Lendlease Annual Report 2021

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. 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. Artist’s impression 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: • 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. Refer to the Sustainability section of Managing and Measuring Values for more details. 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. 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. Kuala Lumpur: The Exchange, TRX Artist’s impression Portfolio Management Framework 1. Invested Capital Mix Development 40-60% (<50%)1 Investments 40-60% (>50%)1 Australia 40-60% International regions 2 10-25% 2. Core Business EBITDA Mix 3 Development 40-50% Construction 10-20% Investments 35-45% 3. Target Returns Core Operating ROE 8-11% Development ROIC 4 10-13% Construction EBITDA Margin 2-3% Investments ROIC 4 6-9% 4. Capital Structure Gearing5 10-20% 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. Sydney: Sydney Place on Gadigal Country Artist’s impression 37 A sense of place 36 Lendlease Annual Report 2021 Managing and Measuring Value