliver enhanced risk adjusted returns to securityholders. We expect to create more than $50 billion of institutional investment grade product from our urbanisation pipeline. This provides the opportunity for the Group to double current funds under management of $36 billion as the pipeline is delivered. Along with the $4 billion of investments and $29 billion of assets under management, the Investments segment is expected to provide a solid base of recurring earnings. Portfolio Management Framework The Portfolio Management Framework is designed to maximise long- term securityholder value. The distributions for the year include the 54 per cent payout of first half earnings and the second half distribution from the Trust. No dividend was declared for the Corporation in the second half. The Group is currently reviewing the framework. Key Financials Core Business EBITDA Mix Portfolio Management Framework Core Business Development Construction Investments Operating EBITDA Corporate Costs Group EBITDA Depreciation & Amortisation Net Finance Costs Profit before Tax Profit after Tax Non Core EBITDA Profit/(Loss) after Tax Total Group Revenue1 EBITDA Profit/(Loss) after Tax Underlying Operating Cash Flow3 Net Assets Net Debt Effective Tax Rate4 Earnings per Security Distribution per Security Weighted avg Securities FY19 FY20 Var. $m $m $m 793 211 489 $m 1,493 $m (165) $m 1,328 $m (94) $m (125) $m 1,109 $m 804 322 101 140 563 (158) 405 (160) (153) 92 96 (59%) (52%) (71%) (62%) 4% (70%) (70%) (22%) (92%) (88%) $m (461) $m (337) (495) (406) (7%) (20%) $m 16,555 13,289 $m $m $m 867 467 316 (90) (310) 762 $m 6,357 6,932 $m 1,425 % cents cents no.(m) 24.7 79.4⁵ 42.0 588⁵ 833 n/a² (51.4) 33.3 603 (20%) n/a2 n/a2 141% 9% (42%) n/a2 (21%) 3% Development Construction Investments 25% $563m Core Business Operating EBITDA6 18% 57% Core Business Profit after Tax FY19 $804m FY20 $96m Core Business Return on Equity FY19 12.8% FY20 1.5% Core Business Earnings per Security FY19 136.7¢5 FY20 15.9¢ Total Group Metrics Return on Equity Dividend payout ratio Gearing Core Business EBITDA Mix Development Construction Investments Core Business Segment Returns Development ROIC3 Construction EBITDA margin Investments ROIC3 Segment Invested Capital Mix Development Investments Regional Invested Capital Mix Australia Asia Europe Americas Target FY19 FY20 10‑14% 7.4% (4.7%) 40‑60% 10‑20% 40‑50% 10‑20% 35‑45% 10‑13%4 2‑3% 8‑11%4 40‑60% 40‑60% 50‑70% 5‑20% 5‑20% 5‑20% 51% 9.9% 53% 14% 33% 11.6% 2.2% 10.8% 57% 43% 45% 15% 22% 18% n/a2 5.7% 57% 18% 25% 4.7% 1.3% 2.8% 56% 44% 42% 17% 22% 19% COVID-19 impacts on H2FY20 H1 FY20 H2 FY20 H2 performance impacted by COVID-19 Development 272 50 Construction 101 ‑ Investments 255 (115) Operating EBITDA 628 (65) Delays in transactions across urbanisation projects Site shutdowns, lower productivity, project delays Total investment devaluations of $211 million in H2 The H2FY20 after tax loss of $212 million recorded for the core business reflected the significant deterioration in operating conditions in the second half as a result of the pandemic. We prioritised health and safety with a range of measures implemented to protect our people, customers and the communities in which we operate including the early introduction of travel bans and workplace changes to prevent the spread of the virus and initiatives across the commercial assets, retirement villages and the residential communities we manage. Delays were experienced in converting opportunities across our urbanisation pipeline and the Communities business experienced weak trading conditions, there were mandatory site shutdowns, lower productivity and delays in new work in our Construction segment, and H2FY20 valuation declines of $211 million in the Group’s c.$4 billion investment portfolio. A range of actions were implemented to mitigate the financial impact including overhead and employee cost reductions and a review of project expenditure. Employee cost reductions included; temporary pay reductions for senior leaders, reduced hours of work, furlough/stand downs and some redundancies. We have been eligible for and accessed wage subsidy support in markets where it was offered. Government support totalled $15 million globally, with $9.7 million1 received under the JobKeeper program in Australia. The Balance sheet was strengthened by a $1.2 billion equity raising and $1.3 billion in additional debt facilities which has positioned us well to execute on the delivery of the global development pipeline and take advantage of new investment opportunities. $113b Development Pipeline5 $14b Core Business Construction Backlog $36b Funds Under Management FY19 FY20 FY19 FY20 FY19 FY20 76.1 113.0 15.6 13.9 35.2 36.0 1. Includes finance revenue and revenue from the Non core segment. 2. Figures are nonmeaningful due to the FY20 Group statutory loss. 3. Underlying Operating Cash Flow is derived by adjusting statutory cash flows to better reflect the operating cash generated by the Group from its operating model. 4. Lendlease’s approach to tax is outlined in the 2020 Tax Report (https://www.lendlease.com/au/investor-centre/distribution-and-tax/). Details on tax balances are included within the Consolidated Financial Statements. 5. FY19 Total and Core Earnings per Security and Weighted avg Securities have been updated to reflect the share issue in FY20 (previously reported as 82.4 cents (total), 141.8 cents (core) and 567 #(m) respectively). 6. Excludes Corporate. 1. $6.8 million in JobKeeper subsidies were received by Lendlease companies, $2.9 million was received by our Retirement Living Joint Venture. The Group exited the program on 22 June 2020. 2. Dividend payout ratio is nonmeaningful in FY20 due to the Group statutory loss. 3. Return on Invested Capital (ROIC) is calculated using the annual Profit after Tax divided by the arithmetic average of beginning, half and year end invested capital. 4. Through-cycle target based on rolling three to five year timeline. 5. Remaining estimated development end value. 80 Lendlease Annual Report 2020 Performance and Outlook 81 Development performance Development outlook The Development segment delivered EBITDA of $322 million, down 59 per cent on the prior year. EBITDA in H2FY20 declined to $50 million due to the various impacts of COVID-19. Progress on converting opportunities across our urbanisation pipeline was impacted and the Communities business experienced weak trading conditions. The difficult operating environment resulted in a return on invested capital of 4.7 per cent. This was well below the bottom end of the target range of 10 per cent. While the profit outcome for the year was below target, significant progress was made on growing and converting the development pipeline. This included securing additional major urbanisation projects, achieving planning milestones and creating new investment partnerships to support projects moving into delivery. Two new major urbanisation projects with a combined estimated end value of $37 billion were added to the pipeline. In London, the Thamesmead Waterfront development is expected to create more than 11,500 homes. In the San Francisco Bay Area, we secured a project that will deliver more than 15,000 new homes. An investment partnership with the Australian Prime Property Fund Commercial was formed to deliver the 58,000 sqm Victoria Cross over station development in Sydney, which has an estimated end value of $1.2 billion. A partnership was formed with PSP Investments, one of Canada’s largest pension funds, to develop the c.$4 billion Milano Santa Giulia project. The forward sale of the first two buildings at the precinct contributed to the result. The retail and residential components of Paya Lebar Quarter in Singapore completed. There were 2,236 apartment settlements and completions in the period. They comprise 1,366 apartments for sale settlements mainly from urbanisation projects in Boston, London, Melbourne and Singapore, and 870 apartments for rent completions at projects in Boston and Chicago. There were 1,898 land lot settlements across the Communities portfolio, down 25 per cent on the prior year. Performance was significantly impacted by the onset of COVID-19 in the second half of the year. Key Financials ($m) EBITDA Australia Asia Europe Americas Total EBITDA Total PAT 57% of Core Operating EBITDA FY19 FY20 556 121 37 79 793 554 174 34 116 (2) 322 233 EBITDA ($m) 1H 2H 500 264 236 552 292 260 673 230 443 793 532 261 322 50 272 FY16 FY17 FY18 FY19 FY20 The estimated end value of the development pipeline grew 48 per cent on the prior period to $113 billion. We have a globally diversified portfolio of 21 major urbanisation projects across nine gateway cities. There are more than 1,600 apartments for rent in delivery, with Cascade at Lakeshore East, and an additional building at Southbank, both in Chicago, and a further two buildings at Elephant Park in London all entering delivery during the year. The pipeline includes an approximate $99 billion of urbanisation projects. These projects are typically held in capital efficient structures, providing the Group with flexibility around delivery and timing, in line with market cycles. While there is expected to be a substantial increase in the annual production rate over the medium to longer term, the economic impacts of COVID-19 are likely to make acceleration of delivery more challenging over the short term. Post year end, the Group established an investment partnership with Mitsubishi Estate to deliver the first residential tower at One Sydney Harbour, Barangaroo, which will contribute to profit in FY21. Construction on the 317 apartments has commenced, with approximately 75 per cent in presales. Strong presales on apartments at TRX residences in Kuala Lumpur and One Sydney Harbour have taken presales of apartments in delivery to $2.3 billion. There are seven major commercial buildings in delivery across 376,000 sqm, with a total estimated end value of $5.8 billion. These buildings are being developed in conjunction with our investment partners. In addition, there is a further 591,000 sqm which the business is targeting to convert and commence delivery over the next five years. A significant number of the 21 major urbanisation projects are recent additions to the pipeline and are therefore in early stage planning. Good progress has been made on planning consents for several projects, including approvals being obtained for Milan Innovation District and 30 Van Ness in San Francisco. The Communities pipeline consists of 47,372 lots, providing more than a decade of supply. In our Australian Communities business, enquiries have recently returned to pre COVID-19 levels, with government stimulus measures boosting demand. Despite an improvement in the near term outlook, the annual target for settlements of 3,000 to 4,000 is unlikely to be met in FY21. Pipeline¹ by Product Pipeline¹ by Region Urbanisation Communities 12% $113b² 88% Australia Asia Europe Americas 26% 26% $113b² 4% 44% Invested Capital¹ ($b) Return on Invested Capital Urbanisation – Apartments Pipeline (Units) 4.8 4.8 10.4% 5 year average FY19 FY20 Units for rent in delivery³ Units presold in delivery³ Units for rent secured Units for sale secured 1,624 1,418 17,335 35,848 56,225 1‑2k Target for settlements per annum4 Urbanisation Completions/Settlements² Communities Settlements (Lots) Urbanisation – Commercial Pipeline (sqm) FY19 FY20 6 Buildings 2,0753 2,2363 6 Buildings 2,0753 2,2363 2,523 1,898 164 3 Buildings 66 164 3 Buildings 66 Commercial (sqm ’000) Apartments (units) Commercial (sqm ’000) Apartments (units) FY19 FY20 In delivery5 Indicative launch FY21 ‑ FY25 Remaining secured 376,000 591,000 1,448,000 2,415,000 7 Buildings 32 Buildings 2‑3 Target for building commencements per annum4 1. Securityholder equity plus gross debt less cash on balance sheet. 2. Commercial and apartment for rent completions are aligned with practical completion, apartment for sale settlements are recorded on cash receipt. 3. FY19 and FY20 include 452 and 870 apartment for rent completions respectively. 1. Remaining estimated development end value. 2. Includes $0.3 billion of Infrastructure pipeline. 3. Major apartment buildings in delivery only. 4. Targets under review. 5. Major commercial buildings in delivery only. 4.7%TARGET 10-13%7.5%11.6%FY19FY2082 Lendlease Annual Report 2020 Performance and Outlook 83 Construction performance Construction outlook The Construction segment delivered EBITDA of $101 million, down 52 per cent on the prior year. The entire profit was generated in H1FY20, with the impact of COVID-19 resulting in a break even result in H2FY20. For the full year, revenue declined by 21 per cent to $7.6 billion and the EBITDA margin of 1.3 per cent was below the target range of 2-3 per cent. The COVID-19 impact was greater in our international regions, particularly in cities where mandated shutdowns were implemented. This included lower productivity, projects being put on hold, and delays in the commencement or securing of new projects. This led to losses in H2FY20 for the Americas, Europe and Asia, offsetting a profit in Australia which delivered a solid EBITDA margin outcome of three per cent for the full year despite the challenging environment. The business completed a number of significant projects during the period. These included several Defence projects, commercial buildings at Wesley Place1, Melbourne, and 60 Martin Place, Sydney, redevelopments at Kambri Precinct at ANU2, Canberra and Rod Laver Arena, Melbourne and a residential tower at 220 Central Park South, New York. Construction on a number of integrated projects was also completed, including 845 West Madison, Chicago, Cedarwood Square, Deptford Landings in London and Paya Lebar Quarter in Singapore. New work secured of $7.5 billion was down from $9.9 billion in the prior year. Origination was impacted by lower activity in the Americas, most notably the key New York market and some delays in projects being brought to market, along with limited new work in Europe. The Australian business proved resilient with new work secured only marginally lower at $4.3 billion. The new work secured is well diversified by sector and client, with more than half derived from Australia during the period. Key new projects from external clients during the year included HMAS Watson Redevelopment, Australian Federal Police Melbourne State Office3, the Curtin University School of Design and Built Environment, all in Australia, and 4 Hudson Square, New York. Integrated projects secured during the year included One Sydney Harbour Tower 1, Victoria Cross over station development, Cirrus at Lakeshore East and residential for rent at Elephant Park. Key Financials ($m) EBITDA Australia Asia Europe Americas Total EBITDA Total PAT 18% of Core Operating EBITDA FY19 FY20 126 (1) 40 46 211 141 97 (11) (9) 24 101 42 EBITDA ($m) 1H 2H 288 171 117 271 144 127 296 149 147 211 100 111 101 101 FY164 FY17 FY18 FY19 FY20 The outlook for the Construction segment is subdued given the current operating environment. In the absence of further deterioration as a result of COVID-19, the operating performance of the segment is expected to improve in FY21. The workbook remains substantial with backlog revenue of $14 billion. Approximately 75 per cent of major project backlog will generate future revenue and margin for the Construction segment, with margin on the remainder that is derived from integrated projects, being reported through the Development segment. Australia has a strong workbook with $7.5 billion in backlog revenue. This accounts for more than half of the backlog for the Construction segment and is expected to result in the region contributing the majority of earnings in FY21. Key projects include Sydney Place, the Crown Sydney Hotel Resort, several Defence contracts and the Sydney Metro Martin Place and Sydney Metro Victoria Cross Integrated Station Developments. In addition, the business is well placed to secure government sponsored projects as part of potential stimulus measures across a range of sectors. The backlog revenue of $4.4 billion in the Americas is down approximately 30 per cent as a result of the difficult operating environment. The high rise residential construction market in the North East of the US, a sector in which the business has historically had a high market share, is currently subdued. Recent success in the health care sector, including life sciences, has partly offset weakness elsewhere. The strong growth in the urbanisation pipeline to approximately $30 billion in the region is expected to provide opportunities for future construction backlog. Europe and Asia combined account for approximately 15 per cent of backlog revenue. Europe’s $50 billion urbanisation pipeline is expected to provide a significant amount of construction work over the medium term. In Asia, the business is focused on the delivery of The Exchange TRX in Kuala Lumpur and specialist sectors for external clients. Beyond the current backlog, there is approximately $8 billion of work for which the Group is in a preferred position, across both external and integrated projects. The business is well placed to convert a significant proportion of this preferred work into backlog revenue over coming periods. Backlog by Region Australia Asia Europe Americas 32% $14b 54% 9% 5% Backlog Realisation FY21 FY22 Post FY22 28% $14b 48% 24% Revenue by Region EBITDA Margin Backlog by Sector Backlog by Client Australia Asia Europe Americas 44% $7.6b 42% 10% 4% 2.4% 5 year average Commercial Defence Residential Social Infrastructure Transport Hotel/ Entertainment Other 1% 6% 8% 26% 11% Major Project¹ Backlog Revenue 23% 25% Lendlease Corporate Government 44% Major Project¹ Backlog Revenue 24% 32% New Work Secured by Region New Work Secured by Sector Backlog roll forward ($b) Backlog ($b) Australia Asia Europe Americas $7.5b 57% 32% 7% 4% Residential Commercial Defence Social Infrastructure Other Transport Hotel/ Entertainment 3% 1% 5% 29% $7.5b 24% 15% 23% 7.5 (7.6) 15.2 15.7 15.2 15.6 13.9 15.6 (1.6) 13.9 FY19 New work secured Revenue realised FX and Other2 FY20 FY16 FY17 FY18 FY19 FY20 1. Formerly 130 Lonsdale Street. 2. Formerly Australian National University Union Court Redevelopment. 3. Formerly 140 Lonsdale Street. 4. Includes Engineering and Services businesses. 1. Includes all Construction projects with backlog greater than $100 million, which represents 81 per cent ($11.2 billion) of secured backlog. 2. Includes ($0.9b) of internal revenue. FY19FY20TARGET 2-3%2.2%1.3%84 Lendlease Annual Report 2020 Performance and Outlook 85 Investments performance The Investments segment delivered EBITDA of $140 million, down significantly on the $489 million in the prior year. COVID-19 had a significant impact on real estate valuations across the Group’s investments with devaluations of $211 million in the second half, resulting in an EBITDA loss for the segment of $115 million in H2FY20. To further support the growing development pipeline and diversify our capital strategy, the Group listed the Lendlease Global Commercial REIT in Singapore. The REIT was seeded with the Lendlease developed 313@somerset retail centre and three office properties adjacent to the Group’s Milano Santa Giulia project. The Group has an ownership position of 25.3 per cent in the REIT. Ownership EBITDA was a loss of $58 million compared to a profit of $345 million in the prior year. Performance was adversely impacted by reductions in valuations across the Group’s c.$4 billion investment portfolio, including co-investment positions within the funds platform, Retirement Living business and other asset positions. The net reduction in valuations on a pre tax basis for the full year was $188 million compared to total revaluation gain of $160 million in the prior year. The trading performance of the Retirement Living business was solid with 874 resales across the established village portfolio, up 3.8 per cent on the prior year. However, a modest decline in average prices and delays in development activity which was affected by COVID-19, impacted the carrying value of the entire portfolio, offsetting the underlying trading performance. EBITDA from Operating Earnings was $198 million, up substantially on the $144 million in the prior year. A small increase in base management fees was in line with higher average funds under management. The successful completion of Paya Lebar Quarter in Singapore, which generated a significant performance fee, was the key driver of the strong growth in earnings. The performance of the US Military Housing operations was solid, with a recurring contribution of asset and property management fees. Our retail asset management business has been working with retail partners as they navigate through a difficult period, with retail malls and centres experiencing restricted trading following the onset of COVID-19. The impact on asset management fees experienced late in the year is expected to extend into FY21. Key Financials ($m) EBITDA Australia Asia Europe Americas Total EBITDA Total PAT 25% of Core Operating EBITDA FY19 FY20 330 50 9 100 489 368 35 67 (10) 48 140 104 EBITDA ($m) 1H 2H 458 215 243 495 207 288 669 286 383 489 216 273 FY16 FY17 FY18 FY19 140 255 (115) FY20 Investments outlook Future investment earnings will be supported by the two per cent growth in funds under management (FUM) to $36 billion. Additional FUM of $4 billion was largely offset by $2 billion in divestments, which included the partial satisfaction of redemptions in APPF Retail and $1.4 billion of devaluations. The launch of the Lendlease Global Commercial REIT, progress on several commercial buildings that are currently under development, and strong growth in residential for rent, underpinned the additional funds under management. Continued growth in FUM will support operating earnings in future periods. In addition to the current funds under management, there is approximately $3.3 billion of future secured FUM based on development projects currently in delivery. This includes assets being developed with investment partners including six office buildings and approximately 1,600 residential for rent units. A substantial uplift in the amount of institutional grade investment product will be created for investment partners and the Group’s Investments platform as the development pipeline is delivered over the medium to long term. The COVID-19 related impacts on both occupier and investment partner demand will limit the generation of new product in the short term. However, the change in market conditions is expected to provide opportunities for the Group to grow the Investments platform outside of the internal product creation capabilities. A mandate to manage a c.$2 billion diversified property portfolio for TCorp was secured effective from 1 July 2020. The Group’s investments closed the period at $4 billion. This includes $2 billion of co-investments across our funds; a $1.4 billion ownership interest in the Retirement Living business; and $0.6 billion in other investments including the Group’s interests in US Military Housing, US telecommunications assets and retail at Barangaroo. Diversification of investments across the Group supports improved risk adjusted returns. Lendlease has relationships with approximately 150 institutional investors and a strong track record of performance. Continuing to deliver attractive outcomes for our investment partners will be critical for the ongoing success of the Investments segment. Funds Under Management1 by Asset Class Funds Under Management¹ by Region Office Retail Residential Industrial Other 3% 2% 5% $36b 54% 36% Australia Asia Europe Americas 3%4% 24% $36b 69% Invested Capital¹ ($b) Return on Invested Capital Investments1,2 by Product Investments1,2 by Region 3.6 3.7 FY19 FY20 10.2% 5 year average Co‑investments Retirement US Military Housing Other 12% 5% $4.0b 49% 34% Australia Asia Europe Americas 17% 2% $4.0b 58% 23% Investments EBITDA by Activity ($m) Investments⁴ ($b) Funds Under Management¹ ($b) Funds Under Management¹ roll forward ($b) FY19 FY20 345 144 198 120 (58) Ownership interests² Operating earnings³ 3.0 3.3 3.4 3.7 4.0 23.6 26.1 30.1 35.2 36.0 3.9 (1.9) 35.2 (1.4) 0.2 36.0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY19 Additions Divest- ments Revalua- tions FX and Other FY20 1. Securityholder equity plus gross debt less cash on balance sheet. 2. Returns derived from co-investments, the Group’s Retirement investment, US Military Housing equity investment and other investments. 3. Earnings primarily derived from the investment management platform and the management of US Military Housing operations. 4. The Group’s assessment of market value of ownership interests. 1. The Group’s assessment of market value. 2. The Group’s ownership interest. Total invested capital in the segment of $3.7 billion in FY20. FY19FY2010.8%2.8%TARGET 8-11%86 Lendlease Annual Report 2020 Performance and Outlook 87 The Services business delivered a robust underlying operating result. However, costs of approximately $10 million associated with the wind up of the Energy & Technology business detracted from the otherwise solid result. New work secured of $1.4 billion was up on the $1.0 billion secured in the prior year. Telecommunications, Utilities and Infrastructure and Transport, the three categories that account for most of the $2.0 billion in backlog revenue, are performing well and present an attractive pipeline of future opportunities. Non core business performance The Non core segment comprises the Engineering and Services businesses in Australia. The EBITDA loss for the year was $495 million, including $525 million of exit related costs that are discussed in more detail below. The prior year result was impacted by the provision taken against three underperforming projects of $500 million pre tax. Excluding exit related costs, the Non core segment generated EBITDA of $30 million, including the impairment of $19 million in goodwill relating to the Engineering business. New work secured in Engineering of $1.0 billion was down from $2.0 billion in the prior year, reflecting the Group’s lower risk appetite ahead of the sale of the business. New work included the bulk earthworks contract at Western Sydney International Airport and additional works on the Southern Program Alliance. The Engineering business closed the period with a backlog of $3.1 billion. Key Financials EBITDA Profit/(Loss) after Tax1 New Work Secured Backlog FY19 $m (461) $m (337) $b $b 3.0 5.4 FY20 (495) (406) 2.4 5.1 Var. (7%) (20%) (20%) (6%) Progress on separation of non core business Further progress has been made on the exit of Engineering. Having announced the sale of the Engineering business to Acciona Infrastructure Asia Pacific (Acciona) in H1 FY20, the Group subsequently received approval from the Foreign Investment Review Board. The sale to Acciona is anticipated to complete shortly, subject to outstanding conditions, which include third party consents being satisfied. The Melbourne Metro Tunnel Project, NorthConnex and Kingsford Smith Drive projects are being retained by Lendlease. As previously advised, the Cross Yarra Partnership consortium for the Melbourne Metro Tunnel Project is continuing to work with the Victorian Government on a confidential basis to resolve issues in relation to the scope and costs on the project. NorthConnex is expected to be operational in the coming months and the Kingsford Smith Drive project in Brisbane is scheduled to complete by the end of CY20. Lendlease previously disclosed a cost estimate to exit the Non core segment of $450-$550 million pre tax. These costs are now estimated to be approximately $550 million pre tax, with $525 million pre tax ($368 million after tax) accounted for in the year ended 30 June 2020. $15 million pre tax was expensed in the prior year. Exit related costs include: implementation and selling costs and estimated costs to cover concluding projects retained by the Group. The sale process for the Services business has been paused as a result of current market conditions. While the business has been performing well, it is non core and is expected to be divested in future periods. Revenue by Product New Work Secured by Product Engineering Services Engineering Services2 31% $2.9b 69% 42% $2.4b 58% Backlog by Sector Rail Other Services Transport Services Road Telecomm‑ unications Other Engineering 2% 8% 29% 16% $5.1b 22% 23% Backlog Realisation FY21 FY22 Post FY22 28% $5.1b 46% 26% 1. FY20 includes $32m profit from discontinued operations. 2. Only the next five years of revenue secured on new contracts has been included. 88 Lendlease Annual Report 2020 Performance and Outlook 89 Financial position and cash flow movements Financial Position Cash and cash equivalents1 Inventories Equity accounted investments Investment properties Disposal Group assets held for sale1 Other assets (including financial) Total assets Borrowing and financing arrangements Disposal Group liabilities held for sale Other liabilities (including financial) Total liabilities Net assets FY19 $m 1,290 5,583 3,452 501 ‑ 6,352 17,178 2,715 ‑ 8,106 10,821 6,357 FY20 $m 1,111 5,369 3,671 658 841 6,098 17,748 2,395 670 7,751 10,816 6,932 Var. (14%) (4%) 6% 31% 100% (4%) 3% (12%) 100% (4%) - 9% Inventories Inventories decreased by four per cent. A modest rise in development inventories was more than offset by a decline in construction inventories and the reclassification of Non core construction inventories to assets held for sale. Capital expenditure across a range of urbanisation projects, including Barangaroo South and Milan Innovation District more than offset residential apartment completions. Equity accounted investments Equity accounted investments increased by six per cent. The listing of the Lendlease Global Commercial REIT was the largest contributor to the increase. The creation of the development joint venture for the Victoria Cross over station development and additional capital contributions in both the UK and US residential investment partnerships also contributed. Cash movements ($m) 762 (184) (810) 504 1,562 1,290 FY19 closing cash Underlying operating cash flow Interest and tax paid Underlying investing cash flow Net financing and other adjustments FY20 closing cash¹ Financing cash flow Net cash inflow from financing activities and other adjustments was $504 million. The $1.2 billion of equity raised more than offset the decline in borrowings and distributions paid in the year, representing the final distribution for FY19 and the HY20 distribution payment. While the Group was active in securing additional debt facilities, more debt was repaid. The Group entered the new financial year in a strong financial position with $5.8 billion1 of liquidity. Other asset movements The four per cent decline in other assets reflects the reclassification of assets to held for sale along with the reduction in the Group’s investment in Lendlease International Towers Sydney Trust. The rise in Investment Properties in the year reflects ongoing capital expenditure on telecommunications towers in the US and the transfer of stabilised assets from development. Total assets, total liabilities and net assets Total assets rose by three per cent reflecting the growth in Investment Properties and Equity Accounted Investments. The rise in net assets reflects the modest growth in assets along with the decline in borrowings following the equity raising. Operating and investing cash flow The Group measures underlying cash flows to better reflect the cash flows generated by its business model. This approach enables an assessment of cash conversion, measured as underlying operating cash flow relative to EBITDA. The measures are derived by adjusting statutory cash flows, with the largest adjustment relating to cash flow invested in Development. Underlying operating cash flow was $762 million. The major operating cash inflows during the period included apartment settlements across our development projects. There was a cash inflow of $588 million from presold apartment revenue through the PLLACes2 program. There was also a maturing PLLACes transaction which would have otherwise resulted in settlement receipts in the period. Adjusting for the $525 million of Engineering exit costs, cash conversion in FY20 was 175 per cent. Underlying investing cash outflow was $810 million. The major contributors included capital invested in establishing the new $1.5 billion Lendlease Global Commercial REIT with a 25.3 per cent interest, and additional equity commitments and rising development inventories to convert the development pipeline into production. Group funding and debt facilities Net debt1 Borrowings to total equity plus borrowings Net debt to total tangible assets, less cash1 Interest cover2 Average cost of debt Average debt maturity Average debt mix fixed: floating Undrawn facilities $m % % times % years ratio $m FY19 1,425 29.9 9.9 8.8 4.0 4.8 52:48 2,631 FY20 833 25.7 5.7 2.8 3.4 4.2 56:44 4,226 Var. (42%) (14%) (42%) (68%) (15%) (13%) 61% Net debt and gearing declined with gearing below the bottom end of the target range. Interest cover of 2.8 times was lower due to lower core earnings. Cash and cash equivalents of $1.1 billion excludes the c.$450 million of cash which is reported in the balance sheet as assets held for sale. The Group’s liquidity position is $5.8 billion1. Debt Facilities3 ($m) Drawn Facility 1,800 536 535 535 134 Euro CP programme UK Bond Issue 800 714 725 960 – – – Syndicated loan facility Syndicated cash advance facility Club Revolving Credit Facility Asia Loan Facility 179 29 CNY871 million bank facility 575 575 311 311 79 79 US$ Reg. S notes S$ Reg. S notes A$ medium term notes Debt Maturity Profile4 ($m) Euro CP programme UK Bond Issue Syndicated cash advance facility Syndicated loan facility Club Revolving Credit Facility Asia Loan Facility CNY871 million bank facility US$ Reg. S notes S$ Reg. S notes A$ medium term notes Undrawn 2000 1000 536 0 800 900 536 714 900 960 179 580 FY21 FY22 FY23 FY24 FY25 FY26 313 FY27 80 FY28 FY29 1. $451m million of cash and cash equivalents has been classified as Disposal Group assets held for sale at FY20. 2. Presold Lendlease Apartment Cash Flows. 1. $451m million of cash and cash equivalents has been classified as Disposal Group assets held for sale at FY20. 2. EBITDA has been adjusted to exclude one off items related to the Engineering business (FY19: $500m; FY20: $525m). 3. Values are shown at amortised cost. 4. Values are shown at gross facility value. 90 Lendlease Annual Report 2020 Governance 91 Governance Sydney: Barangaroo South Home to a mix of cafes, restaurants, bars and retail stores. 92 Lendlease Annual Report 2020 Governance 93 Board of Directors’ information and profiles The Lendlease Board is committed to exceptional corporate governance policies and practices which are fundamental to the long term success and prosperity of the Group. In FY20, the Board continued its longstanding practice of reviewing its corporate governance and reporting practices. The Corporate Governance Statement is available on the Lendlease website at: www.lendlease.com/au/ company/governance. For detailed information on the skills, experience and qualifications of each of the Directors, refer to pages 92 to 97 of the Annual Report. The Corporate Governance Framework is regularly assessed and amended to remain current. The Board’s five permanent committees continue to assist, advise and make recommendations to the Board on matters falling within their areas of responsibility, as set out in the committee charters. The Board delegates authority for all other functions and matters necessary for the day to day management of the Group to the Group Chief Executive Officer, who delegates to senior management as required. Limits of Authority which are reviewed at least annually, are in place these outline the matters specifically reserved for determination by the Board and those matters delegated to Board Committees or Group Executive Management. Michael J Ullmer, AO Chairman (Independent Non Executive Director) Stephen B McCann Group Chief Executive Officer and Managing Director (Executive Director) Term of Office Term of Office Mr Ullmer joined the Board in December 2011 and was appointed Chairman in November 2018. Skills, Experience and Qualifications Mr Ullmer brings to the Board extensive strategic, financial and management experience accumulated over his career in international banking, finance and professional services. He was the Deputy Group Chief Executive Officer of the National Australia Bank (NAB) from 2007 until he retired from the Bank in August 2011. He joined NAB in 2004 as Finance Director and held a number of key positions including Chairman of the subsidiaries Great Western Bank (US) and JB Were. Prior to NAB, Mr Ullmer was at Commonwealth Bank of Australia, initially as Group Chief Financial Officer and then Group Executive with responsibility for Institutional and Business Banking. Before that, he was a Partner at accounting firms KPMG (1982 to 1992) and Coopers & Lybrand (1992 to 1997). Mr Ullmer has a degree in mathematics from the University of Sussex. He is a Fellow of the Institute of Chartered Accountants, a Senior Fellow of the Financial Services Institute of Australia, and a Fellow of the Australian Institute of Company Directors. Listed Company Directorships (held within the last three years) Non Executive Director of Woolworths Limited (appointed January 2012) Other Current Appointments Chairman of the Melbourne Symphony Orchestra Board Committee Memberships Member of the Audit Committee Member of the Nomination Committee Member of the People & Culture Committee Member of the Risk Committee Member of the Sustainability Committee Mr McCann was appointed Group Chief Executive Officer in December 2008 and joined the Board as Managing Director in March 2009. Skills, Experience and Qualifications Mr McCann joined Lendlease in 2005. Prior to his appointment as Group Chief Executive Officer, Mr McCann was Group Finance Director, appointed in March 2007 and Chief Executive Officer for Lendlease’s Investment Management business from September 2005 to December 2007. Mr McCann is a highly regarded and experienced business leader with over 25 years of executive experience. Prior to joining Lendlease, Mr McCann had 15 years’ experience in property, funds management, investment banking and capital markets transactions gained through senior leadership roles at ABN AMRO and as Head of Property at Bankers Trust. Previous roles included four years as a mergers and acquisitions lawyer at Freehills and four years in taxation accounting. Mr McCann is a member of the Business Council of Australia and the Property Council of Australia’s Property Male Champions of Change. In 2013, Mr McCann was announced as the Property Person of the Year by the Urban Taskforce Australia. Mr McCann holds a Bachelor of Economics (Finance major) and a Bachelor of Laws from Monash University in Melbourne, Australia. Other Directorships and Positions Nil Board Committee Memberships Member of the Risk Committee Colin B Carter, AM (Independent Non Executive Director) Term of Office Mr Carter joined the Board in April 2012. Skills, Experience and Qualifications Mr Carter is one of the founding partners of The Boston Consulting Group in Australia, retiring as a Senior Partner in 2001, and continues as an advisor with that company. He has over 30 years of experience in management consulting advising on organisational, strategy and governance issues. His career has included major projects in Australia and overseas. Mr Carter has wide industry knowledge on corporate governance issues and has carried out Board performance reviews for a number of companies. He has co-authored a book on Boards, ‘Back to the Drawing Board’, published by Harvard Business School Press. In January 2020, Westpac Group appointed Mr Carter as one of three members to an Advisory Panel assessing Board risk governance and accountability, and making recommendations on how Westpac can improve its risk governance, financial crime and anti money laundry processes. Mr Carter was a Non Executive Director of Wesfarmers Limited, serving on that board for 12 years. Mr Carter holds a Bachelor of Commerce from Melbourne University and a Master of Business Administration from Harvard Business School, where he graduated with Distinction and as a Baker Scholar. He is a Fellow of the Australian Institute of Company Directors. Listed Company Directorships (held within the last three years) Non Executive Director of SEEK Limited (appointed March 2005, retired March 2018) Other Current Appointments President of Geelong Football Club Director of The National Golf Club Director of the Australian Ballet Foundation Board Committee Memberships Chairman of the Nomination Committee Member of the People and Culture Committee Member of the Risk Committee Member of the Sustainability Committee 94 Lendlease Annual Report 2020 Governance 95 Board of Directors’ profiles Philip M Coffey (Independent Non Executive Director) David P Craig (Independent Non Executive Director) Baroness Margaret A Ford OBE (Independent Non Executive Director) Jane S Hemstritch (Independent Non Executive Director) Term of Office Term of Office Term of Office Term of Office Mr Coffey joined the Board in January 2017. Mr Craig joined the Board in March 2016. Baroness Ford joined the Board in March 2020. Ms Hemstritch joined the Board in September 2011. Skills, Experience and Qualifications Skills, Experience and Qualifications Skills, Experience and Qualifications Skills, Experience and Qualifications Mr Coffey served as the Deputy Chief Executive Officer (CEO) of Westpac Banking Corporation from April 2014 until his retirement in May 2017. As the Deputy CEO, Mr Coffey had the responsibility of overseeing and supporting relationships with key stakeholders of Westpac including industry groups, regulators, customers and government. He was also responsible for the Group’s Mergers & Acquisitions function. Prior to this role, Mr Coffey held a number of executive positions at Westpac including Chief Financial Officer and Group Executive, Westpac Institutional Bank. He has successfully led operations based in Australia, New Zealand, the United States, the United Kingdom and Asia and has extensive experience in financial markets, funds management, balance sheet management and risk management. He began his career at the Reserve Bank of Australia and has also held executive positions at Citibank. Mr Coffey holds a Bachelor of Economics (Hons) from the University of Adelaide and has completed the Executive Program at Stanford University Business School. He is a graduate member of the Australian Institute of Company Directors and Senior Fellow of the Financial Services Institute of Australasia. Listed Company Directorships (held within the last three years) Non Executive Director of Macquarie Group Limited (appointed August 2018) Other Current Appointments Director of the Clean Energy Finance Corporation Board Board Committee Memberships Chairman of the Risk Committee Member of the Audit Committee Member of the Nomination Committee Member of the People and Culture Committee Mr Craig is a business leader with a successful international career spanning over 37 years in finance, accounting, audit, risk management, strategy and mergers and acquisitions in the banking, property and professional services industries. He was the Chief Financial Officer (CFO) of Commonwealth Bank of Australia from 2006 through the GFC, until he retired in June 2017. At Commonwealth Bank, he was responsible for leading the finance, treasury, property, security, audit and investor relations teams. Mr Craig’s previous leadership roles have included CFO for Australand Property Group, Global CFO for PwC Consulting and a Partner at PwC (17 years). As well as his role as CFO of Australand Property Group (now Frasers), Mr Craig was responsible for Property for the last 22 years of his executive career, including overseeing three significant property transformations at CBA. Mr Craig holds a Bachelor of Economics from the University of Sydney. He is a Fellow of the Institute of Chartered Accountants, ANZ and a Fellow of the Australian Institute of Company Directors. Other Current Appointments President of the Financial Executives Institute of Australia Deputy Chairman of the Victor Chang Cardiac Research Institute Board Committee Memberships Chairman of the Audit Committee Member of the Nomination Committee Member of the People and Culture Committee Member of the Risk Committee Based in London, Baroness Ford is a highly experienced Non Executive Director with extensive sector experience in development and construction, and infrastructure financing. She has a background in urban development and has experience in regeneration, planning and public sector reform. She currently serves as Chairman of New River REIT Plc, a specialist real estate investment trust focused primarily on retail and leisure property and also as the Chairman of STV Group Plc, a Scottish media company. Between 2006 and 2012, Baroness Ford led the Olympic Park Legacy Company the public sector organisation responsible for the masterplanning, development and maintenance of the Queen Elizabeth Olympic Park for the London 2012 Olympic Games. Prior to this she was Managing Director of Social Infrastructure and Development at the Royal Bank of Canada (RBC). She joined RBC after stepping down as the Chair of English Partnerships, where she spent six years leading a new approach to housing and regeneration across England. Her earlier career was spent working for various public sector organisations, including Scottish Homes, the national housing agency in Scotland. Baroness Ford holds a Master of Arts degree from the University of Glasgow and a post graduate Masters degree in Applied Economics. She was appointed to the House of Lords in 2006. Listed Company Directorships (held within the last three years) Chairman of New River REIT Plc Chairman of STV Group Plc Other Current Appointments Independent Member of the UK Oversight Board of Deloitte LLP Independent Member of the Deloitte North/South Europe Board Board Committee Memberships Member of the Nomination Committee Member of the Risk Committee Member of the Audit Committee Member of the Sustainability Committee Ms Hemstritch has extensive senior executive experience in information technology, communications, change management and accounting. She also has broad experience across the financial services, telecommunications, government, energy and manufacturing sectors and in business expansion in Asia. During a 25 year career with Accenture and Andersen Consulting, Ms Hemstritch worked with clients across Australia, Asia and the US. Ms Hemstritch was Managing Director Asia Pacific for Accenture from 2004 until her retirement in 2007. She was a member of Accenture’s global Executive Leadership Team and oversaw the management of Accenture’s business in the Asia Pacific region, which spanned 12 countries and included 30,000 personnel. Ms Hemstritch has a Bachelor of Science in Biochemistry and Physiology from the University of London and is a Fellow of the Institutes of Chartered Accountants in Australia and in England and Wales. She is a Member of Chief Executive Women. Listed Company Directorships (held within the last three years) Non Executive Director of Telstra Corporation Limited (appointed August 2016, retired January 2019) Non Executive Director of Tabcorp Holdings Ltd (appointed November 2008, retired October 2017) Other Current Appointments President of the Board of The Walter and Eliza Hall Institute of Medical Research Member of the Global Council of Herbert Smith Freehills Global LLP Board Committee Memberships Member of the Audit Committee Member of the Nomination Committee Member of the People and Culture Committee Member of the Risk Committee 96 Lendlease Annual Report 2020 Governance 97 Board of Directors’ profiles Elizabeth M Proust, AO (Independent Non Executive Director) Nicola M Wakefield Evans (Independent Non Executive Director) Robert Welanetz (Independent Non Executive Director) Term of Office Term of Office Term of Office Ms Proust joined the Board in February 2018. Ms Wakefield Evans joined the Board in September 2013. Mr Welanetz joined the Board in March 2020. Skills, Experience and Qualifications Skills, Experience and Qualifications Skills, Experience and Qualifications Ms Proust is one of Australia’s leading business figures and has had a diverse career holding leadership roles in the public and private sectors for over 30 years. Ms Proust spent eight years at ANZ Group including four years as Managing Director of Esanda, Managing Director of Metrobanking and Group General Manager, Human Resources, Corporate Affairs and Management Services. Before joining ANZ, Ms Proust was Secretary (CEO) of the Department of Premier and Cabinet (Victoria) and Chief Executive of the City of Melbourne. Ms Proust has extensive board experience in listed and private companies, subsidiaries and joint ventures, as well as government and not for profits. She was made an Officer of the Order of Australia in 2010 for distinguished service to public administration and to business, through leadership roles in government and private enterprise, as a mentor to women, and to the community through contributions to arts, charitable and educational bodies. Ms Proust holds a Bachelor of Arts (Hons) from La Trobe University and a Bachelor of Laws from the University of Melbourne. Other Current Appointments Chairman of Nestlé (Australia) Chairman of the Westpac Victoria Advisory Board Chairman of Cuscal Limited Ms Wakefield Evans is an experienced business leader and non executive director with broad ranging commercial, business management, strategy and legal experience gained over a 30 year international career. Ms Wakefield Evans held several key management positions at King & Wood Mallesons (KWM), including Managing Partner International in Hong Kong where she was responsible for the overall governance and strategic positioning of the business in the Asia region. In addition to holding a number of senior management and leadership roles, Ms Wakefield Evans has had a diverse career as one of Australasia’s leading corporate finance lawyers. Ms Wakefield Evans has extensive experience in the financial services, resources and energy and infrastructure sectors. She has extensive international experience having worked in Australia, New York and Hong Kong. Ms Wakefield Evans was included in the Australian Financial Review and Westpac Group’s inaugural list of ‘Australia’s 100 Women of Influence’. She is a member of Chief Executive Women. Ms Wakefield Evans holds a Bachelor of Jurisprudence and a Bachelor of Laws from the University of New South Wales and is a qualified lawyer in Australia, Hong Kong and the United Kingdom. Listed Company Directorships (held within the last three years) Non Executive Director of Macquarie Group Limited (appointed February 2014) Board Committee Memberships Other Current Appointments Chairman of the People and Culture Committee Member of the Nomination Committee Member of the Risk Committee Member of the Sustainability Committee Chair of 30% Club, Australia Director of the Clean Energy Finance Corporation Director of UNSW Foundation Limited Director of Australian Institute of Company Directors Director of MetLife Australia Director of Goodes O’Loughlin (GO) Foundation Limited Member of the Takeovers Panel Board Committee Memberships Chairman of the Sustainability Committee Member of the Nomination Committee Member of the Audit Committee Member of the Risk Committee Mr Welanetz is based in the US and has significant executive, advisory, strategic and operational experience in the property and construction sectors, gained over an international career spanning over 40 years. In his most recent role, Mr Welanetz served as Chief Executive Officer in the property division of Majid Al Futtaim (MAF), based in Dubai, where he had overall responsibility for managing MAF’s property portfolio and development pipeline. Mr Welanetz retired from that position in 2018. Prior to joining MAF, Mr Welanetz spent over seven years in a global role in Blackstone’s Real Estate Group advising and identifying acquisition opportunities in retail real estate and providing strategic guidance for Blackstone’s portfolio of retail assets and retail operating companies. Mr Welanetz also served as Chief Executive Officer of Shanghai Kinghill Ltd, based in China, with responsibility for the operations and delivery of retail and development projects in mainland China. Prior to this, Mr Welanetz was President and Chief Executive Officer, Retail at Jones Lang LaSalle Inc Americas. Mr Welanetz holds a Bachelor of Science degree from Colorado State University. He is a former Chairman of the International Council of Shopping Centres and served on the board of the Galileo Property Trust, an Australian shopping centre investor. Listed Company Directorships (held within the last three years) Nil Board Committee Memberships Member of the Nomination Committee Member of the Risk Committee Member of the People & Culture Committee Member of the Sustainability Committee Steve B Dobbs (Retired 20 November 2019) Mr Dobbs joined the Board in January 2015 and retired in November 2019. General Counsel and Company Secretary qualifications and experience Karen Pedersen Ms Pedersen was appointed Group General Counsel in January 2013. Prior to this she was General Counsel and Company Secretary for other large property and construction companies. Ms Pedersen has a Masters of Law from the University of Technology, Sydney and a Bachelor of Commerce/Bachelor of Laws from the University of New South Wales. Wendy Lee Ms Lee joined Lendlease in September 2009 and was appointed Company Secretary in January 2010. Prior to her appointment, Ms Lee was a Company Secretary for several subsidiaries of a large financial institution listed on the Australian Securities Exchange. She has over 15 years of company secretarial experience. Ms Lee has a Bachelor of Arts and a Bachelor of Laws from the University of Sydney, a Graduate Diploma in Applied Corporate Governance, and is a Fellow of the Governance Institute Australia. 98 Lendlease Annual Report 2020 Governance 99 Board skills and experience Industry experience The Board views ‘industry experience’ as skills or experience gained in one or more of the core Lendlease operating segments of Development, Construction and/or Investments. 6 of 10 100% Board members have experience in one or more of the core segments Have Directors’ experience in governance and financial acumen Directors’ average tenure The Board considers it has an appropriate mix of new, mid and longer tenured Directors. At June 2020, the average term of the Board is 5.5 years. 1-3 years 3-6 years 6-9 years 9+ years 3 2 4 1 Gender diversity The target of 30 per cent female Board members aims to improve gender diversity and focus its attention on achieving this objective. This target has been exceeded. 33% 40% Current female Directors as at June 2019 Current female Directors as at June 2020 The Directors have a mix of local and international experience and expertise, as well as specialised skills to assist with decision making and to effectively govern and direct the organisation for the benefit of securityholders. The table below sets out the skills and experience considered by the Board to be important for its Directors to have collectively. These skill areas are reviewed regularly to assess their alignment and support the Group’s strategic direction. The skills matrix assists the Board with succession planning and professional development initiatives for Directors. In determining the skills matrix, each Director undertakes a self assessment of their skills and expertise. Skills/Experience Comments Total Governance Industry Experience International Operations Health and Safety Sustainability Strategy A commitment to and experience in setting exceptional corporate governance policies, practices and standards. Possessing industry knowledge, exposure and experience gained in one or more of the core Lendlease operating segments of Development, Construction and Investments. This includes acting in advisory roles for these industries. Exposure to international regions either through experience gained directly in the region or through the management of regional clients and other stakeholder relationships. Experience in programs implementing safety, mental health and physical wellbeing, on site and within the business. Monitoring the proactive management of workplace health and safety practices. The ability to identify economically, socially and environmentally sustainable developments. Ability to set and monitor sustainability aspirations. Developing, setting and executing strategic direction. Experience in driving growth and executing against a clear strategy. Risk Management Experience in anticipating and evaluating risks that could impact business. Recognising and managing these risks by developing sound risk governance policies and frameworks. Legal Experience in identifying and resolving legal and regulatory issues and having the ability to assist the Board on these matters. People and Culture Experience in building workforce capability, setting a remuneration framework which attracts and retains a high calibre of executives, promoting workplace culture, diversity and inclusion. Executive Leadership Financial Acumen Technology Skills gained while performing at a senior executive level for a considerable length of time including delivering superior results, dealing with complex business models, projects, and issues and change management. Understanding of the financial drivers of a business. Experience in financial reporting and corporate financial management. Strong technology background including online communications, IT workplace knowledge, security and data analysis skills. 10 6 8 10 9 10 10 3 10 10 10 6 Engagement. Board regional program FY20 As an international company and having regard to the material scale of individual projects, the Board program is formulated to reflect the geographic spread of Lendlease businesses. While the Board commenced the financial year with an agreed regional program, the onset of COVID-19 meant that some of the engagement activities with our people and customers were temporarily placed on hold. The Board is now looking at ways to continue this engagement through the use of technology. Engaging with Lendlease The Lendlease Board views that program activities, in addition to the formal scheduled Board and Committee meetings, are an important element of the Board’s activities and enables Directors to obtain the required deep understanding of the activities and operations within each region. The Chair works with the Company Secretary to forward plan the program for the year. Depending on the time of year and the region, the program runs for a minimum of two days and up to five days where deeper project reviews are required. Each program comprises formal meetings and additional business briefings, presentations from internal and external sources, project site visits, client meetings and networking events with employees and key stakeholders. Directors are also encouraged to make site visits outside of a scheduled Board program. During FY20, the planned Board program of site visits, staff and customer engagement and other activities continued until the onset of restrictions as a result of the COVID-19 pandemic. Board and Committee meetings continued, however, site visits and customer and staff engagement with Board members was temporarily put on hold. Induction activities for the new Non Executive Directors continued through the use of technology. Stakeholder engagement The Board members, led by the Chairman, maintain an active and extensive engagement program to represent the interests of Lendlease at various industry functions and bodies. The Chairman as an advocate for Lendlease regularly meets with customers, investors, governments and media. In February 2020, the Lendlease Board endorsed a refreshed investor engagement program to encourage two way communications with our investor community. As part of this, a presentation detailing the scope of the Board activities was made available on the Lendlease website in June 2020. Meeting with Lendlease people In addition to these industry events, the Chairman and Board members met with local Lendlease management and employees in the Australia, Asia and Europe regions. These events took the form of employee ‘town hall’ style events. The Board members encourage employees to ask questions at these sessions which provide the opportunity for open and honest debate on organisational culture. The visit to the Americas region was cancelled following the COVID-19 pandemic. 100 Lendlease Annual Report 2020 Governance 101 Program Reporting period between 1 July 2019 and 30 June 2020. Board meetings are scheduled in Australia and each of the international regions where Lendlease operates. Typically, a program of additional activities is programmed for the full reporting period. Due to the travel restrictions put in place for COVID-19, the additional activities of the Board program were temporarily suspended between 20 March 2020 to 30 June 2020. During the period impacted by COVID-19, the Board pivoted to respond to the crisis. Board engagement and oversight has been elevated since the onset of the pandemic with the focus shifting towards governance oversight of the Group’s COVID-19 response in addition to ‘business as usual’ Board and Committee meetings. This included the formation of a Board subcommittee which met weekly across a two month period in response to the COVID-19 pandemic. Singapore: Paya Lebar Quarter Artist’s impression London: Elephant Park Artist’s impression Sydney: One Sydney Harbour, Barangaroo South Artist’s impression Asia The Board visited Singapore and Shanghai in July 2019. • Board networking session for the Asia regional senior leadership team, to determine capability at the level below the GLT • Board networking session with the China senior leadership team • Informal mentoring of various leadership team members to provide guidance, motivation and support in in career development • Attendance at Lendlease Singapore Region ‘town hall’ style update including panel discussion with all Board members followed by a broader networking opportunity for Singapore staff • Received briefing from external speakers on insights into retail-led opportunities in the Asia region Europe The Board visited London in October 2019. • Board networking session for the Europe regional senior leadership team, to determine capability at the level below the GLT • Informal mentoring of various leadership team members to provide guidance, motivation and support in in career development • Attendance at Lendlease Europe Region employee update including Q&A with staff and broader networking opportunity for all regional staff • Received briefing from external speaker on insights into infrastructure delivery in the UK and collaboration between public and private sectors in relation to project delivery • Guided walk of the Euston area for mixed-use urban regeneration project • Safety induction and guided site visit of Paya Lebar Quarter mixed-use urban regeneration project • Received a deep dive presentation of the Thamesmead project and viewed the precinct • Received a deep dive presentation of the Ardor Gardens senior living project in Shanghai and overall China senior living strategy, viewed the precinct and met with key Government officials and customers • In conjunction with external customers, guided tour of The Elephant, Elephant & Castle projects to view Lendlease placemaking capabilities Australia • Quarterly engagement with regional business leaders to provide updates and overview of key regional business issues. (Undertaken by individual directors, at regular intervals throughout the reporting period. During COVID-19, the sessions continued via video conference) • Overview and site walk of Melbourne Metro project (September 2019 by individual directors) • Attendance by Chairman at ‘town hall’ event and panel session in Melbourne (September 2019) • Viewing and site walk of One Sydney Harbour residential precinct and overview of project (November 2019) • Deep-dive education session of Lendlease Digital capability and function (February 2020 by individual director) Board project assessments One of the key responsibilities of the Lendlease Board is to oversee the strategy so the Group can pursue its integrated business model in targeted gateway cities around the world. During the first half of the financial year, the Board continued its longstanding tradition of extending a Board program whilst in region to conduct site visits and attend deep dive reviews of various projects. The Silvertown Quays and Ardor Gardens development projects are presented as case studies of the activities that the Board undertakes in reviewing and assessing strategic opportunities. Site visits allow the Board to see and experience firsthand the challenges associated with a project’s delivery, and Board conversations around project challenges and opportunities are appreciated in a fuller geographic and strategic context. These activities undertaken by the Board are examples of how the Board oversees management, delivering projects in accordance with the Group’s strategy, through its program of activities. Silvertown Quays, London Commencing in early 2018, the Board were introduced to the opportunity to secure via a joint venture with Starwood Capital, a long term large scale regeneration for residential and commercial use. Silvertown Quays offers the regeneration of an existing heritage asset – the Millennium Mills – and the delivery of significant new public realm. In making its investment decision, the Board considered numerous factors relevant to the development’s viability. These included focusing on the alignment to strategy, understanding of risk limits, the environment, health and sustainability profile of the project and knowledge sharing from other London urban regeneration projects. In October 2019, the Board received a deep dive presentation from the Project Team which covered several aspects of the development including the planning and scheme masterplan process, community consultation program, government relations, socioeconomic and sustainability factors and technical innovation. The Board visited the area to view the site and to observe how key stakeholder consultation process was shaping the delivery of the project. Shanghai: Ardor Gardens Artist’s impression Ardor Gardens, Shanghai Lendlease’s development expertise in retirement living has been extended to Shanghai where we are delivering an initial c.850 senior living homes. The Ardor Gardens project, in the context of the senior living strategy, is an example of how the Board reviews and evaluates strategic opportunities over a longer term period. The China senior living strategy was first presented to the Board more than five years ago. Due to its strategic significance, the Board initially received progress updates ahead of a formal request for approval to move forward in this sector in China. Numerous factors were considered prior to the Board arriving at its decision. These included the rationale for the strategy, macro economic indicators, financial and commercial assessment, funding and development strategy, safety and sustainability issues, and key risks. While not exhaustive, these factors were indicative of the issues considered during Boardroom discussions. The Board has continued to receive updates on the senior living strategy in China and in July 2019, a number of the Board members visited Ardor Gardens. By visiting the site, the Board gained an appreciation for its location and proximity to infrastructure, and in meeting with key stakeholders, the Board further understood the complexities of this project. London: Silvertown Quays Artist’s impression 102 Lendlease Annual Report 2020 Governance 103 Supporting value creation The Board continues to recognise that the five focus areas of value creation, supported by disciplined governance and risk management, contribute to performance and drive the long-term value of our business. During the year, in addition to the responsibilities and tasks set out in the charter documents, the Board and Board Committees deliberated on the following specific matters and undertook a number of activities to support value creation. While these do not represent the full scope of Board activities, they highlight some of the areas of focus by the Board. This year, given the unprecedented COVID-19 pandemic crisis, a significant amount of Board attention was focused on the management response to the crisis. Health and Safety Material Issue: Financial Material Issue: Operating safely across our operations and projects. Maintaining the health and wellbeing of our employees and those who engage with our assets and sites. Delivering securityholder returns. Maintaining strong capital management to enable investment in our future pipeline. The Board and Sustainability Committee undertook the following activities as part of their continued review of the Lendlease Health and Safety Framework and the unwavering commitment to the safety of our people and those who interact with Lendlease assets and sites. Board activities and actions: Reviewed the way health and safety issues are reported. Supported reporting a broader range of leading and lagging indicators to provide a more rounded approach as well as the resulting performance. Discussed the measures and actions taken at a project and regional level in response to a fatality resulting from a critical incident on a project in Kuala Lumpur whereby a worker passed away from an infection whilst recovering from surgery in hospital. Received a cross committee referral on the audit of safety incidents on a Lendlease project and requested that management investigate and report on these incidents until the matter was closed out to the satisfaction of both the Sustainability and Audit committees. Received reports on the ways that management were responding to the onset of COVID-19 and the significant disruptions across Lendlease’s operations and broadening of health and safety objectives. Endorsed global standards in response to COVID-19 addressing project shutdown protocols, social distancing applications on site and in regional offices, and the protocols in the event of confirmed cases. Pre COVID-19 Board members assessed our health and safety culture and received presentations during site visits in Asia, Europe and Australia. Questioned frontline leaders and employees on Lendlease’s Global Minimum Requirements (GMRs). Post COVID-19, Board members received reports from management on the innovative use of technology during safety site visits. The Board and Audit and Risk Committees undertook the following activities to help fulfil the Board’s oversight responsibilities in delivering returns to securityholders and by adopting a prudent approach to capital management with a view to maintaining a strong balance sheet throughout market cycles. Board activities and actions: A major focus area for the Board in FY20 was the response to the COVID-19 pandemic. In order to keep focus on business resilience during this time, a Board subcommittee was formed with the objective of oversighting cashflow, balance sheet and liquidity scenarios, culminating in a decision to raise capital in April 2020. Approved an equity raising via an institutional placement and Security Purchase Plan as a prudent measure to strengthen the balance sheet and position the Group to deliver the development pipeline and take advantage of opportunities as markets stabilise. Oversight and approval of workforce management and cost reduction initiatives across the business to reflect the changing environment as a result of the COVID-19 pandemic. Oversight of an extensive review of the Risk Appetite Statement, Risk Appetite Framework and Risk Tolerances against enterprise risks, to maintain alignment on the appetite for risk in order to drive more informed and consistent decision making. Approved the Risk Appetite Statement, Risk Appetite Framework and Risk Tolerances following this review. Endorsed the deployment of the Risk Appetite Framework (RAF) through the introduction of a RAF template for all investment decisions. Our Customers Material Issue: Our People Material Issue: Sustainability Material Issue: Managing and optimising our performance in the context of challenges facing the built environment, including climate change and social pressures such as population growth and housing affordability. The Board and Sustainability Committee engaged in the following activities to help deliver inclusive, healthy and adaptable places that can thrive through change. Board activities and actions: Continued to support the commitment to reconciliation in progressing the work to a second Elevate Reconciliation Action Plan. Engaged with management and attended a number of workshops on the four Lendlease Climate Scenarios created to test business strategies and respond to key trends in line with recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). Endorsed new, challenging sustainability targets for carbon and social value to begin the next chapter of sustainability. Attended a ‘deep dive’ discussion on Modern Slavery risks in our global supply chains and oversaw the development of timetable towards submission of the 2020 Modern Slavery Statement. Endorsed a new global Supplier Code of Conduct setting out the expectations of suppliers, contractors and their supply chains across a range of areas. Understanding our customers and responding to changes in the market. Designing and delivering innovative, customer driven solutions to win the projects we want to win and ultimately deliver the best places. The Board and its committees undertook the following activities as part of its support of the Group’s customer focused approach and to embed a process of continuous improvement based on customer insights and actions. Board activities and actions: Continued to engage with clients, investors and other stakeholders at various industry functions, site visits and events. Continued to provide feedback on initiatives to improve the reporting of customer satisfaction and advocacy to the Board and Risk Committee to drive continuous improvement in the customer experience. This included the reporting of C-SAT and NPS scores for each of the Americas, Asia, Australia Construction & Property and Europe regions. Received regular reports on key customer experience initiatives underway in various regions including ‘deep dive’ rolling reviews across various business units. Received various external reports on the measuring of Board effectiveness as viewed by external investors. Monitored the reporting of the program of activities to respond to the insights gained from the report. Received presentations from external customers to brief the Board on key customer relationships relevant to a particular business. Attracting, developing and retaining diverse talent. Ensuring we have the right capability across the organisation to deliver results for all stakeholders. The Board, People and Culture Committee and Nomination Committee undertook the following activities to help attract, develop and retain diverse talent and to monitor the investment in developing leaders and capabilities. Board activities and actions: Reviewed and discussed the Group’s talent management and strategic resourcing strategy and endorsed actions to provide greater transparency. Pre COVID-19 engaged with regional senior leaders and the Board to gain greater visibility of the emerging pool of potential internal successors to the GLT. Refreshed the review of formal development plans for the Global Leadership Team by creating a new baseline at which to chart progress against these plans. Responded to COVID-19 by endorsing various temporary workforce management initiatives. An up to six month reduction of 20 percent in fixed remuneration for the Global Leadership Team and a voluntary reduction of up to 20 percent of Non-Executive Director base fees. Supported the establishment of a Hardship and Wellbeing Fund in response to COVID-19, seeded in part by the voluntary fee reduction agreed by Non-Executive Directors. Continue to review the progress on the work in evolving the Group’s purpose and values. Endorsed the launch of two global knowledge sharing Practices based on Urbanisation and Residential Development. These bring together senior sector leaders and subject matter experts to develop specialist IP for our people. Endorsed a newly developed ‘Risk Index’ in the six monthly People Survey. The ‘Risk Index’ provides insight into how our people feel about escalating issues with their manager and with reporting instances of unethical conduct. 104 Lendlease Annual Report 2020 Governance 105 Board of Directors’ information Interests in Capital The interests of each of the Directors in the Stapled Securities of the Group at 17 August 2020 is set out below. The current Non Executive Directors acquired Lendlease securities using their own funds. Securities Held Beneficially/ Indirectly 20201 Total 2020 Securities Held Directly 2019 Securities Held Beneficially/ Indirectly 20191 Total 2019 Current Directors M J Ullmer S B McCann C B Carter P M Coffey D P Craig M Ford J S Hemstritch E M Proust N M Wakefield Evans R Welanetz Former Director S B Dobbs1 Securities Held Directly 2020 ‑ 547,200 ‑ ‑ ‑ ‑ ‑ ‑ ‑ 7,000 110,000 291,527 18,061 21,216 63,061 4,065 23,061 53,061 34,020 ‑ 110,000 838,727 18,061 21,216 63,061 4,065 23,061 53,061 34,020 7,000 ‑ 100,000 100,000 481,478 268,540 750,018 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 15,000 15,000 9,810 9,810 50,000 50,000 ‑ ‑ 20,000 20,000 25,000 25,000 30,248 30,248 ‑ ‑ 12,000 12,000 ‑ 12,000 12,000 1. S B Dobbs ceased to be a Non Executive Directors on 20 November 2019. The balance of securities held at the end of the financial year shown here represents the balance held at that date. Directors’ Meetings Board meetings The Board meets as often as necessary to fulfil its role. Directors are required to allocate sufficient time to the Group to perform their responsibilities effectively, including adequate time to prepare for Board meetings. During the financial year ended 30 June 2020, 16 Board meetings were held. Five meetings were held in person: three in Australia, one in Asia and one in the UK. In addition, there were three video/teleconference meetings scheduled in the FY20 Board calendar. From March 2020, the Board proceeded to meet using technology only, due to the mandatory travel and group meeting restrictions put in place in response to the COVID-19 pandemic. Two of these meetings were already scheduled in the FY20 Board calendar as in person meetings but proceeded using video/teleconference technology. An additional six meeting were held via video/teleconference to discuss specific matters, and matters were dealt with as required by circular resolution. From time to time special subcommittees are formed to give the Board better guidance and provide oversight concerning specific matters. During the reporting period, eight Board subcommittee meetings were also constituted to deal with specific matters. The Board recognises the essential role of committees in guiding the organisation on specific issues. Following the appointment of the new Chairman in November 2018, a comprehensive review of the Board and its committees was undertaken. A range of opportunities was identified to enhance the effectiveness and efficiency of the Board process and the responsibilities reserved specifically for the Board and its committees. Following this review, there are now five standing Board committees to assist, advise and make recommendations to the Board on matters falling within their areas of responsibility. The five permanent committees of the Board are: Audit Committee The Audit Committee assists the Board with its oversight responsibilities in relation to accounting policies and practices, tax matters, treasury reporting, monitoring of internal financial controls, internal and external audit functions and financial reporting of the Group. People and Culture Committee The People and Culture Committee assists the Board with its oversight responsibilities in relation to establishing people management, diversity, talent and remuneration/compensation policies for the Group. Risk Committee The Risk Committee assists the Board with its oversight responsibilities in relation to risk management and internal control systems, risk policies and practices, and compliance. The Risk Committee also has another important role – to review, and if approved, recommend to the Board for approval major transactions as referred to the Committee by the Global Investment Committee. Given the review of major transactions moving to the Risk Committee, all members of the Board including the Managing Director and CEO, are members of the Risk Committee. Sustainability Committee The Sustainability Committee assists the Board to monitor the decisions and actions of management in achieving Lendlease’s aspiration to be a sustainable organisation. Sustainability is viewed as encompassing how Lendlease conducts business through the pursuit of workplace safety, a commitment to corporate social responsibility, environmentally sustainable solutions and employee diversity, development and opportunity. Lendlease is strategically and culturally committed to achieving commercial success in ways that honour ethical values and respect people, communities and the natural environment. Nomination Committee The Nomination Committee advises and supports the Board to fulfill its responsibilities to securityholders; to assure that the Board is comprised of individuals who in combination bring a mix of expertise, skills, experience and perspectives and contribute to the discharge of diligent oversight and effective corporate governance of the Group. The Nomination Committee also oversees activities for Director development and oversees the reviews of Board, Committee and Director performance. Attendance at Meetings of Directors 1 July 2019 to 30 June 2020 The number of Board and Board Committee meetings held, and the number of meetings attended by each Director during the 2020 financial year, are set out in the tables below. (MH) Number of meetings held. (MA) Number of meetings attended. Membership M J Ullmer S B McCann (CEO) C B Carter P M Coffey D P Craig M A Ford2 J S Hemstritch E M Proust N M Wakefield Evans R F Welanetz2 S B Dobbs3 Membership M J Ullmer S B McCann6 (CEO) C B Carter P M Coffey D P Craig M A Ford2 J S Hemstritch E M Proust N M Wakefield Evans R F Welanetz2 S B Dobbs3 Board (Chairman M J Ullmer) Board Subcommittee Meetings5 (Chairman M J Ullmer) MH1 16 16 16 16 16 7 16 16 16 7 5 MA 16 16 16 16 16 7 144 16 16 7 5 MH 8 MA 8 7 ‑ 5 6 ‑ 3 2 7 2 ‑ 7 ‑ 5 6 ‑ 3 2 7 2 ‑ Nomination Committee (Chairman C B Carter) MH 7 MA 7 ‑ 7 7 7 2 7 7 7 2 3 ‑ 7 7 7 2 7 7 7 2 3 People and Culture Committee (Chairman E M Proust) Risk Committee (Chairman P M Coffey) Sustainability Committee (Chairman N M Wakefield Evans) Audit Committee (Chairman D P Craig) MH 5 MA 5 MH 7 MA 7 MH 5 MA 5 MH 5 MA 5 5 5 5 5 ‑ 5 5 ‑ 1 ‑ 5 5 5 5 ‑ 5 5 ‑ 1 ‑ 7 7 7 7 2 7 7 7 2 4 7 7 7 7 2 7 7 7 2 4 5 5 ‑ ‑ 1 ‑ 5 5 1 3 5 5 ‑ ‑ 1 ‑ 5 5 1 3 5 ‑ 5 5 1 5 ‑ 5 ‑ 3 5 ‑ 5 5 1 5 ‑ 5 ‑ 3 1. Reflects the number of meetings held during the time the Director held office during the year. 6 out of the 16 meetings were out of schedule Board teleconferences constituted to address specific issues. 2. M A Ford and R F Welanetz were appointed to the Board on 1 March 2020. The number of meetings attended reflects the number of meetings since their appointment. M A Ford and R F Welanetz attended the February 2020 meeting held in Sydney as observers prior to their formal appointment to the Board. This meeting has not been included in the number of meetings attended as it was prior to their formal appointments. 3. S B Dobbs retired from the Board on 20 November 2019. The number of meetings attended reflects the number of meetings until S B Dobbs’ retirement. 4. J S Hemstitch was unable to attend 2 of the 6 unscheduled Board teleconferences as they were called at short notice to address specific issues. 5. These subcommittee meetings of the Board were convened during the reporting period to address specific issues. Only the subcommittee members attended the relevant meeting. 6. S B McCann is not a member of the Committee but as Group CEO and Managing Director, has a standing invitation to the Sustainability and Audit Committees. 106 107 The value of the FY20 Deferred Equity Award for the Group CEO is equivalent to 35 per cent of his STA target (23 per cent of his STA maximum) and the value of the FY20 Deferred Equity Awards for executives is equivalent to between 25 per cent to 40 per cent of STA targets (between 17 per cent to 27 per cent of STA maximums). The Board determined in August 2020 that the FY20 Deferred Equity Award was the right approach given that it: • Recognises the achievement of non financial performance outcomes that support long term value creation • Considers the balance between motivating, recognising and rewarding executives with securityholder interests • Considers that although a final dividend for FY20 will not be paid from Lendlease Corporation Limited, securityholders will receive distributions of over $191 million relating to FY20 • Provides the Board with additional review points prior to vesting • Provides a retention element given that executives will be required to wait up to two years for the award to vest. The Board is very mindful that the retention of highly capable executives is critical to our ability to deliver the pipeline into the future. Looking ahead In FY21, the Board will continue to review and assess the effectiveness of our ERS as we contemplate what is required to motivate and retain our senior executives to navigate the challenges and realise the opportunities that lay ahead. We look forward to informing you of progress. Michael Ullmer, AO Elizabeth Proust, AO Chairman Chairman, People & Culture Committee Remuneration Report Message from the Board This year has been challenging and unprecedented. It has required the Board and management to rapidly navigate and respond to the uncertain health, safety and financial impacts of COVID-19. The Board’s primary focus has been the safety of our employees, customers, subcontractors and other stakeholders and the strength of our balance sheet. Refer to the Board's response to COVID-19 on page 107 for a summary of key remuneration- related decisions made during FY20. For the first nine months of the year, the business performed well. As the pandemic situation has evolved and as a result of providing for the costs of separating the Engineering business, in line with those previously advised, a statutory loss was recorded for FY20. Linking remuneration decisions and performance In applying our Executive Reward Strategy (ERS), a number of financial and non financial factors have been considered by the Board when determining remuneration outcomes for Key Management Personnel (KMP) in FY20. Key points are highlighted below: Financial outcomes Given the financial result for the year, no Short Term Award (STA) has been made to the Group CEO or senior executives in relation to financial performance. No adjustments were made to FY20 STA scorecard targets to account for the impact of COVID-19. Accordingly, the receipt of a modest amount of COVID-19 related assistance from governments, had no influence on the quantum of awards, nor did the completion of the capital raising. Non financial outcomes We achieved a significant improvement in performance across a wide range of safety metrics and our Critical Incident Frequency Rate (CIFR) is at its lowest level since records began in 2012. However, tragically, a fatality was reported during 2020. This incident has been accounted for in the Board's assessment of remuneration outcomes for the Group CEO and senior executives based on either accountability or responsibility for safety outcomes. We achieved a significant increase in leadership effectiveness scores as measured by their teams. This will remain a key focus for us as we grow and deliver our global pipeline. Our net promoter and customer satisfaction scores have improved in an otherwise challenging environment and the development and implementation of our digital strategy has continued to progress at pace and a new business brand has been launched. Our Development pipeline grew by an impressive 48 per cent over the year. Given the key contributions made during the year that position the Group for success in FY21 and beyond, the Board considered that the recognition, in part, of the achievement of non financial performance was fair and appropriate. FY20 remuneration outcomes For executives, the Board determined that no cash STA would be awarded in FY20 and it was more appropriate to issue an FY20 Deferred Equity Award albeit at a reduced quantum. Half of the award is scheduled to vest in September 2021 and the balance in September 2022. Board’s response to COVID-19 The key remuneration-related decisions that the People & Culture Committee and Board made during FY20 in response to COVID-19 include: Workforce management actions With a focus on reducing short-term costs and preserving jobs we implemented the following workforce management actions: The Fixed Remuneration for the Group CEO, Group Leadership Team (GLT) and other senior leaders was temporarily reduced by 20 per cent from 1 May 2020. Non Executive Directors were able to temporarily reduce their base fees by 20 per cent from 1 June 2020. Other workforce management actions across the Group included reduced hours of work, furlough / stand downs and, in a limited number of cases, redundancies. Hardship & Wellbeing Fund The impacts of COVID-19 have been especially challenging for some of our people. Through no fault of their own, some have experienced hardship, even after exploring alternative sources of support. For this reason, we established the Lendlease Hardship & Wellbeing Fund which provides grants to support our people who need short-term help to cover essential expenses of everyday life. A portion of the savings achieved through the workforce management actions outlined above have been used to seed the Hardship & Wellbeing Fund. In the two months since the creation of the Hardship & Wellbeing Fund, 99 Hardship & Wellbeing Fund grants have been approved for payment. Temporary release from mandatory securityholding requirement Substantially lower FY20 Group incentive pool The Group CEO and GLT members were provided with the opportunity to request a temporary release from the mandatory securityholding requirement, such that the required holding of Lendlease securities is halved. The Group CEO did not request this release. Access to wage subsidy support Wherever we operate, Lendlease has continued its partnership approach to helping governments respond to the public health and economic crisis presented by COVID-19. We acknowledge that our government partners have adopted the same approach and recognised the crucial role of the property and infrastructure sectors in the economy. As our company has been negatively impacted by COVID-19 in most markets, Lendlease has been eligible and accessed wage subsidy support in markets where it was offered. Government support globally totalled $15 million (in Australia $7 million) and has been accounted for as a reduction in employee expenses. As a Board, we have considered the amount of wage subsidy support accessed by the Group when determining FY20 remuneration outcomes. FY21 Fixed Remuneration to remain unchanged from FY20 levels There were no Fixed Remuneration increases awarded to KMPs that remained in the same role during FY20. For FY21, the Board determined that Fixed Remuneration will remain at FY20 levels for the majority of employees across the Group. After taking into consideration FY20 financial and non financial performance, the Board approved a Group incentive pool that was significantly lower compared to prior years. The quantum of the incentive pool recognises the statutory loss, key contributions made in FY20 that position the Group for success in FY21 and beyond as well as the importance of motivating and retaining our high performing employees to navigate the challenges ahead. The funding rate for the FY20 Group incentive pool is aligned to the FY20 Deferred Equity Award outcomes for the Group CEO and senior executives. Board discretion applied to executive FY20 short term remuneration outcomes For executives, the Board determined that no cash STA would be awarded in FY20 and it was more appropriate to issue an FY20 Deferred Equity Award albeit at a reduced quantum. Half of the award is scheduled to vest in September 2021 and the balance in September 2022. No adjustments to FY20 STA scorecard targets During the year the Board made no adjustments to FY20 STA scorecard targets to account for the impact of COVID-19. Target setting for 2020 Long Term Award (LTA) In relation to the 2020 LTA, the Board deferred its decision on setting the average Return on Equity (ROE) target until the sale of the Engineering business was complete. The impact of COVID-19 will be considered when this target is set, following the sale. Contents a. Questions and answers b. Executives and Non Executive Directors covered by this report c. Snapshot of FY20 Remuneration Outcomes d. Executive Reward Strategy on a page e. Executive remuneration outcomes and disclosures f. Remuneration governance g. How risk management is incorporated into executive reward h. How executive rewards are linked to performance This report forms part of the Directors’ Report and has been audited in accordance with the Corporations Act 2001. i. Executive contracts j. Equity based remuneration k. Non Executive Directors 108 109 110 111 112 119 121 122 128 129 134 Lendlease Annual Report 2020 Governance108 109 To support these objectives, we believe that this component of the ERS is better described as an RSA, illustrated below. ERS Remuneration Elements ERS Remuneration Elements Fixed Remuneration Fixed Remuneration Short Term Award Restricted Securities Award Long Term Award (LTA) LTA Minimum LTA Award Short Term Award Long Term Award The value of the RSA is fixed at the time of grant but will vary with the security price over the deferral period (up to six years). The quantum of Total Target Remuneration is unchanged. 6. Is the RSA just Fixed Remuneration? The RSA is an important component of our ERS as it aligns our senior executives to securityholders and supports long term value creation. It is important to recognise that the RSA is not the same as Fixed Remuneration given that: • The RSA is deferred and vests between three and six years after it is granted • The value of the RSA is directly linked to the security price and therefore may be lower or higher than the original allocation value • The Board has discretion to forfeit part or all of any unvested RSA where it considers vesting would provide a participant with a benefit that was unwarranted or inappropriate. 7. Does Lendlease pay distributions on the RSA? Distribution equivalent amounts are paid as cash on the RSA. This practice aligns senior executive reward outcomes to securityholder interests and paying distributions on this type of award is not uncommon. Distributions are not paid on the LTA, unless and until vesting conditions are met. Remuneration Report a. Questions and answers We regularly receive feedback regarding our ERS from securityholders. Below is a summary of the key questions that we have been asked, or anticipate being asked, and our responses. Our reward structure is unlike frameworks commonly found in other large listed organisations as it reflects the most important aspects of our business strategy, namely the long dated nature of our business, where profits emerge over an extended period of time. Accordingly, the ERS has a relatively high weighting toward securities that have long dated vesting and deferral periods. 1. Why was a Deferred Equity Award made to KMP in FY20 when financial goals were not achieved? Lendlease has paid no cash STA in FY20. Lendlease uses a balanced scorecard to assess the annual performance of senior executives that comprises 50 per cent financial goals and 50 per cent non financial goals. The FY20 Deferred Equity Award recognises that although the FY20 financial goals were not met, significant progress was made against most of the non financial goals that support long term value creation. The FY20 Deferred Equity Award also acknowledges the importance of motivating, recognising, rewarding and retaining our key executives. The Board considered that paying a cash STA would not have been appropriate. However, an equity award that aligns the interests of senior executives with securityholders into the future was considered to be fair and in the best interests of the Group. 2. Why was an equity award issued rather than a cash award? Our current ERS is structured to pay any STA as cash. The Board determined that an equity award would be more appropriate, with half of the award vesting in September 2021 and the balance vesting in September 2022. Issuing an equity award that is deferred equally over two years provides the Board with additional review points prior to vesting and delivers a retention element given that senior executives will be required to wait for up to two years for the award to vest. 3. Why was an award made to KMP in FY20 when dividends were reduced? Notwithstanding the statutory loss for the year, securityholders received an interim distribution, commensurate with our distribution policy, at the half year. Whilst a final dividend has not been paid from Lendlease Corporation Limited a small final distribution will be paid from the Lendlease Trust. The reduced incentive pool for the year represents a lower proportion of amounts distributed to securityholders than in any of the past five years. 4. What impact does the capital raising have on remuneration decisions and outcomes? Performance securities and performance rights for existing awards ‘on foot’ were not adjusted following the capital raising as is the practice in many large listed organisations. 5. Why is the LTA Minimum referred to as the Restricted Securities Award (RSA) in this report? The RSA (LTA Minimum) was incorporated into the ERS: • To promote alignment with securityholders as a portion of target remuneration is delivered in Lendlease securities • To support long term value creation • To better align reward to risk management. b. Executives and Non Executive Directors covered by this report The following executives and Non Executive Directors were considered KMP for the year ended 30 June 2020. Former executives and Non Executive Directors who were KMP during the year are also covered by this report. Name Group CEO Stephen McCann Group Chief Executive Officer and Managing Director Current Senior Executives Johannes Dekker Tarun Gupta Denis Hickey Group Head of Engineering and Building Group Chief Financial Officer Chief Executive Officer, Americas Anthony Lombardo Chief Executive Officer, Asia Neil Martin Kylie Rampa Chief Executive Officer, Europe since 10 September 2019 Chief Executive Officer, Property Australia David Andrew Wilson Group Chief Commercial and Risk Officer Former Senior Executive Daniel Labbad Chief Executive Officer, Europe until 9 September 2019 Note: The term ‘senior executives’ used throughout this Remuneration Report refers to all the executives listed above, unless stated otherwise. Non Executive Directors Current Non Executive Directors Michael Ullmer Independent Chairman Colin Carter Philip Coffey David Craig Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Margaret Ford Independent Non Executive Director since 1 March 2020 Jane Hemstritch Independent Non Executive Director Elizabeth Proust Independent Non Executive Director Nicola Wakefield Evans Independent Non Executive Director Robert Welanetz Independent Non Executive Director since 1 March 2020 Former Non Executive Director Steve Dobbs Independent Non Executive Director until 20 November 2019 Lendlease Annual Report 2020 Governance 110 111 Remuneration Report c. Snapshot of FY20 remuneration outcomes Target Remuneration Mix The FY20 target remuneration mix is: Fixed Remuneration RSA1 STA LTA 31% 36% CEO Execs CEO 7% Execs CEO Execs 45% CEO Execs 34% 15% 17% 15% A$000s 2,200 1,200 500 500 1,200 500 3,200 1,100 Total Target Remuneration | Group CEO ‑ 7,100 | Typical Lendlease Senior Executive ‑ 3,300 Fixed Remuneration The Fixed Remuneration for the Group CEO and senior executives was temporarily reduced by 20 per cent from 1 May 2020 as part of the Group’s response to COVID‑19. Some of the cost savings from this action were used to seed Lendlease’s Hardship & Wellbeing Fund. There were no Fixed Remuneration increases awarded to KMPs that remained in the same role during FY20. FY20 Cash STA Outcomes No cash STA was paid in FY20: % of Target STA Paid % of Maximum STA Paid Group CEO Senior Executives FY20 0% 0% See page 124 for more details. FY19 0% 25% ‑ 50% FY20 0% 0% FY19 0% 17% ‑ 33% d. Executive Reward Strategy on a page Our Vision To create the best places Our Strategy Sets us up for the long term so we can continue to deliver on our vision Our strategy is urbanisation-led, leveraging our integrated model to create the best urban precincts in key gateway cities internationally. See the ‘Our strategy’ section on page 18 for further information. Our Remuneration Principles Reinforce and actively support our Vision and Strategy Executive Remuneration at Lendlease is: Aligned with securityholder interests Transparent and easy to communicate Aligned with team behaviours and enterprise leadership Market competitive to retain highly capable executives Balanced with a significant portion of remuneration at risk, which is only earned for outstanding performance Longer dated and aligned to our earnings profile, reflecting the importance of urbanisation projects Risk management focused with clear practices that minimise potential conflicts of interest and enable effective and aligned decision making FY20 Deferred Equity Award The Board approved in August 2020 that an FY20 Deferred Equity Award would be fair and appropriate given that it: • Recognises the achievement of non financial performance outcomes that support long term value creation Our Remuneration Framework Reflects our remuneration principles and supports our Vision and Strategy • Considers the balance between motivating, recognising and rewarding executives with securityholder interests • Considers that although a final dividend for FY20 will not be paid from Lendlease Corporation Limited, securityholders will receive distributions of over $191 million relating to FY20 • Provides the Board with additional review points prior to vesting • Provides a retention element given that executives will be required to wait up to two years for the award to vest. The FY20 Deferred Equity Award will be issued in or around September 2020 as Lendlease securities that vest over two years, with half vesting in September 2021 and the balance in September 2022. The value of the FY20 Deferred Equity Award for the Group CEO is equivalent to 35 per cent of his STA target (23 per cent of his STA maximum) and the value of the FY20 Deferred Equity Awards for executives is equivalent to between 25 per cent to 40 per cent of STA targets (between 17 per cent to 27 per cent of STA maximums). See the Remuneration Awarded table on page 115 for more details. LTI Outcomes The vesting outcomes for the two LTI awards that were subject to performance testing during FY20 are set out below: Performance Period Performance Test Performance Hurdle Performance Outcome Vesting Outcome Overall Vesting Outcome 2016 LTI Award 2017 LTI Award 1 July 2015 to 30 June 2019 Year 4 1 July 2016 to 30 June 2019 Year 3 See page 126 for more details. Relative Total Securityholder Return (TSR) 12th percentile ranking compared to comparator group ROE Relative TSR ROE Average 4 year ROE performance was 11.5% 26th percentile ranking compared to comparator group Average 3 year ROE performance was 11.0% 0% 34.4% 0% 25.0% 16.0% 11.6% Mandatory Securityholding  Requirement As part of the Group’s response to support our people during COVID‑19, the Group CEO and GLT members were provided with the opportunity to request a temporary release from the mandatory securityholding requirement, such that the required holding of Lendlease securities is halved. The Group CEO did not request this release. See Equity Holdings & Transactions for the year ended 30 June 2020 on page 133 for more details. Effectiveness Review of ERS for FY21 In FY21, the Board will continue to review and assess the effectiveness of our ERS as we contemplate what is required to motivate and retain our senior executives to navigate the challenges and realise the opportunities that lay ahead. NED Remuneration Non Executive Directors were able to temporarily reduce their base fees by 20 per cent from 1 June 2020 as part of the Group’s response to COVID‑19. Some of the cost savings from this action were used to seed Lendlease’s Hardship & Wellbeing Fund. There were no increases to NED fees during FY20. Aligned with Securityholders At Risk – Performance Hurdles At Risk – Performance Hurdles & Security Price Fixed Remuneration Restricted Securities Award (RSA)1 Short Term Award (STA) Long Term Award (LTA) Set to attract and retain highly capable executives Focussed on retention and long term value creation Focused on priority areas in the current financial year Focused on future years, with a six year time horizon Delivered as: Base salary and superannuation for Australian executives and base salary for executives outside of Australia Consistent Fixed Remuneration set for similarly sized roles to simplify pay setting, support mobility and team approach Delivered as: Rights Deferral period: Up to six years with awards delivered in four equal tranches over Y3, Y4, Y5 and Y6 Distributions: Distribution equivalent amounts are paid as cash on the RSA during the deferral period The value of the RSA is fixed at the time of grant but will vary with the security price over the deferral period Delivered as: Cash Performance period: One year Performance measures: Financial (50 per cent) and Non Financial (50 per cent) measures aligned to Lendlease’s focus areas of value creation Delivered as: Performance rights Performance period: Three years with vested awards delivered in four equal tranches over Y3, Y4, Y5 and Y6 Performance measures: 50 per cent relative TSR and 50 per cent average ROE Distributions: Paid as an adjustment of additional securities or cash for any awards that vest Remuneration Governance Robust governance is critical to the integrity of our remuneration framework The People & Culture Committee and the Board review our remuneration principles and remuneration framework as well as determine the STA and LTA outcomes for the Group CEO and senior executives, which remain subject to malus consideration. The Board retains an overarching discretion to reduce or forfeit any unvested awards if it considers that vesting of such awards will result in the participant receiving a benefit that was unwarranted or inappropriate. Additionally, the Group CEO RSA and LTA is submitted for securityholder approval at the AGM. 1. Previously LTA Minimum. Lendlease Annual Report 2020 Governance 112 113 Remuneration Report e. Executive remuneration outcomes and disclosures The Board undertook an assessment of the Group CEO’s scorecard and the results are included below: Area of Focus Reason Chosen Result Performance Assessment Performance Measures For Year Ended 30 June 2020 Financial Performance - 50 per cent Weighting A range of financial measures that includes specific targets for: ‑ Profit after Tax ‑ EBITDA ‑ Cash flow from operating and investing ‑ Overheads An assessment of the overall financial health of the business: ‑ Comparing the quality of the result relative to the targets set A breadth of financial measures, in combination with the forward‑looking assessment of the financial health of the business, focuses the Group CEO on the delivery of financial results in the short term while taking decisions with an emphasis on the long term interests of securityholders. BELOW ABOVE Non Financial Performance - 50 per cent Weighting (Aligned to our Five Focus Areas of Value Creation) Health and Safety We are committed to the health and safety of our people. The Critical Incident Frequency Rate (CIFR) helps us assess how effective we are at eliminating life threatening incidents. BELOW ABOVE Strategic Initiatives and Managing Risk Effective capital management drives longer term securityholder returns. Our Customers and Innovation Our People Sustainability Satisfied customers drive long term value. Innovation contributes to better performance – capturing and responding to disruption creates opportunity. Having the right people in leadership1 roles is critical to long term success. The Group CEO sponsors key people initiatives. The Group CEO actively promotes diversity and inclusion to grow capability. Capital investors, policy‑makers, customers and communities are seeking partners who can deliver efficient, healthy, resilient, culturally and socially inclusive outcomes that deliver long term value. BELOW ABOVE BELOW ABOVE BELOW ABOVE BELOW ABOVE A summary of the result against each financial measure is below: Profit after Tax Behind Target EBITDA Behind Target Operating and Investing Cash Flow Overheads Behind Target Behind Target The Group experienced a very challenging year with a Statutory Loss after Tax of $310 million for the year ended 30 June 2020. A solid Core operating EBITDA in H1FY20 of $628 million was followed by a $65 million loss in H2FY20 as our three Core segments experienced a significant deterioration in operating conditions as a result of the pandemic. Core operating EBITDA for the full year was $563 million. The Non core segment recorded an EBITDA loss of $495 million which included accounting for $525 million pre tax in Engineering separation costs. The EBITDA for the year ended 30 June 2020 was a $90 million loss. Actual cash flow was ($232 million), which is below target primarily as a result of a delay in apartment settlements. Focus on business efficiencies saw overheads lower than targeted, but reduction in NPAT resulted in Overhead / GPM ratio not being met. Notwithstanding the progress made during the year, there was one fatal incident recorded. Tragically, Mohammed Nurul Amin passed away in hospital while in post operative recovery following an incident on the Affin Bank Berhad project in Malaysia. This tragic incident has been considered in assessing the Group CEO’s overall performance. Our CIFR is at the lowest (0.7) since records began in 2012. Lost Time Injury Frequency Rate (LTIFR) for the year is 1.5, the lowest since records began in 2000. Strong focus on safety risk management remains paramount at all times and has remained our primary concern during COVID‑19. The Group CEO continues to provide visible health and safety leadership, notwithstanding the limited number of site visits able to be arranged in the second half of the financial year. In response to the immediate impacts of COVID‑19, the Group enters FY21 in a strong financial position as a result of the successful completion of the institutional placement ($950 million) and Security Purchase Plan ($260 million), with gearing below 10 per cent and total liquidity above $5 billion at 30 June 2020. In addition to these measures, significant progress has been made on our strategy, including the San Fracisco Bay Area project (c. $22 billion end value), PSP Investments partnership in Milan (c.$4 billion end value), PLLACes on One Sydney Harbour and a new joint venture with Mitsubishi Estate. In addition, the divestment of the Engineering business is expected to complete in early FY21. There is continued improvement in risk management including the establishment of our first two Practices (Residential and Urban Regeneration) to drive consistency of approach on all pipeline projects globally. Customer centricity has been more systemically embedded within the business. Key customers have been assigned dedicated account leaders and all activity coordinated through the account structure. Annual customer experience research is now well established across all regions and is supported by regional CEOs. NPS1 and C‑SAT2 global performance remains solid with small increases achieved in FY20 in a tough operating environment. Our digital strategy, as a founding member alongside Microsoft, Dell and Anys in establishing the Global Digital Twin Consortium, has been progressed. The launch of our property lifecycle platform, Podium, will help us continue to lead in this space. Increasing our senior leadership effectiveness was a key focus in FY20 following the targets not being achieved in FY19. Active focus, communication and visibility of senior leaders, supported by the Leadership Excellence Program, has driven a substantial improvement of +17 in Leadership Effectiveness scores to 61 per cent and a 4 percentage point increase in our Change Management Index (ahead of our target). The retention rate for talent segments was 91 per cent in FY20, ahead of our target of greater than 90 per cent. The proportion of women in leadership roles has increased across the Group from 26.1 per cent to 26.9 per cent. Our new Sustainability Strategic Framework has been endorsed by our GLT, including the formation of the Carbon Target Sub‑Committee to determine appropriate targets for the coming years. Significant progress was made in the disclosure against the Taskforce for Climate‑related Financial Disclosure (TCFD) framework as well as the publishing of our 2050 Future Climate Scenarios. 1. Leadership roles include a number of levels in the Lendlease Career Job Framework, including executive level roles. 1. NPS measures whether our customers’ experience fosters loyalty. 2. C-SAT measures whether customers are satisfied with our products and services. Lendlease Annual Report 2020 Governance 114 115 Remuneration Report e. Executive remuneration outcomes and disclosures continued Comparison of remuneration tables In this section, the value of remuneration for the Group CEO and each senior executive is reported. In addition to the required statutory table (based on the accounting disclosures), we have included a further table setting out the remuneration awarded on page 115, and graphs showing remuneration received on page 116, to provide a more complete illustration of our approach to executive remuneration. An explanation of the differences is set out below. Disclosure Awarded Table Remuneration Received Graphs Statutory Table Period Covered Remuneration disclosed relates to both time in their current role (as KMP) and any other role they have held at Lendlease during the financial year. Only shows remuneration for the time the senior executive was KMP. Fixed Remuneration STA Cash Deferred Short Term Incentive (STI) This includes the contractually awarded amount of Total Package Value (TPV)/ Base Salary from 1 September 2019 or later and reflects the 20 per cent Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID‑19. It excludes annual leave and long service leave accruals. For individuals employed for part of the year, only remuneration paid during the employment period is included. This includes the amount of TPV/Base Salary received during the financial year and reflects the 20 per cent Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID‑19. It excludes annual leave and long service leave accruals. For individuals whose remuneration changed during the year, remuneration received reflects the different amounts of TPV/Base Salary paid. The statutory disclosures include a value for cash salary, non monetary benefits, superannuation and other long term benefits in line with statutory remuneration disclosure requirements. Non monetary benefits also include the movement in annual leave accruals. Cash salary also reflects the 20 per cent Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID‑19 and the value of distribution equivalent amounts paid as cash on the RSA. The STA that will be paid as cash in September 2020 in respect of the financial year. N/A ‑ The STI was replaced by the STA in FY19. N/A ‑ The value of Deferred STI that vested during the year is included in Prior STI and LTI Awards. The accounting expense attributed to this financial year for Deferred STI awards granted in September 2018 and the Executive Deferred Award (EDA) granted to a limited number of executives in September 2019. N/A Total Short Term Remuneration The sum of Fixed Remuneration and STA Cash. N/A Deferred Equity Award RSA1 LTA Prior STI and LTI Awards The value of the Deferred Equity Award to be issued in or around September 2020 that vests over two years with half vesting in September 2021 and the balance in September 2022. The value of Rights awarded at the time of grant. The value varies with the security price over the deferral period. The RSA vests in September 2022, September 2023, September 2024 and September 2025. The LTA replaced the LTI in FY19. The Remuneration Awarded table shows the target face value of the 2020 LTA offered in September 2019. The 2020 LTA vests in September 2022, September 2023, September 2024 and September 2025 and the awards are subject to relative TSR and average ROE performance hurdles (explained in detail on page 126). N/A ‑ not disclosed in this table. Security Price Growth and Distributions N/A 1. Previously LTA Minimum. N/A ‑ value will be reflected in FY21 and FY22. The value of Rights which vested during the year. The value shown represents the value of Rights at the grant date. No RSA vested during FY20. N/A The RSA is reported in the Security Based Payments section of the statutory disclosures. This is the accounting expense attributed to this financial year for RSA’s granted in the 2019 and 2020 financial years. The LTA is reported in the Security Based Payments section of the statutory disclosures. This is the accounting expense attributed to this financial year for LTA granted in the 2019 and 2020 financial years. The value of any Deferred STI awards, including the EDA and LTI awards which vested during this financial year. The value shown represents the value of the awards at the grant date. The Deferred STI awards which vested in September 2019 were granted in September 2017 and September 2018. The LTIs which vested in September 2019 were granted in September 2015 and September 2016. The value of security price growth and distributions paid between the grant date and the vesting date for STI, RSA and LTI awards which vested during the year. This also includes the value of distribution equivalent amounts paid as cash on the RSA. Prior STI and LTI Awards are reported as part of the Security Based Payment section of the statutory disclosures. This includes the accounting expense attributed to this financial year for the 2018 Deferred STI Award and the LTI Awards granted in the 2016, 2017 and 2018 financial years. N/A Remuneration awarded by the Board for the year ended 30 June 2020 The remuneration awarded is set out in the table below. The Board has reviewed senior executive remuneration and no further increases are anticipated for FY21, with the exception of Neil Martin who will transition to the target remuneration for the CEO, Europe role during the year. A$000s1 Short Term STA Opportunity Total Short Term Remuneration ‘At Risk’ – Deferred to Future Periods Name Group CEO Stephen McCann Current Senior Executives Johannes Dekker Tarun Gupta Denis Hickey Anthony Lombardo Neil Martin9 Kylie Rampa David Andrew Wilson Former Senior Executive Daniel Labbad10 Fixed Remuneration2 STA Cash3 % of Target STA Cash Paid % of Maximum STA Cash Paid 2020 2019⁴ Deferred Equity Award⁵ LTA7 2020 Target LTA 2020 Max7,8 RSA6 2,127 1,161 1,160 1,610 1,105 1,001 1,160 1,205 263 0 0 0 0 0 0 0 0 ‑ 0% 0% 2,127 2,200 420 500 3,200 5,550 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1,161 1,160 1,610 1,105 1,001 1,325 1,325 1,880 1,320 ‑ 1,160 1,450 1,205 1,372 125 175 274 166 198 125 175 500 500 500 500 313 500 500 1,100 3,200 1,100 3,200 1,100 3,200 1,100 3,200 687 2,000 1,100 3,200 1,100 3,200 ‑ ‑ 263 1,582 ‑ ‑ ‑ ‑ Remuneration received for the year ended 30 June 2020 Remuneration received during the year includes Fixed Remuneration, prior STI and LTI awards and the security price growth and distributions on these awards which vested during the year. The Board determined in August 2020 that a cash STA would not be awarded in FY20. Prior STI awards that vested during the year were granted in September 2017 and 2018 and were released in September 2019. Prior LTI awards that vested during the year were tested based on cumulative performance between the start of the year in which they were granted and the year ending 30 June 2019. These awards were also released in September 2019. Security price growth and distributions represent the shared ‘gain’ senior executives and securityholders have experienced over the life of awards. The table below illustrates the change for the awards that vested during the year. Award 2017 STI 2018 STI 2016 LTI 2017 LTI Granted September 2017 September 2018 September 2015 September 2016 Grant price per security $ Vest price $ (1 Sept 2019) Gain per security $ Distributions paid per security $ 17.11 19.79 15.16 13.49 17.02 17.02 17.02 17.02 (0.09) (2.77) 1.86 3.53 1.11 0.42 2.37 1.77 Total $ 1.02 (2.35) 4.23 5.30 The impact of security price movements on unvested awards that are scheduled to vest in September 2020 will be included in the FY21 Remuneration Report. This will reflect the security price decline immediately following the escalation of the COVID-19 pandemic. For example, the security price movement on the 2018 STI was a loss of 37.5 per cent between the grant date and 30 June 2020. 1. 2020 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY20 (rounded to two decimal places): GBP 0.53 (applied to Daniel Labbad and Neil Martin), SGD 0.93 (applied to Anthony Lombardo) and USD 0.67 (applied to Denis Hickey). All senior executives are paid in local currency. 2. Fixed Remuneration includes the contractually awarded amount of Total Package Value/Base Salary (including the value of any benefits salary sacrificed) but excludes any allowances or non monetary benefits. Also reflects the 20% Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID-19. 3. The STA Cash refers to the Short Term Award for the Group CEO and senior executives for the year ended 30 June 2020, which is payable in cash in September 2020. For FY20, the Board determined that a cash STA would not be awarded. 4. 2019 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY19 (rounded to two decimal places): GBP 0.55 (applied to Daniel Labbad), SGD 0.97 (applied to Anthony Lombardo) and USD 0.71 (applied to Denis Hickey). 5. The FY20 Deferred Equity Award was approved by the Board in August 2020 and is expected to be issued to executives in or around September 2020, in recognition of the non financial goals that were achieved in FY20 that support long term value creation. The FY20 Deferred Equity Award also reflects the importance of motivating, recognising, rewarding and retaining our key executives and will be issued as Lendlease securities that vest over two years with half vesting in September 2021 and the balance in September 2022. 6. Previously LTA Minimum. 7. The LTA refers to the Long Term Award for the Group CEO and senior executives for the year ended 30 June 2020. It is awarded on a face value basis. Refer to page 126 for a detailed explanation of LTA awards. 8. The LTA provides for the opportunity for outperformance if hurdles are achieved above target. The maximum opportunity is 150% of the LTA target plus the RSA for the Group CEO and 200% of LTA target plus the RSA for senior executives. 9. Neil Martin was appointed to the Chief Executive Officer, Europe role on 10 September 2019 and remuneration reflects the remuneration awarded on appointment to this role. 10. Daniel Labbad ceased as a KMP on 9 September 2019 and remuneration reflects his time in his KMP role. Lendlease Annual Report 2020 Governance 116 117 Remuneration Report e. Executive remuneration outcomes and disclosures continued Remuneration received for the Group CEO other senior executives during 2019 and 2020 Remuneration Received for the Group CEO during 2019 and 2020 A$000s1 6,547 2,084 2,263 2,200 2019 3,609 230 1,252 2,127 2020 Stephen McCann Fixed Remuneration2 Prior STI & LTI Awards Security Price Growth4 Remuneration Received for senior executives during 2019 and 2020 A$000s1 1,818 43 450 125 1,503 17 325 2,918 630 963 125 1,957 58 739 3,253 531 842 324 2,244 53 581 2,577 543 714 227 1,640 55 480 1,200 1,161 1,200 1,160 1,093 1,105 1,556 1,610 2,480 377 653 250 2,369 404 593 125 1,784 25 599 1,540 34 301 1,200 1,160 1,247 1,205 1,571 167 433 971 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 Johannes Dekker5 Tarun Gupta Denis Hickey Anthony Lombardo Neil Martin Kylie Rampa David Andrew Wilson Fixed Remuneration2 STA Cash3 Prior STI & LTI Awards Security Price Growth4 1. 2020 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY20 (rounded to two decimal places): GBP 0.53 (applied to Neil Martin), SGD 0.93 (applied to Anthony Lombardo) and USD 0.67 (applied to Denis Hickey). 2019 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY19 (rounded to two decimal places): SGD 0.97 (applied to Anthony Lombardo) and USD 0.71 (applied to Denis Hickey). All senior executives are paid in local currency. 2. Fixed Remuneration includes the TPV/Base Salary received during the financial year and reflects the 20% Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID-19. 3. STA Cash refers to the Short Term Award for the Group CEO and senior executives for the relevant financial year, payable in cash annually in September. For FY20, the Board determined that a cash STA would not be awarded. 4. Reflects the value of security price growth and distributions paid between the grant date and the vesting date for STI and LTI awards which vested during the year. This also includes the value of distribution equivalent amounts paid as cash on the RSA. 5. For Johannes Dekker, his prior year awards include a sign-on award reflecting remuneration foregone on resignation from his previous employer. Statutory disclosures – Remuneration of the Group CEO and senior executives for the years ended 30 June 2020 and 2019 Statutory disclosures are included in the table below. Short Term Benefits, Post Employment Benefits and Other Long Term Benefits relate to remuneration for the year. Values in the Security Based Payments columns reflect the accounting expense attributed to this year for STI, RSA, LTI and LTA awards from prior years, and the accounting expense attributed to the RSA and LTA from this year. A$000s¹ Short Term Benefits Post Employment Benefits Security Based Payments7 Cash Salary2 STA Cash3 Non Monetary Benefits4 Superannu- ation5 Other Long Term Benefits⁶ Sub-total LTI / LTA Deferred STI Name Group CEO Stephen McCann Year 2020 2019 Current Senior Executives Johannes Dekker8 2020 Tarun Gupta Denis Hickey Anthony Lombardo Neil Martin9 Kylie Rampa 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 David Andrew Wilson 2020 2019 Former Senior Executive Daniel Labbad10 Total Total 2020 2019 2020 2019 2,130 2,155 1,180 1,191 1,164 1,166 1,634 1,558 1,129 1,094 849 1,164 1,149 1,209 1,287 454 1,424 10,913 ‑ ‑ ‑ 125 ‑ 125 ‑ 324 ‑ 227 ‑ ‑ 250 ‑ 125 ‑ 273 - 11,024 1,449 ‑ ‑ 260 287 18 ‑ 190 251 280 291 8 45 3 9 ‑ 355 284 1,165 1,116 ‑ ‑ ‑ ‑ 26 25 10 11 21 21 ‑ 21 21 21 21 ‑ ‑ 99 99 36 33 38 230 ‑ ‑ ‑ ‑ ‑ ‑ ‑ 19 18 20 18 ‑ ‑ 113 299 2,192 2,213 1,488 1,844 1,203 1,312 1,824 2,133 1,409 1,612 857 1,249 1,441 1,259 1,451 809 1,981 12,290 13,987 1,815 2,375 1,700 708 735 757 715 588 692 655 303 750 538 995 735 865 669 8,570 7,025 Total 4,226 5,463 3,262 2,870 2,095 2,704 2,643 3,188 2,215 2,692 1,598 2,158 2,572 2,330 2,464 219 875 74 318 157 635 104 467 114 425 438 159 593 76 278 121 519 1,462 4,110 1,795 3,169 22,322 25,122 1. 2020 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY20 (rounded to two decimal places): GBP 0.53 (applied to Daniel Labbad and Neil Martin), SGD 0.93 (applied to Anthony Lombardo) and USD 0.67 (applied to Denis Hickey). 2019 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY19 (rounded to two decimal places): GBP 0.55 (applied to Daniel Labbad), SGD 0.97 (applied to Anthony Lombardo) and USD 0.71 (applied to Denis Hickey). All senior executives are paid in local currency. 2. Cash Salary includes the payment of cash allowances such as motor vehicle allowance and the value of distribution equivalent amounts paid as cash on the RSA. For Daniel Labbad and Neil Martin, this also includes cash allowances paid in lieu of pension contributions. Cash salary also reflects the 20% Fixed Remuneration reduction that applied from 1 May 2020 as part of the Group’s response to COVID-19. 3. STA Cash refers to the Short Term Award for the Group CEO and senior executives for the year ended 30 June 2020, which is payable in cash in September 2020. For FY20, the Board determined that a cash STA would not be awarded. 4. Non monetary benefits may include items such as car parking, relocation and expatriate benefits (such as house rental, health insurance, shipping of goods and tax return preparation), motor vehicle costs, travel benefits and annual leave. 5. Superannuation includes the value of insurance premiums funded by Lendlease for Australian executives who are members of the Lendlease default superannuation fund. For Daniel Labbad, the 2019 comparative has been restated to reflect that cash allowances paid in lieu of pension contributions are now included in Cash Salary. 6. Other Long Term Benefits represents the accrual of long term leave entitlements (e.g. long service leave). 7. Security based payments reflect the accounting expense on a fair value basis. For all executives other than Neil Martin, security based payments are issued as indeterminate rights and performance rights. For Neil Martin, Deferred STI (including his Executive Deferred Award) is issued as securities. LTI/LTA includes the accounting expense for the RSA (previously LTA Minimum). 8. For Johannes Dekker, amounts under Other Long Term Benefits, Deferred STI and LTI/LTA include the prorated accounting expense of future payments relating to remuneration foregone on resignation from his previous employer, and a retention award relating to the strategic review of the Engineering and Services businesses. 9. Neil Martin was appointed to the Chief Executive Officer, Europe role on 10 September 2019 and remuneration reflects time in this KMP role. 10. Daniel Labbad ceased as a KMP on 9 September 2019 and remuneration reflects his time in his KMP role. His unvested LTI, LTA and Deferred STI awards remain on foot and subject to the original vesting conditions. The security based payment expense for the current period therefore includes up to three years of each unvested award expense that has been accelerated and disclosed in total for FY20, including those amounts which would otherwise have been included in future year disclosures. Lendlease Annual Report 2020 Governance 118 119 Remuneration Report e. Executive remuneration outcomes and disclosures continued Reconciliation of 2020 statutory remuneration with Remuneration Received for the Group CEO The following table shows the difference between the Group CEO’s Remuneration Received on page 116 and the Statutory Disclosure on page 117. Remuneration relating to Prior Years Remuneration relating to Current Year Remuneration relating to Prior Years 669 4,226 1,147 219 (25) (2,127) 2,130 26 36 3,609 (582) (876) s 0 0 0 $ Total Remuneration Received LTI Vested Deferred STI Vested RSA Distributions¹ Contractual Fixed Rem at Sept 19 Actual Cash Salary in 2020² Superann- uation³ Other Long Term Benefits⁴ LTA Expense (2020 grant) STI Expense (awards on foot) LTI Expense (awards on foot) Total Statutory Less Add Long Term Incentive performance During 2020, two LTI awards were subject to performance testing. The performance hurdles were relative TSR and average ROE. Each hurdle is tested over a three and four year performance period. The outcomes are shown below. 2016 LTI Award The four year relative TSR test was conducted in July 2019. Lendlease’s relative TSR performance achieved the 12th percentile when compared to the comparator group over the period from 1 July 2015 to 30 June 2019. As a result, none of the tested award vested. The four year average ROE test was also conducted in July 2019. Lendlease’s four year average ROE performance was 11.5 per cent over the period from 1 July 2015 to 30 June 2019. As a result, 34.4 per cent of the tested award vested. 2017 LTI Award The three year relative TSR test was conducted in July 2019. Lendlease’s relative TSR performance achieved the 26th percentile when compared to the comparator group over the period from 1 July 2016 to 30 June 2019. As a result, none of the tested award vested. The three year average ROE test was also conducted in July 2019. Lendlease’s three year average ROE performance was 11.0 per cent over the period from 1 July 2016 to 30 June 2019. As a result, 25 per cent of the tested award vested. The four year relative TSR and four year ROE tests for this award are scheduled for July 2020 and the results will be shown in the 2021 Remuneration Report. f. Remuneration governance Robust governance is a critical part of Lendlease’s approach to executive remuneration. Board The Board has overall responsibility for executive remuneration at Lendlease. The Board assesses the performance of, and determines the remuneration outcome for the Group CEO. People & Culture Committee The Committee’s agenda reflects the importance of human capital to the Group’s strategy and business planning, and it assists the Board in establishing appropriate policies for people management and remuneration across the Group. The People & Culture Committee is also accountable for reviewing and making recommendations to the Board on the goals, performance and remuneration of members of the GLT. A description of the People & Culture Committee’s scope can be found on page 104. Management Management makes recommendations to the People & Culture Committee in relation to developing and implementing the ERS and structure. The Group CEO also provides his recommendations on Fixed Remuneration and STA outcomes for his direct reports for approval by the People & Culture Committee. Independent remuneration advisor Until 30 June 2020, the Board appointed independent remuneration advisor was PwC. The Board engaged EY in July 2020. Strict governance protocols are observed to ensure advisors' advice to the People & Culture Committee is made free from undue influence by KMP. The following arrangements were made to ensure that advisors' advice was free of undue influence: • Advisors are engaged by, and report directly to, the Chair of the People & Culture Committee • The agreement for the provision of any remuneration consulting services is executed by the Chair of the People & Culture Committee on behalf of the Board • Any reports delivered by advisors were provided directly to the Chair of the People & Culture Committee • Advisors are permitted, where approved by the People & Culture Committee Chair, to speak to management to understand company processes, practices and other business issues and obtain management’s perspectives. The Board is satisfied that any advice provided by either advisor is made free from undue influence from any of the KMP. During the year, advisors did not provide a remuneration recommendation as defined in Section 9B of the Corporations Act 2001. ROE Vesting 100 90 80 70 60 50 40 30 20 10 g n i t s e v s d r a w a d e t s e t f o % Average ROE % for 2017 LTI Award 11.0% 25% of awards vested Average ROE % for 2016 LTI Award 11.5% 34.4% of awards vested 0 10% 11% 12% 13% Average ROE achieved over performance period 14% Relative TSR Vesting 2016 LTI Award 0% Vested 2017 LTI Award 0% Vested Vesting schedule 15% 16% 1. Reflects the value of distribution equivalent amounts paid as cash on the RSA. 2. There is a difference between Actual Cash Salary received during 2020 and the contractually awarded Fixed Remuneration as Actual Cash Salary includes RSA Distributions and excludes superannuation whereas contractually awarded Fixed Remuneration includes superannuation and excludes RSA Distributions. 3. Superannuation includes the value of insurance premiums funded by Lendlease for Australian executives who are members of the Lendlease default superannuation fund. 4. Other Long Term Benefits represents the accrual of long term leave entitlements (e.g. long service leave). Lendlease Annual Report 2020 Governance 120 121 Remuneration Report f. Remuneration governance continued Setting remuneration levels Lendlease benchmarks remuneration mix and levels to confirm market competitive total rewards for on target performance, and total rewards above the market median if outstanding performance is achieved Remuneration is reviewed annually by the People & Culture Committee for the Group CEO and senior executives (or during the year if there are any role changes or new senior executive appointments). Primary Sources of Data The People & Culture Committee typically uses a number of sources for benchmarking Group CEO and senior executive remuneration including: • Data provided by the Board’s remuneration advisor about remuneration for similar roles in companies of a similar size, such as: ‑ Comparable roles in companies listed on the ASX that are ranked between 26 and 75 by market capitalisation (excluding companies domiciled overseas and property trusts where management is not typically employed by the trust) ‑ Comparable roles in ASX listed companies with revenue of between 50 and 200 per cent of Lendlease’s revenue • Publicly available data for comparable roles at organisations in Australia such as CIMIC, Mirvac and Stockland • Published remuneration surveys, remuneration trends and other data sourced from external providers. Market Positioning The People & Culture Committee has adopted a tiered approach to setting pay levels, with a target remuneration mix defined for senior executives at each tier as part of changes implemented in 2019. A target fixed and total remuneration position is set for each tier, which is established with reference to the market median and 75th percentile, benchmarked against a number of ‘anchor roles’. Application of Data to Lendlease Senior Executives The People & Culture Committee adopts the following principles when considering data and its application to setting pay: • Understanding the relative size, scale and complexity of the organisations in the data set (so that a fair comparison can be made to organisations with similar global breadth and operational complexities as Lendlease) • Aligning reward opportunity across similarly sized roles, supporting a team approach and facilitating mobility among senior executives • For senior executives based outside Australia, target pay is adjusted to account for cost of living, housing and currency differences, to achieve similar pay levels. Mandatory securityholding The mandatory securityholding requires the Group CEO and senior executives to hold a minimum number of Lendlease securities so that they have a significant personal investment in Lendlease and they consider long term securityholder value when making decisions. The Group CEO and other senior executives are required to accumulate and maintain a holding of Lendlease securities calculated with reference to their Fixed Remuneration (divided by the security price to determine the number of securities that must be held). In the case of: • The Group CEO – the requirement is 150 per cent of TPV • Senior executives – the requirement is 100 per cent of TPV or 100 per cent of base salary for senior executives outside of Australia. The mandatory securityholding for each senior executive is outlined in the Equity Based Remuneration tables on page 133. Personally held securities may be counted towards the mandatory securityholding requirement as does the RSA. Unvested deferred securities and unvested awards under the previous STI and LTI do not count towards this mandatory holding. The RSA counts towards the mandatory securityholding. Until such time as the senior executive meets the mandatory securityholding requirements, for senior executives based in Australia, Lendlease imposes a disposal restriction on 50 per cent of any senior executives’ Deferred STI, RSA, LTI or LTA that vests. This disposal restriction means that the senior executive will not be able to sell these securities until such time as Lendlease agrees to lift the disposal restriction. Senior executives based outside of Australia are required to achieve the mandatory holding requirement within six years of their appointment to a KMP role. Securities Trading Policy The Lendlease Securities Trading Policy applies to all employees of the Lendlease Group. In accordance with the policy, Directors and senior executives may only deal in Lendlease securities during designated periods. Directors and senior executives must not enter into transactions or arrangements that operate to limit the economic risk of unvested entitlements to Lendlease securities. No Director or senior executive may enter into a margin loan arrangement in respect of unvested Lendlease securities. Hedging Deferred STI, RSA, LTI and LTA awards are subject to the Securities Trading Policy, which prohibits executives from entering into any type of ‘protection arrangements’ (including hedging, derivatives and warrants) in respect of those awards before vesting. g. How risk management is incorporated into executive reward The Board has placed a significant focus on incorporating risk management into the reward framework. Governance • The establishment of a separate Risk Committee, of which all Directors are a member, has allowed the Board agenda to be restructured to focus on strategy, culture, customer outcomes, reputation, performance and succession planning. Drawing all risk elements under a single committee allows for risk management to be considered in an integrated fashion • The Chairs of both the Risk Committee and the Audit Committee are members of the People & Culture Committee • The Board has overall responsibility for remuneration decisions concerning senior executives • The People & Culture Committee regularly considers matters outside of remuneration – including organisational culture, talent development and succession, and feedback from employees through Our People Survey. A Holistic Performance Assessment to Determine STA Outcomes Mandatory Securityholding • A risk adjustment is considered in the determination of the performance assessment of senior executives • The Group Chief Financial Officer and the Group Chief Commercial and Risk Officer jointly present to the People & Culture Committee on the ‘Health of the Business’ when the Committee is considering year end STA outcomes • The Board determines the weighting of both financial and non financial performance for STA and communicates this in executive scorecards. • The Group CEO is expected to accumulate and maintain a securityholding of 150 per cent of his TPV • Senior executives are expected to accumulate and maintain a securityholding of 100 per cent of their TPV or base salary for senior executives outside of Australia • While senior executives’ holdings are below their mandatory securityholding level, a restriction is placed on half of any securities that vest (for senior executives in Australia). Deferral • The RSA has a six year time horizon, vesting progressively over Y3, Y4, Y5 and Y6 • The LTA for senior executives has a six year time horizon, tested after three years and progressively vesting over the next three years – reflecting the long‑dated nature of our projects. The LTA represents approximately half of senior executives’ Total Target Remuneration. Forfeiture and Malus • Awards lapse if senior executives resign to work for competitor organisations • If senior executives are considered to be a ‘good leaver’, awards are retained beyond the cessation of employment. The Board believes that this appropriately motivates executives to make decisions in the long term interests of the Company • The Board retains an overarching discretion to reduce or forfeit any unvested awards (during the deferral period beyond the performance testing period) if it considers that vesting of such awards would result in the participant receiving a benefit that was unwarranted or inappropriate. Board Discretion • The Board makes, reviews and approves decisions concerning executive remuneration throughout the year • The Board uses its discretion to influence individual outcomes or to steer management towards appropriate outcomes based on a culture of accountability. Recent examples include: – Supporting the voluntary 20 per cent Fixed Remuneration reduction for executives in response to COVID‑19 and matching it with a similar reduction to Non Executive Director base fees – Looking beyond solely financial measures and recognising non financial performance that supports long term value creation in FY20 – The announcement the Group CEO made concerning his zero STA for FY19. Lendlease Annual Report 2020 Governance 122 123 Restricted Securities Award (RSA)1 This section presents a summary of the key features of the RSA plan. RSA Design How the RSA Works Objective • The key objectives of the RSA are: – To promote alignment with securityholders as a portion of target remuneration is delivered in Lendlease securities – To support long term value creation – To better align reward to risk management. Quantum • The RSA is set at $500,000 for the Group CEO and for senior executives2. Refer to the target remuneration mix set out in the Snapshot of FY20 remuneration outcomes on page 110 Instrument & Eligibility • The RSA is delivered to a limited number of senior executives as an annual grant of rights to acquire securities on a face value basis • The Board intends that the RSA be settled in Lendlease securities, although the award may be settled in cash at the Board’s discretion Determining the number of Rights • The number of rights allocated is based on the volume weighted average price (VWAP) of stapled securities traded on the ASX over the 20 trading days prior to the release of the full year results for the financial year ending 30 June preceding the grant date Deferral Period • The RSA is deferred for three years and released in four equal tranches over a further three year period, at the end of Y3, Y4, Y5 and Y6 Distributions • Distribution equivalent amounts are paid as cash on the RSA during the deferral period Malus • The Board may adjust the number of rights downwards prior to the date of vesting in the case of a material misstatement of the Group’s financial accounts • The number of rights can be reduced in circumstances where the Board considers that delivery of all or part of the award would result in a benefit that is unwarranted or inappropriate Termination of Employment • If the executive is terminated for cause, the unvested RSA lapses • If the executive is terminated for poor performance, the Board can adjust unvested RSA prior to the vesting date • For ‘good leavers’, including executives who resign but do not engage in activities that are competitive with the Group, the RSA may remain on foot subject to the original vesting conditions. Remuneration Report h. How executive rewards are linked to performance Five year performance summary The graphs below outline some key indicators of Group performance over the past five years. Statutory Profit after Tax (PAT) Attributable to Securityholders ($m)¹ 698.2 758.6 792.8 467 (310) FY16 FY17 FY18 FY19 FY20 Total Dividends/Distributions ($m)1 349.1 384.9 399.6 237 191 FY16 FY17 FY18 FY19 FY20 Earnings per Stapled Security (EPSS) (cents)2 (excluding treasury securities) 126.3 135.2 137.0 80 (51.8) FY16 FY17 FY18 FY19 FY20 Annual Total Securityholder Return (%)3 38 24 (13) (33) (2) FY16 FY17 FY18 FY19 FY20 Return on Equity (ROE) (%)4 13.0 12.9 12.7 7.4 (4.7) FY16 FY17 FY18 FY19 FY20 Performance and funding for Short Term Incentives Incentives are funded from an incentive pool which represents a maximum that can be awarded. Using an incentive pool provides for a fair sharing of profits between securityholders and employees by capping the amount of profits that can be paid to employees. It also forges a strong link between Group performance and short term reward outcomes because they are influenced (up or down) by the available pool. Group PAT is one factor that determines the overall size of the incentive pool. An assessment of overall profit make up, health of the business and other financial and non financial factors are also considered. Group PAT, influenced by the costs associated with the separation of the Engineering business, was a statutory loss for FY20. Following an overall assessment of financial and non financial performance and the overall health of the business before and during the COVID-19 situation, the Board approved a small pool of incentive awards to recognise significant contributions. The pool was substantially lower than FY19 and an even smaller portion compared to the five prior years. The Board acknowledges the importance of continuing to motivate our employees through recognising their contributions. Group CEO scorecard and performance in 2020 STA outcomes are based on financial and non financial measures and are designed to focus senior executives on priority areas for delivery in the current financial year. 50 per cent of awards are assessed against a set of team targets for Group financial performance against metrics that include: • Profit after Tax • EBITDA • Overheads • Cash flow from operating and investing. The overall financial health of the business is also included in the assessment. 50 per cent of awards are assessed against a range of non financial performance measures including: • Safety performance • Progress against strategic initiatives • Sustainability • Our people – retention of critical talent and targets for women in leadership positions • Our customers – measures in line with our customer framework. The Board is committed to the safety and wellbeing of employees. The Board considers safety leadership behaviour and outcomes in assessing the overall performance of the Group CEO and each senior executive. While the assessment is not structured formulaically as a ‘gateway’ measure, expectations are clearly communicated to the Group CEO and senior executives that poor health and safety outcomes may lead to reduction in STA outcomes for the year. The fatal incident in FY20 has been considered in assessing the Group CEO’s STA outcome. The Group CEO’s cash STA is 0 per cent of his target and his FY20 Deferred Equity Award is equivalent to 35 per cent of his STA target (23 per cent of his STA maximum). Refer to the Group CEO’s scorecard on pages 112 and 113 for further details. 1. At 30 June 2020, all values have been rounded to the nearest million dollars unless otherwise indicated. 2. EPSS is calculated using the weighted average number of securities on issue excluding treasury securities. As required under AASB 133 Earnings per Share, the 30 June 2019 weighted average number of ordinary shares and the weighted average number of stapled securities have been updated to reflect the new stapled securities issued via the institutional placement and Security Purchase Plan during the year. FY19 EPSS has been restated from 82.9 to 80.0 to reflect this change. 3. Represents the movement in the Group’s security price, distribution yield and any return on capital during the financial year. 4. ROE is calculated as the annual Statutory Profit after Tax attributable to securityholders divided by the arithmetic average of beginning, half year and year end securityholders’ equity. 1. Previously LTA Minimum. 2. The FY20 RSA for Neil Martin was $312,500. Lendlease Annual Report 2020 Governance124 125 • STA outcomes are based on performance during the financial year, primarily measured through the use of the Group CEO Deferral Period • The FY20 Deferred Equity Award is deferred over two years, with half vesting in September 2021 and the balance in and senior executive scorecards September 2022 FY20 Deferred Equity Award This section presents a summary of the key features of the FY20 Deferred Equity Award plan. FY20 Deferred Equity Award How the FY20 Deferred Equity Award Works Objective • The key objectives of the FY20 Deferred Equity Award are to: – Recognise the achievement of non financial performance outcomes that support long term value creation – Consider the balance between motivating, recognising and rewarding executives with securityholder interests – Recognise that although a final dividend for FY20 will not be paid from Lendlease Corporation Limited, securityholders will receive distributions of over $191 million relating to FY20 – Provide the Board with additional review points prior to vesting – Provide a retention element given that executives will be required to wait up to two years for the award to vest. Quantum • Refer to the Remuneration Awarded table on page 115 for more details Instrument & Eligibility Determining the number of Rights • The FY20 Deferred Equity Award is delivered to senior executives as a grant of rights to acquire securities on a face value basis • The Board intends that the FY20 Deferred Equity Award be settled in Lendlease securities, although the award may be settled in cash at the Board’s discretion • The number of rights allocated is based on the VWAP of stapled securities acquired on or off market around September 2020 Distributions • Distributions are not paid on any unvested FY20 Deferred Equity Award for the Group CEO and senior executives. However, in calculating the amount of Lendlease securities or cash provided on vesting of the FY20 Deferred Equity Award, the value of any distributions declared during the vesting period is taken into consideration Malus • The Board may adjust the number of rights downwards prior to the date of vesting in the case of a material misstatement of the Group’s financial accounts • The number of rights can be reduced in circumstances where the Board considers that delivery of all or part of the award would result in a benefit that is unwarranted or inappropriate Termination of Employment • If the executive is terminated for cause, the unvested FY20 Deferred Equity Award lapses • If the executive is terminated for poor performance, the Board can adjust unvested FY20 Deferred Equity Award prior to the vesting date • For ‘good leavers’, including executives who resign but do not engage in activities that are competitive with the Group, the FY20 Deferred Equity Award may remain on foot subject to the original vesting conditions. Remuneration Report h. How executive rewards are linked to performance continued Short Term Award (STA) STAs are based on performance against a scorecard of financial and non financial measures This section presents a summary of the key features of the FY20 STA plan and shows the key differences between the STA and the previous Short Term Incentive (STI), for which some awards remain on foot. The key features of the STA are outlined in the table below: STA Design How the STA Works STA Quantum • The 2020 STA has been set with reference to the Group CEO and senior executive target remuneration mix set out in the Snapshot of FY20 remuneration outcomes on page 110. STA Funding • The pool of funds available to reward executives under the STA plan is determined by direct reference to Group financial and non financial performance • In determining the pool of funds available, the Board examines safety performance and the overall health of the business, which considers a broader set of metrics around origination, sustainability and how we have managed risk. • The minimum possible STA outcome is zero and the maximum STA outcome is limited to 150 per cent of the senior executive’s target STA opportunity. STA Targets and Opportunity STA Key Performance Indicators • The Group CEO FY20 scorecard (approved by the Board) and performance against the scorecard is summarised on pages 112 and 113 • Lendlease is committed to the safety and wellbeing of all of its employees. The Board considers safety leadership behaviours and outcomes in assessing the overall performance of the Group CEO and each senior executive. While the assessment is not structured formulaically or as a ‘gateway’ measure, expectations are clearly communicated to the Group CEO and senior executives that poor health and safety outcomes may lead to a reduction in STA outcomes for the year. The fatal incident that occured in FY20 has been considered in assessing the Group CEO’s STA • The People & Culture Committee considers feedback from the direct reports and teams of each senior executive. In this way, the STA considers ‘what’ is achieved as well as ‘how’ it is achieved. How the STA is Delivered • The STA is delivered as cash in September following the end of the performance year. Prior Short Term Incentive (STI) Key features of the 2018 STI plan are the same as the FY20 STA, except for the following which apply to the 2018 STI plan only. STI Design How the STI Works How the STI is Delivered • The STI award is delivered as a mix of cash and Deferred STI, which is settled in Lendlease securities or cash as determined by the Board • For STI awards ‘up to target’, 50 per cent of the award was paid in cash in September following the end of the performance year. The remaining 50 per cent is deferred – half of which vests one year after the grant and the other half vests after two years. Deferred STI awards are held in an employee share plan trust until vesting • For ‘above target’ STI awards, the above target portion was delivered one‑third as cash and two‑thirds deferred on the same basis as set out above • Distributions are not paid on any unvested Deferred STI for the Group CEO and senior executives; however, the value of any distributions made during the vesting period is taken into consideration in calculating the amount of Lendlease securities or cash provided on vesting. Malus • The Board has the discretion to forfeit part or all of any unvested Deferred STI awards prior to their vesting where it considers vesting would provide a participant with a benefit that was unwarranted or inappropriate. The Board may delay vesting of any unvested Deferred STI in the event it is reviewing whether to exercise discretion to reduce or forfeit unvested awards. Treatment of Deferred STI on Termination • Malus provisions work alongside the Deferred STI terms to provide discretion for the Board to adjust unvested awards on termination of employment. In particular: ‑ If an employee is terminated for fraud or other serious misconduct, unvested Deferred STI awards will lapse ‑ Where an employee is terminated for poor performance, the number of unvested Deferred STI awards can be adjusted downwards ‑ Deferred STI awards are forfeited by the individual if they resign during the vesting period • For ‘good leavers’, the Deferred STI awards may remain on foot until the original vesting date, subject to the original terms. In exceptional circumstances (such as death or total and permanent disability), the Board may exercise its discretion and pay the award at the time of termination of employment. Lendlease Annual Report 2020 Governance 126 127 Remuneration Report h. How executive rewards are linked to performance continued Long Term Award (LTA) The key features of the LTA plan are set out in the table below. Page 127 shows the key differences between this award and LTI awards from prior years, some of which remain on foot. LTA Design Objective How the LTA Works • Reward senior executives for delivering Lendlease’s strategy and for delivering sustained long term securityholder value • Align the interests of senior executives and securityholders. Eligibility An annual grant of performance rights is made to a limited number of senior executives on a face value basis. Determining the Number of Performance Rights The number of performance rights allocated is based on the VWAP of stapled securities traded on the ASX over the 20 trading days prior to the release of the full year results for the financial year ending 30 June preceding the grant date. LTA Design How the LTA Works Performance Measure Selection • The Board believes that these measures, combined with other features of ‘at risk’ remuneration at Lendlease, provide a suitable link to long term securityholder value creation because: ‑ ‑ TSR incentivises senior executives to deliver returns that outperform what a securityholder could achieve in the market and promotes management to maintain a strong focus on securityholder outcomes ROE reflects the capital intensive nature of Lendlease’s activities and is an important long term measure of how well the management team generates acceptable earnings from capital invested and rewards decisions in respect of developing, managing, acquiring and disposing of assets • The Group’s currently stated ROE target range is 10 to 14 per cent • The Board believes that the vesting range provides a realistic goal at the lower end (in the context of risk free rates of return, cost of capital and market consensus) and a stretch at the upper end • The hurdles are reviewed annually by the Board with the aim of setting an average ROE hurdle range that will drive outperformance without incentivising excessive risk taking. The Board also has governance protocols in place to monitor levels of net debt and is conscious of the impact that debt can have on the ROE result • While the Board appreciates that there are, at times, differing views held by stakeholders, we believe that these measures provide the appropriate balance between market and non market measures. Instrument • The award is delivered as a target number of performance rights to acquire securities. The number of performance rights is adjusted up or down at vesting based on performance over the assessment period • The Board intends that the awards be settled in Lendlease securities, although the award may be settled in cash or other means at the Board’s discretion. Award Target The amount of LTA achieved at target has been set with reference to: • The Group CEO and senior executive target remuneration mix set out on page 110 • Having regard to the benchmark data and market positioning as described on page 120. Performance Period • Three years. The performance period was chosen as the Board believes that the timeframe appropriately reflects a balance between reward that motivates executives while reflecting the ‘long tail’ of profitability and risk associated with ‘today’s decisions’. LTA Maximum Opportunity to earn an award above target for outperformance across both performance hurdles. Retesting There is no retesting of the LTA. If the performance hurdle is not met at the time of testing, the awards are forfeited. Deferral • Once the award has been determined, awards are retained and released in four equal tranches over a further three Distributions Distributions are not paid on the LTA, unless and until vesting conditions are met. year period. Performance Hurdles Market Measure 50 per cent Non Market Measure 50 per cent Relative Total Securityholder Return (RTSR) Average Return On Equity (ROE) • TSR is measured by the growth in security price and any dividends/distributions paid during the performance period • ROE is calculated by dividing the annual statutory Profit after Tax by the weighted average equity for the year • Relative TSR is measured against companies that comprise the Standard & Poor’s (S&P)/Australian Securities Exchange (ASX) 100 index • Maximum vesting is achieved if TSR performance is at or above the 75th percentile. • Average ROE will be based on the average of ROE results over the three year performance period • Target and maximum ROE are set by the Board for each three year period and are set with reference to the Group’s Portfolio Management Framework. Vesting Schedule Relative TSR Percentile Ranking Percentage of Target LTA plus RSA Vesting1 Average ROE Percentage of Target LTA plus RSA Vesting1 Group CEO Senior Executives Group CEO Senior Executives At the 50th 50 per cent 50 per cent At or above the 51st and below the 75th Pro rata straight line vesting between 54 per cent and 146 per cent Pro rata straight line vesting between 56 per cent and 194 per cent 75th or greater 150 per cent 200 per cent Between 10 per cent and target ROE set by the Board Pro rata straight line vesting between 13.5 per cent and 100 per cent Pro rata straight line vesting between 31.25 per cent and 100 per cent Malus • The Board may adjust the number of performance rights downwards prior to the date of vesting in the case of a material misstatement of the Group’s financial accounts • The number of performance rights can be reduced in circumstances where the Board considers that delivery of all or part of the award would result in a benefit that is unwarranted or inappropriate. Termination of Employment • If the executive is terminated for cause, the unvested LTA lapses • If the executive is terminated for poor performance, the Board can adjust unvested LTA prior to the vesting date • For ‘good leavers’, including executives who resign but do not engage in activities that are competitive with the Group, the LTA grant may remain on foot subject to the original performance hurdle. Prior LTI Awards Key differences between the LTI plan for the years 2017-2018 and the current LTA plan are as follows: • 2017 LTI awards were allocated on a fair value basis • A target number of performance securities were awarded under the LTI plan. There is no opportunity to earn an award above target for outperformance, nor is there a minimum award delivered if performance hurdles are not met • For LTI awards, 50 per cent of the grant value is assessed over a three year period, and the remaining 50 per cent is assessed after four years • Under the LTI plan, in exceptional circumstances (such as death or total and permanent disability), the Board may exercise its discretion to pay the award at the time of termination of employment. At target set by the Board Between target set by the Board and 14 per cent At 14 per cent or greater 100 per cent 100 per cent The vesting schedules for LTI awards on foot are shown below: Pro rata straight line vesting between 100 per cent and 150 per cent Pro rata straight line vesting between 100 per cent and 200 per cent 150 per cent 200 per cent Relative TSR Percentile Ranking Below the 50th percentile Percentage of Relative TSR Performance Securities that Vest if the Hurdle is Met No vesting At the 50th percentile 50 per cent vesting At or above the 51st percentile but below the 75th percentile At the 75th percentile or greater Pro rata vesting on a straight line basis between 52 per cent and 98 per cent 100 per cent vesting 100 75 50 25 g n i t s e v s d r a w a d e t s e t f o % 0 9% 2017 2018 10% 11% 12% 13% 14% 15% 16% Average ROE achieved over performance period 1. During the year the Board determined that the LTA Minimum is better described as an RSA. Given this decision was made after awards were communicated, the vesting schedule reflects the transition and shows the proportion of the combined target LTA, and half of the RSA (previously LTA Minimum) that vests at different levels of performance. Lendlease Annual Report 2020 Governance 128 129 Remuneration Report i. Executive contracts KMP employment contracts Each KMP has an ongoing employment contract. All KMP have termination benefits that are within the limit allowed by the Corporations Act 2001 without securityholder approval. Contracts also set out the treatment on termination for other reasons including, but not limited to, resignation, termination with notice and termination for cause. The Group may make a payment in lieu of notice. Key terms for each KMP are set out below: Name Group CEO Notice by Lendlease Notice by Executive Treatment on Termination with Notice by Lendlease Stephen McCann 12 months 6 months In the case where the Group CEO is not employed for the full period of notice, a payment in lieu of notice may be made. The payment in lieu of notice includes pro rata Fixed Remuneration and the cash value of statutory entitlements and benefits Current Senior Executives Johannes Dekker¹ 12 months 6 months Notice payment is based on TPV. Payment for accrued leave is based on TPV less superannuation Tarun Gupta 6 months 6 months Notice payment is based on TPV. Payment for accrued leave is based on TPV less superannuation Denis Hickey 6 months 6 months Notice payment is based on base salary and other minimum benefits as required by applicable United States legislation Anthony Lombardo 12 months 6 months Notice payment and accrued leave is based on base salary Neil Martin 6 months 6 months Notice payment and accrued leave is based on base salary Kylie Rampa 6 months 6 months Notice payment is based on TPV. Payment for accrued leave is based on TPV less superannuation David Andrew Wilson 6 months 6 months Notice payment is based on TPV. Payment for accrued leave is based on TPV less superannuation Former Executive Daniel Labbad 9 months 6 months Notice payment and accrued leave is based on base salary Additional disclosure for the Group CEO contract In addition, the Group CEO has a non compete notice period of 12 months and a non solicitation period of 12 months. Upon termination the Group CEO: • May continue to receive an STA award for the latest financial year based on an assessment of his performance by the Board • LTA and LTI will be treated in accordance with the plan rules at that time • Deferred STI awards from prior years will remain on foot in certain mutually agreed termination circumstances. j. Equity based remuneration Deferred securities Name Plan STI Award Performance Year Grant Date Vesting Date Number Granted Fair Value Per Deferred Security1 $ Total Fair Value At Grant Date1,2 $ Expense For the Year Ended 30 June 2020 $ % Vested % Forfeited Group CEO Stephen McCann Deferred STI Deferred STI Deferred STI 2017 Sept 2017 Sept 2019 2018 Sept 2018 Sept 2019 2018 Sept 2018 Sept 2020 Total Current Senior Executives Johannes Dekker3 Sign‑On Award ‑ May 2018 Sept 2019 Sign‑On Award ‑ May 2018 Sept 2020 Total Tarun Gupta Total Denis Hickey Deferred STI Deferred STI Deferred STI Deferred STI Deferred STI Deferred STI Deferred STI Deferred STI Total Anthony Lombardo Deferred STI Total Neil Martin Total Kylie Rampa Deferred STI Deferred STI Deferred STI Deferred STI Deferred STI EDA EDA EDA Deferred STI Deferred STI Deferred STI Total David Andrew Wilson Deferred STI Deferred STI Deferred STI Total Former Senior Executive Daniel Labbad Deferred STI Deferred STI Deferred STI Total 2018 2018 2017 2018 2018 2017 2018 2018 2017 2018 2018 2017 2018 2018 2019 2019 2019 2017 2018 2018 2017 2018 2018 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2019 Sept 2019 Sept 2019 Sept 2021 Sept 2019 Sept 2022 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 2017 2018 2018 Sept 2017 Sept 2019 Sept 2018 Sept 2019 Sept 2018 Sept 2020 26,725 22,434 22,434 71,593 8,535 5,690 1,264 1,264 16,753 19,285 15,842 15,842 50,969 17,966 10,554 10,554 39,074 9,753 11,517 11,517 32,787 11,861 11,605 11,605 11,329 11,329 11,329 69,058 13,710 16,039 16,039 45,788 5,698 7,719 7,719 21,136 18,234 12,234 12,234 42,702 16.37 19.50 19.50 17.57 17.57 19.79 19.79 437,512 437,510 437,510 1,312,532 150,000 100,000 25,015 25,015 300,030 17.11 330,005 19.79 19.79 313,520 313,520 957,045 17.11 307,434 19.79 19.79 208,868 208,868 17.11 166,893 19.79 19.79 227,926 227,926 622,745 17.11 202,965 19.79 19.79 16.86 16.86 16.86 229,668 229,668 191,007 191,007 191,007 ‑ ‑ 218,755 218,755 100% 100% ‑ 18,750 100% 42,857 ‑ ‑ 100% 12,508 74,115 ‑ ‑ 156,760 156,760 ‑ ‑ 104,434 ‑ ‑ 113,963 113,963 ‑ ‑ 114,834 ‑ 100% 100% ‑ 100% 100% ‑ 100% 100% ‑ 100% 100% ‑ 190,987 100% 79,578 53,052 ‑ ‑ 725,170 104,434 1,235,322 438,450 17.11 234,606 19.79 19.79 17.11 19.79 19.79 317,418 317,418 869,442 97,504 152,762 152,762 403,028 17.11 312,020 19.79 19.79 242,116 242,116 796,252 ‑ ‑ 158,709 158,709 ‑ ‑ 76,381 76,381 ‑ ‑ 121,058 121,058 100% 100% ‑ 100% 100% ‑ 100% 100% ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 1. Notice by Lendlease for the first four years of employment is 12 months and reverts to 6 months notice by Lendlease thereafter. 1. The fair value at grant date is the value of the Deferred STI award (as advised to the executive). 2. At vesting, the minimum value is nil and the estimate of the maximum value is the fair value multiplied by the number of securities granted. 3. Johannes Dekker received a sign-on award reflecting remuneration foregone on resignation from his previous employer. The award is split into three tranches and has vested, or will vest, during the first, second and third years of his employment. Lendlease Annual Report 2020 Governance130 131 Fair Value Per Performance Security4 $ Total Fair Value At Grant Date1,2,3,4 $ Expense For the Year Ended 30 June 20 $ % Vested % Forfeited Name Plan (For the Year Ended) Grant Date Vesting Date Number Granted Fair Value Per Performance Security4 $ Total Fair Value At Grant Date1,2,3,4 $ Expense For the Year Ended 30 June 2020 $ % Vested % Forfeited Long Term Incentive Awards continued Total Current Senior Executives 982,338 14,066,173 1,815,454 Remuneration Report j. Equity based remuneration continued Long Term Incentive Awards Name Group CEO Plan (For the Year Ended) Grant Date Vesting Date Number Granted Stephen McCann June 2016 LTI (50%) Sept 2015 Sept 2019 101,818 June 2017 LTI (50%) Sept 2016 Sept 2019 122,440 June 2017 LTI (50%) Sept 2016 Sept 2020 122,440 June 2018 LTI (50%) Sept 2017 Sept 2020 100,388 June 2018 LTI (50%) Sept 2017 Sept 2021 100,388 June 2019 LTA (25%) Nov 2018 Sept 2021 44,476 June 2019 LTA (25%) Nov 2018 Sept 2022 44,476 June 2019 LTA (25%) Nov 2018 Sept 2023 44,476 June 2019 LTA (25%) Nov 2018 Sept 2024 44,476 June 2020 LTA (25%) Sept 2019 Sept 2022 64,240 June 2020 LTA (25%) Sept 2019 Sept 2023 64,240 June 2020 LTA (25%) Sept 2019 Sept 2024 64,240 June 2020 LTA (25%) Sept 2019 Sept 2025 64,240 Johannes Dekker⁵ June 2019 LTA (25%) Nov 2018 Sept 2021 19,234 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 Retention Award Jan 2019 Jan 2022 251,168 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 27,780 27,780 27,780 27,780 439,224 Total Tarun Gupta June 2016 LTI (50%) Sept 2015 Sept 2019 23,679 June 2017 LTI (50%) Sept 2016 Sept 2019 33,272 June 2017 LTI (50%) Sept 2016 Sept 2020 33,272 June 2018 LTI (50%) Sept 2017 Sept 2020 31,638 June 2018 LTI (50%) Sept 2017 Sept 2021 31,638 June 2019 LTA (25%) Nov 2018 Sept 2021 19,234 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 27,780 27,780 27,780 27,780 341,555 Total 11.49 11.49 11.49 11.49 11.94 22.08 22.08 22.08 22.08 10.56 11.33 11.44 13.07 13.23 11.49 11.49 11.49 11.49 22.08 22.08 22.08 22.08 1,075,198 (473,659) 1,387,245 (405,810) 16% 12% 84% 88% 10.56 11.33 11.44 13.07 13.23 9.94 9.94 9.94 9.94 22.55 22.55 22.55 22.55 1,400,714 1,312,071 1,328,133 442,091 442,091 442,091 442,091 1,448,612 1,448,612 1,448,612 1,448,612 350,178 382,208 386,889 107,271 107,271 107,271 107,271 286,641 286,641 286,641 286,641 220,999 220,999 220,999 220,999 53,624 53,624 53,624 53,624 3,000,000 1,000,000 613,382 613,382 613,382 613,382 121,399 121,399 121,399 121,399 6,337,524 1,700,092 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 250,050 376,972 (110,142) (110,278) 16% 12% 84% 88% 380,632 95,158 413,509 418,571 220,999 220,999 220,999 220,999 613,382 613,382 613,382 613,382 37,962 121,931 53,624 53,624 53,624 53,624 121,399 121,399 121,399 121,399 5,177,258 734,723 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 1. For LTI: at vesting, the minimum value is nil and the estimate of the maximum value is the fair value multiplied by the number of securities granted. 2. For the LTA for the Group CEO: at vesting, the estimate of the minimum value is the fair value multiplied by 13.5% of the number of performance rights granted and the estimate of the maximum value is the fair value multiplied by 150% of the number of performance rights granted. Please refer to page 126 for more details. 3. For the LTA for other senior executives: at vesting, the estimate of the minimum value is the fair value multiplied by 31.25% of the number of performance rights granted and the estimate of the maximum value is the fair value multiplied by 200% of the number of performance rights granted. Please refer to page 126 for more details. 4. The fair value at grant date represents an actuarial valuation of the award, including the RSA (previously LTA Minimum), using assumptions underlying the Black-Scholes methodology to produce a Monte-Carlo simulation model in accordance with Australian Accounting Standards rounded to two decimal places. 5. Johannes Dekker received a retention award relating to the strategic review of the Engineering and Services businesses. Current Senior Executives continued Denis Hickey June 2016 LTI (50%) Sept 2015 Sept 2019 16,576 June 2017 LTI (50%) Sept 2016 Sept 2019 22,626 June 2017 LTI (50%) Sept 2016 Sept 2020 22,626 June 2018 LTI (50%) Sept 2017 Sept 2020 21,904 June 2018 LTI (50%) Sept 2017 Sept 2021 21,904 June 2019 LTA (25%) Nov 2018 Sept 2021 19,234 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 27,780 27,780 27,780 27,780 293,692 Total Anthony Lombardo June 2016 LTI (50%) Sept 2015 Sept 2019 23,679 June 2017 LTI (50%) Sept 2016 Sept 2019 June 2017 LTI (50%) Sept 2016 Sept 2020 26,618 26,618 June 2018 LTI (50%) Sept 2017 Sept 2020 24,034 June 2018 LTI (50%) Sept 2017 Sept 2021 24,034 June 2019 LTA (25%) Nov 2018 Sept 2021 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 Total Neil Martin June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 Total 27,780 27,780 27,780 27,780 313,039 17,362 17,362 17,362 17,362 69,448 10.56 11.33 11.44 13.07 13.23 11.49 11.49 11.49 11.49 22.08 22.08 22.08 22.08 10.56 11.33 11.44 13.07 13.23 11.49 11.49 11.49 11.49 22.08 22.08 22.08 22.08 22.08 22.08 22.08 22.08 175,043 (77,106) 256,353 (74,979) 16% 12% 84% 88% 258,841 286,285 289,790 220,999 220,999 220,999 220,999 613,382 613,382 613,382 613,382 4,603,836 250,050 301,582 304,510 314,124 317,970 220,999 220,999 220,999 220,999 613,382 613,382 613,382 613,382 64,710 18,196 84,417 53,624 53,624 53,624 53,624 121,399 121,399 121,399 121,399 715,330 (110,142) (88,219) 76,128 21,907 92,626 53,624 53,624 53,624 53,624 121,399 121,399 121,399 121,399 4,825,760 692,392 383,353 383,353 383,353 383,353 75,872 75,872 75,872 75,872 1,533,412 303,488 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 16% 12% 84% 88% ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Lendlease Annual Report 2020 Governance132 133 Remuneration Report j. Equity based remuneration continued Long Term Incentive Awards continued Name Plan (For the Year Ended) Grant Date Vesting Date Number Granted Current Senior Executives continued Kylie Rampa June 2016 LTI (50%) Sept 2015 Sept 2019 9,472 June 2017 LTI (50%) Sept 2016 Sept 2019 19,165 June 2017 LTI (50%) Sept 2016 Sept 2020 19,165 June 2018 LTI (50%) Sept 2017 Sept 2020 21,904 June 2018 LTI (50%) Sept 2017 Sept 2021 21,904 June 2019 LTA (25%) Nov 2018 Sept 2021 19,234 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 27,780 27,780 27,780 27,780 279,666 Total David Andrew Wilson⁶ DE Award (50%) DE Award (50%) May 2016 May 2021 80,000 May 2016 May 2023 80,000 June 2016 LTI (50%) Sept 2015 Sept 2019 14,208 June 2017 LTI (50%) Sept 2016 Sept 2019 June 2017 LTI (50%) Sept 2016 Sept 2020 15,971 15,971 June 2019 LTA (25%) Nov 2018 Sept 2021 19,234 June 2019 LTA (25%) Nov 2018 Sept 2022 19,234 June 2019 LTA (25%) Nov 2018 Sept 2023 19,234 June 2019 LTA (25%) Nov 2018 Sept 2024 19,234 June 2020 LTA (25%) Sept 2019 Sept 2022 June 2020 LTA (25%) Sept 2019 Sept 2023 June 2020 LTA (25%) Sept 2019 Sept 2024 June 2020 LTA (25%) Sept 2019 Sept 2025 Total Former Senior Executive Daniel Labbad7 June 2016 LTI (50%) Sept 2015 Sept 2019 June 2017 LTI (50%) Sept 2016 Sept 2019 June 2017 LTI (50%) Sept 2016 Sept 2020 June 2018 LTI (50%) Sept 2017 Sept 2020 June 2018 LTI (50%) Sept 2017 Sept 2021 June 2019 LTA (25%) Nov 2018 Sept 2021 June 2019 LTA (25%) Nov 2018 Sept 2022 June 2019 LTA (25%) Nov 2018 Sept 2023 June 2019 LTA (25%) Nov 2018 Sept 2024 27,780 27,780 27,780 27,780 394,206 18,943 27,683 27,683 27,076 27,076 19,234 19,234 19,234 19,234 Fair Value Per Performance Security4 $ Total Fair Value At Grant Date1,2,3,4 $ Expense For the Year Ended 30 June 2020 $ % Vested % Forfeited 10.56 11.33 11.44 13.07 13.23 11.49 11.49 11.49 11.49 22.08 22.08 22.08 22.08 13.42 13.42 10.56 11.33 11.44 11.49 11.49 11.49 11.49 22.08 22.08 22.08 22.08 10.56 11.33 11.44 13.07 13.23 11.49 11.49 11.49 11.49 100,024 217,139 (44,059) (63,509) 16% 12% 84% 88% 219,248 54,812 286,285 289,790 220,999 220,999 220,999 220,999 613,382 613,382 613,382 613,382 18,196 84,417 53,624 53,624 53,624 53,624 121,399 121,399 121,399 121,399 4,450,010 749,949 1,073,600 1,073,600 150,036 180,951 182,708 220,999 220,999 220,999 220,999 613,382 613,382 613,382 613,382 214,781 153,415 (66,094) (52,934) 45,676 53,624 53,624 53,624 53,624 121,399 121,399 121,399 121,399 5,998,419 994,936 200,038 313,648 316,694 353,883 358,215 220,999 220,999 220,999 220,999 (88,118) (91,743) 92,368 44,437 166,773 185,249 185,249 185,249 185,249 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 16% 12% 84% 88% ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 16% 12% 84% 88% ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Total 205,397 2,426,474 864,712 Equity holdings and transactions for the year ended 30 June 2020 Number of Securities Required Under the Mandatory Securityholding at Period End1 Securities Held at Beginning of Financial Year Year Securities Received During the Year² Other Net Change to Securities Securities Held at End Of Financial Year Group CEO Stephen McCann Current Senior Executives Johannes Dekker Tarun Gupta Denis Hickey4 Anthony Lombardo Neil Martin Kylie Rampa David Andrew Wilson Former Senior Executive Daniel Labbad5 Total Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 248,000 169,500 90,000 62,000 90,000 62,000 60,000 76,000 84,000 54,000 75,000 90,000 62,000 94,000 64,000 66,000 750,018 766,136 14,225 116,411 158,332 61,443 49,063 110,654 136,708 ‑ 61,925 11,478 49,364 22,997 67,001 67,001 1,231,041 1,211,715 88,709 213,386 ‑ (229,504) 12,892 14,225 73,913 78,079 24,192 37,494 29,906 61,614 18,391 35,216 50,447 23,346 49,210 20,642 33,184 327,207 537,639 ‑ ‑ (120,000) (57,000) (25,114) (79,906) (87,668) (18,391) (50,080) ‑ (22,843) ‑ (33,184) (205,377) (518,313) 838,727 750,018 27,117 14,225 190,324 116,411 28,635 61,443 60,654 110,654 ‑ 47,061 61,925 72,710 49,364 Total Securities/ Performance Rights That May Count Towards the Mandatory Securityholding Requirement 897,447 774,042 85,893 38,273 249,100 140,459 87,411 85,491 119,430 134,702 21,704 105,837 85,973 131,486 73,412 RSA³ 58,720 24,024 58,776 24,048 58,776 24,048 58,776 24,048 58,776 24,048 21,704 58,776 24,048 58,776 24,048 87,643 67,001 1,352,871 1,231,014 24,048 24,048 457,128 192,360 111,691 91,049 1,809,999 1,423,401 Loans to KMP No loans were made to KMP or their related parties during the current year or prior year. Other transactions with KMP From time to time, Directors and executives of Lendlease or its consolidated entities, or parties related to them, may purchase goods from the Consolidated Entity. These purchases are on terms and conditions no more favourable than those entered into by unrelated customers. 6. David Andrew Wilson was granted a Distinguished Executive (DE) Award in May 2016 that vests in two equal tranches over five and seven years. Refer to Note 33(e) of the Notes to Consolidated Financial Statements. 7. Daniel Labbad ceased as a KMP on 9 September 2019. The expense for the year ended 30 June 2020 reflects the full entitlement to unvested LTI and LTA which would otherwise have been included in future year disclosures and may not vest. These unvested awards remain on foot and subject to the original vesting conditions. 1. Mandatory securityholding requirements are reviewed in August each year. The mandatory securityholding requirement for Neil Martin was set for the first time in September 2019 when he was appointed to the Chief Executive Officer, Europe role. As part of the Group’s response to COVID-19, Denis Hickey requested a temporary release from the applicable mandatory securityholding requirement and the reduced mandatory securityholding requirement (50% of the original mandatory securityholding requirement) has been reflected for 2020. 2. For senior executives, securities received relate to security entitlements under employee benefit vehicles. 3. Under the RSA (previously LTA Minimum), performance rights will vest over a period of up to six years. This number of performance rights counts towards mandatory securityholding requirements. 4. The 2019 comparative for Denis Hickey has been restated from 37,494 to 61,443 to include a correction to his securityholding. 5. Daniel Labbad ceased as a KMP on 9 September 2019. The end balance of securities for 2020 represents the balance held at that date. Lendlease Annual Report 2020 Governance134 135 Remuneration Report k. Non Executive Directors Non Executive Directors’ fees Non Executive Directors receive a Board fee and fees for chairing or participating on Board committees. The Chairman does not receive extra fees for participating on committees. The maximum aggregate remuneration payable to Non Executive Directors is $3.5 million per year, as approved at the 2015 Annual General Meeting. Board and committee fees Chair Fee A$ Member Fee A$ Board 640,000 160,000 Nomination Committee People & Culture Committee Risk Committee Audit Committee Sustainability Committee 36,000 Nil 48,000 36,000 48,000 Nil 48,000 36,000 48,000 36,000 Board and committee fees are paid as cash. Superannuation contributions are paid in addition to the Board and committee fees outlined above in accordance with superannuation legislation and are capped at the Maximum Superannuation Contribution Base. The current Non Executive Directors are not entitled to retirement benefits other than superannuation. However, some former Non Executive Directors¹ have retirement benefits or securities which were previously accrued. There were no increases to NED fees during FY20. As an international company and having regard to the material scale of individual projects, the Board program is formulated to reflect the geographic spread of the Lendlease businesses. Board meetings are scheduled in Australia and in each of the regions where Lendlease operates. Generally, the program runs over two or three days and includes a number of activities outside of the formal meeting. These include business briefings, presentations from external sources, project site visits, client meetings and networking events with employees and key stakeholders. Where deeper project reviews are required, the program may take up to five days. The program is an important element of the Board’s activities to enable the Non Executive Directors to obtain the required deep understanding of operations within the regions. All Non Executive Directors may be required to travel to attend Board meetings. This can involve significant additional time, particularly when visiting project sites in the regions where Lendlease operates. Where significant additional time has been spent travelling to fulfil the requirements of the program, fees are paid to compensate Non Executive Directors for the extra time commitment. Travel Fees Travel less than 4 hours Travel between 4 and 10 hours Travel over 10 hours Fee (Each Way) A$ Nil 2,800 6,000 The table below sets out fees paid to Non Executive Directors during 2020 and 2019. A$000s Year Base Fees1 Short Term Benefits Committee Chair Fees Committee Membership Fees Post Employment Benefits Travel Fees Superannuation2 Total Non Executive Directors Michael Ullmer Colin Carter Philip Coffey David Craig Margaret Ford3 Jane Hemstritch Elizabeth Proust Nicola Wakefield Evans Robert Welanetz4 Former Non Executive Directors Phillip Colebatch5 David Crawford6 Steve Dobbs7 Total Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 2020 2019 2019 2020 2019 2020 2019 629 460 157 160 157 160 157 160 51 157 160 157 160 160 160 51 67 267 67 160 1,743 1,914 ‑ 20 36 36 48 24 48 48 ‑ 20 48 28 ‑ 48 24 ‑ ‑ ‑ ‑ ‑ ‑ 15 72 72 72 72 36 36 21 57 36 51 60 36 54 21 30 ‑ 30 72 228 200 396 447 18 36 6 24 18 36 18 36 12 18 36 18 36 18 36 12 24 24 40 63 178 351 21 21 21 21 21 21 21 21 7 21 21 21 21 21 21 7 9 9 9 21 170 186 668 552 292 313 316 313 280 301 91 273 301 275 277 283 295 91 130 300 146 316 2,715 3,098 1. Applies to David Crawford and Phillip Colebatch. 1. Non Executive Directors were able to temporarily reduce their base fees by 20% from 1 June 2020 as part of the Group’s response to COVID-19. 2. Directors have superannuation contributions paid on their behalf in accordance with superannuation legislation. 3. Margaret Ford was appointed as a Non Executive Director on 1 March 2020. 4. Robert Welanetz was appointed as a Non Executive Director on 1 March 2020. 5. Phillip Colebatch ceased to be a Non Executive Director on 16 November 2018. 6. David Crawford ceased to be Chairman and Non Executive Director on 16 November 2018. 7. Steve Dobbs ceased to be a Non Executive Director on 20 November 2019. Lendlease Annual Report 2020 Governance136 137 Remuneration Report k. Non Executive Directors continued Non Executive Directors’ equity holdings Non Executive Directors Michael Ullmer Colin Carter Philip Coffey David Craig Margaret Ford1 Jane Hemstritch Elizabeth Proust Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 Nicola Wakefield Evans 2020 Robert Welanetz² 2019 2020 Former Non Executive Directors Phillip Colebatch³ David Crawford⁴ Steve Dobbs⁵ Total6 Total 2019 2019 2020 2019 2020 2019 Securities Held at Beginning of Financial Year Other Net Change to Securities Securities Held at End of Financial Year 100,000 50,000 15,000 15,000 9,810 9,810 50,000 24,870 ‑ 20,000 20,000 25,000 10,000 30,248 16,766 ‑ 18,323 81,315 12,000 12,000 262,058 260,084 10,000 50,000 3,061 ‑ 11,406 ‑ 13,061 25,130 4,065 3,061 ‑ 28,061 15,000 3,772 13,482 7,000 ‑ 1,017 ‑ ‑ 83,487 104,629 110,000 100,000 18,061 15,000 21,216 9,810 63,061 50,000 4,065 23,061 20,000 53,061 25,000 34,020 30,248 7,000 18,323 84,332 12,000 12,000 345,545 364,713 Purchase of Lendlease securities by Non Executive Directors The current Non Executive Directors acquired Lendlease securities using their own funds. 1. As Margaret Ford was appointed as a Non Executive Director on 1 March 2020 a nil opening balance has been shown. 2. As Robert Welanetz was appointed as a Non Executive Director on 1 March 2020 a nil opening balance has been shown. 3. Phillip Colebatch ceased to be a Non Executive Director on 16 November 2018. The end balance of securities for 2019 represents the balance held at that date. 4. David Crawford ceased to be a Non Executive Director on 16 November 2018. The end balance of securities for 2019 represents the balance held at that date. 5. Steve Dobbs ceased to be a Non Executive Director on 20 November 2019. The end balance of securities for 2020 represents the balance held at that date. 6. The 2020 opening balance excludes the securities held by Phillip Colebatch (18,323) and David Crawford (84,332) given that they both ceased to be Non Executive Directors in the 2019 financial year. This page is intentionally left blank. Lendlease Annual Report 2020 Governance138 Lendlease Annual Report 2020 Governance 139 Directors’ Report The Directors’ Report for the financial year ended 30 June 2020 has been prepared in accordance with the requirements of the Corporations Act 2001. The information below forms part of this Directors’ Report: • Principal activities on page 5 • Operating and Financial Review on pages 4 to 89 incorporating the Performance and Outlook on pages 76 to 89 • Biographical information for the Directors and Company Secretary on pages 92 to 97 • Officers who were previously partners of the audit firm on page 97 • Directors’ interests in capital on page 104 • Board and committee meetings and attendance on pages 104 to 105 • Remuneration Report on pages 106 to 137 • Lead Auditor’s Independence Declaration on page 140. a. Dividends/Distributions The 2019 final dividend/distribution of $169 million (30.0 cents per security, unfranked) referred to in the Directors’ Report dated 19 August 2019, was paid on 16 September 2019. Details of dividends/distributions in respect of the current year are as follows: Interim dividends/distributions of 30.0 cents per security (unfranked) paid on 17 March 20201 Final dividends/distributions of 3.3 cents per security (unfranked) declared by Directors to be payable on 15 September 20202 Total dividends/distributions 1. Comprised of an unfranked dividend of 22.1 cents per share paid by the Company and an unfranked trust distribution of 7.9 cents per unit paid by Lendlease Trust. 2. Comprised of an unfranked trust distribution of 3.3 cents per unit payable by Lendlease Trust. $m 169 22 191 b. Significant Changes in State of Affairs There have been no significant changes in the Group’s state of affairs. c. Events Subsequent to Balance Date On 1 July 2020, the Group disposed of a 25 per cent interest in One Sydney Harbour R1 Trust. The Group recorded a gain on sale of $19 million (net of transaction costs). The remaining 75 per cent interest retained by the Group provided a revaluation of $128 million based on the transaction price. d. Security Options No security options were issued during the year by the Company or any of its controlled entities, and there are no such options on issue. e. Indemnification and Insurance of Directors and Officers Rule 12 of the Company’s Constitution provides for indemnification in favour of each of the Directors named on pages 92 to 97 of this report, the officers of the Company or of wholly owned subsidiaries or related entities of the Company (Officers) to the extent permitted by the Corporations Act 2001. Rule 12 does not indemnify a Director, Company Secretary or Officer for any liability involving a lack of good faith. In conformity with Rule 12 of the Company’s Constitution, the Company has entered into Deeds of Indemnity, Insurance and Access with each of the Directors named on pages 92 to 97 of this report and for officers of the Company and Directors of related entities of the Company. The indemnities operate to the full extent permitted by law and are not subject to a monetary limit. The Company is not aware of any liability having arisen, and no claims have been made during or since the financial year under the Deeds of Indemnity, Insurance and Access. For unrelated entities in which the Group has an interest, Deeds of Indemnity may be entered into between Lendlease Corporation Limited and the Director or Officer. Since the date of the last report, the Company has not entered into any separate Deeds of Indemnity with a Director or Officer of an unrelated entity. No indemnity has been granted to an auditor of the Company in their capacity as auditor of the Company. In accordance with the Corporations Act 2001, Rule 12 of the Constitution also permits the Company to purchase and maintain insurance or pay or agree to pay a premium for insurance for Officers against any liability incurred as an Officer of the Company or of a related body corporate. This may include a liability for reasonable costs and expenses incurred in defending proceedings, whether civil or criminal, and whatever their outcome. Due to confidentiality obligations and undertakings of the policy, no further details in respect of the premium or policy can be disclosed. f. Environmental Regulation The Group is subject to various state and federal environmental regulations in Australia. The Directors are not aware of any material non compliance with environmental regulations pertaining to the operations or activities during the period covered by this report. In addition, the Lendlease Group is registered and publicly reports the annual performance of its Australian operations under the requirements of the National Greenhouse and Energy Reporting (NGER) Act 2007 and Energy Efficiency Opportunities (EEO) Act 2006. All Lendlease businesses continue to operate an integrated Environment, Health and Safety Management System, ensuring that non compliance risks and opportunities for environmental improvements are identified, managed and reported accordingly. g. Non Audit Services During the year, KPMG, the Company’s auditor, performed certain other services in addition to its statutory duties. The Board has considered the other services provided during the year by the auditor and, in accordance with written advice provided by resolution of the Audit Committee, is satisfied that the provision of those services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All other services were subject to the corporate governance procedures adopted by the Group and the Audit Committee is satisfied that those services do not impact the integrity and objectivity of the auditor The other services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. A copy of the Lead Auditor's Independence Declaration, as required under Section 307C of the Corporations Act 2001, is included at the end of the Directors’ Report. Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and other services provided during the year are set out below. Audit and Other Assurance Services Audit services Other assurance services Total audit and other assurance services Non audit services Total audit, non audit and other assurance services Consolidated June 2020 $000s June 2019 $000s 7,233 524 7,757 557 8,314 7,141 495 7,636 714 8,350 h. Rounding Off Lendlease Corporation Limited is a company of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 dated 24 March 2016 and, in accordance with that Instrument, amounts in the Consolidated Financial Statements and this report have been rounded off to the nearest million dollars unless specifically stated to be otherwise. This report is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors. M J Ullmer, AO Chairman S B McCann Group Chief Executive Officer and Managing Director Sydney, 17 August 2020 Sydney, 17 August 2020 140 Lendlease Annual Report 2020 Governance 141 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Lendlease Corporation Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Lendlease Corporation Limited for the financial year ended 30 June 2020 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG D M McLennan Partner Sydney 17 August 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. This page is intentionally left blank.               142 Lendlease Annual Report 2020 Financial Statements 143 Financial Statements Boston: Clippership Wharf A vibrant mixed use community on the East Boston waterfront. 144 145 Financial Statements Table of Contents Consolidated Financial Statements Income Statement Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Consolidated Financial Statements Notes Index Section A: Performance 1. Segment Reporting 2. Dividends/Distributions 3. 4. 5. Earnings Per Share/Stapled Security Revenue from Contracts with Customers Share of Profit of Equity Accounted Investments 6. Other Income 7. Other Expenses 8. 9. Finance Revenue and Finance Costs Taxation 10. Events Subsequent to Balance Date Section B: Investment 11. Inventories 12. Equity Accounted Investments 13. Other Financial Assets Section C: Liquidity and Working Capital 14. Cash and Cash Equivalents 15. Notes to Statement of Cash Flows 16. Borrowings and Financing Arrangements 17. Issued Capital 18. Capital Management 19. Liquidity Risk Exposure 20. Commitments 21. Loans and Receivables 22. Trade and Other Payables Section D: Risk Management 23. Financial Risk Management 24. Hedging 25. Fair Value Measurement 26. Contingent Liabilities Section E: Basis of Consolidation 27. Consolidated Entities 28. Employee Benefit Vehicles 29. Parent Entity Disclosures 30. Related Party Information Section F: Other Notes 31. Intangible Assets 32. Discontinued Operations 33. Defined Benefit Plans 34. Employee Benefits 35. Impact of New and Revised Accounting Standards 36. Other Significant Accounting Policies Directors’ Declaration 145 146 147 148 150 151 152 155 155 156 158 158 159 161 162 165 166 167 172 173 174 174 176 177 177 178 179 180 182 184 185 186 187 188 189 190 192 194 196 199 202 204 205 Lendlease Corporation Limited (the Company) is incorporated and domiciled in Australia. The consolidated financial report of the Company for the financial year ended 30 June 2020 comprises the Company and its controlled entities including Lendlease Trust (LLT) (together referred to as the consolidated entity or the Group). The Group is a for profit entity and is an international property and investments group. Further information about the Group’s primary activities is included in Note 1 ‘Segment Reporting’. Shares in the Company and units in LLT are traded as one security under the name of Lendlease Group on the Australian Securities Exchange (ASX). The Company is deemed to control LLT for accounting purposes and therefore LLT is consolidated into the Group’s financial report. The issued units of LLT, however, are not owned by the Company and are therefore presented separately in the consolidated entity Statement of Financial Position within equity, notwithstanding that the unitholders of LLT are also the shareholders of the Company. The consolidated financial report was authorised for issue by the Directors on 17 August 2020. Consolidated Financial Statements Income Statement Year Ended 30 June 2020 Revenue from contracts with customers Other revenue Cost of sales Gross profit Share of profit of equity accounted investments Other income Other expenses Results from operating activities from continuing operations Finance revenue Finance costs Net finance costs (Loss)/Profit before tax from continuing operations Income tax benefit/(expense) (Loss)/Profit after tax from continuing operations Profit/(loss) after tax from discontinued operations (Loss)/Profit after tax (Loss)/Profit after tax attributable to: Members of Lendlease Corporation Limited Unitholders of Lendlease Trust (Loss)/Profit after tax attributable to securityholders External non controlling interests (Loss)/Profit after tax Basic/Diluted Earnings per Lendlease Group Stapled Security (EPSS) from Continuing Operations Shares excluding treasury shares Shares on issue Basic/Diluted Earnings per Lendlease Group Stapled Security (EPSS) Securities excluding treasury securities Securities on issue (cents) (cents) (cents) (cents) Note June 2020 $m June 20191,2 $m 4 5 6 8 8 9 32 32 32 3 3 11,671 163 14,889 152 (11,361) (13,929) 473 (13) 352 (1,195) (383) 12 (165) (153) (536) 194 (342) 32 (310) (342) 32 (310) - (310) (57.1) (56.7) (51.8) (51.4) 1,112 338 293 (863) 880 17 (142) (125) 755 (198) 557 (90) 467 313 154 467 - 467 95.4 94.7 80.0 79.4 1. June 2019 balances have been restated for discontinued operations during the year. Refer to Note 32 ‘Discontinued Operations’ for further detail. 2. As required under AASB 133 Earnings per Share, the 30 June 2019 weighted average number of ordinary shares and the weighted average number of stapled securities have been updated to reflect the new stapled securities issued via the institutional placement and Security Purchase Plan during the year. The Basic/Diluted EPS and Basic/Diluted EPSS have been restated to reflect this change. The accompanying notes form part of these consolidated financial statements. Lendlease Annual Report 2020 Financial Statements146 147 Note June 2020 $m June 20192 $m (310) 467 Consolidated Financial Statements continued Statement of Comprehensive Income Year Ended 30 June 2020 (Loss)/Profit after Tax Other Comprehensive Income/(Expense) After Tax Items that may be reclassified subsequently to profit or loss: Movements in hedging reserve Movements in foreign currency translation reserve Total items that may be reclassified subsequently to profit or loss1 Items that will not be reclassified to profit or loss: Movements in non controlling interest acquisition reserve Defined benefit plans remeasurements Total items that will not be reclassified to profit or loss Total comprehensive (expense)/income after tax 9b 9b 9b 9b Total comprehensive (expense)/income after tax from continued operations attributable to: Members of Lendlease Corporation Limited Unitholders of Lendlease Trust Total comprehensive (expense)/income after tax from discontinued operations attributable to: Members of Lendlease Corporation Limited Total comprehensive (expense)/income after tax attributable to securityholders External non controlling interests Total comprehensive (expense)/income after tax Includes $(39) million (June 2019: $3 million) relating to share of other comprehensive income of equity accounted investments. 1. 2. June 2019 balances have been restated for discontinued operations during the year. Refer to Note 32 ‘Discontinued Operations’ for further detail. (19) (5) (24) (1) 13 12 (322) (381) 27 32 (322) ‑ (322) (61) 92 31 (5) (39) (44) 454 390 154 (90) 454 ‑ 454 Statement of Financial Position As at 30 June 2020 Current Assets Cash and cash equivalents Loans and receivables Inventories Other financial assets Current tax assets Other assets Disposal Group assets held for sale Total current assets Non Current Assets Loans and receivables Inventories Equity accounted investments Investment properties Other financial assets Deferred tax assets Property, plant and equipment Intangible assets Defined benefit plan asset Other assets Total non current assets Total assets Current Liabilities Trade and other payables Provisions Borrowings and financing arrangements Other financial liabilities Disposal Group liabilities held for sale Total current liabilities Non Current Liabilities Trade and other payables Provisions Borrowings and financing arrangements Other financial liabilities Deferred tax liabilities Total non current liabilities Total liabilities Net assets Equity Issued capital Treasury securities Reserves Retained earnings The accompanying notes form part of these consolidated financial statements. The accompanying notes form part of these consolidated financial statements. Total equity attributable to members of Lendlease Corporation Limited Total equity attributable to unitholders of Lendlease Trust Total equity attributable to securityholders External non controlling interests Total equity Note June 2020 $m June 2019 $m 14 21 11 13 32 21 11 12 13 9c 31 33 22 16a 32 22 16a 9c 17 1, 1 1 1 1,667 2,256 16 27 59 841 1,290 2,050 2,238 97 11 70 ‑ 5,977 5,756 744 3,113 3,671 658 1,076 141 693 1,457 156 62 11,771 17,748 4,496 343 134 10 670 688 3,345 3,452 501 1,103 101 548 1,457 140 87 11,422 17,178 5,724 332 225 6 ‑ 5,653 6,287 2,405 62 2,261 1 434 5,163 10,816 6,932 1,889 (68) 65 3,265 5,151 1,756 6,907 25 6,932 1,401 45 2,490 1 597 4,534 10,821 6,357 1,300 (68) 105 3,815 5,152 1,182 6,334 23 6,357 Lendlease Annual Report 2020 Financial Statements148 Consolidated Financial Statements continued Statement of Changes in Equity Year Ended 30 June 2020 Balance as at 1 July 2018 Total Comprehensive Income Profit for the period Other comprehensive income (net of tax) Total comprehensive income Other Comprehensive Income (Net of Tax) Net investment hedging Effect of foreign exchange movements Effective cash flow hedges Defined benefit plans remeasurements Other comprehensive income (net of tax) Transactions with Owners of the Company Capital contributed by non controlling interests Distribution Reinvestment Plan (DRP) On market buyback of securities Dividends and distributions Treasury securities acquired Treasury securities vested Fair value movement on allocation and vesting of securities Asset disposal and transfers Other movements Total other movements through reserves Balance as at 30 June 2019 Impact of change in accounting policy 1 Balance as at 1 July 2019 Total Comprehensive Income Profit for the period Other comprehensive income (net of tax) Total comprehensive income Other Comprehensive Income (Net of Tax) Net investment hedging Effect of foreign exchange movements Effective cash flow hedges Defined benefit plans remeasurements Other comprehensive income (net of tax) Transactions with Owners of the Company Capital contributed by non controlling interests Distribution Reinvestment Plan (DRP) Share issue via institutional placement (net of transaction costs)2 Share issue via Security Purchase Plan (net of transaction costs)3 Dividends and distributions Treasury securities acquired Treasury securities vested Fair value movement on allocation and vesting of securities Transfer as a result of asset disposal4 Other movements Total other movements through reserves Balance as at 30 June 2020 Issued Capital $m 1,297 Treasury Securities5 $m (44) Hedging Reserve $m (23) ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ 3 ‑ ‑ ‑ ‑ ‑ ‑ ‑ 3 1,300 ‑ 1,300 ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ 9 454 126 ‑ ‑ ‑ ‑ ‑ ‑ 589 1,889 ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ (57) 33 ‑ ‑ ‑ (24) (68) ‑ (68) ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ (52) 52 ‑ ‑ ‑ - (68) ‑ (61) (61) ‑ ‑ (61) ‑ (61) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - (84) ‑ (84) ‑ (19) (19) ‑ ‑ (19) ‑ (19) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 7 ‑ 7 (96) RESERVES Foreign Currency Translation Reserve $m (25) ‑ 92 92 (8) 100 ‑ ‑ 92 ‑ ‑ ‑ ‑ ‑ ‑ ‑ 1 ‑ 1 68 ‑ 68 ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (30) ‑ (30) 38 Non Controlling Interest Acquisition Reserve $m (92) Other Reserve $m 106 Equity Compensation Reserve $m 95 Retained Earnings $m 3,855 Members of Lendlease Corporation Limited $m Unitholders of Lendlease Trust $m 5,169 1,244 ‑ (5) (5) ‑ (5) ‑ ‑ (5) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - (97) ‑ (97) ‑ (1) (1) ‑ (1) ‑ ‑ (1) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - 106 ‑ 106 ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ 17 ‑ ‑ 17 112 ‑ 112 ‑ ‑ - ‑ ‑ ‑ ‑ - ‑ ‑ ‑ ‑ ‑ ‑ ‑ 3 ‑ ‑ 3 (98) 106 115 313 (39) 274 ‑ ‑ ‑ (39) (39) ‑ ‑ (140) (174) ‑ ‑ ‑ ‑ ‑ (314) 3,815 (42) 3,773 (342) 13 (329) ‑ ‑ ‑ 13 13 ‑ ‑ ‑ ‑ (178) ‑ ‑ ‑ ‑ (1) (179) 3,265 313 (13) 300 (8) 95 (61) (39) (13) ‑ 3 (140) (174) (57) 33 17 1 ‑ (317) 5,152 (42) 5,110 (342) (7) (349) ‑ (1) (19) 13 (7) ‑ 9 454 126 (178) (52) 52 3 (23) (1) 390 5,151 154 ‑ 154 ‑ ‑ ‑ ‑ - ‑ 1 (34) (183) ‑ ‑ ‑ ‑ ‑ (216) 1,182 ‑ 1,182 32 (5) 27 ‑ (5) ‑ ‑ (5) ‑ 2 479 134 (67) ‑ ‑ ‑ ‑ (1) 547 1,756 149 Total Equity $m 6,414 467 (13) 454 (8) 95 (61) (39) (13) 22 4 (174) (357) (57) 33 17 1 ‑ (511) 6,357 (42) 6,315 (310) (12) (322) ‑ (6) (19) 13 (12) 2 11 933 260 (245) (52) 52 3 (23) (2) 939 External Non Controlling Interests $m 1 ‑ ‑ - ‑ ‑ ‑ ‑ - 22 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 22 23 ‑ 23 ‑ ‑ - ‑ ‑ ‑ ‑ - 2 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 2 25 6,932 June 2020 Statement of Changes in Equity has been adjusted to reflect the impact of the first time adoption of AASB 16 Leases (refer to Note 35 ‘Impact of New and Revised Accounting 1. Standards’ for further detail) by recording $(42) million to opening retained earnings. 2. On 4 May 2020 the Group issued 97 million new stapled securities via an institutional placement at an issue price of $9.80. 3. On 4 June 2020 the Group issued 27 million new stapled securities via a Security Purchase Plan at an issue price of $9.80. 4. These movements in reserves were transferred to profit and loss in the year. 5. Opening balance for number of treasury securities 1 July 2019 was 4 million (1 July 2018: 4 million) and closing balance at 30 June 2020 was 4 million. The accompanying notes form part of these consolidated financial statements. Lendlease Annual Report 2020 Financial Statements150 151 Consolidated Financial Statements continued Notes to Consolidated Financial Statements Note June 20203 $m June 20193 $m • Has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board, and the Corporations Act 2001 Basis of Preparation The consolidated financial report is a general purpose financial report which: Statement of Cash Flows Year Ended 30 June 2020 Cash Flows from Operating Activities Cash receipts in the course of operations Cash payments in the course of operations Interest received Interest paid in relation to other corporations Interest in relation to lease liabilities1 Dividends/distributions received Income tax paid in respect of operations Net cash provided by operating activities Cash Flows from Investing Activities Sale/redemption of investments Acquisition of investments Acquisition of/capital expenditure on investment properties Net loan drawdowns from associates and joint ventures Disposal of consolidated entities (net of cash disposed and transaction costs) Disposal of property, plant and equipment Acquisition of property, plant and equipment Acquisition of intangible assets Net cash (used in)/provided by investing activities Cash Flows from Financing Activities Net proceeds from share issue Proceeds from borrowings Repayment of borrowings Dividends/distributions paid Payments for on market buyback of stapled securities Payments for on market buyback of stapled securities – Distribution Reinvestment Plan Increase in capital of non controlling interests Repayment of lease liabilities1 Net cash provided by/(used in) financing activities Other Cash Flow Items Effect of foreign exchange rate movements on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year2 14 1. June 2019 comparatives $nil as Interest in relation to lease liabilities and Repayment of lease liabilities were not recognised under AASB 117 Leases. Operating lease expenses were recorded as Cash payments in the course of operations. Refer to Note 35 ‘Impact of New and Revised Accounting Standards’ for further detail. 2. $451 million of Cash and cash equivalents has been classified as Disposal Group assets held for sale at 30 June 2020. Refer to Note 14 ‘Cash and Cash Equivalents’ for further detail. 3. Balances include cash flows relating to both continuing and discontinued operations. Net cash flows relating to discontinued operations have been disclosed in Note 32 ‘Discontinued Operations’. The accompanying notes form part of these consolidated financial statements. 15 17 13,488 (13,313) 17,026 (16,902) 16 (164) (25) 146 (11) 137 448 (709) (57) (9) 136 11 (112) (77) (369) 1,193 4,658 (4,970) (327) ‑ ‑ 2 (61) 495 9 272 1,290 1,562 13 (152) ‑ 105 (30) 60 571 (378) (53) (22) 266 14 (165) (66) 167 ‑ 4,640 (4,347) (258) (174) (11) 22 ‑ (128) 14 113 1,177 1,290 • Complies with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board • Is presented in Australian dollars ($). At June 2020, all values have been rounded off to the nearest million dollars unless otherwise indicated, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 • Provides comparative financial information in the Income Statement, Statement of Comprehensive Income and related Notes has been restated for discontinued operations during the year. The comparative information in the Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and related Notes has not been restated. Refer to Note 32 ‘Discontinued Operations’ for further details • Includes certain other comparative balances that have been reclassified following the adoption of AASB 16 Leases • Is prepared under the historical cost basis except for the following assets and liabilities, which are stated at their fair value: derivative financial instruments, fair value through profit or loss investments, investment properties, and liabilities for cash settled share based compensation plans. Recognised assets and liabilities that are hedged are stated at fair value in respect of the risk that is hedged. Refer to the specific accounting policies within the Notes to the Consolidated Financial Statements for the basis of valuation of assets and liabilities measured at fair value. Significant accounting policies have been: • Included in the relevant notes to which the policies relate, while other significant accounting policies are discussed in Note 36 ‘Other Significant Accounting Policies’ • Consistently applied to all financial years presented in the consolidated financial statements and by all entities in the Group, except as explained in Note 35 ‘Impact of New and Revised Accounting Standards’. The preparation of a financial report that complies with AASBs requires management to make judgements, estimates and assumptions. • This can affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. • Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. • The significant accounting policies highlight information about accounting judgements in applying accounting policies that have the most significant effects on reported amounts and further information about estimated uncertainties that have a significant risk of resulting in material adjustments within the next financial year. • These significant accounting estimates and judgements have been considered in the context of the COVID‑19 outbreak and the impact of the current economic conditions. The Group presents assets and liabilities in the Statement of Financial Position as current or non current. • Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised in, or intended for sale or use in, the course of the Group’s operating cycle or within the next 12 months. All other assets are classified as non current. • Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group’s operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non current. The financial statements are prepared on a going concern basis. In preparing the financial statements, including assessing the going concern basis of accounting, the Group has considered the COVID‑19 pandemic. The Group has: • Raised over $1.2 billion through its recent equity raising. See Note 17 ‘Issued Capital’ • Over $4.2 billion in undrawn facilities. See Note 16 ‘Borrowings and Financing Arrangements’ • Over $1.1 billion in cash and cash equivalents. See Note 14 ‘Cash and Cash Equivalents’ • Net positive cash inflow from operating activities. See Statement of Cash Flows. Following this assessment, the Group is well placed to manage its financing and future commitments over the next 12 months from the date of the financial statements. Lendlease Annual Report 2020 Financial Statements 152 153 Notes to Consolidated Financial Statements continued Section A: Performance The following tables set out other financial information by reportable segment. Segment Revenue1 $m Finance Revenue $m Finance Expense $m Share of Results EAI2 $m Depreciation and Amortisation $m Material Non Cash Items3 $m Non Current Segment Assets4 $m Group Total Assets $m Year Ended June 2020 Core Development Construction Investments Total core segments Non core Total segments Corporate activities Statutory result Year Ended June 2019 Core Development Construction Investments Total core segments Non core Total segments Corporate activities Statutory result 2,344 7,627 390 10,361 2,884 13,245 44 13,289 3,355 9,680 348 13,383 3,141 16,524 31 16,555 6 ‑ 1 7 6 13 5 18 9 ‑ 1 10 ‑ 10 7 17 (5) (6) (7) (18) (1) (19) (147) (166) (4) (1) (1) (6) ‑ (6) (136) (142) 67 17 (100) (16) 3 (13) ‑ (13) 184 23 126 333 5 338 ‑ 338 (23) (28) (17) (68) (84) (152) (92) (244) (12) (12) (7) (31) (28) (59) (63) (122) (36) (17) (63) (116) 9 (107) (37) (144) 21 (3) 138 156 3 159 (8) 151 5,150 1,310 7,281 3,565 3,032 4,236 9,492 15,082 279 1,828 9,771 16,910 627 838 10,398 17,748 5,275 1,440 2,597 7,101 3,710 4,028 9,312 14,839 490 2,089 9,802 16,928 276 250 10,078 17,178 1. Segment revenue as disclosed in the Performance and Outlook section of the Directors’ Report, is comprised of Revenue from contracts with customers, Other revenue and Finance revenue. 2. Equity Accounted Investments. 3. Material Non Cash Items relates to impairments and provisions raised or written back, unrealised foreign exchange movements and fair value gains or losses. 4. Excludes deferred tax assets, financial instruments and defined benefit plan assets. Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) and Profit after tax (PAT) are the key measures used to assess the Group’s performance. This section of the Financial Report focuses on disclosures that enhances a user’s understanding of EBITDA and PAT. Segment Reporting below provides a breakdown of profit and revenue by the operational activity. The key line items of the Income Statement along with their components provide detail behind the reported balances. Group performance will also impact the earnings per stapled security and dividend payout therefore disclosure on these items has been included in this section. Further information and analysis on performance and allocation of resources can be found in the Performance and Outlook section of the Directors’ Report. 1. Segment Reporting Accounting Policies The Group’s segments are Development, Construction, Investments and Non core. The Group has identified these operating segments based on the distinct products and services provided by each segment, the distinct target returns profile and allocation of resources for each segment, and internal reports that are reviewed and used by the Group Chief Executive Officer and Managing Director (the Chief Operating Decision Maker) in assessing performance, determining the allocation of resources, setting operational targets, and managing the Group. The Group has arranged the segments around business activity rather than geography due to the Group’s business model being broadly consistent in all regions. Segment performance is based on EBITDA and PAT. EBITDA and PAT are used to measure performance as management believes that such information is the most relevant in evaluating the results of certain reportable segments relative to other entities that operate within these industries. The Group does not consider corporate activities to be an operating segment. The operating segments are as follows: Development Operates in all four geographic regions. Its products and services include the development of inner city mixed use developments, apartments, communities, retirement, retail, commercial assets and social and economic infrastructure. Construction margin earned on internal projects is recognised in this segment. Construction Operates across all four geographic regions. Its products and services include the provision of project management, design and construction services, predominantly in the defence, mixed use, commercial and residential sectors. Investments Services include owning and/or managing investments across all four geographic regions. The Investments segment includes a leading investment management platform and also includes the Group’s ownership interests in property and infrastructure Co‑Investments, Retirement Living and US Military Housing. Non core Non core includes the provision of project management, design and construction services in the Australian infrastructure sector. These products and services represent the Engineering and Services businesses. The Chief Operating Decision Maker receives separate information about these businesses, given the Group announced in February 2019 that the Engineering and Services businesses are no longer a required part of the Group’s strategy. The results of the discontinued operations referenced throughout the financial statements is included in this segment. Discontinued operations represents the Engineering business that the Group intends to sell, excluding the projects retained by the Group. Refer to Note 32 ‘Discontinued Operations’ for further detail. Financial information regarding the performance of each reportable segment and a reconciliation of these reportable segments to the financial statements is included below. EBITDA2 PROFIT BEFORE TAX INCOME TAX (EXPENSE)/BENEFIT PROFIT AFTER TAX June 2020 $m June 2019 $m June 2020 $m June 2019 $m June 2020 $m June 2019 $m June 2020 $m June 2019 $m Core Development Construction Investments Total core segments Non core Total segments Reconciling items Corporate activities Total Group Discontinued operations1 Results from continuing operations Interest, tax, depreciation and amortisation2 Statutory result ((Loss)/Profit after tax) 322 101 140 563 (495) 68 (158) (90) (90) (220) (310) 793 211 489 1,493 (461) 1,032 (165) 867 867 (400) 467 300 67 117 484 (574) (90) (392) (482) 54 (536) 787 198 482 1,467 (489) 978 (358) 620 (135) 755 (67) (25) (13) (105) 168 63 109 172 (22) 194 (233) (57) (114) (404) 152 (252) 99 (153) 45 (198) 233 42 104 379 (406) (27) (283) (310) 32 (342) 554 141 368 1,063 (337) 726 (259) 467 (90) 557 1. Refer to Note 32 ‘Discontinued Operations’ for further detail. 2. EBITDA includes continuing and discontinued operations, and represents earnings before net finance costs of $148 million (June 2019: $125 million), tax benefit of $172 million (June 2019: tax expense of $(153) million), depreciation and amortisation of $244 million (June 2019: $122 million). Lendlease Annual Report 2020 Financial Statements 154 155 Notes to Consolidated Financial Statements continued Section A: Performance continued 1. Segment Reporting continued Australia Asia Europe Americas Total segment Corporate activities Statutory result NON CURRENT ASSETS1 June 2020 $m June 2019 $m 4,882 1,361 1,382 2,146 9,771 627 5,462 1,176 1,158 2,006 9,802 276 10,398 10,078 1. Excludes deferred tax assets, financial instruments and defined benefit plan assets and is based on the geographical location of assets. The operating segments generate revenue in the following regions. Development $m Construction $m Investments $m Total Core Segments $m Non Core $m Total Segments $m Corporate Activities $m Statutory Result $m REVENUE1 Year Ended June 2020 Australia Asia Europe Americas Total Year Ended June 2019 Australia Asia Europe Americas Total 1,198 13 969 164 2,344 3,217 255 782 3,373 7,627 2,712 4,052 18 544 81 3,355 401 941 4,286 9,680 172 134 16 68 390 210 63 13 62 4,587 402 1,767 3,605 10,361 6,974 482 1,498 4,429 2,884 ‑ ‑ ‑ 2,884 3,141 ‑ ‑ ‑ 7,471 402 1,767 3,605 13,245 10,115 482 1,498 4,429 44 ‑ ‑ ‑ 7,515 402 1,767 3,605 44 13,289 31 10,146 ‑ ‑ ‑ 482 1,498 4,429 348 13,383 3,141 16,524 31 16,555 1. Segment revenue as disclosed in the Performance and Outlook section of the Directors’ Report, is comprised of Revenue from contracts with customers, Other revenue and Finance revenue. No revenue from transactions with a single external customer amounts to 10 per cent or more of the Group’s revenue. 2. Dividends/Distributions1 Parent Company Interim Dividend December 2019 – paid 17 March 2020 December 20182 Lendlease Trust Interim Distribution December 2019 – paid 17 March 2020 December 2018 – paid 20 March 2019 Parent Company Final Dividend June 20203 June 2019 – paid 16 September 2019 Lendlease Trust Final Distribution June 2020 – provided for (payable 15 September 2020) June 2019 – paid 16 September 2019 Total 1. Final and interim dividends/distributions were not franked in the current and prior year. 2. No interim dividend was declared for the Company for the 31 December 2018 half year. 3. No final dividend was declared for the Company for 30 June 2020. COMPANY/TRUST Cents Per Share/Unit June 2020 $m June 2019 $m 22.1 7.9 12.0 9.5 3.3 20.5 124 ‑ 45 ‑ ‑ ‑ 22 ‑ 191 ‑ ‑ ‑ 68 ‑ 53 ‑ 116 237 Dividend Franking The amount of franking credits available for use in subsequent reporting periods as at 30 June 2020 is $17 million, based on a 30 per cent tax rate (30 June 2019: $16 million). This is calculated after adjusting for franking credits which will arise from the payment of income tax provided in the financial statements and tax losses utilised in the current financial year. 3. Earnings Per Share/Stapled Security (EPS/EPSS) Accounting Policies The Group presents basic and diluted EPS/EPSS in the Income Statement. This is a key performance measure for the Group. Refer to further details in the Finance Area of Focus section of the Annual Report. Basic EPS/EPSS is determined by dividing Profit/(loss) after tax attributable to members of the Company and Group, excluding any costs of servicing equity other than ordinary shares/securities, by the weighted average number of ordinary shares/securities outstanding during the financial year, adjusted for bonus elements in ordinary shares/securities issued during the financial year. Diluted EPS/EPSS is determined by adjusting the Profit/(loss) after tax attributable to members of the Company and Group, and the weighted average number of ordinary shares/securities outstanding for the effects of all dilutive potential ordinary shares/securities. The Group currently does not have any dilutive potential ordinary shares/securities. Dilution occurs when treasury shares and employee share options are included in outstanding shares. The issued units of Lendlease Trust (LLT) are presented separately within equity, and therefore the profit attributable to LLT is excluded from the calculation of basic and diluted earnings per Company share presented in the Income Statement. JUNE 2020 JUNE 20192 Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Basic/Diluted Earnings Per Share (EPS)1 (Loss)/profit attributable to members of Lendlease Corporation Limited (Company) Weighted average number of ordinary shares Basic/Diluted EPS Basic/Diluted Earnings Per Stapled Security (EPSS)1 (Loss)/profit attributable to securityholders of Lendlease Group Weighted average number of stapled securities Basic/Diluted EPSS $m m cents $m m cents (342) 599 (57.1) (310) 599 (51.8) (342) 603 (56.7) (310) 603 (51.4) 313 584 53.6 467 584 80.0 313 588 53.2 467 588 79.4 1. Balances include both continuing and discontinued operations. Earnings per share/stapled security for continuing and discontinued operations have been separately disclosed in Note 32 ‘Discontinued Operations’. 2. As required under AASB 133 Earnings per Share, the 30 June 2019 weighted average number of ordinary shares and the weighted average number of stapled securities have been updated to reflect the new stapled securities issued via the institutional placement and Security Purchase Plan during the year. The Basic/Diluted EPS and Basic/Diluted EPSS have been restated to reflect this change. Lendlease Annual Report 2020 Financial Statements 156 157 Notes to Consolidated Financial Statements continued Section A: Performance continued 4. Revenue from Contracts with Customers Accounting Policies Provision of Construction and Development services Construction services include project management, design and construction services predominantly in the defence, mixed use, commercial and residential sectors. Development services include development fees earned on development of inner city mixed use developments, retirement, retail, commercial assets and social and economic infrastructure. Contracts with customers to provide Construction or Development services can include either one performance obligation or multiple performance obligations within each contract. The Group assesses each of its contracts individually and where there are separate performance obligations identified, the transaction price is allocated based on the relative standalone selling prices of the services provided. Typically, the Construction or Development services in contracts are not considered distinct as the services are highly interrelated and an integrated bundle of services, therefore are accounted for as a single performance obligation. The transaction price for each contract may include variable consideration in the form of contract variations or modifications, and contract claims (collectively, ‘Modifications’). Variable consideration may also include performance or other incentive fees. The transaction price is the amount of consideration to which the Group expects to be entitled to receive in exchange for transferring promised goods or services to a customer per the contract. Variable consideration is only included in the transaction price for a contract to the extent it is highly probable that a significant reversal of that revenue will not occur, which is an area of accounting judgement. Factors considered in assessing whether the estimated revenue associated with Modifications should be recognised include the following: i. ii. Status of negotiations with customers The contract or other evidence provides a legal basis for the Modifications iii. Additional costs incurred were caused by circumstances that were unforeseen at the contract date and for which entitlement contractually exists iv. Modification related costs are identifiable, measurable, and considered reasonable in view of the work performed v. Evidence supporting the Modification is objective and verifiable, which may include independent third‑party advice vi. Commercial and market factors specific to the Modifications vii. Historical experience in resolving Modifications. This assessment is reviewed each reporting period or when facts and circumstances change during the reporting period. Revenue is recognised over time, typically based on an input method using an estimate of costs incurred to date as a percentage of total estimated costs. These contracts are typically executed on the customer’s land so they control the assets as it is being built or the customer benefits from the service as the work is performed. Differences between amounts recognised as revenue and amounts billed to customers are recognised as contract assets or liabilities in the Statement of Financial Position. The measurement of revenue is an area of accounting judgement. Management uses judgement to estimate: i. ii. Progress in satisfying the performance obligations within the contract, which includes estimating contract costs expected to be incurred to satisfy performance obligations The probability of the amount to be recognised as variable consideration for approved variations and claims where the final price has not been agreed with the customer. Revenue is invoiced based on the terms of each individual contract, which may include a periodic billing schedule or achievement of specific milestones. Invoices are issued under commercial payment terms which are typically 30 days from when an invoice is issued. A provision for loss making contracts is recorded for the difference between the expected costs of fulfilling a contract and the expected remaining economic benefits to be received where the forecast remaining costs exceed the forecast remaining benefits. Provision of Investment services Investment services include funds management, asset management, leasing and origination services. Each contract with a customer to provide Investment services is typically one performance obligation with revenue recognised over time as services are rendered. Typically, our performance obligation is to manage a client’s capital and/or property for a specified period of time and is delivered as a series of daily performance obligations over time. The transaction price for each contract may include variable consideration in the form of performance fees. Variable consideration is only included in the transaction price for a contract to the extent it is highly probable that a significant reversal of that revenue will not occur. The Group assesses probability of receiving variable consideration using a combination of commercial and market factors, and historical experience. Revenue is invoiced either monthly or quarterly based on the terms of each individual contract. Invoices are issued under commercial payment terms which are typically 30 days from when an invoice is issued. Accounting Policies continued Sale of Development Properties The Group develops and sells residential land lots and built form products, including residential apartments, commercial and retail buildings. Sales of residential land lots and apartments typically are recognised at a point in time, with each contract treated as a single performance obligation to transfer control of an asset to a customer. Residential land lots and apartments are recognised on settlement with the customer. The sale of retail, commercial and mixed use assets may include land, construction, development management and investment service components. Where there are multiple components within one contract, the transaction price is allocated based on the stand‑alone selling prices of each component, typically using the residual approach, and revenue is recognised based on the policies noted above. Sales of commercial and retail buildings are recognised when the customer obtains control of the asset based on the specific terms and conditions of the sales contract. The Group discounts deferred proceeds to reflect the time value of money where the period between the transfer of control of a development property and receipt of payment from the customer exceeds one year. Deferred proceeds from customers are recognised in trade and other receivables where the right to receive payment is unconditional. Deposits received in advance from customers are recognised as a contract liability until the performance obligation has been met. The measurement of revenue from the sale of development properties is an area of accounting judgement as it requires management to exercise judgement in valuing the individual components of a development property sale, given the due consideration to cost inputs, market conditions and commercial factors. The recognition and determination of when control passes requires management judgement and is considered an area of accounting judgement. Proceeds from the sale of residential land lots and apartments are received upon settlement, which will typically occur between 6‑12 weeks following practical completion on the asset. Proceeds from the sale of retail, commercial and mixed use assets are received in accordance with the specific terms of each contract. The Group may enter a PLLACes (Presold Lendlease Apartment Cash Flows) transaction for certain residential apartment buildings from time to time. This involves the Group receiving an upfront cash inflow from third party investors (investors) in exchange for selling the investors the rights to the cash proceeds that are due from customers once the apartments are completed. When customers settle their apartments the Group does not receive any cash proceeds nor does it pay any amounts to the investors as the customers pay the investors directly. On entry into a PLLACes transaction the cash inflow is disclosed as an operating cash inflow in the Statement of Cash Flows which typically occurs over a year in advance of the revenue recognition from the sale of the apartments. At the same time, an Other payables ‑ PLLACes is also recognised within Trade and Other Payables and is de‑recognised as revenue once settlement of the apartments occurs. Revenue from the provision of services Core Construction services Non core Construction services Construction services Development services Investment services Total revenue from the provision of services Revenue from the sale of development properties Total revenue from contracts with customers1,2 June 2020 $m June 20193 $m 7,626 1,441 9,067 1,083 310 10,460 1,211 11,671 9,678 1,644 11,322 738 260 12,320 2,569 14,889 1. Further information on revenue by geography and by segments is included in Note 1 ‘Segment Reporting’. Segment revenue as disclosed in the Performance and Outlook section of the Directors’ Report, is comprised of Revenue from contracts with customers, Other revenue and Finance revenue. 2. The performance of the business including the impacts of the COVID‑19 pandemic on operations has been discussed further in the Performance and Outlook section of the Directors’ Report. 3. June 2019 balances have been restated for discontinued operations during the year. Refer to Note 32 ‘Discontinued Operations’ for further detail. Lendlease Annual Report 2020 Financial Statements 158 159 Notes to Consolidated Financial Statements continued Section A: Performance continued 5. Share of Profit of Equity Accounted Investments Accounting Policies Investments in associates and joint ventures are accounted for using the equity method. The share of profit recognised under the equity method is the Group’s share of the investment’s profit or loss based on ownership interest held. Associates (including partnerships) are entities in which the Group, as a result of its voting rights, has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. For associates, this is from the date that significant influence commences until the date that significant influence ceases, and for joint ventures, this is from the date joint control commences until the date joint control ceases. Associates1 Share of profit Joint Ventures1 Share of profit Total share of profit of equity accounted investments Note 12a 12b June 2020 $m June 2019 $m (14) 1 (13) 24 314 338 1. Reflects the contribution to the Group’s profit, and is after tax paid by the Equity Accounted Investment vehicles themselves, where relevant. However, for various Equity Accounted Investments, the share of tax is paid by the Group and is included in the Group’s current tax expense. 6. Other Income Accounting Policies Net gains or losses on sale/transfer of investments, including consolidated entities and Equity Accounted Investments are recognised when an unconditional contract is in place. Net gains or losses on fair value remeasurements are recognised in accordance with the policies stated in Note 13 ‘Other Financial Assets’. Net gain on sale/transfer of investments Consolidated entities1 Other financial assets at fair value Equity accounted investments Other assets and liabilities Total net gain on sale/transfer of investments Net gain on fair value measurement Investment properties Fair value through profit or loss assets Total net gain on fair value measurement Other2 Total other income June 2020 $m June 20193 $m 183 5 35 ‑ 223 24 ‑ 24 105 352 74 20 ‑ 3 97 85 97 182 14 293 1. During the period, the Group disposed of a 25 per cent interest in Victoria Cross Commercial Head Trust. The Group recorded a gain on sale of $31 million. Refer to Note 27 ‘Consolidated Entities’ for further detail. The remaining 75 per cent interest retained by the Group provided a revaluation gain of $92 million based on the transaction price. 2. The Group purchased the remaining stake in Intown SRL Joint Venture and subsequently formed a joint venture with an investment partner which resulted in a total revaluation gain of $64 million. At 30 June 2020, the Group held a 50% interest in the joint venture, MSG South. Refer to Note 12 ‘Equity Accounted Investments’ for further detail. 3. June 2019 balances have been restated for discontinued operations during the year. Refer to Note 32 ‘Discontinued Operations’ for further detail. 7. Other Expenses Accounting Policies Other expenses in general are recognised as incurred. Employee Benefit Expenses Employee benefits are expensed as the related service by the employee is provided and includes both equity and cash based payment transactions. Employee benefits recognised in the Income Statement are net of recoveries. For cash bonuses, the Group recognises an accrued liability for the amount expected to be paid. This is based on a formula that takes into consideration the profit attributable to the Group’s securityholders after certain adjustments. Refer to Note 34a ‘Short Term Incentives’ for further detail. Share Based Compensation The Group operates equity settled share based compensation plans that are linked to Lendlease’s security price. The fair value of the equity received in exchange for the grant is recognised as an expense and a corresponding increase in equity, in the Equity Compensation Reserve. The total amount to be expensed over the vesting period is determined by reference to the fair value of the securities granted. The fair value is primarily determined using a Monte‑Carlo simulation model. Refer to Note 34g ‘Amounts Recognised in the Financial Statements’ for further detail. Management considers the fair value assigned to be an area of estimation uncertainty as it requires judgements on Lendlease’s security price and whether vesting conditions will be satisfied. At each balance sheet date, the Group revises its estimates of the entitlement due. It recognises the impact of revision of original estimates on non market conditions, if any, in the Income Statement, and a corresponding adjustment to equity over the remaining vesting period. Changes in entitlement for equity settled share based compensation plans are not recognised if they fail to vest due to market conditions not being met. Superannuation Accumulation Plan Expense All employees in the Australia region are entitled to benefits on retirement, disability or death from the Group’s superannuation accumulation plan. The majority of these employees are party to a defined contribution plan and receive fixed contributions from the Group. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. The Group also operates a defined benefit superannuation plan, membership of which is now closed. Refer to Note 33 ‘Defined Benefit Plans’ for further detail. Impairment The carrying amounts of the Group’s assets, subject to impairment tests, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The calculation of this recoverable amount is dependent on the type of asset. The material assets’ accounting policies will contain further information on these calculations. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Reversals of Impairment Impairment losses on assets can be reversed (other than goodwill) when there is a subsequent increase in the recoverable amount. The increase could be due to a specific event, the indication that impairment may no longer exist or there is a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Operating Lease Expense Short term lease and low value lease payments, including outgoings, are recognised in the Income Statement on a straight line basis over the term of the lease. Depreciation and Amortisation Depreciation on owned assets is charged to the Income Statement on a straight line basis over the estimated useful lives of items of property, plant and equipment. Amortisation is provided on leasehold improvements over the remaining term of the lease. Most plant is depreciated over a period not exceeding 20 years, furniture and fittings over three to 15 years, motor vehicles over four to eight years and computer equipment over three years. Right‑of‑use assets are depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the right‑of‑use asset or the end of the lease term. Lendlease Annual Report 2020 Financial Statements 160 161 Notes to Consolidated Financial Statements continued Section A: Performance continued 7. Other Expenses continued Profit before income tax includes the following other expense items: Employee benefit expenses1,2 Superannuation accumulation plan expense Net defined benefit plans expense Expenses include impairments raised/(reversals) relating to: Loans and receivables Property inventories Equity accounted investments Other assets Net loss on fair value measurement of fair value through profit or loss assets Lease expense (including outgoings) Depreciation on right‑of‑use assets3 Depreciation on owned assets4 Amortisation3 Net foreign exchange loss June 2020 $m June 20195 $m 2,373 36 1 4 30 24 6 17 33 66 80 54 (2) 2,227 39 1 1 (1) 6 ‑ ‑ 95 ‑ 58 50 6 1. Total expense before recoveries through projects. 2. Due to the COVID‑19 pandemic, the Group accessed Australian and international Government employee programs in the second half of FY20. This totalled $15 million (Australia: $7 million) and has been accounted for as a reduction in employee expenses. 3. June 2019 comparatives are $nil as depreciation of right‑of‑use assets was not recognised under AASB 117 Leases. 4. June 2019 comparatives have been reclassified to separately present depreciation and amortisation due to the adoption of AASB 16 Leases. 5. June 2019 balances have been restated for discontinued operations during the year. Refer to Note 32 ‘Discontinued Operations’ for further detail. Auditors’ Remuneration Amounts received or due and receivable by the auditors of Lendlease Group for: Audit services Other assurance services Total audit and other assurance services Non audit services1 Total audit, other assurance and non audit services 1. Non audit services include amounts charged for work relating to financial, regulatory and asset due diligence of the Group. June 2020 $000s June 2019 $000s 7,233 524 7,757 557 8,314 7,141 495 7,636 714 8,350 8. Finance Revenue and Finance Costs Accounting Policies Finance revenue is recognised as it is earned using the effective interest method, which applies the interest rate that discounts estimated future cash receipts over the expected life of the financial instrument. The discount is then recognised as finance revenue over the remaining life of the financial instrument. Finance costs include interest, amortisation of discounts or premiums relating to borrowings and amortisation of costs incurred in connection with the arrangement of new borrowings facilities. Costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings. Finance costs are expensed immediately as incurred unless they relate to acquisition and development of qualifying assets. Qualifying assets are assets that take more than six months to prepare for their intended use or sale. Finance costs related to qualifying assets are capitalised. Finance Revenue Other corporations Other finance revenue Total interest finance revenue Interest discounting Total finance revenue Finance Costs Interest expense in relation to other corporations1 Interest expense in relation to lease liabilities2 Less: Capitalised interest finance costs3 Total interest finance costs Non interest finance costs Total finance costs Net finance costs June 2020 $m June 2019 $m 6 4 10 2 12 159 25 (33) 151 14 165 (153) 8 5 13 4 17 156 ‑ (25) 131 11 142 (125) As a result of the adoption of AASB 16 Leases, the description has changed from Other corporations to Interest expense in relation to other corporations. 1. 2. June 2019 comparatives are $nil as Interest expense in relation to lease liabilities was not recognised under AASB 117 Leases. 3. The weighted average interest rate used to determine the amount of interest finance costs eligible for capitalisation was 3.5 per cent (30 June 2019: 4.0 per cent), which is the effective interest rate. Lendlease Annual Report 2020 Financial Statements162 163 Notes to Consolidated Financial Statements continued Section A: Performance continued 9. Taxation Accounting Policies Income tax on the profit or loss for the financial year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Under current Australian income tax law, LLT is not liable for income tax, including capital gains tax, to the extent that unitholders are attributed the taxable income of LLT. Current tax is the expected tax payable on the taxable income for the financial year, using applicable tax rates (and tax laws) at the balance sheet date in each jurisdiction, and any adjustment to tax payable in respect of previous financial years. Deferred tax is the expected tax payable in future periods as a result of past transactions or events and is calculated by comparing the accounting balance sheet to the tax balance sheet. Temporary differences are provided for any differences in the carrying amounts of assets and liabilities between the accounting and tax balance sheets. The following temporary differences are not provided for: • The initial recognition of taxable goodwill • The initial recognition of assets or liabilities that affect neither accounting nor taxable profit • Differences relating to investments in subsidiaries to the extent that they are not likely to reverse in the foreseeable future. Measurement of deferred tax is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using applicable tax rates (and tax laws) at the balance sheet date. Recognition of deferred tax assets is only to the extent it is probable that future taxable profits will be available so as the related tax asset will be realised. Deferred tax assets may include the following: • Deductible temporary differences • Unused tax losses • Unused tax credits. Management considers the estimation of future taxable profits to be an area of estimation uncertainty as a change in any of the assumptions used in budgeting and forecasting would have an impact on the future profitability of the Group. The Group prepares financial budgets and forecasts, covering a five year period, which are reviewed on a regular basis. These forecasts and budgets form the basis of future profitability to support the carrying value of the deferred tax assets. The performance of the Group is influenced by a variety of general economic and business conditions, which are outside the control of the Group, including the level of inflation, interest rates, exchange rates, commodity prices, ability to access funding, oversupply and demand conditions and government fiscal, monetary and regulatory policies. Presentation of deferred tax assets and liabilities can be offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, but are intended to be settled on a net basis or to be realised simultaneously. Tax Consolidation The Company is the head entity of the Australian Tax Consolidated Group comprising all the Australian wholly owned subsidiaries, excluding LLT. As a consequence, all members of the Australian Tax Consolidation Group are taxed as a single entity. June 2020 $m June 2019 $m (58) (2) (2) (62) (77) (5) (18) (10) (110) (194) 22 (172) (482) (145) (5) (30) 22 12 (5) ‑ (34) 13 (172) (5) 1 (10) (2) (16) 82 (4) (2) 76 72 6 (2) 1 77 198 (45) 153 620 186 (5) (51) 8 8 7 (3) (1) 4 153 ‑ (8) 7 3 2 a. Income Tax Expense Recognised in the Income Statement Current Tax Expense Current year Adjustments for prior years Benefit of tax losses recognised Total current tax (benefit)/expense Deferred Tax Expense Origination and reversal of temporary differences Temporary differences recovered Net tax losses recognised Change in tax rate Total deferred tax (benefit)/expense Total income tax (benefit)/expense from continuing operations Total income tax expense/(benefit) from discontinued operations1 Total income tax (benefit)/expense2 Reconciliation of Effective Tax Rate (Loss)/Profit before Tax Income tax using the domestic corporation tax rate 30% Adjustments for prior year Non assessable and exempt income3 Non allowable expenses4 Net write off/(recognition) of tax losses through income tax expense Temporary differences recognised through income tax expense5 Utilisation of capital losses on disposal of assets Effect of tax rates in foreign jurisdictions6 Other Income tax (benefit)/expense Deferred Tax Recognised Directly in Equity Relating to: Impact of adoption of new accounting standard Defined benefit plans remeasurements Foreign currency translation reserve Non controlling interest acquisition reserve Total deferred tax expense recognised directly in equity b. Tax Effect Relating to Other Comprehensive Income Movements in hedging reserve Movements in foreign currency translation reserve Movements in non controlling interest acquisition reserve Movements in defined benefit plans remeasurements Total other comprehensive income net of tax June 2020 Tax (Expense)/ Benefit $m Net of Tax $m Before Tax $m June 2019 Tax (Expense)/ Benefit $m ‑ 10 ‑ (1) 9 (19) (5) (1) 13 (12) (61) 99 (5) (47) (14) ‑ (7) ‑ 8 1 Before Tax $m (19) (15) (1) 14 (21) Net of Tax $m (61) 92 (5) (39) (13) 1. Refer to Note 32 ‘Discontinued Operations’ for further detail. 2. Represents income tax benefit from continuing operations of $194 million and income tax expense from discontinued operations of $22 million. 3. 4. 5. Includes Lendlease Trust Group profit. Includes accounting expenses for which a tax deduction is not allowed permanently. Includes temporary differences recognised in a previous year but are subsequently written off to income tax expense in the current year and temporary differences that arose in a previous year but were not recognised until the current year. 6. The Group operates in a number of foreign jurisdictions for trading purposes which have significantly lower tax rates than Australia such as the United Kingdom and Singapore and higher tax rates such as the United States of America (blended federal, state and local rate) and Japan. This also includes the effect of changes in tax rates and tax loss carry back. Lendlease Annual Report 2020 Financial Statements164 165 Notes to Consolidated Financial Statements continued Section A: Performance continued 9. Taxation continued c. Deferred Tax Assets and Liabilities Recognised Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are attributable to the following: Loans and receivables Inventories Other financial assets Other assets Equity accounted investments Investment properties Property, plant and equipment Intangible assets Net defined benefit plans Trade and other payables Provisions Borrowings and financing arrangements Other financial and non financial liabilities Unused revenue tax losses recognised Items with a tax base but no carrying value Total deferred tax assets/(liabilities) Deferred tax set off Net deferred tax assets/(liabilities) June 2020 Movement in temporary differences during the financial year: Loans and receivables Inventories Other financial assets Other assets Equity accounted investments Investment properties Property, plant and equipment Intangible assets Net defined benefit plans Trade and other payables Provisions Borrowings and financing arrangements Other financial and non financial liabilities Unused revenue tax losses recognised Items with a tax base but no carrying value Total net deferred tax assets/(liabilities) June 2020 Assets $m Liabilities $m June 2019 Assets $m Liabilities $m 2 62 5 104 4 ‑ 32 ‑ 21 190 135 49 18 157 54 833 (692) 141 (53) (451) (54) (13) (403) (57) (18) (21) (34) ‑ ‑ ‑ (2) ‑ (20) (1,126) 692 (434) ‑ 67 2 93 7 ‑ 3 ‑ 23 192 118 20 ‑ 75 65 665 (564) 101 (64) (424) (61) (96) (398) (8) (37) (23) (29) ‑ (1) ‑ ‑ ‑ (20) (1,161) 564 (597) 1 July 2019 $m Recognised in Income $m Recognised in Equity $m Other/ Foreign Exchange $m 30 June 2020 $m (64) (357) (59) (3) (391) (8) (34) (23) (6) 192 117 20 ‑ 75 45 (496) 13 (29) 9 93 (16) (30) (5) 2 (5) 7 33 30 1 20 (13) 110 ‑ ‑ ‑ ‑ 10 ‑ 5 ‑ (1) ‑ ‑ ‑ ‑ ‑ 2 16 ‑ (3) 1 1 (2) (19) 48 ‑ (1) (9) (15) (1) 15 62 ‑ 77 (51) (389) (49) 91 (399) (57) 14 (21) (13) 190 135 49 16 157 34 (293) 1 July 2018 $m Recognised in Income $m Recognised in Equity $m Other/Foreign Exchange $m 30 June 2019 $m June 2019 Movement in temporary differences during the financial year: Loans and receivables Inventories Other financial assets Other assets Equity accounted investments Investment properties Property, plant and equipment Intangible assets Net defined benefit plans Trade and other payables Provisions Borrowings and financing arrangements Other financial liabilities Unused revenue tax losses recognised Items with a tax base but no carrying value Total net deferred tax assets/(liabilities) (129) (264) (54) 3 (292) ‑ (29) (15) (10) 133 125 6 10 99 58 (359) 64 (88) (2) (4) (90) (8) (4) (8) (4) 55 (11) 10 (10) 33 (10) (77) Unrecognised Deferred Tax Assets Deferred tax assets have not been recognised in respect of the following items: Unused revenue tax losses Unused capital tax losses Net deductible temporary differences Total unrecognised deferred tax assets ‑ ‑ ‑ ‑ (11) ‑ ‑ ‑ 8 ‑ ‑ 4 ‑ ‑ (3) (2) 1 (5) (3) (2) 2 ‑ (1) ‑ ‑ 4 3 ‑ ‑ (57) ‑ (58) (64) (357) (59) (3) (391) (8) (34) (23) (6) 192 117 20 ‑ 75 45 (496) June 2020 $m June 2019 $m 51 24 78 153 43 16 65 124 Of the unrecognised deferred tax assets of $153 million, only $37 million expires by 2039. The remainder of the unrecognised deferred tax assets have no expiry date. 10. Events Subsequent to Balance Date On 1 July 2020, the Group disposed of a 25 per cent interest in One Sydney Harbour R1 Trust. The Group recorded a gain on sale of $19 million (net of transaction costs). The remaining 75 per cent interest retained by the Group provided a revaluation gain of $128 million based on the transaction price. Lendlease Annual Report 2020 Financial Statements166 167 Notes to Consolidated Financial Statements continued Section B: Investment Investment in the Development pipeline, joint ventures in property projects, the retirement sector, and more passive assets, such as property funds, drives the current and future performance of the Group. This section includes disclosures for property such as Inventories and indirect property assets such as Equity Accounted Investments and Other Financial Assets contained within the Statement of Financial Position. 11. Inventories Accounting Policies Development Properties Property acquired for development and sale in the ordinary course of business is carried at the lower of cost and Net Realisable Value (NRV). The cost of development properties includes expenditure incurred in acquiring the property, preparing it for sale and borrowing costs incurred. The NRV is the estimated selling price, less the estimated costs of completion and selling expenses. Management considers the estimation of both selling prices and costs of completion to be an area of estimation uncertainty, as these estimations take into consideration market conditions affecting each property and the underlying strategy for selling the property. The recoverable amount of each property is assessed at each balance date and accounting judgement is required to assess whether a provision is raised where cost (including costs to complete) exceeds NRV. Inventories are expensed as cost of sales in the Income Statement. Management uses accounting judgement in determining the following: • The apportionment of cost of sales through sales revenue • The amount of cost of sales, which includes costs incurred to date and final forecast costs • The nature of the expenditure, which may include acquisition costs, development costs, borrowing costs and those costs incurred in preparing the property for sale. Construction Contract Assets The gross amount of Construction and Development work in progress consists of costs attributable to work performed, including recoverable pre contract and project bidding costs and emerging profit after providing for any foreseeable losses. In applying the accounting policies on providing for these losses, accounting judgement is required. Construction contract assets are presented as part of inventories for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings and recognised losses exceed costs incurred plus recognised profits, then the difference is presented in Trade and other payables as a Construction contract liability. Current Development properties1 Construction contract assets Other Total current Non Current Development properties1 Total non current Total inventories June 2020 $m June 2019 $m 1,337 912 7 2,256 3,113 3,113 5,369 1,031 1,180 27 2,238 3,345 3,345 5,583 1. The Group has considered the impacts of COVID‑19 on its recoverability assessment of inventories at 30 June 2020. As part of its semi annual review of development property projects, the Group has considered slow down in sales volumes in the short term, longer production timeframes, and increased costs for its projects. While the carrying value of most projects has not been impacted due to their long dated nature, the Group has recognised a $30 million impairment (refer to Note 7 ‘Other Expenses’) to Inventories as a result of commercial factors on certain projects. 12. Equity Accounted Investments Accounting Policies Equity Accounted Investments (Associates and Joint Ventures) As outlined in Note 5 ‘Share of Profit of Equity Accounted Investments’, investments in Associates and Joint Ventures are equity accounted. The share of investment recognised under the equity method is the Group’s share of the investment’s net assets based on ownership interest held. Investments in associates and joint ventures are carried at the lower of the equity accounted carrying amount and the recoverable amount. When the Group’s share of losses exceeds the carrying amount of the equity accounted investment (including assets that form part of the net investment in the associate or joint venture entity), the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has obligations in respect of the associate or joint venture. Dividends from associates and joint ventures represent a return on the Group’s investment and, as such, are applied as a reduction to the carrying value of the investment. Unrealised gains arising from transactions with equity accounted investments are eliminated against the investment in the associate or joint venture to the extent of the Group’s interest in the associate or joint venture. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Other movements in associates’ and joint ventures’ reserves are recognised directly in the Group’s consolidated reserves. Service Concession Arrangements (SCAs) The Group equity accounts its investment in project companies with SCAs through Public Private Partnerships (PPPs). These arrangements provide facilities management and maintenance services with terms generally of 25 to 30 years. They also incorporate contractual obligations to make available the individual assets for their prescribed use and, where necessary, overhaul or replace major items of plant and equipment related to the assets with payment obtained through periodic draw downs from the relevant government authorities. Joint Operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. Investments in joint operations are accounted for by recognising amounts on a line by line basis in accordance with the accounting standards applicable to the particular assets, liabilities, revenues and expenses in relation to the Group’s interest in the joint operation. Associates Investment in associates Less: Impairment Total associates Joint Ventures Investment in joint ventures Less: Impairment Total joint ventures Total equity accounted investments Note 12a 12a 12b 12b June 2020 $m June 2019 $m 518 (5) 513 3,198 (40) 3,158 3,671 277 (7) 270 3,195 (13) 3,182 3,452 Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements168 169 Notes to Consolidated Financial Statements continued INTEREST SHARE OF PROFIT NET BOOK VALUE b. Joint Ventures continued INTEREST SHARE OF PROFIT NET BOOK VALUE June 2020 % June 2019 % June 2020 $m June 2019 $m June 2020 $m June 2019 $m June 2020 % June 2019 % June 2020 $m June 2019 $m June 2020 $m June 2019 $m Section B: Investment continued 12. Equity Accounted Investments continued a. Associates Australia Development Lendlease Communities Fund 1 20.8 20.8 Investments Lendlease Sub Regional Retail Fund1 10.0 10.0 Other Total Australia Asia Investments Lendlease Global Commercial REIT Lendlease Asian Retail Investment Fund 1 Lendlease Asian Retail Investment Fund 2 Lendlease Asian Retail Investment Fund 3 25.3 48.7 39.4 20.1 ‑ ‑ 38.2 20.1 Total Asia Europe Development Other Total Europe Americas Investments Other Total Americas Total Group Less: Impairment Total associates ‑ (8) ‑ (8) (10) 15 ‑ (14) (9) ‑ - 3 3 (14) ‑ (14) ‑ (1) ‑ (1) ‑ ‑ (1) 23 22 ‑ - 3 3 24 ‑ 24 4 27 5 36 261 4 35 180 480 ‑ - 2 2 518 (5) 513 4 36 ‑ 40 ‑ ‑ 30 201 231 4 4 2 2 277 (7) 270 1. Although the Group has a 10 per cent ownership interest in Lendlease Sub Regional Retail Fund, it holds 20 per cent of the voting rights over the fund and has significant influence over the investment. As a result, the Group applies equity accounting for its ownership interest. INTEREST SHARE OF PROFIT NET BOOK VALUE June 2020 % June 2019 % June 2020 $m June 2019 $m June 2020 $m June 2019 $m b. Joint Ventures Australia Development Circular Quay Tower Melbourne Quarter R1 Melbourne Metro1 Victoria Cross Other Investments 20.0 50.0 30.0 75.0 20.0 50.0 30.0 ‑ 13 5 ‑ ‑ 7 (29) (7) (11) 18 ‑ ‑ ‑ 3 100 (1) 120 117 67 ‑ 123 23 1,367 ‑ 1,697 93 66 ‑ ‑ 16 1,397 12 1,584 Lendlease Retirement Living Trust 75.0 75.0 Other Total Australia 1. Balance includes the Melbourne Metro equity accounted investment of $70 million (June 2019: $70 million), which is offset by Lendlease’s share of the hedge reserve of the joint venture of $70 million (June 2019: $70 million). The hedge reserve represents an out of the money position of financial instruments in the joint venture. Asia Development The Exchange TRX Investments CDR JV Ltd (313@somerset) Paya Lebar Quarter Total Asia Europe Development Hungate (York) Regeneration Limited Intown SRL Joint Venture LRIP LP LRIP 2 LP MSG South Silvertown Stratford City Business District Limited (International Quarter London) Victoria Drive Wandsworth Investments Treviso Other Total Europe Americas Development 277 Fifth Avenue 845 Madison Lendlease Towers LLC Americas Residential Partnership Other Construction 60.0 60.0 25.0 30.0 25.0 30.0 50.0 ‑ 20.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 20.0 ‑ ‑ 50.0 50.0 50.0 50.0 50.0 40.0 37.5 ‑ 50.0 40.0 37.5 50.0 50.0 Lendlease Turner Joint Venture 50.0 50.0 Total Americas Total Group Less: Impairment Total joint ventures Total associates Total equity accounted investments (5) 7 (10) (8) 2 ‑ 1 7 2 (5) 1 (5) ‑ ‑ 3 (15) 38 (26) 2 1 17 17 1 ‑ 1 (14) (13) ‑ 5 130 135 (1) (1) 9 ‑ ‑ (3) 4 (5) ‑ (2) 1 ‑ ‑ (3) 37 ‑ 24 58 314 ‑ 314 24 338 354 3 379 736 8 ‑ 77 10 25 2 125 38 14 1 300 54 88 ‑ 302 21 ‑ 465 3,198 (40) 3,158 513 3,671 364 96 382 842 6 38 39 ‑ ‑ 6 130 40 14 8 281 64 44 30 341 9 ‑ 488 3,195 (13) 3,182 270 3,452 Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements170 171 Notes to Consolidated Financial Statements continued Section B: Investment continued 12. Equity Accounted Investments continued c. Material Associates and Joint Ventures Summarised Financial Information The table below provides summarised financial information for those associates and joint ventures that are material to the Group. Material associates and joint ventures have been determined by comparing individual investment net book value with the total equity accounted investment carrying value and share of profit, along with consideration of relevant qualitative factors. The information disclosed reflects the amounts presented in the financial statements of the relevant joint ventures and associates and, where indicated, the Group’s share of those amounts. They have been amended to reflect adjustments made by the Group when using the equity method, including fair value adjustments and differences in accounting policies. The nature and principal activities of the material associates and joint ventures is development and investment of property assets. Income Statement1 Revenue and other income Cost of sales Other expenses Unrealised fair value (losses)/gains Depreciation and amortisation Interest expense Income tax expense Profit/(loss) for the period Other comprehensive income/(expense) Total comprehensive income/(expense) Group’s ownership interest Group’s total share of: Profit/(loss) for the period Other adjustments Total profit/(loss) for the period Other comprehensive income/(expense) Total comprehensive income/(expense) LENDLEASE GLOBAL COMMERCIAL REIT2 PAYA LEBAR QUARTER3 LENDLEASE RETIREMENT LIVING TRUST4 June 2020 $m June 2019 $m June 2020 $m June 2019 $m June 2020 $m June 2019 $m 6060 (16) (30) (22) ‑ (1) ‑ (9) 17 8 25.3% (2) (8) (10) (5) (15) ‑ ‑ ‑ ‑ ‑ ‑ ‑ - ‑ - ‑ - ‑ - ‑ - 219219 (168) (160) (190) ‑ (54) (1) (354) ‑ (354) 30.0% (106) 96 (10) (19) (29) 361 (346) (34) 638 ‑ (36) ‑ 583 ‑ 583 126126 (26) (60) (62) ‑ (18) 1 (39) (1) (40) 165 (26) (54) 68 (1) (19) ‑ 133 (8) 125 30.0% 75.0% 75.0% 175 (45) 130 18 148 (29) ‑ (29) ‑ (29) 100 ‑ 100 (6) 94 1. The presentation of the material associates and joint ventures has been reclassified to separately present Cost of sales, Unrealised fair value (losses)/gains and Interest expense. 2. The underlying investments in this associate are office and retail investment properties measured at fair value. At 30 June 2020, valuations were undertaken that took into account the impacts of the COVID‑19 pandemic. The downward valuation movement was driven by the retail asset due to the impact of the contraction in the local Singapore economy. Additionally, the current market conditions relating to the carrying value of the investment were also considered. The carrying value of the investment is considered recoverable as it correlates with the net assets of the associate, which have been valued at 30 June 2020 as noted above. 3. The underlying investments in this joint venture are office and retail investment properties measured at fair value. At 30 June 2020, valuations were undertaken that took into account the impacts of the COVID‑19 pandemic. The downward valuation movement was driven by a decrease in assumptions on market rent by 3%, reduced growth rate of 30 basis points, an increase in assumed vacancies, and the impact of the contraction in the local Singapore economy. 4. The underlying investments in this joint venture are a portfolio of Australian retirement village investment properties measured at fair value. At 30 June 2020, valuations were undertaken that took into account the impacts of the COVID‑19 pandemic. The downward valuation movement was driven by a reduction in average sales price of 1.9%, as well as a marginal increase in the discount rate from 12.3% in the first half of the year to 12.4% at June, both as a result of the Australian retirement sector market pressures including the impacts of the COVID‑19 pandemic. The table below provides summarised financial information for those associates and joint ventures that are individually immaterial to the Group. Income Statement Aggregate amounts of the Group’s share of: Profit/(loss) from continuing operations Other comprehensive income/(expense) Aggregate amounts of Group’s share of total comprehensive income/ (expense) of individually immaterial equity accounted investments ASSOCIATES JOINT VENTURES June 2020 $m June 2019 $m June 2020 $m June 2019 $m (4) (1) (5) 24 12 36 40 (14) 26 84 (21) 63 c. Material Associates and Joint Ventures Summarised Financial Information continued Statement of Financial Position June 2020 $m June 2019 $m June 2020 $m June 2019 $m June 2020 $m June 2019 $m LENDLEASE GLOBAL COMMERCIAL REIT PAYA LEBAR QUARTER LENDLEASE RETIREMENT LIVING TRUST1 Current assets Cash and cash equivalents Other current assets Total current assets Non current assets Investment properties Other non current assets Total non current assets Current liabilities Resident liabilities Financial liabilities (excluding trade payables) Other current liabilities Total current liabilities Non current liabilities Financial liabilities (excluding trade payables) Other non current liabilities Total non current liabilities Net assets Reconciliation to Carrying Amounts Opening net assets 1 July Total comprehensive income for the period Acquisition/contributions Distributions Foreign currency translation for the period Closing net assets % ownership Group’s share of net assets Other adjustments Carrying amount at end of period 87 14 101 1,506 16 1,522 ‑ ‑ 21 21 552 13 565 1,037 ‑ 8 1,077 (16) (32) 1,037 25.3% 262 (1) 261 ‑ ‑ - ‑ ‑ - ‑ ‑ ‑ - ‑ ‑ - - ‑ ‑ ‑ ‑ ‑ - ‑ - ‑ - 149 100 249 84 256 340 40 80 120 34 75 109 3,128 3,263 7,232 7,288 ‑ ‑ 1 2 3,128 3,263 7,233 7,290 ‑ 1,864 95 1,959 ‑ 121 121 ‑ 1,911 37 4,700 4,759 ‑ 67 ‑ 63 1,948 4,767 4,822 ‑ 64 64 781 ‑ 781 586 146 732 1,297 1,591 1,805 1,845 1,591 (354) 69 ‑ (9) 1,297 30.0% 389 (10) 379 875 583 64 ‑ 69 1,591 30.0% 477 (95) 382 1,845 (40) ‑ ‑ ‑ 1,805 75.0% 1,354 ‑ 1,354 1,720 125 ‑ ‑ ‑ 1,845 75.0% 1,384 13 1,397 1. The carrying amount at the end of the period differs to Note 12b ‘Joint Ventures’ due to an impairment in the current period of $13 million. Material joint ventures had $32 million (June 2019: $99 million) in capital expenditure commitments. The table below provides summarised financial information for those associates and joint ventures that are individually immaterial to the Group. Statement of Financial Position Aggregate carrying value of individually immaterial equity accounted investments ASSOCIATES JOINT VENTURES June 2020 $m June 2019 $m June 2020 $m June 2019 $m 257 270 1,452 1,403 Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements172 173 Notes to Consolidated Financial Statements continued Section B: Investment continued 13. Other Financial Assets Accounting Policies Financial Assets at fair value through profit or loss on initial recognition are measured at fair value (generally transaction price) and subsequently stated at fair value. Transaction costs are recorded as expenses when they are incurred. Any gain or loss arising from a change in fair value is recognised in the Income Statement. Financial Assets at amortised cost are presented within loans and receivables in Note 21. Fair Value Level1 June 2020 $m June 2019 $m Current Measured at Fair Value Fair Value Through Profit or Loss – Designated at Initial Recognition Lendlease International Towers Sydney Trust Derivatives Total current Non Current Measured at Fair Value Fair Value Through Profit or Loss – Designated at Initial Recognition Lendlease International Towers Sydney Trust Lendlease One International Towers Sydney Trust Australian Prime Property Fund – Industrial Australian Prime Property Fund – Commercial Australian Prime Property Fund – Retail Lendlease Public Infrastructure Investment Company Military Housing Projects Initiative Lendlease Asian Retail Investment Fund Parkway Parade Partnership Limited Other investments Derivatives Total non current Total other financial assets Level 3 Level 2 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 2 Level 1 ‑ 16 16 153 53 101 372 57 40 211 ‑ 72 9 8 ‑ 87 10 97 151 54 96 369 74 40 211 44 43 11 ‑ 10 1,076 1,092 1,103 1,200 1. Refer to Note 25 ‘Fair Value Measurement’ for details of the basis for determining fair value and the valuation technique. a. Fair Value Reconciliation The reconciliation of the carrying amount for Level 3 financial assets is set out as follows. Carrying amount at beginning of financial year (Disposals) Net (losses)/gains recognised in Income Statement Other movements Carrying amount at end of financial year June 2020 $m June 2019 $m 1,180 (51) (16) (45) 1,068 1,529 (493) 106 38 1,180 The potential effect of using reasonably possible alternative assumptions for valuation inputs would not have a material impact on the Group. Section C: Liquidity and Working Capital The ability of the Group to fund the continued investment in the property and infrastructure pipeline, invest in new opportunities and meet current commitments is dependent on available cash, undrawn debt facilities and access to third party capital. This section contains disclosures on the financial assets, financial liabilities, cash flows and equity that are required to finance the Group’s activities, including existing commitments and the liquidity risk exposure associated with financial liabilities. The section also contains disclosures for the Group’s trading assets, excluding inventories, and the trading liabilities incurred as a result of trading activities used to generate the Group’s performance. 14. Cash and Cash Equivalents Accounting Policies Cash and cash equivalents include cash on hand, deposits held at call with banks, bank overdrafts and other short term highly liquid investments that are readily convertible to known amounts of cash within three months and which are subject to an insignificant risk of changes in value. Bank overdrafts (if applicable) are shown as a current liability on the Statement of Financial Position and are shown as a reduction to the cash balance in the Statement of Cash Flows. Notes June 2020 $m June 2019 $m Continuing Cash Short term investments1 Total cash and cash equivalents in the Statement of Financial Position Disposal Group Assets Held for Sale Cash Short term investments Total cash and cash equivalents classified as Disposal Group assets held for sale 32 Total cash and cash equivalents 937 174 1,111 142 309 451 1,562 731 559 1,290 ‑ ‑ - 1,290 1. Short term investments earned variable rates of interest which averaged 1.5 per cent per annum during the year (30 June 2019: 2.3 per cent). Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements174 175 Notes to Consolidated Financial Statements continued June 2020 $m June 2019 $m 2,036 (1,634) 402 4,461 (761) 3,700 124 1,727 (1,727) - 3,495 (988) 2,507 124 Section C: Liquidity and Working Capital continued 15. Notes to Statement of Cash Flows Reconciliation of Profit after Tax to Net Cash Provided by Operating Activities (Loss)/Profit after tax (including external non controlling interests) Amortisation and depreciation Net gain on sale of investments, plant and equipment Impairment of equity accounted investments Impairment of inventories Impairment of loans and receivables Impairment of intangible assets Impairment of property, plant and equipment Net unrealised foreign exchange loss and currency hedging costs Net fair value loss/(gain) on investments Share of loss/(profit) of equity accounted investments Dividends/distributions from equity accounted investments Fair value gain on investment properties Other Net cash provided by operating activities before changes in assets and liabilities Changes in Assets and Liabilities Adjusted for Effects of Purchase and Disposal of Consolidated Entities and Operations During the Financial Year Decrease in receivables Decrease/(increase) in inventories Decrease in other assets Increase in net defined benefit plans Increase/(decrease) in payables Increase in operating derivatives assets/liabilities (Increase)/decrease in deferred tax items Increase in current tax Increase/(decrease) in other provisions Net cash provided by operating activities1 1. Balances include cash flows relating to both continuing and discontinued operations. 16. Borrowings and Financing Arrangements June 2020 $m June 2019 $m b. Finance Facilities The Group has access to the following lines of credit: Commercial Notes Facility available Amount of facility used Amount of facility unused Bank Credit Facilities Facility available Amount of facility used Amount of facility unused Bank Overdrafts Facility available and amount unused Commercial notes include: (310) 244 (225) 24 30 4 22 2 18 17 13 102 (24) (83) (166) 282 77 1 (20) 102 (9) (176) (13) 59 137 467 122 (99) 6 ‑ ‑ ‑ ‑ 8 (97) (338) 43 (85) (19) 8 644 (224) 9 (13) (439) ‑ 130 (23) (32) 60 Accounting Policies Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest rate method. Under the amortised cost method the difference between the amount initially recognised and the redemption value is recorded in the Income Statement over the period of the borrowing on an effective interest basis. Borrowings are referred to in this section using their redemption value when describing the terms and conditions. a. Borrowings – Measured at Amortised Cost Current Commercial notes Total current Non Current Commercial notes Bank credit facilities Total non current Total borrowings June 2020 $m June 2019 $m 134 134 1,500 761 2,261 2,395 225 225 1,502 988 2,490 2,715 • £300 million of guaranteed unsecured notes issued in October 2006 in the UK bond market with a 6.125 per cent per annum coupon maturing in October 2021 • US$400 million of guaranteed unsecured senior notes issued in May 2016 in the US Reg. S market under Lendlease’s Euro Medium Term Note Programme with a 4.5 per cent per annum coupon maturing in May 2026 • S$300 million of guaranteed unsecured senior notes issued in April 2017 in the Singapore bond market under Lendlease’s Euro Medium Term Note Programme with a 3.9 per cent coupon maturing in April 2027 • $225 million of unsecured medium term notes issued in May 2013 ($125 million) and June 2014 ($100 million) in the Australian bond market with a 6.0 per cent per annum coupon which matured and was repaid in May 2020 • $80 million of unsecured medium term notes issued as an A$ private placement in December 2018 with a 5.4 per cent per annum coupon maturing in December 2028 • £300 million COVID Corporate Financing Facility from the Bank of England maturing March 2021 drawn to $134 million as at 30 June 2020. A number of bank credit facilities were entered into in the current period. These include: • $800 million syndicated loan facility with Tranche A $400 million and Tranche B $400 million both maturing in May 2022. As at 30 June 2020, tranches A and B were undrawn • CNY871 million bank facility maturing in January 2025 drawn to $29 million as at 30 June 2020. Existing bank credit facilities include: • £400 million club bank facility maturing in March 2023 undrawn as at 30 June 2020 • $1,800 million syndicated cash advance facility with Tranche A $900m maturing December 2021 and Tranche B $900 million maturing September 2022. As at 30 June 2020, tranche A and tranche B were undrawn • $960 million A$ syndicated loan facility, maturing in March 2024. As at 30 June 2020, the $725 million tranche A was fully drawn and the $235 million tranche B was undrawn. The bank overdraft facilities may be drawn at any time and are repayable on demand. The Group has not defaulted on any obligations in relation to its borrowings and financing arrangements. June 2020 Within one year Between one and five years More than five years Total June 2019 Within one year Between one and five years More than five years Total INTEREST EXPOSURE Fixed $m Floating $m Total $m 134 564 965 1,663 225 543 959 1,727 ‑ 725 7 732 ‑ 980 8 988 134 1,289 972 2,395 225 1,523 967 2,715 A$ $m ‑ 725 79 804 225 835 78 1,138 US$ $m ‑ ‑ 575 575 ‑ ‑ 567 567 CURRENCY £ $m CNY $m S$ $m Total $m 134 535 7 676 ‑ 688 8 696 ‑ 29 ‑ 29 ‑ ‑ ‑ - ‑ ‑ 311 311 ‑ ‑ 314 314 134 1,289 972 2,395 225 1,523 967 2,715 Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements176 177 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 16. Borrowings and Financing Arrangements continued c. Movement in Borrowings and Financing Arrangements Balance at beginning of financial year Net (repayments of)/proceeds from borrowings Effect of foreign exchange rate movements Other movements Balance at end of financial year 17. Issued Capital Accounting Policies Issued Capital Note 16a 16a June 2020 June 2019 $m 2,715 (312) (8) ‑ 2,395 $m 2,359 293 64 (1) 2,715 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares and are recognised as a deduction from equity. Issued capital at beginning of financial year Distribution reinvestment plan (DRP) Share issue via institutional placement (net of transaction costs)1,4 Share issue via Security Purchase Plan (net of transaction costs)2,4 Issued capital at end of financial year Buyback at beginning of financial year3 On market buyback of stapled securities3 Buyback at end of financial year3 Balance reflected in Retained Earnings/ Reserves3 LENDLEASE CORPORATION LIMITED LENDLEASE TRUST June 2020 June 2019 June 2020 June 2019 No. of Shares m 584 ‑ 97 27 708 (20) ‑ (20) - No. of Shares m 584 ‑ ‑ ‑ 584 (10) (10) (20) - $m 1,300 9 454 126 1,889 (285) ‑ (285) 285 $m 1,297 3 ‑ ‑ 1,300 (145) (140) (285) 285 No. of Units m 584 ‑ 97 27 708 (20) ‑ (20) - No. of Units m 584 ‑ ‑ ‑ 584 (10) (10) (20) - $m 921 2 479 134 1,536 (67) ‑ (67) 67 Issued capital at end of financial year 688 1,889 564 1,300 688 1,536 564 $m 920 1 ‑ ‑ 921 (33) (34) (67) 67 921 1. On 4 May 2020, the Group issued 97 million new stapled securities via an institutional placement at an issue price of $9.80. 2. On 4 June 2020, the Group issued 27 million new stapled securities via a Security Purchase Plan at an issue price of $9.80. 3. Stapled securities acquired as part of the Group’s on market stapled security buyback have been recorded in retained earnings for the Company and in Buyback Reserves for Lendlease Trust. 4. During the period the Group raised $1,193 million in equity after costs which was allocated 48.4% to the Company and 51.6% to Lendlease Trust. a. Issuance of Securities As at 30 June 2020, the Group had 688 million stapled securities on issue, equivalent to the number of Lendlease Corporation shares and Lendlease Trust (LLT) units on issue as at that date. The issued units of LLT are not owned by the Company and are therefore presented separately in the Consolidated Statement of Financial Position within equity. b. Security Accumulation Plans The Group’s Distribution Reinvestment Plan (DRP) was reactivated in February 2011. The last date for receipt of an election notice for participation in the DRP is 25 August 2020. The issue price is the arithmetic average of the daily volume weighted average price of Lendlease Group stapled securities traded (on the Australian Securities Exchange) for the period of five consecutive business days immediately following the record date for determining entitlements to distribution. If that price is less than 50 cents, the issue price will be 50 cents. Stapled securities issued under the DRP rank equally with all other stapled securities on issue. c. Terms and Conditions Issued capital for Lendlease Corporation Limited comprises ordinary shares fully paid. A stapled security represents one share in the Company stapled to one unit in LLT. Stapled securityholders have the right to receive declared dividends from the Company and distributions from LLT and are entitled to one vote per stapled security at securityholders’ meetings. Ordinary stapled securityholders rank after all creditors in repayment of capital. The Group does not have authorised capital or par value in respect of its issued stapled securities. 18. Capital Management The Group assesses capital management as part of its broader strategic plan. The Group focuses on interrelated financial parameters, including Return on Equity, earnings growth and borrowing capacity. The Group also monitors its gearing ratio, leverage ratio, interest coverage ratio and weighted average cost of debt and maturity profile. These are all taken into account when the Group makes decisions on how to invest its capital and evaluate its existing investments. The Group’s capital includes total equity, borrowings and other interest bearing liabilities. When investing capital, the Group’s objective is to deliver strong total securityholder returns and to maintain an investment grade credit rating by maintaining an appropriate financial profile. The Moody’s/Fitch long term credit ratings at 30 June 2020 are Baa3/BBB‑ respectively (June 2019: Baa3/BBB‑). The capital structure of the Group can be changed by equity issuance, paying distributions to securityholders, the Distribution Reinvestment Plan and changing the level of debt. For further information on how the Group allocates and manages capital, refer to details of the Portfolio Management Framework in the Financial Area of Focus and Performance and Outlook sections of this Annual Report. 19. Liquidity Risk Exposure Further information on liquidity risk is disclosed in Note 23 ‘Financial Risk Management’. As disclosed in Note 26 ‘Contingent Liabilities’, in certain circumstances, the Company guarantees the performance of particular Group entities in respect of their obligations including bonding and bank guarantees. Issued bank guarantees have cash collateralisation requirements if the bank guarantee facility is not renewed by the provider. At 30 June 2020, the Group does not anticipate a significant liquidity risk in relation to the following financial liabilities. This is due to its continued strong cash flows and the Group’s financial profile, as supported by the $1.2 billion equity raising, significant committed undrawn facilities and low gearing ratio. Refer to Note 14 ‘Cash and Cash Equivalents’, Note 16 ‘Borrowings and Financing Arrangments’ and Note 17 ‘Issued Capital’ for further details. The Group has provided collateral of $nil (June 2019: $nil) against letter of credit facilities. The following are the contractual cash flow maturities of financial liabilities including estimated interest payments. Carrying Amount $m Contractual Cash Flows $m Less Than One Year $m One to Two Years $m Two to Five Years $m Note More Than Five Years $m June 2020 Non Derivative Financial Liabilities Trade and other payables1,2 Lease liabilities3 Borrowings and financing arrangements Other financial liabilities Total Derivative Financial Liabilities (Outflow) Inflow Total June 2019 Non Derivative Financial Liabilities Trade and other payables1 Borrowings and financing arrangements Total Derivative Financial Liabilities (Outflow) Inflow Total 22 22 16a 22 16a 4,688 544 2,395 ‑ 7,627 ‑ 11 11 5,566 2,715 8,281 ‑ 7 7 5,166 650 2,667 26 8,509 (399) 404 5 5,785 3,295 9,080 (434) 432 (2) 3,941 119 215 26 782 123 588 ‑ 97 234 848 ‑ 346 174 1,016 ‑ 4,301 1,493 1,179 1,536 (397) 404 7 4,513 354 4,867 (428) 432 4 ‑ ‑ - 662 119 781 (4) ‑ (4) (1) ‑ (1) 559 1,749 2,308 (1) ‑ (1) (1) ‑ (1) 51 1,073 1,124 (1) ‑ (1) 1. Trade and other payables are presented excluding lease liabilities. The carrying amount of trade and other payables excludes $884 million of current and $785 million of non current amounts (June 2019: $1,375 million of current and $184 million of non current amounts) in relation to items where there is no future cash outflow or liquidity risk. 2. Balance includes Disposal Group liabilities held for sale. 3. Lease liabilities are presented separately from trade and other payables to disclose a maturity analysis as required under AASB 16 Leases. June 2019 comparatives are $nil as lease liabilities were not recognised under AASB 117 Leases. Other contractually committed cash flows the Group is exposed to are detailed in Note 20 ‘Commitments’. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements178 179 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 20. Commitments 21. Loans and Receivables a. Capital Expenditure Commitments At balance date, capital expenditure commitments agreed or contracted but not provided for in the financial statements are as follows: Due within one year Due between one and five years Due later than five years Total 1. Balance includes Disposal Group capital expenditure commitments. b. Investments At balance date, capital commitments existing in respect of interests in equity accounted investments and other investments contracted but not provided for in the financial statements are as follows: Due within one year Due between one and five years Due later than five years Total c. Operating Lease Commitments June 20201 $m June 2019 $m 16 ‑ ‑ 16 46 ‑ ‑ 46 June 2020 $m June 2019 $m 386 1,234 15 1,635 292 340 ‑ 632 Operating lease commitments are no longer required under AASB 16 Leases as these are now recorded as Lease liabilities. The difference between the operating lease commitment disclosed at 30 June 2019 and the Lease liabilities recorded on adoption is due to discounting of the lease payments. Accounting Policies Loans and receivables, which include trade and other receivables, are non derivative financial assets with fixed or determinable payments that are not equity securities. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Contract debtors represent receivables where the right to receive payment from customers remains conditional. Other receivables include receivables related to investment management, property development and miscellaneous items. Loans and receivables are carried at amortised cost using the effective interest method, which applies the interest rate that discounts estimated future cash receipts over the term of the loans and receivables. Cash flows relating to short term trade and other receivables are not discounted if the effect of discounting is immaterial. The discount, if material, is then recognised as revenue over the remaining term. The Group assesses provision for impairment of loans and receivables based on expected loss, and books provision if material. The Group considers reasonable and supportable information that is relevant and available. This includes both quantitative and qualitative information and analysis, based on the Group’s historical impairment experience, credit assessment of customers and any relevant forward looking information. The amount of the provision is recognised in the Income Statement. Retentions receivable on construction contracts represent deposits held by the Group until the satisfaction of conditions specified in the contract are rectified. Note June 2020 $m June 2019 $m Current Trade receivables Less: Impairment Related parties Retentions Contract debtors Accrued income Other receivables Less: Impairment Total current Non Current Related parties Less: Impairment Retentions Other receivables Total non current Total loans and receivables 21a 21a 762 (16) 746 32 351 263 62 213 ‑ 1,012 (13) 999 76 330 349 57 241 (2) 1,667 2,050 176 (2) 218 352 744 2,411 38 (1) 351 300 688 2,738 As at the reporting date, $501 million of the trade debtors were current (30 June 2019: $640 million) and $261 million were past due (30 June 2019: $372 million). Of the past due amount, $245 million was not impaired (30 June 2019: $359 million). ‘Past due’ is defined under accounting standards to mean any amount outstanding for one or more days after the contractual due date. Of the total trade debtors, 23.1 per cent (30 June 2019: 18.6 per cent) are aged greater than 90 days. Other than trade debtors, no other loans and receivables are considered past due at 30 June 2020 (30 June 2019: $nil). Provision for Impairment Carrying amount at beginning of financial year Bad and doubtful debts impairment loss net of provisions written back Utilised bad and doubtful debts impairment provision Other movements (including foreign exchange rate movements) Carrying amount at end of financial year June 2020 $m June 2019 $m 16 4 (2) ‑ 18 14 2 ‑ ‑ 16 Total impairment as a percentage of total loans and receivables 0.7% 0.6% Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements180 181 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 21. Loans and Receivables continued The credit quality of all loans and receivables, including those neither past due nor impaired, is assessed and monitored on an ongoing basis. In the current reporting period, additional reviews were undertaken to assess recoverability in light of the COVID‑19 pandemic. As the majority of the Group’s customers are Government entities for the Construction business and are institutional investors in the Development and Investment businesses, no additional risk has been identified. Impairment as noted above was immaterial in FY20. The impairment provision relates to specific loans and receivables that have been identified as being impaired, including related party loans where the Group’s interest in a development was via an equity accounted investment. a. Contract Assets Current Contract debtors Construction contract assets Accrued income Total contract assets1 Note June 2020 $m June 2019 $m 11 263 912 62 1,237 349 1,180 57 1,586 1. Movements in contract assets during the period relate primarily to the transfer of balances into Trade receivables as the right to receive payment from customers becomes unconditional and contract assets transferred to Disposal Group assets held for sale. Refer to Note 32 ‘Discontinued Operations’ for further details. 22. Trade and Other Payables Accounting Policies Trade Creditors Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to the Group. Trade and other payables are settled in the normal course of business. Trade and other payables are carried at amortised cost using the effective interest method, which applies the interest rate that discounts estimated future cash outflows over the term of the trade and other payables. Cash flows relating to short term trade and other payables are not discounted if the effect of discounting is immaterial. The discount, if material, is then recognised as an expense over the remaining term. Construction contract liabilities Construction contracts where the total progress billings issued to clients (together with foreseeable losses, if applicable) on a project exceed the costs incurred to date plus recognised profit on the contract are recognised as a liability. Retentions Retentions are amounts payable for the purpose of security and for the provision of defects in accordance with contract terms. Release of retention amounts are in accordance with contractual terms. Unearned Income Primarily relates to unearned income and deposits received in advance on presold apartments. These amounts will be recognised as income in line with the ‘Sale of development properties’ accounting policy in Note 4 ‘Revenue from Contracts with Customers’. Lease Liabilities Lease liabilities are measured at the present value of the lease payments discounted using the interest rate implicit in the lease. The Group uses its incremental borrowing rate as the discount rate. Current Trade and accrued creditors Construction contract liabilities Related parties Retentions Deferred land payments Unearned Income1 Lease liabilities2 Other payables ‑ PLLACes1,3 Other Total current Note 22a 22a June 2020 $m June 2019 $m 2,281 1,460 17 476 19 40 71 ‑ 132 3,136 1,404 18 476 98 119 ‑ 164 309 4,496 5,724 1. June 2019 Unearned income balance has been reclassified to separately present PLLACes transactions. PLLACes transactions involve selling the presold apartment cash flows for a specific development project to a third party for cash consideration. 2. As a result of the adoption of AASB 16 Leases, Lease liabilities have been presented separately. June 2019 comparatives are $nil as Lease liabilities were not recognised under AASB 117 Leases. 3. Refer to Note 4 ‘Revenue from Contracts with Customers’ for further details. Non current Trade and accrued creditors Retentions Deferred land payments Unearned income1 Lease liabilities2 Other payables ‑ PLLACes1,3 Other Total non current Total trade and other payables Note 22a June 2020 $m June 2019 $m 4 190 614 177 473 608 339 2,405 6,901 7 309 635 183 ‑ ‑ 267 1,401 7,125 1. June 2019 Unearned income balance has been reclassified to separately present PLLACes transactions. PLLACes transactions involve selling the presold apartment cash flows for a specific development project to a third party for cash consideration. 2. As a result of the adoption of AASB 16 Leases, Lease liabilities have been presented separately. June 2019 comparatives are $nil as Lease liabilities were not recognised under AASB 117 Leases. 3. Refer to Note 4 ‘Revenue from Contracts with Customers’ for further details. As a result of the adoption of AASB 16 Leases, the Group has recognised amounts for Right‑of‑use assets and Lease liabilities. As at 30 June 2020, the Group recognised right‑of‑use assets of $359 million within Property, Plant and Equipment and $50 million within Investment Properties. a. Contract Liabilities Current Unearned income1,2 Construction contract liabilities3 Total current Non Current Unearned income1 Total non current Total contract liabilities June 2020 $m June 2019 $m 40 1,460 1,500 177 177 1,677 119 1,404 1,523 183 183 1,706 1. Movements in Unearned income relates primarily to residential presales settled during the period and deposits received for development properties. 2. June 2019 Unearned income balance has been reclassified to separately present PLLACes transactions. 3. Movements in Construction contract liabilities relate primarily to billings raised during the period in excess of revenue recognised on construction contracts with customers and losses incurred on retained Engineering projects, offset by Construction contract liabilities transferred to Disposal Group liabilities held for sale. Refer to Note 32 ‘Discontinued Operations’ for further details. During the year, the Group recognised $846 million in revenue from contracts that held a contract liability balance at the beginning of the financial year. The total transaction price relating to the Group’s Unearned income on the Group’s development contracts at June 2020 is $758 million relating primarily to various UK and Australian projects. The difference between the Unearned income amount noted in the table above and this amount primarily relates to the remaining development value of apartments versus the deposit amount received. Revenue from these contracts is expected to be realised as control over each asset is transferred to the customer. The total transaction price allocated to unsatisfied performance obligations on the Group’s construction contracts as at June 2020 is $13.9 billion for the core business (June 2019: $15.6 billion) and $5.1 billion for the Non core business (June 2019: $5.4 billion), which is the construction backlog reported in the Performance and Outlook section of the Directors’ report. This includes new work secured during the period. Of the total construction backlog, 47 per cent is expected to be realised within the next 12 months to June 2021 (June 2019: 53 per cent to June 2020), 25 per cent to June 2022 (June 2019: 25 per cent to June 2021) and the remaining 28 per cent realised post June 2022 (June 2019: 22 per cent post June 2021). Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements182 183 Notes to Consolidated Financial Statements continued Section D: Risk Management The Group’s activities expose it to a variety of financial risks. The Group’s overall financial risk management strategy focuses on the unpredictability of financial markets and seeks to minimise adverse effects on the Group’s performance. Treasury policies have been approved by the Board for managing this risk. This section contains disclosures of financial risks the Group is exposed to and how the Group manages these risks. The impact of contingent liabilities is also considered in this section. 23. Financial Risk Management The Group operates across numerous jurisdictions and markets. The Lendlease Asset and Liability Committee oversees the management of the Group’s treasury risks, within the parameters of a Board approved Treasury Policy, and maintains a Group wide framework for financial risk management and reviews issues of material risk exposure within the scope of the Treasury Policy. A summary of key risks identified, exposures and management of exposures is detailed in the table below. Risks Identified Definition Exposures Management of Exposures Foreign Currency The risk in local currency terms that the value of a financial commitment or a recognised asset or liability, will fluctuate due to changes in foreign currency exchange rates • Foreign currency earnings • Net investments in foreign operations • Transactions settled in foreign currency • Further information on exposures is detailed in Note 23a ‘Foreign Currency Risk Exposure’ • Physical financial instruments, including natural hedges from matching foreign assets and liabilities • Derivative financial instruments, mainly foreign exchange contracts • Contracting out • Speculative trading is not permitted Credit The risk that a counterparty will not be able to meet its obligations in respect of a financial instrument, resulting in a financial loss to the Group Liquidity The risk of having insufficient funds to settle financial liabilities as and when they fall due Interest Rate The risk that the value of a financial instrument or cash flow associated with the instrument will fluctuate due to changes in market interest rates Equity Price The risk that the fair value of either a traded or non traded equity investment, derivative equity instrument, or a portfolio of such financial instruments, increases or decreases in the future • Recoverability of loans and • Policies in place so that customers and receivables suppliers are appropriately credit assessed • Recoverability of other financial assets and cash deposits • Further information on exposures is detailed in Note 23b ‘Credit Risk Exposure’ • Treasury Policy sets out credit limits for each counterparty based on minimum investment grade ratings • Insufficient levels of • Maintaining sufficient levels of cash committed credit facilities • Settlement of financial liabilities and committed credit facilities to meet financial commitments and working capital requirements • Further information on • Managing to funding portfolio benchmarks exposures is detailed in Note 19 ‘Liquidity Risk Exposure’ as outlined in the Treasury Policy • Timely review and renewal of credit facilities • Financial assets, mainly cash at bank • Financial liabilities, mainly borrowings and financing arrangements • Further information on exposures is detailed in Note 23c ‘Interest Rate Risk Exposure’ • Physical financial instruments • Derivative financial instruments, mainly interest rate swaps • Managing to hedging limits in respect of recourse funding as outlined in the Treasury Policy • Speculative trading is not permitted • All traded and/or non traded financial instruments measured at fair value • Material investments within the portfolio are managed on an individual basis. The Group’s portfolio is monitored closely as part of capital recycling initiatives a. Foreign Currency Risk Exposure The net asset exposure by currency is detailed below. A$m US$m £m S$m €m CNY m MYR m Other m2 June 20201 Net asset/(liability) exposure (local currency) June 2019 Net asset/(liability) exposure (local currency) 3,390 717 596 3,380 645 476 593 462 190 118 599 1,044 569 1,047 33 37 1. Balance includes Disposal Group assets and liabilities held for sale. 2. Other currency is translated and disclosed in AUD. Sensitivity Analysis The sensitivity analysis of the Group’s Australian dollar denominated Income Statement and Statement of Financial Position to foreign currency movements is based on a 10 per cent fluctuation (June 2019: 10 per cent fluctuation) on the average rates during the financial year and the spot rate at balance date respectively. This analysis assumes that all other variables, in particular interest rates, remain constant, and excludes the effects of the foreign exchange contracts. A 10 per cent movement in the average foreign exchange rates would have impacted the Group’s Profit after tax as follows: USD GBP SGD EUR CNY MYR 10% WEAKENING LEADS TO INCREASE/(DECREASE) IN PROFIT AFTER TAX 10% STRENGTHENING LEADS TO INCREASE/(DECREASE) IN PROFIT AFTER TAX June 2020 $m June 2019 $m June 2020 $m June 2019 $m 4 ‑ 6 4 1 2 17 14 3 8 ‑ 1 (2) 24 (5) ‑ (4) (3) (1) (2) (15) (12) (5) (6) 1 (1) 1 (22) A 10 per cent movement in the foreign exchange spot rates at balance date would have impacted the Group’s net assets as follows: USD GBP SGD EUR CNY MYR 10% WEAKENING LEADS TO INCREASE/(DECREASE) IN NET ASSETS 10% STRENGTHENING LEADS TO INCREASE/(DECREASE) IN NET ASSETS June 2020 $m June 2019 $m June 2020 $m June 2019 $m 117 127 72 33 14 38 401 103 86 51 20 13 40 313 (96) (104) (59) (28) (11) (33) (331) (83) (86) (46) (17) (11) (33) (276) Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements 184 185 Notes to Consolidated Financial Statements continued Section D: Risk Management continued 23. Financial Risk Management continued b. Credit Risk Exposure • The maximum exposure to credit risk at balance date on financial instruments recognised in the Statement of Financial Position (excluding investments of the Group) equals the carrying amount, net of any impairment. • The Group is not exposed to any significant concentrations of credit risk on either a geographic or industry specific basis. • Credit risk on financial instruments is managed under a Board approved credit policy that determines acceptable counterparties. Derivative counterparties and cash deposits are limited to recognised financial intermediaries with a minimum investment grade credit rating as determined by a recognised rating agency. • Refer to Note 21 ‘Loans and Receivables’ for information relating to impairment on loans and receivables. • In certain circumstances, the Group will hold either financial or non financial assets as collateral to further mitigate the potential credit risk on selected transactions. During the current and prior year, the Group did not hold financial or non financial assets as collateral. At any point in time, the Group will hold other collateral such as bank guarantees and performance bonds to mitigate potential credit risk as a result of default by a counterparty or otherwise. c. Interest Rate Risk Exposure The Group’s exposure to interest rate risk on its financial assets and liabilities is set out as follows: Fixed Rate Financial assets Financial liabilities Variable Rate Financial assets Financial liabilities CARRYING AMOUNT June 20201 $m June 2019 $m 173 (2,103) (1,930) 1,241 (736) 505 770 (1,806) (1,036) 476 (990) (514) 1. Balance includes Disposal Group financial assets and liabilities held for sale. Sensitivity Analysis At 30 June 2020, it is estimated that an increase of one percentage point in interest rates would have decreased the Group’s equity and Profit after tax by $6 million (June 2019: $21 million decrease in the Group’s equity and Profit after tax). A one percentage point decrease in interest rates would have increased the Group’s equity and Profit after tax by $6 million (June 2019: $21 million increase in the Group’s equity and Profit after tax). The increase or decrease in interest income/(expense) is proportional to the increase or decrease in interest rates. Interest rate derivatives have been included in this calculation. 24. Hedging Accounting Policies The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. Derivative financial instruments are recognised initially at fair value on the date a derivative contract is entered into and subsequently remeasured at fair value. Hedge accounting recognises the offsetting effects on profit or loss of changes in the fair value of the derivative financial instruments and the hedged item. The accounting for hedges that meet the criteria for hedge accounting are classified as either fair value hedges, cash flow hedges or investment hedges. The Group has minimal hedges designated at fair value. The Group primarily uses forward foreign exchange contracts as cash flow hedges for highly probable sale, purchase and dividend transactions. The Group also uses forward foreign exchange contracts to hedge cross border intercompany loans and transactions which mainly net off in the Income Statement. Interest rate swaps and interest rate options are used to manage the Group’s exposure to interest rates arising from borrowings. These are treated as cash flow hedges and are mainly on borrowings within equity accounted investments. The Group has foreign exchange derivative contracts primarily held in USD, EUR, SGD, JPY and MYR at reporting date to hedge specific foreign currency exposures. The total gross payable exposure, including Disposal Group, is $936 million (June 2019: $249 million). There are 56 foreign currency contracts that will mature in more than one year (June 2019: 72 foreign currency contracts). 25. Fair Value Measurement Accounting Policies The accounting policies for financial instruments held at fair value are included in Note 13 ‘Other Financial Assets’ and Note 24 ‘Hedging’. Management considers the valuation of assets at fair value including financial instruments to be an area of estimation uncertainty. While this represents the best estimation of fair value at the reporting date, the fair values may differ if there is volatility in market prices or foreign exchange rates in future periods. All financial instruments recognised in the Statement of Financial Position, including those instruments carried at amortised cost, are recognised at amounts that represent a reasonable approximation of fair value, with the exception of the following borrowings. Liabilities Current Commercial notes Non Current Commercial notes JUNE 2020 JUNE 2019 Carrying Amount $m Fair Value $m Carrying Amount $m Fair Value $m 134 133 225 234 1,500 1,676 1,502 1,640 Note 16a 16a The fair value of commercial notes has been calculated by discounting the expected future cash flows by the appropriate government bond rates and credit margin applicable to the relevant term of the commercial note. a. Basis of Determining Fair Value The determination of fair values of financial assets and liabilities that are measured at fair value are summarised as follows: • The fair value of unlisted equity investments, including investments in property funds, is determined based on an assessment of the underlying net assets, which may include periodic independent and Directors’ valuations, future maintainable earnings and any special circumstances pertaining to the particular investment. Fair value of unlisted equity investments has also taken the COVID‑19 pandemic into consideration to determine fair value at 30 June 2020. This has included more frequent independent valuations of underlying investment properties to account for current market conditions. This has resulted in a net fair value loss in Other financial assets of $17 million. Refer to Note 7 ‘Other expenses’ • The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted valuation techniques; these include the use of recent arm’s length transactions, reference to other assets that are substantially the same, and discounted cash flow analysis • The fair value of derivative instruments comprises forward foreign exchange contracts, which are valued using forward rates at balance date, and interest rate swap contracts, which are measured at the present value of future cash flows estimated and discounted based on applicable yield curves derived from quoted interest rates and include consideration of counterparty risk adjustments. b. Fair Value Measurements The different levels for valuation method have been defined as follows: • Level 1: The fair value is determined using the unadjusted quoted price for an identical asset or liability in an active market for identical assets or liabilities • Level 2: The fair value is calculated using predominantly observable market data other than unadjusted quoted prices for an identical asset or liability • Level 3: The fair value is calculated using inputs that are not based on observable market data. During the period, there were no material transfers between Level 1, Level 2 and Level 3 fair value hierarchies. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements186 187 Notes to Consolidated Financial Statements continued Section D: Risk Management continued Section E: Basis of Consolidation 26. Contingent Liabilities The Group has the following contingent liabilities, being liabilities in respect of which there is the potential for a cash outflow in excess of any provision where the likelihood of payment is not considered probable or cannot be measured reliably at this time. • There are a number of legal claims and exposures that arise from the normal course of the Group’s business, particularly in respect of claims for defects and under warranties and indemnities. In many cases, there is uncertainty as to whether a future liability will arise in respect to these items. Where it is probable there will be liabilities from such claims, a provision has been made for anticipated losses arising from such claims. • In certain circumstances, the Company guarantees the performance of particular Group entities in respect of their obligations. This includes bonding and bank guarantee facilities used primarily by the Construction business as well as performance guarantees for certain of the Company’s subsidiaries. • Securities Class Action On 18 April 2019, Lendlease Corporation and Lendlease Responsible Entity (Lendlease Group) were served with a shareholder class action proceeding filed in the Supreme Court of New South Wales on 18 April 2019 by David William Pallas and Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund, represented by Maurice Blackburn. On 7 August 2019, Lendlease Corporation and Lendlease Responsible Entity (Lendlease Group) were served with a shareholder class action proceeding filed in the Supreme Court of New South Wales on 6 August 2019 by Martin John Fletcher, represented by Phi Finney McDonald. On 21 November 2019, the Supreme Court ordered consolidation of the two class actions into a single proceeding. The consolidated proceeding alleges that Lendlease was in breach of its continuous disclosure obligations under the Corporations Act 2001 and made representations about its Engineering and Services business that were misleading or deceptive or likely to mislead or deceive. It is currently not possible to determine the ultimate impact of these claims, if any, on Lendlease Group. Lendlease Group denies the allegations and intends to vigorously defend this proceeding. This section provides information on how the Group structure affects the financial position and performance of the Group as a whole. The disclosures detail the types of entities and transactions included in the consolidation and those excluded. 27. Consolidated Entities Accounting Policies The Group consolidation comprises all subsidiaries controlled by the Company. Control exists when the Company: • Has the power to direct the relevant activities such as key operating, financial and investing decisions • Has exposure or rights to variable returns from its involvement with the investee such as dividends, loans and fees • Has the ability to use its power over the investee to affect the amount of returns. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account. Management uses accounting judgement in determining whether the Group controls an entity by applying the above control criteria and reviewing the substance of its relationship with the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies with adjustments made to bring into line any dissimilar accounting policies that may exist. External non controlling interests are allocated their share of total comprehensive income and are presented within equity in the consolidated Statement of Financial Position, separately from the equity of securityholders. The material consolidated entities of the Group listed below were wholly owned during the current and prior year. Refer to the following section for details on the disposal of entities. PARENT ENTITY EUROPE Lendlease Corporation Limited Lendlease Construction (Europe) Limited AUSTRALIA Capella Capital Lendlease Pty Limited Capella Capital Partnership Lendlease Building Pty Limited Lendlease Construction Holdings (Europe) Limited Lendlease Europe Finance plc Lendlease Europe Limited Lendlease Residential (CG) Limited Lendlease Building Contractors Pty Limited Lendlease (Elephant & Castle) Limited Lendlease Communities (Australia) Limited ASIA Lendlease Development Pty Limited Lendlease Engineering Pty Limited Lendlease Finance Limited Lendlease Japan Inc. Lendlease Singapore Pte. Limited AMERICAS Lendlease Infrastructure Investments Pty Limited Lendlease (US) Capital, Inc. Lendlease International Pty Limited Lendlease (US) Construction, Inc. Lendlease Real Estate Investments Limited Lendlease (US) Construction LMB, Inc. Lendlease Responsible Entity Limited Lendlease (US) Public Partnerships, LLC Lendlease Services Pty Limited Lendlease (US) Public Partnerships Holdings LLC Lendlease Trust1 Lendlease Development, Inc. 1. Lendlease Trust is a consolidated entity of the Group as the parent entity is deemed to control it. Lendlease Trust is not wholly owned. During the current and prior year, there were no acquisitions of material consolidated entities. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements188 189 Notes to Consolidated Financial Statements continued Section E: Basis of Consolidation continued 27. Consolidated Entities continued The following material disposals of consolidated entities occurred during the current and prior year. Ownership Interest Disposed % Date Disposed Gross Consideration Received/Receivable $m June 2020 Australia Victoria Cross Commercial Head Trust 25.0 21 December 2019 June 2019 Americas Americas Residential Partnership 50.0 19 July 2018 31 172 28. Employee Benefit Vehicles The Company sponsors a number of employee benefit vehicles, including employee security plans and employee security ownership vehicles. These vehicles while not legally controlled, are currently required to be consolidated for accounting purposes. a. Employee Security Plans As at 30 June 2020, employees own approximately 1.0 per cent (June 2019: 1.0 per cent) of the issued capital of the Group through various active Lendlease employee security plans and ownership vehicles, details of which are outlined below: • Australia: Employee Share Acquisition Plan (ESAP): ESAP was established in December 1988 for the purpose of employees acquiring securities in the Group and is funded by Lendlease subscriptions, and employee salary sacrifice contributions • Americas: US Rabbi Trust (Rabbi Trust) was established in 2004 and updated in 2005 for the acceptance of employee profit share contributions used to acquire Group securities for US based employees. This part of the plan is not currently accepting new contributions • Employee Share Acquisition Plan (STI) (ESAP STI): ESAP STI was established in July 2014 for the purpose of acquiring and allocating securities granted as the deferred component of Short Term Incentive (STI) awards, which are funded by Lendlease subscriptions. Securities are currently allocated to employees across Australia, Singapore, Malaysia, the United Kingdom and the United States. Eligibility The eligibility rules for each plan are determined by reference to the regulatory, legal and tax rules of each country in which the Group operates. Distributions and/or Voting Rights Generally, employees in the various operating security plans are entitled to distributions and voting rights for allocated securities. The plans reflect this intention subject to regulatory, legal and tax constraints. The trustee may exercise these rights in accordance with any fiduciary or governance rules pertaining to the deed or trust laws in the legal and tax jurisdiction within which the trust operates. b. Employee Security Ownership Vehicles In addition to the plans discussed above, Lendlease has an employee security ownership vehicle, Lendlease Retirement Benefit Fund (RBF). • RBF was established in 1984 with shareholder approval for the benefit of employees. RBF holds Lendlease securities. The Lendlease securities in RBF are not available for allocation to employees other than in the event of a change of control of the Group and, in accordance with RBF’s trust deed, the capital of the trust is not available to the Group. The RBF trustee has discretion as to the distribution of the RBF funds. In 1992, a deed poll was executed which allows for the distribution of the income of RBF to the Company to fund employee benefit activities through the Lendlease Foundation. As a result of changes to the constitution and governance structure of the RBF trustee on 22 June 2017, Lendlease currently does not have control of RBF and therefore RBF is currently not required to be consolidated for accounting purposes. • The RBF arrangement is subject to periodic review to assess its ongoing role and operation. 29. Parent Entity Disclosures The following summarises the financial information of the Group’s parent entity, Lendlease Corporation Limited (the Company), as at and for the year ended 30 June 2020. Results Profit after tax Other comprehensive income after tax Total comprehensive income after tax Financial Position Current assets Non current assets Total assets Current liabilities Non current liabilities Total liabilities Net assets Issued capital Treasury securities Reserves Retained earnings Total equity COMPANY June 2020 $m June 2019 $m 613 (1) 612 1,613 2,858 4,471 577 2 579 3,892 1,889 (68) 182 1,889 3,892 110 ‑ 110 5,738 1,978 7,716 4,844 6 4,850 2,866 1,300 (68) 179 1,455 2,866 In respect of the contingent liabilities of the Group disclosed in Note 26 ‘Contingent Liabilities’, the Company participates in the provision of guarantees to Group entities. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements190 191 Notes to Consolidated Financial Statements continued Section E: Basis of Consolidation continued 30. Related Party Information a. Consolidated Entities Intragroup balances and transactions, and any unrealised gains or losses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Investments in subsidiaries are carried at their cost of acquisition less impairments in the Company’s financial statements. Lendlease Corporation Limited provides financing and treasury services, which includes working capital facilities and long term financing to certain subsidiaries. Interest is earned or incurred only on long term loans provided to or drawn with subsidiaries based on project specific risks and returns. Outstanding balances arising from working capital facilities and long term financing are typically unsecured and repayable on demand. In addition, guarantees are provided to particular Group entities in respect of their obligations. These include bonding and bank guarantee facilities used primarily by the Construction business as well as performance guarantees for certain Development business commercial built form developments. Guarantee fees are charged under normal terms and conditions. The following represents the transactions that occurred during the financial year and the balances outstanding at year end between Lendlease Corporation Limited and its consolidated entities. Transactions Guarantee fees Dividend income Interest income Interest expense Outstanding Balances (Net of Provisions Raised) Receivables Payables COMPANY1 June 2020 $000s June 2019 $000s 30,998 478,893 6,932 103,546 1,251,166 505,634 29,497 306,217 10,249 106,282 4,730,795 4,772,546 1. During the period the funding of the majority of Group entities was moved from the Company to Lendlease Finance Limited, a wholly owned subsidiary of the Company. Transactions that occurred during the financial year between entities in the Lendlease Group included: • Provision of project management, design services, construction management and engineering services to development projects • Provision of development management services • Provision of investment management services • Provision of payroll, transaction and management services • Receipt and payment of superannuation contributions • Reimbursement of expenses made on behalf of subsidiaries • Loan advances and repayments between subsidiaries • Premium payments and receipts for the Group’s insurance policies • Dividends received or due and receivable from subsidiaries. b. Associates and Joint Ventures Interests held in associates and joint ventures by Lendlease are set out in Note 12 ‘Equity Accounted Investments’. Transactions between the Lendlease Group and its associates and joint ventures principally relate to: • Development: development management services, infrastructure bid and advisory services and the sale and purchase of development properties with Lendlease managed funds • Construction: provision of project management, building, engineering and construction services • Investments: provision of property and infrastructure investment management, property management and asset management services. There were no non interest bearing loans provided to joint ventures at 30 June 2020 (June 2019: $nil). Except as noted above, transactions and outstanding balances are typically on normal terms and conditions. Revenue earned by Lendlease during the year as a result of transactions with its associates and joint ventures is as follows: Revenue Associates Joint ventures Total June 2020 $000s June 2019 $000s 42,343 1,297,079 1,339,422 5,808 1,197,961 1,203,769 Other transactions and outstanding balances with associates, joint ventures and other related parties have been disclosed in Note 4 ‘Revenue from Contracts with Customers’, Note 6 ‘Other Income’, Note 7 ‘Other Expenses’, Note 8 ‘Finance Revenue and Finance Costs’, Note 13 ‘Other Financial Assets’, Note 21 ‘Loans and Receivables’ and Note 22 ‘Trade and Other Payables’. Transactions with joint operations are included in the consolidated Income Statement and Statement of Financial Position. c. Key Management Personnel The key management personnel compensation is as follows: Short term employee benefits1 Post employment benefits1 Security based payments Other long term benefits Total June 2020 $000s June 2019 $000s 14,623 269 10,032 113 25,037 16,501 285 11,135 299 28,220 1. The 2019 comparative has been restated to reflect that cash allowances paid in lieu of pension superannuation in the UK have been reclassified from post employment benefits to short term employee benefits. Information regarding Directors’ and senior executives’ remuneration is provided in the Remuneration Report within the Directors’ Report. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements192 193 Notes to Consolidated Financial Statements continued Section F: Other Notes 31. Intangible Assets Accounting Policies Goodwill represents the excess of the purchase price over the fair value of the Group’s share of the net identifiable assets and contingent liabilities of the acquired business at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets as goodwill. Goodwill on acquisition of associates is included in the carrying value of investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is not amortised. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. For the purposes of impairment testing, goodwill is allocated to cash generating units (CGUs) (or groups of CGUs), that are expected to benefit from the business combination in which the goodwill arose. CGUs are an identifiable group of assets that generate cash associated with the goodwill. Management considers this is an area of estimation uncertainty as these calculations involve an estimation of the recoverable amount of the CGU to which the goodwill is allocated. The Construction CGUs use the value in use basis, which requires the Group to estimate the future cash flows expected to arise from the CGUs and a suitable discount rate in order to calculate the recoverable amounts. Management agreements and other intangible assets acquired by the Group are stated at cost less accumulated amortisation and impairment losses (see Note 7 ‘Other Expenses’). Amortisation is charged to the Income Statement on a straight line basis over the estimated useful lives of the intangible assets, ranging from three to 20 years. b. Goodwill Allocation Goodwill relating to the Construction business is allocated to CGUs identified as set out below. During June 2019, the Group identified an additional segment, Non core ‑ Engineering and Services, as noted in Note 1 ‘Segment Reporting’. As a result of this change in segments, the Group identified a corresponding change in CGU for goodwill impairment testing. The Construction Australia CGU was split into two CGUs, Construction Australia Core and Construction Australia Non core. Construction Australia Non core contains the Services business. Goodwill has been re‑allocated to each CGU on a relative value basis. The goodwill from the Engineering business, held within Construction Australia Non core CGU, was transferred to Disposal Group assets held for sale during the year. Construction Australia Core Australia Non core1 Europe Americas Asia Total construction goodwill June 2020 $m June 2019 $m 573 151 246 203 8 1,181 573 170 248 201 8 1,200 Note 31a Goodwill Management agreements Other intangibles Total intangible assets a. Goodwill Construction Development Total goodwill Reconciliations Reconciliations of the carrying amounts for each category of goodwill are as follows: Construction Carrying amount at beginning of financial year Transferred to Disposal Group Effect of foreign exchange rate/other movements Carrying amount at end of financial year 31b Development Carrying amount at beginning of financial year Effect of foreign exchange rate movements Carrying amount at end of financial year June 2020 $m June 2019 $m 1. Goodwill of $19 million relating to the Engineering business was transferred to Disposal Group assets held for sale during the year. This has subsequently been impaired within the Disposal Group assets held for sale. Refer to Note 32 ‘Discontinued Operations’ for further details. 1,213 36 208 1,457 1,181 32 1,213 1,200 (19) ‑ 1,181 32 ‑ 32 1,232 39 186 1,457 1,200 32 1,232 1,185 ‑ 15 1,200 30 2 32 c. Impairment Tests and Key Assumptions Used – Construction The recoverable amount of the Construction CGUs is determined based on value in use (VIU) calculations. For the Construction CGUs, the assumptions used for determining the recoverable amount of each CGU are based on past experience and expectations for the future, utilising both internal and external sources of data and relevant industry trends. No impairment arose as a result of the review of goodwill for the Construction CGUs other than in the Disposal Group for the year ended 30 June 2020. Based on information available and market conditions at 30 June 2020, a reasonably foreseeable change in the assumptions made in this assessment would not result in impairment of Construction goodwill. The forseeable change in the assumptions took the COVID‑19 pandemic into consideration. The following describes the key assumptions on which management has based its cash flow projections when determining VIU relating to the Construction CGUs. Cash Flows The VIU calculations use pre tax cash flow projections based on actual operating results, and financial forecasts covering a five year period which have been approved by management. These forecasts are based on management estimates to determine income, expenses, capital expenditure and cash flows for each CGU. Growth Rate The terminal value growth rate used to extrapolate the cash flows beyond the five year period is 3.0 per cent (June 2019: 3.0 per cent). The growth rate reflects the forecast long term average growth rate for each CGU and the countries in which they operate. Discount Rate The discount rates applied to the cash flow projections vary between 9.4 per cent and 13.1 per cent (June 2019: between 10.0 per cent and 13.2 per cent). The Group’s weighted average cost of capital is used as a starting point for determining the discount rate, with appropriate adjustments for the risk profile relating to the relevant CGUs and the countries in which they operate. The discount rates used are pre tax. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements194 195 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 32. Discontinued Operations Discontinued operations relate to a component of the Group including its corresponding assets and liabilities that have been classified as held for sale and represent a separate major line of business or geographical area of operation. The group of assets and their corresponding liabilities (together referred to as a Disposal Group), may only be classified as held for sale once the following criteria are met: • The carrying amount will be recovered principally through a sale transaction rather than through continuing use • The sale must be highly probable. A disposal group is measured at the lower of its carrying amount and fair value less costs to sell. Where fair value is lower than the carrying amount, the difference is recognised as an impairment loss within the Income Statement. The results of discontinued operations are presented separately in the Income Statement and Statement of Comprehensive Income. Comparatives have also been restated for the Income Statement, Statement of Comprehensive Income and corresponding Notes to separately disclose the results of the discontinued operations from continuing operations. On 25 February 2019, the Group announced that its Engineering and Services businesses are no longer a required part of the Group’s strategy. Management at that time committed to a plan to exit from Non core operations of Engineering and Services. On 19 December 2019, the Group entered into an agreement with Acciona to sell its Engineering business for a purchase price of $180 million. In June 2020, the purchase price was revised to $160 million. The discontinued operations represents the Engineering business to be sold, excluding the projects retained by the Group. The transaction, which at 30 June 2020 was subject to conditions including client and third party consents, is expected to complete in the first half of FY21. On 28 April 2020, the Group announced the sales process for the Services business has been paused given the uncertainty in market conditions. The Services business no longer meets the accounting criteria to be held for sale, therefore it has not been included in discontinued operations or assets and liabilities classified as held for sale at 30 June 2020. The Group previously disclosed a cost estimate to exit the Non core segment of $450‑$550 million pre tax. These costs are now estimated to be approximately $550 million pre tax, with $525 million pre tax ($368 million after tax) expensed in the year ended 30 June 2020. $15 million pre tax was expensed in the prior year. Exit related costs include: implementation and selling costs and estimated costs to cover concluding projects retained by the Group which have been recorded in Continuing Operations. At 30 June 2020, the results of the Engineering and Services businesses have been presented separately from the Construction segment as Non core. Refer to Note 1 ‘Segment Reporting’ for details. The results of the discontinued operations, representing the Engineering business to be sold, are as follows: June 2020 June 2019 Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Basic/Diluted Earnings Per Share (EPS) from Continuing Operations (Loss)/profit from continuing operations attributable to members of Lendlease Corporation Limited (Company) Weighted average number of ordinary shares $m m (374) 599 (374) 603 Basic/Diluted EPS from continuing operations cents (62.4) (62.0) Basic/Diluted Earnings Per Share (EPS) from Discontinued Operations Profit/(loss) from discontinued operations attributable to members of Lendlease Corporation Limited (Company) Weighted average number of ordinary shares Basic/Diluted EPS from discontinued operations Basic/Diluted Earnings Per Stapled Security (EPSS) from Continuing Operations (Loss)/profit from continuing operations attributable to securityholders of Lendlease Group Weighted average number of stapled securities Basic/Diluted EPSS from continuing operations Basic/Diluted Earnings Per Stapled Security (EPSS) from Discontinued Operations Profit/(loss) from discontinued operations attributable to securityholders of Lendlease Group Weighted average number of stapled securities Basic/Diluted EPSS from discontinued operations $m m cents $m m cents $m m cents 32 599 5.3 (342) 599 (57.1) 32 599 5.3 32 603 5.3 (342) 603 (56.7) 32 603 5.3 403 584 69.0 (90) 584 403 588 68.5 (90) 588 (15.4) (15.3) 557 584 95.4 557 588 94.7 (90) 584 (90) 588 (15.4) (15.3) June 2020 $m June 2019 $m The net cash flows for discontinued operations, representing the Engineering business to be sold, are as follows: Results from Discontinued Operations Revenue from contracts with customers Cost of sales Gross profit/(loss) Other income Impairment on Disposal Group held for sale1 Other expenses Profit/(loss) before tax for discontinued operations Income tax (expense)/benefit Total profit/(loss) after tax for discontinued operations as presented in the Income Statement 1. Relates to the impairment of goodwill as a result of the measurement of the Disposal Group at fair value less costs to sell. 1,437 (1,263) 174 8 (19) (109) 54 (22) 32 1,497 (1,509) (12) 2 ‑ (125) (135) 45 (90) Cash Flows from Discontinued Operations Net cash inflow from operating activities Net cash outflow from investing activities Net cash outflow from financing activities Net increase in cash and cash equivalents June 2020 $m June 2019 $m 156 (59) ‑ 97 263 (12) ‑ 251 The major classes of assets and liabilities held for sale at 30 June 2020, representing the Engineering business to be sold, are as follows: Disposal Group Assets/(Liabilities) Held for Sale Cash and cash equivalents Loans and receivables Inventories Other assets1 Total Disposal Group assets held for sale Trade and other payables Other liabilities Total Disposal Group liabilities held for sale Disposal Group net assets held for sale June 2020 $m June 20192 $m 451 135 32 223 841 629 41 670 171 ‑ ‑ ‑ ‑ - ‑ ‑ - - 1. 2. Includes $201 million of Property, plant and equipment. The Group had no assets or liabilities recorded as held for sale at 30 June 2019. Comparative balances for the Statement of Financial Position have not been restated. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements196 197 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 33. Defined Benefit Plans Accounting Policies Group companies operate pension plans. The plans are generally funded through payments to insurance companies or trustee administered funds as determined by periodic actuarial calculations. A defined benefit plan is a pension plan that defines the amount of pension benefit an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The asset or liability recognised in the Statement of Financial Position in respect of defined benefit plans is the present value of the defined benefit obligation i.e. ‘the pension liability’ at the balance sheet date less the fair value of plan assets. The present value of the pension liability is determined by discounting the estimated future cash outflows using interest rates of high quality corporate or government bonds, that: • Are denominated in the currency in which the benefits will be paid • Have terms to maturity approximating the terms of the related pension liability. The defined benefit obligation is calculated at least annually by independent actuaries using the projected unit credit method, which in simplistic terms proportions the benefit based on service. Management considers the valuation of defined benefit plans undertaken by the actuaries to be an area of estimation uncertainty as a number of key assumptions must be adopted to determine the valuation. Actuarial losses/(gains) will arise where there is a difference between previous estimates and actual experience, or a change to assumptions in relation to demographic and financial trends. These actuarial losses/(gains) are recognised in the period they occur, directly in other comprehensive income as remeasurements. They are included in retained earnings in the Statement of Changes in Equity and in the Statement of Financial Position. Past service costs are recognised immediately in the Income Statement. Lendlease Superannuation Plan Lendlease UK Pension Scheme Total net defined benefit plan asset a. Lendlease UK Pension Scheme Note 33a June 2020 $m June 2019 $m (1) 157 156 1 139 140 Lendlease Construction Holdings (Europe) Limited (UK Construction) sponsors a funded defined benefit pension scheme (the Scheme) for qualifying UK employees. The Scheme is administered by a separate board of Trustees which is legally separate from UK Construction. The Scheme’s Trustees are composed of representatives of both the employer and employees. The Trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. The Scheme is a funded defined benefit scheme, with the final salary section providing retirement benefits based on final salary and the index linked section providing retirement benefits based on career average salary. A separate section, the Personal Investment Section, provides retirement benefits on a defined contribution basis. The UK Construction’s contributions to members’ Personal Investment Fund accounts are not included in these disclosures. The final salary section closed to future accruals on 31 August 2008 and the index linked section closed to future accruals on 31 January 2012. There were no Scheme amendments affecting defined benefits payable, curtailments or settlements during the year. UK Construction pays deficit funding contributions plus four per cent of members’ basic salaries to cover the Scheme’s expected administration costs and costs of benefits payable on death in service. The Scheme expects to pay $33 million in contributions to its defined benefit plan in 2021. This includes the annual deficit recovery payment of $28 million, following the triennial valuation for 31 March 2017 where deficit repair contributions have been agreed for the period to March 2024. These contributions reduce the actuarial deficit. The defined benefit plan is exposed to actuarial risk and market (investment) risk. The following information provides additional detail on risk. i. Statement of Financial Position Amounts The amounts recognised in the Statement of Financial Position are determined as follows: Defined benefit obligations Fair value of plan assets Net defined benefit plan asset June 2020 $m June 2019 $m (1,324) 1,481 157 (1,208) 1,347 139 ii. Reconciliation of Defined Benefit Obligations Defined benefit obligations at beginning of financial year 1,208 1,077 June 2020 $m June 2019 $m Included in Income Statement Interest cost Remeasurements Included in Other Comprehensive Income Actuarial loss/(gain) arising from: Financial assumptions Experience adjustments Demographic assumptions Other Benefits paid Effect of foreign exchange rate movements Defined benefit obligations at end of financial year iii. Reconciliation of the Fair Value of Plan Assets Fair value of plan assets at beginning of financial year Included in Income Statement Interest income Administration costs Remeasurements Included in Other Comprehensive Income Actual return on plan assets excluding interest income Other Contributions by Group companies Benefits paid Effect of foreign exchange rate movements Fair value of plan assets at end of financial year iv. Expense Recognised in the Income Statement Net interest cost Administration costs Net defined benefit plan (income)/expense v. Fair Value of Plan Assets Plan assets comprise: Global equities Investment funds Infrastructure Government index linked bonds Other assets Fair value of plan assets at the end of the financial year 28 135 (9) 31 (41) (28) 1,324 1,347 32 (2) 173 5 (41) (33) 1,481 (3) 2 (1) 437 384 115 491 54 1,481 30 116 7 7 (48) 19 1,208 1,228 35 (4) 83 31 (48) 22 1,347 (5) 4 (1) 422 417 82 335 91 1,347 The investment funds target an absolute level of return. The plan assets can be categorised as Level 1, where the fair value is determined using an unadjusted quoted price for an identical asset, or Level 2, where the fair value is derived either directly or indirectly from observable inputs, or Level 3, where inputs are unobservable (i.e for which market data is unavailable). At year end, approximately $1,408 million (June 2019: $1,246 million) and $73 million (June 2019: $82 million) of total plan assets were categorised as Level 2 and Level 3 respectively. UK Construction and Trustees have agreed a long term strategy for reducing investment risk as and when appropriate. This includes an asset–liability matching policy which aims to reduce the volatility of the funding level of the pension plan by investing in assets that perform in line with the liabilities of the plan so as to protect against inflation being higher than expected. The current benchmark allocation is 75.0 per cent growth assets and 25.0 per cent matching assets (June 2019: 75.0 per cent growth assets and 25.0 per cent matching assets). Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements198 199 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 33. Defined Benefit Plans vi. Principal Actuarial Assumptions Discount rate (%) RPI inflation (%) Average pension increase in payments (%) Future mortality (years): Male Female June 2020 June 2019 1.5 3.0 2.5 24.9 26.4 2.3 3.4 2.7 24.9 26.4 The liabilities are calculated using a discount rate set with reference to corporate bond yield. If assets underperform this yield will create a deficit. A decrease in corporate bond yield will increase the value placed on the Scheme’s liabilities, although this will be partially offset by an increase in the value of the Scheme’s corporate bond holdings. The majority of the Scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities, although in most cases this will be capped to protect against extreme inflation. The majority of the assets are either unaffected by or loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. The majority of the Scheme’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities. The mortality assumptions are based on standard mortality tables which allow for expected future mortality improvements. The assumption is that a member aged 63 will live for a further 24.9 years (June 2019: 24.9 years) if they are male and 26.4 years if they are female (June 2019: 26.4 years). At 30 June 2020, the weighted average duration of the defined benefit obligation was 19 years (June 2019: 19 years). vii. Sensitivity Analysis Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligations by the amounts shown below. 0.1% Increase in Discount Rate $m 0.1% Decrease in Discount Rate $m 0.1% Increase RPI Inflation and Pension Payment $m 0.1% Decrease RPI Inflation and Pension Payment $m 1 Year Increase in Future Mortality $m 1 Year Decrease in Future Mortality $m June 2020 Defined benefit asset/(obligations) June 2019 Defined benefit asset/(obligations) 25 21 (26) (20) (19) (16) 22 13 (64) (41) 63 41 34. Employee Benefits Detailed information regarding the Group’s Executive Reward strategy is provided in the Remuneration Report within the Directors’ Report. The key incentive plans are as follows: • Short Term Incentive (STI) • Short Term Award (STA) • Long Term Incentive (LTI) • Long Term Award (LTA) • Distinguished Executives Award (DE Award) • Executive Deferred Award (ED Award). a. Short Term Incentive (STI) The STI plan is an annual incentive plan whereby a number of employees receive benefits which are dependent upon the achievement of both Lendlease financial and non financial targets, and individual goals. The total value of the potential benefit varies by individual and is tested against relevant market levels for each role. • The STI plan typically comprises a cash component, which is paid in September following year end. For more senior employees, where the potential benefit is typically higher, the plan also includes a deferred component. • Deferral periods are generally for one or two years. The deferred component is normally awarded as Lendlease securities and in some instances as cash. Securities are held in Lendlease employee security plan trusts on behalf of employees for the deferral period (refer to Note 28a ‘Employee Security Plans’). For employees to receive the deferred component in full, they must generally be employed by the Group at the time of vesting. b. Short Term Award (STA) The STA plan is an annual incentive plan which replaced the STI for a limited number of senior executives from 2019. It is designed to focus senior executives on priority areas for delivery in the current financial year, including key Group financial targets, safety and other non financial targets aligned to the Group’s areas of focus. Whilst performance is assessed against a set of Group metrics when determining awards, the Board will assess the overall performance and contribution of individual senior executives, with a particular focus on safety. The total value of the potential benefit varies by individual and is set with reference to both internal peers and external market levels. The STA plan is intended to be awarded as cash in September following year end. c. Long Term Incentive (LTI) The LTI plan is designed to: • Motivate executives to achieve the Group’s long term strategic goals and provide reward where the Group delivers better value to securityholders than its peers • Align the interests of executives and securityholders, given that the reward received is linked to the Group’s security price and average Return on Equity performance. A summary of arrangements for LTI awards is provided in Note 34d below. The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. d. Long Term Award (LTA) Non pensioner benefits are linked to RPI in the period up to retirement. Once in payment, pension increases are linked to RPI but with a zero per cent floor and different caps applying to different periods of pensionable service. The inflation sensitivity reflects a change in RPI inflation and the associated increases in payment. The LTA plan replaced the LTI for a limited number of executives from 2019. It was designed to motivate and reward key executives to deliver on the Group’s long term strategy and to allow them to share in the value created for securityholders. Specifically, the objectives are to: • Create rewards that are aligned to earnings • Align the interests of securityholders and our most senior executives • Promote team behaviours and an enterprise leadership mindset • Retain the senior executive team. The intended outcome is that reward and strategy are better aligned. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements200 201 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 34. Employee Benefits continued Arrangements for LTI Awards LTI Design How the LTI Works Performance Securities • An annual grant of ‘performance securities’ is made to a limited number of executives. • The Board intends that the awards be settled in Lendlease securities, although the award may be settled in cash or other means at the Board’s discretion. • On vesting, each performance security entitles executives to one Lendlease stapled security, or at the Board’s discretion, cash or other instruments of equivalent value. • In the event of a change in control of the Group, the Board has the discretion to determine whether the vesting of some or all performance securities should be accelerated. Performance Period (applicable to FY17 and FY18 Grants) Performance Period (applicable to FY19 and FY20 Grants) • 50 per cent of the performance securities are assessed over a three year period. If the performance hurdle is not fully achieved at this time, those performance securities that have not vested will lapse. • The remaining 50 per cent of the performance securities are assessed after four years. • If the performance hurdle is not met, the awards are forfeited. • There is no retesting on any portion of the LTI grant. • 100 per cent of the performance securities are assessed over a three year period. If the performance hurdle is not fully achieved at this time, those performance securities that have not vested will lapse. • If the performance hurdle is not met, the awards are forfeited. • There is no retesting on any portion of the LTI grant. Termination of Employment • If the executive resigns or is terminated for cause, the unvested LTI is forfeited. • If the executive is terminated and if the Board considers vesting would provide a benefit that was unwarranted or inappropriate, the Board can adjust unvested LTI prior to the vesting date. • For ‘good leavers’, the LTI grant may remain on foot, subject to the original performance hurdles. • In exceptional circumstances (such as death or total and permanent disability), the Board may exercise discretion and settle the award at the time of termination of employment. Performance Hurdles Financial Years 2017 to 2020 Vesting Schedule – TSR (applicable to FY17 to FY20 Grants) Vesting Schedule – ROE (applicable to FY17 Grant) Vesting Schedule – ROE (applicable to FY18 to FY20 Grants) • 50 per cent subject to Lendlease’s Total Securityholder Return (TSR) compared to the companies in the S&P/ASX 100 Index. The S&P/ASX 100 companies are determined at the start of the performance period. • 50 per cent subject to Average Return on Equity (ROE) hurdle. Relative TSR percentile ranking Percentage of relative TSR performance securities that vest if the hurdle is met Below the 50th percentile No vesting At the 50th percentile 50 per cent vesting At or above the 51st percentile but below the 75th percentile Pro rata vesting on a straight line basis between 52 per cent and 98 per cent At the 75th percentile or greater 100 per cent vesting Average ROE over the performance period Percentage of ROE performance securities that vest if the hurdle is met Less than 11 per cent No vesting At 11 per cent 25 per cent vesting Greater than 11 per cent but below 15 per cent Pro rata vesting on a straight line basis between 25 per cent and 100 per cent 15 per cent or greater 100 per cent vesting Average ROE over the performance period Percentage of ROE performance securities that vest if the hurdle is met 10 per cent or less No vesting Above 10 per cent but below 14 per cent Pro rata vesting on a straight line basis between 0 per cent and 100 per cent 14 per cent or greater 100 per cent vesting Arrangements for LTA Awards LTA Design How the LTA Works Performance Rights • An annual grant of ‘performance rights’ is made to a limited number of executives on the Global Leadership Team. • The grant of ‘performance rights’ includes the minimum number of securities that will be received following vesting (the LTA minimum). The value of the LTA minimum is fixed at the time of grant but will vary with the security price over the deferral period. • During the year the Board determined that the LTA minimum is better described as a Restricted Securities Award (RSA). • The Board intends that the awards be settled in Lendlease securities, although some or all of the award may be settled in cash at the Board’s discretion. • Performance rights are rights to receive a variable number of Lendlease securities or at the discretion of the Board, cash with an equivalent value, upon vesting. • Outcomes against performance hurdles will determine how many Lendlease securities will be received following vesting between a minimum and maximum number. • In the event of a change in control of the Group, the Board has the discretion to determine whether the vesting of some or all performance rights should be accelerated. Performance Period (applicable to FY19 and FY20 Grants) • 100 per cent of the performance rights are assessed over a three year period and the number of Lendlease securities that may be delivered on vesting is determined. The first tranche will vest immediately thereafter, and the second, third and fourth tranches will be deferred and will vest progressively four, five and six years after the grant date. • If the performance hurdle is not met, the awards above the minimum award number are forfeited. • There is no retesting on any portion of the LTA grant. Termination of Employment • If the executive resigns and becomes engaged in activities that are competitive with the Group or is terminated for cause, the unvested LTA is forfeited. • If the executive is terminated and if the Board considers vesting would provide a benefit that was unwarranted or inappropriate, the Board has the discretion to lapse some or all performance rights prior to the vesting date. • For ‘good leavers’, the LTA grant may remain on foot, subject to the original performance hurdles. Performance Hurdles Financial Years 2019 and 2020 • 50 per cent subject to Lendlease’s Total Securityholder Return (TSR) compared to the companies in the S&P/ASX 100 Index. The S&P/ASX 100 companies are determined at the start of the performance period. • 50 per cent subject to Return on Equity (ROE) hurdle. Vesting Schedule – TSR (applicable to FY19 and FY20 Grants) Relative TSR percentile ranking Percentage of Target LTA plus RSA Vesting Group CEO Senior Executives At the 50th percentile 50 per cent vesting 50 per cent vesting Vesting Schedule – ROE (applicable to FY19 and FY20 Grants) At or above the 51st percentile but below the 75th percentile Pro rata vesting on a straight line basis between 54 per cent and 146 per cent Pro rata vesting on a straight line basis between 56 per cent and 194 per cent At the 75th percentile or greater 150 per cent vesting 200 per cent vesting Average ROE over the performance period Percentage of Target LTA plus RSA Vesting Group CEO Senior Executives Between 10 per cent and the target ROE per cent set by the Board Pro rata on a straight line basis between 13.5 per cent and 100 per cent Pro rata on a straight line basis between 31.25 per cent and 100 per cent At the target ROE per cent set by the Board 100 per cent vesting 100 per cent vesting Between the target ROE per cent set by the Board and 14 per cent Pro rata vesting on a straight line basis between 100 per cent and 150 per cent Pro rata vesting on a straight line basis between 100 per cent and 200 per cent At 14 per cent or above 150 per cent vesting 200 per cent vesting Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements202 203 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 34. Employee Benefits continued e. Distinguished Executives Award The Distinguished Executives Award (DE Award) is a program established to recognise and reward Lendlease technical mastery and significant contribution to the business. DE Awards are generally deferred over five and seven years. The deferred component is awarded as Lendlease securities and held in Lendlease employee security plan trusts on behalf of the employees. For employees to receive the deferred component, they must generally be employed by the Group at the time of vesting. DE Awards are valued based on the average price of on market purchases made in respect of these awards at the time of grant. f. Executive Deferred Award The Executive Deferred Award (ED Award) is an award that was made to a limited number of executives and senior managers in recognition of their role in supporting the Lendlease transformation program. The ED Award comprises a one off grant of Lendlease deferred securities which vest in three equal tranches, with the final vesting three years after grant. Securities are held in Lendlease employee plan trusts for the deferral period. Refer to Note 28a ‘Employee Security Plans’ for further details. For employees to receive the deferred components in full, they must generally be employed by the Group at the time of vesting. g. Amounts Recognised in the Financial Statements LTI and LTA awards are valued using Monte‑Carlo simulation methodology where the security price can be projected based on the assumptions underlying the Black‑Scholes formula. Retention awards are valued by discounting the security price by the expected dividends assumed to be paid from the valuation date until the vesting date (if applicable). The model inputs include the Lendlease Group security price, a risk free interest rate, expected volatility and dividend yield. During the financial year ended 30 June 2020, a $55 million expense was recognised in the Income Statement in relation to equity settled security based payment awards (June 2019: $50 million). 35. Impact of New and Revised Accounting Standards New and Revised Accounting Standards Adopted 1 July 2019 From 1 July 2019, the Group adopted Interpretation 23 Uncertainty over Income Tax Treatments. Interpretation 23 did not have a material impact on the Group. From 1 July 2019, the Group adopted AASB 16 Leases and consequential amendments. AASB 16 provides a new model for accounting for leases. AASB 16 is based on the principle that all leases the Group enters as a lessee will be recognised on balance sheet, with a right‑of‑use asset and lease liability recognised, with depreciation recognised on the right‑of‑use asset and interest expense on the lease liability. Lease expense (depreciation expense and interest expense) will effectively be front loaded to the start of the lease period, even when cash lease payments are constant throughout the period of the lease. The Group utilised the modified retrospective cumulative approach to transition to AASB 16, therefore comparatives have not been restated. Comparatives continue to be accounted for in accordance with the Group’s previous accounting policies outlined in the 30 June 2019 annual consolidated financial report. Payments associated with short term leases and leases of low value assets are recognised on a straight line basis as an expense in the Income Statement. Short term leases are leases with a lease term of 12 months or less. Low value assets comprise IT equipment and small items of office furniture. The Group presents right‑of‑use assets that do not meet the definition of investment property in Property, plant and equipment, the same line item in which it presents underlying assets of the same nature that it owns. Right‑of‑use assets that meet the definition of investment property are presented within investment property. Based on analysis performed, as a lessor, there was no material impact to the Group on adoption. As a lessee, on adoption, the Group has: • Recorded a right‑of‑use asset of $437 million, lease liabilities of $(514) million, derecognition of existing lease balances under AASB 117 Leases of $18 million and a net deferred tax asset of $17 million in the Statement of Financial Position for its material operating lease commitments. The sum of these adjustments is $(42) million • The net difference of $(42) million was recorded as a reduction to equity to reflect the cumulative impact on initial adoption of the standard • The net impact to the Income Statement for the year is a $11 million increase in expense. On adoption, the Group has measured lease liabilities at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 30 June 2019. The incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 4.8%. In applying AASB 16 for the first time, the Group has applied the following practical expedients permitted by the standard for leases: • The ability to not reassess whether a contract is, or contains, a lease at the date of initial application (prior to 1 July 2019) • The application of a single discount rate to a portfolio of leases • The use of hindsight in determining the lease term • The decision to exclude a lease for which the lease term ends within 12 months of initial application. New disclosures have been included where required. Changes to disclosures include reclassification of prior period balances to better align the presentation of comparative information to the new disclosure requirements. Changes to accounting policies from 1 July 2019 The Group’s accounting policies have been revised to reflect the guidance of the new leasing standard with effect from 1 July 2019. Refer below for further details. Recognition As a lessee, the Group assesses whether a contract is or contains a lease at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Group assesses whether: • The contract involved the use of an identified asset • The Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use • The Group has the right to direct the use of the asset. The Group has this right when it has the decision‑making rights that are most relevant to changing how and for what purpose the asset is used. For the leases of land and buildings in which it is a lessee, the Group has elected not to separate non lease components and account for the lease and non lease components as a single lease component. The Group’s primary leasing activities are for office space in the regions and cities in which it operates. There are no material future cash outflows to which the Group is potentially exposed that are not reflected in the measurement of lease liabilities, and there are no material restrictions or covenants imposed by the Group’s leases. Measurement The Group recognises a right‑of‑use asset and a lease liability at the lease commencement date. The right‑of‑use asset is initially measured at cost, which comprises: • The initial amount of the lease liability • Any lease payments made at or before the commencement date less any lease incentives received • Initial direct costs • Restoration cost. Right-of-Use Assets Right‑of‑use assets which meet the definition of property, plant and equipment form part of the property, plant and equipment balance and are measured at cost less accumulated depreciation in accordance with AASB 116 Property, Plant and Equipment. Right‑of‑use assets which meet the definition of investment property form part of the investment property balance and are measured at fair value in accordance with AASB 140 Investment Property. Lease Liabilities Lease liabilities are initially measured at the present value of the lease payments discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of lease liability comprise the following: • Fixed payments offset by any lease incentives • Variable lease payments, for lease liabilities which are tied to a floating index • Amounts expected to be payable under a residual value guarantee • The exercise price of purchase options (if it is reasonably certain that the option will be exercised) • Payments of penalties for terminating leases, if the lease term reflects the lease terminating early. Lease liabilities are subsequently measured by: • Increasing the carrying amount to reflect interest on the lease liability • Reducing the carrying amount to reflect the lease payments made • Remeasuring the carrying amount upon the occurrence of certain events (such as a change in the lease term or lease payments). When a lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right‑of‑use asset and is recorded in the profit or loss if the carrying amount of the right‑of‑use asset has been reduced to zero. Depreciation and Amortisation Right‑of‑use assets are depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the right‑of‑use asset or the end of the lease term. Presentation Items relating to leases are presented as follows: • Right‑of‑use assets are recognised in the Statement of Financial Position within the same line item as that within which the corresponding underlying assets would be presented if they were owned by the Group, within either Property, plant and equipment or Investment property • Lease liabilities are recognised within Trade and other payables in the Statement of Financial Position and split between current and non current liabilities • Depreciation charge for right‑of‑uses assets is recognised within Other expenses • Interest expense on lease liabilities is recognised within Finance costs. Relevant information on the Group’s leasing has been included in the following notes: Note 7 ‘Other Expenses’, Note 8 ‘Finance Revenue and Finance Costs’ and Note 22 ‘Trade and Other Payables’. Notes to Consolidated Financial Statements continuedLendlease Annual Report 2020 Financial Statements204 Lendlease Annual Report 2020 Financial Statements 205 Notes to Consolidated Financial Statements continued Directors’ Declaration Section F: Other Notes continued 35. Impact of New and Revised Accounting Standards continued Short term leases and leases of low value assets The Group has elected not to recognise right‑of‑use assets and lease liabilities for short term leases that have a lease term of 12 months or less and leases of low value assets. The Group recognises the lease payments associated with these leases as an expense on a straight line basis over the lease term. New Accounting Standards and Interpretations Not Yet Adopted Accounting Standard Requirement Impact on Financial Statements AASB 2014‑10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and consequential amendments AASB 2014‑10 amends AASB 10 and AASB 128 to clarify the requirements for recording the sale or contribution of assets between an investor and its associate or joint venture. The amendment becomes mandatory for the June 2023 financial year and will be applied prospectively. Based on preliminary analysis performed, the amendments are not expected to have a material impact on the Group. 36. Other Significant Accounting Policies a. Foreign Currency Translation Functional and Presentation Currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial report is presented in Australian dollars, which is the Company’s functional and presentation currency. Transactions and Balances Foreign currency transactions are translated into Australian dollars using the exchange rate on the date of the transactions. Assets and liabilities denominated in foreign currencies are translated to Australian dollars at balance date. Foreign exchange gains or losses are recognised in the Income Statement for monetary assets and liabilities such as receivables and payables, except for qualifying cash flow hedges and qualifying net investment hedges in foreign operations, which are recognised in other comprehensive income. Refer to Note 24 ‘Hedging’ for further detail. Translation differences on non monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. In the opinion of the Directors of Lendlease Corporation Limited (the Company): 1. The financial statements and notes and the remuneration disclosures contained in the Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the financial position of the Consolidated Entity as at 30 June 2020 and of its performance for the financial year ended on that date; and b. Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in the Basis of Preparation. 3. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 4. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Group Chief Executive Officer and Group Chief Financial Officer for the financial year ended 30 June 2020. Signed in accordance with a resolution of the Directors: M J Ullmer, AO Chairman S B McCann Group Chief Executive Officer and Managing Director Group Entities Sydney, 17 August 2020 The results and Statement of Financial Position of all Group entities that are not presented in Australian dollars (none of which has the currency of a hyperinflationary economy) are translated as follows: • Revenue and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the transaction rate, in which case revenue and expenses are translated at the date of the transactions) • Assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at balance date • All resulting exchange differences are recognised in other comprehensive income, in the foreign currency translation reserve. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. b. Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (ATO) is included as a current asset or liability in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. Notes to Consolidated Financial Statements continued206 Lendlease Annual Report 2020 Financial Statements 207 Independent Auditor’s Report To the members of Lendlease Corporation Limited Report on the audit of the Financial Report  Opinion We have audited the Financial Report of Lendlease Corporation Limited as the deemed parent presenting the stapled security arrangement of Lendlease Group (the Financial Report). In our opinion, the accompanying Financial Report is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Lendlease Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report of Lendlease Group comprises: • Consolidated statement of financial position as at 30 June 2020; • Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors' Declaration. The Lendlease Group consists of Lendlease Corporation Limited and the entities it controlled at the year end or from time to time during the financial year and Lendlease Trust. Shares in Lendlease Corporation Limited and units in Lendlease Trust are jointly traded as a Stapled Security on the Australian Securities Exchange under the name of Lendlease Group. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of Lendlease Group and Lendlease Corporation Limited in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) (including independence Standards) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Key Audit Matters The Key Audit Matters we identified for Lendlease Group are: • Construction Revenue Recognition • Sale of Development Properties • Recoverability of Development Property Inventory • Asset Valuation Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Construction Revenue Recognition (A$9,067m) Refer to Note 4 ‘Revenue from Contracts with Customers’ to the financial report  The key audit matter  How the matter was addressed in our audit  The Group performs various building, engineering and services construction contract works (projects) for a wide range of customers. The Group contracts in a variety of ways. Each project has a different risk profile based on its individual contractual and delivery characteristics. As a result of COVID-19, disruption was experienced across certain projects, particularly in international cities where mandated shutdowns were implemented. These impacted productivity, expected timing of completion and expected costs to complete. Construction revenue recognition is a key audit matter as judgement is required to assess the timing of recognition determined by the Group. Revenue on construction contracts is earned over time, typically using costs incurred as a proportion of total forecast costs as the measure of progress. Estimating total forecast costs to complete during project life is complex and requires judgement. Typical cost estimates include labour, subcontractors, equipment, materials, and project overheads. Changes to these cost estimates could give rise to variances in the amount of revenue recognised. Our procedures included: • Evaluating and testing management’s review and approval of revenue and cost forecasting; • Selecting a sample of contracts for testing using: - Data Analytic routines based on a number of quantitative and qualitative factors, related to size and risk of projects; and the Group’s project reporting tool. - • For the sample selected, we: - - - conducted visits to a selection of project sites and used up-to-date site photographs, where site visits were not possible, to evidence physical progress; inquired with key project personnel to assess the project schedule, forecast costs, risks and opportunities, with involvement from KPMG engineering specialists where appropriate; read relevant contract terms and conditions to evaluate the inclusion of individual characteristics and project risks in the Group’s estimates; tested a sample of incurred costs to supplier invoices or other underlying documentation; tested forecast costs for labour, subcontractors, equipment, materials, and project overheads by comparing to actual incurred spend and committed future contracts, with specific consideration of the impacts of COVID-19; tested the variations and claims (including COVID- 19 related impacts) recognised within revenue against the criteria for recognition in the - - -                         208 Lendlease Annual Report 2020 Financial Statements 209 The revenue on construction contracts may also include variations and claims, which fall under either the variable consideration or contract modification requirements of AASB 15. These are recognised on a contract-by- contract basis when evidence supports that it is highly probable that a significant reversal in the amount of revenue recognised will not occur. The assessment of revenue on construction contracts resulting from variations and claims was a focus of our audit due to the audit effort in assessing this across bespoke projects and contracting arrangements. accounting standards via inspection and assessment of: o correspondence between the Group and the customer; o the Group’s legal basis for the variations and claims, including, where necessary, external legal opinions; o the Group’s analysis of the amounts they consider meet the recognition requirement of highly probable, using our knowledge of the Group’s historical experience in resolving variations and claims, and considering the commercial factors specific to each variation or claim and quality of information underpinning the amounts recognised. Sale of Development Properties (A$1,211m) Refer to Note 4 ‘Revenue from Contracts with Customers’ to the financial report  The key audit matter  How the matter was addressed in our audit  The Group develops for sale both built form products (for example residential apartments, and commercial and retail buildings) and residential land communities. It is the Group’s policy for development revenue to be recognised when control transfers to the purchaser, based on an assessment of the contractual terms of sale. This was a key audit matter due to the volume of transactions that occur across multiple jurisdictions. In addition, the assessment of cost of sales includes judgement as cost allocation for site infrastructure costs is typically based on the proportion of revenue for each unit, lot or building as compared to total forecast project revenue. Whilst COVID-19 resulted in some delays in residential settlements and cancellations, these do not impact the Group’s revenue recognition policy for residential apartments and residential land communities as revenue is recognised on settlement. Our procedures included: • Evaluating and testing management’s review and approval of development revenue and cost forecasting; • Selecting a sample of settlements, across multiple jurisdictions, during the year. For the sample selected we: - compared revenue recognised to contractual terms of sale and cash settlements; - assessed the Group’s determination of when control transfers by a detailed analysis of the contractual terms of sale against the criteria in the accounting standards; - assessed the Group’s cost allocation - methodology against the requirements of the accounting standards; tested the application of the cost allocation methodology by comparing allocated costs to revenue recognised in the year relative to the total project revenue; - assessed total project revenue by comparing expected sales prices to published industry forecasts and comparable sales prices achieved in the year, being alert to the impacts of current challenging market conditions. Recoverability of Development Property Inventory (A$4,450m) Refer to Note 11 ‘Inventories’ to the financial report  The key audit matter  How the matter was addressed in our audit  Our procedures included: • Selecting a sample of projects for testing using: - Data Analytic routines based on a number of quantitative and qualitative factors, related to size, duration and risk of projects; and the Group’s project reporting tool. - • For the sample selected, we: - compared expected sales prices to published - industry forecasts and comparable sales prices achieved in the year, being alert to the impacts of current challenging market conditions; tested a sample of forecast construction and infrastructure costs to underlying supplier contracts, historical experience of similar costs, and our industry expectation of cost contingency levels and cost escalation assumptions; - assessed expected sales prices, the volumes of sales expected each period and holding costs in light of current challenging market conditions, using our industry knowledge. • Assessing disclosures included in the financial report highlighting the key factors in determining recoverability of development property inventory, using our understanding obtained from our testing and against the requirements of the accounting standards. This included considerations of the impacts of COVID- 19. It is the Group’s policy to capitalise development costs into inventory over the life of its projects. Development costs include the purchase of land, site infrastructure costs, construction costs for built form products and borrowing costs. It is the Group’s policy to carry inventory at the lower of cost and net realisable value. The recoverability therefore of these capitalised development costs is a significant judgement made by the Group, and their assessment is based on forecasts of: • sales prices • construction and infrastructure costs to complete the development. Where a development is forecast to be loss making and the inventory is no longer considered to be recoverable, the Group considers it to be impaired and it is their policy for an expense to be recognised. This was a key audit matter for us due to many developments being long term which increases the level of forecasting judgement and audit complexity in assessing estimated sales prices and future costs to complete the development. We considered the heightened risk in estimating future sales prices, the timing of sales, and future costs as a result of the impact of COVID-19 to these assumptions.                                 210 Lendlease Annual Report 2020 Financial Statements 211 Asset Valuation Refer to Note 12 ‘Equity accounted investments’ (A$3,671m), Note 13 ‘Other Financial Assets’ (A$1,092m) and Note 25 ‘Fair Value Measurement’ to the financial report  The key audit matter  How the matter was addressed in our audit  The Group is required to assess the value of equity accounted investments and other financial assets at each reporting date. The fair value of the properties held by various investment entities directly impacts the Group’s interests in these assets. Valuations of assets are generally performed by the Group using internal valuation methodologies (discounted cash flow or capitalised income approach) or through the use of external valuation experts. External valuations are obtained on a routine basis by the Group each year, with the remaining investments being valued internally. Other financial assets are predominantly investments in entities which in turn own commercial and retail property. Accordingly, the Group’s valuation assumptions are predominantly the capitalisation of earnings rates, discount rates, future rental income, and leasing incentives. Equity accounted investments include the Group’s interest in the retirement living business. The key assumptions used by the Group in determining the value of retirement villages are discount rates, changes in village residents, current units/homes market prices and pricing growth rates. COVID-19 has had a significant impact on real estate valuations across the Group’s investments. The assessment of the valuations of these assets is a key audit matter as they: • are inherently judgemental, amplified by the impact of COVID-19. There were fewer market transactions as a result, which are ordinarily strong sources of evidence regarding fair value; Our procedures included: • Selecting a sample of valuations performed by the Group, based on the significance of the asset to the Group’s financial position and performance; • Assessing the scope, competence and objectivity of external valuation experts engaged by the Group for assets valued by external valuation experts; • Assessing the impact of market uncertainty caveats included in valuations performed by the Group’s external valuation experts to determine the impact, if any, on our testing of key assumptions; • Evaluating and testing management’s review and approval of internal valuations based on the Group’s policies for internally valued assets; • Assessing the valuation methodology for consistency with accounting standards and industry practice for the asset’s class; • Comparing, with market data published by commercial real estate agents, previous external valuations, our knowledge of the industry, and/or our knowledge of the asset and its historical performance, key assumptions such as: - discount rates - changes in village residents - units/home current market prices - pricing growth rates - capitalisation of earnings rates - - future rental income leasing incentives • Assessing disclosures included in the financial report highlighting the estimates and judgements in determining fair values of the Group’s equity accounted investments and other financial assets. We used our understanding obtained from our testing, including considerations of the impacts of COVID-19, against the requirements of the accounting standards. • contain certain forward looking assumptions, this year with higher estimation uncertainty from the business disruption due to COVID- 19, which are inherently challenging to audit; and lead to additional audit effort, often due to the high number of differing assumptions and models, across varying asset classes. • Other Information Other Information is financial and non-financial information in Lendlease Group’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of Lendlease Corporation Limited are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.  Responsibilities of the Directors for the Financial Report The Directors of Lendlease Corporation Limited are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing Lendlease Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Lendlease Group or to cease operations, or have no realistic alternative but to do so.                                 212 Lendlease Annual Report 2020 Financial Statements 213 Auditor’s responsibilities for the audit of the Financial Report • Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Lendlease Corporation Limited for the year ended 30 June 2020 complies with Section 300A of the Corporations Act 2001. The Directors of Lendlease Corporation Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 106 to 136 of the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.  KPMG D M McLennan Partner Sydney 17 August 2020 This page is intentionally left blank.               214 Lendlease Annual Report 2020 Other Information 215 Other Information Artist’s impression Milan: Milano Santa Giulia A mixed use redevelopment covering more than 110 hectares in the south east of Milan. 216 Lendlease Annual Report 2020 Other Information 217 Securityholder information Securities exchange listing and code Lendlease Group is listed on the Australian Securities Exchange and trades under the code LLC. Key sources of information for securityholders We report the following to securityholders each year: In the United States, Lendlease securities are traded on the ‘over the counter’ market in the form of sponsored American Depositary Receipts (ADRs) under the symbol LLESY. Each ADR represents one ordinary security. Information about ADRs is available from the depositary, The Bank of New York Mellon (www.adrbny.com). Voting rights Each stapled security in Lendlease Group and each ADR entitles the holder to one vote. Rights to Lendlease Group securities granted under Lendlease Group’s employee equity incentive plans do not carry voting rights. Share Accumulation Plan The Share Accumulation Plan is designed to be a convenient way for securityholders with a registered address in Australia or New Zealand to build their securityholdings without incurring transaction costs. The laws of other countries make it difficult for us to offer securities in this way. Lendlease securityholders are able to reinvest their distributions to acquire more Lendlease securities through the Distribution Reinvestment Plan (DRP) or the Share Election Plan (SEP). Securityholders may also make contributions of between $500 and $2,500 to acquire new Lendlease securities under the Share Purchase Plan (SPP). Together the DRP, SEP and SPP constitute the Share Accumulation Plan. The rules of each of these plans are set out in the Share Accumulation Plan Information Sheet. Copies are available on the Lendlease website. Please note that the Share Election Plan and the Share Purchase Plan are currently suspended. • Annual Report • Half Year Financial Report • March and September distribution statements. Electronic communications Securityholders have the option of receiving the following communications and all other Company related information electronically: • Annual Report • Distribution statements • Notice of Annual General Meetings. Lendlease makes the Annual Report available in an online version. A hard copy of the Annual Report will only be sent to those securityholders who elect to receive it in that form. In addition, securityholders may elect to receive notification when the Annual Report is available online. Securityholders who wish to register their email address should go to the website of the Lendlease share registry www.investorcentre.com/ecomms. For registry contact details, see page 220. Privacy legislation Under Chapter 2C of the Corporations Act 2001, a securityholder’s information (including their name, address and details of securities held) is required to be included in Lendlease’s public register. This information must continue to be included in Lendlease’s public register for seven years after a person ceases to be a securityholder. These statutory obligations are not altered by the Privacy Amendment (Private Sector) Act 2000. Information is collected to administer the securityholder’s holding and if some or all of the information is not collected, then it may not be possible to administer the holding. Lendlease’s privacy policy is available on its website. Dispute resolution There is a dispute resolution mechanism that covers complaints by securityholders. For more information, please contact Lendlease Investor Relations at +61 2 9236 6111 or email us at investorrelations@lendlease.com. Distribution and Share Accumulation Plan issue price history For historical distribution and Share Accumulation Plan Issue Price information, please see the below link to our website www.lendlease.com/au/investor-centre/ distribution-and-tax. Security information at a glance at 1 August 2020 (comparative 1 August 2019) Number of securityholders Units issued Percentage owned by 20 largest securityholders Interim dividend/distribution Total dividend/distribution Dividend payout ratio Spread of securityholdings as at 1 August 2020 (comparative 1 August 2019) 1 to 1,000 securities 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 securities and over Total number of securityholders 2020 66,696 688,267,587 75.89% 2019 63,121 564,131,072 72.18% 30.0 cents per security 12.0 cents per security 33.3 cents per security 42.0 cents per security NA1 51% 2020 35,448 24,515 4,414 2,231 88 66,696 2019 33,122 24,680 3,463 1,764 92 63,121 Securityholders with less than a marketable parcel 3,396 (representing 60,497 securities) 2,544 (representing 28,947 securities) Securities purchased on market The following securities were purchased on market during the financial year for the purpose of funding employee incentive awards through Lendlease securities. Stapled Securities 1,971,036 $16.85 Number of Securities Purchased Average Price Paid Per Security 1. Dividend payout ratio is nonmeaningful in FY20 due to the Group statutory loss. 218 Lendlease Annual Report 2020 Other Information 219 Securityholder information Rank Name Units % of Units 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty Ltd BNP Paribas Noms Pty Ltd LL Employee Holdings Custodian Pty Limited HSBC Custody Nominees (Australia) Limited Argo Investments Limited LL Employee Holdings Custodian Pty Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Custodial Services Limited Netwealth Investments Limited Citicorp Nominees Pty Limited Avanteos Investments Limited LL Employee Holdings Custodian Pty Limited BNP Paribas Noms (NZ) Ltd CS Fourth Nominees Pty Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA Australian Executor Trustees Limited Total Top 20 holders of fully paid ordinary shares Total Remaining Holders Balance 208,004,440 131,088,694 61,379,423 42,136,610 17,790,146 15,549,473 14,075,522 5,557,573 4,480,092 4,174,080 3,003,387 2,787,498 2,165,644 2,002,395 1,738,214 1,583,948 1,468,741 1,205,107 1,086,864 1,063,881 522,341,732 165,925,855 30.22 19.05 8.92 6.12 2.58 2.26 2.05 0.81 0.65 0.61 0.44 0.41 0.31 0.29 0.25 0.23 0.21 0.18 0.16 0.15 75.89 24.11 Substantial securityholders as shown in the Company’s Register at 1 August 2020 Name BlackRock Group The Vanguard Group Date of Last Notice Received 08/01/2020 29/4/2019 No. of Units 34,049,935 33,903,122 % of Issued Capital 6.03 6.01 Glossary Co-investment: The total market value of Lendlease equity invested across Lendlease managed funds as at period end. Represents the Group’s assessment of the market value. Construction backlog realisation: The proportion of Construction backlog revenue which is expected to be earned across future years. Construction backlog revenue: Current year Construction backlog revenue is the total revenue to be earned across future periods. Critical incident: An event that had the potential to have caused death or permanent disability. Development pipeline: Estimated remaining end value of all of the Group’s secured development projects based on values as at period end; includes 100 per cent of joint venture projects and therefore will not necessarily correlate with the Group’s Profit after Tax. Distribution payout ratio: Distribution divided by Profit after Tax. Distribution per security: Amount of interim and final distribution per stapled security from the Company/Trust. Earnings per security: Profit after Tax divided by the weighted average number of securities on issue during the year (including treasury securities) unless otherwise stated. EBITDA: Earnings Before Interest, Tax, Depreciation and Amortisation. Effective tax rate: Income tax expense as a percentage of Profit before Tax. Face value of a security: The value of a Lendlease security at the applicable time. Funds under management (FUM): The total market value of investments across Lendlease managed funds. Gearing: Net debt to total tangible assets less cash. Global Minimum Requirements (GMRs): GMRs are Lendlease’s minimum environment, health and safety standards designed to control the risks across our operations. Good leaver: A senior executive who is leaving Lendlease for a reason such as retirement, redundancy, or resignation where the senior executive is not joining a competitor, and who may remain eligible for part or all of an incentive opportunity. Green Star rating: Green Star is a national voluntary environmental rating system used by the Green Building Council of Australia to evaluate the environmental design and achievements of buildings. Investments: Includes equity invested in Lendlease managed funds and direct investment in property and property related assets. Represents the Group’s assessment of market value. Investments performance: The performance of our Investments business which includes our funds under management, assets under management, co-invested equity in Lendlease managed funds and direct investment in property and property related assets. Key Management Personnel (KMP): Those executives who have the authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly (as per Accounting Standard AASB 124 Related Party Disclosures). KPIs: Key Performance Indicators. Long Term Incentive (LTI)/Long Term Award (LTA): An incentive scheme which provides Lendlease equity (or cash, in some circumstances) to participating executives that may vest, in whole or part, if specified performance measures are met over a three or four year period. Lost Time Injury Frequency Rate (LTIFR): An indicator and industry standard measuring a workplace injury which prevents a worker from returning to duties the next day. LTIFR refers to the number of lost time injuries within a year, relative to the total number of hours worked in the financial year. Market capitalisation: The number of securities on issue multiplied by the security price at year end. Net debt: Borrowings, including certain other financial liabilities, less cash. New work secured revenue: Estimated revenue to be earned from construction contracts secured during the period. New work is secured and forms part of Construction backlog revenue when formal contracts are signed. People and Culture Committee: The Board subcommittee that helps the Board fulfil its responsibilities in people management and reward policies. It is made up entirely of independent Non Executive Directors. Profit after Tax (PAT): Profit after Tax attributable to securityholders, determined in accordance with Australian Accounting Standards. Public Private Partnerships (PPP): A joint procurement arrangement for infrastructure development contracts between the public and private sectors. Residential for rent: Residential apartments, typically in the form of an entire building, that are made available for rent as separate dwellings. Lendlease and its investment partners maintain ownership of these apartments. Return on Equity (ROE): ROE is calculated using annual statutory Profit after Tax attributable to securityholders divided by the arithmetic average of beginning, half year and year end securityholders’ equity. Securityholders: An individual or entity that owns Lendlease securities. Senior executive: Employees who hold a position at executive level according to the Lendlease Career Job Framework. This generally includes Regional Business Unit Heads, Regional Function Heads and in some cases, direct reports to Group Function Heads. Settlements (units): Apartments – units cash settled in the period on completed units in Australia, Europe and Americas, and units which have reached practical completion in Asia; Communities and Retirement – units settled in the period on completed land lots or units; Commercial – buildings that have achieved practical completion during the period. Short Term Incentive (STI)/Short Term Award (STA): Incentives awarded with direct reference to financial and non financial performance over a one year period. Measures are designed to focus individuals on priority areas for the current financial year. Total Package Value (TPV): Salary plus the value of salary package items such as motor vehicles and parking and compulsory superannuation contributions paid on behalf of an employee. Total Shareholder Return/Total Securityholder Return (TSR): The movement in a company’s share/security price, dividend yield and any return of capital over a specific period. It is often expressed as a percentage. Urbanisation pipeline: Estimated remaining end value of all of the Group’s secured development projects (excluding Communities projects and Retirement projects) based on values as at period end; includes 100 per cent of joint venture projects and therefore will not necessarily correlate with the Group’s Profit after Tax. Weighted average number of securities: The time weighted number of securities outstanding during the period. 220 220 Corporate directory Annual General Meeting 2020 The Annual General Meeting (AGM) of shareholders of Lendlease Corporation Limited and the general meeting of unitholders of Lendlease Trust (together, Lendlease Group) will be held at 10am on Friday 20 November 2020. Due to the ongoing risks of the COVID-19 pandemic, and in light of the social distancing requirements of the Australian and State governments currently in place, the Board has decided in the interests and health and safety of securityholders, staff and other stakeholders, that a virtual rather than face to face meeting will be held. Securityholders will not be able to physically attend the AGM. We will provide securityholders with full details of participation in the Notice of Meetings. Lendlease advises that the date of close of director nominations for election at the AGM is Friday 2 October 2020. 2020 Financial Calendar Mon 17 Aug Mon 17 Aug Full Year Results Announced Full Year Results Announced Fri 21 Aug Fri 21 Aug Security Price Ex Dividend Security Price Ex Dividend Mon 24 Aug Mon 24 Aug Final Distribution Record Date Final Distribution Record Date Tue 15 Sep Tue 15 Sep Fri 20 Nov Fri 20 Nov Final Distribution Payable Final Distribution Payable Annual General Meeting Annual General Meeting 2021 Financial Calendar Mon 22 Feb Half Year Results Announced Fri 26 Feb Security Price Ex Dividend Mon 1 Mar Interim Distribution Record Date Wed 17 Mar Interim Distribution Payable Please note that the timing of events can be subject to change. A current calendar is available online at www.lendlease.com Entity Details Lendlease Corporation Limited ABN 32 000 226 228 Incorporated in NSW Australia Lendlease Responsible Entity Limited ABN 72 122 883 185 AFS Licence 308983 as responsible entity for Lendlease Trust ABN 39 944 184 773 ARSN 128 052 595 Registered Office Level 14, Tower Three International Towers Sydney Exchange Place 300 Barangaroo Avenue Barangaroo NSW 2000 Contact T: +61 2 9236 6111 F: +61 2 9252 2192 www.lendlease.com Share Registry Information Computershare Investor Services Pty Limited ABN 48 078 279 277 GPO Box 242, Melbourne Victoria 3000 Australia T: 1800 230 300 (within Australia) T: +61 3 9946 4460 (outside Australia) www.computershare.com.au Artist’s impression 221 Sydney: Sydney Place Lendlease Annual Report 2020 Managing and Measuring Value222 Our paper goes another round This report is printed on locally sourced recycled paper and contains waste from Lendlease assets around Australia including Melbourne Quarter and Barangaroo South, Sydney. Level 14, Tower Three International Towers Sydney Exchange Place 300 Barangaroo Avenue Barangaroo NSW 2000 www.lendlease.com @lendlease @lendleasegroup @lendlease 

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