Lendlease Annual Report 2021

Chairman’s Report 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. 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. 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 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. 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, Lendlease Annual Report 2021 A Year in Review 7 A sense of place 6