Lendlease Annual Report 2024
68 Lendlease Annual Report 2024 Remuneration Report Message from the Board It has been a challenging year for Lendlease, with rising costs, industry shifts, and a persistent market downturn impacting the global sector and slowing the pace of capital recycling. Our significant investments outside of Australia have not yielded the near-term returns our securityholders expect. In light of these obstacles, the Board and the Corporate Leadership Team (CLT) have chosen to streamline and refocus our efforts. We're simplifying our organisational structure, reducing our costs, focusing on our market-leading Australian business, and enhancing our international investment platform. Additionally, we're aiming to release $4.5b of capital by moving away from international construction and fast- tracking the release of capital from our overseas projects and other holdings. To facilitate this strategic shift, we've made a post-tax provision of $1.4b for FY24, contributing to a Group Statutory Loss after Tax of $1.5b. We recognise that these outcomes are disappointing. The Board and the Group CEO take accountability for the company’s performance, and are committed to turning it around. Since the announcement of targeted business divestiture plans, Lendlease has already made progress toward the new strategy, including: • Restructuring the organisation by removing regional management structures; • Announcing key business sales in Asia, Australia and Americas; and • Progressing the ongoing sale of the remaining stake in Keyton retirement living platform, as well as interests in The Exchange TRX commercial assets in Malaysia. In year outcomes Lendlease has had a productive year with $8.2b of Development completions and $1.9b of new project commencements, such as build-to-sell apartments in London and Melbourne. Our Core Operating Profit After Tax (OPAT) increased modestly to $263m, delivering Earnings per Security of 38.1 cents, and Return on Equity of 4.4 per cent. Distributions per Security totalled 16 cents compared to 16 cents in FY23. This represents a payout ratio of 42 per cent of OPAT. The Short-Term Award (STA) Scorecard outcome for FY24 was at 58% of target, including commendable Safety and Sustainability outcomes. However, in light of the continued decline in securityholder experience, the Board determined to reduce FY24 STA payments for the Group CEO and the Corporate Leadership Team (CLT) to zero. The exercise of discretion in this manner is prudent, reflects the securityholder experience, and recognises the accountability of the CLT for the performance of the Group as a whole. We note the Group CEO supported this decision. For Long-Term Award (LTA) subject to performance measurement at the end of FY24, performance did not meet the required thresholds set by the Board. Consequently, there was nil vesting. Strike response At the November 2023 Annual General Meeting we received a first strike, with approximately 40% of securityholders voting against the FY23 Remuneration Report. Feedback from securityholders and proxy advisors highlighted key concerns as performance and reward alignment, disclosure transparency and remuneration quantum. Although this outcome was disappointing, the Board has carefully considered stakeholder feedback and has taken the following actions to address key concerns: • Exercised downward discretion to award zero FY24 STA to the CLT, including the Group CEO; • Suspended the FY25 STA plan; • Developed a temporary Transformation Award for FY25; • Applied zero fixed remuneration increase to KMP in FY24; and • Amended the LTA measures and weighting to improve focus on securityholder returns. These actions have been implemented alongside the strategic refocus. Our expectation is that by successfully executing the new strategy, we will strengthen our market position and realign executive remuneration with market benchmarks. For further detail regarding our response to the strike, please refer to page 72. FY25 Transformation Award We believe the Executive Remuneration Strategy (ERS) remains fit for purpose in a “business as usual” context, but a different approach is needed to ensure alignment with securityholders in the short-term. While we believe executives should be rewarded for successfully implementing the strategy, this should only occur to the extent that performance drives real gains to securityholders, via an improvement in the security price. To this end, we have developed a temporary Transformation Award, delivered in options, with vesting contingent on achieving a significant improvement in security price after two-years. We believe this timeframe is appropriate to link to measurable securityholder outcomes. Further detail will be provided in the FY24 Notice of Meeting and the FY25 Remuneration Report. Changes to Key Management Personnel As part of the reorganisation, the role of Chief Risk Officer (CRO) has been discontinued effective 30 June 2024. As a result, the CRO will no longer be a KMP in FY25. Commencing 1 July 2024, we have welcomed two new faces to our leadership team: Tom Mackellar as CEO Development, and Penny Ransom as Chief Investment Officer (CIO). We also welcomed Barbara Knoflach who joined the Lendlease Board of Directors effective 1 October 2023. Looking ahead Over FY25 we will continue to consider the appropriateness of the ERS, both in the context of the business turnaround, and returning to business as usual. We appreciate the patience, support and feedback we have received from securityholders over this challenging time and acknowledge the trust we hold in steering Lendlease to a brighter future. M J Ullmer, AO Chairman Elizabeth Proust, AO Chairman, People & Culture Committee
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