Lend Lease Corp Ltd
Annual Report 2021

Plain-text annual report

A sense of place Lendlease Annual Report 2021 About this report The Lendlease Annual Report 2021 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 32 and 33, and in the section Our Business on pages 12 to 19. Directors’ Report and Operating and Financial Review (OFR) The required elements of the Directors’ Report, including the OFR, are featured on pages 4 to 125 of this report and include the sections A Year in Review, Our Business, A Sense of Place, Managing and Measuring Value, Risk and Climate Related Resilience, Performance and Outlook, and Governance. The OFR is covered specifically on pages 4 to 69. All non financial metrics included in the Directors’ Report on pages 4 to 55 have been verified through our internal verification process. The Remuneration Report on pages 84 to 121 and the Financial Statements on pages 126 to 191 have been audited by KPMG. Reporting suite Our reporting suite provides information about the organisation and its key financial and operational achievements including: • 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. Front cover: Sydney: Darling Square on Gadigal Country and Wangal Country This page: Sydney: Victoria Cross on Cammeraygal Country Artist's impression1 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 1. Artist’s impression of Victoria Cross, Level 29 Terrace. Artist’s impression and views are indicative only as at June 2021 and subject to planning and other approvals. Prospective lessees should make their own enquiries as to surrounding developments, both current and future, including any impacts they may have on view lines from Victoria Cross. Lendlease Annual Report 2021 3 Acknowledgement of Country We acknowledge the Traditional Custodians of the land and pay our respect to them and their Elders past and present. As a business that works across many locations, we have a responsibility to listen, learn and walk alongside First Nations peoples so that our activities support their ongoing connection to their lands, waters, cultures, languages and traditions. We value their custodianship of 65,000 years. Contents Lendlease presents its sixth integrated Annual Report to communicate how our business operates, our competitive advantage, and our performance and outlook. The future is now. As the world continues to navigate its way through the impacts of a global pandemic, the way we live, work, shop and interact is changing. designing, delivering and curating places for generations to come. Suitably, the theme of this year’s Annual Report is ‘a sense of place’. Increasingly, governments and customers are looking to Lendlease to help reshape and innovate places which provide experiences. As we put our best foot forward to help communities thrive, we do so by At Lendlease, we have five focus areas that contribute to creating long term value for our securityholders and the broader community. Icons are used throughout the report linking our activities to this value creation. A Year in Review Chairman's Report Global Chief Executive Officer's Report FY21 snapshot Our Business Purpose, value creation and global presence Strategy Operating segments A Sense of Place Cities are the future Digitisation Milan Innovation District Melbourne Quarter 4 Risk and Climate Related Resilience 12 20 Performance and Outlook Governance Board of Directors’ information and profiles Remuneration Report Directors’ Report Lead Auditor’s Independence Declaration Financial Statements Other Information Corporate directory Securityholder information Glossary 46 56 70 126 200 Managing and Measuring Value 30 Health and Safety Financial Our Customers Our People Sustainability 4 A sense of place Lendlease Annual Report 2021 A Year in Review 5 A Year in Review Boston: Clippership Wharf The uncertainties and impacts of COVID-19 (COVID) left no person, community or country untouched. Our results tell a story of a Lendlease impacted by the pandemic, and that of an organisation that continued to make a positive contribution to the lives of people across our regions, and to the planet. These past 12 months were marked by challenges and opportunities to learn. However, we never lost sight of the very reason we exist – our purpose. We remained committed to finding the best ways to create value and make a difference. We won new projects, secured new partnerships and delivered work across our pipeline. We took on some bold missions for the sake of the environment and got well underway to achieving our sustainability targets. We also continued to build our digital capability as we work to be the best in the industry. We did this with an uncompromised approach to the safety, health and wellbeing of our people and all those who interacted with our places. 6 A sense of place Lendlease Annual Report 2021 A Year in Review 7 Chairman’s Report As an international real estate group operating in targeted gateway cities globally, the COVID pandemic continued to significantly impact Lendlease during the past year. And many of the cities in which we operate were forced into extended lockdowns or reentered lockdowns. These challenging conditions had a negative impact across our core businesses in all regions. We have given specific examples in the Annual Report of how each of Development, Construction and Investments have been impacted. In the context of this environment, it is a testament to both the resilience of the Lendlease business model and the hard work and dedication of our people across the globe that your company achieved solid operational and financial results across its Core business. Health and Safety The health and safety of our people, our subcontractors and the communities in which we operate continues to be our number one priority. Tragically, two subcontractor fatalities on our sites occurred during the period. This provides a strong reminder of why we have such an unrelenting focus on this most critical aspect of our business. Our sincerest condolences are extended to the family and colleagues of the two men who lost their lives. The Board oversaw the ongoing review and subsequent refinement to our Global Minimum Requirements (GMRs). Each member of the Board, as well as our people globally, undertook mandatory training to understand how the updated GMRs support the continual improvement of the safety environment at our workplaces. Financial Result Lendlease reported a Statutory Profit after Tax of $222 million. This included a loss of $181 million for the Non core segment, driven by additional provisioning relating to claims on historical engineering projects. This disappointing outcome reinforces the decision to exit the engineering sector so Lendlease can focus on areas of competitive strength. Core operating profit of $377 million was up substantially from $206 million in FY20. Full year distributions of 27 cents per security reflects a pay out ratio of 49 per cent, which is within the Board’s stated target range of 40 to 60 per cent of core operating earnings. The Group entered FY21 in a strong financial position with a healthy pipeline of work, cash and cash equivalents of $1.7 billion and gearing of 5.0 per cent. The strength of our balance sheet positions Lendlease strongly as we continue to navigate the COVID impacted operating environment. Executive Leadership Transition A key priority for the Board this year was the selection of a new Chief Executive Officer to succeed Steve McCann after more than 12 years in the role. Following an extensive internal and external search, The Board’s focus has been to guide the organisation through a very uncertain operating environment and assist management to advance the Group’s long term strategic objectives. the Board appointed Tony Lombardo as Global Chief Executive Officer, effective 1 June 2021. Tony has more than 25 years’ global experience working across real estate development, investment management, finance and mergers and acquisitions. This experience, including roles at Lendlease as CEO Asia and Group CFO, make him eminently qualified to lead Lendlease into the future. Tony commenced his new role with the mandate to pursue the Group’s strategy of leveraging our competitive advantage in the development and delivery of large- scale, mixed-use urbanisation projects and growing the Investments platform. Steve retired from the Lendlease Board on May 31, 2021 following a 16 year career with the Group. I’d like to take this opportunity to acknowledge his contribution. We’re now recognised as a global leader in transforming major precincts and his unwavering commitment to operating in a safe and sustainable way has left a powerful legacy. During the period, the Board had oversight of other executive leadership changes. This includes the appointment of new members to our Global Leadership Team, bringing fresh ideas and new perspectives. The Board is confident these appointments, along with a revised organisational structure, set Lendlease up for future success. Board program The Board program, in addition to its regular cadence of meetings this year, expanded to reflect the broader range of both operational and strategic issues which required oversight. The Board continued to maintain its regular cadence of meetings during the year. While some engagement activities were restricted by the pandemic, other parts of the program were able to be maintained through the adoption of technology. This enabled the Board to engage in virtual programs in all four operating regions – including site tours, project reviews, interactive employee roundtables, leadership discussions and engagement with external stakeholders. The Board firmly believes these activities, in addition to our formal meetings, further enhance our understanding of our people, our business and activities and operations within each region. During the year, we continued to focus on our program of Board renewal – in particular, identifying a new Non Executive Director with deep skills in our core operating segments. Executive Reward Strategy In response to investor feedback on our FY20 Executive Reward Strategy (ERS), our planned review of remuneration arrangements was significantly expanded. The focus was to continue to evolve our ERS with the business so that it supports the future success of Lendlease while also meeting the expectations of our investors. In FY21, the Board established a working group to thoroughly assess and examine views of securityholders and other external stakeholders. The review also considered market practice, internal perspectives as well as the strategic priorities of the Group. The revisions to our ERS were implemented from 1 July 2021 and incorporated these considerations, including increased transparency of Board decision making. The remuneration package for the new CEO has been reduced by 33 per cent for unhurdled remuneration and 21 per cent for total maximum remuneration opportunity compared to the former CEO. Other key amendments include rebalancing the remuneration mix with a higher proportion of remuneration subject to performance hurdles. Features that reflect the long dated nature of the business, that is delivering a significant proportion of remuneration in equity that vests over an extended period, have been retained. Further detail on the Board’s deliberations is provided in the Remuneration Report. Notwithstanding the solid operational and financial results across our Core business, the Board recognises the need for accountability in FY21 for the further provisions relating to the legacy Engineering business and the potential business review outcomes that have been announced in relation to the Development portfolio that will be considered in FY22. Accordingly, there were appropriate reductions in the FY21 bonus outcomes for accountable Executives, including nil short term award to the former Group CEO. Further, on behalf of the Board, I will be taking a 20 per cent reduction in my Chairman’s fee for the current year. Sustainability This year Lendlease launched a global campaign, ‘Mission Zero’ to raise awareness about our ambition to reach Net Zero Carbon by 2025 and Absolute Zero Carbon by 2040. These targets set a global benchmark for our sector and we are making a conscious decision to be a leader in driving industry transformation to limit global warming. From a social sustainability perspective, the Group also made meaningful progress to achieve our target of creating $250 million of social value by 2025. We have ‘shared value’ partnerships across all regions, focused on creating measurable social value by addressing the needs of communities. The recent commencement of the Milan Innovation District (MIND) project exemplifies how the Group incorporates environment and social sustainability into key decision making. The project is targeting to be a zero carbon precinct including 100 per cent renewable energy and 95 per cent onsite recycling. The project is also designed to generate social value for the community, exemplified by training and job opportunities for previously incarcerated individuals. The Board also proudly endorsed the Group’s Reconciliation Action Plan which achieved ‘Elevate’ status, and the 2020 Modern Slavery Statement. Looking to the Future The COVID pandemic has had, and continues to have, significant ramifications for the real estate markets in which the Group operates. As a result, we expect FY22 to be another challenging year for all stakeholders. We are steadfast in our strategy and confident that as global cities recover, the underlying strength of our business will prevail. I would like to thank my Board colleagues and the entire Lendlease team for their continued dedication in navigating the challenges of a global pandemic. Throughout much uncertainty, the team has achieved significant milestones that position us to create long term value for securityholders. M J Ullmer, AO Chairman 8 A sense of place Lendlease Annual Report 2021 A Year in Review 9 Global Chief Executive Officer's Report Lendlease has navigated a challenging year in the face of the COVID pandemic. I’m honoured to present my first report as Lendlease’s Global CEO. Upon assuming the role, my first task was to listen: to our customers, investors, and our people. Those interactions reinforced my conviction in the fundamental strength and culture of the Group. However, there is more we need to do to unlock our full potential. My commitment is simple: to create value for all those that interact with us and make a positive contribution to society through the places we create. Our first step is to simplify the business and adopt a more consistent approach across the organisation to provide better transparency. This will help us identify the areas that create the most value, and importantly, those that do not. This is the key to creating wealth for our securityholders, who have endured a difficult period. Health and safety Getting our people home safely each day remains our highest priority. Tragically, two employees of subcontractors lost their lives on Lendlease projects during the financial year. A partial roof collapse at Curtin University in Perth and an accident during elevator fit out works at the Setia City Mall in Malaysia resulted in a loss of life. We extend our deepest condolences to the loved ones of both men. For more than 20 years we have transparently reported safety data across any operation where we have a presence around the world, regardless of who has statutory responsibility. Given the nature of recent incidents, we are sharing our learnings and advocating to industry to bring about lasting changes and credible, transparent reporting. In 2008, we introduced Global Minimum Requirements (GMRs) to define the Lendlease way for managing health and safety. The application of our GMRs has been reflected in an improved safety performance review across the past decade. But there is no room for complacency. This year, we released the fourth edition of our GMRs which incorporates updated work practices, lessons learned over the last five years, and a specific focus on the mental health and wellbeing of our people. Financial performance Lendlease reported a Statutory Profit after Tax of $222 million, including a loss of $181 million for the Non core segment and $26 million of property revaluations in the Investments segment. Core Operating Profit after Tax rose by 83 per cent to $377 million while Earnings per Security rose by 60 per cent to 54.8 cents for a Core Operating Return on Equity of 5.4 per cent. While an improved performance compared with the prior year, the Core business continued to be adversely impacted by COVID. The Development segment experienced production delays, with ongoing impacts on leasing and sales across some of our active projects. The lockdowns in London affected the performance of our recently completed residential for rent buildings at Elephant Park. Nonetheless, several key initiatives were progressed including an investment partner being secured for the first two residential towers at One Sydney Harbour. These initiatives drove an improvement in Development ROIC to 7.2 per cent, although returns remain below target levels. Construction activity was constrained by delays in the commencement of new projects, site shutdowns and lower productivity. The impact of social distancing protocols across our sites was reflected in a 16 per cent decline in revenue compared to a 9 per cent decline in hours worked. Despite pandemic impacts, we delivered a solid result with the EBITDA margin rising to 2.7 per cent. The Investments segment generated a return on invested capital of 5.9 per cent, just below the target of 6-9 per cent. Management earnings were resilient, although returns on the Group’s investment portfolio were also impacted by disruption across underlying assets. While our financial performance was below target levels, we achieved substantial progress on our strategic priorities; a number of new development projects and investment partnerships were secured and a number of strategic divestments completed. Strategy The cornerstone of our strategy is to create value through the best urban precincts in key global gateway cities. Our strong track record in delivering best in class placemaking and sustainable outcomes has helped us be the global urbanisation partner of choice and underpins our goal for ongoing strong growth in the Investments platform. Our gateway cities strategy is simple, the most desirable cities will continue to be the driving force of economic, social and cultural life. We have unique insights into the likely evolution of the urban landscape given our global reach and capabilities. Through the places we design, build and manage, we aim to create destinations where people want to be and address urban challenges. Creating value for future generations A decade from now the world will be a very different place, with the impacts of climate change even more evident. That’s why the actions we take now have that future very much in mind. The cities in which most of us now live – including our homes, the places we work and where our children go to school – contribute about 40 per cent of global greenhouse gas emissions. This means our industry has a unique opportunity to act. To support our industry leading carbon targets, Lendlease is phasing out diesel and gas and increasing our use of renewable energy. Our Australian Building business has provided carbon neutral construction for three consecutive years and 100 per cent of our construction projects in Chicago are powered using renewable electricity. We are collaborating with supply chain partners, tenants and residents to achieve absolute zero carbon by 2040. Business review Shortly after commencing my role, I initiated a wide ranging business review. While it is yet to complete, some preliminary findings have been reached. Importantly, the Group’s strategy and strategic priorities have been confirmed. The work to date has been directed towards the organisation and management structure and a review of the development operations. The revised organisational structure is designed to derive the full benefit of being a multinational company with a more consistent operating model across all regions. This will facilitate the Group in achieving its strategic objectives and realise significant cost savings. The review of the development portfolio reaffirmed its underlying strength, supported by a capital efficient business model. However, a small number of projects have been identified where a material change in strategy is under consideration. We expect both the Group’s development production and return targets to be met by FY24. Outlook FY22 is a reset year for the Group as we face the future with a more streamlined organisation, focus on our core strengths and address COVID impacts that have temporarily challenged the key tenet of our strategy. As a result, we expect core operating returns for both the Development and Investments segments, along with returns for the Group to be below target. Despite this, I am incredibly optimistic about the future of the organisation. We are a great company with placemaking and origination capabilities that are world leading. Our success internationally is testament to our strategy and the depth of talent we have developed and attracted. I believe we will create lasting securityholder wealth while delivering on our commitment of leadership in health, safety and sustainability. On a final note, my thanks to our Board, employees, customers, investment partners, securityholders and financiers for supporting Lendlease throughout the year. Tony Lombardo Global Chief Executive Officer 10 A sense of place Lendlease Annual Report 2021 A Year in Review 11 FY21 snapshot Sydney: Waterman’s Cove, Barangaroo South on Gadigal Country $14.5 billion work in progress $222 million statutory profit after tax Strategic divestments including sale of Engineering, Services1 and US Telecommunications and Energy businesses Strong financial position – gearing 5% Mission Zero campaign raising awareness of our carbon targets 10% increase in funds under management $3.8 billion production including Melbourne Quarter; Elephant Park, London; 845 West Madison, Chicago. Below medium term target of more than $8 billion per annum. $377 million core operating profit after tax $3.7 billion development of luxury apartments in joint ventures at One Sydney Harbour Artist’s impression Record low critical incident frequency rate, sadly two fatalities $8.4 billion additions to pipeline 1. Conditional sales agreement signed on 21 July 2021. Artist’s impression 12 A sense of place Lendlease Annual Report 2021 Our Business 13 Our Business Melbourne: Melbourne Connect on Wurundjeri Country Who we are Lendlease is a globally integrated real estate group with core expertise in shaping cities and creating strong and connected communities. For more than 60 years, we have created thriving places. Safety is always our first consideration, boldness and innovation characterise our approach and doing what matters defines our intent. We work with purpose to design, build and curate places where people want to be and care about. In partnership with stakeholders we generate social, environmental and economic value to cities and communities. We have a proud legacy of creating award winning urban and lifestyle precincts and living options for many stages of life. We have also been entrusted to create essential civic and social infrastructure: hospitals, life sciences centres, and universities that contribute to a more liveable, resilient and sustainable future. Headquartered in Sydney, our people are located in four operating regions: Australia, Europe, the Americas and Asia. Guiding our behaviours and underpinning our code of conduct are our core values: Respect Collaboration Integrity Excellence Innovation Trust 14 A sense of place London: Elephant Park Lendlease Annual Report 2021 Our Business 15 Purpose, value creation and global presence Our purpose Together we create value through places where communities thrive Our focus areas We have five focus areas that create long term value. They underpin our ability to create safe, resilient, 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. Our purpose is focused on forming vibrant and enduring communities which contribute to a more liveable and sustainable future. We have a proud legacy of creating great places in select global cities. Decades of experience in transforming urban precincts has generated lasting economic, social and environmental benefits. The positive actions we take are driven from an understanding that every decision we make has an impact and must be done in collaboration. We embrace a holistic approach, working in partnership with communities, governments and investors to help solve some of the challenges confronting people, cities and the planet. Our contribution is measured by the value created through safer, more sustainable and profitable outcomes. 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 purpose. Together we create value through places where communities thrive. Sustainability Sustainability is core to our planning and clear in our outcomes. We have a proud history of emphasising environmental, social and economic impacts. San Francisco • • Los Angeles Chicago • • Boston • New York • London • Milan Rome • Globally and locally committed to creating resilient cities Beijing • Shanghai • • Tokyo Kuala Lumpur • • Singapore Perth • Melbourne • • Brisbane • Sydney Lendlease’s urbanisation led strategy focuses on targeted major ‘gateway cities’ around the world. Our urbanisation led strategy focuses on 17 gateway cities around the world. These cities often contain sites well suited for regeneration, playing to the breadth of our skills. They are the locations where we believe we can deliver the most value. Our teams of locally based professionals combine their property expertise and capability with the scale of our global platform to provide a truly enterprise wide experience for our customers and stakeholders. Following the rapid growth in our pipeline in recent years, we now operate in 15 of these cities, of which 10 feature our major urbanisation projects. Our major urbanisation pipeline1 Americas Europe Asia Australia • Lakeshore East, Chicago • Euston Station, London • The Exchange TRX, • Victoria Cross, Sydney • 30 Van Ness, San Francisco • Silvertown Quays, London Kuala Lumpur • Southbank, Chicago • Milano Santa Giulia • 1 Java, New York • Milan Innovation District • San Francisco Bay Area project, San Francisco • Elephant Park, London • High Road West, London • Deptford Landings, London • Smithfield Birmingham • Thamesmead Waterfront, London • International Quarter London 1. Projects with an estimated end development value of more than $1 billion. • Barangaroo South, Sydney • Melbourne Quarter • Brisbane Showgrounds • Sydney Place • Waterbank, Perth • Victoria Harbour, Melbourne 16 A sense of place San Francisco: Google, San Francisco Bay Area Artist's impression Strategy Employ our placemaking expertise and integrated business model in global gateway cities to deliver urbanisation projects and investments that generate social, environmental and economic value. Placemaking is in our DNA. Place is about people's connection to a physical environment and the experiences that trigger both an emotional attachment and a sense of belonging. The unique places we create are carefully designed and curated to meet the needs and aspirations of the people who live, learn, work and play there. The cornerstone of the Group’s strategy is to create the best urban precincts in key global gateway cities. Our point of difference emanates from our proven expertise in delivering major urbanisation projects through placemaking and our integrated business model, backed by financial strength. This is our competitive edge. Purpose driven Our strategy is underpinned by an ethos that long term value creation is maximised by achieving social, environmental and economic outcomes. This involves collaborating with customers, investment partners, governments and the communities within which we operate. A key differentiator from other industry players is our end to end capability across all aspects of real estate: from concept and planning to design and delivery through to funding and investment management. A proven track record of more than two decades of 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. 1. Conditional sales agreement signed on 21 July 2021. Disciplined origination, accelerated development The trust placed in us by our customers and partners to evolve the next generation of urban precincts is reflected in our origination success in recent years across targeted international gateway cities. The urbanisation platform has grown substantially to comprise a portfolio of 23 major projects across 10 gateway cities, and our total development pipeline now stands at more than $110 billion. The Group is targeting more than $8 billion of annual completions over the medium term – near double the historical completion rate. The growth in the development pipeline, investment in capability to execute at scale and the resilience of the cities in which we have a presence, provides us with confidence in achieving this outcome. However, while the impacts of the pandemic will prevent this in the short term, we expect the target to be reached by FY24. Global mindset An enterprise wide approach will be critical to achieving safe, sustainable and profitable outcomes as production accelerates. Our global operating model, supported by products and platforms, provides a framework for implementing best practice consistently, while empowering our teams to lead and innovate. We are investing with the longer term in mind by creating digital capabilities to support our strategic objectives. Our partnership approach has driven significant growth in the Investments platform. Future growth will be underpinned by the more than $50 billion of investment grade product that we expect to create from the development pipeline. In addition, we have the appetite and global capability to launch new products alongside our investment partners. Increased focus The Group’s human and financial capital is increasingly being directed towards leveraging the Group’s capabilities across urbanisation projects and the Investments platform. Strategic divestments have supported the Group in redirecting these resources. We have exited the Engineering, Services1 and US Telecommunications businesses. Capital allocation to the Retirement Living and Communities businesses has also been reduced. Resilient and flexible Our strategy has been designed to be resilient to an evolving market environment. The business model, supported by land management structures across most projects, has the agility to ride out market cycles. We understand cities will need to become more affordable, inclusive and sustainable with a greater focus on transport links, security and workplace flexibility. Our placemaking skills are already adapting to these challenges and the associated changes in consumer, corporate and government behaviour. Our refreshed strategy focuses on expanding and upweighting our businesses that have the greatest potential to drive securityholder value. Lendlease Annual Report 2021 Our Business 17 Our refreshed strategy focuses on expanding and upweighting those parts of the Group that have the greatest potential to drive securityholder value. Strategic priorities Accelerate development Best practice construction delivery Leverage competitive edge Scale investments Leadership in sustainability London: International Quarter London Pavilion Artist’s impression 18 A sense of place Lendlease Annual Report 2021 Our Business 19 Operating segments a r g Int e t e d Business M o d el ents tm s e v n I D e v Thriving communities e l o p m e n t We pursue an integrated business model – where two or more of our operating segments of Development, Construction and Investments engage on the same project – to create new mixed use precincts, communities and important civic and social infrastructure. As an international real estate Group with a presence in targeted gateway cities, the pandemic had a pervasive impact on operations in FY21. For more information refer to the Performance and Outlook section on pages 56 to 69. Constru c t i o n Proven Trac k R e c o r d Development The Development segment is predominantly focused on the creation of mixed use precincts that comprise apartments, workplaces and associated leisure and entertainment amenities. The Group also develops outer suburban masterplanned communities and retirement living villages. Capability We manage the entire development process – from securing land, creating masterplans and consulting with communities and authorities through to project management, sales and leasing. Placemaking is core to our strategy and competitive position. We create places that resonate with communities and contribute to the quality and liveability of our cities by working in partnership with governments, institutions, landowners, investors and the community. Platform $114 billion development pipeline 231 major urbanisation projects located in ten global gateway cities 171 masterplanned communities located in Australia and the US More than 59,000 residential apartments and 57 commercial buildings to be delivered Construction The Construction segment provides project management, design and construction services, predominantly in the commercial, residential, mixed use, defence and social infrastructure sectors. Investments The Investments segment comprises a leading investment and asset management platform and the Group’s investments across the residential, office, retail, industrial and retirement sectors. Capability Capability Our capability is showcased in the places and structures we create – workplaces for some of the world’s largest organisations and residential apartments, including affordable housing options, hospitals, and other buildings of civic and social importance. An investment in smart design and advanced manufacturing has improved our safety, sustainability and efficiency, including the ability to simulate all aspects of construction, from design to structural integrity and system performance. Our Construction segment typically designs and delivers the built form for our urbanisation projects and will be integral for the successful delivery of our $114 billion urbanisation pipeline. Platform $15 billion construction backlog revenue Key sectors include commercial, defence, social infrastructure and residential For decades we have managed 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 unlisted and listed property funds and mandates. We offer a research led investment capability supported by active asset management and leadership in sustainability. Our competitive edge lies in the opportunities provided to our investment partners to access the diverse, high quality product created through our integrated model. Our development pipeline will provide a key source of growth for the Investments segment. Growth will be supplemented by pursuing other opportunities with our investment partners. Platform $40 billion funds under management c.150 institutional investment partners 45 per cent of our larger projects delivered for government clients $29 billion of commercial and residential assets managed c.44,000 backlog of communities lots 31 per cent delivered for corporate clients Significant owner and operator of 75 retirement living villages 1. Total of 49 development projects, comprising a total of 32 urbanisation projects and 17 communities projects. Chicago: The Cooper, Southbank FY21 segment highlights Development Construction Investments $8.4 billion additions to pipeline including new urbanisation projects secured in New York, Los Angeles, Birmingham, Boston, Greater Tokyo and Singapore $8.8 billion new work secured $5.1 billion new investment partnerships to drive funds under management $5.6 billion commencements Completed projects Crown Sydney Hotel, Melbourne Quarter residential and commercial, Elephant Park residential for rent New partnerships Aware Super: New York and Los Angeles, Ivanhoé Cambridge: Boston, CPP Investments: Milan, NPS: Melbourne $14.5 billion work in progress 100% renewable energy across all Australian building projects GRESB #1 ranked office fund, seven funds ranked in the top 20 20 A sense of place Lendlease Annual Report 2021 A Sense of Place 21 A Sense of Place London: Elephant Park Creating the future We create places where people want to be and be a part of. The pandemic has raised questions about the future role of our cities, workplaces and homes, and the way we shop, live and interact. People are more discerning about the experiences they want, and we recognise the best places are created when we take a human centric and holistic approach. We take the time to explore and understand our projects, their history and what will generate continual attraction. We immerse ourselves in our local environments and communities to best understand their cultures, needs and wants. In doing so, we are better able to design, deliver and curate projects that contribute value to the communities they serve. Sustainable places are in demand by investors and customers alike, reflected in a growing desire for wellness and connection. The line between one’s personal and professional life is blurring. We create places that provide safe havens rich in culture, inclusivity and innovation that support healthier lifestyles and generate social, environmental and economic benefits. MIND and Melbourne Quarter are two such projects. They cater for the varying facets of life’s needs today and into the future with advanced technology, a diverse range of services and integrated experiences for work, living and leisure. 22 A sense of place Lendlease Annual Report 2021 A Sense of Place 23 Cities are the future Cities are destined to remain the centrepiece of modern society. They have been the lifeblood of innovation and advancement for millennia. The value to society of people interacting in close proximity has cemented the dominant role that cities play in the global economy. The future is about workplace innovation rather than remote working. Resilient cities adapt To be sustainable and liveable, cities of the future need to provide solutions for numerous challenges. These include: workplace innovation, carbon emissions, climate change adaption, housing affordability, social inclusion and income inequality. To achieve desired outcomes governments, organisations and communities will have to work collaboratively. The striking difference during the current pandemic has been the ability for large sections of the labour force to work remotely. The attraction of talent will be key to organisational success, and talent will be attracted to the most liveable cities and desirable workplaces. The past year has reinforced the need, desire and benefits of social interaction, collaboration and knowledge sharing. The yearning for experience and human interaction is clearly evident across communities and workplaces as cities reopen and societies recover. In essence, people want to connect with other people and places. The benefits of agglomeration are as compelling today as they have ever been. Think London and New York’s finance sectors, Milan’s high end manufacturing and fashion scene and Silicon Valley’s technology smarts. The extensive social infrastructure and amenities that cities offer make them people magnets. Population density enables the best educational institutions and healthcare facilities as well as cultural attractions such as museums, galleries and theatres. The strong desire for social interaction and experience spurs vibrancy across the retail, tourism and hospitality sectors. Periodic challenges are inevitable Disease has been the great scourge of city life with terrible death tolls from periodic plagues, influenza and other diseases. The enforced lockdowns and isolation from the COVID pandemic has thrown the primary purpose of cities – that is, interaction and collaboration – into some disarray. Their very nature is being challenged. COVID is having significant ramifications for the way societies live, work and play. This has been reflected across real estate with workplace occupancy, retail vacancy and, in some cases, population decline. Despite these and other challenges, including crime, civil unrest and pollution, cities have rebounded with their growth largely unabated. As the powerhouse of the modern economy, cities account for more than 80% of global GDP but only 55% of the world's inhabitants.1 Additional insights into our approach to creating Place include: Innovation districts and rethinking workplaces3 Waterfront regeneration4 Transit oriented development5 This is the future workplace we are planning for, one that is sustainable, agile, connected, inclusive and digitised. A greater range of living options are required to enhance dynamism across gateway cities. Higher density, done well, will play a key role in improved liveability, addressing issues including affordability, congestion, sustainability and social isolation. We have the capabilities to offer apartments for sale and rent in amenity rich environments that provide experiences as well as access to employment opportunities. Our Melbourne Quarter project, the regentrification of a site which sat dormant for decades, is an example of placemaking in action. A new vibrant inner city precinct with a diverse mix of workspaces, living, hospitality, retail and green public realms, is being created. Further detail on this project is provided on page 28 of this report. Thriving communities across gateway cities Our gateway cities strategy is founded on the premise that the most desirable cities will continue to be the driving force of economic, social and cultural life. We select cities with the most favourable prospects for long term outperformance. Indicators we monitor to assess and rank the performance of cities include economics and demographics, business climate and capital market metrics, real estate fundamentals and policy and planning frameworks. Our global reach and capabilities, combined with our partnering approach, provide unique insights into the likely evolution of the urban landscape. This offers scope to lead reinvigoration, renewal and reinvention. Placemaking that meets the needs of the local community is our contribution to solving urban challenges. Our role is to select the cities that outperform and create environments that resonate. Through the places we design, build and curate, we aim to create destinations where people want to be. Improved liveability, environmental sustainability, inclusion, affordability, connectedness, wellbeing and a sense of community are important elements we incorporate to create Place. Our approach is underpinned by leading safety and climate policies, and the adoption of technology. Workplace flexibility will be critical to provide a compelling proposition for both employers and employees. We expect requirements for space to be replaced by demands for ‘Place’ where the workplace is centred on collaboration and innovation, and health and wellbeing. ‘What is the city but the people.’2 1. https://www.worldbank.org/en/topic/ urbandevelopment/overview#1 2. William Shakespeare (Coriolanus, Act III Scene I). 3. https://lendlease.cc/innovationdistricts 4. https://lendlease.cc/waterfrontregeneration 5. https://lendlease.cc/transitorienteddevelopment 24 A sense of place Lendlease Annual Report 2021 A Sense of Place 25 Targeting improved efficiency Targeting cost reduction in project costs Accelerating speed to market We constantly challenge the way we do things in search of a more efficient and consistent approach. The implementation of digital platforms is expected to improve the timeliness and quality of decision making by providing best practice methodologies, frameworks and tools for the entire project lifestyle. One Lendlease Interactive (OLi), launched into our Construction portfolio this year, helps manage more than 230 projects1 and future business opportunities valued at c.$60 billion. This project management platform provides greater consistency across our operations and the ability to digitise discrete processes, such as our investment risk analysis. It enables data to be utilised more comprehensively and therefore enhances our decision making. Our agile development approach to OLi caters to new functionality added almost weekly. Additionally, our digital solutions, such as digital twin technology, are set to: • Simplify and accelerate the built form process • Reduce project costs • Enable us to design hundreds of scenarios to develop and and assemble a building. Designing healthier assets for people and the planet Buildings and construction are responsible for 38 per cent of all carbon emissions in the world, with the operational emissions of buildings accounting for 28 per cent.2 We are investing to create smarter, more highly connected buildings. Digital technology is used to monitor elements such as air quality, waste consumption and energy efficiency. The resulting data insights provide the ability to test designs to improve building performance, including the abundance of natural light and reduced carbon footprints. At Barangaroo, we are testing innovative and renewable energy resources: • Solar panels integrated with a green roof to improve energy efficiency and output • Using maggots to process food waste into animal feed and fertiliser. At Milan Innovation District, data is being collected on the materials we dismantle and demolish. This enables the monitoring of recycling and the use of the circular economy. More broadly, the connectivity features of our buildings, combined with customer focused wellness programs, enable the delivery of wellness outcomes to our customers. This year, Lendlease became the world’s first owner of commercial buildings certified with a WELL portfolio rating from the International WELL Building Institute (IWBI). We achieved this at scale across a portfolio of buildings totalling 569,216 square meters (6.1 million square feet) and benefiting nearly 60,000 people. Keeping people safe Data insights allow us to simulate the response of building fabrics to changes in external conditions and identify risks prior to the commencement of construction. Using digital platforms, we model the safe positioning of cranes, and identify hidden risks and opportunities to assemble and operate buildings according to our high safety standards. 1. Includes origination opportunities, projects in bid, conversion and delivery. 2. 2020 Global Status Report for Buildings and Construction. Digitisation Digitising for a more connected, safer and healthier world The slow adoption of digitisation in the real estate sector has been a factor in poor efficiency outcomes. During the past 50 years, real estate productivity has declined by 19 per cent compared to average productivity across all other industries rising by 153 per cent. As digital solutions emerge, Lendlease is forging new design and operational standards, processes and partnerships to simplify the interdependencies in the built environment. Together with some of the largest and best in class organisations such as Google Cloud, Stora Enso and JCI we aim to transform the property value chain by harnessing collective knowledge through digital technology and data insights. Our new Product Development Centre in Singapore is part of a wider digital ecosystem of innovation that includes centres in Silicon Valley and Sydney. The foundations for long term transformation are being assembled. We anticipate this will deliver products to market faster, and more sustainably and safely, thereby creating value for customers and communities. To deliver on our targeted production of more than $8 billion per annum, Lendlease is sourcing and developing new tech skills, capabilities and digital solutions. 26 A sense of place Lendlease Annual Report 2021 A Sense of Place 27 Milan Innovation District Artist’s impression The future of placemaking is now Milan Innovation District (MIND) is a 100 hectare mixed use redevelopment, aiming to become a world leading science, knowledge and technology hub with an estimated development end value of $3.6 billion. Housed on Milan’s famed Expo 2015 site, the design, construction and delivery brings together the entire breadth of Lendlease’s end to end capabilities. It embodies our view on the future of urbanisation: more sustainable, connected and smarter. Targeting zero carbon precinct 32 Innovation partners Working Together MIND is a public private partnership (PPP), based on a 99 year concession agreement – a first and major milestone for both Milan and Italy. Together with investment partner Canada Pension Plan (CPP) Investments, the scope of works spans about half of the precinct’s area, including offices, laboratories, build to rent living, retail, feature amenities and services, as well as a creative hub. In addition to the PPP, five public and private institutions are driving the broader precinct’s development. They will deliver a new science campus for more than 18,000 students, a hospital with more than 500 beds, research centres, and a network of 68 civil society organisations. Advancing the future Our partnerships on the MIND project are helping us realise the vision of establishing an innovation district. In February 2021, to cocreate discoveries in technology and life sciences, we launched the Federated Innovation™ ecosystem. Including Lendlease, it now comprises 32 partners, more than 100 companies and greater than 100 projects in the pipeline. Together with other organisations such as universities, research centres and private companies, Federated Innovation™ acts as an innovation developer, accelerating ideas into new products, processes and services available to all partners. Creating Value Sustainable, innovative and modern design will be major features of MIND, in line with our global target to be a 1.5°C aligned company. The district will be a city based on people and placemaking Technology will be present everywhere, but invisible. We are creating buildings that facilitate data driven insights for more intuitive, responsive and consistent experiences without the glare of screens and gadgets. And our design approach uses Design for Manufacture and Assembly (DfMA) methodologies to design and deliver more safely, quickly and efficiently. Improving the planet and people’s health is our goal MIND aims to be a zero carbon precinct. The project has already made progress to deliver this commitment with the selection of its energy partners who are leaders in their field of competence. A private smart grid, as well as a new generation low temperature and high efficiency district heating and cooling network, are being developed for the site. Renewable electricity will come from a variety of sources, including on site production from solar panels. Project timeline First commercial spaces commenced Galeazzi Hospital completed First residential, commercial buildings and retail commenced Life sciences research centre completed University of Milan science campus completed Project completion FY32 Project secured FY19 Artist’s impression Artist’s impression Artist’s impression Targeting digital ecosystem of autonomous buildings “MIND represents an excellent opportunity for CPP Investments to extend our relationship with an experienced existing global partner.” Andrea Orlandi, Managing Director, Head of Real Estate Investments – Europe, CPP Investments MIND will host 60,000 people living and working, with over 1,000 apartments for rent. Establishing a thriving community All buildings targeting minimum LEED Gold Precinct to be powered by 100 per cent renewable energy Targeting 95 per cent of construction waste recycled Existing buildings refurbished where possible Assessed and adapted for climate change resilience Training and jobs program established in partnership with the Italian Ministry of Justice to support inmates with opportunities in the real estate sector Codesigning spaces with local students Urban Impact Fund created to foster solutions for greener, healthier living 28 A sense of place Lendlease Annual Report 2021 A Sense of Place 29 Melbourne Quarter Melbourne: Melbourne Quarter on Wurundjeri Country Artist’s impression FY13 Secured FY26 Expected completion Melbourne Quarter. Something for everyone. Designing customer driven solutions provides the opportunity to secure the best projects, deliver on stakeholder needs and ultimately create places where communities thrive. Melbourne Quarter, once a transport and industrial hub known as Batman’s Hill, sat dormant for decades. In partnering with Development Victoria a new, vibrant inner city precinct, with a diverse mix of workspaces, living, hospitality, retail and green public realms, is being created. Set to house approximately 3,000 residents and 15,000 workers, our vision is to establish a connected place where innovation and businesses thrive, visitors are welcome and residents feel at home. Designing and creating such an experience requires a close understanding of all stakeholder needs, responding to them and working together to generate value. c.150,000sqm of commercial office space across three towers, two residential towers with c.1,500 apartments and 40 retail shops once complete. "Being a health company it’s a priority that we support our people in achieving good health and wellbeing. This focus is central to our new office and at the heart of all design elements. It will be a place for concentration, collaboration and connection." Kylie Bishop, Medibank Group Executive People and Culture $3 billion Total estimated development end value of which 43% is complete Working together With our customers in mind – government, investors, tenants, residents, retailers and visitors – Melbourne Quarter is transforming into one of the city’s largest mixed use urban regeneration precincts. Responding to the community Designing and creating a place requires a close understanding of the people who will want to be there. Melbourne Quarter reflects what our customer’s value: culture, convenience and nature. Drawing on our extensive placemaking capability, we introduced laneways to link the precinct to Southern Cross Station, the city’s most connected transport hub; preserved and integrated an 1890 heritage listed wall; and have created green space with a Wi-Fi enabled public sky park suspended above Collins Street. For greater inclusivity, we partnered with Summer Housing on East Tower, designing ten apartments for people with high physical support needs. A major art program was also introduced, generating c.$13 million in social value. Aligning with investment partners Workplaces and residential buildings within the precinct are being delivered in partnership with investors attracted to sustainable real estate with superior amenities and connectivity. They include: Mitsubishi Estate, Aware Super, National Pension Service of Korea (NPS) and Lendlease’s Australian Prime Property Fund Commercial. Understanding tenant priorities Blue chip tenants from a range of industries have been enticed by our knowledge and expertise in placemaking. Our offering of premium and A grade office towers, superior transport connectivity, retail and wellbeing amenities has attracted customers such as Arup, AMP, EnergyAustralia, and Medibank across the three towers. The precinct is set to deliver a diverse range of services including an exclusive commercial tenant experience platform and a boutique wellness hub including childcare and allied health services. Coworking and flexible spaces cater to the aspirations of customers wanting to maximise the health, collaboration, connectivity and creativity of their people. Creating value Melbourne Quarter’s centralised location and amenities benefit workers wanting easily accessible public transport and diverse workspaces; residents seeking local cafes and open space at their doorstep; and blue chip tenants attracting employees to a highly connected space. Strong leasing on completed towers Tower 1: 99% leased Tower 2: 97% leased 15,000 construction jobs Establishing a thriving community Melbourne Quarter has sustainability and connectivity at its core. It is delivering smart solutions across the built form and operations, positively impacting the health, wellbeing and lifestyles of residents and visitors. The precinct features some of the highest sustainability ratings achievable. More than 50 per cent of space is green and publicly accessible Precinct wide flexible coworking workspace Walk Score rating of 100 per cent, 6 Star Green Star Design & As Built ratings for 1MQ and 2MQ and a 5.5 Star NABERS Energy Base Building rating for 1MQ 6 Star Green Star Communities award 30 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 31 Managing and Measuring Value Maroochydore, Queensland: Sunshine Plaza Shopping Centre managed by Lendlease on Kabi Kabi Country Australia’s largest high ropes course Our five focus areas of value creation. We measure our success by the positive outcomes we generate over the long term through five focus areas. These underpin our ability to create safe, sustainable and economic 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. Health and Safety Financial Our Customers Our People Sustainability 32 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 33 Our five focus areas of value creation Area of focus Material issue How we deliver value Value created How we measure value Health and Safety Financial Our Customers Our People 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 Core Operating Return on Equity: The annual Core Operating Profit after Tax attributable to average securityholders’ equity throughout the year Core Operating Earnings per Security: Core Operating 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 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 and the Board. 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 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 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 Sustainability Designing, delivering and operating buildings and precincts that respond to the immediate challenge of reducing carbon emissions while creating social value. Meeting the increasing expectations of key stakeholders for climate resilient assets that support human health and value natural capital 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 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 $250 million of social value by 2025 34 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 35 Health and Safety A sense of place – a safe one Our highest priority is ensuring our employees, subcontractors, and all those who interact with our places return home safely each day. Key performance insights Operations without a Critical Incident1 FY20 FY21 91% 94% Critical Incident Frequency Rate2 FY20 FY21 0.70 0.66 Lost Time Injury Frequency Rate3 FY20 FY21 1.5 1.8 Safety metrics Lendlease has achieved further improvements against some of our key safety metrics. Despite this, it is with much sadness that we report two fatalities on two of our operations in FY21. In October 2020, a subcontractor working on our Curtin University project in Western Australia was involved in a partial roof collapse and died from his injuries. In November 2020, an elevator fit out subcontractor was fatally injured within the lift shaft on a Lendlease project in Malaysia. As is our practice, following both incidents an independent organisation was appointed to conduct an investigation to understand the factors involved and to independently verify the application of our Global Minimum Requirements (GMRs). Our thoughts continue to be with the families of these two workers and everyone impacted by these tragic events. Learning from incidents Getting our people home safely each day is our highest priority. Anything less is unacceptable. To learn from any serious incident and work to prevent any repeats we address the findings and recommendations from any independent incident investigations and work with internal and external designers, engineering consultants and supply chain partners to improve design, to mitigate risk and apply improved quality assurance processes. The incident in Malaysia occurred when a worker was accessing the external side of an elevator car to install the interior handrail. In response: • Lendlease issued a global EH&S alert across all operations to prohibit the procurement of elevator cars requiring external access for handrail fit out • Our third party provider now prohibits designs that require external access for lift car handrail fixation. In addition, through our collaboration they will now provide external reporting of workplace fatalities in their annual Sustainability Report • Lendlease has added ‘elevator installation/fit out’ to our list of acute high risk activities in the 2021 GMRs that require independent third party review of the proposed work methodology. We continue to share our learnings with the broader elevator and construction industry to drive improvements in design and installation methods and processes. Benchmarking industry reporting d n a s n o s r e p f o e g n a r g n i s a e r c n I s c i t s i t a t s n i d e d u c n l i s o i r a n e c s Increasing range of safety reporting data publicly available Transparent reporting Consistent performance data Includes all business scenarios Basic/standard reporting Inclusion of industry metrics Unclear which persons or scenarios included No safety reporting 70 ASX200 companies4 Included in Lendlease safety reporting data, including fatalities Employees Consultants Contractors Subcontractors (incl. labour hire) Visitors Members of the public All businesses in all operating geographies All operations regardless of contractual or statutory health and safety responsibilities Yes Yes Yes Yes Yes Yes Yes Yes 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. 4. Australian Council of Superannuation Investors (ACSI). Safety in Numbers: Safety Reporting by ASX200 Companies (September 2020). Empowering our people with tools at their fingertips. At Lendlease, when it comes to safety, we’re all in. We have invested in the latest technology to empower our people to make good decisions around safety, in the moment, to prevent incidents from happening. gives all employees across Lendlease on demand information on how to apply the GMRs to workplace activities across the project lifecycle. Safety at Lendlease (S@L) Enablon A 2019 PwC Culture & Climate survey identified the need to find new and interesting ways to engage our people around the GMRs. Utilising the latest in artificial intelligence technology and our existing communications platform of Microsoft Teams, our new chat bot S@L First launched in 2016, our Enablon Go mobile app makes it easy for anyone at Lendlease to take safety reporting into their own hands and record safety observations as and when they happen. In FY21, we passed 1 million observations via a mobile device. Showing care through continuous improvement We believe that a place that cares is a safe place to work and we’ve gone to great lengths to embed a culture of care across our organisation. Our 2021 GMRs Our GMRs are our high standard framework for how we manage environmental, health and safety risk across our business. In FY21 we launched the fourth edition, our 2021 GMRs, which incorporate updated work practices, lessons learned over the last five years and have a greater focus on the health and wellbeing of our people. We show care through the application of our GMRs from origination, so our people know when they come to an operation they are coming to work at a safe place. EH&S Passport To help employees understand how to apply the 2021 GMRs, Lendlease launched new online mandatory training called EH&S Passport. The training reinforces the role we all play in safety, emphasising the everyday decisions we make and how they impact the safety of others. 95 per cent of our global workforce completed the EH&S Passport within 90 days of launch Supporting our people through COVID and beyond Recognising the potential impacts of the pandemic on our people, we invested in the development of Mental Health First Aid skills and actively embedded our program into the organisation's culture. One of the ways we did this was by emphasising wellbeing in performance conversations. This investment was particularly important in construction, knowing workers in this segment are six times more likely to have a mental health illness. 800 employees trained as Mental Health First Aiders across our global network Gold Australia awarded top status as a Skilled Workplace with Mental Health First Aid (MHFA) Australia Certified as Global Healthy Workplace for the third time Silver Asia received accolade in workplace safety at 2020 Workplace Safety and Health awards Gold Europe topped the 2020/21 Workplace Wellbeing Index Lendlease Hardship & Wellbeing Fund Our Hardship & Wellbeing Fund was created in 2020 to help employees experiencing genuine hardship due to the impacts of COVID or other reasons. To date, around $4.5 million has been distributed across our regions. In some areas of Lendlease, the impacts of the pandemic have been particularly hard. In 2021, we utilised the Fund to make a one-off payment to a number of our frontline and customer facing workers who went to great lengths to support our customers during the pandemic. The Fund addressed the immediate financial need, but we want to set our people up for success in the long term. In FY21 we engaged with our partners to deliver financial wellness education via a series of webinars to equip our people with the tools and knowledge to make informed financial decisions. 36 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 37 Financial A sense of place – profitable Our approach to financial performance The Portfolio Management Framework provides structure and financial discipline across the operating segments of Development, Construction and Investments. In line with our refreshed strategy announced in August 2020, the framework is designed to maximise long term securityholder value via: a diversified risk adjusted portfolio; leveraging the integrated model; and the financial strength to execute the strategy, including an investment grade credit rating. 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 sustain capacity to both absorb and respond to market volatility. During FY21, the ongoing impact of COVID has impacted the Group’s ability to deliver on certain aspects of its Portfolio Management Framework objectives. For more detailed COVID financial impacts, refer to page 59 of the Performance and Outlook section. Sydney: Sydney Place on Gadigal Country Artist’s impression Artist’s impression Kuala Lumpur: The Exchange, TRX Artist’s impression 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 securityholders. The Portfolio Management Framework outlines target returns at a segment level. These returns are used to derive a Group Core Operating Return on Equity target within the 8 to 11 per cent range, and Core Operating Earnings per Security is used to make distributions within the 40 to 60 per cent payout ratio target. The Portfolio Management Framework reflects the revised strategy and the change in primary earnings metric from statutory profit to operating profit. As a result of this change, both the target EBITDA mix and the target distribution payout ratio are based on operating profit. The Investments ROIC target has been revised to 6 to 9 per cent to reflect the adoption of the operating profit metric. See Note 1 ‘Segment Reporting’ in the Financial Statements for more details on Operating profit. Detailed financial performance and outlook For detailed information on our FY21 financial performance as measured under the Portfolio Management Framework, refer to the Performance and Outlook section on pages 56 to 69 and the Financial Statements on pages 126 to 191. Green bonds In June 2019 we announced our new Sustainability Framework including the Lendlease Sustainability Finance Framework. This framework focuses on efforts to support our ambitious sustainability targets and is aligned to the International Capital Markets Association Green Bond Principles. To help deliver on our sustainability target, the Group raised a $500 million seven year fixed rate green bond in October 2020 and a further $300 million ten year fixed rate green bond in March 2021, to become the largest non bank ASX listed issuer of green bonds. The proceeds of the bond issuance will be focused on green buildings and earmarked to eligible projects across Lendlease’s global portfolio of 23 major urbanisation projects. The delivery of these buildings will drive a number of initiatives, with benefits ranging from the lowering of carbon emissions, reducing the environmental impact of materials and the delivery of health and wellbeing benefits. These benefits will support the Group’s two new sustainability targets announced in the prior year and reflects the Group’s commitment to: Portfolio Management Framework 1. Invested Capital Mix Development 40-60% (<50%)1 Investments 40-60% (>50%)1 Australia International regions2 40-60% 10-25% 2. Core Business EBITDA Mix3 Development Construction Investments 3. Target Returns 40-50% 10-20% 35-45% Core Operating ROE Development ROIC4 8-11% 10-13% Construction EBITDA Margin 2-3% Investments ROIC4 6-9% 4. Capital Structure • Net Zero Carbon for Scope 1 and 2 Gearing5 10-20% emissions by 2025, and Absolute Zero Carbon by 2040 • Delivering $250 million of measured social value by 2025. Refer to the Sustainability section of Managing and Measuring Values for more details. Investment grade credit rating 5. Distribution Policy3 Distribution payout ratio 40-60% 1. Reflects strategic direction. 2. Per region. 3. Core operating profit based measure. 4. Return on Invested Capital (ROIC) through cycle target based on rolling three to five year timelines. 5. Gearing definition: net debt to total tangible assets less cash. 38 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 39 Our Customers A sense of place – where customer experiences and relationships matter Our customers range from individuals to the largest government, investment and corporate organisations. We have the depth of expertise, opportunity and understanding of our customers to attract new partners and customers and retain those who invest in or visit our places again and again. B2C: Business to Consumer 23% of purchasers to date in Residences Two of One Sydney Harbour are repeat Lendlease customers Increase in customer loyalty More than 160 million residents and visitors interact with Lendlease every year. We conduct regular research to understand what is important to them to both improve their experience with us and help shape our communities and precincts. Overall, our loyalty measure, Net Promoter Score (NPS), increased slightly and customer satisfaction, CSAT, was steady this year. EODB (Ease of Doing Business), a new measure introduced, achieved a strong result. We interpret these as positive outcomes given the challenging global environment, including COVID and political uncertainty in some regions. Common themes around people, project/ asset quality, the delivery process, safety and sustainability dominated feedback. We value the impact of our actions at every customer touchpoint. Regardless of the project, region or stage of customer engagement, we aim to provide best practice solutions, in demand amenities and a consistent, positive experience. With a pipeline of more than 59,000 apartments in our global residential portfolio1, repeat purchasers are an indication of success. We recently launched our second residential tower at One Sydney Harbour with 23 per cent of sales to date from existing Lendlease customers. As part of this sales process, we piloted an online reservations' platform for customers to directly reserve a selection of apartments. In response to changing customer expectations, we also extended our digital solutions this year to execute a unique interactive launch for TRX Residences at The Exchange TRX in Kuala Lumpur, offering virtual encounters and viewings. 1. Backlog of residential units across our urbanisation projects. "High-quality assets that contain strong sustainability aspects is what attracts us to companies such as Lendlease as we seek to diversify our property portfolio globally." Alek Misev, Portfolio Manager, Aware Super B2B: Business to Business 2/3 of third party capital is held by our top 10 investors across the funds' platform $3.1 billion committed in third party capital Our B2B relationships span partnerships with organisations, not for profits, c.16,000 suppliers and a range of institutional investors across funds, mandates and managed assets. We work with and for businesses across all our operating segments. Within our Investments platform our top 10 investors account for two thirds of third party capital. They consist of some of the world's largest pension and sovereign wealth funds such as Canada Pension Plan (CPP Investments), Mitsubishi Estate, GIC, APG, NPS, Aware Super and HostPlus. In FY21, we introduced Ivanhoé Cambridge to the platform by partnering on a life sciences project in Boston. Additional investments were also secured with Aware Super, CPP Investments, NPS and Mitsubishi Estate. Expanding existing relationships with established, large partners remains a priority. Having already founded a residential partnership with Aware Super in the Americas, they recently became our joint venture partner on an additional two development projects in New York and Los Angeles. They also acquired a 25 per cent stake in our Australian Retirement Living business. Aware Super and Lendlease share a philosophy that those entrusted with creating and managing the built environment have immense capacity, and an obligation, for doing good. Leadership in responsible property investment and creating value for residents and investors was a founding principle on inception of the partnership in 2018. This year, the US residential portfolio in Chicago and Boston was verified net zero carbon and the Retirement Living business ranked first in the Global Real Estate Sustainability Benchmark (GRESB). B2G: Business to Government B2G customer relationships connect with all tiers of government to collectively shape cities and places and support economic growth. complete the Javits Center expansion that operated as a COVID field hospital and the largest vaccination centre in the United States. Our diverse capabilities cover numerous project types across a diverse range of sectors including education, residential, civil infrastructure and healthcare. In Australia, we have been entrusted to deliver crucial health infrastructure, with state government healthcare projects currently under construction or in planning. During COVID, we have been applying our award winning expertise in the health sector to help manage health and economic impacts. Working both directly and indirectly with governments, we are constructing or upgrading a mix of hospitals, pharmaceutical labs, vaccination hubs and life sciences and research centres across our operating regions. In Asia, we are currently engaged in conversations with Singapore authorities to attract new investments into the country’s life sciences sector given our expertise in delivering major pharmaceutical manufacturing facilities to the region. In New York, we worked closely with the local government to Construction milestones were achieved at the health, research and education precinct at Randwick Campus that has employed a workforce of more than 1,300. The business was awarded the main works contract for Tweed Valley Hospital and the second stage of work for the Caboolture Hospital Redevelopment Project in Queensland. In addition, we are the preferred builder for 120 new mental health beds across four acute mental health facilities in Victoria. To meet the government’s aspirations to deliver these much needed facilities, an expedited modular construction delivery model was developed. Sydney: Randwick campus on Gadigal Country and Bidjigal Country 45% major construction backlog, representing $5.7 billion with government 40 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 41 Our People A sense of place – inclusive, diverse and talented Our people are the greatest contributors to our success and enable us to fulfil our purpose. Together we create value through places where communities thrive. FY21 was a challenging year as we adapted to new ways of working. Supporting our people during the pandemic has been our priority. From enhanced communications and technology enabling remote work to providing additional funding for frontline workers (see Hardship & Wellbeing Fund on page 35), we are invested in the health and wellbeing of our people. 10,825 Employees globally1 To deliver our refreshed business strategy we need to attract, retain and invest in our people to have the right capabilities to succeed into the future. We aspire to create a work environment that: • Cares for its people, with safety and wellbeing our priority • Provides inspirational leadership with a clear direction for the future • Is team oriented, inclusive and diverse • Fosters a culture aligned to purpose and values that drives the way we operate with each other and creates a sense of belonging. To support our aspirations our people strategy has focused on engaging our leaders and developing leadership excellence. We are working to foster an enterprise first mindset and sharing knowledge globally. Developing and deploying key talent As we accelerate the delivery of our global pipeline of projects, we continue to invest in the development of our people’s capabilities. This year we launched our Leadership Excellence Program aimed at driving leadership engagement and providing our leaders with the right capabilities to inspire and lead our people. We have continued to invest in the development of key talent through our Construction Director and Project Director talent programs, which shifted to virtual delivery. In FY21, our pipeline of successors for key leadership roles, along with the number of women in our succession pool, increased. For senior executive positions, we have a target of three unique successors and in our FY21 talent and succession review, 79 per cent of senior executive positions met this target. Retention of key talent has been challenging in the current operating environment. In FY21, we achieved a retention rate of 87 per cent, slightly below our target of 90 per cent or higher. We see this as an ongoing risk into 2022 as border restrictions continue to impact the mobility of talent. Succession strength2 FY20 FY21 75% 79% Leadership positions held by women3 FY20 FY21 26.9% 29.9% 1. As at 30 June 2021. 2. For all senior executive positions, we have a target of three unique successors. We define this as succession strength. 3. Leadership roles include a number of levels in the Lendlease Career Job Framework, including executive level roles. Engagement scores compared to country benchmarks Engagement score (May 2021) Country benchmarks (median to top quartile) Global benchmarks (median to top quartile) Lendlease Group Australia Americas Italy UK China Japan Malaysia Singapore 0 10 20 30 40 50 60 70 80 90 100 Employee experience Teams are at the heart of our listening strategy and help us to understand the environment and experiences we are providing our employees. These insights help us to be responsive and provide our leaders with key actions to support our employees to thrive. In our most recent People Survey, we achieved an employee engagement result of 62 per cent. At the global level this falls below the median and top quartile benchmarks and is a concern for us, however, we see substantial variance between countries and their respective benchmarks. In our four largest operating markets, we are performing above the country median, with the UK towards top quartile scores. Consistently our highest performing area in the survey is Safety which is pleasing. To improve our engagement result our people have told us we need to provide more visible career development and pathways. This will form a key part of our People Strategy next year. Further demonstrating our strong culture of care, our most recent results also showed that employee perceptions of their manager providing support through COVID increased. Supporting our managers and employees through these challenging times remains a key focus for us as we deliver on our $114 billion pipeline. Diversity and inclusion Lendlease has a diverse global workforce and we have made great progress in improving our diversity areas of focus, but we still have work to do. We are committed to creating a workplace that unites diverse minds, where respect, equal treatment and equal opportunity are the norm. Aligned with our Modern Slavery Statement, this helps us to act with integrity in our business relationships. In FY21, to strengthen our culture of inclusion, we focused on unwelcomed or intrusive language and behaviours, many of which are influenced outside of the workplace. We understand the importance of psychological safety and have further invested in the ongoing support for employee wellbeing. Our efforts not only provide support for affected individuals, but also educate for social change. FY21 diversity and inclusion actions Anti-racism Lendlease conducted a number of listening sessions in the US and UK to provide a safe space for our people to share their stories, listen and learn. This has led to a number of internal working groups focused on equity at all Lendlease touch points, internally and externally. The Americas' business established a Diversity, Equity and Inclusion (DEI) Advisory Council with a diverse mix of employees and two external DEI experts to help inform DEI strategic priorities for the region. In Australia, our Elevate RAP includes a detailed action plan to support career progression for our First Nations' employees (see RAP on page 45). Eradicating everyday sexism We created an awareness video and toolkit to bring attention to common language, behaviours and social norms that perpetuate gender stereotypes and assumptions. Resources were designed to generate self reflection and conversation. We provided tips on how to identify and address inappropriate behaviour and sent a call to action to all employees. Supporting flexible working We prioritise connection to our workplaces and our culture. We remain committed to enabling flexible work options. We established new ways of working through virtual tools, events and communications to share knowledge and connect people, regardless of where they were working. Our team in Japan were quick to establish new work protocols to accommodate remote working, while maintaining team connections and a core focus on mental health. Initiatives such as using chat bots for enquiries and an online wellbeing community hub influenced our global standard, not only during periods of lockdown, but how we conduct business on an ongoing basis. LGBTQ+ inclusion and recognition Our actions add up. We continue to be recognised for our efforts in LGBTQ+ inclusion. In the Americas, Lendlease scored 100 in the Corporate Equality Index for the fifth consecutive year and achieved 'Best Place to Work for LGBTQ Equality'. In Australia, we partnered with the University of New South Wales to research barriers to LGBTQ+ inclusion on construction sites and shared insights and recommendations with the industry. 42 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 43 Sustainability A sense of place – one fit for the future It has been a year since we launched our ambitious environmental and social sustainability targets and we are pleased to report we have already made meaningful progress. Our journey has given us greater conviction around the importance of our mission and that collaboration is the only way to achieve industry transformation. 1.5°C aligned Mission Zero As a 1.5°C aligned company, we have set ourselves ambitious science based emissions reductions targets. In May 2021, we launched ‘Mission Zero’, a global campaign to raise awareness about our mission to reach Net Zero Carbon by 2025 and Absolute Zero by 2040. Our progress We have made positive progress in FY21 to reduce our Scope 1 and 2 emissions. The sale of our Engineering business and the ongoing impact of COVID significantly impacted our emissions (see page 55 for our FY21 environmental performance). While Scope 1 and 2 emissions are our immediate focus, we have increased our engagement and collaboration across the real estate sector to also start addressing Scope 3 emissions. N A ISSI O N ZERO • M • 5 2 0 2 Y ARBON B E T Z E R O C ISSI O N ZERO • M • 0 4 0 ERO BY 2 B S O L U TE Z By 2025, we'll reduce greenhouse gas emissions as far as possible, with the remainder offset in an approved carbon offset scheme. Our Net Zero target applies to Scope 1 and 2 emissions. By 2040, no greenhouse gas emissions from our business activities. No offsets. Our Absolute Zero target applies to Scope 1, 2 and 3 emissions.1 31% of our Scope 1 and 2 emissions offset in FY21 We are well on our way to offsetting 100% of our residual carbon emissions to achieve Net Zero Carbon by 2025 32% under our 1.5ºC aligned trajectory for Scope 1 and 2 emissions in FY21 We are in a good position to maintain our trajectory to achieve Absolute Zero by 2040 1. Scope 1 emissions are from the fuels we burn, Scope 2 are from the power we consume and Scope 3 are from indirect activities. The road to Absolute Zero Carbon Through this five step plan we are going to turn our commitments into action. Here are some of the ways we are already implementing change. Step 1 Create a decarbonisation investment strategy in 2021. Established a Lendlease Decarbonisation Investment Group (DIG) to identify decarbonisation investment opportunities and strategy Launched online carbon education tools and resources to help our people understand our targets and what is required to be a 1.5°C aligned business Step 2 Phase out diesel and gas in our operations. Implemented successful renewable diesel (HVO) pilots across a number of UK projects Launched an alternative fuels policy across our UK business, liquid fossil fuels no longer accepted on any new UK construction projects and existing projects have until January 2022 to comply Saved 9.12 ktCO2-eq by using one tonne electric excavators on Manchester Town Hall restoration project – the equivalent of around ten passengers flying from London to New York Trialling a 20 per cent biodiesel blend (B20) at Caboolture Hospital redevelopment and using a 5 per cent biodiesel blend (B5) in cranes, generators, boom lifts and excavators on several other Australian projects Lendlease are designing and delivering ‘all electric’ buildings, including Sydney Metro Victoria Cross – Over Station Development, Sherwin Rise Retirement Living Villas and Monash University's Woodside Building for Technology and Design in Australia, MIND in Italy, 30 Van Ness in San Francisco, and our US residential community at Fort Campbell Step 3 Use 100 per cent renewable electricity before 2030. Continued to deploy energy efficiency measures and upgrades to plant and equipment Lendlease Building Australia switched to 100 per cent renewable electricity from January 2021 Lendlease’s Australian Prime Property Fund (APPF) Industrial signed an agreement to deliver a renewable energy program for up to $20 million Integrated 2MW of solar power systems across the APPF Commercial portfolio From FY22 our Australian corporate workplaces will be powered by 100 per cent renewable electricity All Chicago construction projects are utilising 100 per cent renewable electricity, and Boston’s Clippership Wharf development has been procuring renewable electricity for owner controlled spaces since November 2020 MIND will be powered only by renewable energy sources (see page 26) Step 4 Collaborate with supply chain partners to set pathways to achieve Absolute Zero Carbon by 2040. Became one of the first companies globally to join SteelZero to drive market demand for net zero carbon steel Joined as a founding member of the Materials and Embodied Carbon Leaders Alliance (MECLA), a new industry led coalition to decarbonise Australia’s building and construction industry Joined Race to Zero, one of the first companies in the built environment sector to do so Step 5 Collaborate with our tenants and residents to transition to renewable electricity and achieve Absolute Zero Carbon by 2040. In partnership with Aware Super, our US residential portfolio of urbanisation projects across Boston and Chicago has been verified net zero carbon At London’s Elephant Park, all residents and tenants are now automatically signed up to a green electricity tariff Lendlease Funds Management’s Australian office portfolio has been officially certified carbon neutral Alongside our two carbon targets, we are also focused on reducing waste and water consumption, and promoting biodiversity. Waste As part of our circular economy ambitions, we are partnering with WWF Singapore on a Waste in Retail Research Initiative. Through this initiative, we are undertaking research into waste management practices including waste generated at malls. The knowledge we develop will be shared with the retail property management industry and key stakeholders. Water Total village water consumption across our Australian Retirement Living portfolio decreased by 1.8 per cent in CY2020 compared to CY2019, a significant achievement given residents were spending more time at home during 2020 due to COVID. In our 48 villages with real time water monitoring, water consumption decreased by 4.1 per cent over the same period. These savings have been realised by residents through their village water bills. We are now working to roll out real time water loggers nationally. Biodiversity Valuing natural capital continues to be a focus for us globally as we apply nature based solutions to create biodiversity and climate resilient communities. The urban ecosystem at Southbank, Chicago, stands in lush contrast to the site's past history, featuring migratory birdhouses, beehives, a rooftop farm, native grasses to restore the waterways, and a river walk and park for the community. In Malaysia, The Exchange TRX will be delivering a new city park in Kuala Lumpur which will be home to more than 150,000 plantings from close to 150 native plants species, creating a new ecological corridor for urban birds, butterflies and bees. 44 A sense of place Lendlease Annual Report 2021 Managing and Measuring Value 45 Social value T E $ A E R C 2 5 0m O F S O Shoreline Queensland: Yarn on Quandamooka Country and Danggan Balun Country C I A L VA • 5 2 0 LUE BY 2 $47.3 million social value created to date through the work of our shared value partnerships – 18.9% achieved of our $250 million goal by 2025 8 shared value partnerships assessed 14 additional partnerships to undergo assessment Progress towards our social value target Step 1 Implement an industry accepted methodology. Partnered with the Australian Social Value Bank (ASVB), Australia’s largest bank of verifiable social outcomes, to determine a simple yet robust methodology for assessing social value creation across shared value partnerships and social programs within our business, projects and assets Piloting of this methodology will occur through FY22 Step 2 Benchmark our existing portfolio of partnerships. Worked with Social Impax and Think Impact to commence assessment of Lendlease Foundation shared value partnerships to evaluate social value created, attributable to our social value target Financial proxies were used to determine the social value we created across the different countries where the programs took place. This has allowed us to better understand social value creation through a cultural and country specific lens Step 3 Establish new partnerships and processes to expand our social value creation. Continued to look for new not for profit and charity organisations, aligned to the Lendlease Foundation Constitution and Sustainability Framework, to partner with in the creation of social value outcomes Commenced a partnership in China called ‘Future Smile’, which aims to raise awareness and education for senior citizens around diabetes and Alzheimer's disease Partnered with Billion Oyster Project to restore oyster reefs, which help to promote biodiversity, protect shorelines, and clean waterways in New York Harbor Step 4 Expand social evaluation efforts to our projects and assets. Worked with ASVB to establish relevant social value financial proxies and an assessment methodology suitable for us on our projects and assets Commenced the design and build of a 'Communities Module' in Footprint, our sustainability database, to assist in the collection of social value metrics across the business Elevate Reconciliation Action Plan (RAP) Our third Reconciliation Action Plan (RAP) and second Elevate RAP titled Country, Truth and our Shared Story, launched in October 2020. This is our second Elevate RAP, and third overall, which builds upon the learning and feedback we have received over the past 10 years from our RAP Expert Panel, First Nations communities, employees, RAP partners and businesses. The RAP outlines our commitment to Australia’s First Nations peoples by acknowledging their unbroken connection to country and creating respectful relationships to provide opportunities for equal social and economic outcomes. Our leadership commitment is to lift the industry standard of placemaking by incorporating the self determination principles and voices of First Nations peoples in what we do. Our RAP actions move us closer to the vision of a reconciled nation. They demonstrate how we align our operational performance with our commitment to human rights, specifically the rights of Australia’s First Nations peoples. FY21 Actions Providing cultural engagement and learning for all employees 5,153 Lendlease employees in Australia have completed face to face or online cultural awareness learning since FY12 Recognition of Country and the story of place is implemented at the beginning of our projects Making First Nations businesses foundational in our supply chain 155 Supply Nation businesses engaged (registered and certified Indigenous businesses) $65.4 million spent in FY21 with registered and certified Indigenous businesses Our procurement goal aligns with the national Raising the Bar initiative, which sets annual targets to embed First Nations owned businesses in our supply chain Supporting First Nations voices within Lendlease 1 per cent of Lendlease Australian employees identify as First Nations Australians 8 First Nations Australian employees sit in leadership roles We’re focused on bringing First Nations leadership into senior management roles New York Harbor: Oyster reef restoration Image credit: John Suhar 46 A sense of place Lendlease Annual Report 2021 Risk and Climate Related Resilience 47 Risk and Climate Related Resilience Shanghai: Ardor Gardens, Qingpu District Artist's impression 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. Governance in a rapidly changing environment Our Business Continuity Enterprise Risk Framework has been exercised beyond the defensive, to add value for our employees, business partners and customers. Our sites have been operating under enhanced COVID measures so that we can continue to deliver our projects safely and in line with expectations. The impact of COVID from an operational perspective has been felt around the world. Operational Enterprise Risks such as Execution and Commercial have experienced the greatest impact in the reporting period. As the Group continues to actively work through understanding and addressing the long term impacts of COVID from an operational and strategic perspective, our risk teams around the world remain active participants in government and industry forums to help reshape the future. Our areas of focus for business resilience are: Health, Safety and Wellbeing: The health and safety of our places and people is our priority. The Board and Leadership Teams continue to provide frequent and transparent communications to the business to keep our people well informed and safe. Operational Risk: Global COVID steering committees are in effect and continue to receive weekly updates and insights relevant to our business. Lendlease is prepared and has clear processes for the management of interruption to our operations and people. Business Continuity and Crisis Management: During the reporting period Crisis Management Plans were activated and followed in response to COVID impacts. The business was technologically prepared which empowered employees to work remotely. Business continuity plans are reviewed and updated periodically. Supply Chain Resilience: We recognise that sustainable supply chains strongly align with our strategic priorities, allowing us to minimise risk and maximise opportunities for collective value creation across economic, social and environmental objectives. Supply chain resilience is an important imperative which is supported by our Enterprise Risk Framework through the following relevant Enterprise Risks and our Risk Appetite Statement: • Commercial Underperformance: failure to execute given reliance on supply chain to deliver • Regulatory and Counterparty: supply chain ethics fail to meet our standards • Non-scalable Growth: the need for strong global and regional supply chain partnerships are required to support in a global context or in dynamic supply chains. Our commitment to the UN Guiding Principles on Business and Human Rights has been memorialised in our Modern Slavery Statement (FY20). Our phased approach scopes potential modern slavery risks that we may either cause, contribute to, or to which our operations may be directly linked. We will continue to evolve and mature as envisaged in our statement. Responding to climate related impacts The business also recognises the risks and opportunities associated with climate change. Lendlease supports the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and in 2018 committed to producing annual disclosures that consider these recommendations. We have a phased approach to integrating the recommendations of TCFD over time, and this is our third annual TCFD disclosure. Our disclosure continues to evolve as we enhance our management of climate related risks and as advancements are made in the maturity of climate related financial disclosures. 48 A sense of place Lendlease Annual Report 2021 Risk and Climate Related Resilience 49 Our approach aims at providing best in class governance, innovation and people to embed a risk intelligent culture that delivers on strategy and produces predictable and repeatable outcomes. Risk Risk Appetite Framework Following the Risk Committee’s approval of the Risk Appetite Framework and its subsequent implementation, the Board’s level of oversight across the business has been enhanced. As Risk Appetite continues to evolve, the risk tolerances and accompanying standards and frameworks are refined to remain fit for purpose. Of note in the period, the following policies and standards were implemented and will allow the Board to increase its oversight of the business: • Group Standards on Project Environmental and Social Risk Assessment • Group Standard on Design Complexity • Group Policy and Standard on Customer Complaints and Feedback. Continuous Improvement The Risk Appetite Framework is reviewed annually by the Group Chief 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 on a quarterly basis. The Board is responsible for ensuring the effectiveness of the risk management framework. The risk management process outlines the governance, risk appetite and accountability for the risk management and operational resilience program. Risk Appetite Framework deployment Risk Governance and Management Our risk framework remains unchanged from a governance perspective. This continues to become infused into the DNA of our business. The framework is underpinned by a ‘Three Lines of Defence’ model. The model codifies the defensive aspects of risk and allows for the broader aspects of value creation and organisational success. Three lines of defence Board and Committees Group 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 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 Business risks managed at regional level Regions/Businesses Enterprise risks: Disruption • Cyber/Data • Regulatory • Culture • Business Continuity Group Strategy, Investment in Digital, IT Policies, Management of Compliance Obligations, Business Continuity Policy, Limits of Authority, Code of Conduct, Formalised Investment Approval Processes Enterprise risks: Customer • Geopolitical • Environmental • Commercial Performance Scalable Growth • Health, Safety and Wellbeing • Project Execution Strategy Approval, Policies, Regional Investment Committees, Limits of Authority, Formalised Investment Approval Processes Operational issues/risks managed at project/ investment level Projects/Investments Project Reviews, Limits of Authority, Localised Policies, Project Approval Gates Health, Safety and Wellbeing Disruption Commercial Execution Geopolitical Regulatory and Counterparty Corporate Culture 50 A sense of place Lendlease Annual Report 2021 Risk and Climate Related Resilience 51 Core operational and market risks Lendlease has 12 Enterprise Risks. These are stress tested globally on a six month basis. Each one has a cascade of granular risks and opportunities which are operational and market and allows for a true portfolio lens to be placed over the risk profile. Description Mitigation Value creation Failure to provide an environment which 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 investment, development and construction 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, 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 and use of stage gates across our property and construction operations contribute 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 our 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 the Group'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 client (including government) relationships, or inability to tailor services to future clients’ needs, impacting the Group's financial objectives Non-scalable Growth People: inability to attract, retain and upskill key talent necessary to deliver strategic objectives Process: lack of scalable processes to support predictable growth Corporate and Environmental Sustainability Business Continuity 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 and resilient 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. Additionally, each Region has an appointed Voice of Risk who is part of the Regional Leadership Team and has been appointed as an independent participant to challenge both the business and Risk function on enterprise and operational risk 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 client 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 places where communities thrive 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 Climate Related Strategic Resilience 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 the learning and development of our people to better prepare them in the event of disruption through training programs and various threat scenario simulations to stress test the plan 52 A sense of place Lendlease Annual Report 2021 Risk and Climate Related Resilience 53 Climate Related Strategic Resilience Sydney: Daramu House, Barangaroo South on Gadigal Country Building strategic resilience In FY19 we disclosed our three climate scenarios that we would use to build business strategic resilience. The scenarios were Polarisation (a >3ºC scenario), Paris Alignment (a 2–3ºC scenario) and Transformation (a well below 2ºC scenario). In FY20 the business identified risks and opportunities that might arise over the next 30 years for each of our climate scenarios and identified which of the risks and opportunities were likely to appear in the next 10 years. These risks and opportunities were then synthesised into 10 Climate Related Impacts (CRI) per scenario and disclosed in our FY20 annual report. Our focus in FY21 has been to leverage this work to further enhance the climate related strategic resilience of our business. To do this, over 100 senior leaders across the global business participated in a series of TCFD Business Impact workshops. The workshops used the five CRIs that were identified as most likely to appear in the next 10 years from each scenario as the basis of review. Participants were asked to: • Identify positive and negative sensitivities to each CRI relative to other sectors • Identify what actions could be taken to reduce sensitivity and either absorb, adapt or transform to the CRIs • Determine what the residual sensitivities would be if those actions were taken. Our strategic resilience to climate related impacts The assessment of the five CRIs per scenario most likely to appear in the medium term has indicated a greater resilience (higher residual positive sensitivity) in our business strategy to our Paris Aligned scenario, a world that sees continued global commitment to the Paris Agreement. Our recent commitment to being a 1.5ºC aligned business has created positive sensitivities to our Transformation scenario. As with all real estate companies, we have negative sensitivities to the physical impact of climate change in a more than 3ºC warmed world, our Polarisation scenario. The integration of climate risk assessments into our investment decision making processes has seen reduced residual sensitivities to climate impacts. Scenario Climate Related Impact Residual Sensitivity Development Construction Investment Polarisation scenario (>3ºC) Our Polarisation Scenario sees a world where climate action is delayed by the polarisation of climate action. This delay results in a world where physical climate change risks are the greatest across our three scenarios. The integration of ‘Leadership in Sustainability’ as a strategic priority and our Net and Absolute Zero Carbon targets sees high levels of positive sensitivity in both leadership in decarbonisation and a shift in consumer preference to secure and create resilient communities. Impact of climate change on assets and communities Impact of climate change on the way we work Shift in consumer preference toward secure and resilient communities Continued integration of physical climate risk assessments into our investment and business processes is essential to reducing negative sensitivities and building resilience to physical climate change risk. Industry leadership in decarbonisation valued Paris Alignment scenario (2–3ºC) Our Paris Alignment Scenario sees a market led transition to a lower carbon future through global government commitments to the Paris Agreement, resulting in higher regulation to climate action and with lower physical impacts of climate change compared to our Polarisation scenario. There are many ‘difficult to decarbonise’ products and materials in our supply chain, including cement, steel and aluminium. The cost of decarbonisation in our supply chain creates negative sensitivities for future development opportunities. Our commitment to Absolute Zero Scope 3 emissions will drive action in our supply chain, creating resilience in our strategy. Our leadership in sustainability and carbon targets creates similar positive sensitivities to decarbonisation as per our Polarisation scenario. Transformation scenario (<2ºC) Our Transformation Scenario sees a rapid decarbonisation pathway, where global emissions peak in 2020 and are close to zero in 2040. The speed of change that is needed to limit global warming to 1.5ºC is likely to create negative sensitivities in our supply chain as suppliers try to keep pace with decarbonisation demands and shifting preferences towards localisation. Our leadership in sustainability and carbon targets create similar positive sensitivities to decarbonisation, as per our Polarisation and Paris Alignment scenarios. Impact of climate change on cities Increase speed of change in climate related impacts Increase cost of carbon Demand for decarbonisation of supply chain Increased scrutiny over actions versus branding Industry leadership in decarbonisation valued Increase speed of change in climate related impacts Local companies preferenced over global ones Shifting social licence to operate expectations Industry leadership in decarbonisation valued Shifting consumer preferences towards lower impact living Higher negative sensitivity Higher positive sensitivity 54 A sense of place Singapore: Paya Lebar Quarter Mall Lendlease Annual Report 2021 Risk and Climate Related Resilience 55 Our disclosure progress and next steps The below table provides a summary of our TCFD disclosure. For further detail related to this and previous disclosure, please visit the Lendlease website (www.lendlease.com). Actions FY19-20 FY21 FY22 Governance Disclose the organisation’s governance around climate related risks and opportunities Strategy Disclose the actual and potential impacts of climate related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material Risk Management Disclose how the organisation identifies, assesses and manages climate related risks Metrics and Targets Disclose the metrics and targets used to assess and manage relevant climate related risks and opportunities where such information is material Strengthen Board and Management oversight of climate related risks through Board Sustainability Committee Establish cross functional TCFD Steering Committee chaired by Chief Commercial Risk Officer Identified climate related risks and opportunities for each scenario Impact of climate related risks and opportunities on the entity Assess the effect of climate related risks and opportunities on decisions and plans of the entity Resilience of climate related risks and opportunities (see page 53) Climate related risk integrated into Risk Committee Climate related risk assessments integrated into Investment Committee decision making process Integrated climate related risks into risk management framework Establish metrics for managing climate related risks and opportunities Continued disclosure of Scope 1 and 2 emissions Establish Scope 3 emission reporting boundaries and methodologies Disclose Scope 3 emissions Establish targets for managing climate related risks and opportunities Completed Commenced Ongoing action Environmental performance This financial year we have brought our environmental performance data disclosure in line with our financial reporting program by providing 12 months of data to 30 June 2021, which includes actual data for Q1-Q3 and estimated Q4 data. As per previous years, we will update our full year environmental performance data on the Lendlease website once actual Q4 data has been gathered and the limited assurance engagement completed. Our environmental performance has seen both energy use and emissions affected by the impact of COVID and the sale of the Engineering business. We have also made significant progress in reducing carbon emissions through business commitments to renewable electricity and renewable diesel (see page 43). In FY21, the business easily achieved the first year carbon target for our 1.5°C alignment and made significant progress on our 2030 renewable electricity target. Scope 1 and 2 carbon target performance ktCO2-eq FY21 energy use by business line (GWh) Scope 1 Scope 2 Net emissions after offsets 1.5ºC aligned trajectory 352 370 234 263 118 107 222 150 116 34 103 FY19 FY20 FY21 FY22 Investments1 Construction Engineering and Services Lendlease tenancies Total 210 198 % of electricity use from renewable sources including grid renewable electricity FY19 FY20 FY21 307 170 368 9 854 319 123 406 8 856 177 123 58 4 362 31% Total energy consumption in FY21 has reduced by 58 per cent compared to FY20 due to the sale of Engineering, ongoing COVID impacts and change in reporting boundaries in the US residential portfolio to bring tenant energy emissions into Scope 3 rather than Scope 2. 0.9 FY23 FY21 waste diverted and disposed (kTonnes) Scope 2 emissions have been calculated using the market based method. Gross Scope 2 emissions are calculated after the purchase of renewable electricity certificates, power purchase agreements and green power. Scope 1 and 2 emissions by business line % Waste diverted from landfill Waste disposed Waste diverted FY19 FY20 682 705 51% 338 409 55% FY21 59 185 76% Investments Construction Engineering and Services Lendlease tenancies 2% 13% 21% 150 kt CO2-e 64% In FY21, the reporting boundaries for waste disposed were changed to exclude soils to landfill, in line with other market peer reporting definitions. This change has been a significant contributor to the increased waste diversion rate to 76 per cent. In addition, COVID impacts and the sale of Engineering has seen total waste decrease by approximately 67 per cent this financial year. FY21 water consumption by business line (MLitres) Electricity used by the Investment Management business is the largest contributor to our Scope 1 and 2 emissions. Our plans to increase the purchase of renewable electricity to achieve our target of 100 per cent renewable electricity by 2030 should significantly reduce the Scope 2 carbon emissions associated with this line of business. Investments Construction Engineering and Services Lendlease tenancies FY19 4,935 600 610 52 FY20 4,950 476 711 47 FY21 4,527 504 27 19 Total 6,197 6,184 5,077 The sale of Engineering and COVID impacts has seen water consumption drop by approximately 18 per cent this financial year. 1. Includes Development business line of 2GWh for FY19 and 1GWh for FY20. 56 A sense of place Lendlease Annual Report 2021 Performance and Outlook 57 Performance and Outlook Chicago: The Cooper, Southbank Group performance As an international real estate group with a presence in targeted gateway cities, the pandemic had a pervasive impact on operations in FY21. Statutory Profit after Tax for the year ending 30 June 2021 was $222 million. This included a loss of $181 million for the Non core segment, driven by additional provisioning relating to claims on historical engineering projects. The Performance and Outlook discloses profit after tax on both a statutory and operating basis. The Core Operating profit metrics1 provide a clear view of the Group’s underlying operating result, excluding the impacts of the Non core segment and property revaluations in the Investments segment. COVID impacts. However, the pandemic continues to impact the business with ongoing challenging operating conditions affecting each of the segments. Development was adversely impacted by London lockdowns, investment income was suppressed and construction revenue was lower. The largest contributor to the Development segment was the creation of separate investment partnerships to deliver the first two residential towers at Barangaroo. While the return outcome for the segment was below target, progress continues to be made towards converting the development pipeline, as well as securing additional urbanisation projects. The Group recorded Core Operating Profit after Tax of $377 million for the year ended 30 June 2021. Core Operating Earnings per Security was 54.8 cents with a Return on Equity of 5.4 per cent, below the target range. Distributions per Security totalled 27 cents, representing a payout ratio of 49 per cent of Core Operating profit. In the Construction segment, despite revenue being down and a weak second half in the UK, performance across the portfolio was solid, with overall returns at the upper end of the target range. Activity continued to be impacted by delays in the commencement of new projects and ongoing productivity impacts across sites. The Group made significant progress on its strategic priorities. Investment partner initiatives worth $5.1 billion that will drive future funds under management were progressed. Six new urbanisation projects were secured with a total end value of $7.4 billion. The sale of the Engineering business was completed and the US Telecommunications and Energy businesses were divested. Post balance date the sale of the Services business was announced with completion expected prior to the end of the calendar year. Core segment EBITDA of $918 million increased 27 per cent on the prior year as performance recovered from the worst of the The Investments segment recovered from the worst of the COVID impacts, although returns remained below the target range. Ownership returns across retirement were higher, while asset management fees were impacted by lower activity across the retail sector. Earnings in the prior year were boosted by a substantial performance fee. Corporate costs of $161 million comprised Group Services costs of $128 million, which were stable, and treasury costs of $33 million. Net finance costs of $137million were down 10 per cent2 due to lower average net debt. Key Financials3 Core Segment EBITDA Mix Core Business Development Construction Investments Segment EBITDA Corporate Costs Operating EBITDA Depreciation and Amortisation Net Finance Costs Operating Profit before Tax Income tax expense Operating Profit after Tax Non Core Operating EBITDA Operating Profit/(Loss) after Tax Total Group Operating EBITDA Operating Profit /(Loss) after Tax Non Operating Items Statutory Profit /(Loss) after Tax Total Group Core Operating EPS Distribution per Security Total Group Statutory EPS Total Group Statutory ROE $m FY20 FY21 Var. 322 101 300 723 (158) 565 (160) (153) 252 (46) 206 (495) (406) 70 (200) (110) (310) cents cents 34.2 33.3 cents (51.4) % (4.7) 469 173 276 918 (161) 757 (148) (137) 472 (95) 377 (139) (181) 618 196 26 222 54.8 27.0 32.3 3.2 46% 71% (8%) 27% (2%) 34% 8% 10% 87% (107%) 83% 72% 55% >100% >100% >100% >100% 60% (19%) >100% n/a Development Construction Investments 30% $918m Core Segment EBITDA4 51% 19% Core Operating Profit after Tax FY20 $206m FY21 $377m Core Operating Return on Equity FY20 3.1% FY21 5.4% Core Operating Earnings per Security FY20 34.2c FY21 54.8c Distribution Per Security FY20 33.3c FY21 27.0c5 1. Excludes property valuations movements in the Investments segment, impairment losses relating to intangibles and Non core items. 2. Comparative period the year ended 30 June 2020. 3. Operating earnings presented reflects statutory earnings adjusted for non operating items. 4. Excludes Corporate. 5. Final dividend component zero franking. Interim dividend component of 11.2 cents per share 50 per cent franked. 58 A sense of place Lendlease Annual Report 2021 Performance and Outlook 59 Group performance continued Portfolio Management Framework The Portfolio Management Framework is designed to maximise long term securityholder value via a diversified risk adjusted portfolio, leveraging the integrated model and the financial strength to execute the strategy, including an investment grade credit rating. The framework was revised in August 2020 as part of the Group’s strategy update. While the target EBITDA segment earnings mix was maintained, it is now based on operating profit. This implies an approximate ten percentage point higher target contribution from Investments relative to that of recent years. The target capital allocation to Investments moving to the upper end of the range over time is expected to support a larger contribution from Investments over the medium term. The target capital allocation to each of the international regions was raised by five percentage points. The revised return targets are derived from hurdle rates that have not been adjusted. The changes relate to the adoption of the operating profit metric, combined with the target reweighting to the Investments segment. This has led to a revised Investments ROIC target of 6-9 per cent and a revised Group ROE target of 8-11 per cent. The distribution payout policy is 40-60 per cent of Core Operating profit. Returns for the Core business were challenged, reflecting difficult operating conditions: Development returns were below the target range; the Construction margin was in the upper half of the target range; and Investments was below the target range. The balance sheet remains in a strong position with gearing below the target range and total liquidity of $4.9 billion. Portfolio Management Framework Target1 FY20 FY21 Total Group Metrics Core Operating ROE Distribution payout ratio2 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 8-11% 40-60% 10-20% 40-50% 10-20% 35-45% 10-13%4 2-3% 6-9%4 40-60% 40-60% 40-60% 10-25% 10-25% 10-25% 3.1% n/a 5.7% 45% 14% 41% 4.7% 1.3% 5.8% 56% 44% 42% 17% 22% 19% 5.4% 49% 5.0% 51% 19% 30% 7.2% 2.7% 5.9% 55% 45% 39% 19% 23% 19% Group outlook The enforced lockdowns and isolation from the COVID pandemic have had significant ramifications for real estate markets across the gateway cities in which the Group operates. While we are confident these cities will rebound strongly over the medium term, FY22 is expected to be a challenging year, particularly for our Development segment. Core operating return targets for the Development segment and the overall Group are expected to be below target ranges for FY22. The wide ranging business review that commenced in FY20, is yet to complete, although preliminary findings have been reached. The strategy and strategic priorities have been confirmed. The Group Core Operating ROE target of 8-11 per cent is anticipated to be met by FY24. Statutory profit in H1 FY22 is expected to include a restructuring charge estimate of $130 to $170 million and an impairment of $230 to $290 million in the Development segment based on outcomes arising from the business review. The Group’s end to end capability across real estate and a proven track record is reflected in the $114 billion development pipeline, which includes a portfolio of 23 major urbanisation projects across ten gateway cities. The size and diversity of the pipeline is expected to support the acceleration of production to more than $8 billion per annum by FY24, approximately twelve months later than previous expectations due to ongoing COVID impacts. The Group expects to create more than $50 billion of investment grade product from the development pipeline. This provides a significant opportunity to more than double the current $40 billion of funds under management and expand the Group’s $29 billion of assets under management. The further strengthening of the balance sheet following recent strategic divestments provides the capacity for the Group to pursue new investment opportunities alongside investment partners. $114b Development Pipeline5 $15b Core Business Construction Backlog $40b Funds Under Management $29b Assets Under Management FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 113.0 113.6 13.9 14.9 36.0 39.6 29.3 28.5 1. Targets represent PMF refresh following strategy update in August 2020. 2. Distribution payout ratio for FY21 has been calculated on Core Operating Earnings. 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. Total estimated project revenue of all development work secured (representing 100 per cent of project value). COVID impacts across the Group The Group has incorporated the impacts of the pandemic into its review process in the 30 June 2021 financial statements where applicable. This process has highlighted the below impacts: Development segment Impacts The Development segment has experienced various COVID related impacts on both historical and projected future year performance. The various impacts are expected to persist into FY22, affecting both activity and the profitability of the Development segment. Construction segment COVID continued to impact on delivery and revenue across the segment during the year. These factors contributed to revenue being down 16 per cent on the prior year. Investments segment Performance across asset management and investment income was impacted due to COVID, although there was some recovery from the worst of the impacts that were experienced in the second half of FY20. 1. Represents total rental assistance in FY21 across Lendlease managed assets. • Delays in converting opportunities across the Group’s urbanisation pipeline: – Tenant demand and investment partner appetite in the office sector – Weaker demand for new apartment product, especially from the investor segment of the market, impacting new project launches • Settlement delays have occurred in the apartments for sale product that has completed, with some purchasers requiring more time to settle • Extended lockdowns across the gateway cities in which the Group operates • Identified projects that were substantially impacted, but unable to be quantified as solely related to COVID, included: – A $60 million provision recorded against the first two residential for rent buildings at Elephant Park, London where rental demand was severely impacted. The overall project remains profitable – c.$40 million in negative pricing differential between Tower One and Tower Two at One Sydney Harbour on capital solutions achieved, with Tower One pricing occurring during the height of COVID uncertainty, reflected in pricing improvement on Tower Two – An investment partner was not secured in FY21 on the next phase of International Quarter London • There were also some positive impacts for the Development segment: – Demand and pricing for luxury apartments at Barangaroo was aided by the strength of established house prices, in part a function of the significant decline in household borrowing costs – Government stimulus measures, including first home buyer schemes, have resulted in stronger activity in the new detached housing market in Australia – The Group took advantage of the weaker operating environment by securing additional urbanisation projects on attractive terms. • Impacts included: – Social distancing protocols on productivity across our sites was reflected in a 16 per cent decline in revenue compared to a 9 per cent decline in hours worked – Projects being put on hold in some markets, with delays in the securing and commencement of new projects – Declining private sector activity, particularly in the US, impacting new work secured • Cost management measures implemented following the onset of the pandemic cushioned the impact on construction segment margins • Conversely, public sector activity has increased, with an acceleration of projects being brought to market. This supported strong new work secured outcomes in Australia and a rebound in new work conversions in Europe compared to the prior year. • The impact was pronounced in the retail sector: – Retail asset management fees were lower than in the prior year • The Group’s investment portfolio was impacted by similar factors: – Coinvestment income was impacted with activity disrupted across underlying assets – The trading performance of the Retirement Living business remained subdued, although it recovered during the year reflecting the strength of the established housing market – Extended stabilisation periods are being experienced on recently completed assets • Identified projects and assets that were substantially impacted, but unable to be quantified as solely related to COVID, included: – Coinvestment yields impacted by c.$40 million1 in rental assistance provided to tenants across the portfolio – 845 West Madison, Apartment for rent building in Chicago lower than expected occupancy • While income has been impacted, real estate valuations were resilient in the year with coinvestments appreciating overall, highlighting the ongoing demand for high quality assets by investors. Government wage programs In several countries, governments have established wage programs with the aim of keeping people in employment through the pandemic. The position of the Group in respect of these programs is: • Australia – No participation in JobKeeper in the year • UK – Coronavirus Job Retention Scheme – Employees of the Group, who were furloughed during the year, received the benefit of payments under this scheme • Singapore – Job Support Scheme (JSS) – The JSS provides cofunding for all active employers in Singapore. As an employer in Singapore, the Group received funding under this scheme. The amounts under these programs, totalling approximately $10 million, were not material in the year. All benefits were received in the first half of FY21. 60 A sense of place Lendlease Annual Report 2021 Performance and Outlook 61 Development performance Development outlook The Development segment delivered EBITDA of $469 million, up 46 per cent.1 While the performance of the business improved from the worst of the COVID impacts, the operating environment remained challenging. Return on Invested Capital of 7.2 per cent was below the bottom end of the target range of 10-13 per cent. Invested capital decreased from $4.8 billion to $4.4 billion with a greater proportion of development activity occurring with investment partners and some delays in production activity. Progress continues to be made on converting the development pipeline. This included creating new investment partnerships, the launch of residential product, achieving planning milestones and securing additional urbanisation projects. Two residential towers at One Sydney Harbour, Barangaroo, contributed $325 million to EBITDA. The forward sale of Melbourne Quarter Tower and a new joint venture partnership at Milan Innovation District were other key contributors to the result. The largest contributors to apartments for sale settlements were Melbourne Quarter and Clippership Wharf, Boston. While settlements across the Australian Communities portfolio were up 17 per cent to 2,228 lots, they were well below both target levels and broader performance across the industry. Delivery commenced on residential product at Residences Two, One Sydney Harbour, TRX in Kuala Lumpur, Ardor Gardens in Shanghai, and 100 Claremont Avenue in New York. Apartments for sale were launched on the next stages at Southbank in Chicago and Elephant Park in London. Production of $3.8 billion included the completion of both commercial and residential buildings at Melbourne Quarter and residential for rent at Elephant Park in London and 845 West Madison in Chicago. Work in progress,2 the lead indicator for future production, ended the period at $14.5 billion. This includes $6.9 billion of commercial buildings in Melbourne, Milan, Sydney and Kuala Lumpur; $5.9 billion of apartments for sale in Sydney, Kuala Lumpur, London, Chicago and New York; and $1.3 billion of apartments for rent in London, Chicago and Shanghai. Six urbanisation projects were added to the pipeline. In the UK, the c.$3.5 billion Smithfield project will provide more than 3,000 new homes. In Boston, 60 Guest Street should become a state of the art life sciences building with an estimated end value of $0.8 billion. In New York, 1 Java Street is planned to transform a city block into apartments for rent with an estimated end value of $1.0 billion. The Group also secured its first urbanisation project in Los Angeles at La Cienega Boulevard with an estimated end value of $0.8 billion, which is planned to include apartments for rent and office space. The estimated end value of the development pipeline was steady on the prior year at $114 billion. While origination activity was strong with new projects of $8 billion secured, it was offset by completions and foreign exchange rate movements. The pipeline comprises $101 billion of urbanisation projects, including 23 major urbanisation projects across ten gateway cities, and $13 billion of communities projects. The size of the development pipeline, as well as its diversity by gateway city and product type, provides scope for a material acceleration in development activity. Our target is to produce greater than $8 billion of product per annum. While this will not be achievable in the near term, we expect the target to be reached by FY24. COVID has had a widespread impact on many of the gateway cities in which we operate. The enforced lockdowns and isolation caused by the pandemic have had significant ramifications for real estate markets across these cities. Gateway cities across our platform have been selected based on their resilience and prospects for long term outperformance. While we expect these cities to rebound strongly over time, near term challenges are likely to persist. This will have implications for both activity and profitability of the Development segment over the next two years. In addition, profit recognition on projects we commence with investment partners is expected to be more closely aligned with the achievement of key delivery milestones and project cash flow outcomes in future periods. This will result in a transition phase in the short term. Notwithstanding the impact of the pandemic, there is $14.5 billion of work in progress, and the Group expects to commence more than $16 billion of work in FY22-FY23. Important planning milestones have progressed across numerous urbanisation projects that have been secured in recent years. We expect many of these to move into the delivery phase over the next two financial years, although weighted towards FY23. These include the San Francisco Bay Area project, High Road West in London and La Cienega Boulevarde in Los Angeles. The Australian Communities business has not been positioned to take full advantage of the favourable market environment over the last year. We expect sales to accelerate in FY22, boosted by the commencement of new projects. However, with the typical lag between sales and subsequent settlements, volumes are expected to remain below the annual settlement target of 3,000-4,000 lots. Key Financials and Operational metrics EBITDA ($m) Pipeline¹ ($b) Pipeline¹ roll forward ($b) Operating EBITDA ($m) Operating Profit after Tax ($m) Invested Capital3 ($b) Production4 ($b) Work in Progress2 ($b) Pipeline ($b) FY20 322 233 4.8 5.0 12.3 113.0 FY21 469 342 4.4 3.8 14.5 113.6 1H 2H 793 673 552 469 322 113.0 113.6 113.0 8.4 (3.8) (4.0) 113.6 71.1 76.1 49.3 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY20 New work secured Production FX and other FY21 Invested Capital3 ($b) Return on Invested Capital Work in Progress2 roll forward ($b) Work in Progress by Product2 ($b) 4.3 4.8 4.8 4.4 3.0 9.6% 5 year average FY17 FY18 FY19 FY20 FY21 5.6 (3.8) 0.4 14.5 12.3 FY20 Commence- ments Prod- uction FX and Other FY21 Apartments for sale Apartments for rent Commercial Communities 3% $14.5b 40% 48% 9% Production4 ($b) Production4 by product ($b) Pipeline1 by product ($b) Indicative commencements ($b)3 4.6 4.0 5.6 5.0 3.8 Apartments for sale Apartments for rent Commercial Communities 19% 18% $3.8b 29% 34% FY17 FY18 FY19 FY20 FY21 Apartments for sale Apartments for rent Commercial Communities 12% 36% $114b 30% 22% Apartments for sale Commercial Communities Apartments for rent Jan-21 to Jun-23 >$20b $3.6b 2H 2021 commencements 29% 17% 33% 10% 11% 1. Comparative period the year ended 30 June 2020. 2. Represents the end value of buildings in delivery. 3. Securityholder equity plus gross debt less cash on balance sheet. 4. Project end value on product completed during a financial period (representing 100 per cent of project value). 1. Total estimated project revenue of all development work secured (representing 100 per cent of project value). 2. End value of Development Pipeline in delivery as at period end (representing 100 per cent of project value). 3. Subject to changes in delivery program. 7.2%TARGET 10-13%4.7%FY20FY2162 A sense of place Lendlease Annual Report 2021 Performance and Outlook 63 Construction performance The Construction segment delivered a good result, notwithstanding significant COVID disruptions. EBITDA of $173 million was up from $101 million in the prior year. Revenue of $6.4 billion was down 16 per cent,1 with activity still impacted by delays in the commencement of new projects and ongoing productivity impacts across sites. Revenue from Australia and the Americas, which accounts for more than 80 per cent of total Construction revenue, declined by 11 per cent1 and 29 per cent1 respectively. The EBITDA margin rose to 2.7 per cent, the upper end of the target range of 2-3 per cent. Overall performance across the portfolio was solid, despite a weaker outcome in Europe. Margins were aided by contributions from projects that reached completion. In addition, disciplined cost management implemented in response to the pandemic had a positive impact on earnings. Completions included the Crown Sydney Hotel, two residential for rent buildings at Elephant Park, a major defence contract and commercial and residential towers at Melbourne Quarter. New work secured of $8.8 billion was up from $7.5 billion with the Australian and European businesses benefitting from public sector activity. In Australia, new work secured of $4.3 billion was underpinned by several projects in the defence sector, the Caboolture and Tweed Valley Hospitals and Cairns Convention Centre. This was supplemented by private sector projects including the office tower at 555 Collins Street, Melbourne. The European business secured $1.5 billion of new work. This was predominantly from government clients and includes projects for the London Borough of Camden, the Ministry of Justice and Manchester City Council. New work secured of $2.5 billion in the Americas was well below historical averages, reflecting subdued activity in the key markets along with some delays in projects being brought to market. Extensive sector expertise and geographic diversity has been critical for the business to navigate through a difficult operating environment. Construction outlook The outlook for the Construction segment remains subject to the potential ongoing disruption risk from COVID. Backlog revenue remains solid and increased modestly to $14.9 billion, with $11.3 billion relating to external clients which will generate future revenue and margin. The remaining backlog relates to integrated projects, with the margin reported through the Development segment. The backlog remains diversified by both client type and geography. However, public sector projects have become more important for the business in the near term and now account for more than half of the external backlog. This has also resulted in a shift in the sector mix with the social infrastructure and defence sectors becoming more prominent as a proportion of the backlog. The Group’s development target of greater than $8 billion of production per annum represents a material uplift in the amount of development activity and this is expected to benefit the Construction business. Australia has a strong workbook, with $8.6 billion in backlog revenue. Key projects include Residences One and Two at One Sydney Harbour, Sydney Place, Melbourne Quarter Tower, several defence contracts and the Sydney Metro Martin Place and Sydney Metro Victoria Cross Integrated Station Developments. The established Construction business in the Americas has good market share in its target cities and sectors with backlog revenue of $3.9 billion. Subdued recent new work secured volume has resulted in a decline in backlog. The strong growth in the urbanisation pipeline to $27.8 billion in the region provides substantial opportunities for future construction backlog. Backlog revenue in Europe is $1.7 billion. Recent project wins provide near term certainty of activity while Europe’s $51.8 billion development pipeline is expected to provide a significant amount of construction work in future years. In Asia, backlog revenue is modest relative to other regions as the business focuses on the delivery of The Exchange TRX in Kuala Lumpur and specialist sectors for external clients. Key Financials and Operational metrics EBITDA ($m) Backlog by Sector Backlog by Client Revenue ($m) Operating EBITDA ($m) Operating Profit after Tax ($m) New Work Secured ($b) Backlog ($b) 1H 2H 271 296 FY20 7,627 101 42 7.5 13.9 FY21 6,398 173 100 8.8 14.9 211 173 101 FY17 FY18 FY19 FY20 FY21 Commercial Defence Residential Social Infrastructure Other 18% 18% 7% Major Project¹ Backlog Revenue 32% 25% Lendlease Corporate Government 4.8 24% 45% Major Project¹ Backlog Revenue 31% New Work Secured by Sector EBITDA Margin Commercial Social Infrastructure Residential Defence Other 9% 13% 15% 33% $8.8b 30% 2.4% 5 year average Backlog roll forward2 ($b) External Internal Backlog3 ($b) External Internal 8.8 (7.2) (0.6) 14.9 New work secured Run-off FX and Other 11.3 FY21 13.9 10.6 FY20 15.7 15.2 15.6 13.9 14.9 FY17 FY18 FY19 FY20 FY21 1. Comparative period the year ended 30 June 2020. 1. Includes all Construction projects with backlog greater than $100 million, which represents 85 per cent ($12.7 billion) of secured backlog. 2. Internal revenue not included in the Construction segment financial performance. 3. FY17 - FY19 internal and external backlog presentation derived based on Construction projects with backlog greater than $100 million. FY20FY21TARGET 2-3%1.3%2.7%64 A sense of place Lendlease Annual Report 2021 Performance and Outlook 65 Investments performance Investments outlook The Investments segment delivered EBITDA of $276 million, down 8 per cent on the prior year as performance continued to be impacted by COVID. The segment generated a Return on Invested Capital of 5.9 per cent, just below the target of 6-9 per cent. Management EBITDA, derived from funds and asset management activities across the Group’s Investments platform, was $165 million, down from $198 million.1 Ownership EBITDA was $111 million, up from $102 million, reflecting a recovery in underlying investment income, which more than offset lower asset sale profits during the year. The challenging retail environment also resulted in lower returns across the Group’s retail investments. Ownership earnings exclude the impact of property revaluations across the investment portfolio. Funds management revenue of $145 million was down from $212 million due primarily to the significant performance fee generated from the completion of Paya Lebar Quarter in the prior year. Asset management revenue of $139 million was up from $105 million. $1.3 billion of redevelopment activity was secured across the US residential portfolio underpinning the overall increase in asset management fees. Performance was impacted by lower retail asset management fees, with COVID impacting activity across the sector. Residential asset management fees now represent the largest component of the asset management revenue base. The trading performance of the Retirement Living business, while still subdued, recovered during the year, reflecting the strength of the established housing market. There was a modest rise in resales coupled with strong price growth and an uplift in the sale of new units. The Group’s investments closed the year at $3.5 billion, down from $4.0 billion, reflecting the sale of the US Telecommunications Infrastructure business and the divestment of a 25 per cent interest in the Retirement Living business. The Investment portfolio is well diversified, with the predominant exposure across the retirement, office, retail and residential sectors. Funds under management, assets under management and the investment portfolio are the key operating metrics that drive performance. Assets under management declined slightly to $28.5 billion, reflecting the foreign exchange translation impact on the US residential portfolio and modest valuation declines across retail assets. Funds under management commenced the new financial year at $39.6 billion, up ten per cent.1 The growth was underpinned by a new $2 billion multisector investment mandate secured in Australia, additional residential for rent product in both the US and Europe, and acquisitions across the Australian Funds Management platform. This more than offset the negative foreign exchange translation impact due to the appreciation of the Australian dollar. In addition to the current funds under management, there is approximately $2.7 billion of future secured FUM based on development projects currently in delivery via managed funds or mandates. The Group’s urbanisation development pipeline is expected to continue to provide a key source of future growth for the Investments platform. The existing urbanisation development pipeline includes more than $50 billion of institutional investment grade product across commercial and residential for rent assets. The Group’s investments of $3.5 billion includes $0.9 billion in each of retirement, retail and office assets, respectively, and $0.7 billion in residential, with the remainder in industrial. The Group made further progress in realigning its exposure to the retirement sector with an investment partner acquiring 25 per cent of the Retirement Living business. This reduced the Group’s interest to 50 per cent. The Group continues to assess redeployment opportunities within the Investments segment. The Group’s strategy is to significantly grow its investment portfolio over time, delivering the Group a solid base of recurring earnings. Growth is expected to include retaining a larger proportion of completed assets from the development pipeline and investing alongside investment partners through the launch of new products. Key initiatives progressed during the year include securing the first data centre development in Japan under the Lendlease Data Centre Partners, and the establishment of a new life sciences investment partnership in the US. Key Financials and Operational metrics EBITDA ($m) Funds Under Management2 ($b) Assets Under Management 2,3 ($b) 433 369 278 300 276 30.1 26.1 35.2 36.0 39.6 28.7 29.3 28.5 12.2 12.7 FY20 FY21 1H 2H Funds Under Management fees ($m) Assets Under Management fees ($m) Management EBITDA2 ($m) Ownership EBITDA3 ($m) Operating EBITDA ($m) Operating Profit after Tax ($m) Invested Capital4 ($b) 212 105 198 102 300 214 3.7 145 139 165 111 276 213 3.6 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Investments5 ($b) Return on Invested Capital Funds Under Management2 by Sector ($b) Assets Under Management2 by Sector ($b) 3.3 3.4 3.7 4.0 3.5 6.9% 5 year average FY17 FY18 FY19 FY20 FY21 Office Retail Residential Industrial Other 4% 3% 6% $40b 55% 32% Residential Retail Office 11% $29b 48% 41% Investments EBITDA by Activity ($m) Investments5,6 by Sector ($b) Funds Under Management2 roll forward ($b) Assets Under Management2 roll forward ($b) FY20 FY21 198 165 165 102 111 Management EBITDA Ownership EBITDA Retail Retirement Office Residential Industrial Other 3% 1% 19% 26% $3.5b 25% 26% 4.8 (0.4) 0.2 (1.0) 39.6 36.0 29.3 0.6 (0.2) (0.6) (0.6) 28.5 FY20 Additions Divest- ments Revalua- tions FX and Other FY21 FY20 Additions Divest- ments Revalua- tions FX and Other FY21 1. Comparative period the year ended 30 June 2020. 2. Earnings primarily derived from the Investment management platform and the management of US residential housing operations. 3. Returns excluding non-cash backed property related revaluation movements of Investment Property, Other Financial Assets, and Equity Accounted Investments in the Investments segment. 4. Securityholder equity plus gross debt less cash on balance sheet. 5. The Group’s assessment of market value of ownership interests. 6. Represents the Group's ownership interest. Total invested capital in the segment of $3.6 billion in FY21. 1. Comparative period the year ended 30 June 2020. 2. The Group's assessment of market value. 3. Assets Under Management excludes US residential housing for FY17 and FY18. 5.9%TARGET 6-9%5.8%FY20FY2166 A sense of place Lendlease Annual Report 2021 Performance and Outlook 67 Non core segment The Group completed the sale of the Engineering business to Acciona Infrastructure Asia Pacific in September 2020. The Group has received $150 million of the agreed purchase price of $197 million. The final deferred payment, which was due on 30 June 2021, has not been received. The Group has commenced legal proceedings against Acciona in relation to remaining amounts owing. There was no impact on the Income Statement from the sale, that is, there was no gain or loss on sale. A working capital cash balance of $411 million transferred to the buyer upon settlement. Under the terms of the sale agreement, the Group retained three projects and exposure to other historical projects. The Group recorded $168 million after tax in additional provisioning relating to claims on historical projects completed prior to the sale of the Engineering business. These claims are subject to dispute proceedings and are expected to take time to resolve. The Melbourne Metro Project, the remaining project in delivery, is scheduled to complete in 2025. During the year, the Cross Yarra Partnership and the D&C Subcontractor joint venture between Lendlease, John Holland and Bouygues Construction resolved identified issues with the Victorian Government in relation to the scope and costs on the project. The project progressed well during the year and did not require any additional provision. Post balance date, an agreement was entered into with Service Stream for the sale of the Services business for a purchase price of $310 million. The transaction is expected to complete prior to the end of calendar year 2021. The loss of $181 million after tax for the Non core segment includes the additional provision to cover claims on historical projects, the performance of the Engineering business prior to sale completion, the retained Melbourne Metro project and the Services business. Key Financials and Operational metrics Revenue ($b) Operating EBITDA ($m) Operating Loss after Tax ($m) Services New Work Secured1 ($b) Backlog ($b) FY20 FY21 Var. 2,884 1,444 (50%) (495) (406) (139) (181) 1.4 2.0 1.5 2.7 n/a n/a 7% 35% Financial position and cash flow movements Financial Position Cash and cash equivalents 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 sale1 Other liabilities (including financial) Total liabilities Net assets Inventories Inventories decreased by 28 per cent following several development initiatives with investment partners, the settlement of residential apartments and declining construction inventories. The formation of new investment partnerships and subsequent reclassification of both Residences One and Two at One Sydney Harbour to Equity Accounted Investments were the largest contributors to the decline. Equity accounted investments Equity accounted investments increased by two per cent. The residential towers at Barangaroo, together with equity contributions for the newly secured urbanisation projects in New York and Los Angeles, were the main sources of growth. These were almost offset by a reduction in investments relating to the divestment of a 25 per cent interest in the Retirement Living business. FY20 $m 1,111 5,369 3,671 658 841 6,098 17,748 2,395 670 7,751 10,816 6,932 FY21 $m 1,662 3,873 3,758 467 - 7,240 17,000 2,357 - 7,692 10,049 6,951 Var. 50% (28%) 2% (29%) (100%) 19% (4%) (2%) (100%) (1%) (7%) - Other asset movements The 29 per cent decline in Investment properties reflects the sale of the US Telecommunications business, more than offsetting growth in other investments. The sale of the Engineering business resulted in Disposal Group assets held for sale declining to zero. Total assets, total liabilities and net assets Total assets decreased four per cent and total liabilities declined by seven per cent, with the sale of the Engineering business being a key contributor in each case. 1. Only the next five years of revenue secured on new contracts has been included. 1. Net assets of $171 million have been disposed of upon completion of the sale of the Engineering business. 68 A sense of place Lendlease Annual Report 2021 Performance and Outlook 69 Financial position and cash flow movements Cash movements ($m) 1,562 (469) (227) 948 (152) 1,662 Financing cash flow Net cash outflow from financing activities was $146 million with the repayment of borrowings and distribution payments exceeding the proceeds from borrowings. The Group continued to diversify its sources of financing with the issue of two green bond offers, a first for the Group, including a $500 million green bond representing the largest issued by an Australian non financial corporate. The Group remains in a strong financial position with $4.9 billion of liquidity. FY20 closing cash Underlying operating cash flow Interest and tax paid Underlying investing cash flow Net financing and other adjustments FY21 closing cash Operating and investing cash flow The Group measures underlying cash flow to enable an assessment of cash conversion. The measures are derived by adjusting statutory cash flows, with the largest adjustment relating to the impact on cash flows from investments in development. Underlying operating cash outflow was $469 million. The establishment of separate development joint ventures to deliver two residential towers at One Sydney Harbour resulted in an approximate $900 million decrease in the underlying operating cash flow and an equivalent increase in underlying investing cash flow. Net underlying operating cash inflow was solid across a range of other development projects. There was also an approximate $200 million operating cash outflow from the Non core segment. The cash conversion ratio to operating EBITDA over the five years to FY21 was 73 per cent. Underlying investing cash inflow was $948 million. Proceeds from strategic divestments in the year, combined with the One Sydney Harbour cash inflows, more than offset additional capital commitments across the Development and Investments segments. The largest sources of inflow were from the further 25 per cent sale of the Retirement Living business and several strategic divestments, although the proceeds from the sale of the Engineering business were more than offset by the working capital cash balance transfer. 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 FY20 833 25.7 5.7 2.8 3.4 4.2 56:44 4,226 FY21 695 25.3 5.0 6.4 3.6 4.9 87:13 3,268 Var. (17%) (2%) (12%) 129% 6% 17% (23%) Net debt and gearing declined with gearing holding below the bottom end of the target range. The Group is in a strong liquidity position with $1.7 billion of cash and cash equivalents and $3.2 billion in available undrawn debt. Interest cover has improved in conjunction with a recovery in EBITDA and lower interest expense. Debt Facilities3 ($m) 1,800 Drawn Facility 555 555 741 300 – – – – 235 180 113 531 531 478 478 296 296 UK Bond Issue Syndicated cash advance facility Syndi- cated loan facility Club Revolving Credit Facility Asia Loan Facility CNY bank facility US$ Reg. S notes S$ Reg. S notes Green Bond A$500 million 79 79 A$ medium term notes 298 298 Green Bond A$300 million Debt Maturity Profile4 ($m) UK Bond Issue Syndicated cash advance facility Syndicated loan facility Club Revolving Credit Facility Asia Loan Facility CNY bank facility US$ Reg. S notes S$ Reg. S notes Green Bond A$500 million A$ medium term notes Green Bond A$300 million Undrawn 300 900 556 741 714 900 235 180 533 500 297 80 300 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 1. $451 million of cash and cash equivalents was classified as Disposal Group assets held for sale at FY20. A working capital cash balance of $411 million transferred on the completion of the sale of the Engineering business. 2. EBITDA has been adjusted to exclude one-off items related to the Engineering business. 3. Values are shown at amortised cost. 4. Values are shown at gross facility value. 70 A sense of place Lendlease Annual Report 2021 Governance 71 Governance As noted in the Chairman’s Report, the events of the last year have left a profound impact on the business. The Board’s focus has been to navigate through this time of uncertainty with scale and pace, and to drive forward on the Group’s strategic priorities. This continued throughout the year as evidenced by the high number of meetings conducted by the Board during FY21. It has been essential for the Board to remain highly engaged and support our people in addition to fulfilling its core responsibilities to oversee governance, culture, financial controls and risk management. Sydney: Board visit to One Sydney Harbour, Barangaroo South on Gadigal Country 72 A sense of place Lendlease Annual Report 2021 Governance 73 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 FY21, the Board continued its longstanding practice of reviewing its corporate governance and reporting practices. The Corporate Governance Statement is available on the Lendlease website (www.lendlease.com/au/ company/governance). For detailed information on the skills, experience and qualifications of each of the Directors, refer to pages 72 to 77 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 Global 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) 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 Nil 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 Philip M Coffey (Independent Non Executive Director) David P Craig (Independent Non Executive Director) Term of Office Term of Office Mr Coffey joined the Board in January 2017. Mr Craig joined the Board in March 2016. 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. Mr Craig is a business leader with a successful international career spanning over 39 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. Listed Company Directorships (held within the last three years) Non Executive Director of Macquarie Group Limited (appointed August 2018) Other Current Appointments Listed Company Directorships (held within the last three years) Nil Other Current Appointments Director of the Clean Energy Finance Corporation Board President of the Financial Executives Institute of Australia 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 Deputy Chairman of the Victor Chang Cardiac Research Institute Director of the Sydney Theatre Company 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 74 A sense of place Lendlease Annual Report 2021 Governance 75 Board of Directors’ profiles Jane S Hemstritch (Independent Non Executive Director) 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 Term of Office Ms Hemstritch joined the Board in September 2011. 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 Skills, Experience and Qualifications 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) Other Current Appointments 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. She is a Fellow of the Australian Institute of Company Directors and a member of Chief Executive Women. Ms Proust holds a Bachelor of Arts (Hons) from La Trobe University and a Bachelor of Laws from the University of Melbourne. Listed Company Directorships (held within the last three years) President of the Board of The Walter and Eliza Hall Institute of Medical Research Nil Board Committee Memberships Member of the Audit Committee Chairman of the Nomination Committee Other Current Appointments Chairman of Cuscal Limited Chairman of SuperFriend Member of the People and Culture Committee Board Committee Memberships Member of the Risk Committee Chairman of the People and Culture Committee Member of the Nomination Committee Member of the Risk Committee Member of the Sustainability Committee 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 working 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) Non Executive Director of Viva Energy Group Limited (appointed August 2021) Other Current Appointments 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 76 A sense of place Lendlease Annual Report 2021 Governance 77 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. Global Chief Executive Officer Tony Lombardo Tony Lombardo was appointed Global Chief Executive Officer of the Group, effective 1 June 2021. Tony Lombardo has more than 25 years’ experience working across real estate development, investment management, finance, mergers and acquisitions (M&A) and strategy in Australia and internationally. Tony joined Lendlease in 2007 as Group Head of Strategy and M&A where he led a number of initiatives including refocusing the Group's overall business strategy. In 2011, he was appointed Group Chief Financial Officer and played a key role in enhancing the flexibility of the Group’s capital structure via a stapled structure as well as significantly broadening its funding and banking relationships. He also implemented a range of people focused initiatives including creation of the Young Indigenous Pathways program, which provides mentoring opportunities for young Indigenous students. In 2016, Tony was appointed Chief Executive Officer Asia based in Singapore. As part of resetting Lendlease Asia’s growth strategy, Tony spearheaded a number of major initiatives to drive future growth. Recent successes include the completion of Singapore’s S$3.7 billion Paya Lebar Quarter mixed use development, establishment of a US$1 billion data centres joint venture with a large institutional investor and the successful listing of S$1 billion global LREIT on the Singapore Exchange. Prior to joining Lendlease, Tony spent almost 10 years at GE with responsibilities across a number of functional disciplines including strategy, M&A and finance for both GE Capital and GE Corporate. Tony commenced his career at KPMG where he worked for more than four years. Tony holds a degree in Accounting and Finance from RMIT University and is a member of the Institute of Chartered Accountants in Australia. Previous Board Members during the reporting period Stephen B McCann (Retired 31 May 2021) Mr McCann, the former Group Chief Executive Officer and Managing Director joined the Board in March 2009 and retired in May 2021. Colin B Carter, AM (Retired 20 November 2020) Mr Carter joined the Board in April 2012 and retired in November 2020. Baroness Margaret A Ford, OBE (Retired 18 August 2020) Baroness Ford joined the Board in March 2020 and retired in August 2020. Lendlease previously announced on 17 August 2020 that the disruption caused by COVID was the major contributor driving Baroness Ford's decision to retire. Baroness Ford continues to assist the Lendlease Board in respect of the Group's European operations as an independent advisor. Baroness Ford has flagged a willingness to rejoin the Board once COVID related restrictions have significantly subsided, if this remains appropriate. 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. 5 of 7 Board members have experience in one or more of the core segments 100% 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 2021, the average term of the Board is 6 years. 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. 1-3 years 3-6 years 6-9 years 9+ years 1 3 1 2 40% Current female Directors as at June 2020 43% Current female Directors as at June 2021 The Directors have a mix of local and international experience and expertise, as well as specialised skills to assist with decision making 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 with and support of 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 People and Culture Executive Leadership Financial Acumen Technology Experience in identifying and resolving legal and regulatory issues and having the ability to assist the Board on these matters. Experience in building workforce capability, setting a remuneration framework which attracts and retains a high calibre of executives, promoting workplace culture, diversity and inclusion. 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. 7 5 5 7 6 7 7 2 7 7 7 5 78 A sense of place Lendlease Annual Report 2021 Governance 79 Engagement Board regional program FY21 As an international company and having regard for the material scale of individual projects, the Board program is formulated to reflect the geographic spread of Lendlease's businesses. The Board program typically comprises formal meetings and additional business briefings, presentations from internal and external sources, project site visits, employee events and meetings with key stakeholders and customers. The Lendlease Board views these program activities, in addition to the formal, scheduled Board and Committee meetings, as an important part of receiving a greater understanding of our people, our business and 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 depth of project review required, the program runs for three to five days. In FY21, the Board maintained its regular cadence of meetings. While some engagement activities with our people and customers were temporarily placed on hold in response to COVID, other parts of the program were able to be maintained through the use of virtual technology. Program for the reporting period between 1 July 2020 and 30 June 2021. Board program activities undertaken during the reporting period are listed below. Asia (virtual program) Virtual site tour and safety overview of the TRX project in Kuala Lumpur, Malaysia (August 2020) Deep dive and virtual site tour of the Ardor Gardens Retirement Living Project in Shanghai, China (September 2020) Virtual engagement with Lendlease China Senior Leadership Team who provided insights into district governments and an overview of Lendlease China operations (September 2020) Received a briefing from an external speaker on the geopolitical landscape in Asia including sovereign risk and trade issues (September 2020) Discussion with the Asia Regional Leadership Team (September 2020) Europe (virtual program) Received briefings from an external speaker on insights into the UK market including governance focus areas, impact of COVID on real estate, investments and construction, and the impact of Brexit (November 2020 and May 2021) Deep dive and virtual site tour of the Milan Innovation District (MIND) project. (June 2021) Interactive individual and group discussions between the Board and Europe Regional Leadership Team members. These sessions provided guidance, motivation and support in career development (June 2021) Australia (virtual and on site program) Engagement with regional business leaders to provide updates and overview of key regional business issues (individual Directors, quarterly intervals throughout the reporting period) Virtual site visit and interaction with the project team for the integrated Sydney Place project (March 2021) Viewing and site walk of One Sydney Harbour residential precinct and overview of project. Engagement and Q&A session with project team and Board members (March 2021) Site walk around Barangaroo foreshore public realm, delivered in FY21 (March 2021) Virtual site visit and project deep dive of the Sydney Martin Place Metro project. (September 2020). This was followed by a project deep dive, on site visit and project team Q&A session with the Board (May 2021) Site tour of apartments and common areas in the 11 Gibbons Street, Redfern project – a mixed use social and affordable housing development delivered by Lendlease for St George Community Housing (SGCH). Client engagement with CEO and Senior Leadership Team of SGCH (May 2021) Americas (virtual program) Received a briefing from an external speaker on insights into US policy proposals addressing areas of particular relevance to Lendlease including housing, sustainability, supply chain, healthcare and the COVID response (October 2020) Virtual site viewing of the Javits Convention Centre in New York (May 2021) Sydney: Board visit to One Sydney Harbour 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 acts as a spokesperson for Lendlease and regularly meets with customers, investors, governments and media. The Board encourages two way communications with our investor community and in June 2021 released on the ASX a presentation detailing the scope of the Board's activities in FY21. Our Annual General Meeting (AGM) provides our securityholders with a valuable opportunity to communicate with the Board. In 2020, Lendlease held a virtual AGM and our securityholders were able to join the meeting online, ask questions and vote on all resolutions in 'real time'. Meeting with Lendlease people Our Board members believe that it is important to meet with local Lendlease management and employees in all our regions to assess the culture of Lendlease at work. They encourage employees to ask questions at 'town hall’ style events, providing an opportunity for open and honest debate on organisational culture. Due to the restrictions put in place because of the pandemic, in FY21 these sessions occurred on a smaller scale, often in virtual formats. 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. In FY21, the Board used technology to attend site visits and attend deep dive reviews of various projects. The MIND development project is presented as a case study 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 and opportunities associated with a project’s delivery. Milan Innovation District, Italy Commencing in April 2017, the Board was introduced to the opportunity to design, construct and deliver the Milan Innovation District (MIND), a 100 hectare mixed use redevelopment with an end value of $3.6 billion. The project is a truly integrated project bringing together Lendlease’s end to end capabilities and embodying our strategic view on the future of urbanisation. The Board received a deep dive presentation from the Project Team ahead of the formal request for approval to move forward with the MIND project. The deep dive covered several aspects of the development including the alignment to strategy. Factors considered included urbanisation and digital aspects, understanding of risk limits, capital partners, the development’s viability, commercial assessment, risk factors, geopolitical matters, the safety, sustainability and environment strategy, and the planning and scheme masterplan process. These issues continued to be discussed in project updates at various times and while not exhaustive, were indicative of the issues considered during boardroom discussions. The Board’s most recent visit to the MIND site was through the use of technology in June 2021 when an aerial flythrough of the project was provided and the Board met virtually with several members of the project team. Milan: Milan Innovation District (MIND) Artist’s impression 80 A sense of place Lendlease Annual Report 2021 Governance 81 Supporting value creation The Board recognises 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. Health and Safety Material Issue: Financial Material Issue: Our Customers Material Issue: Our People Material Issue: Sustainability 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. The Board and Risk and Sustainability Committees 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. Activities and actions: • Formed a Board subcommittee to receive and discuss the measures and actions taken in response to two fatalities on two of our operations, at Curtin University and at Setia City Mall, Malaysia • In conjunction with the Risk Committee, received reports on the formation of the Design Risk Appetite Policy and endorsed the appointment of a Group Chief Engineer to strengthen the approach to safety and quality issues across the Group from a technical perspective • Received reports on the revised approach to the global safety standards to be applied in the updated Global Minimum Requirements (GMRs), released in March 2021 • Every Board member undertook the EH&S Passport training in May 2021 to understand the application of the 2021 GMRs and the role that our people play in safety • Received status updates on the completion of the mandatory online EH&S Passport training by our people. 95 per cent of our global workforce completed the EH&S Passport within 90 days of launch • In tandem with the People & Culture Committee, led the work on the approach to setting the guiding principles to manage remuneration adjustments following safety incidents • Continued to address the health and safety culture through on site and virtual site visits and received reports from management on the ways that safety issues were being managed on these projects • Received reports on the promotion of our health and safety expectations of our business partners • Received reports from business leaders on the ways that they had shared lessons learned from Level 3 critical incident reports. Delivering securityholder returns. Maintaining strong capital management to enable investment in our future pipeline. 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. Activities and actions: • Continued to consider project approvals in the context of the Portfolio Management Framework, with the object to maximising long term securityholder value • Formalised the audit tender policy so that at least once every ten years, an external audit tender is conducted, and if this has not been conducted within the ten year period, provide an explanation to securityholders in the Annual report as to the reasons for not conducting a tender • Continued to receive reports on how the risk appetite framework is gaining traction in the business, both at a project approval and enterprise level to drive more informed and consistent decision making • Received reports and monitored engagement with credit rating agencies on the Group’s rating outlook. Moody’s credit rating improved from Negative to Stable following completion of Engineering sale • Endorsed the Lendlease $500 million Green Bond which successfully launched in October 2020 and a further $300 million Green Bond in March 2021 to become the largest green bond issued by an Australian non financial corporate. The proceeds of the bond will be focused on green buildings and earmarked to eligible projects in Lendlease’s global portfolio, consisting of 23 major urbanisation projects • Oversaw the exit of the Engineering business and the operating framework for the delivery of remaining Engineering projects and the exit strategy for the Services business • Finalised the Core business ‘Go Forward’ strategy through the strategy refresh process and the communications of this to market. Sponsored through Board involvement five implementation workstreams to support the ‘Go Forward’ strategy. 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. Activities and actions: • Endorsed the Group Customer Complaint Handling & Feedback Policy setting a minimum standard across the Group. Continued to receive reports on customer engagement, types of complaints and resolution timeframes for every region • Received reports on the progress of the Digital Strategy and the product development achievements of digital initiatives • Received a report on the application and Lendlease preparation for the Australian Government Payment Times Reporting Scheme for small business suppliers • Received external reports on the measuring of Board effectiveness as viewed by external investors. Continued the engagement program of major Board stakeholders through FY21 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. Activities and actions: • A key focus of the Board has been the CEO succession process, which came to a successful conclusion with Tony Lombardo formally taking over the role on 1 June 2021. This has been a disciplined process supported by an external advisor who assisted the Board in development of the leadership cohort • Reset CEO remuneration downwards and in line with market expectations. Oversaw the alignment of the structure of executive remuneration at Lendlease with the new CEO’s package • Endorsed changes to the Global Leadership Team with new external hires announced: Simon Dixon as Chief Financial Officer and Deborah Yates as Chief People Officer. Endorsed the new organisation structure at Lendlease • Continued the program of board refreshment by actively reviewing Board composition against the skills matrix • Received a deep dive report from the • Continued to review and discuss Americas CEO to brief the Board on key customer relationships relevant to the US residential portfolio. the Group’s talent management and strategic resourcing strategy and endorsed actions to provide greater transparency on the talent process. Engaged with regional senior leaders through virtual meetups to continue engagement with the Board to gain greater visibility of the emerging pool of potential internal successors to the GLT • Approved a one-off payment to frontline and customer facing staff from the Hardship and Wellbeing Fund (seeded in part by the voluntary fee reduction agreed by Non Executive Directors and Lendlease senior executives) in recognition of the challenges presented by the COVID pandemic. Designing, delivering and operating buildings and precincts that respond to the immediate challenge of reducing carbon emissions, while creating social value. Meeting the increasing expectations of key stakeholders for climate resilient assets that support human health and value natural capital. The Board and Sustainability Committee engaged in the following activities to help deliver inclusive, healthy and adaptable places that can thrive through change. Activities and actions: • Approved a commitment to reconciliation by endorsing the Group’s Reconciliation Action Plan which achieved ‘Elevate’ status in November 2020. Requested that management implement a quarterly reporting program to report on the progress of initiatives outlined in the Elevate RAP • Engaged with management, attended workshops and endorsed the Group’s two new sustainability targets to reflect the Group’s commitment to: - Net Zero Carbon for Scope 1 and 2 emissions by 2025, and Absolute Zero Carbon by 2040 - Delivering $250 million of measured social value by 2025 • Requesting that management implement quarterly progress reporting against both the carbon and social value targets • Received regular reports on ethical supply chains within the Group to ameliorate the risk of material substitution and modern slavery. Endorsed the 2020 Modern Slavery Statement following regular presentations from management • Continued to receive reports on the Group’s approach to social housing • Conducted a deep dive review of the ESG reporting frameworks and indices to understand in further detail various reporting and rating schemes • Received reports on the assessment against project approvals against the Group’s Environmental and Social Risk Assessment framework since launching in 2020 • Requested and received a report on the review of the Group’s approach to climate against ACSI’s new climate policy • Continued to receive reports at every meeting on the progress against the Task Force on Climate-related Financial Disclosures risk assessment and reporting framework • Received a case study on sustainability leadership in action focusing on the 1 Java, New York project and the risk assessment of different river flood impacts across the time horizons of now, 2050 and 2100 • Received regular reporting on the Lendlease FutureSteps initiative to address affordable and housing issues. Conducted a site visit of a partnership project with St George Community Housing in Redfern, Sydney. 82 A sense of place Lendlease Annual Report 2021 Governance 83 Board of Directors’ information Interests in Capital The interests of each of the Directors in the stapled securities of the Group at 16 August 2021 is set out below. The current Non Executive Directors acquired Lendlease securities using their own funds. Securities Held Directly 2021 Securities Held Beneficially/ Indirectly 2021 Total 2021 Securities Held Directly 2020 Current Directors M J Ullmer P M Coffey D P Craig J S Hemstritch E M Proust1 N M Wakefield Evans R F Welanetz Former Directors S B McCann2 C B Carter3 M A Ford4 - - - - - - 7,000 375,000 - - 125,000 125,000 21,216 73,061 33,061 68,061 34,379 - 46,874 18,601 4,065 21,216 73,061 33,061 68,061 34,379 7,000 421,874 18,601 4,065 Securities Held Beneficially/ Indirectly 2020 Total 2020 110,000 110,000 21,216 63,061 23,061 53,061 21,216 63,061 23,061 53,061 34,020 34,020 - - - - - - 7,000 - 7,000 547,200 291,527 838,727 - - 18,061 4,065 18,061 4,065 1. E M Proust also holds through her super fund $500,000 face value of Lendlease Green Bonds. 2. S B McCann ceased to be an Executive Director on 31 May 2021. The balance of securities held at the end of the financial year shown here represents the balance held at that date. 3. C B Carter ceased to be a Non Executive Director on 20 November 2020. The balance of securities held at the end of the financial year shown here represents the balance held at that date. 4. M A Ford ceased to be a Non Executive Director on 18 August 2020. 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 2021, 13 Board meetings were held. Typically, four face to face meetings would be held in Australia and one each in the UK, Asia and the Americas to align with the Group’s regional operations. In addition, three shorter meetings are scheduled to provide updates to the Board between the longer face to face meeting programs. Due to the mandatory travel and group meeting restrictions put in place in response to the COVID pandemic, from March 2020 onwards, the Board transitioned to enable virtual attendance at all Board and Committee meetings. Matters were also dealt with as required by circular resolution. From time to time special subcommittees were formed to give the Board better guidance and provide oversight concerning specific matters. During the reporting period, 10 Board subcommittee meetings were also constituted to deal with specific matters. Overview of Board Committees The Board recognises the essential role of Committees in guiding the Company on specific issues. There are five standing Board Committees to assist, advise and make recommendations to the Board on matters falling within their areas of responsibility. Each Committee consists of independent, Non Executive Directors. The Chair of each Committee is not a Chair of other Committees, or Chair of the Board. Each Committee is governed by a formal Charter setting out its objectives, roles and responsibilities, composition, structure, membership requirements and operation. Directors who are not members of the Committees have a standing invitation to attend meetings of the Committees. During the reporting period and in conjunction with the review of the Board and its Committees, a review of the accompanying Charters and Workplans for each of the Committees was undertaken. 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 and inclusion, 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 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 fulfil its responsibilities to securityholders, certify that the Board is comprised of individuals who 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 2020 to 30 June 2021 The number of Board and Board Committee meetings held, and the number of meetings attended by each Director during the 2021 financial year, are set out in the tables below. (MH) Number of meetings held. (MA) Number of meetings attended. Membership M J Ullmer P M Coffey D P Craig J S Hemstritch E M Proust N M Wakefield Evans R F Welanetz Former Members S B McCann2 C B Carter3 M A Ford4 Membership M J Ullmer P M Coffey D P Craig J S Hemstritch E M Proust N M Wakefield Evans R F Welanetz Former Members S B McCann2 C B Carter3 M A Ford4 Board (Chairman M J Ullmer) Board Subcommittee7 Strategy Workstream Meetings8 Nomination Committee (Chairman J S Hemstritch) MH1 MA 13 13 13 13 13 13 13 11 7 2 13 13 125 116 13 13 13 11 7 2 MH 10 MA 10 MH 16 MA 16 3 3 1 6 8 1 6 1 - 3 3 1 6 8 1 6 1 - 6 6 6 7 7 7 16 3 - 6 6 6 7 7 7 16 3 - MH MA 8 8 8 8 8 8 8 - 4 2 8 8 8 8 8 8 8 - 4 2 People & Culture Committee (Chairman E M Proust) Risk Management Committee (Chairman P M Coffey) Sustainability Committee (Chairman N M Wakefield Evans) Audit Committee (Chairman D P Craig) MH MA MH MA MH MA MH MA 8 8 8 8 8 - 8 7 5 - 8 8 8 8 8 - 8 7 5 - 8 8 8 8 8 8 8 8 4 2 8 8 8 8 8 8 8 8 4 2 5 - - - 5 5 5 5 3 - 5 - - - 5 5 5 5 3 - 5 5 5 5 - 5 - 5 - 2 5 5 5 5 - 5 - 5 - 2 1. Reflects the number of meetings held during the time the Director held office during the year. Five out of the 13 meetings were Board teleconferences constituted to address specific issues. 2. S B McCann, the former Group CEO and MD retired from the Board on 31 May 2021. The number of meetings attended reflects the number of meetings until S B McCann's retirement. S B McCann is not a member of the Audit, Risk, People & Culture and Sustainability Committees but as Group CEO and MD, he has a standing invitation to the Committee meetings. 3. C B Carter retired from the Board on 20 November 2020. The number of meetings attended reflects the number of meetings until C B Carter's retirement. 4. M A Ford retired from the Board on 18 August 2020. The number of meetings attended reflects the number of meetings until M A Ford's retirement. 5. D P Craig was unable to attend one of the five Board teleconferences as they were called at short notice to address specific issues. 6. J S Hemstitch was unable to attend two of the five unscheduled Board teleconferences as they were called at short notice to address specific issues. 7. Subcommittee meetings were convened during the reporting period to address specific issues or strategy items. Only the Subcommittee members attended the relevant meeting. 8. Strategy Workstream meetings were convened during the reporting period to provide oversight of the Group's strategic initiatives. Only the Strategy Workstream members attended the relevant meeting. The Board Chairman and Group CEO and MD had standing invitations to all the Strategy Workstream meetings. 84 Lendlease Annual Report 2021 Governance 85 Remuneration Report Message from the Board The challenging operating conditions associated with COVID continued to have a negative impact across our global gateway cities (see the Performance and Outlook section on page 59 for further information). Notwithstanding these challenges, there were notable achievements that supported the delivery of our Core operating profit result of $377 million after tax and continued progress on our strategic priorities. Management brought capital partners into a number of major urbanisation projects, built upon our Development pipeline, and launched new Investment products. Construction activity continued in all jurisdictions, albeit with reduced productivity due to social distancing requirements and the impact of lockdowns. The Group’s balance sheet and liquidity remain strong. Our priority to protect the health and safety of our people, customers, subcontractors and other stakeholders remains a fundamental guiding principle, particularly in the current environment. Given this context, framing appropriate remuneration outcomes for our people in FY21 has been particularly challenging. Responding to your feedback At the November 2020 Annual General Meeting we received a first strike, with 47 per cent of securityholders voting against the FY20 Remuneration Report. Feedback from proxy advisors and securityholders highlighted a number of concerns, including the quantum of CEO remuneration, elements of our Executive reward structure, and a view that the FY20 Deferred Equity Awards were not aligned with overall performance and the environment. Although this outcome was disappointing, the Board has carefully considered stakeholder feedback and has taken the following actions to address key concerns: • Increased the transparency of Board decision making for determining Short Term Award (STA) outcomes, as well as formalising our guiding principles and process for remuneration decisions arising from safety incidents • Lowered the quantum of remuneration for the new Global CEO • Made changes to our Executive Reward Strategy from 1 July 2021: – Removed the Restricted Securities Award (RSA) – Implemented STA deferral – Rebalanced the remuneration mix – Simplified the communication of Long Term Awards (LTAs) at maximum opportunity to align with market practice. Leadership transition and adjusted CEO remuneration Stephen McCann retired from the Board on 31 May 2021. This followed a 16 year career with the Group, including more than 12 years as Group Chief Executive Officer and Managing Director. After a comprehensive search process, the Board was pleased to announce the appointment of Anthony Lombardo to the Global CEO role from 1 June 2021. The transition to a new CEO provided the Board with an opportunity to reset remuneration quantum. The Global CEO’s Total Maximum Remuneration is 21 per cent lower than his predecessor. Remuneration without performance conditions (‘unhurdled’ remuneration) is 33 per cent lower, reflecting a lower fixed remuneration and the removal of the RSA. The mix of pay at maximum remains weighted toward equity based remuneration and the LTA continues to be delivered over a period of up to six years. Following Stephen’s retirement, unvested equity awards were left on foot and remain subject to the original terms. Unvested equity awards that are subject to performance hurdles are currently unlikely to meet the required performance hurdles when they are tested. However, accounting standards require that all remaining expense for these awards be brought forward into FY21, resulting in a statutory remuneration disclosure that does not reflect what was earned during the period. FY21 reward outcomes reflect our performance and environment FY21 STA outcomes In determining FY21 STA outcomes for Executives, the Board has considered performance of both financial and non financial indicators against the Group scorecard. The Board also considered the two subcontractor fatalities reported in FY21. After careful deliberation, and consideration of the following factors, the Board determined that the former Group CEO would not receive an STA payment for FY21: • Performance against the Group scorecard • The additional provisions for legacy Engineering projects • His positive contribution and support provided in the transition to the new CEO • The preliminary findings of the business review announced to the market on 16 August 2021 relating to Development projects. With respect to the newly appointed Global CEO, notwithstanding that his performance as CEO Asia for the first part of the year was ahead of the Group scorecard performance, the Board considered it more appropriate to apply the overall Group outcome, being 30 per cent of maximum opportunity. Other Executive STA outcomes ranged between 17 per cent and 40 per cent of their maximum opportunity, reflecting individual performance and in-year accountability relating to the overall Group result. For more information refer to pages 100 to 103. LTAs1 where performance has been assessed at the end of FY21 For LTAs subject to performance hurdles at the end of FY21, testing did not meet the required thresholds set by the Board and consequently there was nil vesting. Chairman's FY22 fee reduction Notwithstanding the solid operational and financial results across our Core business, the Board recognised the need for accountability in FY21 for the further provisions relating to the legacy Engineering business and the business review preliminary findings that have been announced in relation to the Development portfolio. Accordingly, in addition to the appropriate Executive accountability, on behalf of the Board, the Chairman will be taking a 20 per cent reduction in base fees for FY22. Looking ahead We are currently in a period of leadership transition. Following the appointment of our Global CEO and a comprehensive review of the business, we have reset our organisational structure, effective from 1 July 2021. Our aim is to drive and support consistent operations across regions, realise efficiencies, and place a greater focus on our competitive edge. At the same time, the operating environment remains challenging for our people as the impacts of COVID persist. Through proactive and extensive engagement with stakeholders we will continue to listen to feedback about our remuneration structure and decision making. For FY22 the Board and Global CEO will review the STA scorecard structure, as this represents our first opportunity to make changes following the first strike against the FY20 Remuneration Report. We look forward to informing you of our progress as part of our ongoing engagement. Michael Ullmer, AO Chairman Elizabeth Proust, AO Chairman, People & Culture Committee FY21 Remuneration Snapshot FY21 reward outcomes reflect our performance and environment Nil STA awarded to former Group CEO 20% reduction in Chairman's fees for FY22 30% of Maximum STA awarded to new Global CEO (KMP STA outcomes ranged from 17% to 40% of Maximum STA opportunity) Nil LTA awards vested1 Long Term performance targets (relative TSR and ROE) failed to meet challenging thresholds The Board conducted an extensive program of work to listen to securityholder feedback and to test the effectiveness of our Executive Reward Strategy FY22 Executive Reward Strategy amended to balance stakeholder views and continue to support strategic priorities 76% of new Global CEO Total Maximum Remuneration is performance based LTA continues to reflect the long dated nature of our business Total Maximum Remuneration opportunity reduced 50% of future STAs to be deferred into equity Removed the RSA increasing the proportion of performance based reward Anthony Lombardo and Stephen McCann effected a successful transition of leadership 33% reduction in unhurdled remuneration 21% reduction in maximum remuneration opportunity (for the new Global CEO compared to former Group CEO) All outstanding equity awards remain subject to original performance conditions Termination arrangements for former Group CEO in line with contract 6 Key appointments to the Global Leadership Team 1. 2018 LTI (tranche 2) and 2019 LTA (excludes the RSA previously referred to as the LTA Minimum). 1. 2018 LTI (tranche 2) and 2019 LTA (excludes the RSA previously referred to as the LTA Minimum). 86 Lendlease Annual Report 2021 Governance 87 Contents KMPs covered by this report Remuneration Framework Review 2020 Strike Executive Reward Strategy Review Key changes to the Executive Reward Strategy for FY22 FY21 Executive Reward Strategy Our Remuneration Framework Alignment between Remuneration Outcomes and Securityholder Experience Total Remuneration Realised Fixed Remuneration Restricted Securities Award (RSA) Short Term Award (STA) Long Term Award (LTA) Executive Service Agreements Non Executive Director Fee Policy Remuneration Governance and Risk Management Other Statutory Disclosures FY21 Executive Statutory Remuneration Reconciliation of Realised and Statutory Remuneration for the Former Group CEO FY21 Non Executive Director Statutory Remuneration FY21 Executive Equity Holdings Executive Equity Based Remuneration - Deferred Securities Executive Equity Based Remuneration - Long Term Awards FY21 Non Executive Director Equity Holdings 87 88 88 89 90 92 92 94 96 97 98 99 104 108 110 111 114 114 115 116 117 118 119 121 CAGR Compound Annual Growth Rate Critical Incident Frequency Rate Customer Satisfaction Funds Under Management Abbreviations LTA LTI ROE RSA Long Term Award Long Term Incentive Return on Equity Restricted Securities Award Financial year ending 30 June 2021 RTSR Relative Total Shareholder Return Financial year ending 30 June 2022 Global Leadership Team SBP STA Security Based Payment Short Term Award Global Minimum Requirements TCFD Task Force on Climate Related Financial Disclosures Key Management Personnel TPV Total Package Value CIFR CSAT FUM FY21 FY22 GLT GMR KMP KMPs covered by this report Name Position Term as KMP People & Culture Committee Current KMP P M K e v i t u c e x E n o N P M K e v i t u c e x E Michael Ullmer Independent Non Executive Chairman Philip Coffey David Craig Jane Hemstritch Elizabeth Proust Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director Nicola Wakefield Evans Independent Non Executive Director Robert Welanetz Independent Non Executive Director Anthony Lombardo Global CEO Johannes Dekker Group Head of Construction Justin Gabbani Denis Hickey Frank Krile Neil Martin Kylie Rampa CEO, Asia CEO, Americas Acting Group Chief Financial Officer CEO, Europe CEO, Property Australia David Andrew Wilson Group Chief Commercial and Risk Officer Full Year Full Year Full Year Full Year Full Year Full Year Full Year Full Year1 Full Year Part Year2 Full Year3 Part Year4 Full Year Full Year5 Full Year6 x x x x Chair x Note: The term 'Executives' used throughout this Remuneration Report refers to the Executive KMP listed above, unless stated otherwise. Name Colin Carter Margaret Ford Stephen McCann Tarun Gupta Former KMP Position Date ceased to be KMP Independent Non Executive Director 20 November 2020 Independent Non Executive Director 18 August 2020 Group CEO and Managing Director 31 May 2021 Group Chief Financial Officer 29 November 2020 Changes following the end of FY21 • Frank Krile, who has been Acting Group Chief Financial Officer since 30 November 2020, has been appointed as Group Chief Risk Officer, effective 1 July 2021. Frank will also continue to hold the position of Acting Group Chief Financial Officer until 30 September 2021 • Simon Dixon (external) has been appointed as the Group Chief Financial Officer, effective from 1 October 2021 • Anthony Lombardo announced a new Lendlease organisational structure effective from 1 July 2021 to drive and support consistent operations across our regions and to place a greater focus on our competitive edge. Further details of the leadership and structure changes will be set out in the FY22 Remuneration Report. 1. CEO, Asia from 1 July 2020 to 31 May 2021 and appointed Global CEO from 1 June 2021. 2. Appointed 1 June 2021. 3. Appointed to Global Chief Operating Officer from 1 July 2021, supplementing his role as CEO, Americas. 4. Appointed 30 November 2020. 5. Appointed to Group Head of Investments role from 1 July 2021. 6. Ceased as a KMP on 30 June 2021 and retired on 2 July 2021. 88 Lendlease Annual Report 2021 Governance 89 Remuneration Framework Review As highlighted in our FY20 Remuneration Report, a strategic review of our Executive Reward Strategy was scheduled for 2021. The Board expanded the scope of the review in light of the 2020 strike against the Remuneration Report. The focus has been for our approach to continue to evolve with the business and support the future success of Lendlease. Our review has considered securityholder views, as well as future strategic priorities, internal perspectives, and current/emerging market practice. This review culminated in the Board determining an amended approach, which has been adopted from 1 July 2021. 2020 Strike At the 2020 Annual General Meeting, Lendlease securityholders signalled concerns with our current remuneration practices and decision making, delivering a first strike against the Remuneration Report. While disappointing, the feedback was considered carefully by the Board as we undertook a first principles review of our Executive Reward Strategy. Over the course of FY21, the Board has established a thorough process to gather and examine views: Established a Board led working group Reflected on the feedback received from securityholders as part of pre- AGM engagement Reviewed proxy advisor reports from FY18-FY20 Conducted an online survey to seek feedback from our Top 100 securityholders Developed a Remuneration Fact Base Met with investors While our consultations highlighted a variety of views about how executive remuneration should work at Lendlease, consistent themes could be seen: Concern Board response Quantum Remuneration was considered to be too high, especially at the CEO level Remuneration structure Our Executive Reward Strategy was adopted in 2018 – a remuneration framework designed to reflect the nature of our business. While some securityholders appreciated this approach, others remained uncomfortable with certain features. The transition to a new CEO provided the ideal opportunity to adjust remuneration quantum. The remuneration package for the new CEO has been reduced by 33 per cent for unhurdled remuneration and 21 per cent for Total Maximum Remuneration opportunity opportunity compared to the former CEO. We have made adjustments to our Executive Reward Strategy from 1 July 2021 to address key concerns. This has included: • Removing the Restricted Securities Award (RSA) • Implementing STA deferral • Rebalancing the remuneration mix • Communicating and granting LTA at maximum opportunity. We have retained features that reflect the long dated nature of the business, such as: • LTA vesting over years 3 to 6 • Delivering a significant proportion of remuneration in equity. Refer Refer to page 91 Refer to page 90 FY20 deferred awards were not considered to be reflective of performance Securityholders felt that the FY20 Deferred Equity Award was not aligned with overall performance and environment. The Board reviewed its approach to remuneration decision making and refined the process to include more detailed disclosures in relation to STA outcomes. In addition, we have formalised our guiding principles and process for decision making in relation to remuneration adjustments arising from safety incidents, to improve the transparency of the Board’s approach. Refer to pages 100 to 103 and 112 We have also refreshed our remuneration report to streamline and simplify our remuneration disclosures, so that the purpose, operation and outcomes of the Executive Reward Strategy are clear. Executive Reward Strategy Review The Board undertook a holistic review of the Executive Reward Strategy to confirm that the framework continued to reflect the Purpose and Strategy of the Group. Our strategy is urbanisation led, leveraging our integrated model to create the best urban precincts in key gateway cities internationally. See the Strategy section on page 16 for further information. Our Purpose: Together we create value through places where communities thrive Our Strategy: Employ our placemaking expertise and integrated business model in global gateway cities to deliver urbanisation projects and investments that generate social, environmental and economic value Remuneration Principles Remuneration at Lendlease should be… 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 Our review confirmed that the underlying remuneration principles align to the Lendlease Purpose; and continue to support the achievement of our strategic priorities. 90 Lendlease Annual Report 2021 Governance 91 Key changes to our Executive Reward Strategy for FY22 The FY21 review culminated in the design of an amended Executive Reward Strategy for implementation in FY22. The amended structure was reflected in the appointment of Anthony Lombardo as our new Global CEO. The Board are pleased to note that the proposed changes have received positive feedback in our engagement with various stakeholders over the course of the year. FY22 Maximum Remuneration Mix Maximum remuneration mix for the Global CEO and Executives is as follows: Performance Based Change Rationale Removal of RSA Implementation of STA deferral • Increases proportion of remuneration subject to performance • Maintains focus on building Executive securityholdings and alignment with securityholder experience Grant LTA at maximum • Reduces complexity and increases transparency in disclosures • Aligned with market practice so easily comparable Recalibrate LTA vesting schedule Reset remuneration mix (increase STA, reduce LTA) • Straight line vesting between threshold and maximum increases simplicity • Accounts for removal of RSA, and implementation of STA deferral • Acknowledges securityholder concerns around LTA maximum quantum • Increases proportion of remuneration subject to performance • Maintains long dated nature of Executive Reward Strategy, relative to market peers The following diagram illustrates the structure of the FY22 Executive Reward Strategy: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Fixed Remuneration STA LTA End of deferral / performance period Base salary + Superannuation (where applicable) 50 per cent Cash. 50 per cent Deferred Rights. Distribution equivalents paid on vested awards only (in cash or via equity top up) Performance Rights. Distribution equivalents paid on vested awards only (in cash or via equity top up) Fixed Remuneration Maximum STA Maximum LTA 24% 33% Cash 16.5% Deferred 16.5% Relative TSR 14.3% 43% ROE 14.3% FUM 14.3% 76 per cent of Total Maximum Remuneration is performance based 59 per cent of Total Maximum Remuneration is delivered in equity Appointment of new Global CEO In FY21, Anthony Lombardo was appointed as our new Global CEO, effective 1 June 2021. As announced to the market in February, the Board took this opportunity to rebase the Global CEO remuneration package to reflect both the current market and securityholder expectations, which applies from 1 June 2021: Total Maximum Remuneration (A$’000) 9,500 5,050 1,800 500 2,200 21% reduction 33% reduction 7,500 3,200 1,250 1,250 1,800 Former Group CEO Global CEO LTA STA (deferred) STA (cash) RSA Fixed Remuneration The Global CEO’s Total Maximum Remuneration is 21 per cent lower than his predecessor. Unhurdled remuneration is 33 per cent lower reflecting a reduced fixed remuneration and removal of the RSA. The cash/equity split remains weighted toward equity based remuneration. For FY21, Anthony remained on the FY21 Executive Reward Strategy (per his CEO, Asia role), but Fixed Remuneration, STA opportunity and LTA were increased pro rata for the one month served as Global CEO. Further detail will be provided on the new Executive Reward Strategy within the FY21 Notice of Meeting and the FY22 Remuneration Report 92 Lendlease Annual Report 2021 Governance 93 FY21 Executive Reward Strategy Our Remuneration Framework Fixed Remuneration RSA STA LTA To attract and retain highly capable Executives To retain Executives and link reward to long term value creation To focus short term decision making on priority areas in the current financial year To reward Executives for delivering sustained long term securityholder value Quantum is benchmarked against relevant comparator companies to test market competitiveness Annual grant of equity that is variable in value as the security price moves Annual opportunity to receive a cash incentive to focus performance on priority areas over the current financial year Annual grant of ‘at risk’ equity to reward for delivering the Lendlease Strategy, in alignment with long term securityholder returns n/a Ongoing alignment with Lendlease securityholders as the award value is linked to security price movements over three to six years Current financial year performance, based on measures aligned to Lendlease’s focus areas of value creation: • Financial (50%) • Non Financial (50%) Forward looking, three year performance: • Relative TSR (1/3) • Return on Equity (1/3) • Growth in Funds Under Management (1/3) Award value linked to security price movements over three to six years The People & Culture Committee and the Board review our remuneration principles and remuneration framework as well as determine the STA and LTA outcomes for Executive KMP, which remain subject to malus consideration. The Board retains the 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 would be unwarranted or inappropriate. Additionally, the Global CEO LTA is submitted for securityholder approval at the AGM. e s o p r u P h c a o r p p A e c n a m r o f r e P o t k n L i e c n a n r e v o G The following diagram illustrates the structure of the FY21 Executive Reward Strategy: The following diagram illustrates the structure of the FY21 Executive Reward Strategy: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Fixed Remuneration RSA STA LTA End of deferral / performance period Base salary + Superannuation (where applicable). Deferred Rights. Distribution equivalent amounts are paid as cash during the deferral period 100 per cent Cash Performance Rights. Distribution equivalents paid on vested awards only (in cash or via equity top up) FY21 Maximum Remuneration Mix Maximum remuneration mix for the former Group CEO was as follows: Performance Based Fixed Remuneration RSA Maximum STA Maximum LTA 23% 5% 19% Relative TSR 17.7% 53% ROE 17.7% FUM 17.7% Maximum remuneration mix for Executives1 was as follows: Performance Based Fixed Remuneration RSA Maximum STA Maximum LTA 23% 10% 15% Relative TSR 17.3% 52% ROE 17.3% FUM 17.3% 1. Excludes Executives that were appointed during FY21 (Justin Gabbani and Frank Krile) as they were not eligible for an RSA. 94 Lendlease Annual Report 2021 Governance 95 Alignment between remuneration outcomes and securityholder experience Five year performance summary LTI / LTA outcomes and securityholder experience Profit after Tax (PAT) Attributable to Securityholders ($m)1 Total Dividends / Distributions ($m) Earnings per Stapled Security (EPSS) (cents) (excluding treasury securities) Annual Total Securityholder Return (%) Return on Equity (ROE) (%)2 Closing Security Price as at 30 June ($)3 FY17 758.6 384.9 135.2 38 12.9 16.65 FY18 792.8 399.6 137.0 24 12.7 19.74 FY19 467 237 80 (33) 7.4 13.00 FY20 (310) 191 (51.8) (2) (4.7) 12.37 FY21 377 186 32.5 (6) 5.4 11.50 STA outcomes and securityholder experience The following chart sets out aggregate Executive STA outcomes, relative to Annual TSR, Profit After Tax and Total Distributions, over time. 67% 67% 8 7 6 5 4 3 2 1 0 ) m $ ( s e m o c t u o A T S e v i t u c e x E e t a g e r g g A 0% 23% 30% 0% Total Distributions ($m) 400400 350 300 250 200 150 100 50 0 Annual TSR 80%80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% PAT ($m)1 800800 700 600 500 400 300 200 100 0 -100 -200 -300 FY174 FY184 FY19 FY205 FY21 -40% -400 Aggregate Executive STA outcomes ($m) Group CEO STA outcome as % Maximum STA opportunity Annual TSR (%) PAT ($m)1 Global CEO STA outcome as % Maximum STA opportunity Total Dividends / Distributions ($m) STA outcomes reflect short term performance, demonstrating the alignment between STA outcomes and the securityholder experience The following chart shows LTI / LTA outcomes for the former CEO relative to 3 year TSR and 3 year average ROE over time: • Over the period from Sep-05 to Sep-18, 41 per cent of the aggregate value of LTI / LTA awards vested (outcomes range from 0 per cent to 99 per cent) • 4 of the 14 LTI / LTA awards were worth more than the grant value due to security price growth (Sep-10, Sep-11, Sep-12 and Sep-13) • 5 of the 14 LTI / LTA awards were worth nothing when they were tested (Sep-05, Sep-06, Sep-07, Sep-17 and Sep-18). ) m $ ( e u l a v A T L / I T L 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 -0.5 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 LTI / LTA Grant Date 3 Year TSR 3 Year Average ROE 150% 16% 128% 14% 106% 12% 83% 10% 61% 39% 17% -6% 8% 6% 4% 2% -28% 0% -50% -2% Grant Value1 Vest Value (excludes security price growth/decline) Security price growth /decline 3 Year TSR 3 Year Average ROE Nil vesting • Historically, LTI / LTA outcomes have been aligned with the securityholder experience • LTI / LTA outcomes reward steady and sustainable securityholder returns 1. FY17 to FY20 reflects Statutory Profit after Tax and FY21 reflects Core Operating Profit after Tax. FY21 Statutory Profit after Tax was $222 million. 2. FY17 to FY20, reflects Statutory ROE which is calculated as the annual Statutory Profit after Tax attributable to securityholders divided by the arithmetic average of beginning half year and year end securityholders' equity. FY21 reflects Core Operating ROE which is calculated as annual Core Operating Profit after Tax attributable to securityholders divided by the arithmetic average of beginning half year and year end securityholders' equity. Core Operating ROE replaces Statutory ROE as an LTA hurdle as it better reflects the impact management have in creating value for securityholders. FY21 Statutory ROE was 3.2 per cent. 3. FY18 reflects 29 June 2018 closing security price and FY19 reflects 28 June 2019 closing security price. 4. 50 per cent paid as cash and 50 per cent deferred as securities. The deferred portion is released in two equal tranches after one and two years. 5. 100 per cent deferred as securities that is released in two equal tranches after one and two years. 1. The LTI / LTA grant value is the number of securities granted multiplied by the 1 September opening security price for the LTI / LTA grant year. 96 Lendlease Annual Report 2021 Governance 97 Total Remuneration Realised Fixed Remuneration The table below presents the remuneration paid to, or vested for, Executives in respect of FY21. This section presents our approach to setting Fixed Remuneration. FY21 Total Remuneration Realised Design How Fixed Remuneration Works A$’0001 Current Executives Anthony Lombardo2 Johannes Dekker Justin Gabbani3 Denis Hickey Frank Krile4 Neil Martin Kylie Rampa David Andrew Wilson Former Executives Stephen McCann5 Tarun Gupta6 Definitions Fixed Remuneration Previous years’ RSA Unhurdled Hurdled P Previous years’ RSA Previous years’ deferred securities vested FY21 STA awarded P Previous years’ LTI / LTA awards P Security price growth / declineS Fixed Remuneration Termination Payments Total Remuneration Realised Awards forfeited or lapsed 1,086 1,160 67 1,417 555 1,249 1,160 1,205 1,943 1,060 500 500 - 500 - - 500 500 500 0 - 100 - - - - - 1,074 - - 244 150 20 368 188 164 125 175 0 n/a 0 0 - 0 - - 0 0 0 0 (206) (241) - (206) - - (208) (322) - - - - - - - - 1,624 1,669 87 (3,664) (3,300) (34) 2,079 (3,612) 743 1,413 1,577 (439) (655) (3,685) 2,632 (3,275) (206) 1,900 0 - 4,137 1,060 (8,352) (3,720) Includes the TPV / Base Salary plus superannuation (where applicable) received during FY21 and reflects the 20 per cent Fixed Remuneration reduction that applied from 1 July 2020 to 31 August 2020. Includes the RSA (previously referred to as the LTA Minimum) that was granted in September 2018 and reached the end of the deferral period on 30 June 2021. The value reflects the number of securities multiplied by the grant price. 25 per cent of this award value will be released in September 2021 and the remaining 75 per cent will be released in three equal tranches in September 2022, 2023 and 2024, subject to malus provisions. Previous years’ deferred securities vested Includes deferred securities that are not subject to hurdles such as sign on awards and the Distinguished Executive Award. The value reflects the number of securities that vested in FY21 multiplied by the grant price. FY21 STA awarded Reflects the STA awarded in relation to FY21 performance. For Justin Gabbani and Frank Krile, 50 per cent of the FY21 STA is paid as cash in September 2021 and 50 per cent is deferred as Rights that will be released in two equal tranches after one and two years. For all other Executives, FY21 STA outcomes will be paid as 100 per cent cash in September 2021. Quantum • No remuneration increases were applied in FY21, except in the case where the Executive moved to a larger role within the Group • Neil Martin’s Base Salary increased from £550,000 to £670,0001 effective from 1 September 2020, as part of the transition to the remuneration for the CEO, Europe role. Benchmarking Approach • Quantum and remuneration mix are benchmarked to test that total remuneration remains market competitive • Annual review except in instance of role changes • Considers the relative size, scale and complexity of roles to enable a fair comparison • A target fixed and total remuneration position is established with reference to the market median and 75th percentile • Aim to provide total remuneration towards the 75th percentile if outstanding performance is achieved. Primary Sources of Data • The People & Culture Committee typically uses a number of sources for benchmarking Global CEO and Executive remuneration including: – Publicly available data for similar roles in companies of a similar size, such as: –Revenue Group: ASX listed companies with revenue of between 50 and 200 per cent of Lendlease’s revenue –Market Capitalisation Group: ASX listed companies that are ranked between 26 and 75 by market capitalisation (excluding companies domiciled outside Australia) – Publicly available data for comparable roles at: –Property organisations in Australia such as Charter Hall Group, Dexus, Goodman Group, GPT Group, Mirvac Group, Scentre Group, Stockland and Vicinity Centres –Companies where we compete for talent, such as Macquarie Group Limited and AMP Limited – Published remuneration surveys, remuneration trends and other data sourced from external providers. Supplementary Peer Group • To supplement the above information, we also consider the following three companies as comparators for Lendlease: Brambles Limited, British Land Company PLC and CapitaLand Limited. These companies were identified as part of a review that was undertaken during FY21 to determine which companies align with Lendlease based on quantitative comparisons against key metrics such as profit, market capitalisation and scale of operations as well as a qualitative overlay that considered the scope of business lines, employee base and operating environment. Previous years’ LTI /LTA awards Includes the 2018 LTI (tranche 2) and 2019 LTA that reached the end of the performance period on 30 June 2021, vesting in September 2021. The value reflects the number of securities scheduled to vest multiplied by the grant price. The Fixed Remuneration for Executive KMPs was temporarily reduced by 20 per cent from 1 May 2020 to 31 August 2020 as part of the Group’s response to COVID. Security price growth / decline Includes the value of security price growth / decline between grant and 30 June 2021 for previous years' deferred securities and between grant and 30 June 2021 for previous LTI / LTA awards. Also includes the value of the distribution equivalent amounts paid as cash on the RSA. Awards forfeited or lapsed The value reflects the maximum number of securities that were forfeited / lapsed in respect of FY21 multiplied by the grant price plus the value of the forfeited portion of the maximum FY21 STA. 1. Remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY21 (rounded to two decimal places): SGD 1.00 (applied to Anthony Lombardo and Justin Gabbani), USD 0.75 (applied to Denis Hickey) and GBP 0.55 (applied to Neil Martin). 2. Fixed Remuneration and FY21 STA cash awarded for Anthony Lombardo reflects time in the CEO, Asia role from 1 July 2020 to 31 May 2021 and time in the Global CEO role from 1 June 2021 to 30 June 2021. 3. Fixed Remuneration and FY21 STA cash awarded for Justin Gabbani reflects time as a KMP (1 June 2021 to 30 June 2021). 4. Fixed Remuneration and FY21 STA cash awarded for Frank Krile reflects time as a KMP (30 November 2020 to 30 June 2021). 5. Fixed Remuneration and FY21 STA cash awarded for Stephen McCann reflects time as a KMP (1 July 2020 to 31 May 2021). 6. Tarun Gupta resigned effective 29 November 2020. All unvested equity awards were forfeited upon resignation. Additionally, Tarun was not eligible for an STA award in FY21. No Fixed Remuneration increases are proposed for FY22. 1. Fixed Remuneration for Neil Martin, converted to AUD based on the 12 month average historic foreign exchange rates for FY21 (GBP 0.55), has increased from $1,000,000 to $1,218,182 effective from 1 September 2020. 98 Lendlease Annual Report 2021 Governance 99 Global CEO - Market Comparison When setting the remuneration for the new Global CEO, the Board considered current market data in line with Lendlease’s established remuneration benchmarking approach (as outlined on page 97). This analysis demonstrated that the proposed remuneration quantum was aligned to our target market position, except for the positioning of Fixed Remuneration against the Revenue comparator group, which was below the median. The graph below summarises the market positioning of the new Global CEO’s Fixed Remuneration and Maximum Total Remuneration against the Revenue and Market Capitalisation comparator groups. Short Term Award (STA) This section presents the key features of the STA plan. Fixed Remuneration Maximum Total Remuneration k n a r e l i t n e c r e P 34 64 k n a r e l i t n e c r e P 50 75 0 50 75 100 0 50 75 100 Target range Target range ■ Revenue group - Lendlease percentile rank ● Market Capitalisation group - Lendlease percentile rank From FY22, 50 per cent of awarded STA will be deferred as Rights to receive Lendlease securities. The deferred portion will be released in two equal tranches after one and two years. To offset the removal of the RSA, and the introduction of deferral, Maximum STA opportunity has been increased (excluding the Global CEO). Design How the STA Works Remuneration was set toward the top of the target range for the Select Real Estate companies comparator group for both Fixed Remuneration and Maximum Total Remuneration. The Board felt that the new Global CEO’s remuneration quantum was appropriate when considering the size and complexity of the Group’s operations relative to the companies within the comparator groups. Additionally, the reduction in quantum compared to the prior incumbent was consistent with market practice when considering recent new CEO appointments. Eligibility Quantum Restricted Securities Award (RSA) This section presents a summary of the key features of the RSA plan. Design How the RSA Works Funding Eligibility Quantum • Group CEO, Global CEO and Executives • The RSA quantum is equivalent to: – Global CEO: 45% of Fixed Remuneration (including 11 months’ opportunity relating to the CEO, Asia role, and one month relating to the Global CEO role, pro rata) – Former Group CEO: 23% of Fixed Remuneration – Executives: 34% - 42% of Fixed Remuneration Delivery • Rights to acquire securities, subject to continued tenure • Award may be settled in cash at the Board’s discretion Determining the number of Rights Deferral Period Distributions • Face value: 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 preceding the grant date • Released in four equal tranches at the end of Y3, Y4, Y5 and Y6 • Distribution equivalent amounts are paid as cash during the deferral period Going forward, the RSA has been removed from the Executive Reward Strategy for FY22. Executives who were appointed during FY21 (Justin Gabbani and Frank Krile) were not eligible for an RSA. • Group CEO, Global CEO and Executives • For FY21, target STA opportunity was as follows: – Global CEO: 49% of Fixed Remuneration (including 11 months’ opportunity relating to the CEO, Asia role, and one month relating to the Global CEO role, pro rata) – Former Group CEO: 55% of Fixed Remuneration1 – Executives: 40% - 75% of Fixed Remuneration • The minimum possible STA outcome is zero • The maximum STA outcome is limited to 150% of target opportunity2 • The Board determines the pool of funds to be made available to reward Executives, with reference to Group financial and non financial performance • The Board examines safety performance and the overall health of the business (including a broader set of metrics around origination, sustainability and how we have managed risk) • Global CEO and Executive scorecards, including: – 50% Financial Performance (earnings, profit, margin, cash flow, and return measures) – 50% Non Financial Performance (safety, sustainability, risk, people, customer and strategic measures) Refer to pages 100 and 101 for a summary of the FY21 Group/Global CEO scorecard • Lendlease is committed to the safety and wellbeing of all of its employees. While the assessment is not structured formulaically or as a ‘gateway’ measure, poor health and safety outcomes may lead to a reduction in STA outcomes for the year • The People & Culture Committee considers feedback from multiple sources to consider ‘how’ performance outcomes are achieved: – Group Chief Financial Officer – Group Chief Risk Officer – The Audit Committee – The Risk Committee – The Sustainability Committee Key Performance Indicators Delivery3 • Cash • Paid in September following the assessment of performance 1. The FY21 STA target opportunity for Stephen McCann reflects time in KMP role (1 July 2020 to 31 May 2021). 2. The FY21 maximum STA is 139 per cent of STA target opportunity for the Global CEO for the period from 1 June 21 to 30 June 21. 3. For Justin Gabbani and Frank Krile, 50 per cent of the FY21 STA is paid as cash in September 2021 and 50 per cent is deferred as Rights that will be released in two equal tranches after one and two years. 100 ¹ % 0 5 e c n a m r o f r e p l a i c n a n F i 1 % 0 5 e c n a m r o f r e p l a i i c n a n F n o N FY21 CEO STA scorecard Areas of focus Reason chosen Overall Assessment Performance assessed against FY21 targets Lendlease Annual Report 2021 Governance 101 A breadth of financial measures (including Profit After Tax, EBITDA, cash flow from operating and investing and overheads), in combination with the forward looking assessment of the financial health of the business, focuses the CEO on the delivery of financial results in the short term while taking decisions with an emphasis on the long term interests of securityholders. Financial BELOW ABOVE A summary of the result against each financial measure is below: Operating Profit after Tax EBITDA Operating and Investing Cash Flow Behind Target Behind Target Above Target Overheads On Target The Group recorded Core Operating Profit after Tax of $377 million for the year ended 30 June 2021. Core operating EBITDA in FY21 was $757 million. While the performance of the business improved from the COVID impacts in FY20, the operating environment remained challenging. Actual cash flow was $252 million, which was ahead of target, primarily related to the execution of the sale of a further 25% of the Groups investment in the Retirement Living operations. Continued focus on the cost base saw overheads lower than targeted, but reduction in NPAT resulted in Overhead / Gross Profit Margin ratio not being met. Target Result Health & 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 GMR implementation guides developed and in place as determined by the GLT approved rollout plan Maintain CIFR at or below set target < 0.9 n/a Strategic Initiatives Effective delivery of strategic initiatives drives longer term securityholder returns. BELOW ABOVE Complete exit of Engineering business, establish operating framework to oversee delivery of remaining Engineering projects and review exit strategy for Services business. Finalise the Core business ‘Go Forward’ strategy through the strategy refresh process and the revised Portfolio Management Framework post exit of the Engineering business and communicate this to the market. Progress the implementation of the Group Digital Strategy to take us to a leadership position in digital over the medium term. Commence implementation of the Group strategic shifts through the establishment and oversight of appropriate GLT sponsored workstreams and Board engagement. Launch revised Lendlease Purpose and Carbon targets to internal and external stakeholders. Effective and proactive risk management is key to delivering on securityholder expectations. Actively support the role of the nominated Voice of Risk members to provide robust challenge on Regional Leadership Teams. Maintain appropriate scenario planning around key risks associated with the external environment, including COVID. Managing Risk Aligns remuneration with appropriate risk taking. BELOW ABOVE Champion the new Risk Appetite Framework within the business. Our Customers BELOW ABOVE Satisfied customers drive long term value. Improve on FY20 enterprise wide CSAT score Improve on FY20 enterprise wide Net Promoter Score Target Result > 7.6 +17 7.6 +18 Further embed customer centricity into the culture and operating model using business processes such as Quarterly Business Reviews and the knowledge framework, and actively support strategies to build stronger relationships with key customers from government, business and investors. 0.67 Met Met Met Met Partial Met Met Met Met Partial Our People Having the right people in leadership roles is critical to long term success. The CEO sponsors key people initiatives. The CEO actively promotes diversity and inclusion to grow capability. BELOW ABOVE Support the succession planning process through GLT development with a focus on developing readiness of one or more Group CEO succession candidates Maintain or improve People Leadership survey score Increase proportion of women in leadership Target >=61% 26.9% Result 54% 29.9% n/a Met Sustainability 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 1. Performance measures do not have individual weightings. The Board undertakes a holistic assessment of financial and non financial performance to determine the FY21 CEO scorecard performance. Demonstrate leadership in sustainability by actively supporting, and requiring senior business leaders to drive and support actions aligned to the achievement of our key Sustainability Social and Environmental targets Embed TCFD scenarios in business strategic planning and require Climate impact analysis for all new investment opportunities through Regional Investment Committee and Global Investment Committee papers Require all business leaders to have a base level of knowledge about carbon emissions in our business and the implications of our carbon targets, to enable informed decision making and project review Met Met Met 102 Lendlease Annual Report 2021 Governance 103 Impact of safety incidents on FY21 STA outcomes We are deeply saddened to report that two fatalities occurred in FY21. We go beyond regulatory reporting requirements and report all fatalities on our sites as we do not consider the lives of subcontractors and community members as any different to our employees. In line with the guiding principles for determining remuneration adjustments arising from safety incidents set out on page 112, the key factors considered by the Board when determining whether a remuneration adjustment should be made for the fatalities that occurred during FY21 are: Curtin University, Perth, Western Australia • Safety leadership and safety performance metrics have been of a consistently high standard for the duration of the project and in the business unit over the past four years. • The Board was satisfied based on material from internal and external sources made available at the time that Lendlease had met the standards set out in its GMRs which are generally set at an equivalent or higher standard than those of local regulators. Setia City Mall Phase 2 project in Malaysia • Safety leadership and safety performance metrics have been of a consistently high standard for the duration of the project and in the business unit over the past four years. • The findings from the external investigation conducted by the Malaysian authorities confirmed that Lendlease is not a party of interest. Based on an assessment of the above factors and material available at the time, the Board has determined that no adjustment would be made to FY21 STA outcomes as a result of the fatalities, noting that if new information emerges from external investigations, the Board can reduce future STA outcomes or apply a malus adjustment. Board's Initial Assessment of FY21 CEO STA scorecard performance The following table sets outs the Board's holistic assessment of financial and non financial performance against the CEO STA scorecard for FY21: % of CEO STA Target | Maximum Financial Performance (50%) Non Financial Performance (50%) FY21 CEO STA Scorecard Performance 'Initial Assessment' • On balance, the Board determined that financial targets were not met. • The Board considered the position relative to target for each of the focus areas. • The People & Culture Committee sought inputs from the Acting Group Chief Financial Officer / Group Chief Risk Officer and each of the Risk, Audit and Sustainability Committees. • In the context of non financial performance the Board determined that the overall score should be 45% of target opportunity which represents 30% of maximum opportunity. • Overall, the Board has determined that 45% of target performance against the CEO STA scorecard was achieved in FY21, which represents 30% of CEO Maximum STA. • Differences in Business Unit financial and non financial performance are reflected in individual KMP FY21 STA outcomes. 0% | 0% + 45% | 30% = 45% | 30% Business review and impact on FY21 STA outcomes The Board considered all of the material made available at the time of determining FY21 STA outcomes, including any identified risks, to establish if there should be any impact on FY21 STA outcomes, unvested equity awards, or both. This included the preliminary findings of the business review advised to the market on 16 August 2021. Following their review, the Board determined it appropriate that any adjustments be made to FY21 STA outcomes only to reflect accountability and impact on the overall group result. FY21 STA outcomes for the former Group CEO and Global CEO The Board's initial assessment of FY21 CEO STA scorecard performance has been adjusted as follows: Stephen McCann - Former Group CEO Anthony Lombardo - Global CEO Period as Group CEO • 1 July 2020 to 31 May 2021 Period as Global CEO • 1 June 2021 to 30 June 2021 FY21 CEO STA Scorecard Performance 'Initial Assessment' 30% of Maximum STA $495,617 FY21 CEO STA Scorecard Performance 'Initial Assessment' 30% of Maximum STA $62,500 Other Considerations Adjustment Adjusted FY21 Former Group CEO STA • Additional provisioning in the Non Core business relating to legacy Engineering projects ↓ • The business review identified a number of projects where a material change to the development strategies may be required ↓ • Supported successful CEO leadership transition ↑ • On balance, the Board determined that the FY21 STA outcome for Stephen McCann should be reduced to nil Adjustment • n/a FY21 Global CEO STA 30% of Maximum STA $62,500 CEO Asia role • From 1 July 2020 to 31 May 2021 Other Considerations • Notwithstanding that Anthony's performance as CEO Asia for the first part of the year was ahead of the Group scorecard performance, the Board considered it more appropriate to apply the overall Group outcome, being 30 per cent of maximum opportunity Adjustment • n/a 0% of Maximum STA $0 FY21 CEO Asia STA 30% of Maximum STA $181,500 Total FY21 STA 30% of Maximum STA $244,000 FY21 Short Term Performance Outcomes The following table outlines the FY21 STA opportunity and outcomes for each Executive. FY21 STA outcomes Target STA Opportunity Maximum STA Opportunity STA Awarded $2 STA Awarded as % of Maximum STA STA Forfeited as % of Maximum STA 553 500 36 613 418 545 500 500 1,101 n/a 813 750 53 920 627 818 750 750 1,652 n/a 244 150 20 368 188 164 125 175 0 n/a 30% 20% 37% 40% 30% 20% 17% 23% 0% 0% 70% 80% 63% 60% 70% 80% 83% 77% 100% 100% A$’0001 Current Executives Anthony Lombardo3 Johannes Dekker Justin Gabbani4 Denis Hickey Frank Krile5 Neil Martin Kylie Rampa David Andrew Wilson Former Executives Stephen McCann6 Tarun Gupta7 1. Remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY21 (rounded to two decimal places): SGD 1.00 (applied to Anthony Lombardo and Justin Gabbani), USD 0.75 (applied to Denis Hickey) and GBP 0.55 (applied to Neil Martin). 2. For Justin Gabbani and Frank Krile, 50 per cent of the FY21 STA is paid as cash in September 2021 and 50 per cent is deferred as Rights that will be released in two equal tranches after one and two years. For all other Executives, FY21 STA outcomes will be paid as 100 per cent cash in September 2021. 3. The FY21 STA for Anthony Lombardo has been prorated to reflect time in the CEO, Asia role from 1 July 2020 to 31 May 2021 and time in the Global CEO role from 1 June 2021 to 30 June 2021. 4. The FY21 STA for Justin Gabbani reflects time as a KMP (1 June 2021 to 30 June 2021). 5. The FY21 STA for Frank Krile reflects time as a KMP (30 November 2020 to 30 June 2021). 6. The FY21 STA for Stephen McCann reflects time as a KMP (1 July 2020 to 31 May 2021). 7. Tarun Gupta was not eligible for an FY21 STA following his resignation effective 29 November 2020. 104 Lendlease Annual Report 2021 Governance 105 Long Term Award (LTA) LTA Design How the LTA Works This section presents the key features of the 2021 LTA (granted in September 2020). LTA Design How the LTA Works Eligibility Quantum • Group CEO, Global CEO and Executives1 • The maximum face value of the 2021 LTA award granted in September 2020 is as follows: – Global CEO: 250% of Fixed Remuneration (including 11 months’ opportunity relating to the CEO, Asia role, and one month relating to the Global CEO role, pro rata) – Former Group CEO: 230% of Fixed Remuneration – Executives: 191% - 225% of Fixed Remuneration Delivery • Rights to acquire securities, subject to specific performance conditions and continued tenure • The number of performance rights is adjusted up or down at vesting based on performance over the assessment period • The award may be settled in cash or other means at the Board’s discretion Determining the Number of Performance Rights • Face value: VWAP of stapled securities traded on the ASX over the 20 trading days prior to the release of the full year results preceding the grant date Performance Period • Three years Deferral • Released in four equal tranches at the end of Y3, Y4, Y5 and Y6 • The timeframe reflects a balance between reward that motivates Executives while reflecting the ‘long tail’ of profitability and risk associated with ‘today’s decisions’ From FY22, LTA awards will be granted at maximum opportunity (rather than target). Accordingly, the vesting schedules will be recalibrated to reflect this change and a straight line vesting approach will be adopted for added simplicity. Maximum LTA quantum has been reduced in line with broader changes to the Executive remuneration mix. 1. Executives that were appointed during FY21 (Justin Gabbani and Frank Krile) were not eligible for a 2021 LTA. Performance Hurdles • The Board believes that these measures provide a suitable link to long term securityholder value creation. • 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. Market Measure Non Market Measures Relative Total Securityholder Return (RTSR) - 1/3 Average Operating Return on Equity (ROE) - 1/3 CAGR % in FUM - 1/3 • TSR incentivises 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 • TSR is measured by the growth in security price and any dividends/distributions paid during the performance period • TSR is measured against companies that comprise the Standard & Poor’s (S&P)/ Australian Securities Exchange (ASX) 100 index Lin e l a n o i t a R n o i t i n i f e D g n i t t e S t e g r a T • CAGR % in FUM recognises the importance of growth in FUM to achieving our key strategic objective of increasing our Investments platform globally which will be achieved through our internal development pipeline, creating new products, using value add strategies and through external market acquisitions • CAGR % in FUM is calculated as the compounded annual growth rate of Lendlease’s funds under management over the three year performance period • Operating 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 • Operating ROE replaces Statutory ROE as it better reflects the impact management have in creating value for securityholders • Operating ROE is calculated as the Group’s Operating Profit After Tax divided by the arithmetic average of beginning, half and year end securityholders’ equity • Performance is based on the average Operating ROE results over the three year performance period • Target is reviewed annually • Target is reviewed annually and is set with reference to the Group’s operating plan and is set with reference to the Group’s Portfolio Management Framework • Operating ROE target aims to drive outperformance without incentivising excessive risk taking • The Board believes that the vesting range provides a realistic goal at the lower end and a stretch at the upper end • The Board is conscious of the impact that debt can have on the Operating ROE result and has governance protocols in place to monitor this How the LTA Works FY21 Long Term Performance Outcomes The table below presents the performance and vesting outcomes for awards that vested, or were tested, in FY21. Lendlease Annual Report 2021 Governance 107 106 LTA Design Vesting Schedule (as % of Maximum LTA)1 RTSR Percentile Ranking % of Maximum LTA Average Operating ROE % of Maximum LTA CAGR % in FUM % of Maximum LTA Below 50th 0% Below 8% 0% Below threshold set by the Board 0% At the 50th 11% Between 8% and target set by the Board Straight line vesting between 8% and 41% Between threshold and target set by the Board Straight line vesting between 8% and 41% At or above the 50th and below the 75th Straight line vesting between 11% and 100% At target set by the Board 41% At target set by the Board 41% 75th or greater 100% Between target set by the Board and 11% Straight line vesting between 41% and 100% Between target and maximum set by the Board Straight line vesting between 41% and 100% At or above 11% 100% At or above maximum set by the Board 100% Retesting • No retesting. • If the performance hurdle is not met at the time of testing, the awards are forfeited. Distributions • Distributions are not paid, unless and until vesting conditions are met. The LTA vesting schedule has been shown as a percentage of Maximum LTA as we transition to communicating and granting LTA awards at maximum from FY22 in line with securityholder and proxy advisor feedback FY21 LTI / LTA outcomes LTI / LTA Award1 Performance Period Performance Hurdle Performance Outcome Vesting Outcome Overall Vesting Outcome (% Maximum LTI/LTA) % of Maximum LTI/LTA forfeited 2017 LTI (Tranche 2) 1 July 2016 to 30 June 2020 (4 years) 2018 LTI (Tranche 1) 1 July 2017 to 30 June 2020 (3 years) 2018 LTI (Tranche 2) 1 July 2017 to 30 June 2021 (4 years) 2019 LTA2 2020 LTA 1 July 2018 to 30 June 2021 (3 years) 1 July 2019 to 30 June 2022 (3 years) 2021 LTA 1 July 2020 to 30 June 2023 (3 years) RTSR Ranked at the 46th percentile of the comparator group ROE 7.1% average ROE performance RTSR Ranked at the 29th percentile of the comparator group 0% 0% 0% ROE 5.1% average ROE performance 0% RTSR Ranked at the 16th percentile of the comparator group 0% ROE 4.7% average ROE performance 0% RTSR Ranked at the 12th percentile of the comparator group 0% ROE 2.0% average ROE performance 0% 0% 100% 0% 100% 0% 100% 0% 100% RTSR ROE RTSR ROE FUM Performance period on going The 2017 and 2018 LTI awards (tested to 30 June 2020) are shown for transition purposes, in line with previous disclosures that focused on awards that vested during the financial year. In future Remuneration Reports, we plan to focus discussion of performance on plans that include performance up to and including the current financial year. 1. The vesting schedule (as a per cent of Maximum LTA) for the former Group CEO (disclosed in the 2020 Notice of Meeting) varies as follows: RTSR - 27 per cent of Maximum LTA vests at the 50th percentile with straight line vesting to the 75th percentile; Operating ROE and CAGR per cent in FUM - 13 per cent of Maximum LTA vests at threshold with straight line vesting to 63 per cent vesting at target and straight line vesting from target to maximum. 1. Refer Note 35 of the Notes to Consolidated Financial Statements for details of LTI / LTA Awards granted in prior financial years. 2. 2019 LTA excludes the RSA previously referred to as the LTA Minimum. The vesting outcome for the 2019 RSA is included in the Total Realised Remuneration table on page 96. 108 Lendlease Annual Report 2021 Governance 109 Former Group CEO As announced to the market on 10 February 2021, Stephen McCann retired from the Board on 31 May 2021, following a 16 year career with the Group, including more than 12 years as Group Chief Executive Officer and Managing Director. Contractual payment in lieu of notice was provided in line with his employment agreement. Stephen was entitled to receive a payment in lieu of the balance of his notice period ($1,900,385). After careful deliberation the Board assessed Stephen McCann’s performance for FY21 and determined that he would not receive an STA payment. In line with the relevant Plan rules, all unvested equity awards were left on foot (including FY20 Deferred Equity Award, 2018 LTI, 2019/2020/2021 LTAs, 2021 RSA1). Each of these awards remains subject to the original terms and performance conditions, and will be tested at the relevant testing date. Former Executives Tarun Gupta Tarun Gupta resigned effective from 29 November 2020. All unvested equity awards were forfeited upon resignation. Additionally, Tarun was not entitled to an STA award in FY21. In light of Tarun’s move to Stockland Group, he was placed on gardening leave until 31 May 2021. David Andrew Wilson David Andrew Wilson announced his retirement during FY21, effective 2 July 2021. David Andrew remained a KMP for the full financial year. In line with the relevant Plan rules, all unvested equity awards will remain on foot, subject to the original performance conditions, and will be tested at the relevant testing date. With regard to the final tranche of the Distinguished Equity Award, the Board elected to exercise its discretion to retain the full award on foot (not pro rata). Executive Service Agreements An overview of key terms of employment for current Executives is provided below: Contract Term Contract type Notice period by Lendlease Notice period by executive Global CEO Group Head of Construction Other Executives Permanent 12 months 12 months Permanent 12 months1 6 months Permanent 6 months 6 months All Executives have termination benefits that are within the limit allowed by the Corporations Act 2001 without securityholder approval. Specifically, in the case where the Executive is not employed for the full period of notice, a payment in lieu of notice may be made. Termination payment Treatment of unvested awards depends on the reason for termination: – Terminated for cause: Awards lapse – Terminated for poor performance: Board discretion – Resignation (engaged in activities that are competitive with the Group): Awards lapse – ‘Good leavers’: Awards remain on foot subject to the original vesting conditions. New Executive Appointments in FY21 Frank Krile Frank Krile was appointed as the Acting Chief Financial Officer from 30 November 2020. While acting in the Chief Financial Officer role, Frank received an additional cash allowance. Frank was also awarded a 2021 LTI³ award that vests after three years subject to performance hurdles. No changes were made to Frank’s STA opportunity for the period that he was acting in the Chief Financial Officer role. Justin Gabbani Justin Gabbani was appointed as the Chief Executive Officer, Asia from 1 June 2021. Justin’s Maximum Total Remuneration was set in line with the FY22 Executive Remuneration Strategy approach and is as follows: A$’0004 A Fixed Remuneration Maximum STA5 Maximum LTA Maximum Total Remuneration 800 1,120 1,440 3,360 The Maximum STA and Maximum LTA do not apply until FY22. For FY21, no changes were made to Justin's STA opportunity to reflect his appointment to the Chief Executive Officer, Asia role. 1. Johannes Dekker’s contract allows for 12 months’ notice by Lendlease for the first four years of employment and reverts to 6 months’ notice by Lendlease thereafter. 2. Denis Hickey’s notice payment is based on base salary and other minimum benefits as required by applicable United States legislation. Neil Martin’s notice payment is based on base salary in line with UK practice. 3. The 2021 LTI is a non KMP award and has the same performance hurdles and performance period as the 2021 LTA however 100 per cent of the award vests and is released after the three year performance period. Refer to Note 35 of the Notes to Consolidated Financial Statements for further details. 4. Remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY21 (SGD 1.00). 5. 50 per cent of STA is deferred. 1. Following Stephen McCann's retirement, the 2021 RSA award was prorated for time served with 40,229 securities remaining on foot and 3,603 securities forfeited. 110 Lendlease Annual Report 2021 Governance 111 Non Executive Director Fee Policy Non Executive Directors’ fees The maximum aggregate remuneration payable to Non Executive Directors is $3.5 million per year, as approved at the 2015 Annual General Meeting. Board and committee fees Non Executive Directors receive a Board fee and fees for chairing or participating on Board committees: A$’000 Chair Fee Member Fee Board 6401 160 Nominations Committee People & Culture Committee Risk Committee Audit Committee Sustainability Committee 36 Nil 48 36 48 Nil 48 36 48 36 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. Non Executive Directors are not entitled to retirement benefits other than superannuation. There were no increases to Non Executive Director fees during FY21. Recognising the recent performance of the Group, in particular the further provisions relating to the legacy engineering business and the potential business review outcomes relating to the development portfolio, on behalf of the Board, the Chairman volunteered to take a 20 per cent reduction in base fees for FY22 to reflect the accountability in his position as Board Chair. Travel Fees Board meetings are scheduled in Australia and in each of the regions where Lendlease operates. As an international company, the Board program is formulated to reflect the geographic spread of the Lendlease businesses. Generally, the program runs over three to five days and includes a number of activities outside 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 across the Group. 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: A$ Travel less than 4 hours Travel between 4 and 10 hours Travel over 10 hours Fee (Each Way) Nil 2,800 6,0 6,000 Although the number of hours worked has increased, Non Executive Director fees are lower in 2021 compared to 2020 predominantly as a result of Non Executive Directors electing to take a temporary base fee reduction of 20 per cent from 1 June 2021 to 31 August 20212 and no travel fees being paid due to the global travel restrictions in place as a result of COVID. 1. The Chairman does not receive extra fees for participating on committees. 2. Refer to page 107 of the Lendlease Annual Report 2020 for information about temporary Non Executive Director fee reductions. Remuneration Governance and Risk Management Robust governance is a critical part of Lendlease’s approach to executive remuneration. The diagram below illustrates the roles various stakeholders play in making remuneration decisions at Lendlease: Board The Board has overall responsibility for Executive and Non Executive Director remuneration at Lendlease The Board assesses the performance of and determines the remuneration outcomes for the Global CEO Audit Committee Assists in setting and assessing financial targets for remuneration purposes Assesses and advises of any audit matters which may impact remuneration outcomes The Chair of the Audit Committee is a member of the People & Culture Committee Risk Committee Advises of risk issues and/or conduct matters to assist in determining an appropriate Risk adjustment for STA outcomes The Chair of the Risk Committee is a member of the People & Culture Committee Sustainability Committee Assists in setting and assessing Safety/Sustainability related Key Performance Indicators People & Culture Committee Assists in establishing appropriate policies for people management and remuneration across the Group Reviews and recommends the goals, performance and remuneration of other Executives Undertakes a holistic assessment of annual performance when determining STA outcomes, including input from other Committees and Management Regularly considers matters outside of remuneration – including organisational culture, talent development and succession, and feedback from employees through Our People Survey Independent Remuneration Advisor The Board and People & Culture Committee engage external consultants to provide advice or information. Their input is used to guide Board and Committee decisions In July 2020, the Board engaged EY as the Board appointed independent remuneration advisor During the year, advisors did not provide a remuneration recommendation as defined in Section 9B of the Corporations Act 2001 The Board is satisfied that any advice provided by EY was made free from undue influence from any of the KMP given the structure of the engagement Management The Global CEO recommends Fixed Remuneration and STA outcomes for his direct reports (for approval by the People & Culture Committee) The Group Chief Financial Officer and Group Chief Risk Officer present on the ‘Health of the Business’ when the Committee is considering STA outcomes Recommends potential approaches for developing and implementing the Executive Reward Strategy and structure Provides information relevant to remuneration decisions and, if appropriate liaises with advisors to provide factual information relating to company processes, practices and other business issues; and provide management’s perspectives 112 Lendlease Annual Report 2021 Governance 113 Risk management and governance processes apply across remuneration timelines, aligned with our business cycle. We have short term, long term and ongoing mechanisms: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Short term • Significant portion of annual opportunity at risk and subject to performance • Holistic assessment of annual performance • Input from Risk committee Long term • Long dated performance periods (up to 3 years) • Significant portion of remuneration delivered in equity • Remuneration deferral (up to 6 years) • Board discretion • Malus • Guiding principles Ongoing (remuneration adjustments arising from safety incidents) • Change of control • Mandatory securityholding • Securities trading policy • Hedging • Independent advisor governance protocols See below for details of ongoing Risk Management and Governance Mechanisms Ongoing Risk Management and Governance Mechanisms Overall 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. Malus Guiding principles for determining remuneration adjustments arising from safety incidents • 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. • To inform robust decision making in relation to remuneration adjustments arising from safety incidents, the Board formalised a set of guiding principles and relevant factors during the year. The key guiding principles are as follows: – Our objective is to learn from incidents and to reinforce an open dialogue and safety culture. Our people must have confidence that sharing safety related information supports this objective and helps to identify how we will adapt in the future. – As the facts and circumstances surrounding each incident are unique, decision making is not prescriptive or formulaic and requires the application of judgement. – To facilitate a consistent approach to decision making, rather than the application of a consistent outcome, the following set of relevant factors are used by the Board to evaluate the application of any remuneration adjustments to be made arising from safety incidents: Safety Leadership Safety Performance Findings How is safety leadership demonstrated in the relevant business / project? How has the relevant business / project performed against safety performance indicators? In the event of a fatality, what was Lendlease's role based on internal investigations? Availability of new information As events unfold over time, has new and pertinent information emerged from external investigations? Change of Control • The early vesting of any unvested awards may be permitted by the Board in other limited circumstances such as a change in control of Lendlease. In these circumstances the Board will determine the timing and proportion of any unvested awards that vest. Mandatory Securityholding • The Global CEO and Executives are required to accumulate and maintain a significant personal investment in Lendlease securities. This policy encourages Executives to consider long term securityholder value when making decisions. What is the Mandatory Securityholding requirement? Mandatory Securityholding Requirementn Global CEO Executives (Australia) 150% of TPV 100% of TPV Executives (International) 100% of Base Salary What is counted towards the Mandatory Securityholding requirement? Included n Excludedn Personally held securities Unvested Deferred STI On foot RSA Unvested LTI / LTA • Until the Mandatory Securityholding requirement is reached, 50 per cent of any vested equity awards (Deferred STI, RSA, LTI or LTA) will be subject to a disposal restriction (for Executives based in Australia). • Executives based outside of Australia are required to achieve the Mandatory Securityholding requirement within six years of their appointment to a KMP role. • Progress toward the minimum requirement is outlined in the Executive Equity Holdings table on page 117. Securities Trading Policy • The Lendlease Securities Trading Policy applies to all employees of the Lendlease Group. In accordance with the policy, Directors and Executives may only deal in Lendlease securities during designated periods. Hedging • Directors and Executives must not enter into transactions or arrangements that operate to limit the economic risk of unvested entitlements to Lendlease securities. No Director or Executive may enter into a margin loan arrangement in respect of unvested Lendlease securities. • 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. Independent Advisor Governance Protocols • Strict governance protocols are observed to so that advisors’ advice to the Committee is made free from undue influence by KMP: – 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; and – 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. 114 Lendlease Annual Report 2021 Governance 115 Other Statutory Disclosures FY21 Executive Statutory Remuneration A$000s¹ Short Term Benefits Post Employment Benefits Security Based Payments7 Name Year Cash salary2 STA Cash3 Non Monetary Benefits4 Superannu- ation5 Other Long Term Benefits6 Sub- total LTI/ LTA Deferred STI Termination Benefits Total 244 - 150 - 10 Current Executives Anthony Lombardo8 2021 1,294 Johannes Dekker Justin Gabbani9 Denis Hickey 2020 2021 2020 2021 2021 1,129 1,170 1,180 67 1,434 368 2020 1,634 Frank Krile10 2021 542 Neil Martin11 2021 1,283 2020 2021 2020 2021 849 1,154 1,164 1,199 2020 1,209 Kylie Rampa David Andrew Wilson15 Former Executives Stephen McCann12,15 2021 1,941 2020 2,130 - 94 164 - 125 - 175 - 0 - Tarun Gupta13 2021 1,040 n/a Daniel Labbad14 2020 2020 1,164 454 - - Total 2021 11,124 1,330 2020 10,913 - 362 280 279 260 4 197 190 16 25 8 27 45 71 9 58 - 80 18 355 1,119 1,165 5 - 9 10 - - - 14 - - 22 21 22 21 25 26 20 21 - 117 99 29 1,934 - 1,409 334 692 20 38 - - - 7 - - 19 19 1,628 1,662 1,488 1,700 81 9 1,999 359 1,824 673 1,472 857 1,347 1,249 715 74 532 303 376 750 1,467 3,890 20 1,259 995 33 36 18 - - 2,057 5,733 2,192 1,815 1,158 (1,476) 1,203 809 735 865 116 114 101 74 23 190 104 223 317 438 94 159 175 76 420 219 - 157 121 - - - - - - - - - - - - - - 2,384 2,215 3,391 3,262 113 2,548 2,643 970 2,321 1,598 1,817 2,158 5,532 2,330 1,900 10,110 - - - - 4,226 (318) 2,095 1,795 126 13,816 11,493 1,659 1,900 28,868 113 12,290 8,570 1,462 - 22,322 Reconciliation of Realised and Statutory Remuneration for the Former Group CEO The following table shows the difference between the former Group CEO's Total Realised Remuneration and Total Statutory Remuneration. A$000s Common Elements Realised Remuneration Fixed Remuneration FY21 STA RSA distribution equivalent Termination payment Previous years RSA Security price growth / decline Annual leave and long service leave accruals Accounting Expense Other SBP - LTI / LTA SBP - Deferred STI The full accounting expense over the remaining life of retained unvested awards is required to be brought to account in the year of departure. Of the total accounting expense of $5.733m relating to unvested LTI/LTA awards retained by Stephen McCann, $1.226m is for awards that have no further performance hurdles, but are still subject to time based deferrals. $5.826m (2020 LTA + 2021 LTA) relates to unvested LTA awards that are currently forecast as unlikely to meet the required performance hurdles, and accordingly this amount is expected to be reversed to reserves in future periods. Plan 2017 LTI-4 year 2018 LTI-3 year 2018 LTI-4 year 2019 LTA 2019 RSA (LTA Minimum) 2020 LTA 2020 RSA (LTA Minimum) 2021 LTA 2021 RSA SBP - LTI/LTA Total Realised Remuneration (page 96) Total Statutory Remuneration (page 114) 4,137 1,943 0 17 1,900 500 (223) n/a n/a n/a n/a 10,110 1,943 0 17 1,900 n/a n/a 86 11 5,733 420 See breakdown in table below Accelerated Accounting Expense for FY21 Vesting Schedule FY21 FY22 FY23 FY24 FY25 FY26 n/a - 0% vesting n/a - 0% vesting n/a - 0% vesting n/a - 0% vesting (592) (583) (277) 133 140 1,837 627 3,989 459 5,733 End of deferral / performance period Unhurdled Hurdled 1. 2021 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY21 (rounded to two decimal places): SGD 1.00 (applied to Anthony Lombardo and Justin Gabbani), USD 0.75 (applied to Denis Hickey) and GBP 0.55 (applied to Neil Martin). 2020 remuneration is reported in AUD based on the 12 month average historic foreign exchange rates for FY20 (rounded to two decimal places): SGD 0.93 (applied to Anthony Lombardo and Justin Gabbani), USD 0.67 (applied to Denis Hickey) and GBP 0.53 (applied to Neil Martin and Daniel Labbad). All 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 Anthony Lombardo, this also includes tax equalisation payments. For Neil Martin and Daniel Labbad, this also includes cash allowances paid in lieu of pension contributions. Cash salary also reflects the 20 per cent Fixed Remuneration reduction that applied from 1 July 2020 to 31 August 2020 as part of the Group’s response to COVID. 3. STA Cash refers to the portion of the FY21 STA which is payable as cash in September 2021. For Justin Gabbani and Frank Krile, this reflects 50 per cent of the FY21 STA as 50 percent is deferred as Rights that will be released in two equal tranches after one and two years. For all other Executives, this reflects 100 per cent of the FY21 STA. 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. 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.8. Remuneration for Anthony Lombardo has been prorated to reflect time in the CEO, Asia role from 1 July 2020 to 31 May 2021 and time in the Global CEO role from 1 June 2021 to 30 June 2021. 9. Justin Gabbani was appointed to the CEO, Asia role on 1 June 2021 and remuneration reflects time as a KMP. 10. Frank Krile was appointed to the Acting Group Financial Officer role from 30November 2020 and remuneration reflects time as a KMP. 11. Neil Martin was appointed to the Chief Executive Officer, Europe role on 10 September 2019 and his 2020 comparative remuneration reflects time as a KMP. 12. Stephen McCann retired from the Group CEO role on 31 May 2021 and remuneration reflects time as a KMP. 13. Tarun Gupta resigned effective 29 November 2020 and remuneration reflects time as a KMP. All unvested equity awards were forfeited upon resignation. Additionally, Tarun was not eligible for an STA award in FY21. 14. Daniel Labbad ceased as a KMP on 9 September 2019 and remuneration reflects time as a KMP. 15. As a ‘Good Leaver’, unvested LTI, LTA and Deferred STI awards remain on foot and subject to the original vesting conditions. The security based payment accounting 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 FY21, including those amounts which would otherwise have been included in future year disclosures. The SBP accounting expense for Stephen McCann and David Andrew Wilson has been accelerated as a result of their retirement. This means that up to three years of the accounting expense for each unvested award, that would have ordinarily been included in future year disclosures, has been reflected in the FY21 SBP value. All unvested equity awards that remain on foot following retirement are still subject to the original performance conditions and will be tested at the relevant testing date. Depending on performance, these awards may have nil value. To the extent these awards do not vest when tested, the accounting expense that has been previously booked will be reversed. Refer to page 96 for the Total Remuneration Realised by Executives in FY21. 116 Lendlease Annual Report 2021 Governance 117 FY21 Non Executive Director Statutory Remuneration FY21 Executive Equity Holdings Name Year Base Fees¹ S Short Term Benefits Committee Chair Fees Committee Membership Fees Post Employment Benefits Travel Fees² Superannuation³ Total Non Executive Directors Michael Ullmer Philip Coffey David Craig Jane Hemstritch Elizabeth Proust⁴ 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Nicola Wakefield Evans 2021 Robert Welanetz⁵ 2020 2021 2020 Former Non Executive Directors Colin Carter⁶ Steve Dobbs⁷ Margaret Ford⁸ Total 2021 2020 2020 2021 2020 2021 2020 619 629 155 157 155 157 155 157 160 157 160 160 155 51 61 157 67 21 5 51 - - 48 48 48 48 21 20 48 28 48 48 - - 15 36 - - - - - 72 72 36 36 72 57 36 51 36 36 72 21 30 72 30 12 21 5515 1,6411 5515 1,7431 228 228 366 396 - 18 - 18 - 18 - 18 - 18 - 18 - 12 - 6 40 - 12 - 178 22 21 22 21 22 21 22 21 16 21 22 21 22 7 9 21 9 4 7 161 170 641 668 297 316 261 280 270 273 260 275 266 283 249 91 115 292 146 37 91 2,396 2,715 Number of securities required under the mandatory securityholding at period end¹ Securities held at beginning of financial year Securities received during the financial year Other net changes to securities Securities held at end of financial year Total securities/ performance rights that may count towards the mandatory securityholding requirement RSA Name Year Current Executives Anthony Lombardo 2021 84,000 60,654 12,263 (72,917) 00 102,608 897,44 102,608 Johannes Dekker Justin Gabbani Denis Hickey Frank Krile Neil Martin Kylie Rampa 2020 2021 2020 2021 2021 2020 2021 2021 2020 2021 2020 David Andrew Wilson 2021 Former Executives Stephen McCann4 Tarun Gupta5 Daniel Labbad6 Total 2020 2021 2020 2021 2020 2020 2021 2020 84,000 110,654 29,906 (79,906) 60,654 58,776 897,44 119,430 90,000 90,000 27,117 7,036 14,225 12,892 - - 34,153 102,608 897,44 136,761 27,117 58,776 897,44 85,893 n/a 436 13,926 (14,362) 0 n/a 28,635 6,155 (8,801) 25,989 102,608 897,44 0 128,597 61,443 24,192 (57,000) 28,635 58,776 897,44 87,411 60,000 60,000 n/a 400,859 19,993 - 420,852 n/a 897,44 420,852 102,000 75,000 90,000 90,000 94,000 94,000 0 0 47,061 12,514 18,391 17,078 (12,514) (18,391) (64,139) 61,925 35,216 (50,080) 72,710 88,801 49,364 23,346 - - 0 0 0 47,061 161,511 72,710 65,536 21,704 897 65,536 21,704 102,608 897,44 102,608 58,776 897,44 105,837 102,608 897,44 264,119 58,776 897,41131,4861 248,000 838,727 23,887 (440,740) 421,874 102,552 n/a 248,000 750,018 88,709 90,000 190,324 16,868 90,000 116,411 73,913 - 67,001 20,642 - - - - 838,727 58,720 897,44 897,447 207,192 (58,776) n/a 190,324 58,776 897,44 249,100 87,643 24,048 111,691 1,666,523 218,521 (613,473) 1,271,571 622,352 1,221,081 1,231,041 327,207 (205,377) 1,352,871 457,128 1,809,999 1. For the period from 1 July 2020 until 31 August 2020, Non Executive Directors were able to elect to temporarily reduce their base fees up to 20 per cent. 2. No travel fees were payable during the 2021 financial year as a result of the global travel restrictions in place in response to COVID. 3. Directors have superannuation contributions paid on their behalf in accordance with superannuation legislation. 4. Elizabeth Proust requested and was issued a Superannuation Guarantee shortfall exemption certificate for the last quarter of the 2021 financial year. This means that for the period from 1 April 2021 to 30 June 2021 that Lendlease was exempt from making superannuation contributions on behalf of Elizabeth Proust. A cash payment was made in lieu of the superannuation contributions that would have ordinarily been payable. 5. Robert Welanetz was appointed as a Non Executive Director on 1 March 2020. 6. Colin Carter ceased to be a Non Executive Director on 20 November 2020. 7. Steve Dobbs ceased to be a Non Executive Director on 20 November 2019. 8. Baroness Margaret Ford was appointed as a Non Executive Director on 1 March 2020 and ceased to be a Non Executive Director on 18 August 2020. 1. Mandatory securityholding requirements are reviewed in August each year. As part of the Group’s response to COVID, Denis Hickey requested a temporary release from the applicable mandatory securityholding requirement and the reduced mandatory securityholding requirement (50 per cent of the original mandatory securityholding requirement) has been reflected for 2020. 2. For Executives, securities received relate to security entitlements under employee benefit vehicles. 3. Under the RSA (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. Stephen McCann ceased as a KMP on 31 May 2021. The end balance of securities for 2021 represents the balance held at that date. 5. Tarun Gupta ceased as a KMP on 29 November 2020. The end balance of securities for 2021 represents the balance held at that date. 6. Daniel Labbad ceased as a KMP on 9 September 2019. The end balance of securities for 2020 represents the balance held at that date. 118 Lendlease Annual Report 2021 Governance 119 Executive Equity Based Remuneration - Deferred Securities Executive Equity Based Remuneration - Long Term Awards Name Plan Current Executives Performance Year Grant date Vesting date Number granted Anthony Lombardo Deferred STI 2018 Sept 2018 Sept 2020 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Johannes Dekker2 Deferred STI Sign-On Award 2018 2018 Sept 2018 Sept 2020 May 2018 Sept 2020 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Justin Gabbani3 Deferred STI 2018 Sept 2018 Sept 2020 EDA 2019 Sept 2019 Sept 2020, Sept 2022 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Deferred STI 2018 Sept 2018 Sept 2020 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Deferred STI 2018 Sept 2018 Sept 2020 EDA 2019 Sept 2019 Sept 2020, Sept 2022 Fair value per security1 Total fair value at grant date1 Expense for the year ended 30 June 2021 $ $ $ - 116,118 116,118 - 7,143 227,926 154,824 382,750 25,015 100,000 19.79 12.16 19.79 17.57 12.16 125,022 93,766 250,037 100,909 Plan Name (for the year ended) Grant date Vesting date Current Executives Anthony Lombardo 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 Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 LTA Prorata CEO Sept 2020 Sept 2023-2026 Number granted6 26,618 24,034 24,034 76,936 111,120 96,432 5,124 19.79 101,307 - June 2021 RSA Sept 2020 Sept 2023-2026 43,832 Fair value per security7 $ 11.44 13.07 13.23 11.49 17,614 16.86 296,972 11,187 T Total 12.16 196,060 594,339 208,868 19.79 12.16 12,086 23,273 - 252,720 189,540 461,588 189,540 Johannes Dekker8 June 2019 LTA Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 Retention Award Jan 2019 Jan 2022 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA Sept 2020 Sept 2023-2026 19.79 200,002 - Total 22.08 2,453,528 Total fair value at grant date7 $ Expense for the year ended 30 June 2021 $ 304,510 (128,688) 314,124 317,970 883,996 1,245,900 66,204 500,124 (139,558) (72,842) 17,516 298,985 246,584 13,102 98,960 6,086,356 334,059 883,996 17,516 2,453,528 298,985 3,000,000 1,000,000 1,245,900 500,124 246,584 98,960 8,083,548 1,662,045 12.92 12.92 11.41 11.49 22.08 11.94 12.92 11.41 12.16 144,728 144,728 258,841 286,285 289,790 883,996 11.44 13.07 13.23 11.49 22.08 2,453,528 12.92 11.41 1,245,900 500,124 5,918,464 10.15 266,955 22.08 12.92 11.41 266,955 1,533,412 1,245,900 500,124 3,279,436 8,922 8,922 (109,391) (127,190) (66,385) 17,516 298,985 246,584 98,960 359,079 74,154 74,154 186,859 246,584 98,960 532,403 408,130 76,936 111,120 251,168 96,432 43,832 579,488 11,902 11,902 22,626 21,904 21,904 76,936 111,120 96,432 43,832 394,754 26,301 26,301 69,448 96,432 43,832 209,712 Justin Gabbani3 Retention Award Sept 2020 Sept 2021-2022 Total June 2017 LTI (50%) Sept 2016 Sept 2020 June 2018 LTI (50%) Sept 2017 Sept 2020 June 2018 LTI (50%) Sept 2017 Sept 2021 Denis Hickey June 2019 LTA Nov 2018 Sept 2021-2024 June 2021 RSA Sept 2020 Sept 2023-2026 Total June 2021 LTI Sept 2020 Sept 2023 Frank Krile4 Total Neil Martin June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA Sept 2020 Sept 2023-2026 Total 1. The fair value at grant date is the value of the Deferred STI award (as advised to the executive). 2. 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. 3. Justin Gabbani was appointed to the CEO, Asia role on 1 June 2021 and the expense for the year ended 30 June 2021 reflects time in KMP role. 4. Frank Krile was appointed to the Acting Group Financial Officer role from 30 November 2020 and the expense for the year ended 30 June 2021 reflects time in KMP role. 5. The Deferred Equity Awards was forfeited upon resignation. 6. For LTA awards, the number granted reflects target opportunity. For LTI and other long term awards, the number granted reflects maximum opportunity (158 per cent of target for the former Group CEO and 245 per cent of target for other Executives). From FY22, LTA awards will be granted at maximum opportunity (rather than target) in line with stakeholder feedback. 7. The fair value at grant date represents an actuarial valuation of the award, including the RSA (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. 8. Johannes Dekker received a retention award relating to the strategic review of the Engineering and Services businesses. Denis Hickey Frank Krile4 Neil Martin Kylie Rampa David Andrew Wilson 19,774 16.86 333,390 89,170 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 25,074 12.16 305,000 133,490 Total Deferred STI 2018 Sept 2018 Sept 2020 EDA 2019 Sept 2019 Sept 2020, Sept 2022 54,954 11,605 838,392 222,660 19.79 229,668 - 22,658 16.86 382,014 175,090 Total Deferred STI Deferred Equity Award Total 2018 2020 Sept 2018 Sept 2020 Sept 2020 Sept 2021-2022 Deferred STI 2018 Sept 2018 Sept 2020 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Former Executives Stephen McCann Tarun Gupta Deferred STI 2018 Sept 2018 Sept 2020 Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 Total Deferred STI Deferred Equity Award5 Total 2018 2020 Sept 2018 Sept 2020 Sept 2020 Sept 2021-2022 19.79 12.16 19.79 12.16 19.50 12.16 19.79 12.16 317,418 125,022 442,440 152,762 175,016 - 93,766 93,766 - 175,016 327,778 175,016 437,510 - 420,022 420,022 857,532 313,520 175,016 488,536 420,022 - - - Deferred Equity Award 2020 Sept 2020 Sept 2021-2022 15,540 12.16 189,028 141,771 June 2020 LTA Sept 2019 Sept 2022-2025 800,710 316,861 June 2021 LTA Sept 2020 Sept 2023-2026 11,517 12,728 24,245 1,264 5,690 10,278 17,232 5,119 16,118 38,851 10,554 20,776 31,330 10,106 49,803 16,039 10,278 26,317 7,719 14,388 22,107 22,434 34,530 56,964 15,842 14,388 30,230 120 Lendlease Annual Report 2021 Governance 121 Executive Equity Based Remuneration - Long Term Awards cont. FY21 Non Executive Director Equity Holdings Plan Name (for the year ended) Grant date Vesting date Current Executives cont. Kylie Rampa June 2017 LTI (50%) Sept 2016 June 2018 LTI (50%) Sept 2017 June 2018 LTI (50%) Sept 2017 Sept 2020 Sept 2020 Sept 2021 June 2019 LTA Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA Sept 2020 Sept 2023-2026 Total David Andrew Wilson3 DE Award4 May 2016 May 2021, May 2023 June 2017 LTI (50%) Sept 2016 Sept 2020 June 2019 LTA Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA Sept 2020 Sept 2023-2026 Total Former Executives Stephen McCann5 June 2017 LTI (50%) Sept 2016 June 2018 LTI (50%) Sept 2017 June 2018 LTI (50%) Sept 2017 Sept 2020 Sept 2020 Sept 2021 June 2019 LTA Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA6 Sept 2020 Sept 2023-2026 Total June 2017 LTI (50%) Sept 2016 June 2018 LTI (50%) Sept 2017 June 2018 LTI (50%) Sept 2017 Sept 2020 Sept 2020 Sept 2021 Tarun Gupta7 June 2019 LTA Nov 2018 Sept 2021-2024 June 2020 LTA Sept 2019 Sept 2022-2025 June 2021 LTA Sept 2020 Sept 2023-2026 June 2021 RSA Sept 2020 Sept 2023-2026 Number granted1 Fair value per security2 $ Total fair value at grant date2 $ Expense for the year ended 30 June 2021 $ 19,165 21,904 21,904 76,936 111,120 96,432 43,832 391,293 160,000 15,971 76,936 111,120 96,432 43,832 504,291 122,440 100,388 100,388 177,904 256,960 280,524 43,832 1,082,436 33,272 31,638 31,638 76,936 111,120 96,432 43,832 11.44 13.07 13.23 11.49 22.08 12.92 11.41 13.42 11.44 11.49 22.08 12.92 11.41 11.44 13.07 13.23 9.94 22.55 14.22 11.41 11.44 13.07 13.23 11.49 22.08 12.92 11.41 219,248 286,285 289,790 883,996 2,453,528 1,245,900 500,124 5,878,871 2,147,200 182,708 883,996 2,453,528 (92,657) (127,190) (66,385) 17,516 298,985 246,584 98,960 375,813 675,026 (77,212) 230,238 1,316,311 1,245,900 1,245,900 500,124 500,012 7,413,456 3,890,275 1,400,714 1,312,071 (591,965) (582,918) 1,328,133 (276,590) 1,768,364 272,558 5,794,448 2,463,967 3,989,052 3,989,052 500,124 458,912 16,092,906 5,733,016 380,632 (160,868) 413,509 418,571 (183,712) (296,378) 883,996 (349,915) 2,453,528 (485,594) 1,245,900 500,124 - - Total 424,868 6,296,260 (1,476,467) 1. For LTA awards, the number granted reflects target opportunity. For LTI and other long term awards, the number granted reflects maximum opportunity. From FY22, LTA awards will be granted at maximum opportunity (rather than target) in line with stakeholder feedback. 2. The fair value at grant date represents an actuarial valuation of the award, including the RSA (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. 3. David Andrew Wilson ceased as a KMP on 30 June 2021. The expense for the year ended 30 June 2021 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. 4. 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 35 of the Notes to Consolidated Financial Statements. 5. Stephen McCann ceased as a KMP on 31 May 2021. The expense for the year ended 30 June 2021 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. 6. Following Stephen McCann's retirement, the 2021 RSA award was prorated for time served with 40,229 securities remaining on foot and 3,603 securities forfeited. 7. Tarun Gupta resigned effective from 29 November 2020. All unvested equity awards were forfeited upon resignation. Name Year Securities held at beginning of financial year Other net changes to securities Securities held at end of financial year Non Executive Directors Michael Ullmer Philip Coffey David Craig Jane Hemstritch Elizabeth Proust1 Nicola Wakefield Evans Robert Welanetz2 Former Non Executive Directors Colin Carter3 Steve Dobbs4 Margaret Ford5 Total 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2020 2021 2020 20216 2020 110,000 100,000 21,216 9,810 63,061 50,000 23,061 20,000 53,061 25,000 34,020 30,248 7,000 - 18,061 15,000 12,000 4,065 - 333,545 262,058 15,000 10,000 - 11,406 10,000 13,061 10,000 3,061 15,000 28,061 359 3,772 - 7,000 - 3,061 - - 4,065 50,359 83,487 125,000 110,000 21,216 21,216 73,061 63,061 33,061 23,061 68,061 53,061 34,379 34,020 7,000 7,000 18,061 18,061 12,000 4,065 4,065 383,904 345,545 Purchase of Lendlease securities by Non Executive Directors The current Non Executive Directors acquired Lendlease securities using their own funds. 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 that those entered into by unrelated customers. 1. Elizabeth Proust also acquired $500,000 of green bonds. 2. As Robert Welanetz was appointed as a Non Executive Director on 1 March 2020 a nil opening balance has been shown for the 2020 comparative. 3. Colin Carter ceased to be a Non Executive Director on 20 November 2020. The end balance of securities for 2021 represents the balance held at that date. 4. 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. 5. Baroness Margaret Ford was appointed as a Non Executive Director on 1 March 2020 and ceased to be a Non Executive Director on 18 August 2020. The end balance of securities for 2021 represents the balance held at that date. 6. The 2021 opening balance excludes the securities held by Steve Dobbs (12,000) given that he ceased to be a Non Executive Director in the 2020 financial year. 122 Lendlease Annual Report 2021 Governance 123 Directors’ Report The Directors’ Report for the financial year ended 30 June 2021 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 13 • Operating and Financial Review on pages 4 to 69 incorporating the Performance and Outlook on pages 56 to 69 • Biographical information for the Directors and Company Secretary on pages 72 to 76 • Officers who were previously partners of the audit firm on page 72 • Directors’ interests in capital on page 82 • Board and committee meetings and attendance on pages 82 to 83 • Remuneration Report on pages 84 to 121 • Lead Auditor’s Independence Declaration on page 124. a. Dividends/Distributions The 2020 final distribution of $22 million (3.3 cents per security, unfranked) referred to in the Directors’ Report dated 17 August 2020 was paid on 15 September 2020. Details of dividends/distributions in respect of the current year are as follows: Interim dividends/distributions of 15.0 cents per security paid on 17 March 20211 Final dividends/distributions of 12.0 cents per security (unfranked) declared by Directors to be payable on 15 September 20212 Total dividends/distributions $m 103 83 186 1. Comprised of a dividend component franked to 50 per cent of 11.2 cents per share paid by the Company and an unfranked trust distribution of 3.8 cents per unit paid by Lendlease Trust. 2. Comprised of an unfranked dividend of 7.9 cents per share to be paid by the Company and an unfranked trust distribution of 4.1 cents per unit to be paid by Lendlease Trust. 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 21 July 2021, the Group entered into an agreement with Service Stream for the sale of the Services business for a purchase price of $310 million. The transaction, which is expected to complete prior to the end of calendar year 2021, is subject to conditions including client and third party consents. Given the agreement was signed post balance date and at 30 June 2021 there was uncertainty as to whether a transaction would be completed, the Services business did not meet 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 2021. The sale, and any resulting gain/loss after transaction costs and completion adjustments, is expected to be recorded in the subsequent financial year. The sale price is above the net assets of the Services business at 30 June 2021. Any gain/loss will be subject to the completion accounts process, final transaction costs and any required provisions for indemnifications. On 16 August 2021, the Group announced the preliminary results of the business review undertaken following the appointment of the new Global CEO. While the review is still ongoing at the date of this report, the Group expects to record an estimated restructuring provision in FY22 of pre-tax $130 million to $170 million for the restructuring costs associated with the revised organisational structure and related matters. As part of this exercise, the Group has also identified a small number of projects where a material change in development strategy is under consideration. A range of alternative strategic options are being considered to reduce future capital outlay and/or expedite the release of existing capital on these projects to enable redeployment elsewhere. The expected change in forecast strategy for these projects is expected to result in an estimated development properties impairment of approximately pre-tax $230 million to $290 million in FY22. There were no other material events subsequent to the end of the financial reporting period. 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 72 to 76 of this report and 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 72 to 76 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, regardless of 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 reason: • 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 2021 $000s June 2020 $000s 7,019 822 7,841 438 8,279 7,233 524 7,757 557 8,314 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 Sydney, 16 August 2021 A P Lombardo Global Chief Executive Officer Sydney, 16 August 2021 124 Lendlease Annual Report 2021 Governance 125 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 2021 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 16 August 2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. This page is intentionally left blank. 126 Lendlease Annual Report 2021 Financial Statements 127 Financial Statements Our financial statements reflect the performance of the Group for the financial year ended 30 June 2021. The financial statements are presented in the following sections: Consolidated Financial Statements, Performance, Investments, Liquidity and Working Capital, Risk Management, Basis of Consolidation and Other Notes. Malaysia: Setia City Mall 128 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 Consolidated Financial Statements Notes Index Section A: Performance 1. Segment Reporting 2. Dividends/Distributions 3. Earnings Per Share/Stapled Security 4. Revenue from Contracts with Customers 5. Share of Profit of Equity Accounted Investments 6. Other Income 7. Other Expenses 8. Finance Revenue and Finance Costs 9. 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 129 130 131 132 134 135 136 140 140 141 143 143 144 146 147 150 151 152 157 158 159 159 161 162 162 163 21. Loans and Receivables 22. Trade and Other Payables 23. Provisions Section D: Risk Management 24. Financial Risk Management 25. Hedging 26. Fair Value Measurement 27. Contingent Liabilities Section E: Basis of Consolidation 28. Consolidated Entities 29. Employee Benefit Vehicles 30. Parent Entity Disclosures 31. Related Party Information Section F: Other Notes 32. Intangible Assets 33. Discontinued Operations 34. Defined Benefit Plans 35. Employee Benefits 36. Impact of New and Revised Accounting Standards 37. Other Significant Accounting Policies Directors’ Declaration 164 165 167 168 170 171 172 173 174 175 176 178 180 182 185 190 190 191 Lendlease Annual Report 2021 Financial Statements 129 Consolidated Financial Statements Income Statement Year Ended 30 June 2021 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 Profit/(Loss) before tax from continuing operations Income tax (expense)/benefit from continuing operations Profit/(Loss) after tax from continuing operations Profit after tax from discontinued operations Profit/(Loss) after tax Profit/(Loss) after tax attributable to: Members of Lendlease Corporation Limited Unitholders of Lendlease Trust Profit/(Loss) after tax attributable to securityholders External non controlling interests Profit/(Loss) 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 2021 $m June 2020 $m 4 5 6 8 8 9a 33 33 33 3 3 9,771 121 11,671 163 (9,132) (11,361) 760 100 488 (916) 432 9 (146) (137) 295 (75) 220 2 222 128 94 222 - 222 32.2 32.0 32.5 32.3 473 (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) 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 2021 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 16 August 2021. The accompanying notes form part of these consolidated financial statements. 130 Lendlease Annual Report 2021 Financial Statements 131 Consolidated Financial Statements continued Statement of Comprehensive Income Year Ended 30 June 2021 Statement of Financial Position As at 30 June 2021 Profit/(Loss) 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 Movements in defined benefit plans remeasurements Total items that will not be reclassified to profit or loss Total comprehensive income/(expense) after tax Total comprehensive income/(expense) after tax from continued operations attributable to: Members of Lendlease Corporation Limited Unitholders of Lendlease Trust Total comprehensive income after tax from discontinued operations attributable to: Members of Lendlease Corporation Limited Total comprehensive income/(expense) after tax attributable to securityholders External non controlling interests Total comprehensive income/(expense) after tax Note June 2021 $m June 2020 $m 222 (310) 9b 9b 9b 9b 15 (108) (93) 6 11 17 146 62 84 2 148 (2) 146 (19) (5) (24) (1) 13 12 (322) (381) 27 32 (322) - (322) 1. Includes Other comprehensive loss of $70 million (June 2020: $39 million) relating to share of other comprehensive income of equity accounted investments. 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 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 2021 $m June 2020 $m 14 21 11 13 33 21 11 12 13 9c 32 34 22 23 16a 33 22 23 16a 9c 17 1,662 1,741 1,469 7 9 62 - 1, 1 1 1 1,667 2,256 16 27 59 841 4,950 5,977 1,871 2,404 3,758 467 1,080 115 594 1,456 243 62 12,050 17,000 744 3,113 3,671 658 1,076 141 693 1,457 156 62 11,771 17,748 4,839 4,496 575 555 14 - 343 134 10 670 5,983 5,653 1,760 80 1,802 23 401 4,066 10,049 6,951 1,888 (79) 3 3,327 5,139 1,788 6,927 24 6,951 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 The accompanying notes form part of these consolidated financial statements. The accompanying notes form part of these consolidated financial statements. 132 Lendlease Annual Report 2021 Financial Statements 133 Consolidated Financial Statements continued Statement of Changes in Equity Year Ended 30 June 2021 Balance as at 30 June 2019 Impact of change in accounting policy1 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) 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 Balance as at 1 July 2020 Total Comprehensive Income Profit for the period Other comprehensive income (net of tax) Total comprehensive income Other Comprehensive Income (Net of Tax) Net investment hedge 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 2021 Issued Capital $m 1,300 - 1,300 Treasury Securities5 $m (68) - (68) - - - - - - - - 9 454 126 - - - - - - 589 1,889 1,889 - - - - - - - - - 3 (3) (1) - - - - - - (1) 1,888 - - - - - - - - - - - - (52) 52 - - - - (68) (68) - - - - - - - - - - - - - (50) 39 - - - (11) (79) RESERVES Hedging Reserve $m Foreign Currency Translation Reserve $m Non Controlling Interest Acquisition Reserve $m Other Reserve $m Equity Compensation Reserve $m Retained Earnings $m Members of Lendlease Corporation Limited $m Unitholders of Lendlease Trust $m External Non Controlling Interests $m (84) - (84) - (19) (19) - (19) - (19) - - - - - - - - 7 - 7 (96) (96) - 15 15 - - 15 - 15 - - - - - - - - 2 - 2 (79) 68 - 68 - - - - - - - - - - - - - - - (30) - (30) 38 38 - (96) (96) 12 (108) - - (96) - - - - - - - - (5) - (5) (63) (97) - (97) - (1) (1) (1) - - (1) - - - - - - - - - - - 106 - 106 - - - - - - - - - - - - - - - - - - (98) (98) 106 106 - 6 6 - 6 - - 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (92) 106 112 - 112 - - - - - - - - - - - - - - 3 - - 3 115 115 - - - - - - - - - - - - - - - 16 - - 16 131 3,815 (42) 3,773 (342) 13 (329) - - 13 13 - - - - (178) - - - - (1) (179) 3,265 3,265 128 11 139 - - - 11 11 - - - - (77) - - - - - (77) 3,327 5,152 (42) 5,110 (342) (7) (349) (1) (19) 13 (7) - 9 454 126 (178) (52) 52 3 (23) (1) 390 5,151 5,151 128 (64) 64 12 (102) 15 11 (64) - 3 (3) (1) (77) (50) 39 16 (3) - (76) 5,139 1,182 - 1,182 32 (5) 27 (5) - - (5) - 2 479 134 (67) - - - - (1) 547 1,756 1,756 94 (10) 84 - (10) - - (10) - 1 - - (54) - - - - 1 (52) 1,788 23 - 23 - - - - - - - 2 - - - - - - - - - 2 25 25 - (2) (2) - (2) - - (2) 1 - - - - - - - - - 1 24 Total Equity $m 6,357 (42) 6,315 (310) (12) (322) (6) (19) 13 (12) 2 11 933 260 (245) (52) 52 3 (23) (2) 939 6,932 6,932 222 (76) 146 12 (114) 15 11 (76) 1 4 (3) (1) (131) (50) 39 16 (3) 1 (127) 6,951 1. June 2020 Statement of Changes in Equity has been adjusted to reflect the impact of the first time adoption of AASB 16 Leases 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 2020 was 4 million (1 July 2019: 4 million) and closing balance at 30 June 2021 was 6 million. The accompanying notes form part of these consolidated financial statements. 134 Lendlease Annual Report 2021 Financial Statements 135 Consolidated Financial Statements continued Notes to Consolidated Financial Statements Statement of Cash Flows Year Ended 30 June 2021 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 liabilities 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/acquisition of consolidated entities (net of cash disposed/acquired and transaction costs) Disposal of property, plant and equipment Acquisition of property, plant and equipment Acquisition of intangible assets Net cash used in investing activities Cash Flows from Financing Activities Net proceeds from share issue Proceeds from borrowings Repayment of borrowings Dividends/distributions paid Increase in capital of non controlling interests Repayment of lease liabilities Net cash (used in)/provided by 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 year Note June 20211 $m June 20201 $m 9,531 (8,916) 13,488 (13,313) 6 (128) (20) 80 (85) 468 573 (301) (110) (13) (266) 22 (53) (68) (216) - 3,503 (3,470) (121) 2 (60) (146) (6) 100 1,562 1,662 15 17 14 16 (164) (25) 146 (11) 137 448 (709) (57) (9) 136 11 (112) (77) (369) 1,193 4,658 (4,970) (327) 2 (61) 495 9 272 1,290 1,562 1. Balances include cash flows relating to both continuing and discontinued operations. Net cash flows relating to discontinued operations have been disclosed in Note 33 ‘Discontinued Operations’. The accompanying notes form part of these consolidated financial statements. Basis of Preparation The consolidated financial report is a general purpose financial report which: • Has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board, and the Corporations Act 2001 • Complies with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board • Is presented in Australian dollars ($). At June 2021, 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 • 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 37 ‘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 36 ‘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 ongoing COVID 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. At 30 June 2021, the Group is in a net current deficit (current liabilities exceeds current assets) but does not anticipate a significant liquidity risk in the next 12 months. This is due to the Group’s strong financial profile, which includes significant committed undrawn facilities and low gearing ratios. 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 ongoing COVID pandemic. The Group has: • $3,268 million in undrawn facilities. See Note 16 ‘Borrowings and Financing Arrangements’ • $1,662 million in cash and cash equivalents. See Note 14 ‘Cash and Cash Equivalents’ • Net positive cash inflow from operating activities in FY21. 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. 136 Lendlease Annual Report 2021 Financial Statements 137 Notes to Consolidated Financial Statements continued Section A: Performance In addition to the statutory result, Operating Earnings before Interest, Tax, Depreciation and Amortisation (Operating EBITDA) and Operating Profit after Tax (Operating PAT) are the key measures used to assess the Group’s performance. This section of the Financial Report focuses on disclosure that enhances a user’s understanding of Operating EBITDA and Operating 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 return profile and allocation of resources for each segment, and internal reports that are reviewed and used by the Global Chief Executive Officer (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. On 31 August 2020, the Group announced a strategy update and that Management would report Operating EBITDA and Operating PAT as its primary earnings metrics going forward, in addition to the statutory result. Operating PAT is defined as Statutory profit adjusted for non-cash backed property related revaluation increases or decreases of Investment property, Other financial assets and Equity accounted investments that are classified in the Investments segment, and other non-cash adjustments or non-recurring items such as impairment losses relating to goodwill and other intangibles. Operating EBITDA is before Interest, Tax, Depreciation and Amortisation. The Chief Operating Decision Maker receives information and assesses segment performance under these metrics. Operating EBITDA and Operating 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 development 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 commercial, residential, mixed use, defence and social infrastructure sectors. Investments Operates across all four geographic regions. Services include owning and/or managing investments across all four geographic regions. The segment includes an investment management platform and the Group’s ownership interests in residential, office, retail, industrial, retirement and infrastructure investment assets. 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 retained Engineering projects and Services business. The discontinued operations referenced throughout the financial statements are included in this segment. Discontinued operations represent the Engineering business sold, excluding the projects retained by the Group. Refer to Note 33 ‘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 are included below: Year Ended June 2021 Note Development Construction Investments Total Core Segments Non Core3 Total Segments Corporate Activities Total Group SEGMENTS Operating EBITDA Reconciling Items Net interest revenue/(expense) Depreciation and amortisation Operating profit/(loss) before tax1 Operating income tax (expense)/benefit Operating profit/(loss) after tax Investments segment revaluations (pre-tax): Investment properties revaluations Financial assets revaluations Equity accounted investments revaluations Total adjustments1 Income tax expense on adjustments 6 6 5 469 2 (14) 457 (115) 342 173 (4) (35) 134 (34) 100 - - Statutory profit/(loss) after tax 342 100 276 918 (139) 779 (161) 618 (1) (9) 266 (53) 213 (1) 45 (25) 19 7 239 (3) 1 (58) (59) 857 (197) (202) 16 655 (181) (1) 45 (25) 19 7 - (2) (117) 660 (186) 474 (1) 45 (25) 19 7 (134) (90) (385) 107 (278) - (136) (207) 275 (79) 196 (1) 45 (25) 19 7 681 (181) 500 (278) 222 Note Development Construction Investments Total Core Segments Non Core Total Segments Corporate Activities Total Group SEGMENTS Year Ended June 20202 Operating EBITDA Reconciling Items Net interest revenue/(expense) Depreciation and amortisation Operating profit/(loss) before tax1 Operating income tax (expense)/benefit Operating profit/(loss) after tax Investments segment revaluations (pre-tax): Investment properties revaluations Financial assets revaluations Equity accounted investments revaluations Impairment losses relating to intangibles Total adjustments1 Income tax expense on adjustments Statutory profit/(loss) after tax 6 7 5 12c 322 1 (23) 300 (67) 233 - 233 101 (6) (28) 67 (25) 42 - 42 300 723 (495) 228 (158) 70 (6) (17) 277 (63) 214 (26) (16) (11) (68) 5 (84) 644 (574) (155) 168 489 (406) (26) (16) (105) (105) (13) (160) 50 104 (13) (160) 50 - 379 (406) (6) (152) 70 13 83 (26) (16) (105) (13) (160) 50 (27) (142) (148) (92) (244) (392) (322) 109 122 (283) (200) (26) (16) (105) (13) - (160) 50 (283) (310) 1. Operating profit before tax of $275 million (June 2020: $(322) million) plus Investments segment revaluations (pre-tax) of $19 million (June 2020: $(160) million) reconciles to Profit before tax from continuing operations of $295 million (June 2020: $(536) million) as disclosed in the Income Statement and Profit before tax for discontinued operations of $(1) million (June 2020: $54 million) as disclosed in Note 33 ‘Discontinued Operations’. 2. June 2020 Balances have been re-presented to align the presentation to Operating EBITDA and Operating PAT as primary earnings metrics. 3. Includes provisions related to claims on historical Non core segment projects completed prior to the sale of the Engineering business. The following table provides a reconciliation of Core operating profit after tax to Statutory profit after tax: Core operating profit after tax Non core operating profit after tax Total adjustments (pre-tax) Income tax expense on adjustments Statutory profit/(loss) after tax June 2021 Corporate Activities $m (278) - - - (278) Segments $m 655 (181) 19 7 500 Total Group $m Segments $m 377 (181) 19 7 222 489 (406) (160) 50 (27) June 2020 Corporate Activities $m (283) - - - (283) Total Group $m 206 (406) (160) 50 (310) 138 Lendlease Annual Report 2021 Financial Statements 139 Notes to Consolidated Financial Statements continued Section A: Performance continued 1. Segment Reporting continued 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 Income Tax $m Material Non Cash Items3 $m Non Current Segment Assets4 $m Group Total Assets $m June 2021 Core Development Construction Investments Total core segments Non core Total segments Corporate activities Total 1,965 6,398 348 8,711 1,444 10,155 30 10,185 4 - 1 5 1 6 4 10 (2) (4) (2) (8) - (8) (138) (146) (115) (34) (46) (195) 16 (179) 107 (72) 56 14 28 98 2 100 - 100 June 2020 (12) (6) 52 34 (23) 11 46 57 5,416 1,509 2,737 6,975 3,627 3,954 9,662 14,556 273 948 9,935 15,504 677 1,496 10,612 17,000 Segment Revenue1 $m Finance Revenue $m Finance Expense $m Share of Results EAI2 $m Income Tax $m Material Non Cash Items3 $m Non Current Segment Assets4 $m Group Total Assets $m Core Development Construction Investments Total core segments Non core Total segments Corporate activities Total 2,344 7,627 390 10,361 2,884 13,245 44 13,289 6 - 1 7 6 13 5 18 (5) (6) (7) (18) (1) (19) (147) (166) 67 17 (100) (16) 3 (13) - (13) (67) (25) (13) (105) 168 63 109 172 (36) (17) (63) (116) 9 (107) (37) (144) 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 1. Comprised of Revenue from contracts with customers from continuing operations of $9,771 million (June 2020: $11,671 million), other revenue from continuing operations of $121 million (June 2020: $163 million), finance revenue from continuing operations of $9 million (June 2020: $12 million), revenue from contracts with customers from discontinued operations of $283 million (June 2020: $1,437 million) and finance revenue from discontinued operations of $1 million (June 2020: $6 million). 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. Australia Asia Europe Americas Total segment Corporate activities Total NON CURRENT ASSETS1 June 2021 $m June 2020 $m 5,007 1,388 1,471 2,069 9,935 677 10,612 4,882 1,361 1,382 2,146 9,771 627 10,398 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 REVENUE1 Total Core Segments $m 1,239 2,868 11 511 204 1,965 262 861 2,407 6,398 164 77 14 93 348 4,271 350 1,386 2,704 8,711 Non Core $m 1,444 - - - Total Segments $m Corporate Activities $m Statutory Result $m 5,715 350 1,386 2,704 30 - - - 5,745 350 1,386 2,704 1,444 10,155 30 10,185 Development $m Construction $m Investments $m REVENUE1 Total Core Segments $m 1,198 13 969 164 2,344 3,217 255 782 3,373 7,627 172 134 16 68 390 4,587 402 1,767 3,605 10,361 Non Core $m 2,884 - - - 2,884 Total Segments $m Corporate Activities $m Statutory Result $m 7,471 402 1,767 3,605 13,245 44 - - - 7,515 402 1,767 3,605 44 13,289 June 2021 Australia Asia Europe Americas Total June 2020 Australia Asia Europe Americas Total 1. Comprised of Revenue from contracts with customers from continuing operations of $9,771 million (June 2020: $11,671 million), other revenue from continuing operations of $121 million (June 2020: $163 million), finance revenue from continuing operations of $9 million (June 2020: $12 million), revenue from contracts with customers from discontinued operations of $283 million (June 2020: $1,437 million) and finance revenue from discontinued operations of $1 million (June 2020: $6 million). No revenue from transactions with a single external customer amounts to 10 per cent or more of the Group’s revenue. 140 Lendlease Annual Report 2021 Financial Statements 141 Notes to Consolidated Financial Statements continued COMPANY/TRUST Cents Per Share/Unit June 2021 $m June 2020 $m Accounting Policies Provision of Construction and Development services 4. Revenue from Contracts with Customers Section A: Performance continued 2. Dividends/Distributions1 Parent Company Interim Dividend December 2020 – paid 17 March 2021 December 2019 – paid 17 March 2020 Lendlease Trust Interim Distribution December 2020 – paid 17 March 2021 December 2019 – paid 17 March 2020 Parent Company Final Dividend June 2021 – declared subsequent to reporting date2 June 20203 Lendlease Trust Final Distribution June 2021 – provided for and payable 15 September 2021 June 2020 – paid 15 September 2020 Total 11.2 22.1 3.8 7.9 7.9 - 4.1 3.3 77 - 26 - 55 - 28 - 186 - 124 - 45 - - - 22 191 1. The June 2021 final dividend/distribution was not franked. The December 2020 interim dividend was 50 per cent franked, with the balance sourced from the conduit foreign income account. The December 2020 interim distribution and the June 2020 interim/final dividends/distributions were not franked. 2. No provision for this dividend has been recognised in the Statement of Financial Position at 30 June 2021, as it was declared after the end of the reporting period. 3. No final dividend was declared for the Company for 30 June 2020. Dividend Franking The amount of franking credits available for use in subsequent reporting periods as at 30 June 2021 is $7 million, based on a 30 per cent tax rate (30 June 2020: $17 million). This is calculated after adjusting for franking credits which are expected to 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 2021 JUNE 2020 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 Profit/(loss) 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 $m m cents 128 683 18.7 128 688 18.6 (342) 599 (57.1) Profit/(loss) attributable to securityholders of Lendlease Group Weighted average number of stapled securities Basic/Diluted EPSS 1. Balances include both continuing and discontinued operations. Earnings per share/stapled security for continuing and discontinued operations have been separately (310) 599 (51.8) $m m cents 222 688 32.3 222 683 32.5 disclosed in Note 33 ‘Discontinued Operations’. (342) 603 (56.7) (310) 603 (51.4) 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 and 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. Status of negotiations with customers ii. 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 they are 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. Progress in satisfying the performance obligations within the contract, which includes estimating contract costs expected to be incurred to satisfy performance obligations ii. 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. 142 Lendlease Annual Report 2021 Financial Statements 143 Notes to Consolidated Financial Statements continued Section A: Performance continued 4. Revenue from Contracts with Customers continued 5. Share of Profit of Equity Accounted Investments 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 standalone 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 typically occurs 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 derecognised 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 1. Further information on revenue by geography and by segments is included in Note 1 ‘Segment Reporting’. June 2021 $m June 2020 $m 6,398 1,161 7,559 496 282 8,337 1,434 9,771 7,626 1,441 9,067 1,083 310 10,460 1,211 11,671 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. Associates1,2 Share of profit Joint Ventures1,2 Share of profit Total share of profit of equity accounted investments Note 12a 12b June 2021 $m June 2020 $m 8 92 100 (14) 1 (13) 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. 2. Share of profit from Associates and Joint Ventures includes $(2) million (June 2020: $(31) million) and $(23) million (June 2020: $(74) million), respectively, in revaluation gains and losses recognised in the Investments segment adjustment in Note 1 ‘Segment Reporting’. 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, 2 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 properties3 Fair value through profit or loss assets4 Total net gain on fair value measurement Other5 Total other income June 2021 $m June 2020 $m 375 1 4 8 388 3 61 64 36 488 183 5 35 - 223 24 - 24 105 352 1. 2. 3. 4. 5. During the period, the Group disposed of a 25 per cent interest in each of One Sydney Harbour R1 Trust and One Sydney Harbour R2 Trust, recording a net gain on sale of $19 million and $27 million, respectively. Refer to Note 28 ‘Consolidated Entities’ for further detail. The remaining 75 per cent interests retained by the Group provided revaluation gains of $128 million and $151 million, respectively, based on the transaction prices. The amounts have been recorded in the Development segment. During the period, the Group disposed of a 50 per cent interest in Lendlease Renaissance I Fund, recording a net gain on sale of $23 million. Refer to Note 28 ‘Consolidated Entities’ for further detail. The remaining 50 per cent interest retained by the Group provided a revaluation gain of $28 million based on the transaction price. The amounts have been recorded in the Development segment. Net gain on fair value measurements for Investment properties includes $1 million loss (June 2020: $26 million loss) recognised in the Investments segment adjustments in Note 1 ‘Segment Reporting’. Net gain on fair value measurements for Fair value through profit or loss assets includes $45 million gain (June 2020: $16 million loss disclosed in Other expenses) recognised in the Investments segment adjustments in Note 1 ‘Segment Reporting’. During the period, the Group disposed of its 50 per cent stake in International Quarter London - North and purchased the remaining 50 per cent stake in International Quarter London - South. The transaction resulted in a net gain of $31 million. The amounts have been recorded in the Development segment. 144 Lendlease Annual Report 2021 Financial Statements 145 Notes to Consolidated Financial Statements continued Section A: Performance continued 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 35a ‘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 35j ‘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 34 ‘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. 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. Profit before income tax includes the following other expense items: Employee benefit expenses1 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 remeasurement of fair value through profit or loss assets Lease expense (including outgoings) Depreciation on right-of-use assets Depreciation on owned assets Amortisation Net foreign exchange loss/(gain) 1. Total expense before recoveries through projects. Auditors’ Remuneration Amounts received or due and receivable by the auditors of Lendlease Group and its consolidated entities for: Audit services Other assurance services Total audit and other assurance services Non audit services1 Total audit, other assurance and non audit services June 2021 $m June 2020 $m 2,102 48 - - (13) 1 8 - 32 63 84 55 4 2,373 36 1 4 30 24 6 17 33 66 80 54 (2) June 2021 $000s June 2020 $000s 7,019 822 7,841 438 8,279 7,233 524 7,757 557 8,314 1. Non audit services include amounts charged for work relating to financial, regulatory and asset due diligence of the Group and its consolidated entities. 146 Lendlease Annual Report 2021 Financial Statements 147 Notes to Consolidated Financial Statements continued Section A: Performance continued 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 corporations Interest expense in relation to lease liabilities Less: Capitalised interest finance costs1 Total interest finance costs Non interest finance costs Total finance costs Net finance costs June 2021 $m June 2020 $m 4 4 8 1 9 127 20 (18) 129 17 146 (137) 6 4 10 2 12 159 25 (33) 151 14 165 (153) 1. The weighted average interest rate used to determine the amount of interest finance costs eligible for capitalisation was 3.6 per cent (30 June 2020: 3.5 per cent), which is the effective interest rate. 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. 148 Lendlease Annual Report 2021 Financial Statements 149 Notes to Consolidated Financial Statements continued June 2021 $m June 2020 $m Recognised Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are attributable to the following: c. Deferred Tax Assets and Liabilities June 2021 June 2020 Assets $m Liabilities $m Assets $m Liabilities $m Section A: Performance continued 9. Taxation continued a. Income Tax Expense Recognised in the Income Statement Current Tax Expense Current year Adjustments for prior years Current year tax losses derecognised/(recognised) Total current tax expense/(benefit) Deferred Tax Expense Origination and reversal of temporary differences Temporary differences recognised/recovered Recognition of prior year net tax losses Change in tax rate1 Total deferred tax (benefit) Income Tax Expense Total income tax expense/(benefit) from continuing operations Total income tax (benefit)/expense from discontinued operations2 Total income tax expense/(benefit)3 Reconciliation of Effective Tax Rate Profit/(loss) before tax Income tax using the domestic corporation tax rate 30% Adjustments for prior year Non assessable and exempt income4 Non allowable expenses5 Net write off tax losses through income tax expense Temporary differences recognised through income tax expense6 Utilisation of capital losses on disposal of assets Effect of tax rates in foreign jurisdictions7 Other Income tax expense/(benefit) Deferred Tax Recognised Directly in Equity Relating to: Hedging reserve 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 2021 Tax (Expense)/ Benefit $m (2) 6 - (41) (37) Before Tax $m 17 (114) 6 52 (39) June 2020 Tax (Expense)/ Benefit $m Before Tax $m (19) (15) (1) 14 (21) - 10 - (1) 9 Net of Tax $m (19) (5) (1) 13 (12) Net of Tax $m 15 (108) 6 11 (76) 1. Legislation was passed in the current period to increase the UK corporation tax rate rate from 19 per cent to 25 per cent. 2. Refer to Note 33 ‘Discontinued Operations’ for further detail. 3. Represents income tax expense from continuing operations of $75 million and income tax benefit from discontinued operations of $3 million. 4. 5. 6. Includes Lendlease Trust Group profit. Includes accounting expenses for which a tax deduction is not allowed permanently. Includes temporary differences not recognised in the current year that are written off to income tax expense in the current period and temporary differences that arose in a previous year but were not recognised until the current period. 7. 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. 132 (4) 40 168 (65) 7 (7) (31) (96) 75 (3) 72 294 88 (4) (40) 7 39 7 (13) (26) 14 72 2 4 41 (6) 3 44 (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) 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 Unused capital 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 2021 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 Unused capital tax losses recognised Items with a tax base but no carrying value Total net deferred tax assets/(liabilities) 1 89 9 112 12 - 40 1 16 180 117 62 20 99 9 38 805 (690) 115 (91) (371) (49) (4) (417) (17) (12) (19) (67) (10) - (8) - - - (26) (1,091) 690 (401) 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) 1 July 2020 $m Recognised in Income $m Recognised in Equity $m Other/ Foreign Exchange $m 30 June 2021 $m (51) (389) (49) 91 (399) (57) 14 (21) (13) 190 135 49 16 157 - 34 (293) (35) 98 - 24 (16) 36 14 2 1 (2) (33) 8 2 2 9 (14) 96 - - - - 10 - (4) - (41) - - (6) - - - (3) (44) (4) 9 9 (7) - 4 4 1 2 (18) 15 3 2 (60) - (5) (45) (90) (282) (40) 108 (405) (17) 28 (18) (51) 170 117 54 20 99 9 12 (286) 150 Lendlease Annual Report 2021 Financial Statements 151 Notes to Consolidated Financial Statements continued Section A: Performance continued 9. Taxation continued Section B: Investment 1 July 2019 $m Recognised in Income $m Recognised in Equity $m Other/Foreign Exchange $m 30 June 2020 $m Investment in the Development pipeline, joint ventures in property projects, the retirement sector, and more passive assets, such as property funds, drive 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. 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 liabilities Unused revenue tax losses recognised Items with a tax base but no carrying value Total net deferred tax assets/(liabilities) (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 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 - - - - 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) June 2021 $m June 2020 $m 54 132 72 258 51 24 78 153 Of the unrecognised deferred tax assets of $258 million, only $30 million expires by 2037. The remainder of the unrecognised deferred tax assets have no expiry date. 10. Events Subsequent to Balance Date On 21 July 2021, the Group entered into an agreement with Service Stream for the sale of the Services business for a purchase price of $310 million. The transaction, which is expected to complete prior to the end of calendar year 2021, is subject to conditions including client and third party consents. Given the agreement was signed post balance date and at 30 June 2021 there was uncertainty as to whether a transaction would be completed, the Services business did not meet 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 2021. The sale, and any resulting gain/loss after transaction costs and completion adjustments, is expected to be recorded in the subsequent financial year. The sale price is above the net assets of the Services business at 30 June 2021. Any gain/loss will be subject to the completion accounts process, final transaction costs and any required provisions for indemnifications. On 16 August 2021, the Group announced the preliminary results of the business review undertaken following the appointment of the new Global CEO. While the review is still ongoing at the date of this report, the Group expects to record an estimated restructuring provision in FY22 of pre-tax $130 million to $170 million for the restructuring costs associated with the revised organisational structure and related matters. As part of this exercise, the Group has also identified a small number of projects where a material change in development strategy is under consideration. A range of alternative strategic options are being considered to reduce future capital outlay and/or expedite the release of existing capital on these projects to enable redeployment elsewhere. The expected change in forecast strategy for these projects is expected to result in an estimated development properties impairment of approximately pre-tax $230 million to $290 million in FY22. There were no other material events subsequent to the end of the financial reporting period. 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 revenue recognised (costs incurred plus recognised profits) exceed progress billings. If progress billings and/or recognised contract losses exceed revenue recognised, then the difference is presented in Trade and other payables as a Construction contract liability. Current Development properties Construction contract assets Other Total current Non Current Development properties Total non current Total inventories Note 21a June 2021 $m June 2020 $m 894 565 10 1,469 2,404 2,404 3,873 1,337 912 7 2,256 3,113 3,113 5,369 152 Lendlease Annual Report 2021 Financial Statements 153 Notes to Consolidated Financial Statements continued Section B: Investment continued 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 June 2021 $m June 2020 $m 12a 12a 12b 12b 444 (3) 441 3,356 (39) 3,317 3,758 518 (5) 513 3,198 (40) 3,158 3,671 a. Associates Australia Investments INTEREST SHARE OF PROFIT NET BOOK VALUE June 2021 % June 2020 % June 2021 $m June 2020 $m June 2021 $m June 2020 $m Lendlease Communities Fund 1 Lendlease Sub Regional Retail Fund1 20.8 10.0 20.8 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 31 25.9 48.7 39.4 15.1 25.3 48.7 39.4 20.1 Total Asia Americas Investments Other Total Americas Total Group Less: Impairment Total associates - 1 - 1 4 - (1) 1 4 3 3 8 - 8 - (8) - (8) (10) 15 - (14) (9) 3 3 (14) - (14) 3 25 5 33 249 4 32 123 408 3 3 444 (3) 441 4 27 5 36 261 4 35 180 480 2 2 518 (5) 513 1. Although the Group has less than 20 per cent ownership interest in Lendlease Sub Regional Retail Fund and Lendlease Asian Retail Investment Fund 3, it holds at least 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. b. Joint Ventures Australia Development Circular Quay Tower Melbourne Quarter R1 One Sydney Harbour R1 Trust One Sydney Harbour R2 Trust Victoria Cross Other Investments INTEREST SHARE OF PROFIT NET BOOK VALUE June 2021 % June 2020 % June 2021 $m June 2020 $m June 2021 $m June 2020 $m 20.0 50.0 75.0 75.0 75.0 20.0 50.0 - - 75.0 15 5 - - 2 - 40 (1) 61 13 5 - - - 7 (29) (7) (11) 150 64 111 146 132 25 952 - 1,580 117 67 - - 123 23 1,367 - 1,697 Lendlease Retirement Living Trust1 50.0 75.0 Other Total Australia 1. During the period, the Group disposed of a further 25 per cent interest in Lendlease Retirement Living Trust. The Group sold the units at the 31 December 2020 book value of $458 million. 154 Lendlease Annual Report 2021 Financial Statements 155 Notes to Consolidated Financial Statements continued Section B: Investment continued 12. Equity Accounted Investments continued INTEREST SHARE OF PROFIT NET BOOK VALUE June 2021 % June 2020 % June 2021 $m June 2020 $m June 2021 $m June 2020 $m b. Joint Ventures continued Asia Development Certis and Lendlease Property Trust The Exchange TRX Investments CDR JV Ltd (313@somerset) Paya Lebar Quarter Total Asia Europe Development LRIP LP LRIP 2 LP MSG South Milano Innovation District Stratford City Business District Limited (International Quarter London)1 Victoria Drive Wandsworth Other Investments Other Total Europe Americas Development 277 Fifth Avenue Lendlease Towers LLC Americas Residential Partnership2 211 North Harbor Drive Venture 445 East Waterside SB Polk Street 1 Java Holdings La Cienega 60 Guest Street Other Construction 49.0 60.0 25.0 30.0 20.0 50.0 50.0 50.0 50.0 50.0 40.0 - 42.5 42.5 50.1 20.2 50.0 25.0 - 60.0 25.0 30.0 20.0 50.0 50.0 - 50.0 50.0 40.0 - 42.5 42.5 50.1 - - - Lendlease Turner Joint Venture 50.0 50.0 Investments 845 Madison3 Americas Residential Partnership2 Clippership Wharf Multifamily Holdings 720 S Wells Holdings Total Americas Total Group Less: Impairment Total joint ventures Total associates Total equity accounted investments 37.5 50.1 50.1 37.5 50.1 50.1 (1) - - (16) (17) 4 13 17 - (3) (4) (3) - 24 (11) - - 20 - - - - - 14 2 (1) - 24 92 - 92 - (5) 7 (10) (8) 1 7 2 - 1 (5) (3) - 3 (15) (26) - - - - - - 1 17 38 - 2 17 1 - 1 8 100 (14) (13) 24 388 3 358 773 177 52 67 31 21 39 7 15 409 41 - 99 82 18 31 23 23 32 1 83 79 82 - 354 3 379 736 77 10 25 - 125 38 10 15 300 54 - 83 40 3 - - - 21 - 88 86 90 594 3,356 (39) 3,317 441 3,758 465 3,198 (40) 3,158 513 3,671 1. At 30 June 2020, the Group had a 50 per cent stake in International Quarter London - North and International Quarter London - South. During the period, the Group disposed of its 50 per cent stake in International Quarter London - North and purchased the remaining 50 per cent stake in International Quarter London - South. The interest above relates to the current operating assets of the International Quarter London joint venture. Refer to Note 6 ‘Other Income’ for further detail. 2. June 2020 comparatives have been reclassified to separately present the individual joint ventures within Americas Residential Partnership. 3. During the period, 845 Madison was transferred from the Development segment to the Investments segment subsequent to project completion. 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 investment in property assets. Income Statement1 Revenue and other income Cost of sales Other expenses Unrealised fair value gains/(losses) Finance costs 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 LENDLEASE RETIREMENT LIVING TRUST3 PAYA LEBAR QUARTER June 2021 $m June 2020 $m June 2021 $m June 2020 $m June 2021 $m June 2020 $m 8181 (22) (20) (31) (10) - (2) 9 7 60 (16) (27) (22) (4) - (9) 17 8 188188 (24) (60) (13) (23) 1 69 8 77 126 (26) (60) (62) (18) 1 (39) (1) (40) 119 (44) 14 11 (52) (2) 46 - 46 25.9% 25.3% 50.0% 75.0% 30.0% (1) 5 4 (10) (6) (2) (8) (10) (5) (15) 40 - 40 5 45 (29) - (29) - (29) 14 (30) (16) (9) (25) 219 (168) (160) (190) (54) (1) (354) - (354) 30.0% (106) 96 (10) (19) (29) 1. The underlying investments in the material associate and joint ventures are office, retail and retirement living investment properties measured at fair value. At 30 June 2021, valuations were undertaken on the underlying assets. The carrying value of the investments are considered recoverable as it correlates with the net assets of the associate and joint ventures, which have been valued at 30 June 2021. 2. Prior period balances have been reclassified to reflect updated management information. 3. During the period, the Group disposed of a further 25 per cent interest in Lendlease Retirement Living Trust. The Group sold the units at the 31 December 2020 book value of $458 million. 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 2021 $m June 2020 $m June 2021 $m June 2020 $m 4 (10) (6) (4) (1) (5) 68 (46) 22 40 (14) 26 156 Lendlease Annual Report 2021 Financial Statements 157 Notes to Consolidated Financial Statements continued Section B: Investment continued 12. Equity Accounted Investments continued c. Material Associates and Joint Ventures Summarised Financial Information continued 13. Other Financial Assets Accounting Policies LENDLEASE GLOBAL COMMERCIAL REIT LENDLEASE RETIREMENT LIVING TRUST1,2 PAYA LEBAR QUARTER3 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 Note 21 ‘Loans and Receivables’. Statement of Financial Position June 2021 $m June 2020 $m June 2021 $m June 2020 $m June 2021 $m June 2020 $m 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/(loss) 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 245 9 254 1,409 52 1,461 - - 24 24 536 11 547 87 14 101 1,506 16 1,522 - - 21 21 552 13 565 44 28 72 7,441 2 7,443 40 80 120 107 95 202 7,232 2,960 1 4 7,233 2,964 4,835 4,700 - 56 - 67 4,891 4,767 742 - 742 781 - 781 1,144 1,037 1,882 1,805 1,037 7 197 (47) (50) 1,144 25.9% 296 (47) 249 - 8 1,077 (16) (32) 1,037 25.3% 262 (1) 261 1,805 77 1,845 (40) - - - 1,882 50.0% 941 (2) 939 - - - 1,805 75.0% 1,354 - 1,354 - - 55 55 1,733 86 1,819 1,292 1,297 46 14 - (65) 1,292 30.0% 388 (30) 358 149 100 249 3,128 - 3,128 - - 95 95 1,864 121 1,985 1,297 1,591 (354) 69 - (9) 1,297 30.0% 389 (10) 379 Current Measured at Fair Value Fair Value Through Profit or Loss – Designated at Initial Recognition 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 Parkway Parade Partnership Limited Other investments Derivatives Total non current Total other financial assets 1. Refer to Note 26 ‘Fair Value Measurement’ for details on basis of 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 gains/(losses) recognised in Income Statement Other movements Carrying amount at end of financial year Fair Value Level1 June 2021 $m June 2020 $m Level 2 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 2 7 7 165 57 120 386 56 - 201 65 20 10 16 16 153 53 101 372 57 40 211 72 9 8 1,080 1,087 1,076 1,092 June 2021 $m June 2020 $m 1,068 (39) 61 (20) 1,070 1,180 (51) (16) (45) 1,068 1. The carrying amount at the end of the period differs to Note 12b ‘Joint Ventures’ due to an impairment of $13 million. 2. During the period, the Group disposed of a further 25 per cent interest in Lendlease Retirement Living Trust. The Group sold the units at the 31 December 2020 book value of $458 million. 3. Prior period balances have been reclassified to reflect updated management information. Material joint ventures had $141 million (June 2020: $32 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: ASSOCIATES JOINT VENTURES Statement of Financial Position June 2021 $m June 2020 $m June 2021 $m June 2020 $m Aggregate carrying value of individually immaterial equity accounted investments 195 257 2,046 1,452 The potential effect of using reasonably possible alternative assumptions for valuation inputs would not have a material impact on the Group. 158 Lendlease Annual Report 2021 Financial Statements 159 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital 15. Notes to Statement of Cash Flows The ability of the Group to fund the continued investment in the development 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. Note June 2021 $m June 2020 $m Continuing Cash Short term investments1 Total cash and cash equivalents for continuing operations Disposal Group Assets Held for Sale Cash Short term investments Total cash and cash equivalents classified as Disposal Group assets held for sale 33 Total cash and cash equivalents 1,303 359 1,662 - - - 1,662 937 174 1,111 142 309 451 1,562 1. Short term investments earned variable rates of interest which averaged 0.5 per cent per annum during the year (30 June 2020: 1.5 per cent). Reconciliation of Profit after Tax to Net Cash Provided by Operating Activities Profit/(Loss) after tax (including external non controlling interests) Amortisation and depreciation Net gain on sale of investments, plant and equipment Impairment of equity accounted investments (Reversal)/impairment of inventories Impairment of loans and receivables Impairment of intangible assets Impairment of property, plant and equipment Net unrealised foreign exchange (gain)/loss and currency hedging costs Net fair value (gain)/loss on investments Share of (profit)/loss 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 (Increase)/decrease in receivables Decrease in inventories (Increase)/decrease in other assets Increase in net defined benefit plans (Decrease)/increase in payables Decrease/(increase) in operating derivatives assets/liabilities Increase in deferred tax items Decrease/(increase) in current tax Increase 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 2021 $m June 2020 $m 222 207 (388) 2 (13) - 2 7 (38) (61) (100) 155 (3) (41) (49) (1,021) 1,457 (26) (80) (119) 40 (5) 20 251 468 (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 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 2021 $m June 2020 $m 555 555 1,682 120 1,802 2,357 134 134 1,500 761 2,261 2,395 160 Lendlease Annual Report 2021 Financial Statements 161 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 16. Borrowings and Financing Arrangements continued 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 June 2021 $m June 2020 $m 2,237 (2,237) - 3,264 (120) 3,144 2,036 (1,634) 402 4,461 (761) 3,700 Facility available and amount unused 124 124 Commercial notes include: • £300 million COVID Corporate Financing Facility (CCFF) from the Bank of England was drawn to $134 million as at June 2020. The CCFF was closed for new issuance in March 2021 and was repaid in May 2021 • £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 and was classified as current for June 2021 • US$400 million of guaranteed unsecured senior notes issued in May 2016 in the US Reg. S market 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 with a 3.9 per cent coupon maturing in April 2027 • $500 million of guaranteed unsecured Green senior notes issued in October 2020 in the Australian bond market with a 3.4 per cent coupon maturing October 2027 • $80 million of unsecured senior medium term notes issued as an A$ private placement in December 2018 with a 5.4 per cent per annum coupon maturing in December 2028 • $300 million of guaranteed unsecured Green senior notes issued in March 2021 in the Australian bond market with a 3.7 per cent coupon maturing March 2031. Bank credit facilities include: • $1,800 million syndicated cash advance facility with Tranche A $900 million maturing December 2021 and Tranche B $900 million maturing September 2022. As at 30 June 2021, tranches A and B were undrawn • $800 million syndicated loan facility with Tranche A $400 million and Tranche B $400 million. Tranche A was repaid and cancelled during the period. $100 million of Tranche B was cancelled during the period with the remaining $300 million maturing in May 2022 and undrawn as at 30 June 2021 • £400 million club bank facility maturing in March 2023 undrawn as at 30 June 2021 • $960 million A$ syndicated loan facility, maturing in March 2024. During the period, the $725 million Tranche A was repaid and cancelled. As at 30 June 2021, the $235 million Tranche B was undrawn • CNY871 million bank facility maturing in January 2025 drawn to $113 million as at 30 June 2021. 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 2021 Within one year Between one and five years More than five years Total June 2020 Within one year Between one and five years More than five years Total INTEREST EXPOSURE Fixed $m Floating $m Total $m A$ $m US$ $m CURRENCY £ $m CNY $m S$ $m Total $m 555 644 1,151 2,350 134 564 965 1,663 - - 7 7 - 725 7 732 555 644 1,158 2,357 134 1,289 972 2,395 - - 855 855 - 725 79 804 - 531 - 531 - - 575 575 555 - 7 562 134 535 7 676 - 113 - 113 - 29 - 29 - - 296 296 - - 311 311 555 644 1,158 2,357 134 1,289 972 2,395 Note 16a 16a June 2021 June 2020 $m 2,395 33 (49) (22) 2,357 $m 2,715 (312) (8) - 2,395 c. Movement in Borrowings and Financing Arrangements Balance at beginning of financial year Net proceeds from/(repayments of) borrowings Effect of foreign exchange rate movements Other movements Balance at end of financial year 17. Issued Capital Accounting Policies Issued Capital 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, net of prior period share buyback Distribution reinvestment plan (DRP) Share issue via institutional placement (net of transaction costs)1,3 Share issue via Security Purchase Plan (net of transaction costs)2,3 LENDLEASE CORPORATION LIMITED LENDLEASE TRUST June 2021 No. of Shares (m) $m June 2020 No. of Shares (m) June 2021 June 2020 No. of Units (m) $m No. of Units (m) $m 688 1,889 564 1,300 688 1,536 564 1 - - 3 (3) (1) - 97 27 9 454 126 1 - - 1 - - - 97 27 $m 921 2 479 134 Issued capital at end of financial year 689 1,888 688 1,889 689 1,537 688 1,536 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. During the prior period the Group raised $1,193 million in equity after costs which was allocated 48.4 per cent to the Company and 51.6 per cent to Lendlease Trust. a. Issuance of Securities As at 30 June 2021, the Group had 689 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 24 August 2021. 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, commencing on 24 August 2021, 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. 162 Lendlease Annual Report 2021 Financial Statements 163 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 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 2021 are Baa3/BBB- respectively (June 2020: 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 24 ‘Financial Risk Management’. As disclosed in Note 27 ‘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 2021, the Group does not anticipate a significant liquidity risk in relation to the following financial liabilities. This is due to the Group’s strong financial profile, as supported by the significant committed undrawn facilities and low gearing ratio. Refer to Note 14 ‘Cash and Cash Equivalents’ and Note 16 ‘Borrowings and Financing Arrangements’. The Group has provided collateral of $nil (June 2020: $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 More Than Five Years $m Note June 2021 Non Derivative Financial Liabilities Trade and other payables1 Lease liabilities Borrowings and financing arrangements Total Derivative Financial Liabilities (Outflow) Inflow Total June 2020 Non Derivative Financial Liabilities Trade and other payables1,2 Lease liabilities Borrowings and financing arrangements Other financial liabilities Total Derivative Financial Liabilities (Outflow) Inflow Total 22 22 16a 22 22 16a 5,156 474 2,357 7,987 - 37 37 4,688 544 2,395 - 7,627 - 11 11 5,172 526 2,719 8,417 (1,127) 1,164 37 5,166 650 2,667 26 8,509 (399) 404 5 3,793 80 690 4,563 (990) 1,001 11 3,941 119 215 26 770 115 76 961 (23) 22 (1) 782 123 588 - 580 206 668 1,454 (61) 73 12 97 234 848 - 4,301 1,493 1,179 (397) 404 7 - - - (1) - (1) 29 125 1,285 1,439 (53) 68 15 346 174 1,016 - 1,536 (1) - (1) 1. Trade and other payables are presented excluding lease liabilities. The carrying amount of trade and other payables excludes $902 million of current and $67 million of non current amounts (June 2020: $884 million of current and $785 million of non current) in relation to items where there is no future cash outflow or liquidity risk. 2. Balance includes Disposal Group liabilities held for sale. Other contractually committed cash flows the Group is exposed to are detailed in Note 20 ‘Commitments’. 20. Commitments a. Capital Expenditure 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. Investment Properties At balance date, capital commitments existing in respect of the purchase, construction or development of investment properties, 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 June 2021 $m June 20201 $m 4 - - 4 16 - - 16 June 2021 $m June 2020 $m 794 2,027 72 2,893 386 1,234 15 1,635 June 2021 $m June 2020 $m 5 227 - 232 - - - - 164 Lendlease Annual Report 2021 Financial Statements 165 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 21. Loans and Receivables 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 a 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 met. Current Trade receivables Less: Impairment Related parties Retentions Contract debtors Accrued income Other receivables Total current Non Current Related parties Less: Impairment Retentions Other receivables Total non current Total loans and receivables Note June 2021 $m June 2020 $m 21a 21a 602 (12) 590 185 279 247 78 362 1,741 570 (4) 566 70 1,235 1,871 3,612 762 (16) 746 32 351 263 62 213 1,667 176 (2) 174 218 352 744 2,411 As at the reporting date, $478 million of the trade debtors were current (30 June 2020: $501 million) and $124 million were past due (30 June 2020: $261 million). Of the past due amount, $112 million was not impaired (30 June 2020: $245 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, 6.5 per cent (30 June 2020: 23.1 per cent) are aged greater than 90 days. Other than trade debtors, no other loans and receivables are considered past due at 30 June 2021 (30 June 2020: $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 2021 $m June 2020 $m 18 - (1) (1) 16 16 4 (2) - 18 Total impairment as a percentage of total loans and receivables 0.4% 0.7% Current Trade and accrued creditors Construction contract liabilities Related parties Retentions Deferred land payments Unearned income Lease liabilities Other Total current The credit quality of all loans and receivables, including those neither past due nor impaired, is assessed and monitored on an ongoing basis. 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 at 30 June 2021. 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 debtors1 Construction contract assets2 Accrued income Total contract assets1 Note June 2021 $m June 2020 $m 11 247 565 78 890 263 912 62 1,237 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. 2. Movements in contract assets during the period relate primarily to billings raised on construction contracts with customers in excess of revenue recognised. 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 revenue recognised (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. Note 22a 22a June 2021 $m June 2020 $m 2,243 1,379 263 386 278 27 67 196 2,281 1,460 17 476 19 40 71 132 4,839 4,496 166 Lendlease Annual Report 2021 Financial Statements 167 Notes to Consolidated Financial Statements continued Section C: Liquidity and Working Capital continued 22. Trade and Other Payables continued Non current Trade and accrued creditors Retentions Deferred land payments Unearned income Lease liabilities Other payables - PLLACes1 Other Total non current Total trade and other payables Note June 2021 $m June 2020 $m 22a 4 47 366 67 407 - 869 1,760 6,599 4 190 614 177 473 608 339 2,405 6,901 1. PLLACes transactions involve selling the presold apartment cash flows for a specific development project to a third party for cash consideration. Refer to Note 4 ‘Revenue from Contracts with Customers’ for further details. This amount was deconsolidated in FY21 as part of the sale of One Sydney Harbour R1 Trust. See Note 6 ‘Other Income’ for further detail. As at 30 June 2021, the Group recognised right-of-use assets of $325 million within Property, Plant and Equipment and $nil within Investment Properties. 23. Provisions Accounting Policies Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). Management considers this is an area of estimation uncertainty as these calculations involve a number of key assumptions including the expected future cash outflow and the timing of the outflow to determine the provision. Employee Benefits Includes amounts for employee annual leave and long service leave entitlements. Construction Projects Includes amounts for claims and litigation related to legacy construction projects. The timing of any expected outflows of economic benefits is dependent on the progression of negotiations and litigation with claimants, which are ongoing at period end. Development Projects Includes amounts for costs to close out development projects, including defects and residual guarantees. The timing of any expected outflows of economic benefits is dependent on market factors, such as lease up rates in specific markets, and negotiations with customers. June 2021 $m June 2020 $m Other Includes amounts related to various litigation and commercial matters. a. Contract Liabilities Current Unearned income1 Construction contract liabilities2 Total current Non Current Unearned income1 Total non current Total contract liabilities 27 1,379 1,406 67 67 1,473 40 1,460 1,500 177 177 1,677 1. Movements in Unearned income relates primarily to residential presales settled during the period and deposits received for development properties. 2. Movements in Construction contract liabilities relate primarily to billings raised during the period in excess of revenue recognised on construction contracts with customers. This balance also contains provisions previously incurred on retained Engineering projects that are in progress. During the year, the Group recognised $466 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 2021 is $556 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 2021 is $14.9 billion for the core business (June 2020: $13.9 billion) and $3.9 billion for the Non core business (June 2020: $5.1 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, 44 per cent is expected to be realised within the next 12 months to June 2022 (June 2020: 47 per cent to June 2021), 31 per cent to June 2023 (June 2020: 25 per cent to June 2022) and the remaining 25 per cent realised post June 2023 (June 2020: 28 per cent post June 2022). Balance as at 1 July 2020 Provisions made during the year Provisions used during the year Provisions reversed during the year Balance as at 30 June 2021 Current Provisions Non Current Provisions Total Provisions Employee Benefits $m Construction Projects1 $m Development Projects $m Other $m 181 120 (105) (2) 194 167 27 194 78 223 (31) (4) 266 260 6 266 86 85 (12) (16) 143 96 47 143 60 2 - (10) 52 52 - 52 Total $m 405405 430 (148) (32) 655 575 80 655 1. The Group has recorded $168 million of provisions related to claims on historical Non core segment projects completed prior to the sale of the Engineering business. 168 Lendlease Annual Report 2021 Financial Statements 169 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. 24. 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 24a ‘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 24b ‘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 24c ‘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 CNYm MYRm Other m2 June 2021 Net asset/(liability) exposure (local currency) June 20201 Net asset/(liability) exposure (local currency) 3,248 3,390 743 717 572 596 607 593 307 190 653 1,204 599 1,044 42 33 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 2020: 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 2021 $m June 2020 $m June 2021 $m June 2020 $m 7 (1) 3 4 - - 13 4 - 6 4 1 2 17 (6) 1 (2) (3) - 1 (9) (5) - (4) (3) (1) (2) (15) 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 2021 $m June 2020 $m June 2021 $m June 2020 $m 102 107 66 52 15 43 385 117 127 72 33 14 38 401 (96) (91) (54) (42) (12) (35) (330) (96) (104) (59) (28) (11) (33) (331) 170 Lendlease Annual Report 2021 Financial Statements 171 Notes to Consolidated Financial Statements continued Section D: Risk Management continued 24. 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 2021 $m June 20201 $m 147 (2,657) (2,510) 1,612 (1,136) 476 173 (2,103) (1,930) 1,241 (736) 505 1. Balance includes Disposal Group financial assets and liabilities held for sale. Sensitivity Analysis At 30 June 2021, 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 $3 million (June 2020: $6 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 $3 million (June 2020: $6 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. 25. 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 primarily treated as cash flow hedges and are mainly on borrowings within equity accounted investments. The Group has foreign exchange derivative contracts primarily held in GBP, USD, EUR, SGD and CNY at reporting date to hedge specific foreign currency exposures. The total gross payable exposure is $1,405 million (June 2020: payable $936 million). There are 62 foreign currency contracts that will mature in more than one year (June 2020: 56 foreign currency contracts). 26. 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 25 ‘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 2021 JUNE 2020 Carrying Amount $m Fair Value $m Carrying Amount $m Fair Value $m 555 565 134 133 1,682 1,838 1,500 1,676 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 ongoing COVID pandemic into consideration to determine fair value at 30 June 2021. This included valuations of underlying investment properties at balance date 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. 172 Lendlease Annual Report 2021 Financial Statements 173 Notes to Consolidated Financial Statements continued Section D: Risk Management continued 27. Contingent Liabilities Section E: Basis of Consolidation 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. Such claims and exposures largely arise in respect of claims for defects, claims for breach of performance obligations or breach of warranty or claims under indemnities. In some claims: – There is uncertainty as to whether a legal obligation exists; – There is uncertainty as to whether a future cash outflow will arise in respect to these items; and/or – It is not possible to quantify the potential exposure with sufficient reliability. This particularly applies in larger more complex projects, in claims involving a number of parties or in claims made a number of years after completion of a project. Where it is probable there will be liabilities from such claims and the potential exposure can be quantified with sufficient reliability, 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. 28. 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 Japan Inc. Lendlease Finance Limited Lendlease Singapore Pte. Limited Lendlease Infrastructure Investments Pty Limited AMERICAS Lendlease International Pty Limited Lendlease (US) Capital, Inc. Lendlease Real Estate Investments Limited Lendlease (US) Construction, Inc. Lendlease Responsible Entity Limited Lendlease (US) Construction LMB, Inc. Lendlease Services Pty Limited Lendlease (US) Public Partnerships, LLC Lendlease Trust1 Lendlease (US) Public Partnerships Holdings LLC Lendlease Development, Inc. 1. Lendlease Trust is a consolidated entity of the Group as the parent entity is deemed to control it. The parent entity has no ownership interest in Lendlease Trust. During the current and prior year, there were no acquisitions of material consolidated entities. 174 Lendlease Annual Report 2021 Financial Statements 175 30. 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 2021. Results (Loss)/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 2021 $m June 2020 $m (273) 1 (272) 1,452 2,938 4,390 843 - 843 3,547 1,888 (79) 198 1,540 3,547 613 (1) 612 1,613 2,858 4,471 577 2 579 3,892 1,889 (68) 182 1,889 3,892 In respect of the contingent liabilities of the Group disclosed in Note 27 ‘Contingent Liabilities’, the Company participates in the provision of guarantees to Group entities. Notes to Consolidated Financial Statements continued Section E: Basis of Consolidation continued 28. Consolidated Entities continued During the current and prior year, the following disposals of material consolidated entities occurred. Ownership Interest Disposed % Consideration Date Disposed Received/Receivable $m June 2021 One Sydney Harbour R1 Trust Lendlease Construction Australia Holdings Pty Limited1 Lendlease (US) Telecom Holdings LLC Lendlease Renaissance I One Sydney Harbour R2 Trust June 2020 25.0 100.0 100.0 50.0 25.0 1 July 2020 9 September 2020 15 October 2020 29 June 2021 29 June 2021 Victoria Cross Commercial Head Trust 25.0 21 December 2019 1. Includes the sale of Lendlease Engineering Pty Limited. 29. Employee Benefit Vehicles 43 197 390 390 27 50 31 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 2021, employees own approximately 0.9 per cent (June 2020: 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. 176 Lendlease Annual Report 2021 Financial Statements 177 Notes to Consolidated Financial Statements continued Section E: Basis of Consolidation continued 31. 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 COMPANY June 2021 $000s June 2020 $000s 27,557 105,261 18,666 62,435 30,998 478,893 6,932 103,546 432,805 739,327 1,251,166 505,634 Transactions that occurred during the financial year between entities in the Lendlease Group included: • Provision of project management, design services, construction management 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 the Group are set out in Note 12 ‘Equity Accounted Investments’. Transactions between the 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 and construction services • Investments: provision of property and infrastructure investment management, property management and asset management services. There were $nil non interest bearing loans provided to joint ventures at 30 June 2021 (June 2020: $nil). Except as noted above, transactions and outstanding balances are typically on normal terms and conditions. Revenue earned by the Group during the year as a result of transactions with its associates and joint ventures is as follows: Revenue Associates Joint ventures Total June 2021 $000s June 2020 $000s 41,841 1,259,392 1,301,233 42,343 1,297,079 1,339,422 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 12 ‘Equity Accounted Investments’, 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 benefits Security based payments Other long term benefits Total June 2021 $000s June 2020 $000s 17,708 278 13,152 126 31,264 14,623 269 10,032 113 25,037 1. Short term employee benefits for the year ended 30 June 2021 includes termination benefits of $1,900,385. Information regarding Directors’ and senior executives’ remuneration is provided in the Remuneration Report within the Directors’ Report. 178 Lendlease Annual Report 2021 Financial Statements 179 Notes to Consolidated Financial Statements continued Section F: Other Notes 32. 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. 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 Development Carrying amount at beginning of financial year Effect of foreign exchange rate movements Carrying amount at end of financial year Note 32a 32b June 2021 $m June 2020 $m 1,200 33 223 1,456 1,170 30 1,200 1,181 - (11) 1,170 32 (2) 30 1,213 36 208 1,457 1,181 32 1,213 1,200 (19) - 1,181 32 - 32 b. Goodwill Allocation Goodwill relating to the Construction business is allocated to CGUs identified as set out below. Construction Australia Core Australia Non core Europe Americas Asia Total construction goodwill June 2021 $m June 2020 $m 573 151 251 187 8 1,170 573 151 246 203 8 1,181 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 for the year ended 30 June 2021. Based on information available and market conditions at 30 June 2021, a reasonably foreseeable change in the assumptions made in this assessment would not result in impairment of Construction goodwill. The foreseeable change in the assumptions took the ongoing COVID 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 2020: 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 8.9 per cent and 12.4 per cent (June 2020: between 9.4 per cent and 13.1 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. 180 Lendlease Annual Report 2021 Financial Statements 181 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 33. Discontinued Operations Accounting Policies 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: Basic/Diluted Earnings Per Share (EPS) from Continuing Operations Profit/(Loss) from continuing operations attributable to members of Lendlease Corporation Limited (Company) June 2021 June 2020 Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue Shares/ Securities Excluding Treasury Securities Shares/ Securities on Issue • 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. 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 and on 9 September 2020 the Group completed the sale. The agreed purchase price for the sale of the Engineering business was $160 million which was adjusted by $37 million at completion, resulting in total estimated proceeds of $197 million. $150 million has been received by 30 June 2021. Acciona has not made the final deferred payment which was due on 30 June 2021 claiming various amounts should be set off against that payment. This is disputed by Lendlease and legal proceedings have been commenced seeking recovery of payments due by Acciona. The discontinued operations represent the Engineering business sold, excluding the projects retained by the Group. At 30 June 2021, the Services business does not meet the criteria to be held for sale and does not meet the definition of a discontinued operation. Refer to Note 10 ‘Events Subsequent to Balance Date’ for further details. The Group has recorded provisions related to claims on historical Non core segment projects completed prior to the sale of the Engineering business. Refer to the construction projects category in Note 23 ‘Provisions’ for where the amounts have been recorded. The major classes of assets and liabilities of the Engineering business sold as at 9 September 2020 are as follows: Assets/(Liabilities) Sold Cash and cash equivalents Loans and receivables Inventories Other assets Total assets sold Trade and other payables Other liabilities Total liabilities sold Net assets and liabilities sold Net proceeds from sale of the Engineering business Transaction and other costs Gain/(loss) on sale of the Engineering business The results of the discontinued operations, representing the Engineering business sold, are as follows: Results from Discontinued Operations Revenue from contracts with customers Cost of sales Gross profit Other income Finance revenue Impairment on Disposal Group held for sale1 Other expenses (Loss)/Profit before tax for discontinued operations Income tax benefit/(expense) Total profit 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. 9 September 2020 $m 411 187 34 215 847 610 50 660 187 (197) 10 - 12 months June 2020 $m 1,437 (1,263) 174 2 6 (19) (109) 54 (22) 32 1 July - 9 September 2020 $m 283 (272) 11 - 1 - (13) (1) 3 2 Weighted average number of ordinary shares Basic/Diluted EPS from continuing operations Basic/Diluted Earnings Per Share (EPS) from Discontinued Operations Profit 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 Profit/(Loss) 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 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 $m m cents 126 683 18.4 2 683 0.3 220 683 32.2 2 683 0.3 126 688 18.3 2 688 0.3 220 688 32.0 2 688 0.3 The net cash flows for discontinued operations, representing the Engineering business sold, are as follows: Cash Flows from Discontinued Operations Net cash (outflow)/inflow from operating activities Net cash outflow from investing activities Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents 1 July - 9 September 2020 $m (39) (1) - (40) (374) 599 (374) 603 (62.4) (62.0) 32 599 5.3 (342) 599 (57.1) 32 599 5.3 32 603 5.3 (342) 603 (56.7) 32 603 5.3 12 months June 2020 $m 156 (59) - 97 The major classes of assets and liabilities held for sale are as follows: Disposal Group Assets/(Liabilities) Held for Sale June 20211 $m June 2020 $m Cash and cash equivalents Loans and receivables Inventories Other assets 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 - - - - - - - - - 451 135 32 223 841 629 41 670 171 1. The Group had no assets or liabilities recorded as held for sale at 30 June 2021 as the sale of the Engineering business completed on 9 September 2020. Refer to ‘Assets/(Liabilities) Sold’ table above for further details. 182 Lendlease Annual Report 2021 Financial Statements 183 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 34. 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 34a June 2021 $m June 2020 $m - 243 243 (1) 157 156 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 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 $5 million in contributions to its defined benefit plan in FY22. Following the triennial valuation for 31 March 2020, deficit repair contributions are not required to be paid as the scheme is in an actuarial surplus. 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 2021 $m June 2020 $m (1,272) 1,515 243 (1,324) 1,481 157 ii. Reconciliation of Defined Benefit Obligations Defined benefit obligations at beginning of financial year 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 June 2021 $m June 2020 $m 1,324 1,208 19 (45) (19) (21) (33) 47 1,272 28 135 (9) 31 (41) (28) 1,324 1,481 1,347 22 (2) (44) 31 (33) 60 1,515 (3) 2 (1) - 431 87 956 41 1,515 32 (2) 173 5 (41) (33) 1,481 (3) 2 (1) 437 384 115 491 54 1,481 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 $1,428 million (June 2020: $1,408 million) and $87 million (June 2020: $73 million) of total plan assets were categorised as Level 2 and Level 3, respectively. UK Construction and Trustees have agreed to 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 targeted benchmark allocation is 67.5 per cent growth assets and 32.5 per cent matching assets (June 2020: 75.0 per cent growth assets and 25.0 per cent matching assets). 184 Lendlease Annual Report 2021 Financial Statements 185 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 34. Defined Benefit Plans continued vi. Principal Actuarial Assumptions Discount rate (%) RPI inflation (%) Average pension increase in payments (%) Future mortality (years): Male Female June 2021 June 2020 2.0 3.5 2.7 25.3 26.3 1.5 3.0 2.5 24.9 26.4 The liabilities are calculated using a discount rate set with reference to corporate bond yield. If assets underperform this yield, this 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 25.3 years (June 2020: 24.9 years) if they are male and 26.3 years if they are female (June 2020: 26.4 years). At 30 June 2021, the weighted average duration of the defined benefit obligation was 18 years (June 2020: 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 2021 Defined benefit asset/(obligations) June 2020 Defined benefit asset/(obligations) 22 25 (23) (26) 17 (19) (13) 22 (37) (64) 38 63 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. 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. 35. 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) • Restricted Securities Award (RSA) • Distinguished Executives Award (DE Award) • Executive Deferred Award (ED Award) • Deferred Equity Award (DEA) • Pro Rata CEO Grant. 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 29a ‘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 and regional 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. 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) • 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. 186 Lendlease Annual Report 2021 Financial Statements 187 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 35. Employee Benefits continued Performance Period (applicable to FY19, FY20 and FY21 Grants) • 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 terms • 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 • 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. Financial Year 2021 Vesting Schedule - CAGR % FUM (FY21 only) Below CAGR for threshold vesting No vesting Between CAGR for threshold vesting and CAGR for target vesting Pro rata vesting on a straight line basis between 20 per cent and 50 per cent vesting At CAGR for target vesting 50 per cent vesting Between CAGR for target vesting and CAGR for maximum vesting Pro rata vesting on a straight line basis between 50 per cent and 100 per cent vesting At CAGR for maximum vesting 100 per cent vesting d. Long Term Award (LTA) 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. • One third 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 • One third subject to Average Operating Return on Equity (Operating ROE) hurdle • One third subject to compound annual growth rate (CAGR) % in funds under management. Arrangements for LTA Awards LTA Design How the LTA Works Vesting Schedule - Relative TSR (FY17 to FY21) Measure Percentage of performance securities that vest as a proportion of maximum opportunity 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 Vesting Schedule - Average ROE (FY17 only) Vesting Schedule - Average ROE (FY18 to FY20) Vesting Schedule - Average Operating ROE (FY21 only) At or above the 75th percentile 100 per cent vesting 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 vesting At or above 15 per cent 100 per cent vesting 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 vesting At or above 14 per cent 100 per cent vesting Less than 8 per cent No vesting Between 8 per cent and target Operating ROE set by the Board Pro rata vesting on a straight line basis between 20 per cent and 50 per cent vesting At target Operating ROE set by the Board 50 per cent vesting Between target Operating ROE set by the Board and 11 per cent Pro rata vesting on a straight line basis between 50 per cent and 100 per cent vesting At or above 11 per cent 100 per cent vesting Performance Rights • An annual grant of ‘performance rights’ is made to a limited number of executives on the Global Leadership Team • 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 nil and a 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, FY20 and FY21 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 are forfeited • There is no retesting 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 terms. 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. Financial Year 2021 • One third 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 • One third subject to Average Operating Return on Equity (Operating ROE) hurdle • One third subject to compound annual growth rate (CAGR) % in funds under management. 188 Lendlease Annual Report 2021 Financial Statements 189 Notes to Consolidated Financial Statements continued Section F: Other Notes continued 35. Employee Benefits continued Vesting Schedule - Relative TSR (FY19, FY20 and FY21) Measure Percentage of performance securities that vest as a proportion of maximum opportunity Group CEO (Steve McCann) Senior Executive Vesting Schedule - Average ROE (FY19 and FY20) Vesting Schedule - Average Operating ROE (FY21 only) Vesting Schedule - CAGR % FUM (FY21 only) Below the 50th percentile No Vesting No Vesting At the 50th percentile 27 per cent vesting 11 per cent vesting At or above the 50th percentile and below the 75th percentile Pro rata vesting on a straight line basis between 27 per cent and 100 per cent Pro rata vesting on a straight line basis between 11 per cent and 100 per cent At or above the 75th percentile 100 per cent vesting 100 per cent vesting Less than 10 per cent No Vesting No Vesting Between 10 per cent and target ROE set by the Board Pro rata on a straight line basis between 0 per cent and 63 per cent Pro rata on a straight line basis between 0 per cent and 41 per cent At target ROE set by the Board 63 per cent vesting 41 per cent vesting Between target set by the Board and 14 per cent Pro rata on a straight line basis between 63 per cent and 100 per cent Pro rata on a straight line basis between 41 per cent and 100 per cent At or above 14 per cent 100 per cent vesting 100 per cent vesting Less than 8 per cent No Vesting No Vesting Between 8 per cent and target Operating ROE set by the Board Pro rata on a straight line basis between 13 per cent and 63 per cent Pro rata on a straight line basis between 8 per cent and 41 per cent At target Operating ROE set by the Board 63 per cent vesting 41 per cent vesting Between target set by the Board and 11 per cent Pro rata on a straight line basis between 63 per cent and 100 per cent Pro rata on a straight line basis between 41 per cent and 100 per cent At or above 11 per cent 100 per cent vesting 100 per cent vesting Below CAGR for threshold vesting No Vesting No Vesting Between CAGR for threshold vesting and CAGR for target vesting Pro rata on a straight line basis between 13 per cent and 63 per cent Pro rata on a straight line basis between 8 per cent and 41 per cent At CAGR for target vesting 63 per cent vesting 41 per cent vesting Between CAGR for target vesting and CAGR for maximum vesting Pro rata on a straight line basis between 63 per cent and 100 per cent Pro rata on a straight line basis between 41 per cent and 100 per cent e. Restricted Securities Award (RSA) The Restricted Securities Award (RSA), previously referred to as the LTA Minimum, is similar to fixed remuneration as it is not subject to performance conditions. It is designed to motivate and reward a limited number of key executives to deliver on the Group’s long term strategy and to allow them to have a sense of ownership and share in the value created for securityholders. The RSA (and previously referred to LTA Minimum) is not continuing from FY22 under the revised Executive Reward Strategy. Specifically, the objectives are to: • Align the interests of securityholders and our most senior executives • Support long term value creation • Better align reward to risk management (recognising that the RSA may be forfeited in certain circumstances). Arrangements for RSA Awards RSA Design How the RSA Works Performance Rights • An annual grant of ‘performance rights’ is made to a limited number of executives on the Global Leadership Team • However, following feedback from proxy-holders and other stakeholders, the RSA will no longer be offered from FY22 • 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 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 rights should be accelerated. Vesting Period • The first tranche (i.e. 25%) will vest after three years and the second, third and fourth tranches will vest progressively four, five and six years after the grant date. 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 RSA 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 RSA grant may remain on foot, subject to the original terms. f. Distinguished Executives Award (DE 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. g. Executive Deferred Award (ED 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 29a ‘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. h. Deferred Equity Award (DEA) The DEA is delivered to Senior Executives as a grant of rights with vesting over two years. The Board determined that an equity award was more appropriate than paying cash as a result of COVID. The key objectives of this 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 • 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. At CAGR for maximum vesting 100 per cent vesting 100 per cent vesting i. Pro Rata CEO Grant The pro rata CEO Grant is designed to recognise the period served as Global CEO (one month) in FY21 for Anthony Lombardo. Arrangements for the Pro Rata CEO Grant Pro Rata CEO Grant How the Pro Rata CEO Grant Works Performance Rights • A one-off grant of ‘performance rights’ to reflect time served as Global CEO in FY21 reduced to reflect the length of the period and value already granted for FY21 • All other terms, including the performance period, performance hurdles, termination rules remain as per the FY21 LTA Grant referred to above. 190 Lendlease Annual Report 2021 Financial Statements 191 Notes to Consolidated Financial Statements continued Directors’ Declaration Section F: Other Notes continued 35. Employee Benefits continued j. 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 2021, a $55 million expense was recognised in the Income Statement in relation to equity settled security based payment awards (June 2020: $55 million). 36. Impact of New and Revised Accounting Standards 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. 37. Other Significant Accounting Policies a. Foreign Currency Translation Functional and Presentation Currency 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 2021 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 Global Chief Executive Officer and Group Chief Financial Officer for the financial year ended 30 June 2021. Signed in accordance with a resolution of the Directors: M J Ullmer, AO Chairman 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. A P Lombardo Global Chief Executive Officer 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. Sydney, 16 August 2021 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 25 ‘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. Group Entities 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. 192 Lendlease Annual Report 2021 Financial Statements 193 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 Lendlease Group’s financial position as at 30 June 2021 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 2021; • 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 (including Independence Standards) (the Code) 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 global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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; and • 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$7,559m) 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. The COVID-19 pandemic continues to create ongoing challenging operating conditions impacting productivity, expected timing of completion and expected costs to complete. Other impacts include projects being put on hold in some markets, with delays in securing and commencement of new projects. • 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 accounting standards via inspection and assessment of: - - -             194 Lendlease Annual Report 2021 Financial Statements 195 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. 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; and 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$1,434m) 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. COVID-19 continues to result 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; and - 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$3,298m) 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; and - 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; and • 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 continued impact of COVID-19 to these assumptions.                         196 Lendlease Annual Report 2021 Financial Statements 197 Asset Valuation Refer to Note 12 ‘Equity accounted investments’ (A$3,758m), Note 13 ‘Other Financial Assets’ (A$1,087m) and Note 26 ‘Fair Value Measurement’ to the financial report  The key audit matter  How the matter was addressed in our audit  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 on the extent of 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. 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. Whilst COVID-19 continues to have significant impact on real estate valuations across the Group’s investments, the market has remained resilient highlighting the ongoing demand for high quality assets by investors. 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; • contain certain forward looking assumptions, with higher estimation uncertainty as the business is recovering from 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.                   198 Lendlease Annual Report 2021 Financial Statements 199 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report This page is intentionally left blank. Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Lendlease Corporation Limited for the year ended 30 June 2021 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 84 to 121 of the Directors’ report for the year ended 30 June 2021. 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 16 August 2021         200 A sense of place Lendlease Annual Report 2021 Other Information 201 Other Information Milan: Milano Santa Giulia Artist’s impression Corporate directory Annual General Meeting 2021 (AGM) 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 12 November 2021. Due to the ongoing risks of the COVID pandemic and in light of the restrictions currently in place by state governments, the Board has decided that a virtual 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 24 September 2021. 2021 Financial Calendar Mon 16 Aug Full Year Results Announced Fri 20 Aug Security Price Ex Distribution Mon 23 Aug Final Distribution Record Date Wed 15 Sep Final Distribution Payable Fri 12 Nov Annual General Meeting 2022 Financial Calendar Mon 21 Feb Half Year Results Announced Fri 25 Feb Security Price Ex Dividend Mon 28 Feb Interim Distribution Record Date Wed 16 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 202 A sense of place Lendlease Annual Report 2021 Other Information 203 Securityholder information 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 (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). Securities exchange listing and code Lendlease Group is listed on the Australian Securities Exchange and trades under the code LLC. 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. Key sources of information for securityholders We report the following to securityholders each year: • 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 201. 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. Security information at a glance at 1 August 2021 (comparative 1 August 2020) 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 2021 (comparative 1 August 2020) 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 2021 70,202 688,585,551 74.89% 2020 66,696 688,267,587 75.89% 15.0 cents per security 30.0 cents per security 27.0 cents per security 33.3 cents per security 49%1 NA2 2021 37,814 25,683 4,318 2,235 98 70,148 2020 35,448 24,515 4,414 2,231 88 66,696 Securityholders with less than a marketable parcel Securities purchased on market 3,158 (representing 50,236 securities) 3,396 (representing 60,497 securities) The following securities were purchased on market during the financial year for the purpose of funding employee incentive awards through Lendlease securities. Stapled Securities 3,471,620 $12.66 Number of Securities Purchased Average Price Paid Per Security 1. Dividend payout ratio for FY21 has been calculated on Core Operating Earnings. 2. Dividend payout ratio is nonmeaningful in FY20 due to the Group statutory loss. 204 A sense of place Lendlease Annual Report 2021 Other Information 205 Securityholder information continued 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 LL Employee Holdings Custodian Pty Limited Argo Investments Limited BNP Paribas Nominees Pty Ltd SIX SIS Ltd HSBC Custody Nominees (Australia) Limited Netwealth Investments Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd HSBC Custody Nominees (Australia) Limited-GSCO ECA Custodial Services Limited Citicorp Nominees Pty Limited BNP Paribas Nominees Pty Ltd ACF Clearstream Avanteos Investments Limited Sandhurst Trustees Ltd LL Employee Holdings Custodian Pty Limited Total Top 20 holders of fully paid ordinary shares Total Remaining Holders Balance 225,463,978 109,668,562 63,644,331 33,782,908 15,288,088 14,692,697 14,075,522 5,971,381 4,980,092 4,550,035 3,910,944 3,632,648 3,189,236 2,838,789 2,625,928 1,996,186 1,827,040 1,366,981 1,186,020 981,946 515,673,312 172,912,239 32.74 15.93 9.24 4.91 2.22 2.13 2.04 0.87 0.72 0.66 0.57 0.53 0.46 0.41 0.38 0.29 0.27 0.20 0.17 0.14 74.89 25.11 Substantial securityholders as shown in the Company’s Register at 1 August 2021 Name State Street Corporation BlackRock Group The Vanguard Group Date of Last Notice Received 23/06/2021 08/01/2020 29/4/2019 No. of Units 34,998,869 34,049,935 33,903,122 % of Issued Capital1 5.08 6.03 6.01 1. As at the date of last notice received. 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 – 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. 206 A sense of place Birmingham: Smithfield Birmingham Artist’s impression Reducing our footprint – page by page This report is printed on locally sourced, carbon neutral recycled paper and contains waste paper from Lendlease assets around Australia. Level 14, Tower Three International Towers Sydney Exchange Place 300 Barangaroo Avenue Barangaroo NSW 2000 www.lendlease.com @lendlease @lendleasegroup @lendlease London: Elephant Springs at Elephant Park, a globally recognised garden to soothe the soul Image credit: Charles Emerson 

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